FISCAL 2016
ANNUAL REPORT
$1,600
$1,200
$800
$400
$0.00
$0.90
$0.68
$0.45
$0.23
$0.00
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
NET SALES (IN MILLIONS)
ADJUSTED EARNINGS PER SHARE1
Fiscal Years Ended March 31
(dollars in millions, except per share amounts)
2016
2015
Net Sales
Gross Profit
Adjusted Operating Income1
Adjusted Earnings per Share1
Cash and Cash Equivalents
Total Assets
Total Debt
Total Debt to Capital2
Return on Average Capital Employed1
$1,353
$224
$63
$0.76
$69
$921
$163
30%
8.4%
$1,496
$247
$65
$0.63
$71
$931
$149
29%
7.8%
1Adjusted operating income, adjusted earnings per share and return on average capital employed exclude impairment charges, restructuring expenses,
pension settlement losses ($42 million in 2016) and certain other unusual or infrequently occurring charges ($2 million in 2016). In addition, adjusted
earnings per share excludes an insurance recovery gain ($0.19 per share in 2016) and an income tax valuation allowance reversal ($0.06 per share in 2016).
2Total debt as a percentage of total debt plus equity.
100 YEARS OF INNOVATION
1916 – The company is
founded by Arthur B.
Modine on June 23rd.
His first major invention,
the Spirex Radiator, uses
an innovative method
for cooling the radiator’s
water, by heating the air
passing through the device.
1918 – A.B. Modine builds
his first unit heater from
spare parts to keep the
radiator assemblers in his
factory warm during the
cold winter.
1928 – Modine becomes a
public company in 1928, just
twelve years after its founding.
1940 – Modine builds the
largest automotive wind tunnel
of its kind, a landmark step
in building its reputation for
world-class testing capabilities.
1950 – Modine enters the
greenhouse heating market,
where it remains a category
leader to this day.
2004 – Modine establishes its
Asian headquarters and begins
expansion in the continent.
2005 – Modine acquires Airedale,
providing the foundation to expand
Modine’s heating products into a
full building HVAC business in both
U.K./Europe and U.S. markets.
2011 – Building HVAC
launches Atherion®,
Modine’s first rooftop
HVAC unit. Meanwhile,
Effinity™ is declared the
most efficient unit heater
in North America.
1977 – The U.S. Patent
Office issues the last of A.B.
Modine’s patents, a tally
that remains a company
record at over 120.
1993 – Modine acquires
Längerer & Reich, a European
manufacturer of heat exchangers,
giving Modine over 150 combined
years of thermal management
experience and providing a firm
footprint in Europe.
1998 – Modine’s sales
exceed $1 billion.
2012 – Modine launches its
battery chiller for electric
vehicles, thus spanning its
automotive heat transfer
leadership from the Model T
to the Tesla.
2016 – Celebrating its 100th anniversary, Modine spans the globe
with over 7,000 employees across 5 continents. The reputation for
innovation remains strong as ever, with more than 2,200 patents, a
broad array of products serving multiple markets, and a deep focus
on thermal management.
Fellow Shareholders,
As Modine enters its 100th year in business, we are
celebrating a remarkable milestone. Only a select group
of companies have the tenacity and strong corporate
culture to succeed over a century.
This means we have something very special here. It is
something we get to see every day at Modine locations
around the globe. It is the drive to excel and evolve
with our customers’ needs. It is the will to consistently
innovate and improve our processes day-in and day-
out. We did not prosper for 100 years by sitting still,
and these core values will drive our approach for the
next 100 years.
Looking to the future, we realize we must continue to
evolve as a company in order to deliver value to our
shareholders over time. In Fiscal 2016, sales were once
again significantly impacted by currency, and were down
10% from the prior year. Sales on a constant-currency
basis were down 2%, primarily due to continued
gross margin is at a 10-year high. Our adjusted earnings
per share were up 21% to $0.76 and we generated
positive cash flow for the third consecutive year. This
means that we have financial flexibility moving forward,
which will be a critical component for the next chapter
in Modine’s history. In addition, we took several strategic
actions that will lay the groundwork for a sustainable
future moving forward.
THE VISION FOR OUR EVOLUTION.
In October of 2015, we outlined a transformative
18-month plan for the future of Modine. This plan was
built on three fundamental goals: strengthen, diversify
and grow. We are happy to report that exciting progress
is already being made on all fronts, and this will be the
central theme throughout Fiscal 2017.
The first area of focus in this plan is to strengthen our
core business by continuing to build efficiencies, which
will result in cost reductions of $40-$50 million in the
weakness in the global off-highway markets. Despite this
first 18 months. We will achieve this by optimizing
decrease, we improved our return on capital and our
manufacturing operations and procurement on a global
level, while also reducing SG&A expenses. As a result
1. To be the fastest improving company within the industry.
of this plan, we expect to grow our operating margins
from the current 4-5% to 7-8% by Fiscal 2018.
The second part of our plan is to diversify our business.
We will do this by shifting our business mix to increase
our share in our non-vehicular markets, and ultimately
reducing our customer concentration and cyclical
exposure. As it stands today, the vehicular markets
represent 80-85% of our sales. We hope to move
that number to 60-70% by Fiscal 2018. At the same
time, we plan to grow our highly profitable and well-
performing industrial businesses from 15-20% of our
sales today to 30-40% in the future.
The third pillar of our plan is to grow, which works
hand-in-hand with our plans to diversify. Growing our
industrial business will require organic and inorganic
growth in areas such as Building HVAC, Coils and
other non-vehicular applications. We will leverage our
strong balance sheet to aggressively pursue industrial
acquisitions and expand our share in vehicular
growth areas. We are targeting at least $100 million in
incremental industrial revenue as part of our aggressive
2. To grow our business and achieve a 10% average
annual revenue growth rate.
3. To attain a 15% consolidated return on average
capital employed.
4. To build a more diversified business model.
Our 18-month strategy will lay the foundation for Modine
to deliver on these promises to our shareholders in the
years to come – with more efficient operations, broader
diversification and new profitable streams of revenue.
On the following pages, we are pleased to share with you
some of the progress we’ve made on our plans thus far,
and more specifics looking ahead into the future.
A.B. Modine started this company with a dream, a lot of
ingenuity, and hard work. We are proud to be able to say
that Modine has been in business for a century now, and
we are even more excited for what the next 100 years
will bring. Thank you for being part of it.
growth plan.
Sincerely,
THE KEY TO OUR SUCCESS.
This evolutionary plan is rooted, as always, in the
principles that have proven to be the fundamental
success drivers for our business. This starts with our
four Enduring Goals:
Thomas A. Burke
President and Chief Executive Officer
Marsha C. Williams
Lead Independent Director
The first step in our plan is to continue our push for efficiency by optimizing our
footprint and reducing our cost structure, thereby strengthening the foundation
of our business.
We will lower our global costs by $40-$50 million in order to increase our
operating margins from 4-5% currently, to 7-8% over an 18-month timeframe.
These strategic initiatives will help us improve our competitive position in a
rapidly evolving global marketplace.
We are re-optimizing
We are re-optimizing
our entire organizational
our entire organizational
structure around a more
structure around a more
global approach.
global approach.
Optimizing Our Manufacturing
Footprint
Central to this plan is our effort to expand Modine’s
footprint in low-cost countries. We are in the process of
completing the move of multiple product lines to our plant
in Nuevo Laredo, Mexico, and are well ahead of schedule.
There are also developments in progress in Mezokövesd,
Hungary, where we are acquiring additional land in order
to expand capacity in this longstanding Modine facility.
This long-term strategy will allow our vehicular products
to remain competitive.
Reducing Our Costs
We are making widespread efforts to reduce SG&A expense
by consolidating and reorganizing our personnel in several
key areas. We launched this effort in December of 2015 by
offering early retirement packages in the United States and
re-optimizing our entire organizational structure around a
more global approach.
In coordination with these efforts, we are also reforming our
global procurement model, restructuring our organization,
and attacking all categories of goods and services to
leverage both local and global buying power for the best
possible pricing. We are making excellent progress.
Finally, we are working to optimize our product portfolio,
based on profitability and strategic importance. We are
merging our product lines into more manageable product
platforms. From there, we will redistribute responsibilities for
these platforms on a global basis to ensure the best possible
margins and efficiency in our operations.
The second part of our plan for the future is to further diversify our business.
Our goal is to balance our concentration and exposure in highly competitive,
cost-driven markets, with steady, higher-margin business in other markets with
thermal management needs.
One of eight Airedale TurboChill™ circuit chillers is being
airlifted over the Thames River in London, U.K. for installation
onto the roof of a global professional services firm.
Shifting Our Business Mix
As of today, 80-85% of our business is invested in Powertrain
and Engine Cooling, while 15-20% is in Building HVAC and
Coils, which we are calling the “Industrial” business. Our
Building HVAC segment has been a solid performer in recent
years, and we have also continued to develop our North
American-based Coils business with leading products.
As the Industrial business offers higher margins and more
stability, our goal is to shift our business mix to 60-70%
Powertrain and Engine Cooling and 30-40% Industrial by
Fiscal 2018. We will do this through focused organic and
inorganic investment in Building HVAC, Coils and other
Industrial applications.
This does not mean we are turning our backs on our core
vehicular markets. Far from it. We plan to focus our growth
initiatives in these markets on profitable opportunities where
we see a real opportunity to lead.
Taking Advantage of Market Trends
Modine’s building block process for rapid innovation remains
a key competitive advantage and is a core reason we’ve been
in business for 100 years. As trends continue to emerge,
opportunities will arise for business in new and quickly
changing markets. We’ve already experienced success in
the electric vehicle market with customers like Tesla. By
continuing to refine our global strategy into a platform-based
approach, we will have even more opportunities to enter new
markets and earn desirable operating margins.
We will have even
more opportunities
to enter new markets
and earn desirable
operating margins.
As the final pillar of our plan, we remain focused on growing our business, leading
us closer to our Enduring Goal of 10% annual growth.
We are targeting at least $100 million in incremental industrial revenue by Fiscal
2018, along with targeted growth in our core Powertrain and Engine-Cooling
markets. We will do this by leveraging our balance sheet and expanding our net
debt/EBITDA ratio to a range of 1.5x to 2.5x.
Targets for Growth
Working in lockstep with our diversification strategy, we are
planning significant investment in Building HVAC and Coils.
These are high-margin businesses, with potential for organic- and
inorganic-growth opportunities that offer profitability and round out
our product portfolio. In our Vehicular business, we will continue to
prioritize capital and other resources on high-growth opportunities,
particularly those where we can leverage our significant engine-
cooling expertise and leading market position.
As we enter our second century in business, our focus is not on
what is behind us, but what is ahead. We are thinking long term,
and working to ensure Modine continues to be a solid investment
for our shareholders and a preferred partner for our customers.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended March 31, 2016
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-1373
MODINE MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
WISCONSIN
(State or other jurisdiction of incorporation or organization)
39-0482000
(I.R.S. Employer Identification No.)
1500 DeKoven Avenue, Racine, Wisconsin
(Address of principal executive offices)
53403
(Zip Code)
Registrant's telephone number, including area code (262) 636-1200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common Stock, $0.625 par value
New York Stock Exchange
Securities Registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No []
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.
Yes [ ] No []
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 [] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. []
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer [ ]
Accelerated Filer []
Non-accelerated Filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes [ ] No []
Approximately 96 percent of the outstanding shares are held by non-affiliates. The aggregate market value of these
shares was approximately $365 million based upon the market price of $7.87 per share on September 30, 2015, the
last day of our most recently completed second fiscal quarter. Shares of common stock held by each executive
officer and director and by each person known to beneficially own more than 10 percent of the outstanding common
stock have been excluded in that such persons may be deemed to be affiliates. The determination of affiliate status is
not necessarily a conclusive determination for other purposes.
The number of shares outstanding of the registrant's common stock, $0.625 par value, was 47,426,529 at May 23,
2016.
An Exhibit Index appears at pages 75-77 herein.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into the parts of this Form 10-K designated to the
right of the document listed.
Incorporated Document
Location in Form 10-K
Proxy Statement for the 2016 Annual
Meeting of Shareholders
Part III of Form 10-K
(Items 10, 11, 12, 13, 14)
MODINE MANUFACTURING COMPANY
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS. ........................................................................................................................................ 1
ITEM 1A. RISK FACTORS. ............................................................................................................................. 10
ITEM 1B. UNRESOLVED STAFF COMMENTS. ........................................................................................... 15
ITEM 2. PROPERTIES. .................................................................................................................................. 15
ITEM 3. LEGAL PROCEEDINGS. ................................................................................................................ 16
ITEM 4. MINE SAFETY DISCLOSURES. ................................................................................................... 16
EXECUTIVE OFFICERS OF THE REGISTRANT. ....................................................................... 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. ......................................... 18
ITEM 6. SELECTED FINANCIAL DATA. ................................................................................................... 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS. ........................................................................................................ 20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ................ 35
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ................................................ 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. .......................................................................................................... 70
ITEM 9A. CONTROLS AND PROCEDURES. ............................................................................................... 70
ITEM 9B. OTHER INFORMATION................................................................................................................ 70
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. ......................... 71
ITEM 11. EXECUTIVE COMPENSATION. ................................................................................................... 71
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS. ............................................................................ 71
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE. ........................................................................................................................... 71
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. ................................................................. 71
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. ....................................................... 72
SIGNATURES ................................................................................................................................. 73
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS .............................................. 74
EXHIBIT INDEX ............................................................................................................................. 75
(This page intentionally left blank.)
PART I
ITEM 1. BUSINESS.
Modine Manufacturing Company specializes in providing innovative thermal management solutions. We are a leading
provider of engineered heat transfer systems and high-quality heat transfer components for use in on-highway and off-
highway original equipment manufacturer (“OEM”) vehicular applications, and for sale into a wide array of building,
industrial and refrigeration markets. Our products include radiators and radiator cores, condensers, oil coolers, charge air
coolers, heat-transfer modules and assemblies, exhaust gas recirculation (“EGR”) coolers, building heating, ventilating
and air conditioning (“HVAC”) equipment, and coils. Our primary customers across the globe are:
- Automobile, truck, bus, and specialty vehicle OEMs;
- Agricultural, industrial and construction equipment OEMs;
- Heating, ventilation and cooling OEMs;
- Construction architects and contractors; and
- Wholesalers of heating equipment.
We focus our development efforts on solutions that meet the ever-increasing heat transfer needs of OEMs and other
customers within the automobile, commercial vehicle, construction, agricultural, industrial and commercial HVAC
industries. Our products and systems typically are aimed at solving complex heat transfer challenges requiring effective
thermal management. Typical customer and market demands include products and systems that are lighter weight, more
compact, more efficient and more durable to meet customer standards as they work to ensure compliance with
increasingly stringent global emissions, fuel economy and energy efficiency requirements. Our heritage provides a depth
and breadth of expertise in thermal management, which, when combined with our global manufacturing presence,
standardized processes, and state-of-the-art technical resources, enables us to rapidly bring highly valued, customized
solutions to our customers.
History
Modine was incorporated under the laws of the State of Wisconsin on June 23, 1916 by its founder, Arthur B. Modine.
Mr. Modine’s “Turbotube” radiators became standard equipment on the famous Ford Motor Company Model T. When
he died at the age of 95, A.B. Modine had personally been granted more than 120 U.S. patents for his heat transfer
innovations. On the cusp of our 100th year in business, the standard of innovation exemplified by A.B. Modine remains
the cornerstone of Modine today.
Terms and Year References
When we use the terms “Modine,” “we,” “us,” the “Company,” or “our” in this report, unless the context otherwise
requires, we are referring to Modine Manufacturing Company. Our fiscal year ends on March 31 and, accordingly, all
references to a particular year mean the fiscal year ended March 31 of that year, unless indicated otherwise.
Business Strategy and Results
We focus on thermal management leadership and highly engineered product and service innovations for diversified,
global markets and customers. We create value by focusing on customer partnerships and providing innovative solutions
for our customers' thermal management challenges using cost-effective designs and material technology.
During fiscal 2016, we launched our Strengthen, Diversify and Grow strategic transformation in order to position our
business for long-term success. We aim to strengthen our business by, among other things, i) right-sizing our cost
structure and ii) implementing a more global, product-based organization to capture synergies across our core businesses,
effectively meet the needs of our global customers, and improve our speed to market. In addition, we aim to diversify
through expanding our non-vehicular businesses, and grow through both organic and inorganic opportunities.
Our top five customers are in three different markets – automotive, commercial vehicle, and off-highway – and our ten
largest customers accounted for 63 percent of both our fiscal 2016 and 2015 sales. In fiscal 2016, 63 percent of our total
sales were generated from customers outside of the U.S., with 54 percent of total sales generated by foreign operations
and 9 percent generated by exports from the U.S. In fiscal 2015, 64 percent of our total sales were generated from
customers outside of the U.S., with 55 percent of total sales generated by foreign operations and 9 percent generated by
1
exports from the U.S. In fiscal 2014, 66 percent of our total sales were generated from customers outside of the U.S.,
with 56 percent of total sales generated by foreign operations and 10 percent generated by exports from the U.S.
During fiscal 2016, our consolidated sales were $1.35 billion, a 10 percent decrease from $1.50 billion in fiscal 2015.
The decrease from fiscal 2015 was primarily due to a $110 million unfavorable impact of foreign currency exchange rate
changes associated with the strengthening of the U.S. dollar and lower sales volume to off-highway customers due to
market weakness. During fiscal 2016, we completed a voluntary lump-sum payout program offered to certain eligible
former employees participating in our U.S. pension plans. See Note 17 of the Notes to Consolidated Financial
Statements for additional information. As a result of lump-sum payouts during fiscal 2016, we recorded $42 million of
non-cash pension settlement losses to costs of sales ($9 million) and selling, general, and administrative (“SG&A”)
expenses ($33 million). Gross profit decreased $23 million to $224 million in fiscal 2016 compared with the prior year,
primarily due to the pension settlement losses and an unfavorable impact from changes in foreign currency exchange
rates. SG&A expenses increased to $205 million in fiscal 2016, compared with $184 million in fiscal 2015, primarily
due to the pension settlement losses.
In an effort to optimize our cost structure and improve efficiency of our operations, we have engaged in various
restructuring activities in recent years, including in fiscal 2016, in support of our Strengthen, Diversify and Grow
strategic platform. As a result, we recorded $17 million of restructuring expenses during fiscal 2016. In addition, we
recorded a $10 million asset impairment charge related to a manufacturing facility in Germany. See Note 6 of the Notes
to Consolidated Financial Statements for additional information.
Also during fiscal 2016, we recorded a $10 million gain within other income related to an insurance settlement for
equipment losses resulting from a fire at a manufacturing facility in the U.K. See Note 2 of the Notes to Consolidated
Financial Statements for additional information.
Our operating loss was $8 million in fiscal 2016, which compares to operating income of $53 million in the prior year.
This decline in earnings was primarily due to $42 million of pension settlement losses, higher restructuring expenses,
and an unfavorable impact from changes in foreign currency exchange rates.
A key metric by which we measure our performance is return on average capital employed (“ROACE”). We define
ROACE as operating income, less restructuring expenses, impairment charges, certain other adjustments, income tax at a
30 percent rate, and earnings attributable to noncontrolling interest; divided by the average of debt plus Modine
shareholders’ equity. We have established a long-term goal of achieving ROACE of 15 percent. Our ROACE improved
60 basis points in fiscal 2016 to 8.4 percent compared with 7.8 percent in fiscal 2015. The increase in ROACE in fiscal
2016 primarily resulted from a decrease in the shareholders’ equity component of capital employed. This decrease in
shareholders’ equity was primarily attributable to $68 million of foreign currency translation losses, most of which
occurred in late fiscal 2015.
2
ROACE is not a measure derived under generally accepted accounting principles (“GAAP”) and should not be
considered as a substitute for any measure derived in accordance with GAAP. We believe that ROACE provides
investors with helpful information about our performance, our ability to provide an acceptable return on capital, and our
ability to fund future growth. This measure may not be comparable with similar measures presented by other companies.
The following schedule provides a reconciliation of ROACE to the most directly comparable financial measures
calculated and presented in accordance with GAAP:
(in millions)
Operating (loss) income
Restructuring expenses
Impairment charges
Pension settlement losses
Other adjustments (a)
Subtotal
Tax applied at 30% rate
Noncontrolling interest
Operating income - adjusted
Fiscal 2015
52.7
$
4.7
7.8
-
-
65.2
(19.6)
(1.0)
44.6
$
Fiscal 2016
$
$
(7.5)
16.6
9.9
42.1
2.1
63.2
(19.0)
(0.6)
43.6
504.7
522.9
512.5
519.7
538.8
519.7
Average capital employed (see calculation below)
$
519.7
$
570.5
ROACE
8.4%
7.8%
Capital employed (debt + Modine shareholders' equity):
Beginning of fiscal year
June 30
September 30
December 31
End of fiscal year
Average capital employed (b)
$
$
$
$
589.2
604.5
582.0
572.0
504.7
570.5
(a) In fiscal 2016, other adjustments primarily consisted of environmental charges related to a previously-owned
manufacturing facility. In fiscal 2015, other adjustments consisted of a $3 million charge associated with a
legal matter in Brazil and a $3 million gain on the sale of a wind tunnel in Germany.
(b) Average capital employed represents the sum of capital employed for the five most recent quarter-end dates,
divided by five.
Markets
We sell products to multiple end markets. The following is a summary of our primary end markets, categorized as a
percentage of our net sales:
Commercial vehicle
Automotive
Off-highway
Building HVAC
Other
Competitive Position
Fiscal 2016
34%
29%
15%
13%
9%
Fiscal 2015
34%
27%
18%
12%
9%
We compete with many manufacturers of heat transfer and HVAC products, some of which are divisions of larger
companies. The markets for our products continue to be very dynamic. Our traditional OEM customers are faced with
dramatically increased international competition and have expanded their global manufacturing footprints to compete in
local markets. In addition, consolidation within the supply base and vertical integration have introduced new or
restructured competitors to our markets. Some of these market changes have caused us to experience competition from
suppliers in other parts of the world that enjoy economic advantages such as lower labor costs, lower healthcare costs,
and lower tax rates. As a result, we have expanded and continue to expand our geographic footprint, in part to provide
3
more flexibility to serve our customers around the globe. Our customers also continue to ask us, as well as their other
primary suppliers, to provide research and development (“R&D”), design, and validation support for new potential
projects. This combined work effort often results in stronger customer relationships and more partnership opportunities
for us. It can also introduce risk, to the extent that these requests may require the reallocation of resources at times when
actual business awards are pending.
Business Segments
We have assigned specific operations to segments based principally on defined markets and geographic locations. Each
operating segment is managed by a vice president and has separate financial results reviewed by our chief operating
decision maker. These results are used by management in evaluating the performance of each business segment and in
making decisions on the allocation of resources among our various businesses. During fiscal 2016, we combined our
North America and South America segments into the Americas segment to streamline operations, gain synergies and
improve our cost structure. There was no impact to our consolidated financial statements as a result. Financial
information related to our operating segments is included in Note 21 of the Notes to Consolidated Financial Statements.
Americas, Europe, and Asia Segments
The continued globalization of our OEM customer base requires us to manage our strategic approach, product offerings
and the competitive environment on a global basis. This trend offers significant opportunities for us with our market
positioning, including our presence in key global markets (U.S., Europe, Brazil, China, India, South Korea, Japan, and
Mexico) and a global product-based organization with the expertise to solve technical challenges. We are recognized for
having strong technical support, product breadth, and the ability to support global standard designs for our customers.
Each of our main vehicular competitors, AKG Group, BorgWarner, Dana Corporation, Delphi Corporation, Denso
Corporation, Mahle Behr, Tata Toyo, TitanX, T. Rad Co. Ltd., Valeo SA, Visteon Corporation, and Zhejiang Yinlun
Machinery Co. Ltd., have a multi-regional or worldwide presence. Increasingly, we face heightened competition as
these competitors expand their product offerings and manufacturing footprints through expansion into low-cost countries
or low-cost sourcing initiatives. In addition, competitors from some low-cost regions are beginning to expand into new
geographic OEM markets.
The Americas, Europe, and Asia segments represent our original equipment segments and serve the commercial vehicle,
automotive, and off-highway markets. In addition, our Americas segment provides custom-designed heat exchangers,
utilizing microchannel, heat recovery, and round tube plate fin coils, to the commercial refrigeration, residential heating,
and commercial heating and air conditioning markets. The Americas segment also serves Brazil’s automotive and
commercial vehicle aftermarkets. The following summarizes the primary markets served by our original equipment
segments:
Commercial Vehicle
Market Overview – During fiscal 2016, the North America commercial vehicle market remained relatively flat compared
with the prior year. We expect this market will weaken in fiscal 2017, particularly the market for heavy-duty trucks.
Slow economic growth conditions and soft freight fundamentals suggest uneven demand in fiscal 2017; this, coupled
with an expectation of continued governmental focus on emissions reductions and fuel efficiency improvements, is
causing uncertainty for truck fleets. In South America, the commercial vehicle market has experienced significant
volume declines in the past two fiscal years, and we expect this market to remain depressed in fiscal 2017. In Europe,
the commercial vehicle market experienced moderate growth in fiscal 2016, and we expect this trend to continue in fiscal
2017. In Asia, we anticipate continued market growth during fiscal 2017.
Other trends influencing the commercial vehicle market include a call by global commercial vehicle manufacturers to
standardize U.S., Canadian, and Eurozone emission regulations. Global standardization would likely lead to further
consolidation of our customer base and competitors, as they leverage higher volumes, consolidate development costs,
and rationalize distribution channels. Additionally, truck manufacturers are evaluating alternative powertrains and fuels,
electrification, waste heat recovery, and other technologies aimed to improve vehicle efficiency, all of which could
present opportunities for us.
OEMs continue to expect greater supplier support and seek new technology solutions at lower prices for their thermal
management needs. In general, this creates a challenge to us and the entire supply base, but also provides an opportunity
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for suppliers, like Modine, who develop innovative solutions at a competitive cost. Global standardization, fuel
economy, and emissions regulations are driving the advancement of product development worldwide and are creating
demand for incremental improvements to thermal transfer products that we are well positioned to support.
Products – Powertrain cooling (engine cooling modules, radiators, charge air coolers, condensers, oil coolers, fan
shrouds, and surge tanks); on-engine cooling (EGR coolers, engine oil coolers, fuel coolers, charge air coolers and intake
air coolers); and auxiliary coolers (transmission and retarder oil coolers and power steering coolers).
Customers – Commercial, medium- and heavy-duty truck and engine manufacturers; bus and specialty vehicle
manufacturers.
Primary Competitors – Mahle Behr; TitanX; T. Rad Co. Ltd.; BorgWarner; and Tata Toyo.
Automotive
Market Overview – The global automotive market improved in most regions during fiscal 2016. We expect this trend to
continue in fiscal 2017, supported by favorable oil prices and monetary policies. The automotive market is gradually
beginning to move away from traditional internal combustion engines towards alternative powertrains, such as electric,
hybrid, and fuel cell. This shift is expected to increase the thermal management requirements for these vehicles, and we
are capitalizing on this trend by applying our base heat transfer components to new applications. We expect our global
automotive market production to increase in fiscal 2017, with modest market improvements in North America and
Europe and stronger improvement in Asia.
Products – Powertrain cooling (engine cooling assemblies, radiators, condensers and charge air coolers); auxiliary
cooling (power steering coolers and transmission oil coolers); component assemblies; radiators for special applications;
on-engine cooling (EGR coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers); and battery
cooling (layered core battery chillers).
Customers – Automobile, light truck, and power sports vehicle and engine manufacturers.
Primary Competitors – Mahle Behr; Dana Corporation; Delphi Corporation; Denso Corporation; Visteon Corporation;
BorgWarner; and Valeo SA.
Off-Highway
Market Overview – Many global off-highway markets declined during fiscal 2016. The construction market was mixed
in fiscal 2016, as some regions began to show signs of improvement during the year while others remained depressed.
The U.S. agricultural market remains under pressure from low commodity prices and associated demand, a trend that we
expect to continue in fiscal 2017. We expect this market will continue to be negatively impacted by higher used
equipment inventories, which could suppress new equipment sales, and the uncertain interest rate environment. The
mining equipment markets are showing little signs of improving in fiscal 2017, especially in the U.S. Many mining
equipment buyers continued to cut capital investment plans in fiscal 2016, as the market progressed through a multiple-
year cycle of demand declines. The European construction and agricultural equipment markets experienced modest
improvement in fiscal 2016 as Eurozone economic conditions slowly improved, aided by monetary stimulus efforts. We
expect these markets will be flat or slightly down in fiscal 2017. In South America, we anticipate continued declines in
the agricultural market in fiscal 2017. In Asia, we expect the China and Korea excavator markets to stabilize, as these
markets have progressed through a multiple-year cycle of declining demand since the construction peak in fiscal 2011.
Products – Powertrain cooling (engine cooling modules, radiators, condensers, charge air coolers, fuel coolers and oil
coolers); auxiliary coolers (power steering coolers and transmission oil coolers); and on-engine cooling (EGR coolers,
engine oil coolers, fuel coolers, charge air coolers and intake air coolers).
Customers – Construction, agricultural, and mining equipment and engine manufacturers, and industrial manufacturers
of material handling equipment, generator sets and compressors.
Primary Competitors – Adams Thermal Systems Inc.; AKG Group; Denso Corporation; Zhejiang Yinlun Machinery Co.,
Ltd.; ThermaSys Corp.; Doowon; Donghwan; T. Rad Co. Ltd.; Mahle Industrial Thermal Systems; KALE OTO
RADYATÖR; and RAAL.
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Building HVAC Segment
Market Overview – After two consecutive years of strong growth, the North America heating market contracted slightly
in fiscal 2016, primarily due to warmer-than-normal winter temperatures. We expect modest improvement in the North
America heating market in fiscal 2017. We anticipate market demand for our data center cooling, ventilation, and
geothermal heat pump products to increase in fiscal 2017. We expect continued growth in demand for data and
connected devices, coupled with increasing requirements for energy-efficient and green solutions, will continue to drive
increased demand for our data center cooling products and, in particular, our high-density and free-cooling solutions.
Likewise, we expect improvement in construction markets and energy efficiency legislation to drive increased demand
for our ventilation and geothermal products.
Products – Unit heaters (gas-fired, hydronic, electric and oil-fired); duct furnaces (indoor and outdoor); infrared units
(high- and low-intensity); hydronic products (commercial fin-tube radiation, cabinet unit heaters, and convectors); roof-
mounted direct- and indirect-fired makeup air units; commercial packaged rooftop ventilation units; unit ventilators;
single packaged vertical units; geothermal and water-source heat pumps; precision air conditioning units for data center
applications; air-handling units; chillers; ceiling cassettes; and condensing units.
Customers – Mechanical contractors; HVAC wholesalers; installers; and end users in a variety of commercial and
industrial applications, including banking and finance, data center management, education, hospitality,
telecommunications, entertainment arenas, hotels, restaurants, hospitals, warehousing, manufacturing, and food and
beverage processing.
Primary Competitors – Lennox International Inc. (ADP); CES (Reznor); Mestek Inc. (Sterling); Emerson Electric
Company (Liebert); Stulz; Schneider Electric (APC / Uniflair); Johnson Controls, Inc. (York); Daikin (McQuay
International); System Air (ChangeAir); Bard Manufacturing; and Aaon, Inc.
Geographical Areas
We maintain administrative organizations in four geographical regions – North America, South America, Europe, and
Asia – to facilitate customer support, development and testing, and other administrative functions. We operate in the
following countries:
North America
South America
Europe
Asia/Pacific
Middle East/Africa
United States
Mexico
Brazil
China
India
Japan
South Korea
United Arab Emirates
South Africa
Austria
Germany
Hungary
Italy
Netherlands
Russia
United Kingdom
Our non-U.S. subsidiaries and affiliates manufacture and sell a number of vehicular, building HVAC, and industrial
products similar to those produced in the U.S. In addition to normal business risks, operations outside the U.S. are
subject to other risks such as changing political, economic and social environments, changing governmental laws, taxes
and regulations, foreign currency volatility, and market fluctuations.
Exports
Export sales from the U.S. to foreign countries as a percentage of net sales were 9 percent in both fiscal 2016 and 2015
and 10 percent in fiscal 2014.
We believe our international presence has positioned us to share profitably in the anticipated long-term growth of the
global vehicular, commercial, industrial, and building HVAC markets. We are committed to increasing our involvement
and investment in international markets in the years ahead.
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Foreign and Domestic Operations
Financial information relating to our foreign and domestic operations is included in Note 21 of the Notes to Consolidated
Financial Statements.
Customer Dependence
Our ten largest customers, certain of which are conglomerates, accounted for 63 percent of our sales in fiscal 2016.
These customers, listed alphabetically, were: BMW; Caterpillar; Daimler AG (including Daimler Trucks, Mercedes-
Benz, Mitsubishi Fuso Trucks, Thomas Buses and Western Star Trucks); Deere & Company; Denso Corporation; FCA
Italy S.p.A. (including Chrysler, CNH, Fiat, Iveco, and VM Motori); Ford Motor Co.; Navistar; Volkswagen AG
(including Audi, MAN, Porsche, and Scania); and Volvo. In both fiscal 2016 and 2015, Daimler AG and Volkswagen
AG each accounted for 10 percent or more of our sales. In fiscal 2014, Daimler AG was the only customer that
accounted for 10 percent or more of our sales. Generally, we supply products to our customers on the basis of individual
purchase orders received from them. When it is in the mutual interest of Modine and our customers, we utilize long-term
sales agreements to minimize investment risks and provide the customer with a proven source of competitively-priced
products. These contracts are typically three to five years in duration and may include provisions that adjust sales prices
in the future.
Backlog of Orders
Our operating segments maintain their own inventories and production schedules. We believe that our current
production capacity is capable of handling the sales volume expected in fiscal 2017 and beyond.
Raw Materials
We purchase aluminum, nickel and steel from several domestic and foreign suppliers. In general, we do not rely on any
one supplier for these materials, which are, for the most part, available from numerous sources in quantities required by
us. The supply of copper and brass material is highly concentrated between two global suppliers. We normally do not
experience material shortages and believe that our suppliers’ production of these metals will be adequate throughout the
next fiscal year. We typically adjust metals pricing with our raw material and major fabricated component suppliers on a
quarterly basis. When possible, we have made material pass-through arrangements with key customers, which allow us
to pass material cost increases and decreases to our customers. When utilized, however, these pass-through
arrangements are typically limited to the underlying cost of the material based upon the London Metal Exchange, and do
not include related premiums or fabrication costs. In addition, there can often be a three-month to one-year lag between
the time of the material price increase or decrease and the time that we adjust the price with our customer.
Patents
We own or license numerous patents related to our products and operations. These patents and licenses have been
obtained over a period of years and expire at various times. Because we have many product lines, we believe that our
business as a whole is not materially dependent upon any particular patent or license, or any particular group of patents
or licenses. We consider each of our patents, trademarks and licenses to be of value and aggressively defend our rights
throughout the world against infringement. We have been granted and/or acquired more than 2,200 patents worldwide
over the life of our company.
Research and Development
We remain committed to our vision of creating value through technology and innovation. We focus our engineering and
R&D efforts on solutions that meet challenging heat transfer needs of OEMs and other customers within the commercial
vehicle, automotive, construction, agricultural, industrial, and building HVAC markets. Our products and systems are
typically aimed at solving difficult and complex heat transfer challenges requiring advanced thermal management.
Typical market demands are for products and systems that are lighter weight, more compact, more efficient and more
durable to meet customer standards as customers work to ensure compliance with increasingly stringent global emissions
and energy efficiency requirements. Our heritage includes a depth and breadth of expertise in thermal management that,
combined with our global manufacturing presence, standardized processes, and state-of-the-art technical resources,
enables us to rapidly bring customized solutions to our customers.
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R&D expenditures, including certain application engineering costs for specific customer solutions, totaled $61 million in
fiscal 2016 and $62 million in both fiscal 2015 and 2014. Over the last three years, R&D expenditures have been
between 4 and 5 percent of sales. This level of investment reflects our continued commitment to R&D in an ever-
changing market. To achieve efficiencies and lower development costs, our R&D groups work closely with our
customers on special projects and system designs. Projects include next generation aluminum radiators, charge air
coolers and waste heat recovery systems for the automotive, commercial vehicle, agricultural and construction markets;
and EGR technology, which enable our customers to efficiently meet tighter regulatory emission standards. Most of our
current R&D activities are focused on internal development in the areas of powertrain cooling, engine, building HVAC,
and coils products. We also collaborate with several industry, university, and government-sponsored research
organizations that conduct research and provide data on technical topics of interest to us for practical applications in the
markets we serve. We continue to identify, evaluate and engage in external research projects that complement our
strategic internal research initiatives in order to further leverage our significant thermal technology expertise and
capability.
Quality Improvement
Through our global Quality Management System (“QMS”), our manufacturing facilities in our Americas, Europe and
Asia segments are registered to ISO 9001:2008 or ISO/TS 16949:2009 standards, helping to ensure that our customers
receive high quality products and services from every facility. While customer expectations for performance, quality and
service continue to rise, our QMS has allowed us to drive improvements in quality performance and has enabled the
ongoing delivery of products, service and value that meet or exceed customer expectations.
The global QMS operates within the context of the Modine Operating System (“MOS”), which focuses on well-defined
improvement principles and leadership behaviors to engage our teams in facilitating rapid improvements. We drive
sustainable and systematic continuous improvement throughout all functional areas and operating segments of the
organization by utilizing the principles, processes and behaviors that are core to these systems.
Environmental, Health and Safety Matters
We are committed to preventing pollution, eliminating waste and reducing environmental risks. Our facilities maintain
Environmental Management System (“EMS”) certification to the international ISO14001 standard through independent
third-party audits. All of our locations have established specific environmental improvement targets and objectives for
the upcoming fiscal year.
In fiscal 2016, our carbon emissions, resulting from our on-site use of natural gas and propane and from our use of
electricity generated by off-site sources, decreased 6 percent compared with the prior year, representing our lowest
emissions level over the past five years. We will continue to identify and implement carbon reduction opportunities when
feasible over the upcoming fiscal year.
During fiscal 2016, our water consumption was relatively flat compared with fiscal 2015. Over the past five years, we
have realized a cumulative 31 percent decrease in our water usage, using approximately 38 million fewer gallons in
fiscal 2016 than in fiscal 2011. As in previous years, we continue to systematically identify opportunities and implement
measures to reduce waste and conserve natural resources within the EMS structure.
Manufacturing by-products consisting of solid wastes and volatile organic air emissions were relatively flat year-over-
year. We are actively pursuing alternative manufacturing processes that use more environmentally-friendly materials.
Our commitment to environmental stewardship is reflected in our reporting of chemical releases, as monitored by the
United States Environmental Protection Agency's Toxic Chemical Release Inventory program. Our U.S. locations
decreased their reported chemical releases by 98 percent over the 10-year period from 2004 to 2014. This long-term
improvement is the result of manufacturing efficiencies and a transition to more environmentally-friendly manufacturing
technologies and raw materials.
Our product portfolio reflects our sense of environmental responsibility. We continue our development and refinement
of environmentally-friendly product lines, including oil, fuel, and EGR coolers for diesel applications, light-weight and
high-performance powertrain cooling heat exchangers, and our Advanced Cooling System technology. These products
provide increased fuel economies and enable combustion technologies that reduce harmful gas emissions. Our Building
HVAC product offerings, including the Airedale SchoolMate geothermal heat pump; the EffinityTM, a condensing gas-
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fired unit heater with industry-leading efficiencies; and the AtherionTM Commercial Packaged Ventilation System, are
helping commercial, industrial and residential users achieve high energy efficiencies and reduce utility costs. Our
geothermal products feature innovative heat pump technologies, providing energy savings and reduced carbon emissions
in both heating and cooling seasons.
Obligations for remedial activities may arise at our facilities due to past practices, or as a result of a property purchase or
sale. These expenditures most often relate to sites where past operations followed practices that were considered
acceptable under then-existing regulations, but now require investigative and/or remedial work to ensure appropriate
environmental protection, or where we are a successor to the obligations of prior owners and current laws and
regulations require investigative and/or remedial work to ensure sufficient environmental compliance. Two of our
currently-owned manufacturing facilities and three formerly-owned properties have been identified as requiring soil
and/or groundwater remediation. Environmental liabilities for investigative work and remediation at sites in the United
States, Brazil, and the Netherlands totaled $5 million at March 31, 2016.
We recorded a fiscal 2016 global Recordable Incident Rate (“RIR” as defined by OSHA) of 1.63, which was unchanged
compared with our RIR in fiscal 2015. Our long-term safety performance, as indicated by RIR, improved 20 percent
over the past five years. We have consistently out-performed the private-industry RIR average for the manufacturing
sector, which, by comparison was 4.0 in 2014.
For our U.S. locations, annual workers’ compensation claims reported in fiscal 2016 decreased for the second
consecutive year, representing a 70 percent improvement over the past five years. We attribute these lower claims to the
continued strengthening of our safety culture.
Our behavior-based safety program is a proactive global effort under which we seek to correct at-risk behaviors, and
positively reinforce safe behaviors. Building further on behavior-based safety, we introduced process stream safety to
our Americas segment facilities this past fiscal year. This in-depth evaluation and correction of workplace conditions
further engages employees to eliminate safety risks. Our focus on behavior-based safety and process stream safety are
part of our long-term commitment to strengthen our safety culture.
Employees
We employed approximately 7,100 persons worldwide as of March 31, 2016.
Seasonal Nature of Business
Our overall operating performance is generally not subject to a significant degree of seasonality, as sales to OEM
customers are dependent upon market demand for new vehicles. However, our second fiscal quarter production
schedules are typically impacted by customer summer shut downs and our third fiscal quarter is affected by holiday
schedules. Additionally, our Building HVAC segment experiences some seasonality as demand for HVAC products can
be affected by heating and cooling seasons, weather patterns, construction, and other factors. Generally, sales volume
within the Building HVAC segment is stronger in our second and third fiscal quarters, corresponding with demand for
heating products.
Working Capital
We manufacture products for the original equipment markets on an as-ordered basis, which makes large inventories of
finished products unnecessary. In our Building HVAC segment, we maintain varying levels of finished goods inventory
due to seasonal demand and certain sales programs. In these areas, we make use of extended payment terms, not to
exceed 90 days, for our Building HVAC customers on a limited basis. In Brazil, within our Americas segment, we
maintain higher levels of aftermarket product inventory in order to timely meet customer needs in the Brazilian
automotive and commercial vehicle aftermarkets. We do not experience a significant number of returned products
within any of our operating segments.
Available Information
Through our website, www.modine.com (Investors link), we make available, free of charge, our annual reports on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, other Securities Exchange Act
reports and all amendments to those reports as soon as reasonably practicable after such material is electronically filed
9
with, or furnished to, the Securities and Exchange Commission (“SEC”). Our reports are also available free of charge on
the SEC’s website, www.sec.gov. Also available free of charge on our website are the following corporate governance
documents:
− Code of Ethics and Business Conduct, which is applicable to all Modine directors and employees,
including the principal executive officer, the principal financial officer, and the principal accounting
officer;
− Corporate Governance Guidelines;
− Audit Committee Charter;
− Officer Nomination and Compensation Committee Charter;
− Corporate Governance and Nominating Committee Charter; and
− Technology Committee Charter.
All of the reports and corporate governance documents referenced above and other materials relating to corporate
governance may also be obtained without charge by contacting Corporate Secretary, Modine Manufacturing Company,
1500 DeKoven Avenue, Racine, Wisconsin 53403-2552. We do not intend to incorporate our internet website and the
information contained therein or incorporated therein into this annual report on Form 10-K.
ITEM 1A. RISK FACTORS.
In the ordinary course of our business, we face various market, operational, strategic, and financial risks. These risks
could have an impact on our business, financial condition, and results of operations. Our most significant risks are set
forth below and elsewhere in this Annual Report on Form 10-K.
Our Enterprise Risk Management (“ERM”) process seeks to identify and address significant risks. We believe that risk-
taking is an inherent aspect of operating a global business and, in particular, one focused on growth and cost-
competitiveness. Our goal is to proactively manage risks in a structured approach in conjunction with strategic
planning, with the intent to preserve and enhance shareowner value. However, the risks set forth below and elsewhere
in this report, as well as other risks currently unknown or deemed immaterial at the date of this report, could adversely
affect us and cause our results to vary materially from recent or anticipated future results.
A. MARKET RISKS
Customer and Supplier Matters
Our OEM business, which currently accounts for approximately 81 percent of our net sales, is dependent upon the
health of the customers and markets we serve.
We are highly susceptible to unfavorable trends in the markets we serve as our customers’ sales and production levels
are affected by general economic conditions, including access to credit, the price of fuel and electricity, employment
levels and trends, interest rates, labor relations issues, regulatory requirements, trade agreements and other market
factors, as well as by customer-specific issues. Any significant decline in production levels for current and future
customers could result in asset impairment charges and a reduction in our sales, thereby adversely impacting our results
of operations and financial condition.
Our OEM customers continually seek price reductions from us. These price reductions adversely affect our results of
operations and financial condition.
We face continuous price-reduction pressure from our OEM customers. Virtually all OEMs impose aggressive price-
reduction initiatives upon their suppliers, and we expect such actions to continue in the future. In response, we must
reduce our operating costs in order to maintain profitability. We have taken, and will continue to take, steps to reduce
our operating costs to offset customer price reductions; however, price reductions adversely affect our profit margins and
are expected to do so in the future. If we are unable to avoid price reductions for our customers, or if we are unable to
offset price reductions through improved operating efficiencies and manufacturing processes, sourcing alternatives,
technology enhancements and other cost reduction initiatives, our results of operations and financial condition could be
adversely affected.
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If we were to lose business with a major OEM customer, our net sales and profitability could be adversely affected.
Deterioration of a business relationship with a major OEM customer could cause our sales and profitability to suffer. We
principally compete for new business both during the initial development of new models and upon the redesign of
existing models by our major customers. New model development generally begins two to five years prior to marketing
such models to the public. The failure to obtain new business on new models or to retain or increase business on
redesigned existing models could adversely affect our business and financial results. In addition, as a result of the
relatively long lead times required for many of our complex components, it may be difficult in the short-term for us to
obtain new sales to replace any unexpected decline in the sales of existing products. We may incur significant expense
in preparing to meet anticipated customer requirements that may not be recovered. The loss of a major OEM customer,
the loss of business with respect to one or more of the vehicle models that use our products, or a significant decline in the
production levels of such vehicles could have an adverse effect on our business, results of operations and financial
condition.
We could be adversely affected if we experience shortages of components or materials from our suppliers.
In an effort to manage and reduce our cost of purchased goods and services, we, like many suppliers and customers, have
been consolidating our supply base. As a result, we are dependent upon limited sources of supply for certain
components used in the manufacture of our products. We select our suppliers based on total value (including price,
delivery and quality), taking into consideration their production capacities, financial condition and ability to meet our
demand. In some cases, it can take several months or longer to find a supplier due to qualification requirements.
However, strong demand, capacity limitations, financial instability, or other problems experienced by our suppliers could
result in shortages or delays in their supply of product to us. If we were to experience a significant or prolonged shortage
of critical components or materials from any of our suppliers and could not procure the components or materials from
other sources, we would be unable to meet our production schedules and miss product delivery dates, which would
adversely affect our sales, results of operations and customer relationships.
Fluctuations in costs of materials (including aluminum, steel, copper, nickel, other raw materials and energy) could
place significant pressure on our results of operations.
Increases in the costs of materials could have a significant effect on our results of operations and on those of others in
our industry. We have sought to alleviate this risk by including material pass-through provisions in our customer
contracts when possible. Under these arrangements, we can pass certain material cost increases and decreases to our
customers. However, where these pass-through arrangements are utilized, there can often be a three-month to one-year
lag between the time of the material increase or decrease and the time of the pass-through. To further mitigate our
exposure, we have, from time to time, entered into forward contracts to hedge a portion of our forecasted aluminum and
copper purchases. However, these hedges may only partially offset increases in material costs, and significant increases
could have an adverse effect on our results of operations.
The continual pressure to absorb costs adversely affects our profitability.
OEM customers often request that we pay for design, engineering and tooling costs that are incurred prior to the start of
production and recover these costs through amortization in the piece price of the product. Some of these costs cannot be
capitalized, which adversely affects our profitability until the programs for which they have been incurred are launched.
If a given program is not launched, or is launched with significantly lower volumes than planned, we may not be able to
recover the design, engineering and tooling costs from our customers, further adversely affecting our profitability.
Competitive Environment
We face strong competition.
The competitive environment continues to be dynamic as our traditional OEM customers, faced with intense
international competition, have expanded their sourcing of components. As a result, we have experienced competition
from suppliers in other parts of the world that enjoy economic advantages, such as lower labor costs, lower health care
costs, lower tax rates, lower costs associated with legal compliance, and, in some cases, export or raw materials
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subsidies. In addition, consolidation and vertical integration within the supply base have introduced new or restructured
competitors to our markets. Increased competition could adversely affect our business and our results of operations.
Exposure to Foreign Currencies
As a global company, we are subject to foreign currency rate fluctuations, which may affect our financial results.
Although our financial results are reported in U.S. dollars, a significant portion of our sales and operating costs are
realized in foreign currencies, including the euro, British pound, Brazilian real and others. Our sales and profitability are
affected by movements of the U.S. dollar against foreign currencies in which we generate sales and incur expenses. To
the extent that we are unable to match sales in foreign currencies with costs paid in the same currency, exchange rate
fluctuations in any such currency could have an adverse effect on our financial results. During times of a strengthening
U.S. dollar, our reported sales and earnings from our international operations will be lower because the applicable local
currency will be translated into fewer U.S. dollars. In certain instances, currency rate fluctuations may create pricing
pressure relative to competitors quoting in different currencies, which could result in our products becoming less
competitive. Significant long-term fluctuations in relative currency values, in particular a significant change in the
relative values of the U.S. dollar, euro, British pound or Brazilian real, could have an adverse effect on our results of
operations and financial condition.
B. OPERATIONAL RISKS
Challenges of Maintaining a Competitive Cost Structure
We may be unable to maintain competitive cost structures within our business.
As part of the “Strengthen” objective of our Strengthen, Diversify and Grow transformational strategy, we are
transitioning to a more global, product-based organization. We have engaged in restructuring activities in our Americas
and Europe segments in efforts to optimize our manufacturing footprint and cost structure. These restructuring activities
include the consolidation of manufacturing facilities in North America and Europe, as well as targeted headcount
reductions that will support our objective of reducing operational and SG&A cost structures. In addition, we are focused
on reducing costs for materials and services through targeted adjustments and negotiations with our supply base. Our
successful execution of these initiatives is critical to enable us to establish a cost environment that will increase and
sustain our long-term competitiveness.
Challenges of Product Launches
We are in the midst of launching a significant number of new programs at our facilities across the world. The
success of these launches is critical to our business.
We design technologically advanced products, and the processes required to produce these products can be difficult and
complex. We commit significant time and financial resources to ensure the successful launch of new products and
programs. Due to our high level of launch activity in each of our segments, we must appropriately manage these
launches, and deploy our operational and administrative resources to take advantage of this increase in our business. If
we do not successfully launch the products and programs, we may lose market share or damage relationships with our
customers, which could negatively affect our business. In addition, any failure in our manufacturing strategy for these
new products or programs could result in production inefficiencies or asset impairment charges.
Complexities of Global Presence
We are subject to risks related to our international operations.
We have manufacturing and technical facilities located in North America, South America, Europe, Asia, and Africa. In
fiscal 2016, 54 percent of our sales were from non-U.S. operations. Consequently, our global operations are subject to
numerous risks and uncertainties, including changes in monetary and fiscal policies, trade restrictions or prohibitions,
import or other charges or taxes, fluctuations in foreign currency exchange and interest rates, limitations on the
repatriation of funds, changing economic conditions, unreliable intellectual property protection and legal systems,
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insufficient infrastructures, social unrest, political instability and disputes, incompatible business practices, and
international terrorism. In addition, compliance with multiple and often conflicting laws and regulations of various
countries is burdensome and expensive.
Reliance upon Technology Advantage
If we cannot differentiate ourselves from our competitors with our technology, our existing and potential customers
may seek lower prices and our sales and earnings may be adversely affected.
Price, quality, delivery, technological innovation, and application engineering development are the primary elements of
competition in our markets. If we fail to keep pace with technological changes and cannot differentiate ourselves from
our competitors with our technology or to provide high quality products and services, we may experience price erosion,
lower sales, and lower margins. Significant technological developments by others also could adversely affect our
business and results of operations.
Developments or assertions by or against us relating to intellectual property rights could adversely affect our
business.
We own significant intellectual property, including a large number of patents, trademarks, copyrights and trade secrets.
Our intellectual property plays an important role in maintaining our competitive position in a number of the markets we
serve. As we expand our operations in jurisdictions where the enforcement of intellectual property rights is less robust,
the risk of others duplicating our proprietary technologies increases, despite our efforts to protect them. Developments
or assertions by or against us relating to intellectual property rights could adversely affect our business and results of
operations.
Information Technology Systems
We may be adversely affected by any disruption in, or breach of, our information technology systems.
Our operations are dependent upon our information technology systems, which encompass all of our major business
functions. A substantial disruption in our information technology systems for a prolonged time period, or a material
breach of our information security, could result in delays in receiving inventory and supplies or filling customer orders,
and/or the release of otherwise confidential information, adversely affecting our customer service and relationships as
well as our reputation. We recognize the volume of cyber attacks is increasing; therefore, we employ commercially
practical efforts to avoid such attacks, regardless of source, and provide reasonable assurance that we can appropriately
mitigate an attack, should it occur. Each year, we evaluate our threat profile and our countermeasures in a continuing
effort to maintain the integrity of our systems and data. In addition, our systems might be damaged or interrupted by
other natural or man-made events (caused by us, by our service providers or others). Such delays, problems or costs
could have a material adverse effect on our business, financial condition, results of operations and reputation.
Claims and Litigation
We may incur material losses and costs as a result of warranty and product liability claims and litigation or other
legal proceedings.
In the event our products fail to perform as expected, we are exposed to warranty and product liability claims and may be
required to participate in a recall or other field campaign of such products. Many of our OEM customers have extended
warranty protection for their vehicles, putting pressure on the supply base to extend warranty coverage as well. If our
customers demand higher warranty-related cost recoveries, or if our products fail to perform as expected, it could have a
material adverse impact on our results of operations and financial condition. We are also involved in various legal
proceedings from time to time incidental to our business. If any such proceeding has a negative result, it could adversely
affect our business and results of operations.
13
Environmental, Health and Safety Regulations
We could be adversely impacted by the costs of environmental, health and safety regulations.
Our operations are subject to various federal, state, local and foreign laws and regulations governing, among other
things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal
of waste and other materials. The operation of our manufacturing facilities entails risks in these areas and there can be
no assurance we will avoid material costs or liabilities relating to such matters. Our financial responsibility to clean up
contaminated property may extend to previously owned or used property, properties owned by unrelated companies, as
well as properties we currently own and use, regardless of whether the contamination is attributable to prior owners. In
addition, potentially significant expenditures could be required in order to comply with evolving environmental, health
and safety laws, regulations or other requirements that may be adopted or imposed in the future.
C. STRATEGIC RISK
Growth Strategies
Inability to identify and execute on inorganic- and organic-growth opportunities may adversely impact our business
and operating results.
As part of the “Grow” objective of our Strengthen, Diversify and Grow transformational strategy, we expect to
aggressively pursue acquisitions in “industrial” markets and expand our market share in high-growth engine and
powertrain cooling areas through focused research and development activities and commercial pursuits. There can be no
assurance we will be able to identify attractive acquisition targets and/or organic growth opportunities. If we are unable
to successfully complete such transactions in the future, our growth may be limited. In addition, recent and future
acquisitions will require integration of operations, sales and marketing, information technology, finance, and
administrative functions. If we are unable to successfully integrate acquisitions and operate these businesses profitably,
we may not achieve the financial or operational success expected from the acquisitions.
D. FINANCIAL RISKS
Liquidity and Access to Cash
Market trends and regulatory requirements may require additional funding for our pension plans.
We have several defined benefit pension plans that cover most of our domestic employees hired on or before December
31, 2003. Our funding policy for these plans is to contribute annually, at a minimum, the amount necessary on an
actuarial basis to provide for benefits in accordance with applicable laws and regulations. Our domestic plans have an
unfunded balance of $90 million. During fiscal 2017, we anticipate making funding contributions totaling approximately
$8 million related to these domestic plans. Funding requirements for our defined benefit plans are dependent upon,
among other things, interest rates, underlying asset returns, mortality rate tables, and the impact of legislative or
regulatory changes. Should changes in actuarial assumptions or other factors result in the requirement of significant
additional funding contributions, our liquidity position could be adversely affected.
Income Taxes
We may be subject to additional income tax expense or exposure due to negative or unexpected tax consequences.
Unfavorable changes in the financial outlook of our operations in certain jurisdictions could lead to adverse changes in
our valuation allowance assertions for our deferred tax assets. Additionally, the subjectivity of or changes in tax laws
and regulations in jurisdictions where we have significant operations could materially affect our results of operations.
We are subject to tax audits by governmental authorities in each taxing jurisdiction in which we operate. Unfavorable or
unexpected outcomes from one or more such tax audits could adversely affect our results of operations and financial
position.
14
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We operate manufacturing facilities in the U.S. and multiple foreign countries. Our world headquarters, including
general offices and laboratory, experimental and tooling facilities, is located in Racine, Wisconsin. We have additional
technical support functions located in Bonlanden, Germany; Sao Paulo, Brazil; Leeds, United Kingdom; Changzhou,
China; and Chennai, India.
The following table sets forth information regarding our principal properties as of March 31, 2016. Properties with less
than 20,000 square feet of building space have been omitted from this table.
Location of Facility
Americas Segment
Building Space
Primary Use
Owned or Leased
143,800 Owned;
410,000 Leased
399,200 Owned;
66,600 Leased
Owned
162,000 Owned;
58,000 Leased
148,800 Owned;
16,600 Leased
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
48,400 Owned;
77,500 Leased
Owned
Owned
60,600 Owned;
29,000 Leased
Owned
Leased
Lawrenceburg, TN
553,800 sq. ft.
Manufacturing
Nuevo Laredo, Mexico
465,800 sq. ft.
Manufacturing
Sao Paulo, Brazil
342,900 sq. ft.
Manufacturing & technology center
Jefferson City, MO
220,000 sq. ft.
Manufacturing
Washington, IA
165,400 sq. ft.
Manufacturing
McHenry, IL
Trenton, MO
Joplin, MO
Laredo, TX
Europe Segment
Bonlanden, Germany
Kottingbrunn, Austria
Mezökövesd, Hungary
Pontevico, Italy
164,700 sq. ft.
159,900 sq. ft.
139,500 sq. ft.
45,000 sq. ft.
205,300 sq. ft.
220,600 sq. ft.
154,000 sq. ft.
150,700 sq. ft.
Manufacturing (closed)
Manufacturing
Manufacturing
Warehouse
Administrative & technology center
Manufacturing
Manufacturing
Manufacturing
Pliezhausen, Germany
125,900 sq. ft.
Manufacturing
Wackersdorf, Germany
Kirchentellinsfurt, Germany
Uden, Netherlands
Neuenkirchen, Germany
Gyöngyös, Hungary
Asia Segment
Chennai, India
Yangzhou, China
Changzhou, China
Shanghai, China
Cheonan, South Korea
Building HVAC Segment
Leeds, United Kingdom
Leeds, United Kingdom
Leeds, United Kingdom
Leeds, United Kingdom
Consett, United Kingdom
Consett, United Kingdom
Buena Vista, VA
Lexington, VA
West Kingston, RI
Corporate Headquarters
Racine, WI
109,800 sq. ft.
107,600 sq. ft.
89,600 sq. ft.
76,400 sq. ft.
58,300 sq. ft.
118,100 sq. ft.
115,800 sq ft.
107,600 sq. ft.
80,300 sq. ft.
46,300 sq. ft.
246,500 sq. ft.
104,400 sq. ft.
55,700 sq. ft.
27,200 sq. ft.
30,000 sq. ft.
20,000 sq. ft.
197,000 sq. ft.
104,000 sq. ft.
92,800 sq. ft.
Assembly
Manufacturing (closed)
Manufacturing
Manufacturing
Manufacturing
Manufacturing
Manufacturing (Joint Venture)
Manufacturing
Manufacturing
Manufacturing (Joint Venture)
Owned
Leased
Owned
Leased
Leased
Administrative & manufacturing
Administrative & manufacturing
Manufacturing
Warehouse
Administrative & manufacturing
Manufacturing
Manufacturing
Warehouse
Manufacturing
(a)
(a)
(a)
(a)
Leased
Leased (temporary)
Leased (temporary)
Leased (temporary)
Owned
Leased
Owned
Owned
Owned
458,000 sq. ft.
Headquarters & technology center
Owned
15
(a) Our Leeds, United Kingdom facility suffered significant destruction as a result of a fire during fiscal 2014.
While the damaged facility was being rebuilt, we transferred operations to other temporarily-leased facilities in
Leeds, United Kingdom, which are included in the table above. These temporary leases expire in early fiscal
2017. See Note 2 of the Notes to Consolidated Financial Statements for further information.
We consider our plants and equipment to be well maintained and suitable for their purposes. We review our
manufacturing capacity periodically and make the determination as to our need to expand or, conversely, rationalize our
facilities as necessary to meet changing market conditions and our needs.
ITEM 3. LEGAL PROCEEDINGS.
The information required hereunder is incorporated by reference from Note 19 of the Notes to Consolidated Financial
Statements.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT.
The following sets forth the name, age (as of March 31, 2016), recent business experience and certain other information
relative to each executive officer of the Company.
Name
Scott L. Bowser
Age
51
Thomas A. Burke
Margaret C. Kelsey
58
51
Position
Vice President of Asia and Global Procurement (May 2015 – Present);
Regional Vice President – Asia (July 2012 – May 2015); Regional Vice
President – Americas (March 2009 – July 2012); Managing Director –
Modine Brazil (April 2006 – March 2009); General Sales Manager –
Truck Division (January 2002 – March 2006); Plant Manager at the
Company’s Pemberville, OH plant (1998 – 2001).
President and Chief Executive Officer (April 2008 – Present); Executive
Vice President and Chief Operating Officer (July 2006 – March 2008);
and Executive Vice President (May 2005 – July 2006).
Vice President, Legal and Corporate Communications, General Counsel
and Secretary (April 2014 – Present); Vice President, General Counsel
and Secretary (November 2008 – March 2014); Vice President
Corporate Strategy and Business Development (May 2008 – October
2008); Vice President - Finance, Corporate Treasury and Business
Development (January 2007 – April 2008); Corporate Treasurer &
Assistant Secretary (January 2006 – December 2006); Senior Counsel &
Assistant Secretary (April 2002 – December 2005); Senior Counsel
(April 2001 – March 2002).
Michael B. Lucareli
47
Vice President, Finance and Chief Financial Officer (October 2011 –
Present); Vice President, Finance, Chief Financial Officer and Treasurer
(July 2010 – October 2011); Vice President, Finance and Corporate
Treasurer (May 2008 – July 2010); Managing Director Financial
Operations (November 2006 – May 2008); Director, Financial
Operations and Analysis (May 2004 – October 2006); Director,
Business Development and Strategic Planning (November 2002 – May
2004); and Business Development and Investor Relations Manager
(1999 – October 2002).
16
Thomas F. Marry
55
Executive Vice President and Chief Operating Officer (February 2012 –
Present); Executive Vice President – Europe, Asia and Commercial
Products Group (May 2011 – February 2012); Regional Vice President –
Asia and Commercial Products Group (November 2007 – May 2011);
Managing Director – Powertrain Cooling Products (October 2006 –
October 2007); General Manager – Truck Division (2003 – 2006);
Director – Engine Products Group (2001 – 2003); Manager – Sales,
Marketing and Product Development (1999 – 2001); Marketing
Manager (1998 – 1999).
Matthew J. McBurney
46
Vice President, Building HVAC (May 2011 – Present); Director,
Commercial Products Group (CPG) – North America (June 2007 – May
2011); Business and Product Development Manager – CPG (November
2006 – June 2007); Business Development Manager – CPG (May 2006
– October 2006); Plant Superintendent at the Company’s Richland, SC
plant (November 2003 – May 2006); Program Manager - Automotive
(March 2000 – November 2003). In addition, from 1992 through 2000,
Mr. McBurney held various engineering positions at the Company.
Holger Schwab
51
Regional Vice President – Europe (July 2012 – Present). Prior to
joining Modine, Mr. Schwab held various leadership positions at Valeo
in North America and Europe and at Thermal Werke.
Scott D. Wollenberg
47
Vice President – Americas (February 2016 – Present); Regional Vice
President – North America (July 2012 – January 2016); Chief
Technology Officer (July 2011 – May 2013); Vice President – Global
Research and Engineering (May 2010 – June 2011). In addition, from
1992 through 2010, Mr. Wollenberg held various engineering and
product management positions at the Company.
Executive Officer positions are designated in our Bylaws and the persons holding these positions are elected annually by
the Board, generally at its first meeting after the annual meeting of shareholders in July of each year. In addition, the
Officer Nomination and Compensation Committee of the Board may recommend and the Board of Directors approves
promotions and other actions with regard to executive officers at any time during the fiscal year.
There are no family relationships among the executive officers and directors. All of the executive officers of Modine
have been employed by us in various capacities during the last five years with the exception of Mr. Schwab, who joined
Modine in July 2012.
There are no arrangements or understandings between any of the executive officers and any other person pursuant to
which he or she was elected an officer of Modine.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is listed on the New York Stock Exchange. Our trading symbol is MOD. The table below shows the
range of high and low closing sales prices for our common stock for fiscal 2016 and 2015. As of March 31, 2016,
shareholders of record numbered 2,828.
Quarter
First
Second
Third
Fourth
Fiscal 2016
High
Low
Fiscal 2015
High
Low
$
13.50
$
10.60
$
17.51
$
13.46
10.79
9.62
11.23
7.85
7.91
6.01
16.15
13.96
13.82
11.87
11.25
12.11
We did not pay dividends during fiscal 2016 or 2015. Under our debt agreements, we are permitted to pay dividends on
our common stock, subject to certain restrictions based on the calculation of debt covenants, as further described under
“Liquidity and Capital Resources” under Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations. We currently do not intend to pay dividends in fiscal 2017.
PERFORMANCE GRAPH
The following graph compares the cumulative five-year total return on our common stock with similar returns on the
Russell 2000 Index and the Standard & Poor’s (S&P) MidCap 400 Industrials Index. The graph assumes a $100
investment and reinvestment of dividends.
18
Company / Index
Modine Manufacturing Company
Russell 2000 Index
S&P MidCap 400 Industrials Index
Initial Investment
March 31, 2011
$100
100
100
$
2012
54.71
99.82
102.77
ISSUER PURCHASES OF EQUITY SECURITIES
Indexed Returns
Years ended March 31,
2014
2015
90.77
83.46
145.00
156.90
158.01
168.47
2013
56.38
116.09
127.93
$
$
$
$
2016
68.22
141.59
164.16
During fiscal 2016, our Board of Directors approved a $50.0 million share repurchase program, which expires in
November 2016. During fiscal 2016, we repurchased $6.9 million of shares under this program. Our decision whether
and to what extent to repurchase additional shares will depend on a number of factors, including business conditions,
other cash priorities, and stock price.
The following describes our purchases of common stock during the fourth quarter of fiscal 2016:
Period
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
January 1 – January 31, 2016
9,318 (a)
$6.28
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
_______
Maximum
Number (or
Approximate Dollar
Value) of Shares
that May Yet Be
Purchased Under the
Plans or Programs
$47,921,782
February 1 – February 29, 2016
413,831
$8.69
413,831
$44,326,469
March 1 – March 31, 2016
120,000
$9.86
120,000
$43,143,608
Total
543,149
$8.90
533,831
(a) Consists of shares delivered back to the Company by employees and/or directors to satisfy tax withholding
obligations that arise upon the vesting of stock awards. The Company, pursuant to its equity compensation
plans, gives participants the opportunity to turn back to the Company the number of shares from the award
sufficient to satisfy the person’s tax withholding obligations that arise upon the termination of restrictions. These
shares are held as treasury shares.
19
ITEM 6. SELECTED FINANCIAL DATA.
The following data should be read in conjunction with the consolidated financial statements and accompanying notes
included elsewhere in this report.
(in millions, except per share amounts)
Net sales
(Loss) earnings from continuing operations
Total assets (a)
Long-term debt - excluding current portion
Net cash provided by operating activities
Expenditures for property, plant and equipment
(Loss) earnings per share from continuing
operations - basic:
(Loss) earnings per share from continuing
operations - diluted:
2016
$
1,352.5
(1.0)
920.9
125.5
72.4
62.8
Years ended March 31,
2015
2014
2013
2012
$
1,496.4
22.2
930.9
129.6
63.5
58.3
$
1,477.6
131.9
1,030.2
131.2
104.5
53.1
$
1,376.0
(22.8)
816.1
132.5
48.8
49.8
$
1,577.2
38.0
886.2
141.9
45.8
64.4
(0.03)
(0.03)
0.45
0.44
2.75
2.72
(0.52)
(0.52)
0.81
0.80
(a) We adopted new deferred income tax accounting guidance for our fiscal year ended March 31, 2016. The prior
periods presented include the effects of our retrospective application of the guidance to conform to the current-
period presentation. As a result, total assets for the years ended March 31, 2012 through 2015 decreased $7.3
million, $2.7 million, $2.1 million, and $0.7 million, respectively. See Note 1 of the Notes to Consolidated
Financial Statements for additional information on this new accounting guidance.
The following factors impact the comparability of the selected financial data presented above:
• During fiscal 2016, we recorded $42.1 million of non-cash pension settlement losses. See Note 17 of the Notes
to Consolidated Financial Statements for additional information.
• During fiscal 2016, 2015, 2014, and 2013, we incurred $16.6 million, $4.7 million, $16.1 million and $17.0
million, respectively, of restructuring expenses. See Note 6 of the Notes to Consolidated Financial Statements
for additional information.
• During fiscal 2016, 2015, 2014, 2013, and 2012, we recorded impairment charges of $9.9 million, $7.8 million,
$3.2 million, $25.9 million, and $2.5 million, respectively. See Note 6 and Note 14 of the Notes to
Consolidated Financial Statements for additional information.
• During fiscal 2016, we recorded a $9.5 million gain related to an insurance settlement for equipment losses.
See Note 2 of the Notes to Consolidated Financial Statements for additional information.
• During fiscal 2016 and 2014, we reversed $3.0 million and $119.2 million, respectively, of deferred tax asset
valuation allowances. See Note 8 of the Notes to Consolidated Financial Statements for additional information.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
Founded in 1916, Modine Manufacturing Company is a worldwide leader in thermal management systems and
components, bringing heating and cooling technology and solutions to diversified global markets. We operate on five
continents, in 16 countries, and employ approximately 7,100 persons worldwide.
Our products are used in light-, medium- and heavy-duty vehicles, commercial heating, ventilation and air conditioning
(“HVAC”) equipment, refrigeration systems and off-highway and industrial equipment. Our broad product offerings
include radiators and radiator cores, condensers, oil coolers, charge air coolers, heat-transfer modules and assemblies,
exhaust gas recirculation (“EGR”) coolers, building HVAC equipment, and coils.
20
Company Strategy
During fiscal 2016, we launched our Strengthen, Diversify and Grow strategic transformation in order to position our
business for long-term success. Our main objectives under this platform include:
•
Strengthen: We will strengthen our business by right-sizing our cost structure by, among other things,
implementing a more global, product-based organization. We believe this new organization will allow us to
capture synergies among our vehicular, Building HVAC, and coils businesses and improve our speed to market.
We aim to optimize our manufacturing footprint and drive cost reductions throughout our business, including
reducing costs for materials and services through adjustments and negotiations with our supply base.
• Diversify: We will invest significant financial and human resources in our industrial businesses, which includes
our Building HVAC segment and our coils business. Our objective is to create a more balanced exposure to our
end markets and decrease our customer concentration, while achieving better market recognition for these
businesses.
• Grow: We are focused on aggressively pursuing acquisitions in industrial markets and expanding our market
share in high-growth engine and powertrain cooling areas.
Our Strengthen, Diversify and Grow objectives are harmonized with, and designed to lead us toward, the following
established Enduring Goals, which continue to guide our day-to-day actions:
• Growth: To grow our business and achieve a 10 percent average annual revenue growth rate;
• Return on Capital: To attain a 15 percent consolidated return on average capital employed (“ROACE”), which
helps ensure selectiveness of growth opportunities and avoidance of low-margin or value-destroying business;
• Diversification: To build a more diversified business model in order to be less vulnerable to market cyclicality
and commercial pressures; and
• Fastest improving: To become the fastest improving company in our industry by building on our culture of
trust and continuous improvement.
Development of New Products and Technology
Our ability to develop new products and technologies based upon our building block strategy for new and emerging
markets is one of our competitive strengths. Under this strategy, we focus on creating core technologies that can form
the basis for multiple products and product lines. We own two global, state-of-the-art technology centers, dedicated to
the development and testing of products and technologies. The centers are located in Racine, Wisconsin and Bonlanden,
Germany. Our reputation for providing high quality products and technologies has been a Company strength valued by
our customers.
We continue to benefit from relationships with customers that recognize the value of having us participate directly in
product design, development and validation processes. This has resulted, and we expect it to continue to result, in
strong, long-term customer relationships with companies that value partnerships with their suppliers.
Strategic Planning and Corporate Development
We employ both short-term (one year) and longer-term (five-to-seven year) strategic planning processes, which enable
us to continually assess our opportunities, competitive threats, and economic market challenges.
We devote significant resources to global strategic planning and development activities to strengthen our competitive
position. Our objectives include leveraging our strong balance sheet position to build a more balanced portfolio of
thermal management products and services, reduce exposure to market cycles within our vehicular business, and
decrease customer concentration. To accomplish these objectives, we are actively pursuing higher-margin organic- and
inorganic-growth opportunities, primarily in the building HVAC and coils markets. We will also continue to focus
significant attention on growing strategically important aspects of our vehicular business. During fiscal 2016, we formed
and assumed the controlling share of a joint venture, Modine Puxin Thermal Systems (Jiangsu) Co., Ltd., in China. We
expect this joint venture will, among other benefits, expedite our introduction of stainless steel heat exchangers for
commercial vehicle markets in China.
21
Operational and Financial Discipline
We operate in a dynamic, global marketplace; therefore, we manage our business with a disciplined focus on increasing
productivity and reducing waste. The competitiveness of the global marketplace requires us to move toward a greater
manufacturing scale in order to create a more competitive cost base. In order to optimize our cost structure and improve
efficiency of our operations, we have engaged in restructuring activities in our Americas, Europe, and Building HVAC
segments and at Corporate. In addition, as costs for materials and purchased parts may rise from time to time due to
increases in commodity markets, we seek low-cost country sourcing, when appropriate, and enter into contracts with
some of our customers that provide for rising costs to be passed through to them on a lag basis.
We follow a rigorous financial process for investment and returns, intended to enable increased profitability and cash
flows over the long term. We place particular emphasis on working capital improvement and prioritization of our capital
investments.
Our executive management incentive compensation (annual cash incentive) plan for fiscal 2016 was based upon
consolidated ROACE and operating income growth. These performance goals drive alignment of management and
shareholders’ interests in both our asset management decisions and earnings growth targets. In addition, we provide a
long-term incentive compensation plan for officers and certain employees to attract, retain, and motivate employees who
directly impact the long-term performance of our company. The plan is comprised of stock options, restricted stock, and
performance-based stock awards. The performance-based stock awards for the fiscal 2016 through 2018 performance
period are based upon three-year average consolidated ROACE and three-year average annual revenue growth.
To aid in management’s focus on guiding our long-term strategies, we pursue our Enduring Goals set forth earlier.
These long-term goals serve as a constant reminder to the management team when making strategic decisions as
stewards of our company.
Segment Information – Strategy, Market Conditions and Trends
Each of our operating segments is managed by a vice president and has separate financial results reviewed by our chief
operating decision maker. These results are used by management to evaluate the performance of each segment and to
make decisions on the allocation of resources.
Americas (43 percent of fiscal 2016 net sales)
Our Americas segment provides thermal management products to the commercial vehicle, off-highway, and automotive
markets in North and South America. Commercial vehicle markets served include Class 3-8 trucks, school and transit
buses and other specialty vehicles. Automotive markets served include automobiles, light trucks, and power sports (e.g.
motorcycles and all-terrain vehicles). Off-highway markets served include agricultural, construction, mining, and power
generation equipment. In addition, the Americas segment provides coils products to the commercial refrigeration,
residential heating, commercial heating, and air conditioning markets and also serves Brazil’s automotive and
commercial vehicle aftermarkets.
Sales volume in the Americas segment declined during fiscal 2016 compared with the prior year due to softening in
certain end markets. Market declines in the North America commercial vehicle and off-highway markets were partially
offset by modest improvement in the automotive market, which remained relatively strong throughout fiscal 2016.
Market declines across Brazil’s OEM markets were accompanied by relatively flat aftermarket sales. Our fiscal 2017
market outlook is mixed. We expect the North America commercial vehicle market to continue to decline, especially for
Class 8 trucks. We anticipate all other OEM markets in North America and Brazil to remain relatively flat in fiscal 2017.
We anticipate modest growth in Brazil aftermarket sales in fiscal 2017. In general, we expect our markets will be
constrained by slow global economic growth in the coming years. We will, however, target higher-growth markets that
we expect to benefit from rising efficiency standards, including the U.S. automotive and coils markets, which are
influenced by fuel economy and building HVAC efficiency and air quality standards, respectively.
Our Americas segment will continue to focus on growth in the markets where its products and manufacturing footprint
create a competitive advantage. Our product strategy includes the use of standard “building blocks” to shorten
development times and improve competitiveness. We are focusing on improving our operating leverage through
manufacturing improvements and a lower fixed-cost structure. This includes launching new programs efficiently, as
22
well as improving the utilization of our manufacturing footprint. During fiscal 2016, we completed the transfer of
production from our McHenry, Illinois manufacturing facility to other facilities within North America. In addition, we
announced a plan to close our Washington, Iowa manufacturing facility and are in the process of transferring the
facility’s production to other manufacturing facilities within this segment, which we expect to complete in late fiscal
2017. Our cost-reduction efforts, including the McHenry closure and various cost-saving initiatives in Brazil, have
allowed us to improve our profitability despite the challenging market environment.
Europe (38 percent of fiscal 2016 net sales)
Our Europe segment provides powertrain and engine cooling systems, as well as vehicular climate control components,
to OEM end markets, including the automotive, commercial vehicle, and off-highway markets. These systems include
cooling modules, radiators, charge air coolers, oil cooling products, EGR products, retarder and transmission cooling
components, and HVAC condensers.
Overall, economic conditions in Europe showed moderate growth during fiscal 2016, as compared with the prior year.
Sales to the commercial vehicle market experienced moderate growth, primarily driven by a further Euro 6 ramp-up, as
compared with the prior year. The premium automotive market experienced relatively strong growth during fiscal 2016,
while the off-highway market remained relatively flat. Sales volume growth, primarily within the automotive and
commercial vehicle markets, was more than offset by an unfavorable impact of foreign currency exchange rate changes,
primarily due to the strengthening of the U.S. dollar versus the euro. During fiscal 2016, we recorded a $10 million asset
impairment charge related to a manufacturing facility in Germany, which was generating pre-tax losses, resulting in
management deciding to exit a certain product line in the future.
Our Europe segment is focused on continuous improvements, low-cost country sourcing and manufacturing footprint,
and cost containment. We expect continued price-reduction pressure from our customers, along with increased global
customer service expectations and competition from competitors operating in low-cost countries. Our objective with our
restructuring activities in Europe continues to be improving segment ROACE and strengthening overall competitiveness.
As a result of our restructuring activities, we believe our Europe segment is well-positioned for improved long-term
financial results, driven by our strong customer reputation for technology, service, and program management.
Asia (6 percent of fiscal 2016 net sales)
Our Asia segment provides powertrain cooling systems and engine products to customers in the commercial vehicle, off-
highway, and automotive markets.
During fiscal 2016, Asia segment sales volume decreased slightly, primarily due to lower sales to off-highway customers
in China and Korea, partially offset by an increase in automotive sales and new program launches. Our manufacturing
facility in Shanghai, China is continuing to ramp up production of aluminum oil coolers, and the production level at our
manufacturing facility in Chennai, India has increased. We expect this trend to continue in fiscal 2017. Our technology,
performance, quality, and reputation have enabled us to win new engine products business in Asia. Emissions standards
in China and India have generally lagged behind those in North America and Europe. As a result, some local on- and
off-highway powertrain cooling customers focus on price more than technology. Due to the evolution of emission
standards, we expect to benefit from additional powertrain and engine cooling opportunities; however, we expect the
Asia markets to remain price-focused in the near term. In January 2016, we assumed the controlling share of a newly-
formed joint venture, Modine Puxin Thermal Systems (Jiangsu) Co., Ltd., in China. We expect this joint venture will
expedite our introduction of stainless steel heat exchangers for the commercial vehicle market in China and expand
opportunities for our EGR coolers in China as well.
Our strategy in this segment is to accelerate sales growth and achieve sustained profitability. Our focus is on securing
new business and further diversifying our product offering and customer base, while controlling costs and increasing our
asset utilization and manufacturing capabilities. We believe we are well positioned for growth and new programs in the
future.
23
Building HVAC (13 percent of fiscal 2016 net sales)
Our Building HVAC segment manufactures and distributes a variety of HVAC products, primarily for commercial
buildings and related applications in North America, Europe, the Middle East, Asia, and Africa. We sell our heating,
ventilation and cooling products through various channels to consulting engineers, contractors and building owners for
applications such as warehouses, repair garages, greenhouses, residential garages, schools, data centers, manufacturing
facilities, hotels, hospitals, restaurants, stadiums, and retail stores. Our heating products include gas, electric, oil and
hydronic unit heaters, low-intensity infrared, and large roof-mounted direct- and indirect-fired makeup air units. Our
ventilation products include single-packaged vertical units and unit ventilators used in school room applications, air-
handling equipment, and rooftop packaged ventilation units used in a variety of commercial building applications. Our
cooling products include precision air conditioning units used for data center cooling applications, air- and water-cooled
chillers, ceiling cassettes, and geothermal heat pump products which are also used in a variety of commercial building
applications.
Economic conditions, such as demand for new commercial construction, building renovations including HVAC
replacement, growth in data centers and school renovations, and higher efficiency requirements are growth drivers for
our building HVAC products. In fiscal 2016, sales volume for our North America ventilation products improved with
demand. Our North America heating sales volume remained relatively flat, as compared with the prior year. During
fiscal 2016, our Airedale business in the U.K. relocated into its new facility, which was rebuilt after a fire destroyed it in
fiscal 2014. During fiscal 2016, unfavorable currency conditions negatively impacted sales at our Airedale U.K.
business and resulted in increased competition from other mainland European suppliers.
We expect growth in each of the HVAC markets we serve during fiscal 2017, although at varied rates. The markets that
we serve are heavily impacted by construction activity, building regulations, and owner/occupant comfort requirements.
Growth rates in these markets have strengthened recently, as manufacturing, housing, and business investment have
increased. We also anticipate modest growth in the North America heating market during fiscal 2017. Our Building
HVAC segment has grown through strategic acquisitions in recent years, such as Barkell, a manufacturer of custom air
handling units located in the U.K., which we acquired in late fiscal 2014. We will continue to pursue acquisitions in line
with the growth objective of our Strengthen, Diversify and Grow strategic transformation.
Consolidated Results of Operations
During fiscal 2016, we announced our new Strengthen, Diversify and Grow strategic transformational framework.
Guided by this framework, we have commenced initiatives to, among other things, achieve global procurement savings
and efficiencies, optimize our manufacturing footprint, implement a new global organizational structure, and reduce
personnel costs. We also formed and assumed the controlling share of a joint venture, Modine Puxin Thermal Systems
(Jiangsu) Co., Ltd., in China with Jiangsu Puxin Heat Exchange System Co., Ltd., in order to increase sales of certain
products in China.
Fiscal 2016 net sales decreased $143 million, or 10 percent, from the prior year, primarily due to a $110 million
unfavorable impact of foreign currency exchange rate changes associated with the strengthening of the U.S. dollar, and
lower sales volume to off-highway customers, partially offset by higher sales volume to automotive customers. During
fiscal 2016, we completed a voluntary lump-sum payout program offered to certain eligible former employees
participating in our U.S. pension plans. See Note 17 of the Notes to Consolidated Financial Statements for additional
information. As a result of lump-sum payouts during the fiscal year, we recorded $42 million of non-cash pension
settlement losses to costs of sales ($9 million) and SG&A expenses ($33 million). During fiscal 2016, we recorded $17
million of restructuring expenses for activities, including Strengthen, Diversify and Grow initiatives, intended to
optimize our cost structure and improve the efficiency of our operations. We also recorded a $10 million asset
impairment charge related to a manufacturing facility in Germany. During fiscal 2016, our operating loss was $8
million, compared with operating income of $53 million in the prior year. In addition, we recorded a $10 million gain
within other income related to an insurance settlement for equipment losses resulting from the Airedale fire in fiscal
2014.
Fiscal 2015 net sales increased $18 million, or 1 percent, from the prior year, primarily due to higher sales volume to
building HVAC, commercial vehicle, and automotive customers, partially offset by lower sales volume to off-highway
customers and a $43 million unfavorable impact of foreign currency exchange rate changes associated with the
strengthening of the U.S. dollar. During fiscal 2015, we recorded $5 million of restructuring expenses and an $8 million
24
goodwill impairment charge in Brazil. Also in fiscal 2015, we sold a wind tunnel, which resulted in a gain of $3 million.
Operating income of $53 million in fiscal 2015 increased $16 million compared with the prior year.
The following table presents our consolidated financial results on a comparative basis for the fiscal years ended March
31, 2016, 2015, and 2014.
(in millions)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Impairment charges
Gain on sale of wind tunnel
Operating (loss) income
Interest expense
Other income (expense) – net
(Loss) earnings from continuing operations
before income taxes
Benefit (provision) for income taxes
(Loss) earnings from continuing operations
2016
Years ended March 31,
2015
2014
$
$'s
1,353
1,129
224
205
17
10
-
(8)
(11)
9
% of sales
100.0%
83.5%
16.5%
15.2%
1.2%
0.7%
-
-0.6%
-0.8%
0.6%
$
$'s
1,496
1,249
247
184
5
8
(3)
53
(12)
-
% of sales
100.0%
83.5%
16.5%
12.3%
0.3%
0.5%
-0.2%
3.6%
-0.8%
-
$
$'s
1,478
1,240
238
182
16
3
-
37
(12)
(1)
(10)
9
(1)
$
-0.7%
0.6%
-0.1%
41
(19)
22
$
2.8%
-1.3%
1.5%
24
108
132
$
% of sales
100.0%
83.9%
16.1%
12.3%
1.1%
0.2%
-
2.5%
-0.8%
-0.1%
1.6%
7.3%
8.9%
Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:
Fiscal 2016 net sales decreased $143 million, or 10 percent, from the prior year, primarily due to lower sales in our
Americas and Europe segments. Sales volume increases in our Europe segment were more than offset by a $76 million
unfavorable impact of foreign currency exchange rate changes. In total, our fiscal 2016 sales were negatively affected by
a $110 million unfavorable impact of foreign currency exchange rate changes, primarily associated with the
strengthening of the U.S. dollar.
Gross profit decreased $23 million to $224 million in fiscal 2016, yet gross margin of 16.5 percent was consistent with
the prior year. The decrease in gross profit was primarily due to a $14 million unfavorable impact of foreign currency
exchange rate changes, $9 million of pension settlement losses, and lower sales volume in the Americas segment,
partially offset by lower material costs, improved production efficiencies, and cost-savings initiatives.
Fiscal 2016 SG&A expenses increased $21 million from the prior year. The increase was primarily due to $33 million of
pension settlement losses and the absence of $5 million of recoveries from business interruption insurance for the
Airedale fire received in the prior year, partially offset by ongoing cost-control initiatives and a $10 million favorable
impact of foreign currency exchange rate changes.
Restructuring expenses increased $12 million in fiscal 2016 compared with the prior year, primarily due to severance
expenses in the Europe and Americas segments and equipment transfer costs related to plant consolidation activities in
the Americas segment.
In fiscal 2016, we recorded a $10 million impairment charge to write down the carrying value of a manufacturing facility
in Germany to fair value. In fiscal 2015, we recorded a goodwill impairment charge of $8 million in Brazil and
recognized a gain of $3 million from the sale of a wind tunnel in Germany.
The operating loss of $8 million in fiscal 2016 represents a $61 million decline from $53 million of operating income in
the prior year. This decline was primarily due to $42 million of pension settlement losses, lower gross profit, higher
restructuring expenses, and a $4 million unfavorable impact of foreign currency exchange rate changes, partially offset
by ongoing cost-control initiatives.
Other income during fiscal 2016 includes a $10 million gain related to an insurance settlement for equipment losses
resulting from the Airedale fire in fiscal 2014.
25
Our benefit for income taxes was $9 million in fiscal 2016, compared with a provision for income taxes of $19 million in
fiscal 2015. This $28 million change was primarily due to $16 million of income tax benefits related to pension
settlement losses in the current year, a decrease in pre-tax operating earnings, and a $3 million income tax benefit related
to the reversal of a deferred tax asset valuation allowance in the current year.
Year Ended March 31, 2015 Compared with Year Ended March 31, 2014:
Fiscal 2015 net sales increased $18 million, or 1 percent, from the prior year, primarily due to sales increases in our
Building HVAC and Asia segments, partially offset by lower sales in our Americas segment, as economic conditions in
Brazil were weak, and in our Europe segment, where sales increases were more than offset by a $35 million unfavorable
impact of foreign currency exchange rate changes. In total, our fiscal 2015 sales were negatively affected by a $43
million unfavorable impact of foreign currency exchange rate changes, primarily associated with the strengthening of the
U.S. dollar.
Gross profit increased $9 million to $247 million in fiscal 2015 and gross margin increased 40 basis points to 16.5
percent, primarily due to sales volume improvements and lower warranty costs.
Fiscal 2015 SG&A expenses increased $2 million from the prior year, primarily due to increased engineering and
development costs and SG&A expenses at our Barkell business, which we acquired in the fourth quarter of fiscal 2014,
partially offset by $5 million of recoveries from business interruption insurance during fiscal 2015 related to the Airedale
fire.
Restructuring expenses decreased $11 million in fiscal 2015 compared with the prior year, primarily due to lower
restructuring costs in our Europe segment, partially offset by higher severance expenses in our Americas segment.
In fiscal 2015, we sold a wind tunnel in Germany that we no longer considered to be a core asset, and recognized a gain
of $3 million. In addition, we recorded a goodwill impairment charge of $8 million related to Brazil. In fiscal 2014, we
recorded $3 million of impairment charges, primarily related to restructuring actions in our Europe segment.
Operating income of $53 million in fiscal 2015 increased $16 million compared with the prior year. This improvement
was primarily due to higher gross profit on increased sales volume, lower restructuring expenses, and the gain on the sale
of the wind tunnel, partially offset by higher impairment charges and slightly higher SG&A expenses.
Our provision for income taxes was $19 million in fiscal 2015, compared with a benefit from income taxes of $108
million in fiscal 2014. The provision for taxes in the U.S. totaled $9 million in fiscal 2015, compared with a significant
benefit for taxes in fiscal 2014, which resulted primarily from the reversal of U.S. income tax valuation allowances
totaling $119 million. The provision for taxes in foreign jurisdictions totaled $10 million and $11 million in fiscal 2015
and 2014, respectively.
Earnings from discontinued operations of $1 million in fiscal 2015 related to a gain associated with the final collection of
proceeds from the fiscal 2009 sale of our Electronic Cooling business.
Segment Results of Operations
During fiscal 2016, we combined our North America and South America segments into the Americas segment to
streamline operations, gain synergies and improve our cost structure. As a result, we recast the prior-period segment
financial information to conform to the current-period presentation. There was no impact to our consolidated financial
statements as a result.
26
Americas
(in millions)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Impairment charges
Operating income
Years ended March 31,
2015
2016
% of sales
$'s
$
$'s
$
586
486
100
55
9
-
36
100.0%
82.9%
17.1%
9.4%
1.5%
-
6.2%
% of sales
100.0%
83.7%
16.3%
9.7%
0.4%
1.2%
5.0%
667
558
109
65
3
8
33
2014
% of sales
$'s
$
688
574
114
62
1
1
50
100.0%
83.4%
16.6%
9.0%
0.2%
0.2%
7.2%
$
$
$
Americas net sales decreased $81 million, or 12 percent, in fiscal 2016 compared with the prior year. Sales were lower
in both North America and Brazil, including a $25 million unfavorable impact of foreign currency exchange rate
changes. Sales in North America decreased $43 million, primarily due to lower sales volume to off-highway and
commercial vehicle customers, partially offset by higher sales volume to automotive customers. Sales volume to all
markets in Brazil also declined during fiscal 2016, as economic conditions in Brazil remained weak. Sales decreased
$21 million, or 3 percent, in fiscal 2015 compared with fiscal 2014, primarily due to lower sales in Brazil and a $9
million unfavorable impact of foreign currency exchange rate changes, partially offset by higher sales in North America,
where higher sales volume to commercial vehicle customers were partially offset by lower sales volume to off-highway
customers.
Gross profit decreased $9 million, yet gross margin increased 80 basis points to 17.1 percent in fiscal 2016. The
decrease in gross profit was primarily due to lower sales volume, a $3 million unfavorable impact of foreign currency
exchange rate changes, and $2 million of environmental charges for investigative work related to a previously-owned
manufacturing facility, partially offset by lower material costs, cost savings from the McHenry, Illinois manufacturing
facility closure, and improved production efficiencies. Gross profit decreased $5 million and gross margin decreased 30
basis points to 16.3 percent in fiscal 2015 compared with fiscal 2014, primarily due to lower sales volume in Brazil,
partially offset by lower warranty costs and sales volume improvements in North America.
Fiscal 2016 SG&A expenses decreased $10 million from the prior year, primarily due to ongoing cost-control initiatives,
the absence of a $3 million charge for a legal matter in Brazil in the prior year, and a $3 million favorable impact of
foreign currency exchange rate changes. Fiscal 2015 SG&A expenses increased $3 million from the prior year,
primarily due to the $3 million charge for the legal matter in fiscal 2015.
In fiscal 2016, we recorded $9 million of restructuring expenses, primarily related to severance expenses associated with
a voluntary retirement program in the U.S., and the planned closure of our Washington, Iowa manufacturing facility,
which we expect to complete during fiscal 2017, and equipment transfer costs related to plant consolidation activities in
North America. In fiscal 2015, we recorded $3 million of restructuring expenses, primarily related to severance
expenses in Brazil, to better align our cost structure with the market conditions in Brazil, and equipment transfer costs
related to the closure of our McHenry, Illinois manufacturing facility, which we completed during fiscal 2016. We also
recorded an $8 million goodwill impairment charge during fiscal 2015, primarily due to a decline in the financial outlook
for Brazil.
Operating income of $36 million in fiscal 2016 increased $3 million compared with the prior year, primarily due to lower
SG&A expenses and the absence of the goodwill impairment charge in the prior year, partially offset by lower gross
profit and higher restructuring expenses. Operating income of $33 million in fiscal 2015 decreased $17 million
compared with the prior year, primarily due to the goodwill impairment charge, lower gross profit, and higher SG&A
and restructuring expenses.
27
Europe
(in millions)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Impairment charges
Gain on sale of wind tunnel
Operating income
Years ended March 31,
2015
2016
% of sales
$'s
$
$'s
$
524
456
68
39
6
10
-
13
100.0%
87.0%
13.0%
7.4%
1.2%
1.9%
-
2.5%
% of sales
100.0%
88.1%
11.9%
7.6%
0.4%
-
-0.6%
4.5%
578
509
69
44
2
-
(3)
26
2014
% of sales
$'s
$
584
513
71
44
15
2
-
10
100.0%
87.9%
12.1%
7.6%
2.6%
0.3%
-
1.6%
$
$
$
Europe net sales decreased $54 million, or 9 percent, in fiscal 2016 compared with the prior year, primarily due to a $76
million unfavorable impact of foreign currency exchange rate changes and lower sales volume to off-highway customers,
partially offset by increased sales volume to commercial vehicle and automotive customers. Sales decreased $6 million,
or 1 percent, in fiscal 2015 compared with fiscal 2014, primarily due to a $35 million unfavorable impact of foreign
currency exchange rate changes and lower tooling sales, partially offset by increased sales volume to commercial vehicle
and automotive customers.
Gross profit decreased $1 million, yet gross margin increased 110 basis points to 13.0 percent in fiscal 2016. The gross
margin increase was primarily due to higher sales volume and lower material costs. In addition, gross profit was
negatively impacted by $9 million from foreign currency exchange rate changes. In fiscal 2015, gross margin decreased
20 basis points to 11.9 percent compared with fiscal 2014, primarily due to unfavorable sales mix, production
inefficiencies caused by increased volume at certain manufacturing facilities and plant consolidation activities, and a $4
million unfavorable impact of foreign currency exchange rate changes, partially offset by the absence of $4 million of
accelerated depreciation recorded in fiscal 2014 for production equipment that is no longer used and lower warranty
costs.
Fiscal 2016 SG&A expenses decreased $5 million from the prior year, primarily due to a $6 million favorable impact of
foreign currency exchange rate changes. Fiscal 2015 SG&A expenses of $44 million were consistent with the prior year,
as higher engineering and development costs were offset by a favorable impact of foreign currency exchange rate
changes.
In fiscal 2016, we recorded $6 million of restructuring expenses, primarily related to severance expenses. In addition,
we recorded a $10 million asset impairment charge. These restructuring expenses and impairment charge primarily
related to a manufacturing facility in Germany, which was generating pre-tax losses, resulting in management deciding
to exit a certain product line in the future. In fiscal 2015, we recorded $2 million of restructuring expenses, primarily
due to plant consolidation activities, and we sold a wind tunnel for cash proceeds of $6 million, which resulted in a gain
of $3 million. In fiscal 2014, we recorded $15 million of restructuring expenses, primarily related to severance expenses,
and $2 million of asset impairment charges.
Operating income of $13 million in fiscal 2016 decreased $13 million compared with the prior year, primarily due to an
increase in restructuring expenses and impairment charges and the absence of a $3 million gain on the sale of a wind
tunnel in the prior year, partially offset by lower SG&A expenses. Operating income of $26 million in fiscal 2015
increased $16 million compared with the prior year, primarily due to a reduction in restructuring expenses and
impairment charges and the gain from selling the wind tunnel.
28
Asia
(in millions)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income (loss)
2016
Years ended March 31,
2015
$'s
$
79
67
12
11
$
1
% of sales
100.0%
84.5%
15.5%
14.5%
1.0%
$'s
$
81
69
12
12
-
$
% of sales
100.0%
85.8%
14.2%
13.9%
0.3%
2014
% of sales
$'s
$
72
63
9
12
(3)
100.0%
87.5%
12.5%
17.2%
-4.7%
$
Asia net sales decreased $2 million, or 3 percent, in fiscal 2016 compared with the prior year, primarily due to lower
sales volume to off-highway customers in China and Korea and a $4 million unfavorable impact of foreign currency
exchange rate changes, partially offset by higher sales volume to automotive customers in China and increased overall
sales in India. Sales increased $9 million, or 13 percent, in fiscal 2015 compared with fiscal 2014, primarily due to
automotive program launches in China and increased overall sales in India, partially offset by lower sales volume to off-
highway customers.
Gross margin increased 130 basis points to 15.5 percent in fiscal 2016 compared with the prior year, primarily due to
favorable sales mix. Gross profit increased $3 million and gross margin increased 170 basis points to 14.2 percent in
fiscal 2015 compared with fiscal 2014, primarily due to higher sales volume.
Fiscal 2016 SG&A expenses decreased $1 million from the prior year, primarily due to cost-control initiatives, partially
offset by acquisition-related costs associated with a joint venture that we formed in fiscal 2016. See Note 3 to the Notes
to Consolidated Financial Statements for additional information on this joint venture. Fiscal 2015 SG&A expenses were
consistent with the prior year, yet decreased as a percentage of sales.
Operating income of $1 million in fiscal 2016 increased $1 million compared with the prior year, primarily due to lower
SG&A expenses. Operating income of less than $1 million in fiscal 2015 represented a $3 million improvement
compared with the operating loss in the prior year, and was primarily due to higher gross profit on increased sales
volume.
Building HVAC
(in millions)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Operating income
Years ended March 31,
2015
2014
2016
% of sales
$'s
$
$'s
$
181
127
54
39
1
14
100.0%
70.1%
29.9%
21.6%
0.6%
7.7%
$
$
% of sales
100.0%
70.0%
30.0%
19.8%
-
10.2%
$'s
$
146
103
43
34
-
$
9
% of sales
100.0%
70.4%
29.6%
23.2%
-
6.4%
186
130
56
37
-
19
Building HVAC net sales decreased $5 million, or 3 percent, in fiscal 2016 compared with the prior year, primarily due
to a $6 million unfavorable impact of foreign currency exchange rate changes and lower sales at our businesses in the
U.K., as unfavorable currency conditions resulted in increased competition from other mainland European suppliers,
partially offset by increased ventilation product sales in North America. Sales increased $40 million, or 27 percent, in
fiscal 2015 compared with fiscal 2014, primarily due to a $23 million increase in sales at our businesses in the U.K. and
increased heating product sales in North America, as we experienced a strong heating season in fiscal 2015. The sales
increase in the U.K. was primarily due to a $13 million increase in sales at Barkell, which we acquired in the fourth
quarter of fiscal 2014, and the continuing recovery from the Airedale fire, which caused a temporary halt in production
during the prior fiscal year.
Gross profit decreased $2 million in fiscal 2016 compared with the prior year, primarily due to a $1 million unfavorable
impact of foreign currency exchange rate changes. Gross margin decreased 10 basis points to 29.9 percent in fiscal 2016
29
compared with the prior year. Gross profit increased $13 million and gross margin improved 40 basis points to 30.0
percent in fiscal 2015 compared with fiscal 2014, primarily due to higher sales volume.
Fiscal 2016 SG&A expenses increased $2 million from the prior year, primarily due to the absence of $5 million of
recoveries from business interruption insurance for the Airedale fire received in the prior year, partially offset by lower
engineering and development costs and a $1 million favorable impact of foreign currency exchange rate changes. Fiscal
2015 SG&A expenses increased $3 million from the prior year, primarily due to additional costs from Barkell and
increased expenses associated with higher sales levels, partially offset by the recoveries from business interruption
insurance for the Airedale fire.
In fiscal 2016, we recorded $1 million of restructuring expenses, primarily related to severance expenses.
Operating income of $14 million in fiscal 2016 decreased $5 million compared with the prior year, primarily due to
lower gross profit and higher SG&A expenses. Operating income of $19 million in fiscal 2015 increased $10 million
compared with the prior year, primarily due to higher gross profit, partially offset by higher SG&A expenses.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents at March 31, 2016
of $69 million, and an available borrowing capacity of $207 million under lines of credit provided by banks in the United
States and abroad. Given our extensive international operations, $49 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 would be subject to U.S. tax if repatriated. We have not encountered, and do not expect to encounter, any
difficulty meeting the liquidity requirements of our global operations.
During fiscal 2016, our Board of Directors approved a $50 million share repurchase program, which expires in
November 2016. We repurchased $7 million of shares under this program in fiscal 2016. Our decision whether and to
what extent to repurchase additional shares will depend on a number of factors, including business conditions, other cash
priorities, and stock price.
Net Cash Provided by Operating Activities
Net cash provided by operating activities in fiscal 2016 was $72 million, an increase of $8 million from $64 million in
the prior year. This increase in operating cash flow was primarily due to favorable net changes in working capital,
including lower incentive compensation payments during fiscal 2016 and the timing of value-added tax payments.
Net cash provided by operating activities in fiscal 2015 was $64 million, a decrease of $41 million from $105 million in
the prior year. This decrease in operating cash flow was primarily due to unfavorable net changes in working capital,
including higher incentive compensation payments during fiscal 2015 related to fiscal 2014 performance, and the timing
of customer-owned tooling reimbursements.
Capital Expenditures
Capital expenditures of $63 million during fiscal 2016 increased $5 million compared with fiscal 2015. In fiscal 2016,
our capital spending primarily occurred in the Americas and Europe segments, which totaled $27 million and $25
million, respectively. Capital projects in fiscal 2016 included tooling and equipment purchases in conjunction with new
and renewal programs with customers.
At March 31, 2016, our capital expenditure commitments totaled $21 million. Significant commitments included tooling
and equipment expenditures for new and renewal programs with customers in the Americas and Europe segments.
Dividends
We did not pay dividends in fiscal 2016, 2015, or 2014. We currently do not intend to pay dividends in fiscal 2017.
30
Debt
Our total debt outstanding increased $14 million to $163 million at March 31, 2016, compared with the prior year,
primarily due to borrowings in China and Mexico for capital investments. See Note 16 of the Notes to Consolidated
Financial Statements for additional information regarding our debt agreements.
Our debt agreements require us to maintain compliance with various covenants. Under our primary debt agreements in
the U.S., we are subject to a leverage ratio covenant, which requires us to limit our consolidated indebtedness, less a
certain portion of our cash balance, both as defined by the credit agreement, to no more than three and one-quarter times
consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted
EBITDA”). We are also subject to an interest expense coverage ratio covenant, which requires us to maintain Adjusted
EBITDA of at least three times consolidated interest expense.
Our leverage ratio for the four fiscal quarters ended March 31, 2016 was 1.2, which was below the maximum permitted
ratio of 3.25. Our interest expense coverage ratio for the four fiscal quarters ended March 31, 2016 was 10.5, which
exceeded the minimum requirement of 3.0. We were in compliance with our debt covenants as of March 31, 2016 and
expect to remain in compliance during fiscal 2017 and beyond. In the event of an acquisition, our leverage ratio may be
temporarily raised for several quarters, per the terms of our debt agreements.
Off-Balance Sheet Arrangements
None.
Contractual Obligations
(in millions)
Long-term debt
Interest associated with long-term debt
Capital lease obligations
Operating lease obligations
Capital expenditure commitments
Other long-term obligations
Total contractual obligations
March 31, 2016
Total
Less than 1
year
1 - 3 years
4 - 5 years
More than 5
years
$
$
$
$
125.4
30.3
8.6
53.5
20.5
3.6
241.9
8.0
8.5
0.5
8.1
20.0
1.7
46.8
32.2
14.1
0.8
10.4
0.5
1.2
59.2
85.2
7.7
0.8
8.7
-
0.7
103.1
$
-
-
6.5
26.3
-
-
32.8
$
$
$
$
$
Our liabilities for pensions, postretirement benefits, and uncertain tax positions totaled $129 million as of March 31,
2016. We are unable to determine the ultimate timing of payments for these liabilities; therefore, we have excluded
these amounts from the contractual obligations table above. We expect to contribute $8 million to our U.S. pension
plans during fiscal 2017.
Critical Accounting Policies
The following critical accounting policies reflect the more significant judgments and estimates used in preparing our
consolidated financial statements. Application of these policies results in accounting estimates that have the greatest
potential for a significant impact on our financial statements. The following discussion of these judgments and estimates
is intended to supplement the significant accounting policies presented in Note 1 of the Notes to Consolidated Financial
Statements. In addition, recently issued accounting pronouncements that could significantly impact our financial
statements are included in Note 1 of the Notes to Consolidated Financial Statements.
Revenue Recognition
We recognize revenue, including agreed-upon commodity prices, when the risks and rewards of ownership are transferred
to our customers, which generally occurs upon shipment. Revenue is recorded net of applicable provisions for sales
31
rebates, volume incentives, and returns and allowances. At the time of revenue recognition, we also record estimates for
bad debt expense and warranty expense. We base these estimates on historical experience, current business trends, and
current economic conditions. We recognize price increases that are agreed upon in advance as revenue when the products
are shipped to our customers.
Impairment of Long-Lived Assets
We perform impairment evaluations of long-lived assets, including property, plant and equipment, intangible assets and
equity investments, whenever business conditions or events indicate that those assets may be impaired. We consider
factors such as operating losses, declining financial outlooks and market conditions, when evaluating the necessity for an
impairment analysis. When the net asset values exceed undiscounted cash flows expected to be generated by the assets,
or the decline in value is considered to be “other than temporary,” we write down the assets to fair value and record an
impairment charge to current operations. We estimate fair value in various ways depending on the nature of the assets
under review. Fair value is generally based on appraised value, estimated salvage value, or selling prices under
negotiation, as applicable.
The most significant long-lived assets we evaluated for impairment indicators were property, plant and equipment, which
totaled $339 million at March 31, 2016. Within property, plant and equipment, the most significant assets evaluated are
buildings and improvements and machinery and equipment. We evaluate impairment at the lowest level of separately
identifiable cash flows, which is generally at the manufacturing plant level. We monitor manufacturing plant financial
performance to determine whether indicators exist that would require an impairment evaluation for the facility. This
includes significant adverse changes in plant profitability metrics; substantial changes in the mix of customer products
manufactured in the plant; changes in manufacturing strategy; and the shifting of programs to other facilities under a
manufacturing realignment strategy. When such indicators are present, we perform an impairment evaluation. During
fiscal 2016, we recorded a $10 million impairment charge related to a manufacturing facility in Germany. See Note 6 of
the Notes to the Consolidated Financial Statements for additional information.
Impairment of Goodwill
We perform goodwill impairment tests annually, as of March 31, unless business events or other conditions exist that
require a more frequent evaluation. At March 31, 2016, our goodwill totaled $16 million, primarily related to our
Building HVAC segment. We consider factors such as operating losses, declining financial and market outlooks and
market capitalization when evaluating the necessity for an interim impairment analysis. Goodwill is tested for
impairment at a reporting unit level, which we have determined to be at the operating segment level. Our first step in
this test is to compare the fair value of the reporting unit to its carrying value. We determine the fair value of a reporting
unit based upon the present value of estimated future cash flows. If the fair value of the reporting unit exceeds the
carrying value of the unit’s net assets, goodwill of that reporting unit is not impaired and further testing is not required.
If the carrying value of the reporting unit’s net assets exceeds the fair value of the unit, then we perform the second step
of the impairment test to determine the implied fair value of the reporting unit’s goodwill and any impairment charge. In
estimating the implied fair value of goodwill for a reporting unit, we assign the fair value to the assets and liabilities
associated with the reporting unit as if the reporting unit had been acquired in a business combination. Any excess of the
carrying value of the reporting unit goodwill over its implied fair value is recorded as an impairment charge.
Determining the fair value of a reporting unit involves judgment and the use of significant estimates and assumptions,
which include assumptions regarding the revenue growth rates and operating profit margins used to calculate estimated
future cash flows, the risk-adjusted discount rate, business trends and market conditions. We determine the expected
future revenue growth rates and operating profit margins after consideration of our historical revenue growth rates and
earnings levels, our assessment of future market potential and our expectations of future business performance. The
discount rate used in determining discounted cash flows is a rate corresponding to our cost of capital, adjusted for
country-specific risks where appropriate.
We conducted our annual assessment for goodwill impairment during the fourth quarter of fiscal 2016 by applying a fair
value-based test and determined the fair value of our reporting units substantially exceeded their respective book values.
Warranty Costs
We estimate costs related to product warranties and accrue for such costs at the time of the sale, within cost of sales. We
estimate warranty costs based upon the best information available, which includes statistical and analytical analysis of
32
both historical and current claim data. We monitor and adjust our warranty accruals, which totaled $8 million at March
31, 2016, if it is probable that expected claims will differ from previous estimates.
Pension Obligations
Our calculation of the expense and liabilities of our pension plans is dependent upon various assumptions. At March 31,
2016, our pension liabilities totaled $120 million. The most significant assumptions include the discount rate, long-term
expected return on plan assets, and mortality rate tables. We base our selection of assumptions on historical trends and
economic and market conditions at the time of valuation. In accordance with U.S. GAAP, actual results that differ from
these assumptions are accumulated and amortized over future periods. These differences impact future pension
expenses. Currently, participants in our domestic pension plans are not accruing benefits based on their current service
as the plans do not include increases in annual earnings or for future service in calculating the average annual earnings
and years of credited service under the pension plan formula.
For the following discussion regarding sensitivity of assumptions, all amounts presented are in reference to our domestic
pension plans, since our domestic plans comprise all of our benefit plan assets and the large majority of our pension plan
expense.
To determine the expected rate of return on pension plan assets, we consider such factors as (a) the actual return earned
on plan assets, (b) historical rates of return on the various asset classes in the plan portfolio, (c) projections of returns on
those asset classes, (d) the amount of active management of the assets, (e) capital market conditions and economic
forecasts, and (f) administrative expenses paid with the plan assets. The long-term rate of return utilized in fiscal 2016
and 2015 was 8.0 percent. For fiscal 2017, we have also assumed a rate of 8.0 percent. The impact of a 25 basis point
decrease in the expected rate of return on assets would result in an increase of $0.4 million in fiscal 2017 pension
expense.
The discount rate reflects rates available on long-term, high-quality fixed-income corporate bonds on the measurement
date of March 31. For fiscal 2016, we used a discount rate of 4.1 percent, compared with 4.0 percent in fiscal 2015. We
determined these rates based upon a yield curve that was created following an analysis of the projected cash flows from
the affected plans. See Note 17 of the Notes to Consolidated Financial Statements for additional information. A change
in the assumed discount rate of 25 basis points would impact our fiscal 2017 pension expense by less than $0.1 million.
Income Taxes
We operate in numerous taxing jurisdictions and are therefore subject to regular examinations by federal, state and non-
U.S. taxing authorities. Due to the application of complex and sometimes ambiguous tax laws and rulings in the
jurisdictions in which we do business, there is an inherent level of uncertainty within our worldwide tax provisions.
Despite our belief that our tax return positions are consistent with applicable tax laws, it is possible that taxing
authorities could challenge certain positions.
Our deferred tax assets and liabilities reflect temporary differences between the amount of assets and liabilities for
financial and tax reporting purposes. We adjust these amounts to reflect changes in tax rates expected to be in effect
when the temporary differences reverse. We record a valuation allowance if we determine it is more likely than not that
the net deferred tax assets in certain jurisdictions will not be realized. This determination involves significant judgment.
In performing this assessment on a jurisdiction-by-jurisdiction basis, we consider historical and projected financial
results along with other pertinent information.
We have not recorded a provision for U.S. income taxes on undistributed earnings from our non-U.S. subsidiaries that
we have determined to be permanently reinvested in our foreign operations. If management’s intentions or U.S. tax law
changes in the future, there could be a significant negative impact on our provision for income taxes.
See Note 8 of the Notes to Consolidated Financial Statements for additional information regarding income taxes.
Other Loss Reserves
We maintain liabilities and reserves for a number of other loss exposures, such as environmental remediation costs, self-
insurance reserves, uncollectible accounts receivable, regulatory compliance matters, and litigation. Establishing loss
reserves for these exposures requires the use of estimates and judgment to determine the risk exposure and ultimate
33
potential liability. We estimate these reserve requirements by using consistent and suitable methodologies for the
particular type of loss reserve being calculated. See Note 19 of the Notes to Consolidated Financial Statements for
additional information regarding contingencies and litigation.
Forward-Looking Statements
This report, including, but not limited to, the discussion under Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations, contains statements, including information about future financial
performance, accompanied by phrases such as “believes,” “estimates,” “expects,” “plans,” “anticipates,” “intends,” and
other similar “forward-looking” statements, as defined in the Private Securities Litigation Reform Act of 1995.
Modine’s actual results, performance or achievements may differ materially from those expressed or implied in these
statements, because of certain risks and uncertainties, including, but not limited to, those described under “Risk Factors”
in Item 1A. in Part I. of this report. Other risks and uncertainties include, but are not limited to, the following:
Market Risks:
• Economic, social and political conditions, changes, challenges and unrest, particularly in the geographic,
product and financial markets where we and our customers operate and compete, including, in particular,
foreign currency exchange rate fluctuations, tariffs, inflation, changes in interest rates, recession and recovery
therefrom, restrictions associated with importing and exporting and foreign ownership, and, in particular, the
continuing recovery and/or instability of certain markets in which we operate in China and North America, and
the continued deterioration in and weak forecasts for the Brazilian economy;
• The impact of potential increases in commodity prices, including our ability to successfully manage our
exposure and/or pass increasing prices of aluminum, copper, steel and stainless steel (nickel) on to customers,
as well as the inherent lag in timing of such pass-through arrangements; and
• The impact of current and future environmental laws and regulations on our business and the businesses of our
customers, including our ability to take advantage of opportunities to supply alternative new technologies to
meet environmental and/or energy standards and objectives.
Operational Risks:
• The overall health and increasing price-down focus of our original equipment manufacturer customers in light
of economic and market-specific challenges, and the potential impact on us from any deterioration in the
stability or performance of any of our major customers;
• Our ability to maintain current customer programs and compete effectively for new business, including our
ability to offset or otherwise address increasing pricing pressures from competitors and price reduction
pressures from customers, particularly in the face of macro-economic instability;
• Our ability to effectively and efficiently realize expected commercial and operational efficiencies and
associated cost savings and other benefits associated with our Strengthen, Diversify and Grow transformational
strategy;
• Unanticipated product or manufacturing difficulties or inefficiencies, including unanticipated program launch
and product transfer challenges and warranty claims;
• Our ability to obtain and retain profitable business in our Asia segment, and, in particular, in China;
• Unanticipated delays or modifications initiated by major customers with respect to product launches, product
applications or requirements;
• Unanticipated problems with suppliers meeting our time, quantity, quality and price demands, and the overall
health of our suppliers, particularly in light of some continuing economic challenges in areas of the world in
which we and our suppliers operate;
34
• Our ability to effectively and efficiently complete restructuring activities in our Europe segment and realize
expected cost reductions and increased competitiveness and profitability as a result;
• Our ability to complete the transition of our Washington, Iowa production to other facilities efficiently and
effectively;
• Costs and other effects of the remediation of environmental contamination;
•
Increasingly complex and restrictive laws and regulations, including those associated with being a U.S. public
company and others present in various jurisdictions in which we operate, and the costs associated with
compliance therewith;
• Work stoppages or interference at our facilities or those of our major customers and/or suppliers; and
• Costs and other effects of unanticipated litigation or claims, and the constant pressures associated with
healthcare and insurance costs.
Strategic Risks:
• Our ability to identify and execute appropriate opportunities to enable us to achieve our Strengthen, Diversify
and Grow transformational strategy in order to position us for long-term success.
Financial Risks:
• Our ability to fund our global liquidity requirements efficiently, particularly those in our Asia business segment,
and meet our long-term commitments in the event of any unexpected disruption in or tightening of the credit
markets or extended recessionary conditions in the global economy;
• The impact of foreign currency exchange rate fluctuations, particularly the value of the euro, Brazilian real,
British pound, and Indian rupee relative to the U.S. dollar; and
• Our ability to realize the benefits of tax assets in various jurisdictions in which we operate.
In addition to the risks set forth above, we are subject to other risks and uncertainties as identified in our public filings
with the U.S. Securities and Exchange Commission. We do not assume any obligation to update any forward-looking
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of business, we are subject to market exposure from changes in foreign exchange rates, interest
rates, commodity prices, credit risk and economic conditions.
Foreign Currency Risk
We are subject to the risk of changes in foreign currency exchange rates due to our operations in foreign countries. We
have manufacturing facilities in Brazil, China, India, Mexico, South Africa, and throughout Europe. We also have joint
ventures in China, Japan and South Korea. We sell and distribute products throughout the world and also purchase raw
materials from foreign countries. As a result, our financial results are affected by changes in foreign currency exchange
rates and economic conditions in the foreign markets in which we do business. We attempt to mitigate foreign currency
risks on transactions with customers and suppliers in foreign countries by entering into contracts that are denominated in
the functional currency of the subsidiary engaging in the transaction. Our financial results are principally exposed to
changes in exchange rates between the U.S. dollar and European currencies, primarily the euro, and changes between the
U.S. dollar and the Brazilian real, and between the euro and the British pound. In fiscal 2016, 2015, and 2014, more than
50 percent of our sales were generated in countries outside the U.S. A change in foreign exchange rates will positively
or negatively affect our sales; however, this impact will be offset, usually to a large degree, with a corresponding effect
on our expenses. In fiscal 2016, changes in foreign currencies negatively impacted our sales by $110 million; however,
35
the impact on our operating income was only $4 million. Foreign currency exchange risk can be estimated by measuring
the impact of a near-term adverse movement of 10 percent in foreign currency exchange rates. If these rates were 10
percent higher or lower during fiscal 2016, there would not have been a material impact on our fiscal 2016 earnings.
We maintain, from time to time, foreign-denominated, long-term debt obligations and long-term intercompany loans that
are subject to foreign currency exchange risk. As of March 31, 2016, we did not have any long-term intercompany loans
for which changes in foreign currency exchange rates would impact our net earnings. From time to time, we enter into
currency rate derivative contracts to manage the foreign exchange rate exposure on these types of loans. These
derivative instruments are typically not treated as hedges, and accordingly, gains or losses on the derivatives are recorded
in other income and expense in the consolidated statements of operations and act to offset any currency movement on the
outstanding loans receivable or payable.
Interest Rate Risk
We actively seek to reduce the potential volatility of earnings that could arise from changes in interest rates. We
generally utilize a mixture of debt maturities and both fixed-rate and floating-rate debt to manage exposure to changes in
interest rates. Our domestic revolving credit facility is based on a variable interest rate of London Interbank Offered
Rate (“LIBOR”) plus 125 to 225 basis points, depending on our leverage ratio. We are subject to risk of fluctuations in
LIBOR and changes in our leverage ratio, which would affect the variable interest rate on our revolving credit facility
and could create variability in interest expense. There were no borrowings outstanding under the revolving credit facility
as of March 31, 2016. Based on our outstanding debt with variable interest rates at March 31, 2016, a 100 basis point
increase in interest rates would increase our annual interest expense in fiscal 2017 by less than $1 million.
Commodity Price Risk
We are dependent upon the supply of raw materials and supplies in the production process and, from time to time, enter
into firm purchase commitments for aluminum, copper, nickel, and natural gas. We maintain agreements with certain
customers to pass through specified raw material price fluctuations in order to mitigate commodity price risk. The
majority of these agreements contain provisions in which the pass-through of the price fluctuations can lag behind the
actual fluctuations by three months or longer, and typically the arrangements are limited to the underlying material cost
based upon the London Metal Exchange.
Credit Risk
Credit risk represents the possibility of loss from a customer failing to make payment according to contract terms. Our
principal credit risk consists of outstanding trade accounts receivable. At March 31, 2016, 45 percent of our trade
accounts receivable balance was concentrated with our top ten customers. These customers operate primarily in the
automotive, commercial vehicle, and off-highway markets and are influenced by similar market and general economic
factors. In the past, credit losses from our customers have not been significant.
We manage credit risk through a focus on the following:
• Cash and investments – We review cash deposits and short-term investments to ensure banks have acceptable
credit ratings, and short-term investments are maintained in secured or guaranteed instruments. We consider
our holdings in cash and investments to be stable and secure at March 31, 2016;
• Trade accounts receivable – Prior to granting credit, we evaluate each customer, taking into consideration the
customer's financial condition, payment experience and credit information. After credit is granted, we
actively monitor the customer's financial condition and applicable business news;
• Pension assets – We have retained outside advisors to assist in the management of the assets in our pension
plans. In making investment decisions, we utilize an established risk management protocol that focuses on
protection of the plan assets against downside risk. We ensure that investments within these plans provide
appropriate diversification, the investments are monitored by investment teams, and portfolio managers
adhere to the established investment policies. We believe the plan assets are subject to appropriate investment
policies and controls; and
Insurance – We monitor our insurance providers to ensure they have acceptable financial ratings. We have
not identified any concerns in this regard based upon our reviews.
•
36
Economic Risk
Economic risk represents the possibility of loss resulting from economic instability in certain areas of the world or
downturns in markets in which we operate. We sell a broad range of products that provide thermal solutions to
customers operating primarily in the commercial vehicle, automotive, off-highway, and building HVAC markets. We
operate in diversified markets as a strategy for offsetting the risk associated with a downturn in any of the markets we
serve. However, risk associated with market downturns, such as the global downturn experienced in fiscal 2009 and
fiscal 2010, is still present.
We monitor economic conditions in the U.S., in our foreign markets and elsewhere. As we expand our global presence,
we also encounter risks imposed by potential trade restrictions, including tariffs, embargoes and the like. We continue to
pursue non-speculative opportunities to mitigate these economic risks, and capitalize, when possible, on changing market
conditions.
We pursue new market opportunities after careful consideration of the potential associated risks and benefits. Successes
in new markets are dependent upon our ability to commercialize our investments. Current examples of new and
emerging markets for us include those related to waste heat recovery, coils, and the Chinese and Indian markets. Our
investment in these areas is subject to the risks associated with business integration, technological success, customer and
market acceptance, and our ability to meet the demands of our customers as these markets grow.
We anticipate that recovery within some of our geographic and end markets, and particularly growth in China may put
production pressure on certain suppliers of our raw materials. In particular, there are a limited number of suppliers of
aluminum, copper, and steel material. We are exposed to the risk of suppliers of certain raw materials not being able to
meet customer demand as they may not increase their output capacity as quickly as customers increase their orders, and
of increased prices being charged by raw material suppliers.
In addition, we purchase parts from suppliers that use our tooling to create the parts. In most instances, and for financial
reasons, we do not have duplicate tooling for the manufacture of the purchased parts. As a result, we are exposed to the
risk of a supplier being unable to provide the quantity or quality of parts that we require. Even in situations where
suppliers are manufacturing parts without the use of our tooling, we face the challenge of obtaining consistently high-
quality parts from suppliers that are financially stable. We utilize a supplier risk management program that leverages
internal and third-party tools to identify and mitigate higher-risk supplier situations.
In addition to the above risks on the supply side, we are also exposed to risks associated with demands by our customers
for decreases in the price of our products. We attempt to offset this risk with firm agreements with our customers
whenever possible, but these agreements often contain provisions for future price reductions. In addition, customers
occasionally link price reductions to future program awards, and we must assess the overall implications of such requests
on a case-by-case basis.
Hedging and Foreign Currency Forward Contracts
We use derivative financial instruments as a tool to manage certain financial risks. We prohibit the use of leveraged
derivatives.
Commodity derivatives: From time to time, we enter into futures contracts related to certain forecasted purchases of
aluminum and copper. Our strategy is to reduce our exposure to changing market prices for future purchases of these
commodities. In fiscal 2016, 2015, and 2014, expenses related to commodity derivative contracts totaled less than $1
million each year.
Foreign currency forward contracts: Our foreign exchange risk management strategy uses derivative financial
instruments in a limited way to mitigate foreign currency exchange risk. We periodically enter into foreign currency
exchange contracts to hedge specific foreign currency-denominated assets and liabilities. We have not designated these
forward contracts as hedges. Accordingly, we record unrealized gains and losses related to the change in the fair value
of the contracts in other income and expense. Gains and losses on these foreign currency forward contracts are offset by
foreign currency gains and losses associated with the related assets and liabilities.
Counterparty risks: We manage counterparty risks by ensuring that counterparties to derivative instruments have credit
ratings acceptable to us. At March 31, 2016, all counterparties had a sufficient long-term credit rating.
37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2016, 2015 and 2014
(In millions, except per share amounts)
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Restructuring expenses
Impairment charges
Gain on sale of wind tunnel
Operating (loss) income
Interest expense
Other income (expense) – net
(Loss) earnings from continuing operations before income taxes
Benefit (provision) for income taxes
(Loss) earnings from continuing operations
Earnings from discontinued operations, net of income taxes
Net (loss) earnings
Net earnings attributable to noncontrolling interest
Net (loss) earnings attributable to Modine
2016
2015
2014
$
1,352.5
1,129.0
223.5
204.5
16.6
9.9
-
(7.5)
(11.1)
8.7
(9.9)
8.9
(1.0)
-
(1.0)
(0.6)
(1.6)
$
$
1,496.4
1,249.9
246.5
184.5
4.7
7.8
(3.2)
52.7
(11.7)
0.2
41.2
(19.0)
22.2
0.6
22.8
(1.0)
21.8
$
$
1,477.6
1,239.4
238.2
181.7
16.1
3.2
-
37.2
(12.4)
(0.8)
24.0
107.9
131.9
-
131.9
(1.5)
130.4
$
(Loss) earnings per share from continuing operations attributable to Modine
shareholders:
Basic
Diluted
$
(0.03)
$
0.45
$
2.75
$
(0.03)
$
0.44
$
2.72
Net (loss) earnings per share attributable to Modine shareholders:
Basic
Diluted
Weighted-average shares outstanding:
Basic
Diluted
$
(0.03)
$
0.46
$
2.75
$
(0.03)
$
0.45
$
2.72
47.3
47.3
47.2
47.8
46.9
47.6
The notes to consolidated financial statements are an integral part of these statements.
38
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2016, 2015 and 2014
(In millions)
Net (loss) earnings
Other comprehensive income (loss):
Foreign currency translation
Defined benefit plans, net of income taxes of $11.8, ($13.2) and $9.8 million
Cash flow hedges, net of income taxes of $0, $0 and $0.6 million
Total other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income attributable to noncontrolling interest
2016
2015
2014
$
(1.0)
$
22.8
$
131.9
4.6
19.7
-
24.3
23.3
(0.5)
(68.2)
(26.7)
-
(94.9)
(72.1)
(0.8)
9.7
13.9
1.1
24.7
156.6
(1.7)
Comprehensive income (loss) attributable to Modine
$
22.8
$
(72.9)
$
154.9
The notes to consolidated financial statements are an integral part of these statements.
39
MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
March 31, 2016 and 2015
(In millions, except per share amounts)
2016
2015
$
$
68.9
189.1
111.0
43.5
412.5
338.6
8.2
15.8
123.1
22.7
920.9
70.5
192.9
107.7
79.7
450.8
322.1
9.9
16.2
115.4
16.5
930.9
$
$
ASSETS
Cash and cash equivalents
Trade accounts receivable – net
Inventories
Other current assets
Total current assets
Property, plant and equipment – net
Intangible assets – net
Goodwill
Deferred income taxes
Other noncurrent assets
Total assets
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term debt
Long-term debt – current portion
Accounts payable
Accrued compensation and employee benefits
Other current liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Pensions
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (see Note 19)
Shareholders' equity:
Preferred stock, $0.025 par value, authorized 16.0 million shares, issued - none
Common stock, $0.625 par value, authorized 80.0 million shares, issued 49.0
million and 48.6 million shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 1.6 million and 0.7 million shares
Total Modine shareholders' equity
Noncontrolling interest
Total equity
Total liabilities and equity
The notes to consolidated financial statements are an integral part of these statements.
$
28.6
8.5
142.4
58.6
35.5
273.6
125.5
4.2
118.6
16.3
538.2
$
18.6
0.5
152.0
56.7
83.0
310.8
129.6
3.1
110.4
16.4
570.3
-
-
30.6
185.6
358.2
(174.2)
(24.0)
376.2
6.5
382.7
920.9
$
30.4
180.6
359.8
(198.6)
(16.2)
356.0
4.6
360.6
930.9
$
40
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 2016, 2015 and 2014
(In millions)
Cash flows from operating activities:
Net (loss) earnings
Adjustments to reconcile net (loss) earnings to net cash provided
by operating activities:
Depreciation and amortization
Insurance proceeds from Airedale fire
Impairment charges
Gain on sale of wind tunnel
Pension and postretirement expense
Loss from disposition of property, plant and equipment
Deferred income taxes
Stock-based compensation expense
Other – net
Changes in operating assets and liabilities, excluding acquisitions:
Trade accounts receivable
Inventories
Accounts payable
Accrued compensation and employee benefits
Other assets
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Expenditures for property, plant and equipment
Insurance proceeds from Airedale fire
Costs to replace building and equipment damaged in Airedale fire
Acquisitions – net of cash acquired
Proceeds from dispositions of assets
Purchases of short-term investments
Proceeds from maturities of short-term investments
Other – net
Net cash used for investing activities
Cash flows from financing activities:
Borrowings of debt
Repayments of debt
Purchases of treasury stock under share repurchase program
Financing fees paid
Dividend paid to noncontrolling interest
Other – net
Net cash provided by (used for) financing activities
2016
2015
2014
$
(1.0)
$
22.8
$
131.9
50.2
5.9
9.9
-
45.1
0.4
(18.8)
4.9
(0.3)
8.0
(2.7)
(9.9)
0.8
(14.5)
(5.6)
72.4
(62.8)
27.4
(41.7)
(1.4)
0.4
(2.7)
2.1
0.9
(77.8)
38.0
(27.1)
(6.9)
-
(0.9)
(0.4)
2.7
51.6
12.9
7.8
(3.2)
2.3
1.1
5.9
4.0
(0.7)
(0.1)
(4.2)
(2.4)
(5.3)
(24.5)
(4.5)
63.5
(58.3)
12.2
(16.7)
-
7.6
(5.2)
2.4
0.8
(57.2)
36.4
(50.9)
-
(0.1)
-
-
(14.6)
58.1
16.9
3.2
-
3.2
2.6
(116.1)
3.6
(0.5)
(18.2)
(0.1)
15.2
17.5
2.1
(14.9)
104.5
(53.1)
20.7
(4.2)
(7.8)
2.9
-
-
-
(41.5)
152.6
(152.4)
-
(0.9)
(0.5)
(0.3)
(1.5)
Effect of exchange rate changes on cash
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents - beginning of year
Cash and cash equivalents - end of year
1.1
(1.6)
70.5
68.9
$
(8.4)
(16.7)
87.2
70.5
$
1.9
63.4
23.8
87.2
$
The notes to consolidated financial statements are an integral part of these statements.
41
MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended March 31, 2016, 2015 and 2014
(In millions)
Common stock
Shares
Amount
Additional
paid-in
capital
$
$
Retained
earnings
$
Accumulated
other
comprehensive
loss
$
Non-
controlling
interest
$
Total
$
Balance, March 31, 2013
Net earnings attributable to Modine
Other comprehensive income
Stock options and awards including related tax benefits
Purchase of treasury stock
Stock-based compensation expense
Dividend paid to noncontrolling interest
Net earnings attributable to noncontrolling interest
Balance, March 31, 2014
Net earnings attributable to Modine
Other comprehensive loss
Stock options and awards including related tax benefits
Purchase of treasury stock
Stock-based compensation expense
Net earnings attributable to noncontrolling interest
Balance, March 31, 2015
Net loss attributable to Modine
Other comprehensive income
Stock options and awards including related tax benefits
Purchase of treasury stock
Stock-based compensation expense
Contribution by noncontrolling interest
Dividend paid to noncontrolling interest
Net earnings attributable to noncontrolling interest
Balance, March 31, 2016
47.8
-
-
0.5
-
-
-
-
48.3
-
-
0.3
-
-
-
48.6
-
-
0.4
-
-
-
-
-
49.0
29.9
-
-
0.3
-
-
-
-
30.2
-
-
0.2
-
-
-
30.4
-
-
0.2
-
-
-
-
-
30.6
171.2
-
-
0.9
-
3.6
-
-
175.7
-
-
0.9
-
4.0
-
180.6
-
-
0.1
-
4.9
-
-
-
185.6
207.6
130.4
-
-
-
-
-
-
338.0
21.8
-
-
-
-
-
359.8
(1.6)
-
-
-
-
-
-
-
358.2
Treasury
stock, at cost
$
(14.6)
-
-
-
(0.6)
-
-
-
(15.2)
-
-
-
(1.0)
-
-
(16.2)
-
-
-
(7.8)
-
-
-
-
(24.0)
$
(128.4)
-
24.5
-
-
-
-
-
(103.9)
-
(94.7)
-
-
-
-
(198.6)
-
24.4
-
-
-
-
-
-
(174.2)
2.6
-
0.2
-
-
-
(0.5)
1.5
3.8
-
(0.2)
-
-
-
1.0
4.6
-
(0.1)
-
-
-
2.3
(0.9)
0.6
6.5
268.3
130.4
24.7
1.2
(0.6)
3.6
(0.5)
1.5
428.6
21.8
(94.9)
1.1
(1.0)
4.0
1.0
360.6
(1.6)
24.3
0.3
(7.8)
4.9
2.3
(0.9)
0.6
382.7
$
$
$
$
$
$
The notes to consolidated financial statements are an integral part of these statements.
42
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 1: Significant Accounting Policies
Nature of operations: Modine Manufacturing Company (“Modine” or the “Company”) specializes in thermal management
systems and components, bringing heating and cooling technology and solutions to diversified global markets. The Company
is a leading global developer, manufacturer and marketer of heat exchangers and systems for use in on-highway and off-
highway original equipment manufacturer (“OEM”) vehicular applications, and a wide array of building, industrial and
refrigeration markets. The Company’s product lines include radiators and radiator cores, condensers, oil coolers, charge air
coolers, heat-transfer modules and assemblies, exhaust gas recirculation (“EGR”) coolers, building heating, ventilating and air
conditioning (“HVAC”) equipment, and coils.
Basis of presentation: The Company prepares its consolidated financial statements in conformity with generally accepted
accounting principles (“GAAP”) in the United States. These principles require management to make certain estimates and
assumptions in determining assets, liabilities, revenue, expenses and related disclosures. Actual amounts could differ
materially from those estimates.
Consolidation principles: The consolidated financial statements include the accounts of Modine Manufacturing Company and
its majority-owned or Modine-controlled subsidiaries. The Company eliminates intercompany transactions and balances in
consolidation.
The Company accounts for investments in non-consolidated affiliated companies in which its ownership is 20 percent or more
using the equity method. The Company states these investments at cost, plus or minus a proportionate share of undistributed
net income (loss). The Company includes Modine’s share of the affiliate’s net income in other income and expense. See Note
12 for additional information.
Discontinued operations: During fiscal 2009, the Company sold its Electronics Cooling business. The buyer financed a
portion of the selling price by issuing promissory notes payable to Modine. During fiscal 2015, the Company received $1.5
million from the buyer, which represented the final payment on the promissory notes. The Company had previously recorded
a reserve against a portion of the promissory notes due to collectability concerns. As a result, the Company recorded a gain of
$0.9 million ($0.6 million after income taxes) during fiscal 2015.
Assets held for sale: The Company considers assets to be held for sale when management approves and commits to a formal
plan to actively market the assets for sale at a price reasonable in relation to its fair value, the asset is available for immediate
sale in its present condition, an active program to locate a buyer and other actions required to complete the sale have been
initiated, the sale of the asset is expected to be completed within one year and it is unlikely that significant changes will be
made to the plan. Upon designation as held for sale, the Company records the carrying value of the assets at the lower of its
carrying value or its estimated fair value, less costs to sell, within other noncurrent assets. The Company ceases to record
depreciation expense at the time of designation as held for sale.
Revenue recognition: The Company recognizes sales revenue, including agreed upon commodity prices, when it is both
earned and realized or realizable. The Company’s policy is to recognize revenue when title to the product and risk of loss have
transferred to the customer, persuasive evidence of an arrangement exists, and collection of the sales proceeds is reasonably
assured, all of which generally occur upon shipment of goods to customers. The Company makes appropriate provisions for
uncollectible accounts receivable based on historical data or specific customer economic data. The Company records sales
discounts, which are offered for prompt payment by certain customers, as a reduction to net sales.
Tooling costs: The Company accounts for production tooling costs as a component of property, plant and equipment when it
owns title to the tooling and amortizes the capitalized cost to cost of sales over the estimated life of the asset, which is
generally three years. At March 31, 2016 and 2015, Company-owned tooling totaled $18.8 million and $18.7 million,
respectively. In certain instances, the Company makes upfront payments for customer-owned tooling costs, and subsequently
receives reimbursement from customers for the upfront payments. The Company accounts for unbilled customer-owned
tooling costs as a receivable within other current assets when the customer has guaranteed reimbursement to the Company. No
significant arrangements exist where customer-owned tooling costs were not accompanied by guaranteed reimbursement. At
March 31, 2016 and 2015, cost reimbursement receivables related to customer-owned tooling totaled $8.5 million and $11.6
million, respectively.
Warranty: The Company provides product warranties for specific product lines and accrues for estimated future warranty
costs in the period in which the sale is recorded. The Company records warranty expense based upon historical and current
claims data or based upon estimated future claims. Accrual balances, which are recorded within other current liabilities, are
43
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
monitored and adjusted if it is probable that expected claims will differ from previous estimates. See Note 15 for additional
information.
Shipping and handling costs: The Company records shipping and handling costs incurred upon the shipment of products to its
OEM customers in cost of sales, and related amounts billed to these customers in net sales. The Company records shipping
and handling costs incurred upon the shipment of products to its HVAC customers in selling, general and administrative
(“SG&A”) expenses. For the years ended March 31, 2016, 2015, and 2014, shipping and handling costs recorded in SG&A
expenses were $2.5 million, $4.9 million, and $4.0 million, respectively.
Research and development: The Company expenses research and development costs as incurred within SG&A expenses. For
the years ended March 31, 2016, 2015, and 2014, research and development costs charged to operations totaled $61.1 million,
$62.0 million, and $61.7 million, respectively.
Translation of foreign currencies: The Company translates assets and liabilities of foreign subsidiaries and equity investments
into U.S. dollars at the period-end exchange rates, and translates income and expense items at the monthly average exchange
rate for the period in which the transactions occur. The Company reports resulting translation adjustments within accumulated
other comprehensive income (loss) within shareholders' equity. The Company includes foreign currency transaction gains or
losses in the statement of operations within other income and expense.
Derivative instruments: The Company enters into derivative financial instruments from time to time to manage certain
financial risks. The Company enters into futures contracts to reduce exposure to changing future purchase prices for
aluminum and copper and into foreign currency exchange contracts to hedge specific foreign currency-denominated assets and
liabilities. These instruments are used to manage financial risks and are not speculative. See Note 18 for additional
information.
Income taxes: The Company determines deferred tax assets and liabilities based upon the difference between the amounts
reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in
which the differences are expected to reverse. The Company establishes a valuation allowance if it is more likely than not that
a deferred tax asset, or portion thereof, will not be realized. See Note 8 for additional information.
Earnings per share: The Company calculates basic earnings per share based upon the weighted-average number of common
shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential
common shares outstanding during the period. The calculation of diluted earnings per share excludes all potential common
shares if their inclusion would have an anti-dilutive effect. Restricted stock award recipients have a non-forfeitable right to
receive dividends declared by the Company. Therefore, these restricted stock awards are included in computing earnings per
share pursuant to the two-class method. See Note 9 for additional information.
Cash and cash equivalents: The Company considers all highly-liquid investments with original maturities of three months or
less to be cash equivalents. Under the Company’s cash management system, cash balances at certain banks are funded when
checks are presented for payment. To the extent checks issued, but not yet presented for payment, exceed the balance on hand
at the specific bank against which they were written, the amount of those un-presented checks is included in accounts payable.
Short-term investments: The Company invests in time deposits with original maturities of more than three months but no
more than one year. The Company records these short-term investments at cost, which approximates fair value, within other
current assets in the consolidated balance sheets. As of March 31, 2016 and 2015, the Company’s short-term investments
totaled $3.3 million and $2.8 million, respectively.
Deferred compensation trust: The Company maintains a deferred compensation trust to fund future obligations under its non-
qualified deferred compensation plan. The trust’s investments in third-party debt and equity securities are presented within
other noncurrent assets in the consolidated balance sheets.
Trade accounts receivable: The Company records trade receivables at the invoiced amount. Trade receivables do not bear
interest if paid according to the original terms. The Company recorded an allowance for doubtful accounts of $0.5 million and
$1.0 million at March 31, 2016 and 2015, respectively, representing its estimated uncollectible receivables. The Company
enters into supply chain financing programs from time to time to sell accounts receivable without recourse to third-party
financial institutions. Sales of accounts receivable are reflected as a reduction of accounts receivable on the consolidated
balance sheets and the proceeds are included in cash flows from operating activities in the consolidated statements of cash
flows. During the years ended March 31, 2016, 2015, and 2014, the Company sold, without recourse, $71.3 million, $87.0
million, and $82.4 million of accounts receivable to accelerate cash receipts. During each of the years ended March 31, 2016,
44
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
2015, and 2014, the Company recorded a loss on the sale of accounts receivables of $0.3 million in the consolidated statements
of operations.
Inventories: The Company values inventories using a first-in, first-out or weighted-average basis, at the lower of cost and net
realizable value.
Property, plant and equipment: The Company records property, plant and equipment at cost. For financial reporting
purposes, the Company computes depreciation using the straight-line method over the expected useful life of the asset. The
Company charges maintenance and repair costs to operations as incurred. The Company capitalizes costs of improvements.
Upon the sale or other disposition of an asset, the Company removes the cost and related accumulated depreciation from the
accounts and includes the gain or loss in the consolidated statements of operations.
Goodwill: The Company does not amortize goodwill; rather, it tests for impairment annually unless conditions exist that
would require a more frequent evaluation. The Company performs an assessment of the fair value of its reporting units for
goodwill impairment testing based upon, among other things, the present value of expected future cash flows. The Company
performed its goodwill impairment test as of March 31, 2016, which did not result in an impairment charge. See Note 14 for
additional information.
Impairment of long-lived assets: The Company reviews long-lived assets, including property, plant and equipment and
intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be fully recoverable. In these instances, the Company compares the undiscounted future cash flows expected to be
generated from the asset with its carrying value. If the asset’s carrying value exceeds expected future cash flows, the
Company measures and records an impairment loss, if any, as the amount by which the carrying value of the asset exceeds its
fair value. The Company estimates fair value using a variety of valuation techniques, including discounted cash flows, market
values and comparison values for similar assets. See Note 6 for additional information.
Environmental liabilities: The Company records liabilities for environmental assessments and remediation efforts in the
period which its responsibility is probable and the costs can be reasonably estimated. To the extent that the required
remediation procedures change, or additional contamination is identified, the Company’s estimate of environmental liabilities
may change. See Note 19 for additional information.
Self-insurance reserves: The Company retains a portion of the financial risk for various insurance coverage, including
property, general liability, workers compensation, and employee healthcare, and therefore maintains reserves that estimate the
impact of unreported and under-reported claims that fall below various stop-loss limits and deductibles under its insurance
policies. The Company maintains reserves for the estimated settlement cost of known claims, as well as estimates of incurred
but not reported claims. The Company charges costs of claims, including the impact of changes in reserves due to claim
experience and severity, to operations. The Company reviews and updates the amount of its insurance-related reserves on a
quarterly basis.
Stock-based compensation: The Company recognizes stock-based compensation using the fair value method. Accordingly,
compensation expense for stock options, restricted stock and performance-based stock awards is calculated based upon the fair
value of the instruments at the time of grant, and is recognized as expense over the respective vesting periods. See Note 5 for
additional information.
New accounting guidance: In March 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance to
simplify several aspects of accounting for share-based payment transactions, including the income tax consequences. This
guidance is effective for the Company’s first quarter of fiscal 2018. The Company is currently evaluating the impact this
guidance will have on its consolidated financial statements.
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting
guidance. Upon adoption of this new guidance, the Company will be required to recognize most leases on its balance sheet.
This guidance is effective for the Company’s first quarter of fiscal 2020. The Company is currently evaluating the impact this
guidance will have on its consolidated financial statements.
In November 2015, the FASB issued new guidance, as part of its simplification initiative, that requires all deferred tax assets
and liabilities to be classified as noncurrent on the balance sheet. The Company adopted this guidance, on a retrospective
basis, for its fiscal year ending March 31, 2016. As a result, the Company reclassified approximately $13.0 million of deferred
tax assets from current assets to noncurrent assets as of March 31, 2015 to conform to the current-period presentation.
45
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
In May 2014, the FASB issued new guidance that outlines a comprehensive model for entities to use in accounting for revenue
arising from contracts with customers. The core principle of the new guidance is that companies are to recognize revenue to
depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements
intended to provide users of financial statements with comprehensive information about revenue arising from contracts with
customers. This new guidance is effective for the Company’s first quarter of fiscal 2019. The Company is currently
evaluating the impact this guidance will have on its consolidated financial statements.
Supplemental cash flow information:
Years ended March 31,
2015
10.3
15.9
2016
10.7
10.1
$
$
2014
12.6
11.4
$
Interest paid
Income taxes paid
Note 2: Airedale Facility Fire
On September 6, 2013, a fire caused significant destruction to the Company’s Airedale manufacturing facility and offices in
Rawdon (Leeds), United Kingdom. The Company reports Airedale’s financial results within the Building HVAC segment.
There were no injuries caused by the fire. The Rawdon facility, which is leased, was used to manufacture cooling products
and solutions for a variety of applications, including data centers, clean rooms, retail, leisure and process cooling. The
Company suspended operations at the Rawdon site as a result of the fire; however, it transferred operations to temporary
facilities while it rebuilt the leased facility. The Company completed the reconstruction and relocation to the Rawdon facility
in fiscal 2016.
The Company’s insurance covered damage to the leased facility, equipment, inventory, and other assets, as well as business
interruption and lost profits, and recovery-related expenses caused by the fire. Since the date of the fire, the Company has
received cumulative cash proceeds of $96.0 million from its insurance provider for covered losses, and has recorded losses and
costs caused by the fire in the same statement of operations line as the related insurance recovery. In fiscal 2016, the
Company recorded a $9.5 million gain within other income related to an insurance settlement for equipment losses. This gain
represents the replacement assets’ cost in excess of the carrying value of the equipment at the time it was destroyed by the fire.
During fiscal 2015, the Company recorded $4.6 million of recoveries from business interruption insurance relating to fiscal
2015 and 2014 lost profits within SG&A expenses.
The terms of the Rawdon lease agreement obligated the Company to rebuild the damaged facility. Upon completion of the
rebuilt facility in fiscal 2016, the Company fulfilled this obligation and removed both the liability to rebuild the facility and the
capitalized reconstruction costs from its consolidated balance sheet. As of March 31, 2015, the other current liability to
rebuild the facility was $48.0 million and other current assets related to receivables from the Company’s insurance provider
and capitalized reconstructions costs totaled $39.2 million.
Note 3: Acquisitions
On January 29, 2016, the Company formed a joint venture, Modine Puxin Thermal Systems (Jiangsu) Co. Ltd. of Yangzhou,
China, of which it owns 67%, and the joint venture partner, Jiangsu Puxin Heat Exchange System Co., Ltd, owns 33%. This
joint venture, which is reported in the Asia segment, will expedite the Company’s introduction of stainless steel heat
exchangers for the light-, medium-, and heavy-duty commercial vehicle markets in China. The Company contributed cash of
$1.4 million, with additional cash consideration of $0.5 million payable after six months subject to the sellers’ indemnification
obligations under the agreement, and equipment and other assets totaling $2.3 million. The Company recorded assets acquired
and liabilities assumed at their respective fair values. The purchase price allocation resulted in acquired equipment and other
long-lived assets totaling $1.5 million and working capital net assets of $0.8 million. The Company controls the primary
management decisions and revenue-generating activities of the joint venture, and, therefore, the financial results of the joint
venture are included in the Company’s consolidated financial statements.
On February 28, 2014, the Company acquired 100 percent of the shares of Barkell Limited of Consett, United Kingdom for
cash consideration of $7.8 million, net of cash acquired. This acquisition provides Modine with an expanded product offering
into the air handling market within the Building HVAC segment. The Company recorded assets acquired and liabilities
assumed at their respective fair values. The purchase price allocation resulted in intangible assets for acquired technology and
customer relationships totaling $4.7 million; property, plant and equipment of $2.0 million; and working capital net assets of
$1.1 million. Acquired technology consists of a fully developed product line and technical processes, and the customer
46
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
relationships represent established sales channel and customer relationships. The Company is amortizing these acquired
intangible assets over ten years.
The results of operations of these acquired businesses are included in the Company’s consolidated statements of operations
since the dates of acquisition. The Company did not present pro forma financial information as the effect of these acquisitions
is not material to its results of operations or financial position.
Note 4: Fair Value Measurements
Fair value is defined as the price that would be received for an asset or paid to transfer a liability in the principal or most
advantageous market for the asset or liability in an orderly transaction between market participants. Fair value measurements
are classified under the following hierarchy:
• Level 1 – Quoted prices for identical instruments in active markets.
• Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active; and model-derived valuations in which all significant inputs are observable in active
markets.
• Level 3 – Model-derived valuations in which one or more significant inputs are not observable.
When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1.
In some cases, where market prices are not available, the Company uses observable market-based inputs to calculate fair value,
in which case the measurements are classified as Level 2. If quoted or observable market prices are not available, fair value is
based upon valuation models that use, where possible, market-based data such as interest rates, yield curves or currency rates.
These measurements are classified as Level 3.
The carrying values of cash and cash equivalents, short-term investments, trade accounts receivable, accounts payable, and
short-term debt approximate fair value due to the short-term nature of these instruments. The Company holds trading
securities in a deferred compensation trust to fund obligations under Modine’s non-qualified deferred compensation plan. The
securities’ fair values, which are recorded as other noncurrent assets, are determined based on quoted prices from active
markets and classified within Level 1 of the valuation hierarchy. The Company’s deferred compensation obligations,
which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trust. The fair
values of the Company’s trading securities and deferred compensation obligations each totaled $3.2 million and $3.0 million at
March 31, 2016 and 2015, respectively. The fair value of the Company’s long-term debt is disclosed in Note 16.
Plan assets related to the Company’s pension plans were classified as follows:
March 31, 2016
Level 1
Level 2
Total
$
$
5.8
1.3
8.4
7.3
-
18.4
1.2
42.4
5.8
25.0
8.4
56.0
26.3
18.4
1.6
141.5
$
$
Money market investments
Common stocks
Corporate bonds
Pooled equity funds
Pooled fixed-income funds
U.S. government and agency securities
Other
Total
-
$
23.7
-
48.7
26.3
-
0.4
99.1
$
47
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
March 31, 2015
Level 1
Level 2
Total
Money market investments
Common stocks
Corporate bonds
Pooled equity funds
Pooled fixed-income funds
U.S. government and agency securities
Other
Total
-
$
40.5
-
69.0
15.5
-
0.7
125.7
$
$
$
8.1
2.2
23.5
11.4
-
39.8
6.3
91.3
8.1
42.7
23.5
80.4
15.5
39.8
7.0
217.0
$
$
The Company determined the fair value of money market investments to approximate their net asset values, without discounts
for credit quality or liquidity restrictions, and classified them within Level 2 of the valuation hierarchy. The Company
determined the fair value of common stocks, pooled equity funds and pooled fixed-income funds based on quoted prices from
active markets and classified them within Level 1 of the valuation hierarchy. The Company determined the fair value of
certain common stocks, corporate bonds, pooled equity funds and U.S. government and agency securities based upon recent
bid prices or the average of recent bid and asking prices when available and, if not available, the Company valued them
through matrix pricing models developed by sources considered by management to be reliable. The Company classified these
assets within Level 2 of the valuation hierarchy. As of March 31, 2016 and 2015, the Company held no Level 3 assets within
its pension plans.
Assets held for sale: The Company valued assets held for sale based on Level 3 market-based valuation inputs. The carrying
value of assets held for sale totaled $8.5 million and $3.2 million at March 31, 2016 and 2015, respectively. See Note 6 for
additional information.
Note 5: Stock-Based Compensation
The Company’s stock-based incentive programs consist of the following: (1) a long-term incentive compensation program for
officers and executives that consists of restricted stock and stock options granted for retention and performance, (2) a
discretionary equity program for management and other key employees, and (3) stock awards and/or stock options for non-
employee directors. The Company’s Board of Directors and the Officer Nomination and Compensation Committee, as
applicable, have discretionary authority to set the terms of the awards of stock under the Company’s Amended and Restated
2008 Incentive Compensation Plan (“Plan”). At present, the Company accomplishes the fulfillment of equity-based grants
through the issuance of new common shares. As of March 31, 2016, approximately 3.3 million shares authorized under the
Plan remain available for future grants. Employee participants have the opportunity to deliver back to the Company the
number of shares from the vesting of stock awards sufficient to satisfy the individual’s minimum tax withholding obligations.
These shares are held as treasury shares. The Company recorded stock-based compensation expense of $4.9 million, $4.0
million, and $3.6 million in fiscal 2016, 2015, and 2014, respectively.
Stock Options: The Company recorded $0.9 million, $0.9 million, and $0.8 million of compensation expense related to stock
options in fiscal 2016, 2015, and 2014, respectively. The fair value of stock options that vested during fiscal 2016, 2015, and
2014 was $0.9 million, $0.9 million, and $0.8 million, respectively. As of March 31, 2016, the total compensation expense not
yet recognized related to non-vested stock options was $2.0 million and the weighted-average period in which the remaining
expense is expected to be recognized was 2.5 years.
The Company estimated the fair value of option awards on the date of grant using the Black-Scholes option valuation model
and the following assumptions:
Weighted-average fair value of options
Expected life of awards in years
Risk-free interest rate
Expected volatility of the Company's stock
Expected dividend yield on the Company's stock
$
2015
10.21
6.3
2.1%
76.1%
0.0%
$
2014
7.76
6.3
1.3%
88.7%
0.0%
$
2016
7.11
6.3
1.9%
66.9%
0.0%
48
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Stock options expire no later than 10 years after the grant date and have an exercise price equal to the fair market value of the
common stock on the date of grant. The risk-free interest rate was based on yields of U.S. Treasury zero-coupon issues with a
term corresponding to the expected life of the options. The expected volatility assumption was based on changes in the
Company’s historical common stock prices over the same time frame as the expected life of the awards. The expected
dividend yield is zero as the Company currently does not anticipate paying dividends over the expected life of the options.
The expected lives of the awards are based on historical patterns and the terms of the options. Outstanding options granted
vest 25 percent annually for four years. The Company used a pre-vesting forfeiture rate of 2.5 percent as an estimate of
expected forfeitures prior to completing the required service period.
A summary of stock option activity for fiscal 2016 was as follows:
Shares
Weighted-average
exercise price
Weighted-average
remaining contractual
term (years)
Aggregate
intrinsic value
Outstanding, beginning
Granted
Exercised
Forfeited or expired
Outstanding, ending
1.5
0.2
(0.1)
(0.1)
1.5
$
11.99
11.39
5.82
27.33
10.82
$
5.3
$
3.0
Exercisable, March 31, 2016
1.1
$
10.41
4.3
$
3.0
The aggregate intrinsic value represents the difference between the closing price of Modine’s common shares on the last
trading day of fiscal 2016 over the exercise price of the stock options, multiplied by the number of options outstanding or
exercisable. The aggregate intrinsic value is not recorded for financial statement purposes, and this value will change based
upon daily changes in the fair value of Modine’s common shares.
Additional information related to stock options exercised during fiscal 2016, 2015, and 2014 was as follows:
Intrinsic value of stock options exercised
Proceeds from stock options exercised
2016
0.4
0.5
$
$
2015
0.4
0.6
$
$
2014
1.1
1.1
$
$
Restricted Stock: The Company recorded $3.5 million, $2.8 million, and $2.2 million of compensation expense related to
restricted stock in fiscal 2016, 2015, and 2014, respectively. The fair value of restricted stock awards that vested during fiscal
2016, 2015, and 2014 was $3.4 million, $2.3 million, and $1.6 million, respectively. At March 31, 2016, the Company had
$4.7 million of unrecognized compensation expense related to non-vested restricted stock, which it expects to recognize over a
weighted-average period of 2.4 years. The Company values restricted stock awards using the closing market value of its
common shares on the date of grant. The restricted stock awards vest 25 percent annually for four years, with the exception of
awards to non-employee directors, which fully vest upon grant.
A summary of restricted stock activity for fiscal 2016 was as follows:
Non-vested balance, beginning
Granted
Vested
Non-vested balance, ending
Weighted-
average
price
$
10.68
11.18
10.01
11.29
$
Shares
0.7
0.3
(0.4)
0.6
Restricted Stock – Performance-Based Shares: The Company recorded $0.5 million, $0.3 million and $0.6 million of
compensation expense related to performance-based stock awards in fiscal 2016, 2015, and 2014, respectively. At March 31,
2016, the Company had $1.2 million of total unrecognized compensation expense related to non-vested performance-based
49
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
stock awards, which is expected to be recognized over a weighted-average period of 1.7 years. The Company values
performance-based stock awards using the closing market value of its common shares on the date of grant.
Shares are earned under the performance portion of the restricted stock award program based upon the attainment of certain
financial goals over a three-year period and are awarded after the end of that three-year performance period, if the performance
targets have been achieved. A new performance period may begin each fiscal year; therefore, multiple performance periods,
with distinct goals, may operate simultaneously.
The performance components of the programs initiated in fiscal 2016 and fiscal 2015 were based upon both a target three-year
average consolidated return on average capital employed (“ROACE”) and a target three-year average annual revenue growth
at the end of a three-year performance period, commencing with the fiscal year of grant. For the program initiated in fiscal
2014, the performance award was based upon a target three-year average ROACE, three-year average annual revenue growth,
and Asia segment operating income at the end of the three-year performance period.
Note 6: Restructuring Activities
During fiscal 2016, the Company offered a voluntary retirement program to certain U.S. salaried employees. The program
was offered as part of the Company’s Strengthen, Diversify and Grow transformational initiative and supports the objective of
reducing operational and SG&A cost structures.
Also during fiscal 2016, the Company announced a plan to close its Washington, Iowa manufacturing facility and is in the
process of transferring the facility’s production to other Americas segment manufacturing facilities, which it expects to
complete by the end of fiscal 2017. In addition, the Company completed the transfer of production from its McHenry, Illinois
manufacturing facility to other Americas segment manufacturing facilities. These restructuring activities reflect the
Company’s focus on operating scale manufacturing facilities to improve overall competitiveness and profitability.
During fiscal 2015, the Company initiated a headcount reduction plan for its Brazil manufacturing facility within its Americas
segment. The headcount reductions were in response to the economic slowdown in Brazil and reflect the Company’s objective
to maintain profitability in this business despite lower sales volume.
In addition, the Company continues to execute restructuring activities within its Europe segment. These restructuring
activities have included implementing headcount reductions, exiting certain non-core product lines based upon Modine’s
global product strategy, reducing manufacturing costs, consolidating production facilities, and disposing of and selling certain
underperforming or non-strategic assets. The Company designed these activities to align the cost structure of the segment with
its strategic focus on the commercial vehicle, off-highway, automotive component, and engine product markets, while
improving gross margin and return on average capital employed.
Restructuring and repositioning expenses were as follows:
Years ended March 31,
2016
2015
2014
Employee severance and related benefits
$
12.8
$
1.2
$
14.8
Accelerated depreciation
Other restructuring and repositioning expenses
Total
-
3.8
16.6
$
-
3.5
4.7
$
4.3
1.3
20.4
$
Other restructuring and repositioning expenses primarily consist of equipment transfer and plant consolidation costs.
During fiscal 2016, 2015, and 2014, the Company recorded $16.6 million, $4.7 million, and $16.1 million, respectively, of
restructuring and repositioning expenses as restructuring expenses in the consolidated statement of operations. During fiscal
2014, the Company recorded $4.3 million of restructuring and repositioning expenses within cost of sales in the consolidated
statement of operations.
50
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
The Company accrues severance in accordance with its written plans, procedures, and relevant statutory requirements.
Changes in accrued severance were as follows:
Beginning balance
Additions
Payments
Effect of exchange rate changes
Ending balance
$
$
Years ended March 31,
2015
19.4
1.2
(7.3)
(3.4)
9.9
2016
9.9
12.8
(8.5)
0.5
14.7
$
$
During fiscal 2016, the Company identified potential impairment indicators related to a manufacturing facility in Germany,
including pre-tax losses and its strategic decision to exit a certain product line in the future. In response, the Company
performed an impairment evaluation and recorded an asset impairment charge of $9.9 million within its Europe segment to
write down the manufacturing facility’s long-lived assets to fair value. The Company determined fair value using Level 3
inputs, primarily consisting of a facility appraisal, which considered the market rental value, and estimated scrap values, which
considered the specialized nature of the machinery and equipment.
During fiscal 2014, the Company recorded asset impairment charges totaling $3.2 million, including $2.0 million within its
Europe segment, primarily due to a manufacturing facility in Germany that the Company has closed, and $1.2 million within
its Americas segment, related to the closure of its McHenry, Illinois manufacturing facility.
During fiscal 2015, the Company sold a wind tunnel within its Europe segment for cash proceeds of $5.8 million and
recognized a gain of $3.2 million. At March 31, 2016 and 2015, assets held for sale of $8.5 million and $3.2 million,
respectively, were included in other noncurrent assets and consisted of facilities that the Company is marketing for sale.
Note 7: Other Income and Expense
Other income and expense consisted of the following:
Equity in earnings of non-consolidated affiliate
Interest income
Foreign currency transactions (a)
Gain from insurance recovery (b)
Total other income (expense) - net
$
$
$
Years ended March 31,
2016
0.1
0.4
(1.3)
9.5
8.7
2015
0.6
0.5
(0.9)
-
0.2
2014
0.7
0.5
(2.0)
-
(0.8)
$
$
$
(a) Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the re-
measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and
transactions denominated in a foreign currency, along with gains and losses on foreign currency exchange contracts.
(b) During fiscal 2016, the Company settled an insurance claim related to machinery and equipment destroyed in a fire at
its Airedale facility and recorded a gain of $9.5 million. See Note 2 for additional information.
51
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 8: Income Taxes
The U.S. and foreign components of earnings from continuing operations before income taxes and the provision or benefit for
income taxes consisted of the following:
Years ended March 31,
2016
2015
2014
Components of (loss) earnings from continuing operations
before income taxes:
United States
Foreign
Total (loss) earnings from continuing operations before income taxes
Income tax (benefit) expense:
Federal:
Current
Deferred
State:
Current
Deferred
Foreign:
Current
Deferred
Total income tax (benefit) expense
$
$
$
(15.4)
5.5
(9.9)
31.1
10.1
41.2
$
$
$
14.1
9.9
24.0
$
0.1
(13.0)
$
0.4
7.1
$
(2.0)
(95.8)
0.2
(2.5)
-
1.1
0.2
(21.4)
9.6
(3.3)
(8.9)
$
12.7
(2.3)
19.0
$
10.0
1.1
(107.9)
$
The Company allocates income tax expense among continuing operations, discontinued operations, and other comprehensive
income. The Company applies accounting for income taxes by tax jurisdiction, and in periods in which there is a loss from
continuing operations before income taxes and pre-tax income in other categories (e.g., discontinued operations or other
comprehensive income), it first allocates income tax expense to the other sources of income, and records a related tax benefit
in continuing operations.
Income tax expense attributable to earnings from continuing operations before income taxes differed from the amounts
computed by applying the statutory U.S. federal income tax rate as a result of the following:
Statutory federal tax
State taxes, net of federal benefit
Taxes on non-U.S. earnings and losses
Valuation allowance
Tax credits
Compensation
Tax rate or law changes
Uncertain tax positions, net of settlements
Dividend repatriation
Other
Effective tax rate
Years ended March 31,
2016
35.0%
11.5
26.4
(20.9)
20.5
(3.7)
1.3
(4.3)
16.0
8.1
89.9%
2015
35.0%
2.4
(4.9)
8.3
(6.1)
1.0
1.2
2.2
2.4
4.6
46.1%
2014
35.0%
2.1
(3.8)
(471.7)
(7.1)
0.4
(9.2)
0.4
5.8
(1.5)
(449.6%)
The Company recorded an additional valuation allowance of $5.0 million, $2.6 million and $12.3 million in fiscal 2016, 2015,
and 2014, respectively, against net deferred tax assets in certain jurisdictions after determining it was more likely than not that
the net deferred tax assets in these jurisdictions will not be realized. The Company will continue to provide a valuation
allowance against its net deferred tax assets in each of the applicable jurisdictions going forward until the need for a valuation
allowance is eliminated. The need for a valuation allowance is eliminated when the Company determines it is more likely than
not the deferred tax assets will be realized.
During fiscal 2016 and 2014, the Company concluded it no longer needed a valuation allowance on certain deferred tax assets
after determining it was more likely than not they would be realized. As a result, the Company recorded reversals of its
52
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
deferred tax asset valuation allowance of $3.0 million and $119.2 million in fiscal 2016 and 2014, respectively. Also during
fiscal 2014, the Company recorded income tax benefits totaling $2.2 million related to foreign tax law changes.
The tax effects of temporary differences that gave rise to deferred tax assets and liabilities were as follows:
Deferred tax assets:
Accounts receivable
Inventories
Plant and equipment
Pension and employee benefits
Net operating loss, capital loss, and credit carryforwards
Other, principally accrued liabilities
Total gross deferred tax assets
Less: valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Plant and equipment
Goodwill
Other
Total gross deferred tax liabilities
Net deferred tax asset
March 31,
2016
2015
$
0.1
3.6
4.3
52.6
109.4
6.9
176.9
(50.8)
126.1
$
0.3
3.8
0.8
50.5
105.0
6.8
167.2
(48.0)
119.2
5.5
0.6
1.1
7.2
118.9
$
5.3
0.6
1.0
6.9
112.3
$
As of March 31, 2016, the Company adopted new accounting guidance, which requires that all deferred taxes be presented as
non-current on the consolidated balance sheets. See Note 1 for additional information.
Unrecognized tax benefits were as follows:
Beginning balance
Gross increases - tax positions in prior period
Gross decreases - tax positions in prior period
Gross increases - tax positions in current period
Ending balance
Years ended March 31,
$
$
2016
5.6
-
(0.1)
0.4
5.9
2015
2.1
3.1
-
0.4
5.6
$
$
The Company’s liability for unrecognized tax benefits as of March 31, 2016 was $5.9 million, and if recognized, $3.5 million
would have an effective tax rate impact.
The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense. At
March 31, 2016 and 2015, accrued interest and penalties were not significant.
The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout
the world. At March 31, 2016, the Company was under income tax examination in a number of foreign jurisdictions. The
Company does not anticipate a significant change in unrecognized tax benefits during the next twelve months.
The following tax years remain subject to examination for the Company’s major tax jurisdictions:
Austria
Brazil
Germany
United States
Fiscal 2012 - 2015
Calendar 2011 - 2015
Fiscal 2012 - 2015
Fiscal 2013 - 2015
At March 31, 2016, the Company had federal and state research and development tax credits of $23.3 million that, if not
utilized against domestic taxes, will expire between fiscal 2018 and 2036. The Company also had various state and local tax
53
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
loss carry forwards of $190.8 million that, if not utilized against state apportioned taxable income, will expire at various times
during fiscal 2017 through 2036. In addition, the Company had tax loss carry forwards of $330.7 million in various tax
jurisdictions throughout the world. Certain of the carry forwards in the U.S. and many in foreign jurisdictions are offset by a
valuation allowance. If not utilized against taxable income, $156.9 million of these tax losses will expire at various times
during fiscal 2017 through 2035, and $173.8 million, mainly related to Germany, Austria and India, will not expire due to an
unlimited carry-forward period.
At March 31, 2016, the Company provided $1.1 million of tax on undistributed earnings for certain subsidiaries not considered
permanently reinvested. Undistributed earnings totaling $491.0 million are considered permanently reinvested in the
Company’s remaining foreign operations, and no provision has been made for taxes that would be payable upon the
distribution of such earnings. It is not practicable to estimate the amount of unrecognized withholding taxes and deferred tax
liability on such earnings.
Note 9: Earnings Per Share
The components of basic and diluted earnings per share were as follows:
Basic:
(Loss) earnings from continuing operations
Less: Net earnings attributable to noncontrolling interest
Less: Undistributed earnings attributable to unvested shares
(Loss) earnings from continuing operations available to Modine
shareholders
Earnings from discontinued operations, net of income taxes
Net (loss) earnings available to Modine shareholders
Years ended March 31,
2016
2015
2014
$
(1.0)
(0.6)
-
(1.6)
$
22.2
(1.0)
(0.2)
21.0
$
131.9
(1.5)
(1.7)
128.7
-
(1.6)
$
0.6
21.6
$
-
128.7
$
Weighted-average shares outstanding - basic
47.3
47.2
46.9
Basic Earnings Per Share:
(Loss) earnings per share - continuing operations
Earnings per share - discontinued operations
Net (loss) earnings per share - basic
Diluted:
(Loss) earnings from continuing operations
Less: Net earnings attributable to noncontrolling interest
Less: Undistributed earnings attributable to unvested shares
(Loss) earnings from continuing operations available to Modine
shareholders
Earnings from discontinued operations, net of income taxes
Net (loss) earnings available to Modine shareholders
Weighted-average shares outstanding - basic
Effect of dilutive securities
Weighted-average shares outstanding - diluted
Diluted Earnings Per Share:
(Loss) earnings per share - continuing operations
Earnings per share - discontinued operations
Net (loss) earnings per share - diluted
$
$
$
(0.03)
-
(0.03)
0.45
0.01
0.46
$
$
$
2.75
-
2.75
$
(1.0)
(0.6)
-
(1.6)
$
22.2
(1.0)
(0.2)
21.0
$
131.9
(1.5)
(0.9)
129.5
-
(1.6)
$
0.6
21.6
$
-
129.5
$
47.3
-
47.3
47.2
0.6
47.8
46.9
0.7
47.6
$
$
$
(0.03)
-
(0.03)
0.44
0.01
0.45
$
$
$
2.72
-
2.72
For the years ended March 31, 2016, 2015, and 2014, the calculation of diluted earnings per share excluded 0.8 million, 0.6
million, and 0.8 million stock options, respectively, because they were anti-dilutive. For the year ended March 31, 2016, the
54
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
total number of potential dilutive securities was 0.4 million. However, these securities were not included in the computation
of diluted net loss per share since to do so would decrease the loss per share.
Note 10: Inventories
Inventories consisted of the following:
Raw materials and work in process
Finished goods
Total inventories
Note 11: Property, Plant and Equipment
March 31,
2016
2015
$ 79.5
31.5
$ 111.0
$ 80.7
27.0
$ 107.7
Property, plant and equipment, including depreciable lives, consisted of the following:
March 31,
Land
Buildings and improvements (10-40 years)
Machinery and equipment (3-12 years)
Office equipment (3-10 years)
Construction in progress
Less: accumulated depreciation
Net property, plant and equipment
$
$
2016
7.2
221.3
694.3
84.1
36.7
1,043.6
(705.0)
338.6
2015
8.2
221.0
652.0
81.9
31.7
994.8
(672.7)
322.1
$
$
Depreciation expense totaled $48.6 million, $50.0 million and $57.3 million for the years ended March 31, 2016, 2015, and
2014, respectively. Gains and losses related to the disposal of property, plant and equipment are recorded in SG&A expenses.
Total losses related to the disposal of property, plant and equipment were $0.4 million, $1.1 million and $2.6 million for the
years ended March 31, 2016, 2015, and 2014, respectively.
Note 12: Investment in Affiliate
The Company’s investment in its non-consolidated affiliate is accounted for under the equity method. The Company has a 50
percent ownership of Nikkei Heat Exchanger Company, Ltd. (“NEX”). At both March 31, 2016 and 2015, the Company
included the investment in NEX of $3.2 million in other noncurrent assets. At March 31, 2016, the investment in NEX is
equal to the Company's investment in the underlying assets.
The Company reports the results of operations for NEX in the consolidated financial statements using a one-month reporting
delay. The Company reports equity in earnings from non-consolidated affiliates within other income and expense in the
consolidated statements of operations. The Company’s share of NEX’s earnings for the years ended March 31, 2016, 2015,
and 2014 was $0.1 million, $0.6 million and $0.7 million, respectively.
55
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 13: Intangible Assets
Intangible assets consisted of the following:
March 31, 2016
Gross
Carrying Accumulated
Value Amortization
(6.3)
(1.5)
(0.4)
(8.2)
8.9
5.5
2.0
16.4
$
$
Net
Intangible
Assets
2.6
4.0
1.6
8.2
March 31, 2015
Gross
Carrying Accumulated
Value Amortization
(5.8)
(0.9)
(0.2)
(6.9)
9.1
5.6
2.1
16.8
$
$
Net
Intangible
Assets
3.3
4.7
1.9
9.9
$
$
$
$
$
$
$
$
Trade names
Acquired technology
Customer relationships
Total intangible assets
The Company recorded $1.6 million, $1.6 million and $0.8 million of amortization expense during fiscal 2016, 2015 and 2014,
respectively. Estimated future amortization expense is as follows:
Estimated
Amortization
Expense
$ 1.6
1.6
1.5
1.3
0.8
1.4
Fiscal Year
2017
2018
2019
2020
2021
2022 & Beyond
Note 14: Goodwill
Changes in the carrying amount of goodwill, by segment and in the aggregate, were as follows:
Balance, March 31, 2014
Impairment charge
Effect of exchange rate changes
Balance, March 31, 2015
Effect of exchange rate changes
Balance, March 31, 2016
$
Americas
10.9
(7.8)
(3.1)
-
-
$
-
$
$
$
Asia
0.5
-
-
0.5
-
0.5
Building
HVAC
17.3
-
(1.6)
15.7
(0.4)
15.3
Total
28.7
(7.8)
(4.7)
16.2
(0.4)
15.8
$
$
$
The Company assesses goodwill for impairment annually, or more frequently if events or circumstances change that would,
more likely than not, reduce the fair value of a reporting unit below its carrying value. The Company conducted its annual
assessment for goodwill impairment during the fourth quarter of fiscal 2016 by applying a fair value-based test and determined
that the fair value of its reporting units exceeded their respective book values. In fiscal 2015, the Company recorded a $7.8
million goodwill impairment charge within the Americas segment in connection with its annual assessment. The impairment
charge was primarily caused by a decline in the financial outlook for Brazil.
At both March 31, 2016 and 2015, accumulated goodwill impairment losses totaled $31.6 million and $8.7 million within the
Americas and Europe segments, respectively.
Note 15: Product Warranties, Operating Leases, and Other Commitments
Product warranties: Most of the Company’s products are covered under a warranty period ranging from one to five years. The
Company records a liability for product warranty obligations at the time of sale to a customer based upon historical warranty
experience. In addition, the Company adjusts its warranty accruals if it becomes probable that expected claims will differ from
initial estimates.
56
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Changes in accrued warranty costs were as follows:
Years ended March 31,
Beginning balance
Warranties recorded at time of sale
Adjustments to pre-existing warranties
Settlements
Effect of exchange rate changes
Ending balance
$
$
2016
10.4
5.7
(1.1)
(6.7)
-
8.3
2015
14.0
5.8
1.5
(9.2)
(1.7)
10.4
$
$
Operating leases: The Company leases various facilities and equipment under operating leases. Rental expense for these
leases totaled $11.9 million in fiscal 2016, and $11.5 million in both fiscal 2015 and 2014.
Future minimum rental commitments at March 31, 2016 under non-cancelable operating leases were as follows:
Fiscal Year
2017
2018
2019
2020
2021
2022 and beyond
Total
$
8.1
5.6
4.8
4.6
4.1
26.3
53.5
$
Indemnification agreements: From time to time, the Company provides indemnification agreements related to the sale or
purchase of an entity or facility. These indemnification agreements cover customary representations and warranties typically
provided in conjunction with such transactions, including income, sales, excise or other tax matters, environmental matters and
other third-party claims. The indemnification periods provided generally range from less than one year to fifteen years. In
addition, standard indemnification provisions reside in many commercial agreements to which the Company is a party and
relate to responsibility in the event of potential third-party claims. The fair value of the Company’s outstanding
indemnification obligations at March 31, 2016 is not material.
Commitments: At March 31, 2016, the Company had capital expenditure commitments of $20.5 million. Significant
commitments include tooling and equipment expenditures for new and renewal programs with customers in the Americas and
Europe segments. The Company utilizes inventory arrangements with certain vendors in the normal course of business under
which the vendors maintain inventory stock at the Company’s facilities or at outside facilities. Title passes to the Company at
the time goods are withdrawn for use in production. The Company has agreements with the vendors to use the material within
a specific period of time. In some cases, the Company bears the risk of loss for the inventory because Modine is required to
insure the inventory against damage and/or theft. This inventory is included within the Company’s consolidated balance
sheets as raw materials inventory.
57
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 16: Indebtedness
Long-term debt was comprised of the following:
Foreign credit agreements
6.8% Senior Notes
Revolving credit facility
Other (a)
Less: current portion
Total long-term debt
Fiscal year
of maturity March 31, 2016 March 31, 2015
2018-2020
2017-2021
2019
2017-2030
$
0.4
$
0.2
125.0
-
125.4
8.6
134.0
(8.5)
125.5
$
125.0
-
125.2
4.9
130.1
(0.5)
129.6
$
(a) Other long-term debt includes capital lease obligations and other financing-type obligations.
The Company maintains a $175.0 million domestic revolving credit facility, which expires in August 2018. Borrowings under
the credit agreement bear interest at a variable rate based on the London Interbank Offered Rate (“LIBOR”) plus 125 to 225
basis points (1.8 percent at March 31, 2016) depending upon the Company’s leverage ratio, as defined below. At March 31,
2016 and 2015, no borrowings were outstanding under the revolving credit facility.
The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings at March
31, 2016 and 2015 of $28.6 million and $18.6 million, respectively. At March 31, 2016, the Company’s foreign unused lines
of credit totaled $32.0 million. In aggregate, the Company had total available lines of credit of $207.0 million at March 31,
2016.
Provisions in the Company’s revolving credit facility, Senior Note agreements, and various foreign credit agreements require
the Company to maintain compliance with various covenants and include certain cross-default clauses. Under its primary debt
agreements in the U.S., the Company has provided liens on substantially all domestic assets. The Company is also subject to a
leverage ratio covenant, which requires the Company to limit its consolidated indebtedness, less a portion of the Company’s
cash balance, both as defined by the credit agreement, to no more than three and one-quarter times consolidated net earnings
before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”), and an interest expense
coverage ratio, which requires the Company to maintain Adjusted EBITDA of at least three times consolidated interest
expense. The Company was in compliance with its debt covenants as of March 31, 2016.
Long-term debt matures as follows:
Fiscal Year
2017
2018
2019
2020
2021
2022 & beyond
Total
$ 8.5
16.5
16.5
16.6
69.4
6.5
$ 134.0
The Company estimates the fair value of long-term debt using discounted future cash flows at rates offered to the Company for
similar debt instruments of comparable maturities. At March 31, 2016 and 2015, the carrying value of Modine’s long-term
debt approximated fair value, with the exception of the Senior Notes, which had a fair value of approximately $139.0 million
and $141.0 million, respectively. The fair value of the Senior Notes is categorized as Level 2 within the fair value hierarchy.
Refer to Note 4 for the definition of a Level 2 fair value measurement.
58
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 17: Pension and Employee Benefit Plans
Defined Contribution Employee Benefit Plans:
The Company maintains domestic 401(k) plans that allow employees to contribute a portion of their salary to help save for
retirement. The Company matched 50 percent of employee contributions, up to 5 percent of employee compensation, during
fiscal 2016, 2015, and 2014. The Company also makes annual employer contributions into active employee accounts based
upon a percentage of employee compensation. Employees can choose among various investment alternatives, including
(subject to restrictions) Modine stock. The Company’s matching contributions and annual employer contributions are
discretionary. The Company’s expense for defined contribution employee benefit plans during fiscal 2016, 2015, and 2014
was $4.6 million, $5.9 million, and $8.3 million, respectively. The decreasing trend in expense from fiscal 2014 was primarily
due to lower discretionary employer contributions.
In addition, the Company maintains a non-qualified deferred compensation plan for eligible employees, and various non-U.S.
subsidiaries have government-required defined contribution plans in place, under which they contribute a percentage of
employee earnings into accounts, consistent with local laws.
Statutory Termination Plans:
Certain non-U.S. subsidiaries have statutory termination indemnity plans covering eligible employees. The benefits under
these plans are based upon years of service and final average compensation levels or a monthly retirement benefit amount.
These programs are all substantially unfunded in accordance with local laws, but are often covered by national obligatory
umbrella insurance programs that protect employees from losses in the event that an employer defaults on its obligations.
Defined Benefit Employee Benefit Plans:
Pension plans: The Company maintains non-contributory defined benefit pension plans that cover most of its domestic
employees hired on or before December 31, 2003. The benefits provided are based primarily on years of service and average
compensation for salaried and some hourly employees. Benefits for other hourly employees are based on a monthly retirement
benefit amount. Domestic salaried employees hired after December 31, 2003 are not covered under a defined benefit plan.
Currently, the Company’s domestic pension plans do not include increases in annual earnings or future service in calculating
the average annual earnings and years of credited service under the pension plan benefit formula. Certain non-U.S.
subsidiaries of the Company also have legacy defined benefit plans which cover a smaller number of active employees and are
substantially unfunded. The primary non-U.S. plans are maintained in Germany and Austria and are closed to new
participants.
The Company contributed $6.7 million, $5.9 million, and $8.0 million to its U.S. pension plans during fiscal 2016, 2015, and
2014, respectively. These contributions are reported in the change in other liabilities in the consolidated statements of cash
flows.
During fiscal 2016, in an effort to reduce the size, volatility, mortality risk, and costs associated with its U.S. pension plans,
the Company completed a voluntary lump-sum payout program offered to certain eligible former employees. Approximately
2,000 participants accepted the lump-sum settlement offer. During fiscal 2016, a total of $65.3 million was paid from pension
plan assets for lump-sum payouts, which reduced the Company’s pension obligation by the same amount. In connection with
these lump-sum payouts, the Company recorded $42.1 million of non-cash settlement losses related to the accelerated
recognition of unamortized actuarial losses previously recorded on the consolidated balance sheets within accumulated other
comprehensive loss. During fiscal 2016, the Company recorded $33.3 million and $8.8 million of settlement losses as SG&A
expenses and cost of sales, respectively, within the consolidated statements of operations.
Postretirement plans: The Company provides selected healthcare and life insurance benefits for eligible retired domestic
employees. The Company periodically amends these unfunded plans to change the contribution rate of retirees and the
amounts and forms of coverage. An annual limit on the Company’s cost is defined for the majority of these plans. The
Company’s net periodic income for its postretirement plans during fiscal 2016, 2015, and 2014 was $0.3 million, $0.1 million,
and $1.0 million, respectively.
Measurement Date: The Company uses March 31 as the measurement date for its pension and postretirement plans.
59
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Changes in benefit obligations and plan assets, as well as the funded status of the Company’s pension plans, for the fiscal
years ended March 31, 2016 and 2015 were as follows:
2016
2015
Change in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefits paid (a)
Effect of exchange rate changes
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets at beginning of year
Actual return on plan assets
Benefits paid (a)
Employer contributions
Fair value of plan assets at end of year
Funded status at end of year
Amounts recognized in the consolidated balance sheets:
Current liability
Noncurrent liability
$
$
328.2
0.6
11.2
(2.8)
(78.1)
1.9
261.0
217.0
(5.3)
(78.1)
7.9
141.5
(119.5)
(0.9)
(118.6)
(119.5)
$
$
$
$
$
$
$
$
$
$
$
$
295.7
0.5
13.0
40.6
(14.6)
(7.0)
328.2
213.7
10.8
(14.6)
7.1
217.0
(111.2)
(0.8)
(110.4)
(111.2)
(a) In fiscal 2016, $65.3 million was paid from plan assets in connection with lump-sum payouts.
The accumulated benefit obligation for pension plans was $257.9 million and $325.5 million as of March 31, 2016 and 2015,
respectively. The net actuarial loss related to the pension plans recognized in accumulated other comprehensive loss was
$162.0 million and $192.3 million as of March 31, 2016 and 2015, respectively.
Costs for the Company’s pension plans included the following components for the fiscal years ended March 31, 2016, 2015,
and 2014:
2016
2015
2014
Components of net periodic benefit cost:
Service cost
Interest cost
Expected return on plan assets
Amortization of net actuarial loss
Settlements (a)
Net periodic benefit cost
Other changes in benefit obligation recognized in other comprehensive loss (income):
Net actuarial loss (gain)
Amortization of net actuarial loss (a)
Total recognized in other comprehensive (income) loss
$
$
$
$
$
$
0.6
11.2
(14.9)
6.4
42.1
45.4
17.5
(48.5)
(31.0)
0.5
13.0
(16.7)
5.5
-
2.3
46.4
(5.5)
40.9
0.6
13.0
(15.7)
6.3
-
4.2
(17.3)
(6.3)
(23.6)
$
$
$
$
$
$
(a) During fiscal 2016, in connection with lump-sum payouts to pension plan participants, the Company recorded $42.1
million of settlement losses, which were previously recorded in accumulated other comprehensive loss.
60
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
The Company estimates $5.6 million of net actuarial loss for its pension plans will be amortized from accumulated other
comprehensive loss into net periodic benefit cost during fiscal 2017.
The Company used a discount rate of 4.1% and 4.0% as of March 31, 2016 and 2015, respectively, in determining its benefit
obligations under its U.S. pension plans. The Company used a discount rate of 1.8% and 1.3% as of March 31, 2016 and 2015,
respectively, in determining its benefit obligations under its non-U.S. pension plans. The Company used a discount rate of
4.3%, 4.7%, and 4.4% to determine its costs under its U.S. pension plans for the fiscal years ended March 31, 2016, 2015, and
2014, respectively. The Company used a discount rate of 1.3%, 3.0%, and 3.5% to determine its costs under its non-U.S.
pension plans for the fiscal years ended March 31, 2016, 2015, and 2014, respectively. The Company determined the discount
rates used for its U.S. pension plans by modeling a portfolio of high-quality corporate bonds, with appropriate consideration
given to expected defined benefit payment terms and duration of the respective pension obligations. The Company used a
similar process to determine the discount rate for its non-U.S. pension obligations.
Plan assets in the U.S. defined benefit plans comprise 100 percent of the Company’s world-wide pension plan assets. The
Company’s U.S. pension plan weighted-average asset allocations at the measurement dates of March 31, 2016 and 2015 were
as follows:
Equity securities
Debt securities
Alternative assets
Cash
Target allocation
Plan assets
55%
38%
5%
2%
100%
2016
56%
36%
4%
4%
100%
2015
55%
36%
5%
4%
100%
Due to market conditions and other factors, including timing of benefit payments and other transactions, actual asset allocation
may vary from the target allocation outlined above. The Company periodically rebalances the assets to the target allocations.
As of March 31, 2016 and 2015, the Company’s pension plans did not directly own shares of Modine common stock.
The Company employs a total return investment approach, whereby a mix of equities and fixed-income investments are used
to maximize the long-term return of plan assets, while avoiding excessive risk. The Company has established pension plan
guidelines based upon an evaluation of market conditions, tolerance for risk and cash requirements for benefit payments. The
Company measures and monitors investment risk on an ongoing basis through quarterly investment portfolio reviews, annual
liability measurements and periodic asset/liability studies.
The expected rate of return on U.S. plan assets is based upon historical return experience and forward-looking return
expectations for major asset class categories. For fiscal 2016, 2015, and 2014 U.S. pension plan expense, the expected rate of
return on plan assets was 8.0 percent. For fiscal 2017 U.S. pension plan expense, the Company has assumed a rate of return on
plan assets of 8.0 percent.
The Company’s funding policy for its U.S. pension plans is to contribute annually, at a minimum, the amount necessary on an
actuarial basis to provide for benefits in accordance with applicable laws and regulations. The Company expects to make
contributions of $8.1 million to these plans during fiscal 2017.
Estimated pension benefit payments for the next ten fiscal years are as follows:
Fiscal Year
2017
2018
2019
2020
2021
2022-2026
Estimated Pension
Benefit Payments
$
14.5
15.2
15.3
15.8
16.1
79.3
61
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 18: Derivative Instruments
The Company uses derivative financial instruments from time to time as a tool to manage certain financial risks. The
Company’s policy prohibits the use of leveraged derivatives. Accounting for derivatives and hedging activities requires
derivative financial instruments to be measured at fair value and recognized as assets or liabilities in the consolidated balance
sheets. Accounting for the gain or loss resulting from the change in fair value of the derivative financial instruments depends
on whether it has been designated, and is effective, as a hedge, and, if so, on the nature of the hedging activity.
Commodity Derivatives: The Company periodically enters into futures contracts related to certain forecasted purchases of
aluminum and copper. The Company’s strategy in entering into these contracts is to reduce its exposure to changing market
prices for future purchases of these commodities. The Company has not designated commodity contracts entered into in fiscal
2014, 2015, and 2016 for hedge accounting. Accordingly, unrealized gains and losses on these contracts are recorded within
cost of sales.
Foreign exchange contracts: The Company’s foreign exchange risk management strategy uses derivative financial
instruments to mitigate foreign currency exchange risk. The Company periodically enters into foreign currency exchange
contracts to hedge specific foreign currency-denominated assets and liabilities. The Company has not designated these
contracts for hedge accounting. Accordingly, unrealized gains and losses related to changes in fair value are recorded in other
income and expense. Gains and losses on these foreign currency contracts are offset by foreign currency gains and losses
associated with the related assets and liabilities.
The fair value of the Company’s derivative financial instruments recorded in the consolidated balance sheets were as follows:
Foreign exchange contracts
Foreign exchange contracts
Commodity derivatives
Balance Sheet Location
Other current assets
Other current liabilities
Other current liabilities
March 31, 2016
0.1
$
-
0.1
March 31, 2015
-
$
0.3
0.1
The amounts recorded in the consolidated statements of operations for the Company’s derivative financial instruments were as
follows:
Commodity derivatives
Foreign exchange contracts
Total loss
Statement of Operations
Location
Cost of sales
Other income (expense) - net
Note 19: Contingencies and Litigation
Years ended March 31,
2016
2015
2014
$
$
$
(0.7)
0.6
(0.1)
(0.2)
(1.1)
(1.3)
$
$
$
(0.5)
-
(0.5)
Market risk: The Company sells a broad range of products that provide thermal solutions to customers operating primarily in
the commercial vehicle, off-highway, automotive, and commercial heating and air conditioning markets. The Company
operates in diversified markets as a strategy for offsetting the risk associated with a downturn in any one or more of the
markets it serves. The Company pursues new market opportunities after careful consideration of the potential associated risks
and benefits. However, the risk associated with market downturns, such as the downturn experienced in fiscal 2009 and 2010,
is still present.
Credit risk: The Company invests excess cash primarily in investment quality, short-term liquid debt instruments. 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 customers operating throughout the
world. In fiscal 2016 and 2015, two customers each accounted for ten percent or more of the Company’s total sales. In fiscal
2014, one customer accounted for ten percent or more of the Company’s total sales. Sales to the Company’s top ten customers
represented 63 percent of total sales in both fiscal 2016 and 2015 and 56 percent in fiscal 2014. At March 31, 2016 and 2015,
45 percent and 47 percent, respectively, of the Company's trade accounts receivable were from the Company's top ten
customers. These customers operate primarily in the automotive, truck, and heavy equipment markets and are influenced by
similar market and general economic factors. Collateral or advanced payments are generally not required. The Company has
not experienced significant credit losses to customers in the markets served.
62
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
The Company manages credit risk through its focus on the following:
• Cash and investments – reviewing cash deposits and short-term investments to ensure banks have credit ratings
acceptable to the Company and that short-term investments are maintained in secured or guaranteed instruments;
• Accounts receivable – performing periodic customer credit evaluations and actively monitoring their financial
condition and applicable business news;
• Pension assets – ensuring that investments within pension plans provide appropriate diversification, monitoring of
investment teams, ensuring that portfolio managers adhere to the Company’s investment policies and directives, and
ensuring that exposure to high risk investments is limited; and
Insurance – ensuring that insurance providers maintain acceptable financial ratings.
•
Counterparty risks: The Company manages counterparty risks through its focus on the following:
• Customers – performing thorough reviews of customer credit reports and accounts receivable aging reports by
internal credit committees;
• Suppliers – maintaining a supplier risk management program and utilizing industry sources to identify and mitigate
high risk situations; and
• Derivatives – ensuring that counterparties to derivative instruments maintain credit ratings that are acceptable to the
Company.
Environmental: The United States Environmental Protection Agency has designated the Company as a potentially responsible
party for remediation of three sites. These sites are: Auburn Incinerator, Inc./Lake Calumet Cluster (Illinois), Cam-Or
(Indiana) and a scrap metal site known as Chemetco (Illinois). In addition, Modine is voluntarily participating in the care of an
inactive landfill owned by the City of Trenton (Missouri). These sites are not Company-owned; however, they allegedly
contain materials attributable to Modine from past operations. The percentage of material allegedly attributable to Modine is
relatively low. Remediation of these sites is in various stages of administrative or judicial proceedings and includes recovery
of past governmental costs and the costs of future investigations and remedial actions. The Company accrues for costs
anticipated for the remedial settlement of the sites listed above if they are probable and can be reasonably determined. Costs
anticipated for the remedial settlement of the sites listed above that are not probable or cannot be reasonably determined at this
time have not been accrued; however, the Company does not believe any potential costs would be material to the Company’s
financial position due to its relatively small portion of contributed materials.
The Company has recorded environmental investigation and remediation accruals for subsurface contamination at its former
manufacturing facility in the Netherlands and groundwater contamination at its manufacturing facility in Brazil. During fiscal
2016, the Company recorded charges totaling $1.6 million, within cost of sales, to establish an environmental accrual for
investigative work related to a previously-owned manufacturing facility in the United States. In addition, the Company has
recorded accruals for other lesser environmental matters at certain facilities located in the United States. These accruals
generally relate to facilities where past operations followed practices and procedures that were considered acceptable under
then-existing regulations, or where the Company is a successor to the obligations of prior owners, and current laws and
regulations require investigative and/or remedial work to ensure sufficient environmental compliance. The accruals for these
environmental matters totaled $5.1 million and $3.8 million at March 31, 2016 and 2015, respectively. As additional
information becomes available, the Company will re-assess the liability related to these matters and revise the estimated
accrual, if necessary. Based on currently available information, the Company believes the ultimate outcome of these matters,
individually and in the aggregate, will not have a material adverse effect on its financial position. However, these matters are
subject to inherent uncertainties, and unfavorable outcomes could occur, including significant monetary damages. During
fiscal 2011, one of the adjacent businesses to the Company’s facility in Brazil filed suit against the Company’s subsidiary in
Brazil (“Modine Brazil”), seeking remediation and certain other damages as a result of contamination allegedly attributable to
its operations. The Company is defending this suit and believes that the ultimate outcome of this matter will not be material.
Brazil antitrust investigation: During the fourth quarter of fiscal 2015, Brazil’s Administrative Council for Economic Defense
(CADE) provided formal notice to Modine Brazil of an administrative investigation regarding alleged violations of Brazil’s
antitrust regulations by Modine Brazil and certain of its employees during a period of time at least seven years prior to the
notice. As of March 31, 2016 and March 31, 2015, the Company accrued $2.8 million and $3.2 million (BRL 10.0 million at
each date), respectively, representing the estimated amount that may be incurred in connection with the management and
resolution of this matter. Due to the ongoing nature of this matter, the Company cannot provide assurance of its ultimate
resolution at this time.
Other litigation: In the normal course of business, the Company and its subsidiaries are named as defendants in various other
lawsuits and enforcement proceedings by private parties, governmental agencies and/or others in which claims are asserted
63
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
against Modine. In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits or
proceedings are not expected to have a material adverse effect on the Company’s consolidated financial statements.
Note 20: Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive loss were as follows:
Balance, March 31, 2015
Other comprehensive loss before reclassifications
Reclassifications:
Amortization of unrecognized net loss (a)
Amortization of unrecognized prior service credit (a)
Income taxes
Total other comprehensive loss
Foreign
Currency
Translation
$
(40.7)
Defined
Benefit Plans
$
(157.9)
Total
$
(198.6)
4.7
-
-
-
4.7
(16.6)
48.3
(0.2)
(11.8)
19.7
(11.9)
48.3
(0.2)
(11.8)
24.4
Balance, March 31, 2016
$
(36.0)
$
(138.2)
$
(174.2)
Balance, March 31, 2014
Other comprehensive loss before reclassifications
Reclassifications:
Amortization of unrecognized net loss (a)
Amortization of unrecognized prior service credit (a)
Income taxes
Total other comprehensive loss
Foreign
Currency
Translation
$
27.3
Defined
Benefit Plans
$
(131.2)
Total
$
(103.9)
(68.0)
-
-
-
(68.0)
(45.2)
5.4
(0.1)
13.2
(26.7)
(113.2)
5.4
(0.1)
13.2
(94.7)
Balance, March 31, 2015
$
(40.7)
$
(157.9)
$
(198.6)
(a) Amounts are included in the calculation of net periodic benefit cost for the Company’s defined benefit plans, which
include pension and other postretirement plans. See Note 17 for additional information about the Company’s pension
plans.
Note 21: Segment and Geographic Information
The Company’s product lines consist of heat-transfer components and systems. The Company serves the vehicular, industrial,
and building heating, ventilating and air conditioning markets. During fiscal 2016, the Company combined its North America
and South America segments into the Americas segment to streamline operations, gain synergies and improve its cost
structure. As a result, the Company recast the prior-period segment financial information to conform to the current-period
presentation. There was no impact to the Company’s consolidated financial statements as a result. Throughout fiscal 2016,
the Company’s four operating segments were as follows:
Americas:
Comprised of vehicular and industrial original equipment products in North America and South America, as well as
aftermarket products in South America.
Europe:
Comprised of vehicular and industrial original equipment products in Europe.
Asia:
Comprised of vehicular and industrial original equipment products in Asia.
Building HVAC:
Comprised of building heating, ventilating and air conditioning products throughout the world.
64
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Each operating segment is managed by a vice president and has separate financial results reviewed by the Company’s chief
operating decision maker. These results are used by management in evaluating the performance of each segment and in
making decisions on the allocation of resources among the Company’s various businesses.
The following is a summary of net sales, gross profit, and operating income by segment:
Years ended March 31,
Net sales:
Americas
Europe
Asia
Building HVAC
Segment total
Corporate and eliminations
Net sales
Gross profit:
Americas
Europe
Asia
Building HVAC
Segment total
Corporate and eliminations (a)
Gross profit
Operating income:
Americas
Europe
Asia
Building HVAC
Segment total
Corporate and eliminations (a)
Operating (loss) income
$
$
$
2016
585.5
524.1
79.0
181.4
1,370.0
(17.5)
1,352.5
2015
666.9
578.2
81.2
186.3
1,512.6
(16.2)
1,496.4
2014
688.3
584.4
71.5
146.5
1,490.7
(13.1)
1,477.6
$
$
$
Years ended March 31,
2015
2016
$'s
$
100.1
68.1
12.2
54.2
234.6
(11.1)
223.5
% of
sales
17.1%
13.0%
15.5%
29.9%
17.1%
-
16.5%
$'s
$
109.1
68.7
11.5
55.9
245.2
1.3
246.5
% of
sales
16.3%
11.9%
14.2%
30.0%
16.2%
-
16.5%
2014
$'s
$
114.3
70.8
8.9
43.4
237.4
0.8
238.2
% of
sales
16.6%
12.1%
12.5%
29.6%
15.9%
-
16.1%
$
$
$
Years ended March 31,
$
$
$
2016
36.2
13.3
0.8
13.9
64.2
(71.7)
(7.5)
2015
33.4
25.7
0.3
19.1
78.5
(25.8)
52.7
2014
49.6
9.6
(3.3)
9.4
65.3
(28.1)
37.2
$
$
$
(a) During fiscal 2016, the Company recorded pension settlement losses of $42.1 million at Corporate, within SG&A
expenses ($33.3 million) and cost of sales ($8.8 million). See Note 17 for additional information.
Inter-segment sales are accounted for based on an established markup over production costs. Net sales for corporate and
eliminations primarily represent the elimination of inter-segment sales. The operating loss for corporate includes certain
research and development costs, legal, finance and other general corporate and central services expenses, and other costs that
are either not directly attributable to an operating segment or not considered when management evaluates segment
performance.
65
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
The following is a summary of total assets by segment:
March 31,
Americas
Europe
Asia
Building HVAC (a)
Corporate and eliminations
Total assets
$
$
$
$
(a) As of March 31, 2015, total assets within the Building HVAC segment included $48.0 million of insurance-related
assets for the rebuild of the facility damaged by the Airedale fire. See Note 2 for additional information.
The following is a summary of capital expenditures and depreciation and amortization expense by segment:
Years ended March 31,
Capital expenditures:
Americas
Europe
Asia
Building HVAC
Total capital expenditures
Depreciation and amortization expense:
Americas
Europe
Asia
Building HVAC
Total depreciation and amortization expense
$
$
$
$
$
$
Years ended March 31,
$
$
$
$
$
$
The following is a summary of net sales by geographical area, based upon the location of the selling unit:
Years ended March 31,
$
$
$
2014
24.6
22.9
4.6
1.0
53.1
2014
22.6
26.6
6.7
2.2
58.1
2014
645.7
229.5
150.3
109.8
342.3
1,477.6
United States
Germany
Hungary
Austria
Other
Net sales
$
$
$
2015
277.7
282.7
92.2
131.3
147.0
930.9
2015
30.2
21.5
3.8
2.8
58.3
2015
21.3
19.8
7.2
3.3
51.6
2015
669.3
193.8
161.0
118.7
353.6
1,496.4
2016
267.2
301.9
104.0
99.0
148.8
920.9
2016
26.7
24.8
6.2
5.1
62.8
2016
22.1
18.0
6.5
3.6
50.2
2016
627.6
155.3
145.9
113.1
310.6
1,352.5
66
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
The following is a summary of property, plant and equipment by geographical area:
March 31,
United States
Austria
China
Germany
Hungary
Other
Total property, plant and equipment
$
$
2016
92.5
44.2
33.6
32.1
31.4
104.8
338.6
2015
92.7
41.5
31.8
47.2
28.9
80.0
322.1
$
$
The following is a summary of net sales by end market:
Commercial vehicle
Automotive
Off-highway
Building HVAC
Other
Net sales
Years ended March 31,
$
2016
459.8
396.8
206.2
181.4
108.3
$
2015
512.5
401.8
274.6
186.3
121.2
$
2014
477.0
395.6
320.8
146.5
137.7
$
1,352.5
$
1,496.4
$
1,477.6
67
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 22: Quarterly Financial Data (Unaudited)
Quarterly financial data is summarized below for the years ended March 31, 2016 and 2015:
Net sales
Gross profit
Earnings (loss) from continuing operations (a)
Net earnings (loss) attributable to Modine (a)
Net earnings (loss) per share attributable to
Modine shareholders:
Basic
Diluted
Net sales
Gross profit
Earnings (loss) from continuing operations (b)
Net earnings (loss) attributable to Modine (b)
Net earnings (loss) per share attributable to
Modine shareholders:
Basic
Diluted
Fiscal 2016 quarters ended
Dec.
Sept.
June
March
Fiscal 2016
$
346.1
57.0
5.5
5.1
$
334.0
45.7
(22.5)
(22.5)
$
328.7
58.6
8.2
8.2
$
343.7
62.2
7.8
7.6
$
1,352.5
223.5
(1.0)
(1.6)
$
0.11
0.11
$
(0.47)
(0.47)
$
0.17
0.17
$
0.16
0.16
$
(0.03)
(0.03)
Fiscal 2015 quarters ended
Dec.
Sept.
June
March
Fiscal 2015
$
392.5
67.7
14.1
13.7
$
377.3
56.7
2.0
1.7
$
363.6
59.4
9.1
9.6
$
363.0
62.7
(3.0)
(3.2)
$
1,496.4
246.5
22.2
21.8
$
0.29
0.28
$
0.04
0.04
$
0.20
0.20
$
(0.07)
(0.07)
$
0.46
0.45
(a) During fiscal 2016, restructuring expenses totaled $2.6 million, $1.0 million, $1.6 million, and $11.4 million for the
quarters ended June 30, 2015, September 30, 2015, December 31, 2015, and March 31, 2016, respectively (see Note 6).
During the fourth quarter of fiscal 2016, the Company recorded a $9.9 million asset impairment charge related to a
manufacturing facility in Germany (see Note 6). During fiscal 2016, non-cash pension settlement losses totaled $39.2
million, $1.1 million, and $1.8 million for the quarters ended September 30, 2015, December 31, 2015, and March 31,
2016, respectively (see Note 17). During the fourth quarter of fiscal 2016, the Company recorded a $9.5 million gain
related to an insurance settlement for equipment losses resulting from the Airedale fire (see Note 2). Also during the
fourth quarter of fiscal 2016, the Company reversed a deferred tax asset valuation allowance, and, as a result, recorded an
income tax benefit of $3.0 million (see Note 8).
(b) During fiscal 2015, restructuring expenses totaled $0.8 million, $1.0 million, $1.9 million, and $1.0 million for the
quarters ended June 30, 2014, September 30, 2014, December 31, 2014, and March 31, 2015, respectively (see Note 6).
During the third quarter of fiscal 2015, the Company sold a wind tunnel and recognized a gain of $3.2 million (see Note
6). During the fourth quarter of fiscal 2015, the Company recorded a $7.8 million goodwill impairment charge (see Note
14) and a $3.2 million charge associated with a legal matter in Brazil (see Note 19).
68
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Modine Manufacturing Company:
In our opinion, the accompanying consolidated financial statements listed in the index appearing under Item 15(a)(1), present
fairly, in all material respects, the financial position of Modine Manufacturing Company and its subsidiaries at March 31, 2016
and 2015, and the results of their operations and their cash flows for each of the three years in the period ended March 31,
2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related consolidated financial statements. Also, in our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2016,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial
statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal
Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our
integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it classifies
deferred taxes in fiscal 2016.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 26, 2016
69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES.
Conclusion Regarding Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on Form 10-K, management of the Company, at the direction of the
General Counsel and under the supervision, and with the participation, of the Company's President and Chief Executive Officer
and Vice President, Finance and Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and
procedures as defined in the Securities Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the President
and Chief Executive Officer and Vice President, Finance and Chief Financial Officer have concluded the design and operation
of the Company's disclosure controls and procedures were effective as of March 31, 2016.
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.
The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s
President and Chief Executive Officer and Vice President, Finance and Chief Financial Officer, and effected by the Company's
board of directors, management and other personnel to provide reasonable assurance regarding the reliability of its financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
Management, with the participation of the Company’s President and Chief Executive Officer and Vice President, Finance and
Chief Financial Officer, has assessed the effectiveness of the Company’s internal control over financial reporting as of March
31, 2016. In making its assessment of internal control over financial reporting, management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control—Integrated Framework (2013).”
Based on this assessment, management concluded that, as of March 31, 2016, the Company’s internal control over financial
reporting was effective.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 2016 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the fourth quarter of fiscal 2016 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
70
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors. The Company incorporates by reference the information appearing in the Company's Proxy Statement for the 2016
Annual Meeting of Shareholders to be held on July 21, 2016 (the “2016 Annual Meeting Proxy Statement”) under the caption
“Election of Directors.”
Executive Officers. The information in response to this Item appears under the caption "Executive Officers of the Registrant" in
this Form 10-K.
Compliance with Section 16(a) of the Exchange Act. The Company incorporates by reference the information appearing in the
2016 Annual Meeting Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.”
Code of Ethics. The Company incorporates by reference the information appearing in the 2016 Annual Meeting Proxy
Statement under the caption “Corporate Governance – Code of Ethics.” The Company's Code of Ethics (labeled as the Code of
Conduct) is included on its website, www.modine.com (About Modine link).
Board Committee Charters. The Board of Directors has approved charters for its Audit Committee, Officer Nomination and
Compensation Committee, Corporate Governance and Nominating Committee and Technology Committee. These charters are
included on the Company’s website, www.modine.com (Investors link).
Audit Committee Financial Expert. The Company incorporates by reference the information appearing in the 2016 Annual
Meeting Proxy Statement under the caption “Committees of the Board of Directors – Audit Committee.”
Audit Committee Disclosure. The Company incorporates by reference the information appearing in the 2016 Annual Meeting
Proxy Statement under the captions “Committees of the Board of Directors – Audit Committee” and “Board Meetings and
Committees.”
Guidelines on Corporate Governance. The Board of Directors has adopted Guidelines on Corporate Governance. The
Company’s Guidelines on Corporate Governance are included on its website, www.modine.com (Investors link).
Security Holder Recommendation of Board Nominees. The Company incorporates by reference the information appearing in the
2016 Annual Meeting Proxy Statement under the caption “Shareholder Nominations and Recommendations of Director
Candidates.”
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing in the 2016 Annual Meeting Proxy Statement under the captions “Compensation Discussion and
Analysis,” “Compensation of Directors,” “Committees of the Board of Directors – Officer Nomination and Compensation
Committee: Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The Company incorporates by reference the information relating to stock ownership under the caption “Security Ownership of
Certain Beneficial Owners and Management,” and under the caption “Equity Compensation Plan Information,” in the 2016
Annual Meeting Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The Company incorporates by reference the information contained in the 2016 Annual Meeting Proxy Statement under the
captions “Certain Relationships and Related Transactions” and “Director Independence.”
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The Company incorporates by reference the information contained in the 2016 Annual Meeting Proxy Statement under the
caption “Independent Auditors’ Fees for Fiscal 2016 and 2015.”
71
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents Filed. The following documents are filed as part of this Report:
Page in Form 10-K
1. The consolidated financial statements of Modine Manufacturing Company and its subsidiaries filed
under Item 8:
Consolidated Statements of Operations for the years ended March 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Income for the years ended March 31, 2016, 2015 and
2014
Consolidated Balance Sheets at March 31, 2016 and 2015
Consolidated Statements of Cash Flows for the years ended March 31, 2016, 2015 and 2014
Consolidated Statements of Shareholders' Equity for the years ended March 31, 2016, 2015 and 2014
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2. Financial Statement Schedules
The following financial statement schedule should be read in conjunction with the consolidated
financial statements set forth in Item 8:
Schedule II -- Valuation and Qualifying Accounts
Schedules other than those listed above are omitted because they are not applicable, not required, or
because the required information is included in the consolidated financial statements and the notes
thereto.
3. Exhibits and Exhibit Index.
See the Exhibit Index included as the last part of this report, which is incorporated herein by
reference. Each management contract and compensatory plan or arrangement required to be filed as
an exhibit to this report is identified in the Exhibit Index by an asterisk following its exhibit number.
38
39
40
41
42
43-68
69
74
75-77
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 26, 2016
Modine Manufacturing Company
By: /s/ Thomas A. Burke
Thomas A. Burke, President
and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated.
/s/ Thomas A. Burke
Thomas A. Burke
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Michael B. Lucareli
Michael B. Lucareli
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Marsha C. Williams
Marsha C. Williams
Director
/s/ David J. Anderson
David J. Anderson
Director
/s/ Charles P. Cooley
Charles P. Cooley
Director
/s/ Suresh V. Garimella
Suresh V. Garimella
Director
/s/ Larry O. Moore
Larry O. Moore
Director
/s/ Christopher W. Patterson
Christopher W. Patterson
Director
/s/ Christine Y. Yan
Christine Y. Yan
Director
/s/ David G. Bills
David G. Bills
Director
May 26, 2016
May 26, 2016
May 26, 2016
May 26, 2016
May 26, 2016
May 26, 2016
May 26, 2016
May 26, 2016
May 26, 2016
May 26, 2016
73
MODINE MANUFACTURING COMPANY AND SUBSIDIARIES
(A Wisconsin Corporation)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the years ended March 31, 2016, 2015 and 2014
(In millions)
Description
2016: Valuation Allowance for
Deferred Tax Assets
2015: Valuation Allowance for
Deferred Tax Assets
2014: Valuation Allowance for
Deferred Tax Assets
Balance at
Beginning of
Period
Additions
Charged
(Benefit) to
Costs and
Expenses
Charged to
Other
Accounts
Balance at End
of Period
$
48.0
$
1.5
$
1.3
(a)
$
50.8
$
61.2
$
(6.8)
$
(6.4)
(a)
$
48.0
$
172.8
$
(113.1)
$
1.5
(a)
$
61.2
Notes:
(a) Foreign currency translation and other adjustments
74
MODINE MANUFACTURING COMPANY
(THE “REGISTRANT”)
(COMMISSION FILE NO. 1-1373)
EXHIBIT INDEX
TO
2016 ANNUAL REPORT ON FORM 10-K
Exhibit No. Description
Incorporated Herein By
Referenced To
Filed
Herewith
3.1
Amended and Restated Articles of Incorporation, as amended.
3.2
Bylaws, as amended.
4.1
Form of Stock Certificate of the Registrant.
Exhibit 4.2 to Registrant’s
Registration Statement on Form S-3
(333-161030) dated August 4, 2009
Exhibit 3.1 to Registrant’s Current
Report on Form 8-K dated February
10, 2015
Exhibit 4(a) to Form 10-K for the
fiscal year ended March 31, 2003
("2003 10-K")
4.2
4.3**
4.4**
4.5**
4.6**
4.7**
Amended and Restated Articles of Incorporation, as amended.
See Exhibit 3.1 hereto.
Note Purchase and Private Shelf Agreement (the “Original Note
Purchase Agreement”) dated as of August 12, 2010 among the
Registrant and the Series A Purchasers named therein of
$125,000,000 6.83% Secured Senior Notes, Series A, due
August 12, 2020 and $25,000,000 Private Shelf Facility and
each Prudential Affiliate (as defined therein) that may become
bound by certain provisions thereof.
Amended and Restated Collateral Agency Intercreditor
Agreement (the “Original Intercreditor Agreement”) dated as of
August 12, 2010 among the Lenders (as defined therein), the
Noteholders (as defined therein) and JPMorgan Chase Bank,
N.A. as Collateral Agent.
First Amendment to Note Purchase and Private Shelf
Agreement and Waiver dated as of March 15, 2012, with
Prudential Investment Management, Inc., The Prudential
Insurance Company of America and Prudential Retirement
Insurance and Annuity Company (collectively the
“Noteholders”) pursuant to which the Company and the
Noteholders amended the Original Note Purchase Agreement.
Second Amendment to Note Purchase and Private Shelf
Agreement dated as of April 20, 2012, with Prudential
Investment Management, Inc., The Prudential Insurance
Company of America and Prudential Retirement Insurance and
Annuity Company (collectively the “Noteholders”) pursuant to
which the Company and the Noteholders amended the Original
Note Purchase Agreement, as amended.
Third Amendment to Note Purchase and Private Shelf
Agreement dated as of August 6, 2012, with Prudential
Investment Management, Inc., The Prudential Insurance
Company of America and Prudential Retirement Insurance and
Annuity Company (collectively the “Noteholders”) pursuant to
which the Company and the Noteholders amended the Original
Note Purchase Agreement, as amended.
75
Exhibit 4.2 to Registrant’s Current
Report on Form 8-K dated August
12, 2010 8-K (“August 12, 2010 8-
K”)
Exhibit 4.3 to August 12, 2010 8-K
Exhibit 4.2 to Registrant’s Current
Report on Form 8-K dated March 15,
2012 8-K
Exhibit 4.2 to Registrant’s Current
Report on Form 8-K dated April 20,
2012 8-K
Exhibit 4.2 to Registrant’s Current
Report on Form 8-K dated August 6,
2012 8-K
4.8**
4.9**
4.10**
4.11
10.1*
10.2*
10.3*
10.4*
10.5*
Second Amended and Restated Credit Agreement dated as of
August 30, 2013, with JPMorgan Chase Bank, N.A., as
Administrative Agent, LC Issuer, Swing Line Lender and as a
Lender, and U.S. Bank, N.A. and Wells Fargo Bank, N.A. as
Syndication Agents and as Lenders, BMO Harris Bank N.A., as
Documentation Agent and as Lender and Associated Bank,
N.A., Comerica Bank and Sovereign Bank as Lenders
Fourth Amendment to Note Purchase and Private Shelf
Agreement (the “Fourth Note Purchase Amendment”) dated as
of August 30, 2013, with Prudential Investment Management,
Inc., The Prudential Insurance Company of America and
Prudential Retirement Insurance and Annuity Company
(collectively the “Note Holders”) pursuant to which the
Company and the Note Holders amended the Original Note
Purchase Agreement, as amended.
First Amendment to the Original Intercreditor Agreement,
among the Lenders, the Note Holders and JPMorgan as
Collateral Agent, pursuant to which the Lenders, the Note
Holders and JPMorgan amended the Original Intercreditor
Agreement.
Exhibit 4.1 to Registrant’s Current
Report on Form 8-K dated August
30, 2013 (“August 30, 2013 8-K”)
Exhibit 4.2 to August 30, 2013 8-K
Exhibit 4.3 to August 30, 2013 8-K
Credit Facility Agreement among Modine Holding GmbH,
Modine Europe GmbH and Deutsche Bank AG dated as of April
27, 2012.
Exhibit 4.10 to Registrant’s Form 10-
K for the fiscal year ended March 31,
2012
Director Emeritus Retirement Plan effective April 1, 1992 (and
frozen as of July 1, 2000).
Employment Agreement between the Registrant and Thomas A.
Burke dated as of June 15, 2007.
Form of Amendment No. 1 to Employment Agreement entered
into as of July 1, 2008 with Thomas A. Burke.
Exhibit 10(a) to Registrant’s Form
10-K for the fiscal year ended March
31, 2002
Exhibit 10.3 to Registrant’s Current
Report on Form 8-K dated June 15,
2007
Exhibit 10.1 to Registrant’s Current
Report on Form 8-K dated July 1,
2008
Form of Change in Control and Termination Agreement
(amended and restated) between the Registrant and officers
other than Thomas A. Burke.
Exhibit 10(f) to Registrant’s Form
10-K for the year ended March 31,
2004
Employment Agreement, dated July 1, 2014, between Modine
Holding GmbH and Holger Schwab, effective as of July 1,
2015.
Exhibit 10.1 to Registrant’s Current
Report on Form 8-K dated July 1,
2014
10.6*
Executive Supplemental Retirement Plan (as amended).
Exhibit 10(f) to Registrant's Form
10-K for the fiscal year ended March
31, 2000
10.7*
10.8*
10.9*
Deferred Compensation Plan (as amended).
Exhibit 10(y) to 2003 10-K
2007 Incentive Compensation Plan.
2008 Incentive Compensation Plan
(Amended and Restated effective May 7, 2014).
Appendix A to the Registrant's Proxy
Statement dated June 18, 2007
Exhibit 10.1 to Registrant's Current
Report on Form 8-K dated July 17,
2014
76
10.10*
Amendment No. 1 to Form of Change in Control and
Termination Agreement (amended and restated) between the
Registrant and Officers other than Thomas A. Burke.
Exhibit 10.17 to Registrant's Form
10-K for the fiscal year ended March
31, 2011
10.11*
Supplemental Severance Policy.
10.12*
Form of Fiscal 2016 Modine Performance Stock Award
Agreement
Exhibit 10.1 to Registrant’s Current
Report on Form 8-K dated October
17, 2011
Exhibit 10.1 to Form 10-Q for the
first quarter ended June 30, 2015
("June 30, 2015 10-Q")
Exhibit 10.2 to June 30, 2015 10-Q
10.13*
10.14*
10.15*
21
23
31.1
31.2
32.1
32.2
Form of Fiscal 2016 Modine Incentive Stock Options Award
Agreement
Form of Fiscal 2016 Modine Restricted Stock Award
Agreement
Exhibit 10.3 to June 30, 2015 10-Q
Form of Fiscal 2016 Modine Non-Qualified Stock Option
Award Agreement
Exhibit 10.4 to June 30, 2015 10-Q
List of subsidiaries of the Registrant.
Consent of independent registered public accounting firm.
Rule 13a-14(a)/15d-14(a) Certification of Thomas A. Burke,
President and Chief Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli,
Vice President, Finance and Chief Financial Officer.
Section 1350 Certification of Thomas A. Burke, President and
Chief Executive Officer.
Section 1350 Certification of Michael B. Lucareli, Vice
President, Finance and Chief Financial Officer.
101.INS
Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
X
X
X
X
X
X
X
X
X
X
X
X
* Denotes management contract or executive compensation plan or arrangement required to be filed as an exhibit
pursuant to Item 15 of Form 10-K.
** Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has omitted certain agreements with respect to
long-term debt not exceeding 10% of consolidated total assets. The Registrant agrees to furnish a copy of any such
agreements to the Securities and Exchange Commission upon request.
77
CORPORATE INFORMATION MODINE MANUFACTURING COMPANY
Corporate Headquarters
Modine Manufacturing Company
1500 DeKoven Avenue
Racine, WI 53403-2552
Telephone: 262.636.1200
Fax: 262.636.1424
Website: www.modine.com
Technical Centers
Racine, Wisconsin, USA
Bonlanden, Germany
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Suite 1800
Milwaukee, WI 53202
Telephone: 414.212.1600
Transfer Agent and Registrar
Wells Fargo Shareholder Services is Modine’s stock transfer agent
and registrar and maintains the company’s shareholder records.
Shareholders needing information about account records, stock
certificates and change of address should contact:
Facilities
The company operates on five continents. For a complete list of locations,
please see the company’s Form 10-K filed with the Securities and Exchange
Commission (SEC) for the fiscal year ended March 31, 2016.
Wells Fargo Bank, N.A.
Shareowner Services
P.O. Box 64854
St. Paul, MN 55164-0854
Telephone: 800.468.9716
Direct Purchase Plan
(Shareowner Service Plus Plan)
Shareholders can build their investments in Modine through a no-cost
purchase plan for automatically making additional cash purchases
of Modine stock. Systematic investments can be established for your
account by authorizing direct deductions from your bank account on
a monthly basis. To receive plan material and enrollment information,
please call 800.468.9716. The Modine Manufacturing Company Direct
Stock Purchase Plan is administered by the company’s transfer agent,
Wells Fargo Shareowner Services. Inquiries may be directed to the
address listed above.
Shareholders
As of March 31, 2016, there were 2,828 shareholders of record.
In addition, Modine estimates that there were approximately 7,606
beneficial shareholders as of that date.
Trademarks
Trademarks or registered trademarks of Modine Manufacturing
Company are denoted by a registration symbol in this report.
Copyright © 2016 Modine Manufacturing Company. All Rights Reserved.
Stock Exchange
New York Stock Exchange
Ticker Symbol: MOD
New York Stock Exchange Compliance
Modine Manufacturing Company has included as exhibits to its Form
10-K filed with the Securities and Exchange Commission certifications
by the company’s Chief Executive Officer in the role of Principal
Executive Officer and Principal Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. Modine Manufacturing Company
also has filed with the New York Stock Exchange (NYSE) the most recent
Domestic Company Section 303A Annual CEO Certification as required
by the NYSE Listed Company Manual.
Form 10-K Report
Modine’s Form 10-K Report, filed in May 2016 with the Securities and
Exchange Commission, is contained within this report. It and the proxy
statement also are available to shareholders and interested individuals
without charge by contacting Investor Relations at the company’s
headquarters address, or by visiting the Investor Relations section at
www.modine.com.
Modine SEC Filings and News Releases
Forms 10-K, 10-Q and 8-K, news releases and other company
information can be obtained at www.modine.com, or by contacting
Investor Relations at the company’s headquarters address, by telephone
at 262.636.1200 or by e-mail at k.t.powers@na.modine.com.
Annual Meeting of Shareholders
The 2016 Annual Meeting of Shareholders will be held at 8:00 a.m.
Central Time on Thursday, July 21 at:
The InterContinental Hotel
139 E. Kilbourn Avenue
Milwaukee, WI 53202
A formal notice of the meeting, proxy statement and proxy voting
card will be mailed to shareholders in accordance with Securities
and Exchange Commission regulations.
OFFICERS AND DIRECTORS*
Officers
Brian J. Agen
Vice President, Human Resources
Age 47; joined Modine in 1996
Ralf Beck
Vice President and Chief Technology Officer
Age 55; joined Modine in 1987
Scott L. Bowser
Vice President – Asia and Global Procurement
Age 51; joined Modine in 1998
Thomas A. Burke
President and Chief Executive Officer
Age 59; joined Modine in 2005
Mark D. Hudson
Vice President, Corporate Controller & Tax
Age 45; joined Modine in 2012
Margaret C. Kelsey
Vice President, Legal and Corporate Communications,
General Counsel and Secretary
Age 51; joined Modine in 2001
Michael B. Lucareli
Vice President, Finance
and Chief Financial Officer
Age 47; joined Modine in 1999
Thomas F. Marry
Executive Vice President
and Chief Operating Officer
Age 55; joined Modine in 1998
Matthew J. McBurney
Vice President – Building HVAC
Age 47; joined Modine in 1992
Kathleen T. Powers
Vice President, Treasurer
and Investor Relations
Age 48; joined Modine in 2011
Holger Schwab
Regional Vice President – Europe
Age 51; joined Modine in 2012
Scott D. Wollenberg
Regional Vice President – Americas
Age 47; joined Modine in 1992
Board of Directors**
David J. Anderson A,B,D
Retired; formerly President and Chief Executive Officer
of Sauer-Danfoss, Inc.
Age 68; Director since 2010
David G. Bills A,B,D
Senior Vice President – Corporate Strategy of DuPont
Age 55; Director since 2015
Thomas A. Burke
President and Chief Executive Officer of Modine
Age 59; Director since 2008
Charles P. Cooley A,B,C
Retired; formerly Senior Vice President and
Chief Financial Officer of The Lubrizol Corporation
Age 60; Director since 2006
Suresh V. Garimella B,C,D
Executive Vice President for Research and Partnerships, R. Eugene and
Susie E. Goodson Distinguished Professor in the School of Mechanical
Engineering and Director of the Cooling Technologies Research Center,
Purdue University
Age 51; Director since 2011
Larry O. Moore B,C,D
Retired; formerly Senior Vice President, Module Centers
& Operations of Pratt & Whitney, a division of
United Technologies Corporation
Age 66; Director since 2010
Christopher W. Patterson A,B,C
Retired; formerly President and Chief Executive Officer
of Daimler Trucks North America LLC
Age 62; Director since 2010
Marsha C. Williams B
Retired; formerly Senior Vice President and
Chief Financial Officer of Orbitz Worldwide, Inc.
Age 65; Director since 1999
Christine Y. Yan A,B,D
President of Asia, Stanley Black & Decker, Inc.
Age 50; Director since May 2014
*Officers and Board of Directors listed as of May 26, 2016
**Board of Director Committee charters are available on the corporate governance section of www.modine.com.
Committees of the Board (A) Audit Committee: This committee, composed solely of independent directors, appoints the independent auditors; works with the independent auditors in
determining audit plan and scope; reviews the results of the audit; oversees management’s implementation of systems of internal controls and the adequacy of internal accounting controls;
reviews the company’s compliance program and approves the company’s Code of Conduct; reviews and approves all services and fees of the independent auditors; reviews proposed material
changes in accounting or financial reporting practices; and reviews required periodic financial statements. (B) Corporate Governance and Nominating Committee: This committee, also
composed solely of independent directors, develops and implements policies and processes relating to corporate governance matters; reviews the backgrounds of prospective nominees to the
Board and makes recommendations to the Board regarding such persons. (C) Officer Nomination & Compensation Committee: This committee, also composed solely of independent directors,
reviews and recommends candidates for officer positions; reviews performance of and recommends compensation for officers; and administers Modine’s incentive compensation plans. (D)
Technology Committee: This committee reviews and makes recommendations to the Board on major strategies and other subjects related to Modine’s technology.
100
1500 DeKoven Avenue
Racine, WI 53403-2552 USA
www.modine.com