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, 20162021


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 COMPANYCOMPANY
(Exact name of registrant as specified in its charter)


WISCONSIN
Wisconsin		 
39-0482000
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)


1500 DeKoven Avenue, Racine, Wisconsin
 
53403
(Address of principal executive offices) (Zip Code)


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


Securities registered pursuant to Section 12(b) of the Act:


Title of each class
Trading Symbol(s)
Name of each exchange on which registered
   
Common Stock, $0.625 par valueMODNew 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 (§232.405 of this chapter) 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, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth 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 ☐
Emerging growth company ☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

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


Approximately 9698 percent of the outstanding shares are held by non-affiliates.  The aggregate market value of these shares was approximately $365$313 million based upon the market price of $7.87$6.25 per share on September 30, 2015,2020, the last business 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'sregistrant’s common stock, $0.625 par value, was 47,426,52951,626,626 at May 23, 2016.21, 2021.


An Exhibit Index appears at pages 75-7792-94 herein.


DOCUMENTS INCORPORATED BY REFERENCE


Portions of the following documents are incorporated by reference into the parts of this Form 10‑K10-K designated to the right of the document listed.


Incorporated Document
Location in Form 10-K
  
Proxy Statement for the 20162021 Annual
Meeting of Shareholders
Part III of Form 10-K
Meeting of Shareholders
(Items 10, 11, 12, 13, 14)




MODINE MANUFACTURING COMPANY
TABLE OF CONTENTS


PART I
   
 ITEM 1.
BUSINESS.
1
 
ITEM 1A.
RISK FACTORS.
10
11
 ITEM 1B.
UNRESOLVED STAFF COMMENTS.
15
18
 ITEM 2.
PROPERTIES.
15
19
 ITEM 3.
LEGAL PROCEEDINGS.
16
19
 ITEM 4.
MINE SAFETY DISCLOSURES.
1619
  
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT.OFFICERS.
1620
    
PART II
    
 ITEM 5.
MARKET FOR REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
18
ITEM 6.
SELECTED FINANCIAL DATA.
20
21
 ITEM 7.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
20
22
 ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
35
40
 ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
38
44
 ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
70
87
 ITEM 9A.
CONTROLS AND PROCEDURES.
70
87
 ITEM 9B.
OTHER INFORMATION.
7087
    
PART III
  
 ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
71
88
 ITEM 11.
EXECUTIVE COMPENSATION.
71
88
 ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
71
89
 ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
71
89
 ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
7189
    
PART IV 
    
 ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.SCHEDULES.
7290
 ITEM 16.
SIGNATURESFORM 10-K SUMMARY.
7390
  
SCHEDULE II -‑ VALUATION AND QUALIFYING ACCOUNTS
7491
  
EXHIBIT INDEX
7592
SIGNATURES
95




Table of ContentContents
(This page intentionally left blank.)



Table of ContentContents
PART I

ITEM 1ITEM 1.   BUSINESS.BUSINESS.


Modine Manufacturing Company specializes in providing innovative thermal management solutions.solutions to diversified global markets and customers.  We are a global leader in thermal management technology and solutions for sale into a wide array of commercial, industrial, and building heating, ventilating, air conditioning, and refrigeration (“HVAC&R”) markets.  In addition, we are a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on-highwayon- and off-highway original equipment manufacturer (“OEM”) vehicular applications, and for sale into a wide array of building, industrial and refrigeration markets.applications.  Our productsprimary product groups include radiators and radiator cores, condensers, oil coolers, charge air coolers, heat-transfer modules and assemblies, exhaust gas recirculation (“EGR”) coolers, buildingi) heating, ventilatingventilation and air conditioning (“HVAC”) equipment,conditioning; ii) coils, coolers, and coils.coatings; and iii) powertrain cooling and engine cooling.  Our primary customers across the globe are:include:


-Heating, ventilation and cooling OEMs;
-Construction architects and contractors;
-Wholesalers of heating equipment;
-Agricultural, industrial and construction equipment OEMs;
-Commercial and industrial equipment OEMs; and
-Automobile, truck, bus, and specialty vehicle OEMs.
- 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 customers.  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,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, theThe 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 focusthrive on innovation and use our thermal management expertise to design products that better the world.  From improving indoor air quality to increasing energy efficiency of data centers to lowering harmful vehicular emissions, our businesses design quality systems and products to enable our customers to operate in the ever-changing global marketplace.

Fiscal 2021 presented challenges, largely driven by the COVID-19 pandemic.  Since the onset of the pandemic, our top priorities have been, and continue to be, the health and overall well-being of our employees and delivering quality products and services to our customers.  COVID-19 has broadly impacted the global economy and our key end markets.  Our businesses were most severely impacted during the first quarter of fiscal 2021.  In response, we swiftly implemented cost-saving actions, including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of our organization.  We withdrew most of these cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels as markets recovered.

1
Table of Contents
Despite the challenges, we ended the year in a position of strength.  By the end of fiscal 2021, we had reached agreements to sell both the liquid- and air-cooled automotive businesses in separate transactions.  These sale agreements represent significant progress towards our strategic exit of our Automotive segment businesses. The sale of the air-cooled automotive business closed in April 2021. The sale of the liquid-cooled automotive business is subject to the receipt of governmental and third-party approvals and satisfaction of other closing conditions. We are currently working with the buyer through the regulatory approval process. At this time, we are not able to estimate the ultimate impact of the regulatory approval process or the closing date for this transaction. We also completed the transition to our new President and Chief Executive Officer (“CEO”), Neil D. Brinker. Under Mr. Brinker’s leadership, our teams are energized in implementing an 80/20 strategy to examine our business using data analytics in order to focus our resources on products and highly engineered productmarkets with the highest growth 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.best returns.

During fiscal 2016, we launched2021, our Strengthen, Diversifyconsolidated net sales were $1.81 billion, an 8 percent decrease from $1.98 billion in fiscal 2020.  This decrease was primarily due to lower sales in our Commercial and GrowIndustrial Solutions (“CIS”), Heavy-Duty Equipment (“HDE”), and Automotive segments, largely driven by impacts of the COVID-19 pandemic.  Our Building HVAC Systems (“BHVAC”) segment sales increased 9 percent compared with the prior year.  Our operating loss of $98 million in fiscal 2021 was primarily due to $167 million of impairment charges recorded in the Automotive segment, partially offset by lower selling, general and administrative (“SG&A”) expenses, which benefitted from lower project costs associated with our 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 business, effectively meetexit of the needs of our global customers, and improve our speed to market. In addition, we aim to diversify through expanding our non-vehicularautomotive businesses and grow through both organic and inorganic opportunities.cost-reduction initiatives in response to COVID-19.

Our top five customers are in three different markets – automotive,the commercial vehicle, off-highway and off-highway –automotive and light vehicle markets and our ten largest customers accounted for 6343 percent of both our fiscal 2016 and 20152021 sales.  In fiscal 2016,2021, 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 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 107 percent generated by exports from the U.S.  In fiscal 2020, 59 percent of our total sales were generated from customers outside of the U.S., with 52 percent of total sales generated by foreign operations and 7 percent generated by exports from the U.S.  In fiscal 2019, 58 percent of our total sales were generated from customers outside of the U.S., with 52 percent of total sales generated by foreign operations and 6 percent generated by exports from the U.S.
1
Table of Content
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
Table of Content
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) Fiscal 2016 Fiscal 2015
Operating (loss) income $(7.5) $52.7 
Restructuring expenses  16.6   4.7 
Impairment charges  9.9   7.8 
Pension settlement losses  42.1   - 
Other adjustments (a)  2.1   - 
Subtotal  63.2   65.2 
Tax applied at 30% rate  (19.0)  (19.6)
Noncontrolling interest  (0.6)  (1.0)
Operating income - adjusted $43.6  $44.6 
         
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 $504.7  $589.2 
June 30  522.9   604.5 
September 30  512.5   582.0 
December 31  519.7   572.0 
End of fiscal year  538.8   504.7 
Average capital employed (b) $519.7  $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:


 Fiscal 2016 Fiscal 2015 Fiscal 2021  Fiscal 2020 
Commercial HVAC&R  33%  32%
Automotive  25%  26%
Commercial vehicle  34%  34%  15%  16%
Automotive  29%  27%
Off-highway  15%  18%  15%  13%
Building HVAC  13%  12%
Data center cooling  6%  8%
Industrial cooling  3%  2%
Other  9%  9%  3%  3%


Competitive Position


We compete with many manufacturers of heat transfer and HVAC&R 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 expandoptimize our geographic footprint in part to provide more flexibility to serve our customers around the globe.  OurMany of 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.

3
2
Table of ContentContents
Business Segments


We have assigned specific operations toEach of our operating 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.maker (“CODM.”)  These results are used by management in evaluating the performance of each business segment and in making decisions on the allocation of resources amongamongst 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 tofor our operating segments is included in Note 2122 of the Notes to Consolidated Financial Statements.


Americas, Europe, and Asia Segments

Effective April 1, 2020, we began managing our automotive business separate from the previously-reported Vehicular Thermal Solutions (“VTS”) segment.  The continued globalizationother businesses 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,VTS segment, 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 businesses, are being managed as the HDE segment.

Our Industrial Businesses

Building HVAC Systems Segment

Market Overview
In North America, the heating market experienced modest growth in fiscal 2021.  The ventilation markets, driven by new construction and renovations, were negatively impacted by COVID-19, especially within the hospitality sectors.  In fiscal 2022, we expect continued modest growth in the North American heating markets.  We also expect strong growth in the North American ventilation markets, largely driven by an increased focus on and available federal and local funding for ventilation improvements by school and healthcare systems as a result of the COVID-19 pandemic.

Our businesses in the United Kingdom (“U.K.”) serve ventilation, air conditioning and data center markets in the U.K., mainland Europe, the Middle East, Far East and Africa.  In addition, our Americas segment provides custom-designed heat exchangers, utilizing microchannel, heat recovery,fiscal 2021, the data center market experienced strong growth, including heightened demand from increasing reliance on virtual capabilities resulting from stay-at-home edicts.  We expect increasing reliance on digital technologies, specifically colocation and round tube plate fin coils,cloud usage, to drive continued strong growth in the commercial refrigeration, residential heating,data center markets in the U.K. and commercial heatingEurope in fiscal 2022.  The ventilation 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 – DuringU.K. business saw some softness in fiscal 2016,2021 due to COVID-19, similar to 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.
4
Table of Content
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 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.American markets.  We expect these markets will be flat or slightly downexhibit moderate growth in fiscal 2017.  In South America, we anticipate continued declines in the agricultural market in fiscal 2017.  In Asia,2022.  Looking forward, 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.
5
Table of Content
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 productsthat European legislation, designed to increase equipment efficiency and reduce the use of high global warming potential refrigerants, will result in fiscal 2017.  We expect continued growth in demand for datacustomer buying pattern shifts over the next few years, as HVAC equipment providers shift products towards more efficient and connected devices, coupledenvironmentally-friendly alternatives.  While future impacts associated 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,the COVID-19 pandemic are currently uncertain, we expect improvement incommercial investment, construction marketsmarket activity, and energy efficiency legislation towill drive increased demand for ourin the ventilation and geothermal products.air conditioning markets in the years to come.


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; hybrid fan coils; and condensing units.  Aftersales includes spare parts, maintenance service and control solutions for existing plant equipment and new building management controls and systems.


Customers –
Mechanical contractors; HVAC wholesalers; installers; and end users in a variety of commercial and industrial applications, including data center management, including colocation and cloud providers, 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.Inc (ADP); CES (Reznor)Reznor (Nortek Global HVAC); MestekSterling (Mestek Inc. (Sterling)); Vertiv (formerly Emerson Electric Company (Liebert)); Stulz; Schneider Electric (APC / Uniflair); Johnson Controls, Inc. (York); Daikin (McQuay International); System Air (ChangeAir); Trane Technologies; Bard Manufacturing; Greenheck (Greenheck and Valent); and Aaon, Inc.


3
Table of Contents
Commercial and Industrial Solutions Segment

Market Overview
With the exception of the data center market, the primary markets served by our CIS segment were negatively impacted by the COVID-19 pandemic during fiscal 2021.  The HVAC&R and industrial cooling markets were most severely impacted early in our fiscal year and have been recovering since.  We expect most markets will continue to recover in fiscal 2022, with stronger recovery expected in the second half of the fiscal year.

Beyond the COVID-19 pandemic, trends influencing the primary CIS markets include refrigerant substitution, data usage and storage demand, and energy efficiency requirements, all of which are expected to benefit the commercial HVAC&R and data center markets.  We also expect that global population growth will drive changes in food consumption and food chain cooling demand trends and general increases in global trade will drive investments in refrigeration infrastructure.  Demand for more efficient HVAC&R systems in buildings and processes is driven by more stringent energy efficiency regulations.  In addition, regulatory bodies are imposing stricter guidelines aimed at reducing carbon footprint and demand is growing for data center cooling and on-site power backup capabilities, both of which we expect will drive growth in the data center market.

Products
Coils (microchannel, heat recovery and round tube plate fin); coolers (unit coolers, remote condensers, fluid coolers, transformer oil coolers and brine coolers); and coatings to protect against corrosion.

Customers
Commercial and industrial equipment manufacturers; distributors, contractors, and end users in a variety of commercial and industrial applications, including commercial and residential HVAC, mobile air conditioning, refrigeration, data center management, and precision and industrial cooling.

Primary Competitors
Kelvion Holding GmbH; Alfa-Laval AB; LU-VE S.p.A; Lennox International, Inc.; Super Radiator Coils; DunAn Precision Manufacturing, Inc.; and Guntner GmbH & Co. KG.

Our Vehicular Businesses

Heavy Duty Equipment and Automotive Segments

Geographically, we have a strong presence in the vehicular markets within the U.S., Mexico, Brazil, Europe, India, China, and South Korea.  We leverage our global organizational structure and expertise to solve our customers’ technical challenges.  Our customers value our technical support presence in all regions, our extensive product portfolio, and our ability to provide them with global standard designs.

Vehicular OEMs often expect cost reductions from suppliers while requiring a consistent level of quality.  In addition, OEMs often seek new technology solutions at low prices for their thermal management needs.  In general, this creates challenges for us and the entire supply base, but also provides an opportunity for suppliers, like Modine, who develop innovative solutions at a competitive cost.

Each of our main vehicular competitors, AKG Group, BorgWarner, Dana Corporation, Denso Corporation, Mahle, Tata Toyo, TitanX, T. Rad Co. Ltd., UFI Filters, Valeo SA, Hanon Systems, 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 lower-cost countries or lower-cost sourcing initiatives.  In addition, competitors from some lower-cost regions are beginning to expand into new geographical markets.

4
Table of Contents
The following summarizes the primary vehicular markets we serve:

Commercial Vehicle

Market Overview
During fiscal 2021, the North American and European commercial vehicle markets, particularly for heavy- and medium-duty trucks, were negatively impacted by the COVID-19 pandemic.  The most severe impacts occurred early in fiscal 2021 and these commercial vehicle markets have been recovering since.  While future impacts associated with the COVID-19 pandemic are uncertain, we expect these markets will continue to recover and exhibit strong growth during fiscal 2022.  We expect the Asian commercial vehicle markets will experience growth during the first part of fiscal 2022; however, we anticipate there may be some cyclical market weakness during the second half of fiscal 2022.

Beyond the COVID-19 pandemic, trends influencing the commercial and specialty vehicle markets include the continued need by commercial vehicle manufacturers to meet increasingly stringent emissions and fuel consumption requirements in all regions of the world.  For example, Modine has realized incremental business in Asia as China 6 and Bharat Stage 6 regulations have been implemented in China and India, respectively.  Additionally, truck and bus manufacturers are developing and bringing to market alternative powertrains, including battery electric, waste heat recovery, fuel cells, and other hydrogen-based technologies aimed at improving vehicle efficiency and reducing carbon footprint.  These trends are driving the advancement of product development worldwide and are creating demand for incremental improvements to thermal transfer products and systems.  We are active in these developments with numerous customers – both traditional OEM’s and start-up companies – on vehicles that cover the full range of commercial vehicle applications from last-mile to Class 8 trucks.  We are well positioned to support these changes.

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); auxiliary cooling (transmission and retarder oil coolers and power steering coolers); and complete battery thermal management systems and electronics cooling packages.

Customers
Commercial, medium- and heavy-duty truck and engine manufacturers; and bus and specialty vehicle manufacturers.

Primary Competitors
Mahle; TitanX; T. Rad Co. Ltd.; BorgWarner; and Tata Toyo.

Off-Highway

Market Overview
Overall, global off-highway markets were relatively flat in fiscal 2021.  The North and South American off-highway markets, including agricultural, construction, and mining markets, were negatively impacted by the COVID-19 pandemic.  The most severe COVID-19 impacts occurred early in fiscal 2021 and were followed by strong recovery in the second half of fiscal 2021.  While future impacts associated with the COVID-19 pandemic are uncertain, we expect strong growth in the Americas and in European off-highway markets during fiscal 2022, particularly in the first half of the fiscal year.  We expect the Asian off-highway markets will experience slight declines in fiscal 2022, primarily due to cyclicality of the markets and lower government spending in China.

We expect wide-scale adoption of alternative powertrains will happen more gradually in the off-highway markets compared with commercial vehicle markets.  However, there are several off-highway customers and applications that are currently active in developing and bringing this technology to market.  We are actively engaged with them and see additional opportunities in the future.

Products
Powertrain cooling (engine cooling modules, radiators, condensers, charge air coolers, fuel coolers and oil coolers); auxiliary cooling (power steering coolers and transmission oil coolers); on-engine cooling (EGR coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers); and complete battery thermal management systems and electronics cooling packages.

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.; T. Rad Co. Ltd.; Haesong Engineering Co., Ltd.; Mahle Industrial Thermal Systems; and RAAL.

5
Table of Contents
Automotive and Light Vehicle

Market Overview
The North American and European automotive and light vehicle markets declined during fiscal 2021, primarily driven by the negative impacts of the COVID-19 pandemic.  The most severe impacts occurred early in fiscal 2021 and these markets have been recovering since.  While future impacts associated with the COVID-19 pandemic are uncertain, we expect these markets will continue to recover and exhibit growth during fiscal 2022.  The automotive market in China experienced modest growth during fiscal 2021; we expect slight declines in the Chinese automotive market in fiscal 2022, primarily due to market cyclicality.  Overall, we expect longer-term growth of the global automotive market will be supported by tightening of emissions standards, in-vehicle technology enhancements and growth in emerging markets.

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 (exhaust gas recirculation (“EGR”) coolers, engine oil coolers, fuel coolers, charge air coolers and intake air coolers); and chillers and cooling plates for battery thermal management.

Customers
Automobile, light truck, motorcycle, and power sports vehicle and engine manufacturers.

Primary Competitors
Mahle; Dana Corporation; UFI Filters; Denso Corporation; Hanon Systems; BorgWarner; Valeo SA; and Zhejiang Yinlun Machinery Co., Ltd

Geographical Areas


We maintain administrative organizations in fourall key 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
BrazilAustria
Belgium
Germany
Hungary
Italy
Netherlands
Serbia
Spain
Sweden
United Kingdom
China
India
South Korea
United Arab Emirates
MexicoGermanyIndiaSouth Africa
HungaryJapan
ItalySouth Korea
Netherlands
Russia
United Kingdom


Our non-U.S. subsidiaries and affiliates manufacture and sell a number of vehicular and commercial, industrial and building HVAC and industrial&R 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 consolidated net sales, were 97 percent, in both fiscal 20167 percent and 2015 and 106 percent in fiscal 2014.2021, 2020, and 2019, respectively.


We believe our international presence has positionedpositions us to share profitably inbenefit from the anticipated long-term growth of the global vehicular, commercial, industrial and building HVAC&R and vehicular markets.  We are committed to increasing our involvement and investment in international markets in the years ahead.

6
Table of ContentContents
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, certainsome of which are conglomerates or otherwise affiliated, accounted for 6343 percent of our consolidated net sales in fiscal 2016.  These customers, listed alphabetically, were: BMW; Caterpillar;2021.  In fiscal 2021 and 2020, 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.accounted for 10 percent or more of our sales.  In both fiscal 2016 and 2015,2019, Daimler AG and Volkswagen AG each accounted for 10 percent or more of our sales.  In fiscal 2014,

Our top customers operate primarily in the commercial vehicle, off-highway, automotive and light vehicle, commercial air conditioning and refrigeration markets.  Our top customers, listed alphabetically, include: Carrier; Caterpillar; Daimler AG was the only customer that accounted for 10 percent or more of our sales.(including Daimler Trucks, Detroit Diesel, Mercedes-Benz, and Western Star Trucks); Deere & Company; Navistar (including MWM International); Stallantis (including Chrysler, CNH, Fiat, Iveco, PSA-Peugeot-Citroen, and VM Motori); Trane Technologies; Volkswagen AG (including Audi, MAN, Porsche, and Scania); AB Volvo (including Mack Trucks and Renault Trucks); and ZF Friedrichshafen AG.  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.duration.


Backlog of Orders


Our operating segments maintain their own inventories and production schedules.  We believe that our current production capacity is capable of handling theour expected sales volume expected in fiscal 20172022 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 normallysuppliers, with other suppliers qualified and supplying lesser amounts to mitigate risk.  While our suppliers may become constrained due to global demand, we typically do not experience raw 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 suppliers on a monthly basis and our major fabricated component suppliers on a quarterly basis.  When possible, we have made material pass-through arrangements with key customers,included provisions within our long-term customer contracts which allow usprovide for adjustments to pass material costcustomer prices, on a prospective basis, based upon increases and decreases to our customers.in the cost of key raw materials.  When utilized,applicable, however, these pass-through arrangementscontract provisions 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 anduntil the time that we adjust the price with our customer.adjustments take effect.


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 2,2002,500 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&R and commercial vehicle, construction, agricultural, powersports and automotive and light vehicle markets.  Our products and systems are typicallyoften 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.
7
Table of Content

R&D expenditures, including certain application engineering costs for specific customer solutions, totaled $61$46 million, $60 million, and $70 million in fiscal 20162021, 2020, and $62 million2019, respectively.  As a percentage of our consolidated net sales, we have spent approximately 3 percent on R&D in both fiscal 2015 and 2014.  Overeach of the last three years, R&D expenditures have been between 4 and 5 percent of sales.years.  This level of investment reflects our continued commitment to R&D in an ever-changing market.marketplace.  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,refrigerant heat exchangers, EGR technology, oil coolers, charge air coolers, and waste heat recoverybattery thermal management systems for the automotive,residential and commercial energy storage, commercial vehicle, agriculturalagriculture, construction, and construction markets;automotive and EGR technology,light vehicle markets, which enable our customers to efficiently meet tighter regulatorymore stringent emission and energy efficiency standards.  Most of our current R&D activities are focused on internal development in the areas of powertrain cooling, engine, building HVAC, commercial and coils products.industrial thermal management products and powertrain and engine cooling.  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.capabilities.


7
Table of Contents
Quality Improvement


Globally, we drive quality improvement by maintaining the Global Modine Management System and executing the Modine Quality Strategy.

Through our global Qualityintegrated and process-oriented Global Modine Management System, (“QMS”),the majority of our manufacturing facilities in our Americas, Europe and Asia segmentsadministrative offices are registered to ISO 9001:200820015 or ISO/TSIATF 16949:20092016 standards, helping to ensure that our customers receive high quality products and services from every facility.  Whileservices.  Modine puts emphasis on monitoring process performance and adherence to meet rising 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.service.


The global QMS operates within the context of theOur Global Modine OperatingManagement 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 organizationour company by utilizing the principles, processes and behaviors that are corerelated to these systems.the Global Modine Management System.


To ensure future quality, we continue to execute the Modine Quality Strategy, which focuses on people, process, performance, quality engineering and the Global Modine Management System.

Environmental Health and Safety Matters


We are committed to preventing pollution, eliminating waste and reducing environmental risks.  Ourrisks and employ waste management programs to advance our environmental stewardship and minimize our environmental footprint.  The majority of our facilities maintain Environmental Management System (“EMS”) certification to the international ISO14001 standard through independent third-party audits. All

We are focused on reducing both our energy and water usage and have empowered each of our locations have established specific environmental improvement targetsglobal facilities to create and objectives forcarry out action plans that will contribute to our company-wide reduction goals.  Examples of steps we are taking to meet these goals include the upcoming fiscal year.installation of more efficient LED lighting systems, the replacement of inefficient boilers and air compressors, improved building HVAC management systems, increased industrial water recycling, and the installation of water-saving faucets.


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 commitmentcommitted to environmental stewardship is reflected incontinuously driving energy efficiency across 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, reflectsreflecting our sense of environmental responsibility.  We continueFor our developmentdata center customers, we are focused on designing and refinement of environmentally-friendly product lines, including oil, fuel, and EGR coolers for diesel applications, light-weight and high-performance powertrainproviding cooling heat exchangers, and our Advanced Cooling System technology. These products provide increased fuel economies and enable combustion technologiessolutions that reduce harmful gas emissions. Our Building HVACboth electrical and water usage.  We are also shifting our product offerings, includingportfolios in our industrial businesses toward lower-emission propellants and refrigerants that greatly reduce the Airedale SchoolMate geothermal heat pump; the EffinityTM, a condensing gas-fired unit heater with industry-leading efficiencies;environmental impact and the AtherionTM Commercial Packaged Ventilation System, are helping commercial, industrial and residential users achieve highenhance energy efficiencies and reduce utility costs.  Our geothermal products feature innovative heat pump technologies, providing energy savings and reduced carbon emissions in bothefficiency for our customers’ heating and cooling seasons.systems.  In addition, we are focusing on reducing energy use by recycling waste heat produced from air conditioning systems.  Lastly, products in our vehicular businesses include oil, charge-air, and exhaust gas recirculation (ERG) coolers, radiators, air conditioning condensers, and battery thermal management systems for cars, trucks, buses, specialty vehicles, and off-highway equipment.  These products allow both internal combustion and electric vehicle systems to run at optimal temperatures, which promotes better fuel efficiency, lower emissions, and improved vehicle lifespans.  We continue to focus on component design and development to improve fuel efficiency and reduce overall energy consumption, while still providing the vehicle performance that our customers expect.

8
Table of Content
Obligations for remedial activities may arise at our facilities due to past practices, or as a result of a property purchase or sale.  These expendituresobligations 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 liabilitiesLiabilities for environmental investigative work and remediation at sites in the United States, Brazil,U.S. and the Netherlandsabroad totaled $5$16 million at March 31, 2016.2021.


8
We recorded a fiscal 2016 global Recordable Incident Rate (“RIR” as defined by OSHA)
Table 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.Contents

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.  Both our BHVAC and CIS segments experience some seasonality, as demand for HVAC&R products can be affected by heating and cooling seasons, weather patterns, construction, and other factors.  Sales volume within the BHVAC segment is generally stronger in our second and third fiscal quarters, corresponding with demand for heating products.  We generally expect sales volume within our CIS segment to be higher during our first and second fiscal quarters due to the construction seasons in the northern hemisphere.  Sales to vehicular OEM customers are dependent upon market demand for new vehicles.  However, our second fiscal quarter production schedules are typically impacted by customer summer shut downsshutdowns 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 marketsmajority of customers in our CIS, HDE, and Automotive segments on an as-ordered basis, which makes large inventories of finished products unnecessary.  In Brazil, within our Building HVACHDE 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.  In our BHVAC segment, we maintain varying levels of finished goods inventory due to seasonal demand and the timing of sales programs.  We dohave not experienceexperienced a significant number of returned products within any of our operating segments.


Human Capital Resource Management

As of March 31, 2021, we employed approximately 10,900 persons worldwide.

We recognize that our continued success is a direct result of the quality of our people.  As such, we strive to be an employer of choice in every community in which we operate.  We do this by fostering a fair, respectful, and safe work environment for our people in alignment with our core values.

We have identified priorities that we believe are essential to attract, develop and retain highly-qualified talent.  These include, among others, i) providing career development programs; ii) promoting health and safety; iii) fostering diversity and inclusion in the workplace; and iv) providing competitive compensation and benefits.

Workforce Development
Our operations require expertise across a wide range of disciplines, from engineering and manufacturing to accounting and finance and information technology.  Both our human resources team at our corporate headquarters and our local facility managers work to hire talented individuals who align with our values.

All of our new employees go through a comprehensive onboarding program with their managers to ensure proper training is provided to succeed in their respective roles.  We encourage our employees to grow their skills through both internal and external training programs.

We are committed to growing our employees’ capabilities.  Through our annual Performance and Development Process (“PDP”), we provide all salaried employees with a consistent, structured development and performance review experience.  The PDP provides employees with a development pathway that focuses on both annual performance goals and longer-term career development.  In addition, we perform strategic talent reviews and succession planning on a regular cadence.

Health and Safety
The health and safety of our employees is paramount to us.  In response to the COVID-19 pandemic, we have taken steps at all of our global locations to limit the risk of exposure.  These actions have included increasing the spacing between work stations, rotating or splitting shifts to reduce the number of employees in our plants, providing additional personal protective equipment as necessary, removing chairs from cafeterias to improve social distancing, providing communication on personal hygiene best practices, implementing additional cleansing and sanitizing processes in critical areas, and establishing programs allowing employees to work from home where possible, which are helping to protect both those employees who are working remotely and those who remain in our facilities.

9
Table of Contents
We employ a behavior-based safety program which proactively seeks to correct at-risk behaviors while positively reinforcing safe behaviors.  We have consistently out-performed the private-industry Recordable Incident Rate (“RIR” as defined by the Occupational Safety and Health Administration) average for the manufacturing sector, which was 3.3 in 2019.  During fiscal 2021, we recorded an RIR of 1.24, well below the manufacturing sector average.

Diversity and Inclusion
We are committed to a diverse workforce, founded on respect and value for people of different backgrounds, experiences, and perspectives.  Incorporating diverse talent and fostering an inclusive workforce is a key focus of our talent management strategy.  We track and focus on indicators of diversity and inclusion across our global operations.  These indicators include the number of women in supervisory roles and minority new hires in the U.S.

Competitive Compensation and Benefits
We offer our employees competitive compensation and comprehensive benefit packages.  We frequently benchmark our compensation practices and benefits programs against those of comparable industries and in the geographic areas where our facilities are located.  We believe that our compensation and employee benefits are competitive and allow us to attract and retain talent throughout our organization.

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 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:documents, among others:

-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 NominationHuman Capital 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 reportAnnual Report on Form 10-K.


ITEM 1A.RISK FACTORS.
10

Table of Contents
ITEM 1A.   RISK FACTORS.

In the ordinary course of our business, we face various market, operational, strategic, financial and financialgeneral risks.  These risks could have ana material impact on our business, financial condition, and results of operations.  Our most significantPlease consider each of the risks are set forthdescribed below, and elsewherealong with other information contained in this Annual Report on Form 10-K.10-K, when making any investment decisions with respect to our securities.


Our Enterprise Risk Management (“ERM”) process seeks to identify and address significantmaterial 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 preservewhile preserving and enhance shareownerenhancing shareholder 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 financial results to vary materially from recent or anticipated future results.


A.MARKET RISKS


COVID-19 Pandemic and Future Public Health Crises
Customer
The ongoing COVID-19 pandemic, and Supplier Matters

Our OEMany future widespread outbreak of an illness or other public health threat, could adversely affect our 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 ourfinancial position, results of operations and financial condition.cash flows.


In March 2020, the World Health Organization declared the outbreak of the novel coronavirus, COVID-19, a pandemic.  The spread of COVID-19 and the resulting work and travel restrictions, including international border closings, have disrupted, and may continue to disrupt, global supply chains and have negatively impacted the global economy.  As a result of this pandemic, we experienced significant impacts on our operations.  Local government requirements or customer shutdowns caused us to suspend production at many of our manufacturing facilities around the world in March and April 2020.  All of the temporarily-closed facilities reopened in the first or second quarter of fiscal 2021 and have generally returned to more normal production levels.  However, since reopening, production at certain of our manufacturing facilities has been negatively affected at times by employee absences related to COVID-19.

Our OEMbusiness operations could be further affected if any of our key management or leadership personnel are incapacitated or if a significant portion of our workforce is unable to work effectively due to illness, quarantines, government actions or similar pandemic-related impediments.  The COVID-19 threat has caused us to modify certain business practices (including employee work locations and limitations on physical participation in meetings) in ways that could be detrimental to our business, including, among others, working remotely and associated cybersecurity risks.

At this time, we are unable to quantify or predict the ultimate impacts on our business, the full extent of which will depend largely on future developments and the length and severity of the pandemic, all of which are unpredictable and outside of our control.  If we, our suppliers, or our customers experience further shutdowns or other significant business disruptions, our ability to conduct business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on our business, financial position, results of operations and cash flows.

Likewise, an outbreak of a disease or public health threat in the future could create economic and financial disruptions and adversely affect our businesses around the world.  Potential impacts of the COVID-19 pandemic and any future epidemics, pandemics, or other health crises include, but are not limited to, (i) staffing shortages if portions of our workforce are unable to work effectively due to illness, quarantines, government actions, facility closures, or other restrictions; (ii) short- or long-term disruptions in our supply chain and our ability to deliver products to our customers; (iii) deterioration in the markets that we or our customers operate in, which may result in lower sales or a lack in the ability of our customers to pay us; and (iv) significant volatility or negative pressure in the financial markets, which could adversely affect our access to capital and/or financing.

11
Table of Contents
Customer and Supplier Matters

Our vehicular customers continually seek price reductions from us.  These price reductions adversely affect our results of operations and financial condition.operations.


We face continuous price-reduction pressure from our vehicular OEM customers.  Virtually all of these OEMs impose aggressive price-reduction initiatives upon their suppliers, even if contrary to contractual terms, and we expect such actions to continue in the future.  In response, we must continually reduce our operating costs in order to maintain profitability.profit margins that are acceptable to us.  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.  In addition, we must balance our ongoing need to reduce operating costs against any potential compromise in the high quality of our products and our ability to provide the highest standard of service to our customers.  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.

10Fluctuations in costs of materials, including aluminum, copper, steel and stainless steel (nickel), other raw materials and purchased components, could place significant pressure on our results of operations.

TableIncreases in the costs of Content
Ifraw materials and other purchased components, which may be impacted by a variety of factors, including changes in trade laws, tariffs and inflation, could have a significant adverse effect on our results of operations.  In the short-term, our ability to adjust for cost increases is limited when prices are fixed for current orders.  In these cases, if we wereare not able to lose business withrecover such cost increases through price increases to our customers, such cost increases will have an adverse effect on our results of operations.  With regard to our longer-term sales programs, we have sought to reduce the risk of cost increases by including provisions within our customer contracts, where possible, which provide for adjustments to customer prices, on a major OEM customer, our net salesprospective basis, based upon increases and profitability coulddecreases in the cost of key raw materials.  However, where these contract provisions are applicable, there can often be adversely affected.

Deterioration of a business relationship with a major OEM customer could cause our sales and profitabilitythree-month to suffer.  We principally compete for new business both duringone-year lag until 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 resulttime of the relatively long lead times required for manyprice adjustment.  To further mitigate our exposure, from time to time we enter into forward contracts to hedge a portion of our complex components, itforecasted aluminum and copper purchases.  However, these hedges may be difficultonly partially offset increases in the short-term for us to obtain new sales to replace any unexpected decline in the sales of existing products.  We may incurmaterial costs, and 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 vehiclesincreases could have an adverse effect on our business, results of operations and financial condition.operations.


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 onupon total value (including price, delivery and quality), taking into consideration their production capacities, financial condition and willingness 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, the potential effects of trade laws and tariffs, capacity limitations,constraints, financial instability, public health crises, such as pandemics and epidemics, including the ongoing COVID-19 pandemic, or other problemscircumstances experienced by our suppliers could result in shortages or delays in their supply of product to us.us, or a significant price increase resulting in our need to resource.  For example, the COVID-19 pandemic and other factors have contributed to a global shortage of semiconductor chips, which has negatively impacted automotive and other markets, and in turn, order levels for certain products we provide to our automotive customers.  In addition, recent storms in Texas intensified already-constrained resin supply and, as a result, we experienced delays due to our suppliers’ inability to procure critical materials used in the production of certain of our products.  If such shortages continue or worsen, or if we were to experience a significant or prolonged shortageshortages of any 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 we would miss product delivery dates, which would adversely affect our sales, results of operations and customer relationships.


Fluctuations in costs
12
Table of materials (including aluminum, steel, copper, nickel, other raw materialsContents
Our net sales and energy)profitability could place significant pressurebe adversely affected from business losses or declines with major customers.

Deterioration of a business relationship with a major customer could cause our sales and profitability to suffer.  In certain of our businesses, a large portion of sales are attributable to a relatively small number of customers.  In our vehicular businesses, the failure to obtain new business on new models or to retain or increase business on redesigned existing models could adversely affect our resultsbusiness and financial results.  In addition, as a result of operations.

Increasesthe relatively long lead times required for many of our complex vehicular components, it may be difficult in the costsshort term for us to obtain new sales to replace any unexpected decline in sales of materials could haveexisting products.  The loss of a major customer in any of our businesses, the loss of business with respect to one or more of the vehicle models that use our vehicular products, or a significant effect on our resultsdecline in the production levels 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 increasessuch vehicles could have an adverse effect on our business, results of operations.operations and financial condition.


The continualContinual customer pressure to absorb costs adversely affects our profitability.


OEMVehicular 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.results of operations.


Competitive Environment


We face strong competition.


The competitive environment continues to be dynamic as many of our traditional OEM customers, faced with intense international competition, have expanded their sourcing of components.  As a result, we have experiencedexperience 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 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.

B.OPERATIONAL RISKS

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, and Asia.  In fiscal 2021, 58 percent of our sales were generated from non-U.S. operations.  Consequently, our global operations are subject to complex international laws and regulations and numerous risks and uncertainties, including changes in monetary and fiscal policies, including those related to tax and trade, cross-border trade restrictions or prohibitions, import or other charges or taxes, fluctuations in foreign currency exchange and interest rates, inflation, changing economic conditions, public health crises, including the ongoing COVID-19 pandemic, unreliable intellectual property protection and legal systems, insufficient infrastructures, social unrest, political instability and disputes (including, for example, the continuing uncertainty related to the withdrawal of the United Kingdom from the European Union, commonly referred to as “Brexit”), incompatible business practices, and international terrorism.  Changes in policies or laws governing the terms of foreign trade, and in particular increased trade restrictions, tariffs or taxes on imports from countries where we either manufacture products, such as Mexico, or buy raw materials, such as China, could have a material adverse effect on our results of operations.  In addition, compliance with multiple and often conflicting laws and regulations of various countries can be challenging and expensive.

Embargoes or sanctions imposed by the U.S. government or those abroad that restrict or prohibit sales to or purchases from specific persons or countries or based upon product classification may expose us to potential criminal and civil sanctions to the extent that we are alleged or found to be in violation, whether intentional or unintentional.  We cannot predict future regulatory requirements to which our business operations may be subject or the manner in which existing laws might be administered or interpreted.

11
13
Table of ContentContents
In addition, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and other similar anti-corruption laws generally prohibit companies and their intermediaries from making payments to improperly influence foreign government officials or other persons for the purpose of obtaining or retaining business.  In recent years, there has been a substantial increase in the global enforcement of anti-corruption laws.  In the event that we believe our employees or agents may have violated applicable anti-corruption laws, or if we are subject to allegations of any such violations, we may have to expend significant time and financial resources towards the investigation and remediation of the matter, which could disrupt our business and result in a material adverse effect on our financial condition, results of operations and reputation.

Challenges of Maintaining a Competitive Cost Structure

We may be unable to maintain competitive cost structures within our business.

In recent years, we have engaged in various restructuring activities in our CIS, HDE and Automotive segments in order to optimize our manufacturing footprint and cost structure.  These restructuring activities have included targeted headcount reductions that support our objective of reducing operational and SG&A cost structures and the consolidation and/or closure of manufacturing facilities in North America, Europe and Asia.  In addition, we continue to focus on reducing costs for materials and services through targeted adjustments and negotiations with our supply base.  Our successful execution of these initiatives, and our ability to identify and execute future opportunities to optimize our cost structures, is critical to enable us to establish a cost environment that will increase and sustain our long-term competitiveness.  Any failure to do so could, in turn, adversely affect our results of operations and financial condition.

Challenges of Program Launches

We continue to launch 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 spend significant time and financial resources to ensure the successful launch of new products and programs.  Due to our high level of launch activity, particularly within our HDE segment, we must appropriately manage these launches and deploy our operational and administrative resources to take advantage of the resulting increase in our business.  If we do not successfully launch new 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 operating inefficiencies or asset impairment charges, which could adversely affect our results of operations.

Information Technology (IT) Systems

We may be adversely affected by a substantial disruption in, or material breach of, our IT systems.

We are dependent upon our IT infrastructure, including network, hardware, and software systems, to conduct our business.  Despite network and other cybersecurity measures we have in place, our IT systems could be disrupted or we could experience a security breach from computer viruses, break-ins or similar disruptions.  A substantial disruption in our IT systems for a prolonged time period, or a material breach of our IT systems, could result in delays in receiving inventory and supplies or filling customer orders, and/or the release of otherwise confidential information, including personal information that is protected by the General Data Protection Regulation, adversely affecting our customer service and relationships as well as our reputation, and could lead to significant remediation expenses and litigation risks.  Our systems, and the systems of our service providers or others, could be breached, damaged or interrupted by cyber-attacks or other man-made intentional or unintentional events, or by natural disasters or occurrences, many of which may, despite our best efforts, be beyond our ability to effectively detect, anticipate or control.  This impact may be heightened by the increased disbursement of our workforce resulting from our own and from government efforts to mitigate the spread of the COVID-19 pandemic.  Any such events and the related delays, problems or costs could have a material adverse effect on our business, financial condition, results of operations and reputation.

14
Table of Contents
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.

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 vehicular customers offer extended warranty protection for their vehicles and require their 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, results of operations, financial condition and reputation.

C.STRATEGIC RISKS

Business Exit Strategy

The optimization of our company’s future profitability depends, in part, upon the success of our evaluation of strategic alternatives for our Automotive segment’s business operations.

We previously disclosed our evaluation of strategic alternatives for the businesses within our Automotive segment. As of March 31, 2021, we classified the liquid- and air-cooled automotive businesses within the Automotive segment as held for sale on our consolidated balance sheet. The sale of the air-cooled automotive business to Schmid Metall GmbH closed on April 30, 2021. The sale of the liquid-cooled automotive business to Dana Incorporated is subject to the receipt of governmental and third-party approvals and satisfaction of other closing conditions. There can be no assurance that the pending sale will be consummated.

We are also evaluating strategic alternatives for the other Automotive segment business operations and are committed to exiting this business in a manner that is in the best interest of our shareholders.  It is possible that our exit strategy may ultimately include winding-down or closing the remaining business operations within the Automotive segment.

If our evaluation process does not result in the successful consummation of strategic alternatives, or if we are otherwise unable through such consummation to realize our goals for the Automotive segment, we may not be able to optimize our future profitability, which could adversely affect our results of operations and financial condition.

Growth Strategies
Inability to identify and execute on growth opportunities may adversely impact our business and operating results.

We are pursuing growth, through both organic and inorganic opportunities.  Under our new CEO’s leadership, we are implementing a new strategy, which we refer to as our “80/20 strategy,” to examine our businesses using data analytics in order to focus our resources on products and markets with the highest growth and best returns.  In addition, we will continue to review our business portfolio and pursue acquisitions to accelerate growth.  If we are unable to successfully implement the 80/20 strategy, we may not achieve the financial or operational successes anticipated.  In addition, 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 acquisitions and execute on organic opportunities in the future, our growth may be limited.  In addition, 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.

15
Table of Contents
D. FINANCIAL RISKS

Liquidity and Access to Cash

Our indebtedness may limit our use of cash flow to support operating, development and investment activities, and failure to comply with our debt covenants could adversely affect our liquidity and financial results.

As of March 31, 2021, we had total outstanding indebtedness of $340 million, of which $5 million was classified as held for sale on our consolidated balance sheet.  Our indebtedness and related debt service obligations (i) require that significant cash flow from operations be used for principal and interest payments, which reduces the funds we have available for other business purposes; (ii) limit our flexibility in planning for or reacting to changes in our business and market conditions; and (iii) expose us to interest rate risk, since the majority of our debt obligations carry variable interest rates.

Our credit and Senior Note agreements contain financial covenants that, among other things, require us to maintain a minimum interest coverage ratio and impose a maximum leverage ratio.  Failure to comply with debt covenants could result in an event of default, which, if not cured or waived, could result in us being required to repay these borrowings before their due date.  If we are forced to refinance these borrowings on less favorable terms, our results of operations and financial condition could be adversely affected by increased costs and interest rates.

The planned phase out of the London Interbank Offer Rate (“LIBOR”) could have an adverse effect on our financial condition and access to capital.

Our revolving credit facility and current term loans utilize LIBOR to set the interest rate on outstanding borrowings.  The United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer persuade or compel panel banks to submit the rates required to calculate LIBOR.  On November 30, 2020, the ICE Benchmark Administration, the administrator of LIBOR, announced a consultation on the extension of most tenors of USD LIBOR until June 2023.  The proposed extension would not apply to the rate’s other denominations, including the euro.  Meanwhile, U.S. banking regulators have advised that most USD LIBOR originations should end no later than 2021 and it is expected that LIBOR may be replaced with the Secured Overnight Financing Rate (“SOFR”), a new index calculated on a daily basis by reference to short-term repurchase agreements for U.S. Treasury securities.  It is currently uncertain whether SOFR or other alternative reference rates will attain market acceptance as replacements for LIBOR.  As a result, it is not possible to predict the effect of these changes, other reforms, or the establishment of alternative reference rates.  Should a suitable replacement for LIBOR not be available, however, the rates under our variable rate indebtedness could increase and access to capital could be limited.

Market trends and regulatory requirements may require additional funding for our pension plans.

Our defined benefit pension plans in the U.S. are frozen to new participants.  Our funding policy 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 liability totaling $41 million as of March 31, 2021.  During fiscal 2022, we anticipate making funding contributions totaling $13 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 assumptions, 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 financial condition could be adversely affected.

16
Table of Contents
Goodwill and Intangible Assets

Our balance sheet includes significant amounts of goodwill and intangible assets.  An impairment of a significant portion of these assets would adversely affect our financial results. 

Our balance sheet includes goodwill and intangible assets totaling $271 million at March 31, 2021.  We perform goodwill impairment tests annually, as of March 31, or more frequently if business events or other conditions exist that require a more frequent evaluation.  In addition, we review intangible assets for impairment whenever business conditions or other events indicate that the assets may be impaired.  If we determine the carrying value of an asset is impaired, we write down the asset to fair value and record an impairment charge to current operations. 

We use judgment in determining if an indication of impairment exists.  For our annual goodwill impairment tests, we use significant estimates and assumptions, including revenue growth rates and operating profit margins to calculate estimated future cash flows, risk-adjusted discount rates, business trends and market conditions.  We cannot predict the occurrence of future events or circumstances, including lower than forecasted revenues, market trends that fall below our current expectations, actions of key customers, increases in discount rates, and the continued economic uncertainty and impacts associated with the COVID-19 pandemic, which could adversely affect the carrying value of goodwill and intangible assets.  An impairment of a significant portion of goodwill or intangible assets could have a material adverse effect on our financial results.

Income Taxes

We may be subject to additional income tax expense or become subject to additional tax exposure.

The subjectivity of or changes in tax laws and regulations in jurisdictions where we have significant operations could materially affect our results of operations and financial condition.  We are also subject to tax audits in each jurisdiction in which we operate.  Unfavorable or unexpected outcomes from one or more tax audits could adversely affect our results of operations and financial condition.

President Biden recently unveiled a new infrastructure plan, which includes a proposal to increase the federal corporate tax rate from 21 percent to 28 percent as part of a package of tax reforms to help fund the spending proposals in the plan. The proposed infrastructure plan is in the early stages of the legislative process but is expected to proceed this year due to the Democratic Party’s majority in both houses of Congress.  If adopted as proposed, the increase of the corporate tax rate would adversely affect our results of operations in future periods.

In addition, as of March 31, 2021, our net deferred tax assets totaled $19 million.  Each quarter, we evaluate the probability that our deferred tax assets will be realized and determine whether valuation allowances or adjustments thereto are needed.  This determination involves judgement and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies.  Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of our operations in certain jurisdictions, could require us to establish further valuation allowances, which could have a material adverse effect on our results of operations and financial condition.

E.GENERAL RISKS

Customers and Markets

We are dependent upon the health of the customers and markets we serve.

We are highly susceptible to unfavorable trends or disruptions 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, government-imposed restrictions relating to health crises or other unusual events, 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.

17
Table of Contents
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.currencies.  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, 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 fail to provide high quality, innovative products and services that both meet or exceed customer expectations and address their ever-evolving needs, we may experience price erosion, lower sales, and lower profit margins.  Significant technological developments by our competitors or 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 and license 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 maintain or 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 SystemsAttracting and Retaining Talent


Our continued success is dependent on being able to attract, develop and retain qualified personnel.

Our ability to sustain and grow our business requires us to hire, develop, and retain skilled and diverse personnel in managerial, leadership and administrative functions.  We may be adversely affected by any disruption in, or breachdepend significantly on the engagement of our information technology systems.

Our operations are dependent uponemployees and their skills, experience and industry knowledge to support our information technology systems, which encompass allobjectives and initiatives.  Difficulty attracting, developing, and retaining qualified personnel, particularly in light 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, ittight global labor markets, could adversely affect our business and results of operations.

ITEM 1B.UNRESOLVED STAFF COMMENTS.

None.

13
18
Table of ContentContents
Environmental, Health and Safety RegulationsITEM 2.   PROPERTIES.

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.
ITEM 1B.UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.PROPERTIES.


We operate manufacturing facilities located in the U.S. and in 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 Grenada, Mississippi; Leeds, United Kingdom; Pocenia, Italy; Guadalajara, Spain; Bonlanden, Germany; Söderköping, Sweden; Sao Paulo, Brazil; Leeds, United Kingdom; Changzhou, China; and Chennai, India.


The following table sets forth information regardingsummarizes the number of manufacturing facilities within each of our principal propertiesoperating segments as of March 31, 2016.  Properties with less than 20,000 square feet of building space have been omitted from this table.2021.


Location of FacilityBuilding SpacePrimary UseOwned or Leased
Americas Segment
Lawrenceburg, TN553,800 sq. ft.Manufacturing
143,800 Owned;
410,000 Leased
Nuevo Laredo, Mexico465,800 sq. ft.Manufacturing
399,200 Owned;
66,600 Leased
Sao Paulo, Brazil342,900 sq. ft.Manufacturing & technology centerOwned
Jefferson City, MO220,000 sq. ft.Manufacturing
162,000 Owned;
58,000 Leased
Washington, IA165,400 sq. ft.Manufacturing
148,800 Owned;
16,600 Leased
McHenry, IL164,700 sq. ft.Manufacturing (closed)Owned
Trenton, MO159,900 sq. ft.ManufacturingOwned
Joplin, MO139,500 sq. ft.ManufacturingOwned
Laredo, TX45,000 sq. ft.WarehouseLeased
Europe Segment
Bonlanden, Germany205,300 sq. ft.Administrative & technology centerOwned
Kottingbrunn, Austria220,600 sq. ft.ManufacturingOwned
Mezökövesd, Hungary154,000 sq. ft.ManufacturingOwned
Pontevico, Italy150,700 sq. ft.ManufacturingOwned
Pliezhausen, Germany125,900 sq. ft.Manufacturing
48,400 Owned;
77,500 Leased
Wackersdorf, Germany109,800 sq. ft.AssemblyOwned
Kirchentellinsfurt, Germany107,600 sq. ft.Manufacturing (closed)Owned
Uden, Netherlands89,600 sq. ft.Manufacturing
60,600 Owned;
29,000 Leased
Neuenkirchen, Germany76,400 sq. ft.ManufacturingOwned
Gyöngyös, Hungary58,300 sq. ft.ManufacturingLeased
Asia Segment
Chennai, India118,100 sq. ft.ManufacturingOwned
Yangzhou, China115,800 sq ft.Manufacturing (Joint Venture)Leased
Changzhou, China107,600 sq. ft.ManufacturingOwned
Shanghai, China80,300 sq. ft.ManufacturingLeased
Cheonan, South Korea46,300 sq. ft.Manufacturing (Joint Venture)Leased
Building HVAC Segment
Leeds, United Kingdom246,500 sq. ft.Administrative & manufacturingLeased(a)
Leeds, United Kingdom104,400 sq. ft.Administrative & manufacturingLeased (temporary)(a)
Leeds, United Kingdom55,700 sq. ft.ManufacturingLeased (temporary)(a)
Leeds, United Kingdom27,200 sq. ft.WarehouseLeased (temporary)(a)
Consett, United Kingdom30,000 sq. ft.Administrative & manufacturingOwned
Consett, United Kingdom20,000 sq. ft.ManufacturingLeased
Buena Vista, VA197,000 sq. ft.ManufacturingOwned
Lexington, VA104,000 sq. ft.WarehouseOwned
West Kingston, RI92,800 sq. ft.ManufacturingOwned
Corporate Headquarters
Racine, WI458,000 sq. ft.Headquarters & technology centerOwned
  Americas  Europe  Asia  Total 
BHVAC  2   3   -   5 
CIS  9   7   1   17 
HDE  6   2   4   12 
Automotive  1   6   2   9 
Total manufacturing facilities  18   18   7   43 

(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.
Of the facilities summarized in the table above, 22 include leased manufacturing space.  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.

ITEM 3.   LEGAL PROCEEDINGS.

The information required hereunder is incorporated by reference from Note 1920 of the Notes to Consolidated Financial Statements.


ITEM 4.MINE SAFETY DISCLOSURES.
ITEM 4.   MINE SAFETY DISCLOSURES.


Not applicable.


19
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT.OFFICERS.


The following sets forth the name, age (as of March 31, 2016)2021), recent business experience and certain other information relative to each executive officer of the Company.


Name Age Position
Scott L. BowserBrian J. Agen52Vice President, Human Resources (October 2012 – Present).
Neil D. Brinker45President and Chief Executive Officer (December 2020 – Present).  Prior to joining Modine, Mr. Brinker served as President and Chief Operating Officer of Advanced Energy Industries, Inc. after serving as its Executive Vice President and Chief Operating Officer.  Prior to joining Advanced Energy Industries, Inc, Mr. Brinker served as a Group President at IDEX Corporation.
Joel T. Casterton49Vice President, Heavy Duty Equipment (April 2020 – Present); previously Vice President, Vehicular Thermal Solutions and Director – Global Program Management and Quality for the Company.
Michael B. Lucareli52Executive Vice President, Chief Financial Officer (May 2021 – Present); previously Vice President, Finance and Chief Financial Officer for the Company.
Matthew J. McBurney 51 Vice President, of Asia and Global Procurement (May 2015Building HVAC (February 2021 – Present); Regionalpreviously Vice President, – Asia (July 2012 – May 2015); RegionalBuilding HVAC and Corporate Strategy, 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 atStrategic Planning and Development; and Vice President, Commercial and Industrial Solutions Integration for the Company’s Pemberville, OH plant (1998 – 2001).Company.
Scott A. Miller 
Thomas A. Burke58President 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).
Margaret C. Kelsey5156 Vice President, LegalCommercial and Corporate Communications,Industrial Solutions (January 2021 – Present); previously Vice President, Global Coils and Coolers; Vice President, Building HVAC; and Managing Director – Global Operations for the Company.
Sylvia A. Stein54Vice President, General Counsel, Secretary and Secretary (April 2014Chief Compliance Officer (February 2020 – Present); previously Vice President, General Counsel and Corporate 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. Lucareli47Vice 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).
Thomas F. Marry55Executive 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. McBurney46
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 atfor the Company.
Holger Schwab51Regional 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. Wollenberg47
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 positionsMs. Stein served as the Associate General Counsel, Marketing & Regulatory at the Kraft Heinz Foods 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 NominationHuman Capital and Compensation Committee of the Board may recommend and the Board of Directors approvesmay approve 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,Brinker and Ms. Stein, who joined Modine in July 2012.December 2020 and January 2018, respectively, whose business experience during the last five years is described above.


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
20
PART II


ITEM 5ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.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, 2016,2021, shareholders of record numbered 2,828.2,220.

  Fiscal 2016  Fiscal 2015 
Quarter High  Low  High  Low 
First $13.50  $10.60  $17.51  $13.46 
Second  10.79   7.85   16.15   11.87 
Third  9.62   7.91   13.96   11.25 
Fourth  11.23   6.01   13.82   12.11 


We did not pay dividends during fiscal 20162021 or 2015.2020.  Under our debtcredit agreements, we are permitted to pay dividends on our common stock, subject to certain restrictions based onupon 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 2017.2022.

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.

     Indexed Returns 
  Initial Investment  Years ended March 31, 
Company / Index March 31, 2011  2012  2013  2014  2015  2016 
Modine Manufacturing Company $100  $54.71  $56.38  $90.77  $83.46  $68.22 
Russell 2000 Index  100   99.82   116.09   145.00   156.90   141.59 
S&P MidCap 400 Industrials Index  100   102.77   127.93   158.01   168.47   164.16 

ISSUER PURCHASES OF EQUITY SECURITIES

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 ourthe Company’s purchases of common stock during the fourth quarter of fiscal 2016:2021:
    
Period
Total Number of
Shares Purchased
Average
Price Paid
Per Share
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 (a)
January 1 – January 31, 2021_____________________$50,000,000
     
February 1 – February 28, 2021 8,816 (b)$14.52_______$50,000,000
     
March 1 – March 31, 20217,088 (b)$15.25_______$50,000,000
     
Total15,904 (b)$14.85_______ 


 
 
 
 
 
 
Period
 
 
 
 
Total Number
 of Shares
Purchased
 
 
 
 
Average
Price Paid
Per Share
 
 
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
January 1 – January 31, 20169,318 (a)$6.28———$47,921,782
    
February 1 – February 29, 2016413,831$8.69413,831$44,326,469
     
March 1 – March 31, 2016120,000$9.86120,000$43,143,608
     
Total543,149$8.90533,831 

(a)(a)Effective November 5, 2020, the Board of Directors approved a two-year, $50.0 million share repurchase program, which allows the Company to repurchase Modine common stock through solicited and unsolicited transactions in the open market or in privately-negotiated or other transactions, at such times and prices and upon such other terms as the authorized officers of the Company deem appropriate.

(b)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
21
ITEM 6.SELECTED FINANCIAL DATA.
PERFORMANCE GRAPH


The following data should be read in conjunctiongraph compares the cumulative five-year total return on our common stock with similar returns on the consolidated financial statementsRussell 2000 Index and accompanying notes included elsewhere in this report.the Standard & Poor’s (S&P) MidCap 400 Industrials Index.  The graph assumes a $100 investment and reinvestment of dividends.

  Years ended March 31,
(in millions, except per share amounts) 2016 2015 2014 2013 2012
                
Net sales $1,352.5  $1,496.4  $1,477.6  $1,376.0  $1,577.2 
(Loss) earnings from continuing operations  (1.0)  22.2   131.9   (22.8)  38.0 
Total assets (a)  920.9   930.9   1,030.2   816.1   886.2 
Long-term debt - excluding current portion  125.5   129.6   131.2   132.5   141.9 
Net cash provided by operating activities  72.4   63.5   104.5   48.8   45.8 
Expenditures for property, plant and equipment  62.8   58.3   53.1   49.8   64.4 
(Loss) earnings per share from continuing operations - basic:  (0.03)  0.45   2.75   (0.52)  0.81 
(Loss) earnings per share from continuing operations - diluted:  (0.03)  0.44   2.72   (0.52)  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.
graphic


     Indexed Returns 
  Initial Investment  Years ended March 31, 
Company / Index March 31, 2016  2017  2018  2019  2020  2021 
Modine Manufacturing Company $100  $110.81  $192.10  $125.98  $29.52  $134.15 
Russell 2000 Index  100   126.22   141.10   143.99   109.45   213.26 
S&P MidCap 400 Industrials Index  100   124.60   145.10   146.90   119.46   224.07 

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.

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

Overview


Founded in 1916, Modine Manufacturing Company is a worldwideglobal 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 7,10010,900 persons worldwide.


Our primary product groups include i) heating, ventilation and air conditioning; ii) coils, coolers, and coatings; and iii) powertrain cooling and engine cooling.  We provide our thermal management technology and solutions to a wide array of commercial, industrial, and building heating, ventilating, air conditioning, and refrigeration markets.  In addition, our products are used in light-, medium- and heavy-duty vehicles, commercial heating, ventilation and air conditioning (“HVAC”) equipment, refrigeration systemson- 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.original-equipment vehicular applications.

20
22
Company Strategy

DuringFiscal 2021 presented challenges, including business disruptions and market weakness spurred by the COVID-19 pandemic.  Since the onset of the pandemic, our top priorities have been, and continue to be, the health and overall well-being of our employees and delivering quality products and services to our customers.  COVID-19 has broadly impacted the global economy and our key end markets.  Our businesses were most severely impacted during the first quarter of fiscal 2016,2021.  In response, we launchedswiftly implemented cost-saving actions, including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of our Strengthen, Diversifyorganization.  We withdrew most of these cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels as markets recovered.

We met the challenges presented by the COVID-19 pandemic head on and Grow strategic transformationended the year in a position of strength. By the end of fiscal 2021, we had reached separate agreements to sell the liquid- and air-cooled automotive businesses. These sale agreements represent significant progress toward our strategy of exiting the Automotive segment businesses. The sale of the air-cooled automotive business closed in April 2021 and the sale of the liquid-cooled automotive business is subject to the receipt of governmental and third-party approvals. We also completed the transition to our new President and Chief Executive Officer (“CEO”), Neil D. Brinker.

Under new leadership, our teams are energized in implementing an “80/20 strategy” in order to position focus our resources on products and markets with the highest growth and best returns.  We are in the early stages of implementing this new strategy and are in process of examining our customer base and product portfolio by end market to identify areas of our business that we should focus more of our resources, and also areas that we should emphasize less in the future. We see opportunities to grow our businesses and are particularly focused on expanding our presence in and increasing sales to the data center and ventilation markets.  We expect continued growth in the data center market related to cloud storage, digitalization and the internet of things.  We also see opportunities in the ventilation market, as the COVID-19 pandemic has highlighted the need for long-term success.  Our main objectives under this platform include:improved indoor air quality.  In addition, we are engaged with truck and bus manufacturers on solutions for alternative powertrains, including battery electric.
·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 strategymethodology for new and emerging markets is one of our competitive strengths.  Under this strategy,methodology, we focus on creating core technologies that can form the basis for multiple products and product lines.lines across multiple business segments.  Each of our business segments have a strong heritage of new product development, and our entire global technology organization benefits from mutual strengths.  We own twofour global, state-of-the-art technology centers, dedicated to the development and testing of products and technologies.  The centers are located in Racine, Wisconsin, Grenada, Mississippi, Pocenia, Italy and Bonlanden, Germany.  Our reputation for providing high quality products and technologies has been a 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(one-to-three year) and longer-term (five-to-seven year) strategic planning processes, which enable us to continually assess our opportunities, competitive threats, and economic market challenges.


We devote significant resources to global strategic planning and development activities to strengthen our competitive position.  Our objectives include leveragingWe will continue to pursue organic- and external-growth opportunities, particularly to grow our strong balance sheet position to build a more balanced portfolio of thermal management products and services, reduce exposure toglobal, market cycles withinleading positions in our vehicular business, and decrease customer concentration.  To accomplish these objectives,industrial businesses.  In particular, we are actively pursuing higher-margin organic- and inorganic-growth opportunities, primarilyfocused on expanding our presence in the building HVACdata center market.  We are bringing together the full systems capability and coils markets.  We will also continue to focus significant attention on growing strategically important aspectsestablished roots of our vehicular business.  During fiscal 2016,BHVAC segment in the data center space with the global manufacturing expertise and customer relationships within CIS.  We are also redesigning our organizational structure to reduce complexity and to be better aligned with the markets we formedserve, with general managers who will be both empowered to make decisions 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 exchangersheld accountable for commercial vehicle markets in China.results.

21
23
Operational and FinancialFinancial Discipline


We operate in a dynamic, global marketplace; therefore, we manage our business with a disciplined focus on increasing productivity and reducing waste.  The competitivenessnature 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 inexecuted restructuring activities in our Americas, Europe,CIS, HDE, and Building HVACAutomotive segments during recent years.  We have also refined our approach to the data center market by aligning the resources and at Corporate.capabilities of our data center businesses to increase our speed to market.  In addition, as costs for materials and purchased parts may rise from time to time due to increases in commodity markets,prices, 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 themcommodity price adjustments, on a lag basis.

We follow a rigorous financial process for investment and returns,are implementing an 80/20 methodology, intended to enable increased profitabilitybetter focus our resources on products and cash flows overmarkets that offer the long term.highest growth and best returns.  We place particular emphasis on working capital improvement and prioritizationare using data analytics to examine our businesses by end-market to determine  areas of our capital investments.business that we should focus more of our resources, and also areas that we should emphasize less in the future.

Our executive management incentive compensation (annual cash incentive) plan for fiscal 20162021 was based upon two performance goals: growth in consolidated ROACEnet earnings before interest, taxes, depreciation, amortization, and operating income growth.certain other adjustments (“Adjusted EBITDA”); and a cash flow margin metric.  These performance goals drive alignment of management and shareholders’ interests in both our asset management decisionsearnings growth and earnings growthcash flow targets.  In addition, we provide a long-term incentive compensation plan for officers and certain key employees to attract, retain, and motivate employees who directly impact the long-term performance of our company.  The plan is comprised of stock awards, stock options, restricted stock, and performance-based stock or cash awards.  The performance-based stock awards for the fiscal 20162021 through 20182023 performance period are based upon three-year average consolidated ROACE anda target three-year average annual revenue growth.growth and a target three-year average consolidated cash flow return on invested capital.
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 strategic and financial plans, and financial results, all of which are reviewed by our chief operating decision maker.  These plans and results are used by management to evaluate the performance of each segment and to make decisions on the allocation of resources.


Americas (43 percentEffective April 1, 2020, we began managing our automotive business separate from the previously-reported Vehicular Thermal Solutions (“VTS”) segment.  The other businesses of fiscal 2016 net sales)

Our Americasthe VTS segment, provides thermal management products toincluding 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 inbusinesses, are being managed as 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 HDE segment.

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 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 (38Systems (13 percent of fiscal 20162021 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.
Building HVAC (13 percent of fiscal 2016 net sales)

Our Building HVACBHVAC segment manufactures and distributes a variety of original equipment and aftersales HVAC products, primarily for commercial buildings and related applicationsdata centers in North America, the U.K., mainland Europe, the Middle East, Asia, and Africa.  We sell and distribute our heating, ventilation and cooling products through various channels towholesalers, distributors, consulting engineers, contractors and building ownersdata center operators for applications such as warehouses, repair garages, greenhouses, residential garages, schools, data centers, manufacturing facilities,schools, greenhouses, hotels, hospitals, restaurants, stadiums, warehouses, repair garages, residential garages, and retail stores.manufacturing facilities.  Our heating products include gas (natural and propane), electric, oil and hydronic unit heaters, low-intensitylow- and high-intensity infrared and duct furnace units.  Our ventilation products include large roof-mounted direct- and indirect-fired makeup air units.  Our ventilation products includeunits, 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 primarily for data center cooling applications, air- and water-cooled chillers, and 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.  InDuring fiscal 2016,2021, sales volume for ourincreased in both the U.K. and North America, ventilationprimarily driven by increased sales of data center 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 itand heating products in fiscal 2014.  During fiscal 2016, unfavorable currency conditions negatively impactedNorth America.  These sales at our Airedale U.K. business and resulted in increased competition from other mainland European suppliers.were partially offset by lower sales of ventilation products, largely associated with the negative impacts of COVID-19 during the year, particularly within the hospitality sectors.


We expect growth in each of the HVAC markets we serve during fiscal 2017, although at varied rates.2022.  The markets that we serve are heavily impacted by construction activity, building regulations, and owner/occupant comfort requirements.requirements, and demand for digital infrastructure.  Growth rates in these markets have strengthened recently,shown increasing strength as the need for digital infrastructure expands and manufacturing, housing, and business investment have increased.  We also anticipate modestinvestments increase.  In fiscal 2022, we expect sales growth in our BHVAC segment through focused market share gains and the expansion of data center sales in the North America heating market duringAmerican market.

24
Commercial and Industrial Solutions (29 percent of fiscal 2017.  2021 net sales)

Our BuildingCIS segment provides a broad offering of thermal management products to the HVAC segment has grown through strategic acquisitions in recent years,&R and data center markets, including solutions tailored to indoor, outdoor, and mobile climates, food storage and transport-refrigeration, and industrial processes.  CIS’s primary product groups include coils, coolers, and coatings.  Our coils products include custom-designed condensers, evaporators, round-tube solutions, as well as steam and water/fluid coils.  Our coolers include commercial refrigeration units, which are used across the food supply chain, products for precision climate control for applications such as Barkell,data center cooling, carbon dioxide and ammonia unit coolers, remote condensers, transformer oil coolers, and brine coolers.  In addition, we offer proprietary coating solutions for corrosion protection, prolonging the life of heat-transfer equipment.

During fiscal 2021, CIS segment sales volume decreased, primarily due to the impacts of the COVID-19 pandemic on the HVAC&R and industrial cooling markets.  Sales were most severely impacted early in our fiscal year and sales volumes have been recovering since.  In addition, sales in fiscal 2021 were negatively impacted by lower sales to a manufacturer of custom air handling units locatedsignificant data center customer.  During fiscal 2021, we transferred production from our Zhongshan, China manufacturing facility to our Wuxi, China manufacturing facility, consolidating two manufacturing locations into one.  While costs incurred for our plant consolidation activities negatively impacted on our fiscal 2021 operating results, we expect to realize operating efficiencies going forward.  Despite the challenging market conditions in fiscal 2021, we are proud to have supported numerous customers that produced products used in battling the COVID-pandemic and improving safety, from disinfectant application to vaccine storage.

Looking ahead, we anticipate continued market recovery, with stronger recovery expected in the U.K., which we acquiredsecond half of fiscal 2022.  We are poised to generate new sales in late fiscal 2014.Europe, as heat pump technology is improved to address regulatory guidelines.  Our CIS team is focused on improving financial results through manufacturing efficiencies, pricing strategies, and vertical integration projects.  We will continue to pursue acquisitionssupport our customers with innovative products, such as computer room air handlers, antimicrobial coating lines, and low-VOC topcoats, which have reduced amounts of volatile organic compounds and are less harmful to the environment.  In addition, we see growth opportunities with our product offerings that use alternative refrigerants, including carbon dioxide, which are more environmentally friendly.  We aim to capitalize on opportunities arising from energy and environmental regulations and post-pandemic shifting consumer buying patterns.  We believe we are well-positioned to be the partner of choice for our customers.

Heavy Duty Equipment (37 percent of fiscal 2021 net sales)

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

Sales volume in the HDE segment decreased during fiscal 2021, as compared with the prior year, primarily due to the negative impacts of the COVID-19 pandemic.  The COVID-19 impacts were most severe in the Americas and Europe during the first half of fiscal 2021 and most negatively impacted sales to commercial vehicle and automotive and light vehicle customers.

Looking ahead to fiscal 2022, we expect that the combination of market recovery, particularly in the Americas and Europe, and new business wins in all regions will result in increased sales in our HDE segment.  In addition, we are working with numerous customers on products for alternative powertrains, including battery electric, and expect to launch exciting new products and systems related to electric trucks and buses.  We are focused on controlling SG&A and operational expenses to improve the HDE segment’s profitability, while also expanding our capability and capacity in critical areas.

Automotive (21 percent of fiscal 2021 net sales)

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

25
Sales volume in the Automotive segment decreased during fiscal 2021, as compared with the prior year, primarily due to the negative impacts of the COVID-19 pandemic.  In particular, sales in Europe and North America decreased significantly compared with the prior year.  The decline in those regions were partially offset by increased sales in Asia.

The automotive and light vehicle markets were most severely impacted by the COVID-19 pandemic early in fiscal 2021 and have been recovering since.  We expect these markets will continue to recover and exhibit growth objectiveduring fiscal 2022.

During fiscal 2021, we signed definitive agreements to sell our liquid- and air-cooled automotive businesses. The sale of the air-cooled automotive business to Schmid Metall GmbH closed on April 30, 2021 and the sale of the liquid-cooled automotive business to Dana Incorporated is subject to the receipt of governmental and third-party approvals. We are evaluating strategic alternatives for the other businesses in the Automotive segment and are committed to exiting these businesses in a manner that is in the best interest of our Strengthen, Diversify and Grow strategic transformation.shareholders.


Consolidated Results of Operations


DuringLiquid- and Air-cooled Automotive Businesses
On November 2, 2020, we signed a definitive agreement to sell our liquid-cooled automotive business to Dana Incorporated, subject to the receipt of governmental and third-party approvals and satisfaction of other closing conditions. We are currently working with the buyer through the regulatory approval process.  At this time, we are not able to estimate the ultimate impact of the regulatory approval process or the closing date for this transaction.

On February 19, 2021, we signed a definitive agreement to sell our air-cooled automotive business to Schmid Metall GmbH; this transaction closed on April 30, 2021.

We report the financial results of both the liquid- and air-cooled automotive businesses within the Automotive segment. We recorded non-cash impairment charges totaling $165 million during fiscal 2016,2021 related to the long-lived assets within these held for sale businesses.  We are in the process of accounting for the sale of the air-cooled automotive business and currently expect to record a loss on sale of approximately $6 million in the first quarter of fiscal 2022.  In addition, we announcedcurrently estimate that we will record a loss on sale of approximately $20 million to $30 million when the sale of the liquid-cooled automotive business is completed.  It is possible that the losses recorded could differ materially from our new Strengthen, Diversifyestimates.  See Note 2 of the Notes to Consolidated Financial Statements for information regarding the accounting impacts of these sales.

We are also evaluating strategic alternatives for the other businesses in the Automotive segment and Grow strategic transformational framework.  Guided by this framework,are committed to exiting these businesses in a manner that is in the best interest of our shareholders.

COVID-19
As the COVID-19 pandemic continues, both the health and overall well-being of our employees and delivering quality products and services to our customers remain our top priorities.

The COVID-19 pandemic has broadly impacted the global economy and our key end markets, which were most severely impacted during the first quarter of fiscal 2021.  Beginning largely in April 2020 and in an effort to mitigate the negative impacts of COVID-19 on our financial results, we implemented actions, including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of our organization.  In addition, we reduced operating and administrative expenses, including travel and entertainment expenditures.  We have commenced initiativesalso focused on limiting capital expenditures and, where possible, have delayed certain projects and the purchase of some program-related equipment and tooling.  Our swift cost-saving actions, coupled with a slow but steady recovery in most of our key end markets, favorably impacted our fiscal 2021 financial results.

We withdrew most of the cost-saving actions, including the temporary salary reductions, in the third quarter of fiscal 2021 as production returned to among other things, achieve global procurement savingsmore normal levels as markets recovered.  As a result, while we remain focused on controlling expenses, we expect compensation-related expenses, particularly SG&A expenses, will increase in fiscal 2022.

The impacts of the COVID-19 pandemic, which will largely depend on the length and efficiencies, optimizeseverity of the pandemic, could have a material adverse effect on our manufacturing footprint, implement a new global organizational structure,business, results of operations, and reduce personnel costs.  We also formed and assumed the controlling sharecash flows.

26
Fiscal 20162021 Highlights
Fiscal 2021 net sales decreased $143$167 million, or 8 percent, from the prior year, primarily due to lower sales in our CIS, HDE, and Automotive segments, partially offset by higher sales in our BHVAC segment.  Foreign currency exchange rate changes favorably impacted sales in fiscal 2021 by $28 million.  Cost of sales decreased $153 million, or 9 percent, from last year, primarily due to lower sales volume.  Gross profit decreased $14 million and gross margin improved 60 basis points to 16.2 percent.  SG&A expenses decreased $39 million, primarily due to lower costs associated with our review of strategic alternatives for our Automotive segment businesses and preparing the liquid- and air-cooled automotive businesses for sale.  In addition, SG&A expenses decreased due to cost-reduction initiatives implemented early in the fiscal year in response to the negative impacts of COVID-19.  The operating loss of $98 million during fiscal 2021 represents a $136 million decline from the prior-year operating income of $38 million and was primarily due to $167 million of impairment charges recorded primarily for assets of the liquid- and air-cooled automotive businesses, partially offset by lower SG&A expenses.

Fiscal 2020 Highlights
Fiscal 2020 net sales decreased $237 million, or 11 percent, from the prior year, primarily due to lower sales in our HDE, CIS, and Automotive segments, partially offset by higher sales in our BHVAC segment.  Foreign currency exchange rate changes negatively impacted sales in fiscal 2020 by $46 million.  Cost of sales decreased $179 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 volumevolume.  Gross profit decreased $58 million and gross margin declined 90 basis points 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) and15.6 percent.  SG&A expenses ($33 million).  During fiscal 2016, we recorded $17increased $6 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,costs associated with the review of strategic alternatives for our Automotive segment businesses, 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 goodwill impairment charge in Brazil.  Also in fiscal 2015, we sold a wind tunnel, which resulted in a gain of $3 million.lower-compensation related expenses.  Operating income of $53during fiscal 2020 decreased $72 million in fiscal 2015 increased $16to $38 million, compared with the prior year.primarily due to lower gross profit and higher SG&A expenses.
The following table presents our consolidated financial results on a comparative basis for the fiscal years ended March 31, 2016, 2015,2021, 2020 and 2014.2019.

 Years ended March 31, 
  2021  2020  2019 
(in millions) 
_$’s
  % of sales  
_$’s
  % of sales  
_$’s
  % of sales 
Net sales $1,808   100.0% $1,976   100.0% $2,213   100.0%
Cost of sales  1,515   83.8%  1,668   84.4%  1,847   83.5%
Gross profit  293   16.2%  308   15.6%  366   16.5%
Selling, general and administrative expenses  211   11.7%  250   12.6%  244   11.0%
Restructuring expenses  13   0.7%  12   0.6%  10   0.4%
Impairment charges  167   9.2%  9   0.4%  -   - 
(Gain) loss on sale of assets  -   -   (1)  -   2   0.1%
Operating (loss) income  (98)  -5.4%  38   1.9%  110   5.0%
Interest expense  (19)  -1.1%  (23)  -1.1%  (25)  -1.1%
Other expense - net  (2)  -0.1%  (5)  -0.2%  (4)  -0.2%
(Loss) earnings before income taxes  (119)  -6.6%  10   0.5%  81   3.7%
(Provision) benefit for income taxes  (90)  -5.0%  (12)  -0.6%  5   0.2%
Net (loss) earnings $(209)  -11.6% $(2)  -0.1% $86   3.9%
  Years ended March 31,
  2016 2015 2014
(in millions) $'s  % of sales $'s  % of sales $'s  % of sales
Net sales $1,353   100.0% $1,496   100.0% $1,478   100.0%
Cost of sales  1,129   83.5%  1,249   83.5%  1,240   83.9%
Gross profit  224   16.5%  247   16.5%  238   16.1%
Selling, general and administrative expenses  205   15.2%  184   12.3%  182   12.3%
Restructuring expenses  17   1.2%  5   0.3%  16   1.1%
Impairment charges  10   0.7%  8   0.5%  3   0.2%
Gain on sale of wind tunnel  -   -   (3)  -0.2%  -   - 
Operating (loss) income  (8)  -0.6%  53   3.6%  37   2.5%
Interest expense  (11)  -0.8%  (12)  -0.8%  (12)  -0.8%
Other income (expense) – net  9   0.6%  -   -   (1)  -0.1%
(Loss) earnings from continuing operations before income taxes  (10)  -0.7%  41   2.8%  24   1.6%
Benefit (provision) for income taxes  9   0.6%  (19)  -1.3%  108   7.3%
(Loss) earnings from continuing operations $(1)  -0.1% $22   1.5% $132   8.9%

Year Ended March 31, 20162021 Compared with Year Ended March 31, 2015:2020

Fiscal 20162021 net sales decreased $143of $1,808 million were $167 million, or 108 percent, lower than the prior year, primarily due to lower sales volume in the CIS, HDE, and Automotive segments, partially offset by a $28 million favorable impact of foreign currency exchange rate changes and higher sales volume in the BHVAC segment.  Sales in the CIS, HDE and Automotive segments decreased $92 million, $64 million and $47 million, respectively, and were significantly impacted by market-driven volume declines and temporary plant closures early in the fiscal year due to the COVID-19 pandemic.  Sales increased $20 million in our BHVAC segment.

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

27
As a result of lower sales and lower cost of sales as a percentage of sales, fiscal 2021 gross profit decreased $14 million and gross margin improved 60 basis points to 16.2 percent.

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

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

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

The operating loss of $98 million during fiscal 2021 represents a $136 million decline from the prior-year operating income of $38 million.  The decline was primarily due to higher impairment charges, which increased $158 million, and lower earnings in the CIS segment, which decreased $25 million.  These negative drivers were partially offset by lower costs associated with our review of strategic alternatives for the Automotive segment businesses, which decreased $33 million, and higher earnings in our BHVAC segment, which increased $11 million.

The provision for income taxes was $90 million and $12 million in fiscal 2021 and 2020, respectively.  The $78 million increase was primarily due to an increase in income tax charges related to valuation allowances, partially offset by income tax benefits totaling $38 million related to the impairment charges recorded during fiscal 2021.  In fiscal 2021, we recorded income tax charges totaling $117 million to increase the valuation allowances on deferred tax assets in the U.S. and in certain foreign jurisdictions, compared with $7 million of income tax charges for valuation allowances in fiscal 2020.  See Note 8 of the Notes to Consolidated Financial Statements for additional information.

Year Ended March 31, 2020 Compared with Year Ended March 31, 2019

Fiscal 2020 net sales of $1,976 million were $237 million, or 11 percent, lower than the prior year, primarily due to lower sales in our AmericasHDE, CIS, 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 initiativesAutomotive segments 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.
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.
Americas
  Years ended March 31,
  2016 2015 2014
(in millions) $'s  % of sales $'s  % of sales $'s  % of sales
Net sales $586   100.0% $667   100.0% $688   100.0%
Cost of sales  486   82.9%  558   83.7%  574   83.4%
Gross profit  100   17.1%  109   16.3%  114   16.6%
Selling, general and administrative expenses  55   9.4%  65   9.7%  62   9.0%
Restructuring expenses  9   1.5%  3   0.4%  1   0.2%
Impairment charges  -   -   8   1.2%  1   0.2%
Operating income $36   6.2% $33   5.0% $50   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$46 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 profitour BHVAC segment.  Sales decreased $126 million, $84 million, and $44 million in our HDE, CIS, and Automotive segments, respectively.  Sales increased $9 million yet gross margin increased 80 basis points to 17.1in our BHVAC segment.

Fiscal 2020 cost of sales of $1,668 million decreased $179 million, or 10 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$39 million favorable impact of foreign currency exchange rate changes.  Fiscal 2015 SG&A expensesAs a percentage of sales, cost of sales increased $3 million from the prior year, primarily90 basis points to 84.4 percent and was negatively impacted by approximately 80 basis points due to the $3 million charge for the legal matter in fiscal 2015.

higher labor and inflationary costs and, to a lesser extent, by sales mix.  These negative impacts were partially offset by favorable material costs, which impacted costs of sales by approximately 30 basis points.  The favorable material costs primarily resulted from lower commodity pricing, which more than offset a negative impact from tariffs.  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,addition, we recorded $3 million of costs at Corporate for program and equipment transfers associated with the separation of the liquid-cooled automotive business in preparation for a potential sale.

As a result of lower sales and higher cost of sales as a percentage of sales, fiscal 2020 gross profit decreased $58 million and gross margin declined 90 basis points to 15.6 percent.

28
Fiscal 2020 SG&A expenses increased $6 million.  The increase in SG&A was primarily due to separation and project costs recorded at Corporate associated with our review of strategic alternatives for the Automotive segment businesses, which increased approximately $29 million.  This increase was partially offset by lower compensation-related expenses, which decreased approximately $13 million, lower environmental charges related to previously-owned manufacturing facilities in the U.S., which decreased approximately $3 million, and a $4 million favorable impact from foreign currency exchange rate changes.

Restructuring expenses totaled $12 million during fiscal 2020 and increased $2 million compared with the prior year.  The fiscal 2020 restructuring expenses primarily consisted of severance expenses related to severance expensestargeted headcount reductions in Brazil, to better align our cost structure with the market conditions in Brazil,HDE and Automotive segments and equipment transfer and plant consolidation costs in the CIS segment.

During fiscal 2020, we recorded impairment charges totaling $9 million, primarily related to the closure of our McHenry, Illinoistwo manufacturing facility, which we completed during fiscal 2016. We also recorded an $8 million goodwill impairment charge during fiscal 2015, primarily due to a declinefacilities in the financial outlook for Brazil.Automotive segment.


Operating income of $36$38 million during fiscal 2020 decreased $72 million compared with the prior year.  This decrease was primarily due to an increase of $32 million of separation and project costs associated with our review of strategic alternatives for our automotive businesses and lower earnings in our HDE, CIS, and Automotive segments, which decreased $27 million, $20 million, and $10 million respectively, partially offset by higher earnings in our BHVAC segment, which increased $9 million.

The provision for income taxes was $12 million in fiscal 20162020, compared with a benefit for income taxes of $5 million in fiscal 2019.  The $17 million change was primarily due to the absence of income tax benefits totaling $25 million recorded in fiscal 2019 and income tax charges totaling $10 million in fiscal 2020, partially offset by lower operating earnings in fiscal 2020.  The $25 million of income tax benefits recorded in fiscal 2019 related to the recognition of tax assets for foreign tax credits and a manufacturing deduction in the U.S. and our accounting for the Tax Act.  The $10 million of income tax charges in fiscal 2020 were comprised of net charges totaling $7 million resulting from adjustments of valuation allowances on certain deferred tax assets in the U.S. and in a foreign jurisdiction and $3 million associated with legal entity restructuring in preparation for a potential sale of the liquid-cooled automotive business.

Segment Results of Operations

Effective April 1, 2020, we began managing our global automotive business separate from the other businesses within the previously-reported VTS segment.  We have been managing the automotive business as the Automotive segment as we work towards the sale or eventual exit of its underlying automotive business operations.  We are managing the other businesses of the VTS segment, including the commercial vehicle and off-highway businesses, as the HDE segment.  We began reporting financial results for our new segment structure beginning for fiscal 2021.  Segment financial information for fiscal 2020 and 2019 has been recast to conform to the fiscal 2021 presentation.  The segment realignment had no impact on the CIS and BHVAC segments.

BHVAC                  
  Years ended March 31, 
  2021  2020  2019 
(in millions) 
_$’s
  % of sales  
_$’s
  % of sales  
_$’s
  % of sales 
Net sales $241   100.0% $221   100.0% $212   100.0%
Cost of sales  158   65.5%  150   67.7%  149   70.1%
Gross profit  83   34.5%  72   32.3%  63   29.9%
Selling, general and administrative expenses  36   14.9%  35   15.8%  35   16.4%
Loss on sale of assets  -   -   -   -   2   0.8%
Operating income $47   19.6% $36   16.5% $27   12.6%

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

BHVAC net sales increased $3$20 million, or 9 percent, in fiscal 2021 compared with the prior year, primarily due to lower SG&A expenseshigher sales in the U.K. and the absence of the goodwill impairment chargeU.S., which increased $14 million and $5 million, respectively.  The higher sales in the prior year,U.K. were primarily due to higher sales of data center cooling products.  The higher sales in the U.S. were primarily due to higher sales of heating products, partially offset by lower sales of ventilation products.

29
BHVAC cost of sales increased $8 million, or 5 percent, in fiscal 2021, primarily due to higher sales volume.  As a percentage of sales, cost of sales decreased 220 basis points to 65.5 percent and was positively impacted by favorable sales mix and customer pricing.

As a result of the higher sales and lower cost of sales as a percentage of sales, gross profit increased $11 million and gross margin improved 220 basis points to 34.5 percent.

BHVAC SG&A expenses increased $1 million from the prior year.  The increase in SG&A expenses was primarily due to higher restructuringcompensation-related expenses, including commission expenses.

Operating income of $33 million in fiscal 2015 decreased $172021 of $47 million increased $11 million, primarily due to higher gross profit.

Year Ended March 31, 2020 Compared with Year Ended March 31, 2019

BHVAC net sales increased $9 million, or 4 percent, in fiscal 2020 compared with the prior year, primarily due to the goodwill impairment charge, lower gross profit, and higher SG&A and restructuring expenses.
Europe
  Years ended March 31,
  2016 2015 2014
(in millions) $'s  % of sales $'s  % of sales $'s  % of sales
Net sales $524   100.0% $578   100.0% $584   100.0%
Cost of sales  456   87.0%  509   88.1%  513   87.9%
Gross profit  68   13.0%  69   11.9%  71   12.1%
Selling, general and administrative expenses  39   7.4%  44   7.6%  44   7.6%
Restructuring expenses  6   1.2%  2   0.4%  15   2.6%
Impairment charges  10   1.9%  -   -   2   0.3%
Gain on sale of wind tunnel  -   -   (3)  -0.6%  -   - 
Operating income $13   2.5% $26   4.5% $10   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 $2U.S., which increased $14 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 incomesales in the U.K., which decreased $5 million. The higher sales in the U.S. were primarily driven by the increased sales of $26 millionventilation and heating products.  The lower sales 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.
Asia

  Years ended March 31,
  2016 2015 2014
(in millions) $'s  % of sales $'s  % of sales $'s  % of sales
Net sales $79   100.0% $81   100.0% $72   100.0%
Cost of sales  67   84.5%  69   85.8%  63   87.5%
Gross profit  12   15.5%  12   14.2%  9   12.5%
Selling, general and administrative expenses  11   14.5%  12   13.9%  12   17.2%
Operating income (loss) $1   1.0% $-   0.3% $(3)  -4.7%
Asia net sales decreased $2 million, or 3 percent, in fiscal 2016 compared with the prior year,U.K. were primarily due to lower sales volume to off-highway customers in Chinaof air conditioning and Koreaventilation products and a $4$3 million unfavorable impact of foreign currency exchange rate changes, partially offset by higher data center sales.

BHVAC cost of sales volumeincreased $1 million, or less than 1 percent, in fiscal 2020.  As a percentage of sales, cost of sales decreased 240 basis points to automotive customers in China67.7 percent, primarily due to favorable sales mix and increased overallfavorable customer pricing.

As a result of the higher sales in India.  Salesand lower cost of sales as a percentage of sales, gross profit increased $9 million and gross margin improved 240 basis points to 32.3 percent.

BHVAC SG&A expenses remained consistent with the prior year yet decreased 60 basis points as a percentage of sales.

During fiscal 2019, we sold our business in South Africa and, as a result, recorded a loss of $2 million.  Annual net sales attributable to this disposed business were less than $2 million.

Operating income in fiscal 2020 of $36 million increased $9 million, primarily due to higher gross profit.

CIS                  
  Years ended March 31, 
  2021  2020  2019 
(in millions) 
_$’s
  % of sales  
_$’s
  % of sales  
_$’s
  % of sales 
Net sales $532   100.0% $624   100.0% $708   100.0%
Cost of sales  465   87.5%  531   85.1%  593   83.8%
Gross profit  67   12.5%  93   14.9%  115   16.2%
Selling, general and administrative expenses  53   10.0%  57   9.2%  61   8.6%
Restructuring expenses  5   1.0%  2   0.3%  -   - 
Impairment charges  -   -   1   0.1%  -   0.1%
Operating income $8   1.5% $33   5.3% $53   7.5%

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

CIS net sales decreased $92 million, or 1315 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 20162021 compared with the prior year, primarily due to lower sales volume associated with the impacts of the COVID-19 pandemic and lower sales to a significant data center customer, partially offset by a $13 million favorable impact of foreign currency exchange rate changes.  Sales to data center cooling and commercial HVAC&R customers decreased $60 million and $43 million, respectively.

30
CIS cost of sales mix.  Grossdecreased $66 million, or 12 percent, primarily due to lower sales volume, partially offset by an $11 million unfavorable impact of foreign currency exchange rate changes.  As a percentage of sales, cost of sales increased 240 basis points to 87.5 percent, primarily due to the impact of lower sales volume and unfavorable sales mix, partially offset by cost-reduction and procurement initiatives.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $26 million and gross margin declined 240 basis points to 12.5 percent.

CIS SG&A expenses decreased $4 million compared with the prior year.  The decrease in SG&A expenses was primarily due to lower compensation-related expenses, which decreased approximately $5 million, partially offset by a $1 million unfavorable impact of foreign currency exchange rate changes.

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

Operating income in fiscal 2021 decreased $25 million to $8 million, primarily due to lower gross margin increased 170 basis points to 14.2profit and higher restructuring expenses, partially offset by lower SG&A expenses.

Year Ended March 31, 2020 Compared with Year Ended March 31, 2019

CIS net sales decreased $84 million, or 12 percent, in fiscal 20152020 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 withlower sales volume and a joint venture that we formed in fiscal 2016.  See Note 3$12 million unfavorable impact of foreign currency exchange rate changes.  Sales to commercial HVAC&R and data center cooling customers decreased $43 million and $38 million, respectively.

CIS cost of sales decreased $62 million, or 10 percent, primarily due to lower sales volume and an $11 million favorable foreign currency exchange rate impact.  As a percentage of sales, cost of sales increased 130 basis points to 85.1 percent, primarily due to the Notes to Consolidated Financial Statements for additional information on this joint venture.  Fiscal 2015 SG&A expenses were consistent withunfavorable impact of lower sales volume and unfavorable sales mix.

As a result of the prior year, yet decreasedlower sales and higher cost of sales as a percentage of sales.sales, gross profit decreased $22 million and gross margin declined 130 basis points to 14.9 percent.


Operating income of $1 million in fiscal 2016 increased $1CIS SG&A expenses decreased $4 million compared with the prior year, primarily due to lower SG&A expenses.  Operating incomecompensation-related expenses, which decreased approximately $2 million, and the favorable impact of less than $1cost-control initiatives.

Restructuring expenses during fiscal 2020 increased $2 million, in fiscal 2015 represented a $3 million improvement compared with the operating loss in the prior year, and was primarily due to higher equipment transfer and plant consolidation costs.

During fiscal 2020, we recorded a $1 million asset impairment charge related to a previously-closed manufacturing facility in Austria.

Operating income in fiscal 2020 decreased $20 million to $33 million, primarily due to lower gross profit, on increased sales volume.

partially offset by lower SG&A expenses.
Building HVAC
31

  Years ended March 31,
  2016 2015 2014
(in millions) $'s  % of sales $'s  % of sales $'s  % of sales
Net sales $181   100.0% $186   100.0% $146   100.0%
Cost of sales  127   70.1%  130   70.0%  103   70.4%
Gross profit  54   29.9%  56   30.0%  43   29.6%
Selling, general and administrative expenses  39   21.6%  37   19.8%  34   23.2%
Restructuring expenses  1   0.6%  -   -   -   - 
Operating income $14   7.7% $19   10.2% $9   6.4%
Building HVAC
HDE                  
  Years ended March 31, 
  2021  2020  2019 
(in millions) 
_$’s
  % of sales  
_$’s
  % of sales  
_$’s
  % of sales 
Net sales $682   100.0% $746   100.0% $872   100.0%
Cost of sales  594   87.0%  649   87.0%  744   85.3%
Gross profit  88   13.0%  97   13.0%  128   14.7%
Selling, general and administrative expenses  49   7.1%  56   7.4%  62   7.1%
Restructuring expenses  3   0.4%  3   0.4%  1   0.1%
Operating income $37   5.4% $38   5.1% $65   7.5%

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

HDE net sales decreased $5$64 million, or 39 percent, in fiscal 20162021 compared with the prior year, primarily due to lower sales volume resulting from the impacts of the COVID-19 pandemic, which were most severe in the Americas and Europe during the first half of the fiscal year.  Sales to off-highway customers increased $20 million and were offset by lower sales to commercial vehicle and automotive and light vehicle customers, which decreased $52 million and $11 million, respectively.

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

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

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

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

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

Year Ended March 31, 2020 Compared with Year Ended March 31, 2019

HDE net sales decreased $126 million, or 14 percent, in fiscal 2020 compared with the prior year, primarily due to lower sales volume, a $15 million unfavorable impact of foreign currency exchange rate changes, and, lowerto a lesser extent, unfavorable customer pricing largely resulting from contractually-scheduled price-downs.  Sales to off-highway and commercial vehicle customers decreased $57 million and $51 million, respectively.  These sales at our businessesdeclines largely resulted from weakness in global vehicular markets and the U.K., as unfavorable currency conditions resulted in increased competition from other mainland European suppliers, partially offset by increased ventilation productplanned wind-down of certain commercial vehicle programs.

HDE cost of sales in North America.  Sales increased $40decreased $95 million, or 2713 percent, in fiscal 2015 compared with fiscal 2014, primarily due to a $23 million increase inlower sales at our businesses in the U.K.volume 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 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 2015As a percentage of sales, cost of sales increased 170 basis points to 87.0 percent.  Beyond the unfavorable impact of the lower sales volume, higher labor and inflationary costs and unfavorable customer pricing negatively impacted cost of sales as a percentage of sales by approximately 110 basis points and 80 basis points, respectively.  These negative impacts were partially offset by improved operating efficiencies and cost savings from procurement initiatives.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $31 million and gross margin declined 170 basis points to 13.0 percent.

HDE 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$6 million compared with the prior year, primarily due to lower compensation-related expenses and environmental charges related to previously-owned manufacturing facilities in the U.S, which each decreased approximately $3 million.

Restructuring expenses during fiscal 2020 increased $2 million, primarily due to higher severance expenses resulting from targeted headcount reductions in the Americas.

Operating income in fiscal 2020 decreased $27 million to $38 million, primarily due to lower gross profit, partially offset by lower SG&A expenses.

32

AUTOMOTIVE                  
  Years ended March 31, 
  2021  2020  2019 
(in millions) 
_$’s
  % of sales  
_$’s
  % of sales  
_$’s
  % of sales 
Net sales $398   100.0% $445   100.0% $489   100.0%
Cost of sales  342   85.9%  396   89.1%  430   87.9%
Gross profit  56   14.1%  48   10.9%  59   12.1%
Selling, general and administrative expenses  36   9.1%  45   10.1%  51   10.5%
Restructuring expenses  4   1.0%  6   1.5%  8   1.7%
Impairment charges  167   41.9%  8   1.8%  -   - 
Gain on sale of assets  -   -   (1)  -0.2%  -   - 
Operating loss $(151)  -37.9% $(10)  -2.3% $-   -0.1%

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

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

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

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

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

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

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

The Automotive operating loss in fiscal 2021 of $151 million, as compared with an operating loss of $10 million in the prior year, was significantly impacted by the large impairment charges, which were partially offset by higher gross profit and higherlower SG&A and restructuring expenses.  Operating income

Year Ended March 31, 2020 Compared with Year Ended March 31, 2019

Automotive net sales decreased $44 million, or 9 percent, in fiscal 2020 compared with the prior year, primarily due to lower sales volume, a $16 million unfavorable impact of $19foreign currency exchange rate changes, and, to a lesser extent, unfavorable customer pricing largely resulting from contractually-scheduled price-downs.  Sales decreased $48 million in fiscal 2015Europe and increased $10$5 million in Asia.  The sales declines in Europe largely resulted from general weakness in vehicular markets.

33
Automotive cost of sales decreased $34 million, or 8 percent, primarily due to lower sales volume and a $14 million favorable impact of foreign currency exchange rate changes.  As a percentage of sales, cost of sales increased 120 basis points to 89.1 percent.  Beyond the unfavorable impact of the lower sales volume, unfavorable customer pricing and higher labor and inflationary costs negatively impacted cost of sales as a percentage of sales by approximately 40 basis points and 30 basis points, respectively.  Higher depreciation costs, primarily resulting from recent manufacturing capacity expansion in China and Hungary, also negatively impacted cost of sales to a lesser extent.  These negative impacts were partially offset by favorable material costs, which impacted cost of sales by approximately 30 basis points, improved operating efficiencies and cost savings from procurement initiatives.  The favorable material costs primarily resulted from lower commodity pricing, which more than offset the negative impacts of tariffs.

As a result of the lower sales and higher cost of sales as a percentage of sales, gross profit decreased $11 million and gross margin declined 120 basis points to 10.9 percent.

Automotive SG&A expenses decreased $6 million compared with the prior year, primarily due to higherlower compensation-related expenses, which decreased approximately $5 million, and a $2 million favorable impact of foreign currency exchange rate changes.

Restructuring expenses during fiscal 2020 decreased $2 million, primarily due to lower severance expenses resulting from fewer targeted headcount reductions in Europe.

During fiscal 2020, we recorded asset impairment charges totaling $8 million, primarily related to manufacturing facilities in Austria and Germany.

During fiscal 2020, we completed the sale of a previously-closed manufacturing facility in Germany and, as a result, recorded a gain of $1 million.

The operating loss in fiscal 2020 of $10 million represents a $10 million decline from the prior year and was primarily due to lower gross profit and higher impairment charges, partially offset by higherlower SG&A and restructuring expenses.


Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents atas of March 31, 20162021 of $69$38 million, and an available borrowing capacity of $207$238 million under lines ofour revolving credit provided by banks in the United States and abroad.facility.  Given our extensive international operations, $49approximately $35 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 wouldmay be subject to U.S. taxforeign withholding taxes if repatriated.  We have not encountered,believe our sources of liquidity will provide sufficient cash flow to adequately cover our funding needs on both a short-term and do notlong-term basis.

Our primary contractual obligations include pension obligations, debt and related interest payments, lease obligations, and obligations for capital expenditures.  Our pension liabilities totaled $77 million as of March 31, 2021.  We expect to encounter, any difficulty meetingcontribute approximately $13 million to our U.S. pension plans during fiscal 2022.  We are currently evaluating the liquidity requirementsprovisions within the American Rescue Plan Act of 2021, which include funding relief for single-employer pension plans.  We believe this recent legislation could allow for lower contributions to our global operations.pension plans during fiscal 2022.

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 20162021 was $72$150 million, an increase of $8$92 million from $64$58 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 andimpacts from the timing of value-added tax payments.payments to vendors and receipts from customers, as compared with the prior year.  The favorable changes in working capital also included lower payments for incentive compensation, employee benefits, and payroll taxes.  During fiscal 2021, we deferred payments of U.S. payroll taxes totaling $7 million, as permitted by the Coronavirus Aid, Relief, and Economic Security Act.  We resumed payment of these payroll taxes during the fourth quarter of fiscal 2021 and expect to pay the deferred amounts in two equal installments when required in December 2021 and 2022.  Also during fiscal 2021, payments for separation and project costs associated with our review of strategic alternatives for the Automotive segment businesses and restructuring activities decreased $31 million and $5 million, respectively, compared with fiscal 2020.

34
Net cash provided by operating activities in fiscal 20152020 was $64$58 million, a decrease of $41$45 million from $105$103 million in the prior year.  This decrease in operating cash flow was primarily due to unfavorablelower operating earnings in the current year and payments for separation and project costs associated with our strategic review of alternatives for the automotive businesses, partially offset by favorable net changes in working capital.  The favorable changes in working capital, including higheras compared with the prior year, included lower employee benefit and incentive compensation payments during fiscal 2015 related to fiscal 2014 performance, and the timing of customer-owned tooling reimbursements.payments.


Capital Expenditures


Capital expenditures of $63$33 million during fiscal 2016 increased $52021 decreased $39 million compared with fiscal 2015.  In fiscal 2016,2020.  Similar to prior years, our capital spending in fiscal 2021 primarily occurred in the AmericasHDE and EuropeAutomotive segments, which totaled $27$14 million and $25$11 million, respectively.  Capital projects in fiscal 2016respectively, and included tooling and equipment purchases in conjunction with new and renewal programs with customers.


At March 31, 2016,During fiscal 2021 and in response to the economic impacts of the COVID-19 pandemic, we reduced our capital expenditure commitments totaled $21 million.  Significant commitments includedexpenditures and delayed certain projects and the purchase of certain program-related equipment and tooling and equipment expenditures for new and renewal programs with customers in the Americas and Europe segments.

Dividends

our vehicular businesses.  We did not pay dividendsare currently planning to increase our capital investments in fiscal 2016, 2015, or 2014.  We currently do not intend to pay dividends in2022, as compared with fiscal 2017.2021.
Debt


Our total debt outstanding increased $14decreased $143 million to $163$340 million at March 31, 2016,2021 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.repayments during fiscal 2021.


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

The leverage ratio covenant within our primary credit agreements requires us to limit our consolidated indebtedness, less a certain portion of our cash balance, both as defined by the credit agreement,agreements, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).  We are also subject to an interest expense coverage ratio covenant, which requires us to maintain Adjusted EBITDA of at least three times consolidated interest expense.

Our  As of March 31, 2021, 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.  Ourand interest expense coverage ratio for the four fiscal quarters ended March 31, 2016 was 10.5, which exceeded the minimum requirement of 3.0.were 1.9 and 9.3, respectively.  We wereexpect to remain in compliance with our debt covenants as of March 31, 2016 and expect to remain in compliance during fiscal 20172022 and beyond.  In

See Note 17 of the event of an acquisition,Notes to Consolidated Financial Statements for additional information regarding our leverage ratio may be temporarily raised for several quarters, per the terms of our debtcredit agreements.

Off-Balance Sheet Arrangements

None.

Contractual Obligations

  March 31, 2016 
(in millions) Total  
Less than 1
year
  1 - 3 years  4 - 5 years  
More than
5 years
 
                
Long-term debt $125.4  $8.0  $32.2  $85.2  $- 
Interest associated with long-term debt  30.3   8.5   14.1   7.7   - 
Capital lease obligations  8.6   0.5   0.8   0.8   6.5 
Operating lease obligations  53.5   8.1   10.4   8.7   26.3 
Capital expenditure commitments  20.5   20.0   0.5   -   - 
Other long-term obligations  3.6   1.7   1.2   0.7   - 
Total contractual obligations $241.9  $46.8  $59.2  $103.1  $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 either have or could significantly impact our financial statementsstatement are includeddisclosed in Note 1 of the Notes to Consolidated Financial Statements.

Revenue Recognition


We recognize revenue including agreed-upon commodity prices, when the risksbased upon consideration specified in a contract and rewards of ownership are transferredas we satisfy performance obligations by transferring control over our products to our customers, which generally occursmay be at a point in time or over time.  The majority of our revenue is recognized at a point in time, based upon shipment. Revenue is recorded netshipment terms.  A limited number of applicable provisionsour customer contracts provide an enforceable right to payment for sales rebates, volume incentives,performance completed to date.  For these contracts, we recognize revenue over time based upon our estimated progress towards the satisfaction of the contract’s performance obligations.  We record an allowance for credit losses and returns and allowances. Atwe accrue for estimated warranty costs at the time of revenue recognition, we also record estimates for bad debt expense and warranty expense.sale.  We base these estimates onupon historical experience, current business trends and current economic conditions. We recognize price increases that are agreed upon in advance as revenue whenconditions, and risks specific to the products are shipped to our customers.
underlying accounts receivable or warranty claims.

31
35
Impairment of Long-Lived Assets


We perform impairment evaluations of long-lived assets, including property, plant and equipment and 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.underlying assets.  Fair value is generally based onupon appraised value, estimated salvage value, or selling prices under negotiation, as applicable.


The most significant long-lived assets we evaluated for impairment indicators were property, plant and equipment and intangible assets, which totaled $339$270 million and $101 million, respectively, at March 31, 2016.2021.  Within property, plant and equipment, the most significant assets evaluated are buildings and improvements and machinery and equipment.  Our most significant intangible assets evaluated are customer relationships, trade names, and acquired technology, the majority of which are related to our CIS segment.  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 2016,2021 and upon classifying the liquid- and air-cooled automotive businesses within the Automotive segment as held for sale, we recordedevaluated the disposal groups for impairment.  Based upon the selling prices of the businesses and anticipated costs to sell, we estimated implied losses in excess of the respective carrying value of each disposal group’s long-lived assets.  As a $10 million impairment charge relatedresult, we wrote down the carrying value of the disposal groups’ long-lived assets, which consist entirely of property, plant and equipment and right-of-use lease assets, to a manufacturing facility in Germany.zero.  See Note 62 of the Notes to the Consolidated Financial Statements for additional information.information regarding the $167 million of impairment charges that we recorded during fiscal 2021.


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 testedWe test goodwill for impairment at a reporting unit level,level.  Reporting units resulting from recent acquisitions generally represent the highest risk of impairment, which we have determined to be attypically decreases as the businesses are integrated into the Company and positioned for future operating segment level.  Our first step in thisand financial performance.  We test is to comparegoodwill for impairment by comparing the fair value of theeach reporting unit towith 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 thea reporting unit exceeds the carrying value of the reporting unit’s net assets, goodwill of that reporting unit is not impaired and further testing is not required.  Ifimpaired.  However, if the carrying value of the reporting unit’s net assets exceeds theits fair value, ofwe would conclude goodwill is impaired and would record an impairment charge equal to the unit, then we perform the second step of the impairment test to determine the implied fair value ofamount that 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 overexceeds its implied fair value is recorded as an impairment charge. value.

Determining the fair value of a reporting unit involves judgment and the use of significant estimates and assumptions, which include assumptions regarding the revenue growth rates and operating profit margins used to calculate estimated future cash flows, the risk-adjusted discount rate,rates, 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 raterates used in determining discounted cash flows is a rateare rates corresponding to our cost of capital, adjusted for country-specific risks where appropriate.  While we believe the assumptions used in our goodwill impairment tests are appropriate and result in a reasonable estimate of the fair value of each reporting unit, future events or circumstances could have a potential negative effect on the estimated fair value of our reporting units.  These events or circumstances include lower than forecasted revenues, market trends that fall below our current expectations, actions of key customers, increases in discount rates, and the continued economic uncertainty and impacts associated with the COVID-19 pandemic.  We cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill.


36
At March 31, 2021, our goodwill totaled $171 million related to our CIS and BHVAC segments.  Each of these segments is comprised of two reporting units.  We conducted our annual assessment for goodwill impairment during the fourth quartertests as of fiscal 2016March 31, 2021 by applying a fair value-based test and determined the fair value of each of our reporting units substantially exceeded theirthe respective book values.value.

Acquisitions

From time to time, we make strategic acquisitions that have a material impact on our consolidated results of operations or financial position.  We allocate the purchase price of acquired businesses to the identifiable tangible and intangible assets acquired and liabilities assumed in the transaction based upon their estimated fair values as of the acquisition date.  We determine the estimated fair values using information available to us and engage third-party valuation specialists when necessary.  The estimates we use to determine the fair value of long-lived assets, such as intangible assets, can be complex and require significant judgments.  While we use our best estimates and assumptions, our estimates are inherently uncertain and subject to refinement.  As a result, during the measurement period, which may be up to one year from the acquisition date, we record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.  Upon conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our consolidated statement of operations.  We also estimate the useful lives of intangible assets to determine the amount of amortization expense to record in future periods.  We periodically review the estimated useful lives assigned to our intangible assets to determine whether such estimated useful lives continue to be appropriate.

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 both historical and current claim data.  We monitor and adjust our warranty accruals, which totaled $8$5 million at March 31, 2016,2021, 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, 2016,2021, our pension liabilities totaled $120$77 million.  The most significant assumptions include the discount rate, long-term expected return on plan assets, and mortality rate tables.rates.  We base our selection of assumptions on historical trends and economic and market conditions at the time of valuation.  In accordance with U.S. GAAP, actual results that differ from these assumptions are accumulated and amortized over future periods.  These differences impact future pension expenses.  Currently, participants in our domestic pension plans are not accruing benefits based onupon 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 benefitpension plan assets and the large majority of our pension plan expense.


To determine the expected rate of return on pension plan assets, we consider such factors as (a) the actual return earned on plan assets, (b) historical rates of return on the various asset classes in the plan portfolio, (c) projections of returns on those asset classes, (d) the amount of active management of the assets, (e) capital market conditions and economic forecasts, and (f) administrative expenses paid with the plan assets.  The long-term rate of return utilized in both fiscal 20162021 and 20152020 was 8.07.5 percent.  For fiscal 2017,2022, we have also assumed a rate of 8.07.5 percent.  The impactA change of a 25 basis point decreasepoints in the expected rate of return on assets would result in an increase ofimpact our fiscal 2022 pension expense by $0.4 million in fiscal 2017 pension expense.million.


The discount rate reflects rates available on long-term, high-quality fixed-income corporate bonds on the measurement date of March 31.  For fiscal 2016,2021 and 2020, for purposes of determining pension expense, we used a discount rate of 4.1 percent, compared with3.4 and 4.0 percent, in fiscal 2015.respectively.  We determined these rates based upon a yield curve that was created following an analysis of the projected cash flows from the affectedour plans.  See Note 1718 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 20172022 pension expense by less than $0.1$1 million.


37
Income Taxes


We operate in numerous taxing jurisdictions andjurisdictions; therefore, we 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 jurisdictionsa particular jurisdiction will not be realized.  This determination, involves significant judgment.  In performing this assessmentwhich is made on a jurisdiction-by-jurisdiction basis, we consider historicalinvolves judgment and projected financial results along with other pertinent information.

the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies.  We have not recorded a provision for U.S. income taxes on undistributed earnings from our non-U.S. subsidiariesbelieve the assumptions that we have determined to be permanently reinvestedused are appropriate and result in our foreign operations.  If management’s intentionsa reasonable determination regarding the future realizability of deferred tax assets.  However, future events or U.S. tax lawcircumstances, such as lower-than-expected taxable income or unfavorable changes in the future, therefinancial outlook of our operations in certain jurisdictions, could be a significant negative impact on our provision for income taxes.cause us to record additional valuation allowances.


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, regulatoryreserves, estimated credit losses associated with trade receivables, regulatory compliance matters, and litigation.  Establishing loss reserves for these exposures requires the use of estimates and judgment to determine the risk exposure and ultimate potential liability.  We estimate these reserve requirements by using consistent and suitable methodologies for the particular type of loss reserve being calculated.  See Note 1920 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.report and identified in our other public filings with the U.S. Securities and Exchange Commission.  Other risks and uncertainties include, but are not limited to, the following:


Market Risks:


·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 the COVID-19 pandemic on the national and global economy, our business, suppliers, customers, and employees;


·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
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 (and any potential trade war resulting from tariffs or retaliatory actions); inflation; changes in interest rates; recession and recovery therefrom; restrictions and uncertainty associated with cross-border trade, public health crises, such as pandemics and epidemics, including the ongoing COVID-19 pandemic; and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, the COVID-19 pandemic and other matters, that have been or may be implemented in the U.S. or abroad, as well as continuing uncertainty regarding the short- and long-term implications of “Brexit”;

·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
38
·Our ability to effectivelyThe impact of potential price increases associated with raw materials, including aluminum, copper, steel and stainless steel (nickel), and other purchased component inventory including, but not limited to, increases in the underlying material cost based upon the London Metal Exchange and related premiums or fabrication costs.  These prices may be impacted by a variety of factors, including changes in trade laws and tariffs, the behavior of our suppliers and significant fluctuations in demand.  This risk includes our ability to successfully manage our exposure and our ability to adjust product pricing in response to price increases, whether through our quotation process or through contract provisions for prospective price adjustments, as well as the inherent lag in timing of such contract provisions; 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;
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.


·Costs and other effects of the remediation of environmental contamination;
Operational Risks:


·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;
The overall health and continually increasing price-down focus of our vehicular customers in light of economic and market-specific factors, and the potential impact on us from any deterioration in the stability or performance of any of our major customers;


·Work stoppages or interference at our facilities or those of our major customers and/or suppliers; and
The impact of any problems with suppliers meeting our time, quantity, quality and price demands, and the overall health of our suppliers, including their ability and willingness to supply our volume demands if their production capacity becomes constrained;


·Costs and other effects of unanticipated litigation or claims, and the constant pressures associated with healthcare and insurance costs.
Our ability to maintain current customer relationships and compete effectively for new business, including our ability to offset or otherwise address increasing pricing pressures from competitors and price reduction and overall service pressures from customers, particularly in the face of macro-economic instability;


The impact of product or manufacturing difficulties or operating inefficiencies, including any program launch and product transfer challenges and warranty claims and delays or inefficiencies resulting from restrictions imposed in response to the COVID-19 pandemic;

The impact of any delays or modifications initiated by major customers with respect to program launches, product applications or requirements;

Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor, while also positioning ourselves geographically, so that we can continue to support our customers with the technical expertise and market-leading products they demand and expect from Modine;

Our ability to effectively and efficiently reduce our cost structure in response to sales volume declines and to complete restructuring activities and realize the anticipated benefits of those activities;

Costs and other effects of the investigation and remediation of environmental contamination; particularly when related to the actions or inactions of others and/or facilities over which we have no control;

Our ability to recruit and maintain talent, including personnel in managerial, leadership and administrative functions, in light of tight global labor markets;

Our ability to protect our proprietary information and intellectual property from theft or attack by internal or external sources;

The impact of any substantial disruption or material breach of our information technology systems, and any related delays, problems or costs;

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;

39
Work stoppages or interference at our facilities or those of our major customers and/or suppliers;

The constant and increasing pressures associated with healthcare and associated insurance costs; and

Costs and other effects of litigation, claims, or other obligations.

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.
Our ability to successfully complete the pending sale of our liquid-cooled automotive business, including the receipt of governmental and third-party approvals and the risk that the sale will not close because of a failure to satisfy one or more of the closing conditions (including governmental and third-party approvals) on a timely basis or at all, and our ability to successfully exit our other automotive businesses in a manner that is in the best interest of our shareholders;


Our ability to successfully realize anticipated benefits from our increased “industrial” market presence, with our BHVAC and CIS businesses, while maintaining appropriate focus on the market opportunities presented by our vehicular businesses;

Our ability to identify and execute growth and diversification opportunities in order to position us for long-term success; and

The potential impacts from any actions by activist shareholders, including disruption of our business and related costs.

Financial Risks:


•·
Our ability to fund our global liquidity requirements efficiently particularly those in our Asia business segment,for Modine’s current operations 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 potential increases in interest rates, particularly in LIBOR and the Euro Interbank Offered Rate (“EURIBOR”) in relation to our variable-rate debt obligations, and of the continued uncertainty around the utilization of LIBOR or alternative reference rates;
·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


The impact of changes in federal, state or local taxes that could have the effect of increasing our income tax expense;
·Our ability to realize the benefits of tax assets in various jurisdictions in which we operate.


In additionOur ability to comply with the risks set forth above, we are subject to other risks and uncertainties as identifiedfinancial covenants in our public filings withcredit agreements, including our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) and our interest coverage ratio (Adjusted EBITDA divided by interest expense, as defined in our credit agreements);

The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and

Our ability to effectively realize the U.S. Securities and Exchange Commission.  Webenefits of deferred tax assets in various jurisdictions in which we operate.

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


ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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 currency exchange rates, interest rates, commodity prices, credit risk and economic conditions.other market changes.


40
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 suppliers in 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.  WeWhenever possible, 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 subsidiaryentity engaging in the transaction.  OurIn addition, for certain transactions that are denominated in a currency other than the engaging entity’s functional currency, we may enter into foreign currency derivative contracts to further manage our foreign currency risk.  In fiscal 2021, we recorded a net loss of less than $1 million within our statement of operations related to foreign currency derivative contracts.  In addition, our consolidated financial results are principally exposed toimpacted by the translation of revenue and expenses in foreign currencies into U.S. dollars.  These translation impacts are primarily affected by 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.real.  In fiscal 2016, 2015, and 2014,2021, more than 50 percent of our sales were generated in countries outside the U.S.  A change in foreign currency 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 cost of sales and other expenses.  In fiscal 2016,2021, changes in foreign currencies negativelycurrency exchange rates favorably impacted our sales by $110$28 million; however, the impact on our operating income was only $4$2 million.  Foreign currency exchange rate 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 2016,2021, there would not have been a material impact on our fiscal 20162021 earnings.
We maintain from time to time, foreign-denominated, long-termforeign currency-denominated 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-termWe seek to mitigate this risk through maintaining offsetting positions between external and intercompany loans for which changes in foreign currency exchange rates would impact our net earnings.  Fromloans; however, from time to time, we also enter into foreign currency rate derivative contracts to manage the foreigncurrency exchange rate exposure on these types of loans.exposure.  These derivative instruments are typically not treatedaccounted for 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 totypically offset anythe foreign currency movementchanges on the outstanding loans receivable or payable.loans.


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-ratevariable-rate debt to manage exposure to changes in interest rates.  Our domesticInterest on both our term loans and borrowings under our primary multi-currency revolving credit facility is based onupon a variable interest rate, of London Interbank Offered Rate (“LIBOR”)primarily either LIBOR or EURIBOR, plus 125137.5 to 225250 basis points, depending on our leverage ratio.  WeAs a result, we are subject to risk of fluctuations in LIBOR and EURIBOR and changes in our leverage ratio, which would affect the variable interest rate on our term loans and revolving credit facility and could create variability in interest expense.  There were noAs of March 31, 2021, our outstanding borrowings outstanding underon variable-rate term loans and the revolving credit facility as of March 31, 2016.totaled $179 million and $5 million, respectively.  Based onupon our outstanding debt with variable interest rates at March 31, 2016,2021, a 100 basis100-basis point increase in interest rates would increase our annual interest expense in fiscal 20172022 by less than $1approximately $2 million.


Commodity Price Riskand Supply Risks


We are dependent upon the supply of raw materials and supplies in theour production processprocesses 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 orderseek to mitigate commodity price risk.  The majority of these agreements containrisk by adjusting product pricing in response to any applicable price increases.  In addition, we maintain contract provisions with certain vehicular customers that provide for prospective price adjustments based upon changes in which the pass-through of theraw material prices.  These prospective price fluctuations canadjustments generally lag behind the actual raw material price fluctuations by three months or longer, and typically the arrangementscontract provisions 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,Exchange 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.
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,exclude additional cost elements, such as the global downturn experienced in fiscal 2009related premiums and fiscal 2010, is still present.fabrication.


We monitor economic conditions in the U.S., inIn an effort to manage and reduce our foreign markets and elsewhere.costs, we have been consolidating our supply base.  As a result, 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 exampleslimited sources of new and emerging marketssupply for us include those related to waste heat recovery, coils, andcertain components used in 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 demandsmanufacture 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 ofproducts, including aluminum, copper, steel and stainless steel material.(nickel).  We are exposed to the risk of suppliers of certain raw materials not being able or willing to meet strong customer demand (including the potential effects of trade laws and tariffs), 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.


41
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, 2021, 35 percent of our trade accounts receivable was concentrated with our top ten customers.  These customers operate primarily in the commercial vehicle, off-highway, automotive and light vehicle, commercial air conditioning, and refrigeration markets and are influenced by similar market and general economic factors.  In the past, credit losses from our customers have not been significant, nor have we experienced a significant increase in credit losses in connection with the COVID-19 pandemic.

 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, 2021;
•
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 maintain financial ratings that are acceptable to us.  We have not identified any concerns in this regard based upon our reviews.

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 oftensometimes contain provisions for future price reductions.  In addition,

Economic and Market 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 occasionally link price reductionsoperating in diverse markets, including the commercial, industrial, and building HVAC&R and commercial vehicle, off-highway, and automotive and light vehicle markets.  The COVID-19 pandemic has negatively impacted many of these markets.  While conditions in these markets have been steadily improving, future impacts of the COVID-19 pandemic are uncertain.

Considering our global presence, we also encounter risks imposed by potential trade restrictions, including tariffs, embargoes, and the like.  We continue to future program awards,pursue non-speculative opportunities to mitigate these economic risks, and we must assesscapitalize, when possible, on changing market conditions.  We pursue new market opportunities after careful consideration of the overall implicationspotential associated risks and benefits.  Successes in new markets are dependent upon our ability to commercialize our investments.  Current examples of such requests on a case-by-case basis.new and emerging markets for us include those related to electric vehicles, coils and coolers in certain markets, and coatings.  Our investment in these areas is subject to the risks associated with technological success, customer and market acceptance, and our ability to meet the demands of our customers as these markets grow.


42
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: Derivatives
From time to time, we enter into futuresover-the-counter forward 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, 2015,2021 and 2014, expenses2020, we designated certain commodity forward contracts as cash flow hedges for accounting purposes.  Accordingly, for these designated hedges, we record unrealized gains and losses related to the change in the fair value of the contracts in other comprehensive income (loss) within shareholders’ equity and subsequently recognize the gains and losses within cost of sales as the underlying inventory is sold.  In fiscal 2021, 2020 and 2019, net gains and losses recognized in cost of sales related to commodity derivativeforward contracts totaledwere less than $1 million in each year.


Foreign currency forward contracts: Our foreign exchange risk management strategy usesCurrency Forward Contracts
We use derivative financial instruments in a limited way to mitigate foreign currency exchange risk.  We periodically enter into foreign currency exchangeforward contracts to hedge specific foreign currency-denominated assets and liabilities.liabilities as well as forecasted transactions.  We have designated certain hedges of forecasted transactions as cash flow hedges for accounting purposes.  Accordingly, for these designated hedges, we record unrealized gains and losses related to the change in the fair value of the contracts in other comprehensive income (loss) within shareholders’ equity and subsequently recognize the gains and losses as a component of earnings at the same time and in the same financial statement line that the underlying transactions impact earnings.  In fiscal 2021, 2020, and 2019, net gains and losses recognized in sales and cost of sales related to foreign currency forward contracts were less than $1 million in each year.  We have not designated these forward contracts related to foreign currency-denominated assets and liabilities as hedges.  Accordingly, for these non-designated contracts, 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 non-designated foreign currency forward contracts are offset by foreign currency gains and losses associated with the related assets and liabilities.


Counterparty risks: Risks
We manage counterparty risks by ensuring that counterparties to derivative instruments havemaintain credit ratings acceptable to us.  At March 31, 2016,2021, all counterparties had a sufficient long-term credit rating.

37
43

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DATA.


MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2016, 20152021, 2020 and 20142019
(In millions, except per share amounts)


 2016 2015 2014 2021  2020  2019 
Net sales $1,352.5  $1,496.4  $1,477.6  $1,808.4  $1,975.5  $2,212.7 
Cost of sales  1,129.0   1,249.9   1,239.4   1,515.0   1,668.0   1,847.2 
Gross profit  223.5   246.5   238.2   293.4   307.5   365.5 
Selling, general and administrative expenses  204.5   184.5   181.7   210.9   249.6   244.1 
Restructuring expenses  16.6   4.7   16.1   13.4   12.2   9.6 
Impairment charges  9.9   7.8   3.2   166.8   8.6   0.4 
Gain on sale of wind tunnel  -   (3.2)  - 
(Gain) loss on sale of assets  0   (0.8)  1.7 
Operating (loss) income  (7.5)  52.7   37.2   (97.7)  37.9   109.7 
Interest expense  (11.1)  (11.7)  (12.4)  (19.4)  (22.7)  (24.8)
Other income (expense) – net  8.7   0.2   (0.8)
(Loss) earnings from continuing operations before income taxes  (9.9)  41.2   24.0 
Benefit (provision) for income taxes  8.9   (19.0)  107.9 
(Loss) earnings from continuing operations  (1.0)  22.2   131.9 
Earnings from discontinued operations, net of income taxes  -   0.6   - 
Other expense - net  (2.2)  (4.8)  (4.1)
(Loss) earnings before income taxes  (119.3)  10.4   80.8 
(Provision) benefit for income taxes  (90.2)  (12.4)  5.1 
Net (loss) earnings  (1.0)  22.8   131.9   (209.5)  (2.0)  85.9 
Net earnings attributable to noncontrolling interest  (0.6)  (1.0)  (1.5)  (1.2)  (0.2)  (1.1)
Net (loss) earnings attributable to Modine $(1.6) $21.8  $130.4  $(210.7) $(2.2) $84.8 
            
(Loss) earnings per share from continuing operations attributable to Modine shareholders:            
Basic $(0.03) $0.45  $2.75 
Diluted $(0.03) $0.44  $2.72 
                        
Net (loss) earnings per share attributable to Modine shareholders:                        
Basic $(0.03) $0.46  $2.75  $(4.11) $(0.04) $1.67 
Diluted $(0.03) $0.45  $2.72  $(4.11) $(0.04) $1.65 
                        
Weighted-average shares outstanding:                        
Basic  47.3   47.2   46.9   51.3   50.8   50.5 
Diluted  47.3   47.8   47.6   51.3   50.8   51.3 


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

38
44

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2016, 20152021, 2020 and 20142019
(In millions)


 2016 2015 2014 2021  2020  2019 
Net (loss) earnings $(1.0) $22.8  $131.9  $(209.5) $(2.0) $85.9 
Other comprehensive income (loss):                        
Foreign currency translation  4.6   (68.2)  9.7   30.9   (19.2)  (37.6)
Defined benefit plans, net of income taxes of $11.8, ($13.2) and $9.8 million  19.7   (26.7)  13.9 
Cash flow hedges, net of income taxes of $0, $0 and $0.6 million  -   -   1.1 
Defined benefit plans, net of income taxes of $10.4, ($8.3) and ($0.3) million
  30.1   (24.6)  (1.4)
Cash flow hedges, net of income taxes of $0.6, ($0.5) and $0.1 million
  1.6   (1.5)  0.4 
Total other comprehensive income (loss)  24.3   (94.9)  24.7   62.6   (45.3)  (38.6)
                        
Comprehensive income (loss)  23.3   (72.1)  156.6   (146.9)  (47.3)  47.3 
Comprehensive income attributable to noncontrolling interest  (0.5)  (0.8)  (1.7)
Comprehensive (income) loss attributable to noncontrolling interest  (1.7)  0.2   (0.6)
Comprehensive income (loss) attributable to Modine $22.8  $(72.9) $154.9  $(148.6) $(47.1) $46.7 


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

39
45

MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
March 31, 20162021 and 20152020
(In millions, except per share amounts)


 2016 2015 2021  2020 
ASSETS
            
Cash and cash equivalents $68.9  $70.5  $37.8  $70.9 
Trade accounts receivable – net  189.1   192.9   267.9   292.5 
Inventories  111.0   107.7   195.6   207.4 
Assets held for sale  107.6   0 
Other current assets  43.5   79.7   35.9   62.5 
Total current assets  412.5   450.8   644.8   633.3 
Property, plant and equipment – net  338.6   322.1   269.9   448.0 
Intangible assets – net  8.2   9.9   100.6   106.3 
Goodwill  15.8   16.2   170.7   166.1 
Deferred income taxes  123.1   115.4   24.5   104.8 
Other noncurrent assets  22.7   16.5   66.2   77.6 
Total assets $920.9  $930.9  $1,276.7  $1,536.1 
                
LIABILITIES AND SHAREHOLDERS' EQUITY
        
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Short-term debt $28.6  $18.6  $1.4  $14.8 
Long-term debt – current portion  8.5   0.5   21.9   15.6 
Accounts payable  142.4   152.0   233.9   227.4 
Accrued compensation and employee benefits  58.6   56.7   66.5   65.0 
Liabilities held for sale  103.3   0 
Other current liabilities  35.5   83.0   42.2   49.2 
Total current liabilities  273.6   310.8   469.2   372.0 
Long-term debt  125.5   129.6   311.2   452.0 
Deferred income taxes  4.2   3.1   5.9   8.1 
Pensions  118.6   110.4   58.6   130.9 
Other noncurrent liabilities  16.3   16.4   75.7   79.5 
Total liabilities  538.2   570.3   920.6   1,042.5 
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  30.6   30.4 
Commitments and contingencies (see Note 20)  0   0 
Shareholders’ equity:        
Preferred stock, $0.025 par value, authorized 16.0 million shares, issued - NaN
  0   0 
Common stock, $0.625 par value, authorized 80.0 million shares, issued 54.3 million and 53.4 million shares
  33.9   33.3 
Additional paid-in capital  185.6   180.6   255.0   245.1 
Retained earnings  358.2   359.8   259.2   469.9 
Accumulated other comprehensive loss  (174.2)  (198.6)  (161.2)  (223.3)
Treasury stock, at cost, 1.6 million and 0.7 million shares  (24.0)  (16.2)
Total Modine shareholders' equity  376.2   356.0 
Treasury stock, at cost, 2.7 million and 2.5 million shares
  (38.2)  (37.1)
Total Modine shareholders’ equity  348.7   487.9 
Noncontrolling interest  6.5   4.6   7.4   5.7 
Total equity  382.7   360.6   356.1   493.6 
Total liabilities and equity $920.9  $930.9  $1,276.7  $1,536.1 


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

40
46

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 2016, 20152021, 2020 and 20142019
(In millions)


 2016 2015 2014 2021  2020  2019 
Cash flows from operating activities:                  
Net (loss) earnings $(1.0) $22.8  $131.9  $(209.5) $(2.0) $85.9 
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:                        
Depreciation and amortization  50.2   51.6   58.1   68.6   77.1   76.9 
Insurance proceeds from Airedale fire  5.9   12.9   16.9 
Impairment charges  9.9   7.8   3.2   166.8   8.6   0.4 
Gain on sale of wind tunnel  -   (3.2)  - 
Pension and postretirement expense  45.1   2.3   3.2 
Loss from disposition of property, plant and equipment  0.4   1.1   2.6 
(Gain) loss on sale of assets  0   (0.8)  1.7 
Stock-based compensation expense  6.3   6.6   7.9 
Deferred income taxes  (18.8)  5.9   (116.1)  67.9   1.0   (4.4)
Stock-based compensation expense  4.9   4.0   3.6 
Other – net  (0.3)  (0.7)  (0.5)  6.3   5.6   5.3 
Changes in operating assets and liabilities, excluding acquisitions:            
Changes in operating assets and liabilities:            
Trade accounts receivable  8.0   (0.1)  (18.2)  (17.1)  36.6   (15.3)
Inventories  (2.7)  (4.2)  (0.1)  (5.0)  (12.0)  (22.0)
Accounts payable  (9.9)  (2.4)  15.2   44.0   (37.7)  16.6 
Accrued compensation and employee benefits  0.8   (5.3)  17.5   15.7   (15.2)  (10.1)
Other assets  (14.5)  (24.5)  2.1   27.5   14.7   (11.8)
Other liabilities  (5.6)  (4.5)  (14.9)  (21.7)  (24.6)  (27.8)
Net cash provided by operating activities  72.4   63.5   104.5   149.8   57.9   103.3 
                        
Cash flows from investing activities:                        
Expenditures for property, plant and equipment  (62.8)  (58.3)  (53.1)  (32.7)  (71.3)  (73.9)
Insurance proceeds from Airedale fire  27.4   12.2   20.7 
Costs to replace building and equipment damaged in Airedale fire  (41.7)  (16.7)  (4.2)
Acquisitions – net of cash acquired  (1.4)  -   (7.8)
Proceeds from dispositions of assets  0.4   7.6   2.9   0.7   6.2   0.3 
Proceeds from sale of investment in affiliate  0   3.8   0 
Proceeds from maturities of short-term investments  3.4   4.1   4.9 
Purchases of short-term investments  (2.7)  (5.2)  -   (3.6)  (3.3)  (3.8)
Proceeds from maturities of short-term investments  2.1   2.4   - 
Other – net  0.9   0.8   -   0.9   0   (0.3)
Net cash used for investing activities  (77.8)  (57.2)  (41.5)  (31.3)  (60.5)  (72.8)
                        
Cash flows from financing activities:                        
Borrowings of debt  38.0   36.4   152.6   32.7   672.0   221.3 
Repayments of debt  (27.1)  (50.9)  (152.4)  (183.6)  (630.3)  (241.9)
Purchases of treasury stock under share repurchase program  (6.9)  -   - 
Borrowings on bank overdraft facilities – net  3.6   1.2   (0.1)
Dividend paid to noncontrolling interest  0   (1.3)  (1.8)
Purchase of treasury stock under share repurchase program  0   (2.4)  (0.6)
Financing fees paid  -   (0.1)  (0.9)  (0.8)  (2.8)  0 
Dividend paid to noncontrolling interest  (0.9)  -   (0.5)
Other – net  (0.4)  -   (0.3)  3.0   (3.1)  (2.8)
Net cash provided by (used for) financing activities  2.7   (14.6)  (1.5)
Net cash (used for) provided by financing activities  (145.1)  33.3   (25.9)
                        
Effect of exchange rate changes on cash  1.1   (8.4)  1.9   1.4   (1.6)  (2.7)
Net (decrease) increase in cash and cash equivalents  (1.6)  (16.7)  63.4 
Cash and cash equivalents - beginning of year  70.5   87.2   23.8 
Cash and cash equivalents - end of year $68.9  $70.5  $87.2 
Net (decrease) increase in cash, cash equivalents, restricted cash and cash held for sale  (25.2)  29.1   1.9 
Cash, cash equivalents, restricted cash and cash held for sale - beginning of year  71.3   42.2   40.3 
Cash, cash equivalents, restricted cash and cash held for sale - end of year $46.1  $71.3  $42.2 


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

41
47

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'SHAREHOLDERS’ EQUITY
For the years ended March 31, 2016, 20152021, 2020 and 20142019
(In millions)


  Common stock  
Additional
paid-in
  Retained  Accumulated
other
comprehensive
  Treasury
stock, at
   
Non-
controlling
  Total
  Shares  Amount  capital  earnings  loss  cost  interest    
Balance, March 31, 2013  47.8  $29.9  $171.2  $207.6  $(128.4) $(14.6) $2.6  $268.3 
Net earnings attributable to Modine  -   -   -   130.4   -   -   -   130.4 
Other comprehensive income  -   -   -   -   24.5   -   0.2   24.7 
Stock options and awards including related tax benefits  0.5   0.3   0.9   -   -   -   -   1.2 
Purchase of treasury stock  -   -   -   -   -   (0.6)  -   (0.6)
Stock-based compensation expense  -   -   3.6   -   -   -   -   3.6 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (0.5)  (0.5)
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   1.5   1.5 
Balance, March 31, 2014  48.3   30.2   175.7   338.0   (103.9)  (15.2)  3.8   428.6 
Net earnings attributable to Modine  -   -   -   21.8   -   -   -   21.8 
Other comprehensive loss  -   -   -   -   (94.7)  -   (0.2)  (94.9)
Stock options and awards including related tax benefits  0.3   0.2   0.9   -   -   -   -   1.1 
Purchase of treasury stock  -   -   -   -   -   (1.0)  -   (1.0)
Stock-based compensation expense  -   -   4.0   -   -   -   -   4.0 
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   1.0   1.0 
Balance, March 31, 2015  48.6   30.4   180.6   359.8   (198.6)  (16.2)  4.6   360.6 
Net loss attributable to Modine  -   -   -   (1.6)  -   -   -   (1.6)
Other comprehensive income  -   -   -   -   24.4   -   (0.1)  24.3 
Stock options and awards including related tax benefits  0.4   0.2   0.1   -   -   -   -   0.3 
Purchase of treasury stock  -   -   -   -   -   (7.8)  -   (7.8)
Stock-based compensation expense  -   -   4.9   -   -   -   -   4.9 
Contribution by noncontrolling interest  -   -   -   -   -   -   2.3   2.3 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (0.9)  (0.9)
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   0.6   0.6 
Balance, March 31, 2016  49.0  $30.6  $185.6  $358.2  $(174.2) $(24.0) $6.5  $382.7 
 Common stock  
Additional
paid-in
  Retained  Accumulated other  
Treasury
stock,
  Non-controlling    
 Shares  Amount  capital  earnings  comprehensive loss  at cost  interest  Total 
Balance, March 31, 2018  52.3  $32.7  $229.9  $394.9  $(140.3) $(27.1) $8.4  $498.5 
Adoption of new accounting guidance (Note 1)  -   0   0   (7.6)  0   0   0   (7.6)
Net earnings  -   0   0   84.8   0   0   1.1   85.9 
Other comprehensive loss  -   0   0   0   (38.1)  0   (0.5)  (38.6)
Stock options and awards  0.5   0.3   0.8   0   0   0   0   1.1 
Purchase of treasury stock  -   0   0   0   0   (4.3)  0   (4.3)
Stock-based compensation expense  -   0   7.9   0   0   0   0   7.9 
Dividend paid to noncontrolling interest  -   0   0   0   0   0   (1.8)  (1.8)
Balance, March 31, 2019
  52.8   33.0   238.6   472.1   (178.4)  (31.4)  7.2   541.1 
Net (loss) earnings  -   0   0   (2.2)  0   0   0.2   (2.0)
Other comprehensive loss  -   0   0   0   (44.9)  0   (0.4)  (45.3)
Stock options and awards  0.6   0.3   (0.1)  0   0   0   0   0.2 
Purchase of treasury stock  -   0   0   0   0   (5.7)  0   (5.7)
Stock-based compensation expense  -   0   6.6   0   0   0   0   6.6 
Dividend paid to noncontrolling interest  -   0   0   0   0   0   (1.3)  (1.3)
Balance, March 31, 2020
  53.4   33.3   245.1   469.9   (223.3)  (37.1)  5.7   493.6 
Net (loss) earnings  -   0   0   (210.7)  0   0   1.2   (209.5)
Other comprehensive income  -   0   0   0   62.1   0   0.5   62.6 
Stock options and awards  0.9   0.6   3.6   0   0   0   0   4.2 
Purchase of treasury stock  -   0   0   0   0   (1.1)  0   (1.1)
Stock-based compensation expense  -   0   6.3   0   0   0   0   6.3 
Balance, March 31, 2021
  54.3  $33.9  $255.0  $259.2  $(161.2) $(38.2) $7.4  $356.1 


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

42
48

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


Note 1:
Note 1: Significant Accounting Policies


Nature of operations:Operations
Modine Manufacturing Company (“Modine” or the “Company”) specializes in providing innovative thermal management systems and components, bringing heating and cooling technology and solutions to diversified global markets.markets and customers.  The Company is a global leader in thermal management technology and solutions for sale into a wide array of commercial, industrial, and building heating, ventilating, air conditioning, and refrigeration (“HVAC&R”) markets.  In addition, the Company is a leading global developer, manufacturerprovider of engineered heat transfer systems and marketer ofhigh-quality heat exchangers and systemstransfer components for use in on-highwayon- and off-highway original equipment manufacturer (“OEM”) vehicular applications, and a wide array of building, industrial and refrigeration markets.applications.  The Company’s primary product linesgroups include radiators and radiator cores, condensers, oil coolers, charge air coolers, heat-transfer modules and assemblies, exhaust gas recirculation (“EGR”) coolers, buildingi) heating, ventilatingventilation and air conditioningconditioning; ii) coils, coolers, and coatings; and iii) powertrain cooling and engine cooling.

COVID-19
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus, COVID-19, a pandemic.  See Note 20 for additional information regarding the risks and uncertainties to our business resulting from this global pandemic.

Disposition of Air-cooled Automotive Business
On February 19, 2021, the Company signed a definitive agreement to sell its air-cooled automotive business to Schmid Metall GmbH.  In connection with this sale, which closed on April 30, 2021, the Company classified the air-cooled automotive business as held for sale as of March 31, 2021.  Accordingly, the Company has reported the assets and liabilities of this business as held for sale on the March 31, 2021 consolidated balance sheet.  See Note 2 for additional information.

Pending Disposition of Liquid-cooled Automotive Business
On November 2, 2020, the Company signed a definitive agreement to sell its liquid-cooled automotive business to Dana Incorporated.  In connection with the pending sale, the Company classified the liquid-cooled automotive business as held for sale and, accordingly, has reported the assets and liabilities of this business as held for sale on the March 31, 2021 consolidated balance sheet.  See Note 2 for additional information.

Chief Executive Officer (“HVAC”CEO”) equipment,Transition
In August 2020, Thomas A. Burke stepped down from his position as President and coils.CEO.  The Board of Directors subsequently conducted a search for his successor and, effective December 1, 2020, appointed Neil D. Brinker as President and CEO.


As a result of Mr. Burke’s departure and in connection with the search for and transition to his successor, the Company recorded costs totaling $6.7 million during fiscal 2021.  These costs, which were recorded as selling, general and administrative (“SG&A”) expenses at Corporate, primarily consisted of severance and benefit-related expenses based upon the terms of Mr. Burke’s transition and separation agreement and costs directly associated with the CEO search, partially offset by the impact of Mr. Burke’s forfeited stock-based compensation awards.

Sale of Facility in Germany
During fiscal 2020, the Company completed the sale of a previously-closed manufacturing facility in Germany for a selling price of $6.0 million.  As a result of this transaction, the Company recorded a gain of $0.8million within the Automotive segment.  The Company reported this gain within the gain on sale of assets line on the consolidated statements of operations.

Sale of Nikkei Heat Exchanger Company, Ltd. (“NEX”)
During fiscal 2020, the Company completed the sale of its 50 percent ownership interest in NEX for a selling price of $3.8 million.  As a result of this sale, the Company recorded a gain of $0.1 million, which included the write-off of accumulated foreign currency translation gains of $0.6 million, within other income and expense on the consolidated statements of operations.  Prior to its sale, the Company accounted for its investment in NEX using the equity method and reported its equity in earnings from NEX within other income and expense in the consolidated statements of operations.  The Company’s share of NEX’s earnings for fiscal 2020 and 2019 was $0.1 million and $0.7 million, respectively.

Sale of AIAC Air Conditioning South Africa (Pty) Ltd.
During fiscal 2019, the Company completed the sale of its AIAC Air Conditioning South Africa (Pty) Ltd. business, which was reported within the Building HVAC Systems segment, for a selling price of $0.5 million.  As a result of this transaction, the Company recorded a loss of $1.7 million, which included the write-off of accumulated foreign currency translation losses of $0.8 million.  The Company reported this loss within the loss on sale of assets line on the consolidated statements of operations.  Annual net sales attributable to this disposed business were less than $2.0 million.

49
Table of Contents

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Basis of presentation: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: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.


Revenue Recognition
The Company accounts for investmentsrecognizes revenue based upon consideration specified in non-consolidated affiliated companiesa contract and as it satisfies performance obligations by transferring control over its products to its customers, which may be at a point in which its ownership is 20 percenttime or more using the equity method.over time.  The Company states these investments at cost, plus or minus a proportionate share of undistributed net income (loss).  The Company includes Modine’s sharemajority of the affiliate’s net incomeCompany’s revenue is recognized at a point in other income and expense.time, based upon shipment terms. A portion of the Company’s revenue is recognized over time, based upon estimated progress towards satisfaction of the contractual performance obligations.  See Note 123 for additional information.


Discontinued operations: Shipping and Handling Costs
The Company records shipping and handling costs incurred upon the shipment of products to its customers in cost of sales, and related amounts billed to these customers in net sales.

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 maintains an allowance for credit losses, representing its estimate of expected losses associated with its trade accounts receivable.  The Company bases its estimate using historical loss experience and considers the aging of the receivables and risks specific to customers where appropriate.  At March 31, 2021 and 2020, the allowance for credit losses was $1.3 million and $1.9 million, respectively.

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 fiscal 2009,2021, 2020, and 2019, the Company sold its Electronics Cooling business.  The buyer financed a portion$88.7 million, $75.4 million, and $85.1 million, respectively, of the selling price by issuing promissory notes payableaccounts receivable to Modine.accelerate cash receipts.  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,2021, 2020, and 2019, 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,loss on 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$0.2 million, $0.5 million, and $18.7$0.6 million, respectively.  In certain instances,respectively, in 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.consolidated statements of operations.


Warranty: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, within cost of sales, based upon historical and current claims data or based upon estimated future claims.  Accrual balances, which are recorded within other current liabilities, are monitored and adjusted if it is probable that expected claims will differ from previous estimates.  See Note 15 for additional information.

Tooling
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, 2021 and 2020, Company-owned tooling totaled $14.1 million and $23.3 million, respectively.  The decrease in Company-owned tooling during fiscal 2021 was primarily due to asset impairment charges recorded within the Automotive segment upon classification of the liquid- and air-cooled automotive businesses as held for sale.  See Note 2 for additional information.

In certain instances, tooling is customer-owned.  At the time customer-owned tooling is completed and customer acceptance is obtained, the Company records tooling revenue and related production costs within net sales and cost of sales, respectively, in the consolidated statements of operations.If the customer has agreed to reimburse the Company, unbilled customer-owned tooling costs are recorded as a receivable within other current assets.  No significant arrangements exist where customer-owned tooling costs were not accompanied by guaranteed reimbursement.  At March 31, 2021 and 2020, customer-owned tooling receivables totaled $8.1 million and $7.8 million, respectively.  Of the $8.1 million, $5.6 million was included within assets held for sale on the March 31, 2021 consolidated balance sheet.

43
50

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

Shipping and handling costs: 

Stock-based Compensation
The Company records shippingrecognizes stock-based compensation using the fair value method.  Accordingly, compensation expense for stock options, restricted stock and handling costs incurredperformance-based stock awards is calculated based upon the shipmentfair value of products to its OEM customers in costthe instruments at the time of sales,grant, and related amounts billed to these customers in net sales.  The Company records shipping and handling costs incurred uponis recognized as expense over 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.respective vesting periods.  See Note 5 for additional information.


Research and development:Development
The Company expenses research and development costs as incurred within SG&A expenses.  For the years ended March 31, 2016, 2015,During fiscal 2021, 2020, and 2014,2019, research and development costs charged to operations totaled $61.1$46.3 million, $62.0$59.5 million, and $61.7$69.8 million, respectively.


Translation of foreign currencies: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'shareholders’ equity.  The Company includes foreign currency transaction gains or losses in the statement of operations within other income and expense.


Derivative instruments:Instruments
The Company enters into derivative financial instruments from time to time to manage certain financial risks.  The Company enters into futuresforward 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.liabilities as well as forecasted transactions.  The Company designates certain derivative financial instruments as cash flow hedges for accounting purposes.  These instruments are used to manage financial risks and are not speculative.  See Note 1819 for additional information.


Income taxes:  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.  The Company records the tax effects of global intangible low-taxed income (“GILTI”) as a period expense in the applicable tax year.  The Company uses the portfolio approach for releasing income tax effects from accumulated other comprehensive income (loss).  See Note 8 for additional information.


Earnings per share: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.  RestrictedIn prior years, certain restricted stock awardawards provided recipients havewith a non-forfeitable right to receive dividends declared by the Company.  Therefore, theseThese restricted stock awards arehave been included in computing earnings per share pursuant to the two-class method.  See Note 9 for additional information.


Cash and cash equivalents: 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 Company reports the amount of those un-presented checks is includedwithin accounts payable in accounts payable.the consolidated balance sheets.


Short-term investments:  Investments
The Company invests in time deposits with original maturities of more than three months but nonot 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, 20162021 and 2015,2020, the Company’s short-term investments totaled $3.3$3.7 million and $2.8$3.2 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.Inventories

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, 2015, and 2014, the Company recorded a loss on the sale of accounts receivables of $0.3 million in the consolidated statements of operations.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Inventories: The Company values inventories using a first-in, first-out or weighted-average basis, at the lower of cost and net realizable value.


51
Table of Contents

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

Property, plantPlant and equipment:  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 lifelives of the asset.assets.  The Company chargesexpenses 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.  Capital expenditures of $7.9 million, $8.7 million and $17.9 million were accrued at March 31, 2021, 2020 and 2019, respectively.  Of the $7.9 million, $2.7 million was included within liabilities held for sale on the March 31, 2021 consolidated balance sheet.  All of the other accrued capital expenditure amounts are presented within accounts payable.


Goodwill:Leases
The Company’s most significant leases represent leases of real estate, such as manufacturing facilities, warehouses, and office buildings.  The Company also leases certain manufacturing and IT equipment and vehicles.  The Company recognizes right-of-use (“ROU”) assets and lease liabilities at the commencement date, based upon the present value of lease payments over the lease term.  See Note 16 for additional information.

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.2021 and determined the fair value of each of its reporting units exceeded the respective book value.  See Note 14 for additional information.


ImpairmentImpairment of long-lived assets:Held and Used Long-lived Assets
The Company reviews held and used 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.

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 asset for sale at a reasonable price 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.  The Company ceases to record depreciation expense at the time of designation as held for sale.  During fiscal 2021, the Company classified the liquid- and air-cooled automotive businesses as held for sale and recorded impairment charges totaling $166.8 million within the Automotive segment.  See Note 62 for additional information.


Environmental liabilities:Deferred Compensation Trusts
The Company records liabilities for environmental assessmentsmaintains deferred compensation trusts to fund future obligations under its non-qualified deferred compensation plans.  The trusts’ investments in third-party debt and remediation effortsequity securities are presented within other noncurrent assets 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.consolidated balance sheets.


Self-insurance reserves:Reserves
The Company retains a portion of the financial risk for variouscertain 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:Environmental Liabilities
The Company recognizes stock-based compensation usingrecords liabilities for environmental assessments and remediation activities in the fair value method.  Accordingly, compensation expense for stock options, restricted stockperiod in which its responsibility is probable and performance-based stock awardsthe costs can be reasonably estimated.  The Company records environmental indemnification assets from third parties, including prior owners, when recovery is calculated based uponprobable.  To the fair value ofextent that the instruments atrequired remediation procedures change, or additional contamination is identified, the time of grant, and is recognized as expense over the respective vesting periods.Company’s estimated environmental liabilities may also change.  See Note 520 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
52

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


Supplemental Cash Flow Information

 Years ended March 31, 
  2021  2020  2019 
Interest paid $17.9  $21.4  $22.3 
Income taxes paid  19.7   18.8   22.2 

See Note 16 for supplemental cash flow information related to the Company’s leases.

New Accounting Guidance Adopted in Fiscal 2021

Credit Losses
In June 2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the accounting for credit losses for certain financial assets, including trade accounts receivable and contract assets.  The new guidance modifies the credit loss model to measure and recognize credit losses based upon expected losses rather than incurred losses.  The Company adopted this guidance as of April 1, 2020.  The adoption did not have a material impact on the Company’s consolidated balance sheets, statements of operations or statements of cash flows.

New Accounting Guidance Adopted in Fiscal 2020

Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that requires balance sheet recognition for most leases.  The Company adopted this guidance effective April 1, 2019 using a modified-retrospective transition method, under which it elected not to adjust comparative periods.  The Company elected the package of practical expedients permitted under the new guidance, and, as a result, the Company did not reassess the classification of existing leases or initial direct costs thereof, or whether existing contracts contain leases.  In addition, the Company elected accounting policies to not record short-term leases on the balance sheet and to not separate lease and non-lease components.  The Company did not elect the hindsight practical expedient.

Upon adoption of this new guidance on April 1, 2019, the Company recognized right-of-use assets for operating leases totaling $61.3 million and corresponding current and noncurrent operating lease liabilities of $12.4 million and $48.9 million, respectively.  In addition, the Company assessed 2 existing build-to-suit arrangements, for which it had recorded property, plant and equipment and long-term debt on its consolidated balance sheet as of March 31, 2019.  The Company determined these arrangements represent operating leases under the new accounting guidance. As a result, the Company derecognized the previously-recorded balances and recorded $5.2 million of operating lease right-of-use assets and corresponding lease liabilities.  As a result of adopting the new guidance, there was not a significant impact on the Company’s accounting for its previously-recorded capital leases, which are now classified as finance leases under the new guidance.  In addition, there was no impact to retained earnings.  Also, the adoption did not have a material impact on the Company’s consolidated statement of operations or consolidated statement of cash flows.  See Note 16 for additional information regarding the Company’s leases.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued new guidance related to the accounting for certain stranded income tax effects in accumulated other comprehensive income (loss) resulting from tax reform legislation that was enacted in the U.S. in December 2017.  This guidance provided companies the option to reclassify stranded income tax effects to retained earnings.  The Company adopted this guidance as of April 1, 2019 and chose not to reclassify stranded income tax effects; therefore, the adoption of this guidance did not impact the Company’s consolidated financial statements.

New Accounting Guidance Adopted in Fiscal 2019

Revenue Recognition
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 Company adopted this 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 fiscal 2019 using 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, 
  2016  2015  2014 
Interest paid $10.7  $10.3  $12.6 
Income taxes paid  10.1   15.9   11.4 

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 asmodified-retrospective transition method.  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 dateits adoption 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,new guidance, the Company recorded a $9.5an increase of $0.7 million gain within other income to retained earnings as of April 1, 2018, along with related to an insurance settlementbalance sheet reclassifications.  See Note 3 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.information regarding revenue recognition.

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 relationships represent established sales channel and customer relationships. The Company is amortizing these acquired intangible assets over ten years.
46
53

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


Income Taxes: Intra-Entity Transfers of Assets Other than Inventory
In October 2016, the FASB issued new guidance related to income tax accounting for intercompany asset transfers. This new guidance requires companies to recognize the income tax effects of intercompany asset transfers other than inventory at the transaction date. The income tax effects of these transfers were previously deferred. The Company adopted this new guidance for fiscal 2019 using the modified-retrospective transition method.  Upon adoption, the Company recorded a decrease to retained earnings of $8.3 million as of April 1, 2018.

Note 2: Assets Held for Sale

On November 2, 2020, the Company signed a definitive agreement to sell its liquid-cooled automotive business to Dana Incorporated, subject to the receipt of governmental and third-party approvals and satisfaction of other closing conditions. As of March 31, 2021, the Company anticipated the transaction would close during the first quarter of fiscal 2022. However, the Company and the buyer are currently working together through the regulatory approval process. At this time, the Company is not able to estimate the ultimate impact of the regulatory approval process or the closing date for this transaction. The Company does not expect significant net cash proceeds from this transaction based upon the 1 dollar selling price and adjustments for cash, debt, and working capital, as defined within the definitive agreement. The Company evaluated this disposal group and determined that it does not qualify as a discontinued operation for reporting under U.S. GAAP. As part of its discontinued operations assessment, the Company considered anticipated future sales to automotive and light vehicle customers as well as sales to other vehicular customers with similar product offerings and using similar heat-transfer technology within the Heavy Duty Equipment and Automotive segments. In addition, the Company will continue to operate in the same major geographical areas as it does today.

On February 19, 2021, the Company signed a definitive agreement to sell its air-cooled automotive business to Schmid Metall GmbH.  This transaction closed on April 30, 2021.  Based upon its preliminary accounting, the Company expects to record a loss on sale of approximately $6.0 million during the first quarter of fiscal 2022.  The estimated loss on sale includes adjustments for cash, debt, and working capital, as defined within the definitive agreement.  The Company evaluated this transaction in relation to the pending sale of the liquid-cooled automotive business, described above, and concluded each represents a separate disposal group for purposes of assessing discontinued operations.  The Company determined that the air-cooled disposal group did not qualify as a discontinued operation.

The Company reports financial results of operationsboth the liquid- and air-cooled automotive businesses within its Automotive segment.  Once the Company entered into the sale agreements with Board of these acquiredDirector approval, it classified the businesses are includedas held for sale beginning on November 2, 2020 and February 19, 2021, respectively, and ceased depreciating the long-lived assets within the disposal groups.

Upon classification as held for sale, the Company compared each disposal group’s carrying value with its fair value, less costs to sell.  Based upon the selling prices for each transaction, the Company estimated implied losses in excess of the respective carrying value of each disposal group’s long-lived assets.  The disposal groups’ long-lived assets consist entirely of property, plant and equipment and right-of-use lease assets.  As a result, the Company recorded non-cash impairment charges totaling $165.1 million during fiscal 2021 to reduce the net carrying value of the disposal groups’ long-lived assets to 0. The impairment charges related to the liquid- and air-cooled automotive businesses totaled $138.3 million and $26.8 million, respectively. Also during fiscal 2021, the Company recorded an impairment charge of $1.7 million within the Automotive segment related to equipment that will not convey as part of the sale transactions and is not expected to be used within the Company’s other businesses. These charges are reported within the impairment charges line on the consolidated statements of operations since the datesoperations.

54
Table of acquisition. Contents

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

The Company did not present pro forma financial informationclassified the assets and liabilities of the liquid- and air-cooled automotive businesses as held for sale on the effectMarch 31, 2021 consolidated balance sheet.  The major classes of these acquisitionsassets and liabilities held for sale were as follows:

 March 31, 2021 
ASSETS   
Cash and cash equivalents $8.0 
Trade accounts receivables - net  54.4 
Inventories  24.7 
Other current assets  12.8 
Property, plant and equipment - net  164.0 
Other noncurrent assets  8.8 
Impairment of carrying value  (165.1)
Total assets held for sale $107.6 
     
LIABILITIES    
Short-term debt $5.0 
Accounts payable  46.3 
Accrued compensation and employee benefits  15.5 
Other current liabilities  12.2 
Pensions  17.8 
Other noncurrent liabilities  6.5 
Total liabilities held for sale $103.3 

The Company will reassess the liquid-cooled disposal group’s fair value less costs to sell at each reporting period that it is not materialheld for sale until the transaction is completed.  The Company expects to record a loss on sale of approximately $20.0 million to $30.0 million upon transaction completion.  The loss on sale recorded will be impacted by changes in working capital, costs to sell, net actuarial losses in accumulated other comprehensive loss related to the disposal group’s pension plans, and cumulative translation adjustments.  It is possible that the loss on sale recorded could differ materially from the Company’s estimate


Note 3: Revenue Recognition

The Company generates revenue from selling innovative thermal management products and solutions to diversified global markets and customers.  The Company recognizes revenue based upon consideration specified in a contract and as it satisfies performance obligations by transferring control over its products to its resultscustomers, which may be at a point in time or over time.  The majority of operationsthe Company’s revenue is recognized at a point in time, based upon shipment terms.  The Company records an allowance for credit losses and accrues for estimated warranty costs at the time of sale.  These estimates are based upon historical experience, current business trends, and current economic conditions.  The Company accounts for shipping and handling activities as fulfilment costs rather than separate performance obligations, and records shipping and handling costs in cost of sales and related amounts billed to customers in net sales.  The Company establishes payment terms with its customers based upon industry and regional practices, which typically do not exceed 90 days.  As the Company expects to receive payment from its customers within one year from the time of sale, it disregards the effects of the time value of money in its determination of the transaction price.  The Company has not disclosed the value of unsatisfied performance obligations because the revenue associated with customer contracts for which the original expected performance period is greater than one year is immaterial.

The following is a description of the Company’s principal revenue-generating activities:

Building HVAC Systems (“BHVAC”)
The BHVAC segment principally generates revenue from providing a variety of heating, ventilating, and air conditioning products, primarily for commercial buildings and data centers in North America and the U.K., as well as mainland Europe and the Middle East.

Heating products are manufactured in the U.S. and are largely sold to independent distributors, who in turn market the heating products to end customers. Because these products are sold to many different customers without contractual or financial position.practical limitations, the BHVAC segment recognizes revenue at the time control is transferred to the customer, generally the independent distributor, based upon shipping terms, which is generally upon shipment.


55
Table of Contents

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

Ventilation and air conditioning products are highly-specified to a customer’s needs; however, the underlying sales contracts do not provide the Company with an enforceable right to payment for performance completed to date. As a result, the BHVAC segment recognizes revenue for these products at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

Commercial and Industrial Solutions (“CIS”)
The CIS segment principally generates revenue from providing thermal management products, including customized coils and coolers, to the heating, ventilating, air conditioning, and refrigeration (“HVAC&R”) markets in North America, Europe, and Asia. In addition, the segment applies corrosion protection solutions, which are referred to as coatings, to heat-transfer equipment.

For the sale of coils and coolers, individual customer purchase orders generally represent the Company’s contract with its customers. With the exception of a small number of customers, the applicable customer contracts do not provide the Company with an enforceable right to payment for performance completed to date. As a result, the CIS segment recognizes revenue for its sale of coils and coolers primarily at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

For both sales to customers whose contract cancellation terms provide an enforceable right to payment and sales from the coatings businesses, in which the customers control the heat-transfer equipment being enhanced by the coating application, the CIS segment recognizes revenue over time based upon its estimated progress towards satisfaction of the performance obligations. The segment measures progress by evaluating the production status towards completion of ordered products or services not yet shipped to its customers.

Heavy Duty Equipment (“HDE”) and Automotive
The HDE and Automotive segments principally generate revenue from providing engineered heat transfer systems and components for use in on- and off-highway original equipment. These segments provide powertrain and engine cooling products, including, but not limited to, radiators, charge air coolers, condensers, oil coolers, EGR coolers, and fuel coolers, to original equipment manufacturers (“OEMs”) in the commercial vehicle, off-highway and automotive and light vehicle markets in the Americas, Europe, and Asia regions. In addition, the segments design customer-owned tooling for OEMs. The HDE segment also serves Brazil’s commercial vehicle and automotive aftermarkets.

While the segments provide customized production and service parts to customers under multi-year programs, these programs typically do not contain contractually-guaranteed volumes to be purchased by the customer. As a result, individual purchase orders typically represent the quantities ordered by the customer. With the exception of a small number of HDE customers, the terms within the customer agreement, purchase order, or customer-owned tooling contract do not provide the Company with an enforceable right to payment for performance completed to date. As a result, both the HDE and Automotive segments recognize revenue primarily at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

In regard to the HDE customers with contractual cancellation terms that provide an enforceable right to payment for performance completed to date, the Company recognizes revenue over time based upon its estimated progress towards satisfaction of the performance obligations. The HDE segment measures progress by evaluating the production status of ordered products not yet shipped to the customer.

For certain customer programs, the Company agrees to provide annual price reductions based upon contract terms. For these scheduled price reductions, the Company evaluates whether the provisions represent a material right to the customer, and if so, defers associated revenue as a result.

At times, the Company makes up-front incentive payments to certain customers related to future sales under multi-year programs. The Company capitalizes these incentive payments, which it expects to recover through future sales, and amortizes the assets as a reduction to revenue when the related products are sold to customers.

56
Table of Contents

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

Disaggregation of Revenue
The tables below present revenue to external customers for each of the Company’s business segments by primary end market, geographic location, and based upon the timing of revenue recognition:

  Year ended March 31, 2021 
 BHVAC  CIS  HDE  Automotive  
Segment
Total
 
Primary end market:               
Commercial HVAC&R $181.6  $420.6  $0  $0  $602.2 
Data center cooling  58.7   47.3   0   0   106.0 
Industrial cooling  0   55.4   0   0   55.4 
Commercial vehicle  0   0   250.4   14.4   264.8 
Off-highway  0   0   260.7   3.4   264.1 
Automotive and light vehicle  0   0   97.9   357.8   455.7 
Other  0.3   8.7   73.1   22.7   104.8 
Net sales $240.6  $532.0  $682.1  $398.3  $1,853.0 
                     
Geographic location:                    
Americas $144.2  $267.7  $388.2  $51.0  $851.1 
Europe  96.4   219.8   133.2   282.0   731.4 
Asia  0   44.5   160.7   65.3   270.5 
Net sales $240.6  $532.0  $682.1  $398.3  $1,853.0 
                     
Timing of revenue recognition:                    
Products transferred at a point in time $240.6  $486.3  $655.2  $398.3  $1,780.4 
Products transferred over time  0   45.7   26.9   0   72.6 
Net sales $240.6  $532.0  $682.1  $398.3  $1,853.0 

  Year ended March 31, 2020 
 BHVAC  CIS  HDE  Automotive  
Segment
Total
 
Primary end market:               
Commercial HVAC&R $176.6  $463.1  $0  $0  $639.7 
Data center cooling  42.7   107.5   0   0   150.2 
Industrial cooling  0   43.5   0   0   43.5 
Commercial vehicle  0   0   302.1   21.6   323.7 
Off-highway  0   0   240.8   13.1   253.9 
Automotive and light vehicle  0   0   108.4   400.4   508.8 
Other  1.8   9.8   94.6   9.8   116.0 
Net sales $221.1  $623.9  $745.9  $444.9  $2,035.8 
                     
Geographic location:                    
Americas $139.1  $345.9  $484.5  $70.3  $1,039.8 
Europe  82.0   232.6   141.2   321.0   776.8 
Asia  0   45.4   120.2   53.6   219.2 
Net sales $221.1  $623.9  $745.9  $444.9  $2,035.8 
                     
Timing of revenue recognition:                    
Products transferred at a point in time $221.1  $518.2  $715.1  $444.9  $1,899.3 
Products transferred over time  0   105.7   30.8   0   136.5 
Net sales $221.1  $623.9  $745.9  $444.9  $2,035.8 

57
Table of Contents

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

  Year ended March 31, 2019 
 BHVAC  CIS  HDE  Automotive  
Segment
Total
 
Primary end market:               
Commercial HVAC&R $167.7  $506.3  $0  $0  $674.0 
Data center cooling  41.3   145.7   0   0   187.0 
Industrial cooling  0   47.8   0   0   47.8 
Commercial vehicle  0   0   352.6   35.0   387.6 
Off-highway  0   0   298.1   16.0   314.1 
Automotive and light vehicle  0   0   116.7   426.1   542.8 
Other  3.4   7.8   104.9   11.8   127.9 
Net sales $212.4  $707.6  $872.3  $488.9  $2,281.2 
                     
Geographic location:                    
Americas $124.9  $413.6  $543.0  $71.0  $1,152.5 
Europe  87.5   244.8   177.4   369.4   879.1 
Asia  0   49.2   151.9   48.5   249.6 
Net sales $212.4  $707.6  $872.3  $488.9  $2,281.2 
                     
Timing of revenue recognition:                    
Products transferred at a point in time $212.4  $571.1  $829.1  $488.9  $2,101.5 
Products transferred over time  0   136.5   43.2   0   179.7 
Net sales $212.4  $707.6  $872.3  $488.9  $2,281.2 

Contract Balances
Contract assets and contract liabilities from contracts with customers were as follows:

 March 31, 2021  March 31, 2020 
Contract assets $5.7  $21.7 
Contract liabilities  5.6   5.6 

At March 31, 2021, contract assets and contract liabilities exclude amounts classified as held for sale. See Note 2 for additional information.

Contract assets, included within other current assets in the consolidated balance sheets, primarily consist of capitalized costs related to customer-owned tooling contracts, wherein the customer has guaranteed reimbursement, and assets recorded for revenue recognized over time, which represent the Company’s rights to consideration for work completed but not yet billed. The $16.0 million decrease in contract assets during fiscal 2021 primarily resulted from a decrease in contract assets for revenue recognized over time and $7.1 million of contract assets within the liquid- and air-cooled automotive businesses that have been classified as held for sale on the March 31, 2021 consolidated balance sheet.

Contract liabilities, included within other current liabilities in the consolidated balance sheets, consist of payments received in advance of satisfying performance obligations under customer contracts, including contracts for customer-owned tooling. During fiscal 2021, increases related to customer contracts for which payment was received in advance of the Company’s satisfaction of performance obligations was offset by $2.9 million of contract liabilities within the liquid- and air-cooled automotive businesses that have been classified as held for sale on the March 31, 2021 consolidated balance sheet.


Note 4:
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.


58
Table of Contents

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

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, the Company determines 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, restricted cash, short-term investments, trade accounts receivable, accounts payable, and short-term debt approximate fair value due to the short-term nature of these instruments. In addition, the Company assesses the fair value of a disposal group for each reporting period it is held for sale. See Note 2 for additional information regarding assets and liabilities held for sale. The fair value of the Company’s long-term debt is disclosed in Note 17.

The Company holds trading securitiesinvestments in a deferred compensation trusttrusts to fund obligations under Modine’scertain non-qualified deferred compensation plan.plans. The securities’Company records the fair values, which are recorded asvalue of these investments within other noncurrent assets are determined based on quoted prices from active markets and classifiedits consolidated balance sheets. The Company classifies money market investments held by the trusts within Level 2 of the valuation hierarchy. The Company classifies all other investments held by the trusts within Level 1 of the valuation hierarchy.hierarchy, as it uses quoted market prices to determine the investments’ fair value. 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. TheAt March 31, 2021 and 2020, the fair values of the investments and obligations for the Company’s trading securities and deferred compensation obligationsplans each totaled $3.2$2.8 million and $3.0$3.8 million, at March 31, 2016 and 2015, respectively. The $1.0 million decrease in the fair value of the Company’s long-term debt is disclosed in Note 16.investments since March 31, 2020 was primarily due to participant withdrawals during fiscal 2021.


Plan assets related to the Company’s pension plans were classified as follows:


 March 31, 2016  March 31, 2021 
 Level 1  Level 2  Total  Level 1  Level 2  Total 
                  
Money market investments $-  $5.8  $5.8  $0  $2.5  $2.5 
Common stocks  23.7   1.3   25.0 
Corporate bonds  -   8.4   8.4 
Fixed income securities  0   8.9   8.9 
Pooled equity funds  48.7   7.3   56.0   37.3   0   37.3 
Pooled fixed-income funds  26.3   -   26.3 
U.S. government and agency securities  -   18.4   18.4   0   14.5   14.5 
Other  0.4   1.2   1.6   0.1   1.0   1.1 
Total $99.1  $42.4  $141.5 
Fair value excluding investments measured at net asset value  37.4   26.9   64.3 
Investments measured at net asset value          119.0 
Total fair value         $183.3 

 March 31, 2020 
  Level 1  Level 2  Total 
          
Money market investments $0  $2.4  $2.4 
Fixed income securities  0   8.7   8.7 
Pooled equity funds  17.9   0   17.9 
U.S. government and agency securities  0   13.1   13.1 
Other  0.1   0.7   0.8 
Fair value excluding investment measured at net asset value  18.0   24.9   42.9 
Investments measured at net asset value          88.2 
Total fair value         $131.1 
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 $-  $8.1  $8.1 
Common stocks  40.5   2.2   42.7 
Corporate bonds  -   23.5   23.5 
Pooled equity funds  69.0   11.4   80.4 
Pooled fixed-income funds  15.5   -   15.5 
U.S. government and agency securities  -   39.8   39.8 
Other  0.7   6.3   7.0 
Total $125.7  $91.3  $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 onupon 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 fundsfixed income securities 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, 20162021 and 2015,2020, the Company held no0 Level 3 assets within its pension plans.


Assets held
59
Table of Contents

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

As a practical expedient, the Company valued certain investments, including pooled equity, fixed income and a real estate fund, using their net asset value (“NAV”) per unit, and therefore, has not classified these investments within the fair value hierarchy.  The terms and conditions for sale:redemptions vary for the investments valued at NAV.  The real estate and fixed income investment funds may be redeemed quarterly and monthly, respectively, with a 90-day and 60-day notice period, respectively.  Other investments valued at NAV do not have significantly-restrictive redemption frequency or notice period requirements.  The Company valued assets held for sale based on Level 3 market-based valuation inputs.  The carrying valuedoes not intend to sell or otherwise dispose of assets held for sale totaled $8.5 million and $3.2 millionthese investments at March 31, 2016 and 2015, respectively.  See prices different than the NAV per unit.

Note 6 for additional information.5: Stock-Based Compensation


Note 5:Stock-Based Compensation

The Company’s stock-based incentive programs consist of the following: (1) a long-term incentive compensation programplan (“LTIP”) for officers and other executives that consists of restricted stock andawards, stock options, and performance-based stock awards granted for retention and performance, (2) a discretionary equity program for other 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 NominationHuman Capital and Compensation Committee, as applicable, have discretionary authority to set the terms of the awards of stockstock-based awards.  Grants to employees during fiscal 2021 were issued under the Company’s Amended and Restated 20082020 Incentive Compensation Plan (“Plan”).Plan.  In lieu of performance-based stock awards, the Company granted performance cash awards to the LTIP participants in fiscal 2021.  At present, the Company accomplishes the fulfillment of equity-based grants through the issuance of new common shares.  As of March 31, 2016,2021, approximately 3.31.7 million shares authorized under the2020 Incentive Compensation 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$6.3 million $4.0, $6.6 million, and $3.6$7.9 million in fiscal 2016, 2015,2021,2020, and 2014,2019, respectively.


Stock Options:Options
The Company recorded $0.9$0.9 million $0.9, $1.3 million, and $0.8$1.2 million of compensation expense related to stock options in fiscal 2016, 2015,2021,2020, and 2014,2019, respectively.  The fair value of stock options that vested during fiscal 2016, 2015,2021,2020, and 20142019, was $0.9$1.3 million $0.9, $1.2 million, and $0.8$1.2 million, respectively.  As of March 31, 2016,2021, the total compensation expense not yet recognized related to non-vested stock options was $2.0$1.8 million and the weighted-average period in which the remaining expense is expected to be recognized was 2.52.8 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:


  2016 2015 2014
Weighted-average fair value of options $7.11  $10.21  $7.76 
Expected life of awards in years  6.3   6.3   6.3 
Risk-free interest rate  1.9%  2.1%  1.3%
Expected volatility of the Company's stock  66.9%  76.1%  88.7%
Expected dividend yield on the Company's stock  0.0%  0.0%  0.0%
 Years ended March 31, 
  2021  2020  2019 
Fair value of options $3.46  $5.56  $7.81 
Expected life of awards in years  6.1   6.3   6.3 
Risk-free interest rate  0.4%  2.2%  2.8%
Expected volatility of the Company’s stock  54.1%  39.2%  39.7%
Expected dividend yield on the Company’s stock  0.0%  0.0%  0.0%
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 theModine’s common stock on the date of grant.  The risk-free interest rate was based onupon 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 onupon changes in the Company’s historical common stock prices over the same time frameperiod 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 onupon 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
60
Table of 2.5 percent as an estimate of expected forfeitures prior to completing the required service period.Contents


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

A summary of stock option activity for fiscal 20162021 was as follows:


 Shares 
Weighted-average
exercise price
  
Weighted-average
remaining contractual
term (years)
  
Aggregate
intrinsic value
  Shares  
Weighted-average
exercise price
  
Weighted-average
remaining contractual
term (years)
  
Aggregate
intrinsic value
 
Outstanding, beginning  1.5  $11.99         1.4  $12.49       
Granted  0.2   11.39         0.4   6.88       
Exercised  (0.1)  5.82         (0.4)  10.56       
Forfeited or expired  (0.1)  27.33         (0.3)  10.94       
Outstanding, ending  1.5  $10.82   5.3  $3.0   1.1  $11.63   7.1  $3.9 
                                
Exercisable, March 31, 2016  1.1  $10.41   4.3  $3.0 
Exercisable, March 31, 2021
  0.5  $13.80   5.1  $0.9 


The aggregate intrinsic value represents the difference between the closing price of Modine’s common shares on the last trading day of fiscal 20162021 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 valueprice of Modine’s common shares.


Additional information related to stock options exercised during fiscal 2016, 2015, and 2014 wasis as follows:


 Years ended March 31, 
 2016  2015  2014  2021  2020  2019 
Intrinsic value of stock options exercised $0.4  $0.4  $1.1  $1.4  $0.1  $0.7 
Proceeds from stock options exercised $0.5  $0.6  $1.1   4.1   0.1   1.1 


Restricted Stock:Stock
The Company recorded $3.5$4.3 million, $2.8$4.5 million, and $2.2$4.3 million of compensation expense related to restricted stock in fiscal 2016, 2015,2021, 2020, and 2014,2019, respectively.  The fair value of restricted stock awards that vested during fiscal 2016, 2015,2021, 2020, and 20142019 was $3.4$4.5 million, $2.3$4.4 million, and $1.6$4.3 million, respectively.  At March 31, 2016,2021, the Company had $4.7$6.1 million of unrecognized compensation expense related to non-vested restricted stock, which it expects to recognize over a weighted-average period of 2.42.7 years. The Company values restricted stock awards using the closing market valueprice of its common shares on the date of grant.  The restricted stock awards granted annually vest 25 percent annuallyper year 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 20162021 was as follows:


 Shares 
Weighted-
average
price
 Shares  
Weighted-average
price
 
Non-vested balance, beginning  0.7  $10.68   0.5  $14.48 
Granted  0.3   11.18   0.8   7.53 
Vested  (0.4)  10.01   (0.5)  9.64 
Forfeited  (0.1)  13.40 
Non-vested balance, ending  0.6  $11.29   0.7  $10.05 


Restricted Stock – Performance-Based Shares:Shares
The Company recorded $0.5$1.1 million, $0.3$0.8 million, and $0.6$2.4 million of compensation expense related to performance-based stock awards in fiscal 2016, 2015,2021, 2020, and 2014,2019, respectively.  At March 31, 2016,2021, the Company had $1.2$0.5 million of total unrecognized compensation expense related to non-vested performance-based stock awards, which is expected to be recognized over a weighted-average period of 1.7 years.one year.  The Company values performance-based stock awards using the closing market valueprice of its common shares on the date of grant.

49
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

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 ofmetrics for the programs initiatedperformance-based stock awards granted in fiscal 20162020 and fiscal 2015 were2019 are based upon both a target three-year average consolidated cash flow return on averageinvested 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.  ForAs noted above, the program initiatedCompany granted performance cash awards in fiscal 2014,2021 in lieu of performance-based stock awards.  The performance metrics for these cash awards are the performance award was based upon a target three-year average ROACE, three-year average annual revenue growth,same as the metrics for the fiscal 2020 and Asia segment operating income at the end of the three-year performance period.2019 performance-based stock awards.

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  -   -   4.3 
Other restructuring and repositioning expenses  3.8   3.5   1.3 
Total $16.6  $4.7  $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
61

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


Note 6: Restructuring Activities

During fiscal 2021, restructuring actions consisted primarily of targeted headcount reductions and plant consolidation activities.  The targeted headcount reductions were primarily in Europe within the Automotive segment and in the Americas within the HDE segment.  In addition, the Company eliminated the Vice President, CIS and Chief Operating Officer senior executive position and, as a result, recorded $1.3 million of severance-related expenses.  These headcount reductions support the Company’s objective of reducing operational and SG&A cost structures.

Also during fiscal 2021, the Company transferred production from its manufacturing facility in Zhongshan, China to another CIS segment manufacturing facility in China.  As a result of this plant consolidation, the Company recorded $3.7 million of severance expenses during fiscal 2021.  The Company is also in the process of transferring product lines to its CIS manufacturing facility in Mexico.  These plant consolidation activities support the Company’s objective of achieving operational improvements and organizational efficiencies.

During fiscal 2020 and 2019, restructuring actions consisted primarily of targeted headcount reductions and plant consolidation activities.  The headcount reductions were primarily in Europe within the Automotive segment and in the Americas within the HDE segment.  The plant consolidation activities included transferring product lines to the Company’s CIS manufacturing facility in Mexico.

Restructuring and repositioning expenses were as follows:

 Years ended March 31, 
  2021  2020  2019 
Employee severance and related benefits $11.7  $10.2  $8.7 
Other restructuring and repositioning expenses  1.7   2.0   0.9 
Total $13.4  $12.2  $9.6 

Other restructuring and repositioning expenses primarily consist of equipment transfer and plant consolidation costs.

The Company accrues severance in accordance with its written plans, procedures, and relevant statutory requirements.  Changes in accrued severance were as follows:


 Years ended March 31, Years ended March 31, 
 2016 2015 2021  2020 
Beginning balance $9.9  $19.4  $5.0  $10.0 
Additions  12.8   1.2   11.7   10.2 
Payments  (8.5)  (7.3)  (10.5)  (15.1)
Reclassified as held for sale  (2.5)  0 
Effect of exchange rate changes  0.5   (3.4)  0.3   (0.1)
Ending balance $14.7  $9.9  $4.0  $5.0 


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 2014,2021, the Company recorded asset impairment charges totaling $3.2$166.8 million including $2.0 million within its Europe segment, primarily due to a manufacturing facility in Germany thatAutomotive segment.  See Note 2 for additional information.

During fiscal 2020, the Company has closed, and $1.2recorded asset impairment charges totaling $7.5 million within its AmericasAutomotive segment to write down property and equipment assets in Austria and Germany to estimated fair value.

Also during fiscal 2020, the Company recorded a $0.6 million impairment charge to reduce the carrying value of the previously-closed CIS Austrian facility to its estimated fair value, less costs to sell.  During fiscal 2019, the Company recorded asset impairment charges of $0.4 million related to the closurethis closed facility.

62
Table of its McHenry, Illinois manufacturing facility.Contents


During fiscal 2015, the Company sold a wind tunnel within its Europe segment for cash proceeds of $5.8 millionMODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Note 7: Other Income 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.Expense

Note 7:Other Income and Expense


Other income and expense consisted of the following:


  Years ended March 31,
  2016 2015 2014
Equity in earnings of non-consolidated affiliate $0.1  $0.6  $0.7 
Interest income  0.4   0.5   0.5 
Foreign currency transactions (a)  (1.3)  (0.9)  (2.0)
Gain from insurance recovery (b)  9.5   -   - 
Total other income (expense) - net $8.7  $0.2  $(0.8)
 Years ended March 31, 
  2021  2020  2019 
Interest income $0.5  $0.4  $0.4 
Foreign currency transactions (a)  0.6   (2.4)  (2.3)
Net periodic benefit cost (b)  (3.3)  (3.0)  (2.9)
Equity in earnings of non-consolidated affiliate (c)  0   0.2   0.7 
Total other expense - net $(2.2) $(4.8) $(4.1)

(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)
Net periodic benefit cost for the Company’s pension and postretirement plans is exclusive of service cost.
(c)
During fiscal 2016,2020, the Company settled an insurance claim related to machinery and equipment destroyedsold its ownership interest in Nikkei Heat Exchanger Company, Ltd. As a fire at its Airedale facility andresult of the sale, the Company recorded a gain of $9.5 million.$0.1 million, which is included within the fiscal 2020 amount.  See Note 21 for additional information.

51
Note 8: Income Taxes

The U.S. and foreign components of loss or earnings before income taxes and the provision or benefit for income taxes consisted of the following:

 Years ended March 31, 
  2021  2020  2019 
Components of (loss) earnings before income taxes:         
United States $(48.7) $(26.1) $22.4 
Foreign  (70.6)  36.5   58.4 
Total (loss) earnings before income taxes $(119.3) $10.4  $80.8 

Income tax provision (benefit):         
Federal:         
Current $(0.1) $(3.4) $(20.4)
Deferred  58.3   (1.7)  (4.2)
State:            
Current  0.4   (0.1)  0.7 
Deferred  9.2   (2.3)  1.9 
Foreign:            
Current  22.0   14.9   19.0 
Deferred  0.4   5.0   (2.1)
Total income tax provision (benefit) $90.2  $12.4  $(5.1)

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act.  The Tax Act included a new provision designed to tax global intangible low taxed income (“GILTI”) starting in fiscal 2019.  The Company elected to record the tax effects of the GILTI provision as a period expense in the applicable tax year.  To determine whether its net operating loss carryforward deferred tax assets are expected to be realized, the Company considers the applicable tax law ordering.  Based upon this approach, net operating loss carryforwards are deemed to be realizable if they will reduce the expected tax liability when utilized, regardless of whether the 50% GILTI deduction or applicable tax credits may have been available.

63
Table of ContentContents

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 andCompany’s accounting policy is to allocate 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 $(15.4) $31.1  $14.1 
Foreign  5.5   10.1   9.9 
Total (loss) earnings from continuing operations before income taxes $(9.9) $41.2  $24.0 
             
Income tax (benefit) expense:            
Federal:            
Current $0.1  $0.4  $(2.0)
Deferred  (13.0)  7.1   (95.8)
State:            
Current  0.2   -   0.2 
Deferred  (2.5)  1.1   (21.4)
Foreign:            
Current  9.6   12.7   10.0 
Deferred  (3.3)  (2.3)  1.1 
Total income tax (benefit) expense $(8.9) $19.0  $(107.9)

The Company allocates income tax expense among continuing operations, discontinued operations,provision between net earnings and other comprehensive income.  The Company applies its 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),income, it first allocates the income tax expenseprovision to the other sources ofcomprehensive income, and then records a related tax benefit in continuing operations.the income tax provision.


Income tax expense attributable to earnings from continuing operations before income taxes differed fromThe reconciliation between the amounts computed by applying the statutory U.S. federal statutory rate and the Company’s effective tax rate was as follows:

 Years ended March 31, 
  2021  2020  2019 
Statutory federal tax  21.0%  21.0%  21.0%
State taxes, net of federal benefit  0.9   (12.0)  3.6 
Taxes on non-U.S. earnings and losses  (9.1)  32.9   3.9 
Valuation allowances  (92.9)  156.9   4.0 
Tax credits  2.2   (36.7)  (26.1)
Compensation  (1.3)  4.0   (0.1)
Tax rate or law changes  (0.2)  3.6   (12.0)
Uncertain tax positions, net of settlements  0.1   (37.9)  0.4 
Notional interest deductions  1.3   (12.5)  (2.5)
Dividends and taxable foreign inclusions  3.0   (11.0)  1.6 
Other  (0.6)  10.9   (0.1)
Effective tax rate  (75.6%)  119.2%  (6.3%)

During fiscal 2021, the Company’s effective tax rate was largely driven by both significant impairment charges and income tax ratecharges related to valuation allowances.  See Note 2 for information regarding the impairment charges recorded during fiscal 2021.  The income tax benefits associated with these impairment charges totaled $24.4 million and $13.3 million in the U.S. and in certain foreign jurisdictions, respectively, and increased the deferred tax assets in the applicable jurisdictions.  The deferred tax assets, in turn, were evaluated for realizability, as a result of the following:further described below.

  Years ended March 31,
  2016 2015 2014
Statutory federal tax  35.0%  35.0%  35.0%
State taxes, net of federal benefit  11.5   2.4   2.1 
Taxes on non-U.S. earnings and losses  26.4   (4.9)  (3.8)
Valuation allowance  (20.9)  8.3   (471.7)
Tax credits  20.5   (6.1)  (7.1)
Compensation  (3.7)  1.0   0.4 
Tax rate or law changes  1.3   1.2   (9.2)
Uncertain tax positions, net of settlements  (4.3)  2.2   0.4 
Dividend repatriation  16.0   2.4   5.8 
Other  8.1   4.6   (1.5)
Effective tax rate  89.9%  46.1%  (449.6%)


The Company recorded an additionalrecords valuation allowance of $5.0 million, $2.6 million and $12.3 million in fiscal 2016, 2015, and 2014, respectively,allowances against its net deferred tax assets to the extent it determines it is more likely than not that such assets will not be realized in certain jurisdictions after determiningthe future.  Each quarter, the Company evaluates the probability that its deferred tax assets will be realized and determines whether valuation allowances or adjustments thereto are needed.  This determination involves judgement and the use of significant estimates and assumptions, including expectations of future taxable income and tax planning strategies.  In addition, the Company considers the duration of statutory carryforward periods and historical financial results.

Based upon its analyses during fiscal 2021, the Company determined it was more likely than not that the netits deferred tax assets in thesethe U.S. and in certain foreign jurisdictions will not be realized.  Therealized in the future.  As a result, the Company will continuerecorded income tax charges totaling $116.5 million to provide aincrease the valuation allowance against its neton deferred tax assets in eachthe U.S. ($103.3 million) and in certain foreign jurisdictions ($13.2 million).  The majority of the applicable jurisdictions going forward untilU.S. tax charge was recorded in the needthird quarter of fiscal 2021, which established a full valuation on the U.S. deferred tax assets.  The Company’s analyses in the third quarter of fiscal 2021 included consideration of the impairment charges recorded in connection with the pending sale of the liquid-cooled automotive business; see Note 2 for a valuation allowance is eliminated.  The need for a valuation allowance is eliminated whenadditional information.  These impairment charges contributed to the Company determinesentering into a three-year cumulative loss position in the U.S. and in certain foreign jurisdictions as of December 31, 2020.  The Company’s analyses as of December 31, 2020 also considered year-to-date taxable income, which had been negatively impacted by the COVID-19 pandemic and lower sales to data center cooling customers, and future projections of taxable income in the relevant jurisdictions.  After considering both the positive and negative evidence, the Company determined it is more likely than not thethat these 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,Also during fiscal 2021, the Company recorded reversalsa net increase of its deferred tax asset valuation allowance of $3.0allowances totaling $22.0 million and $119.2recorded a $(9.3) million in fiscal 2016 and 2014, respectively.  Also during fiscal 2014, the Company recorded income tax benefits totaling $2.2 million related to foreignbenefit resulting from the allocation of the income tax law changes.provision between net earnings and other comprehensive income, in accordance with the Company’s accounting policy described above.

52
64
Table of ContentContents

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


During fiscal 2020, the Company recorded net income tax charges totaling $2.9 million as a result of legal entity restructuring completed in preparation of a potential sale of the liquid-cooled automotive business and a $1.4 million income tax benefit resulting from the recognition of a tax incentive in Italy.  Also in fiscal 2020, the Company changed its determination of whether it was more likely than not certain deferred tax assets in the U.S. and in a foreign jurisdiction would be realized and, as a result, adjusted the respective valuation allowances and recorded an income tax charge of $8.4 million and an income tax benefit of $1.3 million, respectively.  In addition, the Company recorded a net increase of deferred tax asset valuation allowances totaling $9.2 million and recorded a $4.5 million income tax benefit associated with the reduction in unrecognized tax benefits resulting from a lapse in statutes of limitations and settlements.

During fiscal 2019, the Company recorded income tax benefits totaling $14.5 million as a result of amending previous-year tax returns to recognize foreign tax credits that were expected to be realized based upon future sources of income and recorded a $(2.5) million income tax benefit related to a manufacturing deduction in the United States.  Shortly after the Tax Act was enacted, the SEC issued accounting guidance which provided a one-year measurement period during which a company could complete its accounting for the impacts of the Tax Act.  During fiscal 2019, the Company completed its accounting for the Tax Act, which resulted in an income tax benefit totaling $7.7 million.  The Company utilized its deferred tax attributes against the transition tax and finalized its fiscal 2018 U.S. federal income tax return.  As a result, the Company decreased the provisional charge recorded for the reduction in the U.S. federal corporate tax rate by $9.3 million, since more deferred tax assets were utilized to offset taxable income at a higher fiscal 2018 U.S. federal corporate tax rate.  The Company also decreased the transition tax liability to $18.9 million, a reduction of $0.1 million.  In addition, the Company recorded a charge of $1.7 million for a reduction to state deferred tax assets.  Also in fiscal 2019, the Company changed its determination of whether it was more likely than not certain deferred tax assets of two separate subsidiaries in a foreign jurisdiction would be realized and, as a result, adjusted the respective valuation allowances and recorded an income tax benefit totaling $1.0 million.  In addition, the Company recorded a net increase of deferred tax asset valuation allowances totaling $4.3 million and recorded a $2.2 million income tax benefit associated with the reduction in unrecognized tax benefits resulting from a lapse in statutes of limitations.

The Company has recorded valuation allowances against its net deferred tax assets to the extent it has determined it is more likely than not that such assets will not be realized in the future.  The Company will maintain the valuation allowances in each applicable tax jurisdiction until it determines it is more likely than not the deferred tax assets will be realized, thereby eliminating the need for a valuation allowance.  As further discussed in Note 20, the COVID-19 pandemic has resulted in risks and uncertainties for the Company. Future events or circumstances, such as lower taxable income or unfavorable changes in the financial outlook of the Company’s operations in certain foreign jurisdictions, could necessitate the establishment of further valuation allowances.

65
Table of Contents

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

The tax effects of temporary differences that gave rise to deferred tax assets and liabilities were as follows:


 March 31, March 31, 
 2016 2015 2021  2020 
Deferred tax assets:            
Accounts receivable $0.1  $0.3  $0.3  $0.3 
Inventories  3.6   3.8   4.5   4.5 
Plant and equipment  4.3   0.8   7.5   4.7 
Lease liabilities  14.0   15.7 
Pension and employee benefits  52.6   50.5   24.0   45.1 
Net operating loss, capital loss, and credit carryforwards  109.4   105.0 
Net operating and capital losses  52.7   70.2 
Credit carryforwards  51.8   56.8 
Other, principally accrued liabilities  6.9   6.8   8.9   8.1 
Total gross deferred tax assets  176.9   167.2   163.7   205.4 
Less: valuation allowance  (50.8)  (48.0)
Less: valuation allowances  (90.7)  (46.9)
Net deferred tax assets  126.1   119.2   73.0   158.5 
                
Deferred tax liabilities:                
Plant and equipment  5.5   5.3   9.8   13.1 
Lease assets  13.8   15.6 
Goodwill  0.6   0.6   5.1   4.8 
Intangible assets  25.1   26.4 
Other  1.1   1.0   0.6   1.9 
Total gross deferred tax liabilities  7.2   6.9   54.4   61.8 
Net deferred tax asset $118.9  $112.3 
Net deferred tax assets $18.6  $96.7 


As ofAt March 31, 2016,2021, the net deferred tax assets presented in the table above exclude deferred tax assets and liabilities classified as held for sale.  At March 31, 2021, the Company adopted new accounting guidance, which requires that allrecorded a full valuation allowance for the net deferred taxes be presented as non-current ontax assets of the consolidated balance sheets.held for sale businesses.  See Note 12 for additional information.information regarding the businesses held for sale.


Unrecognized tax benefits were as follows:


 Years ended March 31, Years ended March 31, 
 2016 2015 2021  2020 
Beginning balance $5.6  $2.1  $9.7  $13.8 
Gross increases - tax positions in prior period  -   3.1   0.1   0.3 
Gross decreases - tax positions in prior period  (0.1)  -   (0.6)  (1.0)
Gross increases - tax positions in current period  0.4   0.4   0.9   1.1 
Settlements  0   (2.1)
Lapse of statute of limitations  (0.5)  (2.4)
Ending balance $5.9  $5.6  $9.6  $9.7 


The Company’s liability for unrecognized tax benefits as of March 31, 20162021 was $5.9$9.6 million and, if recognized, $3.5$1.5 million would have an effective tax rate impact.  The Company estimates a $2.4 million decrease in unrecognized tax benefits during fiscal 2022 due to lapses in statutes of limitations and settlements.  If recognized, these reductions would not have a significant impact on the Company’s effective tax rate.


The Company recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.  During fiscal 2021 and 2020, interest and penalties included within income tax expense were not significant. At March 31, 20162021 and 2015,2020, accrued interest and penalties were not significant.totaled $0.6 million and $0.5 million, respectively.


66
Table of Contents

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

The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world.  At March 31, 2016,2021, 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:


AustriaFiscal 2012 - 2015
BrazilCalendar 2011 - 2015
GermanyFiscal 20122015 - 2015Fiscal 2020
ItalyFiscal 2016 - Fiscal 2020
United StatesFiscal 20132017 - 2015Fiscal 2020
53
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)


At March 31, 2016,2021, the Company had federal and state research and development tax credits of $23.3$60.5 million that, if not utilized against domesticU.S. taxes, will expire between fiscal 20182022 and 2036.2041.  The Company also had various state and local tax loss carry forwards of $190.8carryforwards totaling $135.8 million that, if not utilized against state apportioned taxable income, will expire at various times duringbetween fiscal 2017 through 2036.2022 and 2041.  In addition, the Company had tax loss carry forwards of $330.7and foreign attribute carryforwards totaling $211.4 million in various tax jurisdictions throughout the world. Certain of the carry forwardsCarryforwards in the U.S. and many in certain foreign jurisdictions are offset by a valuation allowance.allowances.  If not utilized against taxable income, $156.9$6.8 million of these tax lossescarryforwards will expire at various times duringbetween fiscal 2017 through 2035,2022 and $173.82034, and $204.6 million, mainly related to the U.S, Germany Austria and India,Italy, will not expire due to an unlimited carry-forwardcarryforward period.


At March 31, 2016,The Company’s practice and intention is to reinvest, with certain insignificant exceptions, the earnings of its non-U.S. subsidiaries outside of the U.S., and therefore, the Company provided $1.1 million of tax on undistributed earningshas not recorded foreign withholding taxes or deferred income taxes for certain subsidiaries not considered permanently reinvested.  Undistributed earnings totaling $491.0 million are considered permanently reinvested inthese earnings.  The Company has estimated 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 thenet amount of unrecognized foreign withholding taxestax and deferred tax liabilityliabilities would total approximately $10.0 million if the accumulated foreign earnings were distributed; however, the actual tax cost would be dependent on such earnings.circumstances existing when remittance occurs.



Note 9:
Note 9: Earnings Per Share


The components of basic and diluted earnings per share were as follows:


  Years ended March 31,
  2016 2015 2014
Basic:         
(Loss) earnings from continuing operations $(1.0) $22.2  $131.9 
Less: Net earnings attributable to noncontrolling interest  (0.6)  (1.0)  (1.5)
Less: Undistributed earnings attributable to unvested shares  -   (0.2)  (1.7)
(Loss) earnings from continuing operations available to Modine shareholders  (1.6)  21.0   128.7 
Earnings from discontinued operations, net of income taxes  -   0.6   - 
Net (loss) earnings available to Modine shareholders $(1.6) $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 $(0.03) $0.45  $2.75 
Earnings per share - discontinued operations  -   0.01   - 
Net (loss) earnings per share - basic $(0.03) $0.46  $2.75 
             
Diluted:            
(Loss) earnings from continuing operations $(1.0) $22.2  $131.9 
Less: Net earnings attributable to noncontrolling interest  (0.6)  (1.0)  (1.5)
Less: Undistributed earnings attributable to unvested shares  -   (0.2)  (0.9)
(Loss) earnings from continuing operations available to Modine shareholders  (1.6)  21.0   129.5 
Earnings from discontinued operations, net of income taxes  -   0.6   - 
Net (loss) earnings available to Modine shareholders $(1.6) $21.6  $129.5 
             
Weighted-average shares outstanding - basic  47.3   47.2   46.9 
Effect of dilutive securities  -   0.6   0.7 
Weighted-average shares outstanding - diluted  47.3   47.8   47.6 
             
Diluted Earnings Per Share:            
(Loss) earnings per share - continuing operations $(0.03) $0.44  $2.72 
Earnings per share - discontinued operations  -   0.01   - 
Net (loss) earnings per share - diluted $(0.03) $0.45  $2.72 
 Years ended March 31, 
  2021  2020  2019 
Basic Earnings Per Share:         
Net (loss) earnings attributable to Modine $(210.7) $(2.2) $84.8 
Less: Undistributed earnings attributable to unvested shares  0   0   (0.4)
Net (loss) earnings available to Modine shareholders $(210.7) $(2.2) $84.4 
             
Weighted-average shares outstanding - basic  51.3   50.8   50.5 
             
Net (loss) earnings per share - basic $(4.11) $(0.04) $1.67 
             
Diluted Earnings Per Share:            
Net (loss) earnings attributable to Modine $(210.7) $(2.2) $84.8 
Less: Undistributed earnings attributable to unvested shares  0   0   (0.2)
Net (loss) earnings available to Modine shareholders $(210.7) $(2.2) $84.6 
             
Weighted-average shares outstanding - basic  51.3   50.8   50.5 
Effect of dilutive securities  0   0   0.8 
Weighted-average shares outstanding - diluted  51.3   50.8   51.3 
             
Net (loss) earnings per share - diluted $(4.11) $(0.04) $1.65 


For the years ended March 31, 2016, 2015,fiscal 2021, 2020 and 2014,2019, the calculation of diluted earnings per share excluded 0.81.0 million, 0.61.1 million, and 0.80.4 million stock options, respectively, because they were anti-dilutive. For fiscal 2021, 2020 and 2019, the year ended March 31, 2016,calculation of diluted earnings per share excluded 0.4 million, 0.5 million, and 0.3 million restricted stock awards, respectively, because they were anti-dilutive. For fiscal 2021 and 2020, the total number of potential dilutivepotentially-dilutive securities was 0.4 million.0.2 million and 0.3 million, respectively.  However, these securities were not included in the computation of diluted net loss per share since to do so would decreasehave decreased the loss per share.

54
67
Table of ContentContents

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note10:Inventories


Note 10: Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash consisted of the following:

 March 31, 
  2021  2020 
Cash and cash equivalents $37.8  $70.9 
Restricted cash  0.1   0.4 
Cash and restricted cash held for sale  8.2   0 
Total cash, cash equivalents, restricted cash and cash held for sale $46.1  $71.3 

Restricted cash, which is reported within other current assets and other noncurrent assets in the consolidated balance sheets, consists primarily of deposits for contractual guarantees or commitments required for rents, import and export duties, and commercial agreements.


Note 11: Inventories

Inventories consisted of the following:


 March 31, March 31, 
 2016 2015 2021  2020 
Raw materials and work in process $79.5  $80.7 
Raw materials $117.1  $123.6 
Work in process  38.5   34.6 
Finished goods  31.5   27.0   40.0   49.2 
Total inventories $111.0  $107.7  $195.6  $207.4 


At March 31, 2021, inventories excluded amounts classified as held for sale.  See Note 2 for additional information.


Note11:
Note 12: Property, Plant and Equipment


Property, plant and equipment, including depreciable lives, consisted of the following:


 March 31, March 31, 
 2016 2015 2021  2020 
Land $7.2  $8.2  $16.4  $19.7 
Buildings and improvements (10-40 years)  221.3   221.0 
Machinery and equipment (3-12 years)  694.3   652.0 
Office equipment (3-10 years)  84.1   81.9 
Buildings and improvements (10-40 years)
  203.5   276.7 
Machinery and equipment (3-15 years)
  623.2   870.3 
Office equipment (3-10 years)
  81.3   95.2 
Construction in progress  36.7   31.7   19.0   40.5 
  1,043.6   994.8   943.4   1,302.4 
Less: accumulated depreciation  (705.0)  (672.7)  (673.5)  (854.4)
Net property, plant and equipment $338.6  $322.1  $269.9  $448.0 


At March 31, 2021, property, plant and equipment excluded amounts classified as held for sale.  In addition, upon classifying the liquid- and air-cooled automotive businesses as held for sale, the Company ceased depreciating the property, plant and equipment within the disposal groups.  See Note 2 for additional information.

Depreciation expense totaled $48.6$60.1 million, $50.0$68.2 million, and $57.3$67.9 million for the years ended March 31, 2016, 2015,fiscal 2021, 2020, and 2014,2019, respectively. Gains and losses related to the disposal of property, plant and equipment are recorded inwithin SG&A expenses.  TotalFor fiscal 2021, 2020, and 2019, 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 $0.1totaled $0.7 million, $0.6 million, and $0.7$0.9 million, respectively.

55
68
Table of ContentContents

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


Note13:
Note 13: Intangible Assets


Intangible assets consisted of the following:


 March 31, 2016  March 31, 2015  March 31, 2021  March 31, 2020 
 
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
 
Customer relationships $62.8  $(16.9) $45.9  $60.8  $(12.6) $48.2 
Trade names $8.9  $(6.3) $2.6  $9.1  $(5.8) $3.3   51.5   (11.4)  40.1   58.3   (16.2)  42.1 
Acquired technology  5.5   (1.5)  4.0   5.6   (0.9)  4.7   23.9   (9.3)  14.6   23.6   (7.6)  16.0 
Customer relationships  2.0   (0.4)  1.6   2.1   (0.2)  1.9 
Total intangible assets $16.4  $(8.2) $8.2  $16.8  $(6.9) $9.9  $138.2  $(37.6) $100.6  $142.7  $(36.4) $106.3 


The Company recorded $1.6$8.5 million, $1.6$8.9 million, and $0.8$9.0 million of amortization expense during fiscal 2016, 20152021, 2020, and 2014,2019, respectively.  Estimated futureThe Company estimates that it will record $8.4 million of amortization expense is as follows:in fiscal 2022 and approximately $8.0 million of annual amortization expense in fiscal 2023 through 2026.

Fiscal Year 
Estimated
Amortization
Expense
 
2017 $1.6 
2018  1.6 
2019  1.5 
2020  1.3 
2021  0.8 
2022 & Beyond  1.4 


Note 14:Goodwill


Note 14: Goodwill

Changes in the carrying amount of goodwill, by segment and in the aggregate, were as follows:


 Americas Asia 
Building
HVAC
 Total BHVAC  CIS  Automotive  Total 
Balance, March 31, 2014 $10.9  $0.5  $17.3  $28.7 
Balance, March 31, 2019 $14.1  $153.9  $0.5  $168.5 
Impairment charge  (7.8)  -   -   (7.8)  0   0   (0.5)  (0.5)
Effect of exchange rate changes  (3.1)  -   (1.6)  (4.7)  (0.6)  (1.3)  0   (1.9)
Balance, March 31, 2015  -   0.5   15.7   16.2 
Balance, March 31, 2020  13.5   152.6   0   166.1 
Effect of exchange rate changes  -   -   (0.4)  (0.4)  1.3   3.3   0   4.6 
Balance, March 31, 2016 $-  $0.5  $15.3  $15.8 
Balance, March 31, 2021 $14.8  $155.9  $0  $170.7 


The Company assessestests goodwill for impairment annually, as of March 31, 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.  To test goodwill for impairment, the Company determines the fair value of each reporting unit based upon the present value of estimated future cash flows and compares the fair value of each reporting unit with its carrying value.  The Company conductedCompany’s determination of fair value involves judgment and the use of significant estimates and assumptions, including assumptions regarding the revenue growth rates and operating profit margins used to calculate estimated future cash flows, risk-adjusted discount rates, business trends and market conditions.

As a result of its annual assessment for goodwill impairment duringtests performed as of March 31, 2021, the fourth quarter of fiscal 2016 by applying a fair value-based test andCompany determined that the fair value of itseach of the reporting units within its BHVAC and CIS segments exceeded their respective book values.

In fiscal 2015,2020, the Company determined that the goodwill recorded within its Automotive segment was fully impaired and recorded a $7.8$0.5 million goodwill impairment charge within the Americas segment in connection with its annual assessment.  The impairment charge was primarily caused byas a decline in the financial outlook for Brazil.result.


At both March 31, 20162021 and 2015,2020, accumulated goodwill impairment losses totaled $31.6 million and $8.7and $9.2 million, within the AmericasHDE and EuropeAutomotive segments, respectively.


Note 15:Product Warranties, Operating Leases, and Other Commitments
69

Table of Contents

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

Note 15: Product warranties: MostWarranties and Other Commitments

Product Warranties
Many 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 Companyand adjusts its warranty accruals if it becomes probable that expected claims will differ from initialprevious 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, Years ended March 31, 
 2016 2015 2021  2020 
Beginning balance $10.4  $14.0  $7.9  $9.2 
Warranties recorded at time of sale  5.7   5.8   5.5   5.3 
Adjustments to pre-existing warranties  (1.1)  1.5   (0.9)  (1.6)
Settlements  (6.7)  (9.2)  (5.6)  (4.8)
Reclassified as held for sale  (2.0)  0 
Effect of exchange rate changes  -   (1.7)  0.3   (0.2)
Ending balance $8.3  $10.4  $5.2  $7.9 


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.Indemnification Agreements

Future minimum rental commitments at March 31, 2016 under non-cancelable operating leases were as follows:

Fiscal Year   
2017 $8.1 
2018  5.6 
2019  4.8 
2020  4.6 
2021  4.1 
2022 and beyond  26.3 
Total $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 is2021 was not material.


Commitments: Commitments
At March 31, 2016,2021, the Company had capital expenditure commitments of $20.5 million.$10.0 million, excluding commitments of the held for sale liquid- and air-cooled automotive businesses. Significant commitments include tooling and equipment expenditures for new and renewal programs with customers in the Americas and Europe segments.vehicular customers. 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
Note 16: Leases

Effective April 1, 2019, the Company adopted new lease accounting guidance; see Note 1 for additional information.

The Company determines if an arrangement is a lease at contract inception. The lease term begins upon lease commencement, which is when the Company takes possession of the asset, and may include options to extend or terminate the lease when it is reasonably certain that such options will be exercised.  The Company uses the lease term within its determination of the appropriate lease classification, either as an operating lease or as a finance lease, and to calculate straight-line lease expense for its operating leases.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company recognizes ROU assets and lease liabilities at the lease commencement date, based upon the present value of lease payments over the lease term.  As its lease agreements typically do not provide an implicit interest rate, the Company primarily uses an incremental borrowing rate to calculate the ROU asset and lease liability. In determining the incremental borrowing rate, the Company considers its current collateralized borrowing rate, the term of the lease, and the economic environment where the lease activity is concentrated. The Company believes this method effectively estimates a borrowing rate that it could obtain for a debt instrument with similar terms as the lease agreement.

70
Table of ContentContents

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

Based upon its accounting policy, the Company does not separate lease and non-lease components for any asset class. In addition, the Company does not record short-term leases (i.e. leases with an initial term of 12 months or less) on its consolidated balance sheets.

Certain leases require the Company to pay taxes, insurance, maintenance, and other operating expenses associated with the leased asset. Such amounts are not included in the measurement of the lease liability to the extent they are variable in nature. These variable lease costs are recognized as variable lease expense when incurred. The depreciable life of the ROU assets and related leasehold improvements are limited by the expected lease term, unless the lease contains a provision to transfer title to the Company or a purchase option that the Company expects to execute.

The Company’s most significant leases represent leases of real estate, such as manufacturing facilities, warehouses, and offices. In addition, the Company leases manufacturing and IT equipment and vehicles.  The Company’s most significant leases have remaining lease terms of 1 to 13 years. Certain leases contain renewal options for varying periods, which are at the Company’s discretion. If reasonably certain of exercise, the Company includes the renewal periods within the calculation of ROU assets and lease liabilities.  The Company’s lease agreements do not contain material residual value guarantees or material restrictive covenants.

Lease Assets and Liabilities
The following table provides a summary of leases recorded on the consolidated balance sheets. The March 31, 2021 amounts exclude operating lease ROU assets and liabilities, which each totaled $6.1 million, that are classified as held for sale on the Company’s consolidated balance sheet; see Note 2 for additional information.

-Balance Sheet Location-March 31, 2021 March 31, 2020
Lease Assets        
Operating lease ROU assets 
Other noncurrent assets
 $54.1 $61.4
Finance lease ROU assets (a) 
Property, plant and equipment - net
  8.3  8.5
         
Lease Liabilities        
Operating lease liabilities 
Other current liabilities
 $11.2 $10.9
Operating lease liabilities 
Other noncurrent liabilities
  44.8  50.3
Finance lease liabilities 
Long-term debt - current portion
  0.4  0.4
Finance lease liabilities 
Long-term debt
  3.2  3.3

Note 16:(a)IndebtednessFinance lease ROU assets were recorded net of accumulated amortization of $2.4 million and $1.8 million as of March 31, 2021 and 2020, respectively.


Components of Lease Expense
The Company records operating lease expense as either cost of sales or SG&A expenses within its consolidated statements of operations, depending upon the nature and use of the ROU assets.  The Company records finance lease expense as depreciation expense within cost of sales or SG&A expenses, depending upon the nature and use of the ROU assets, and as interest expense in its consolidated statements of operations.

The components of lease expense were as follows:

 Years ended March 31, 
  2021  2020 
Operating lease expense (a) $19.5  $21.2 
Finance lease expense:        
Depreciation of ROU assets  0.5   0.5 
Interest on lease liabilities  0.2   0.2 
Total lease expense $20.2  $21.9 

(a)In fiscal 2021 and 2020, operating lease expense included short-term lease expense of $3.5 million and $4.1 million, respectively. Variable lease expense was not significant.

71
Table of Contents

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

Supplemental Cash Flow Information

 Years ended March 31, 
  2021  2020 
Cash paid for amounts included in the measurement of lease liabilities:      
Operating cash flows for operating leases $14.2  $14.7 
Financing cash flows for finance leases  0.6   0.5 
         
ROU assets obtained in exchange for lease liabilities        
Operating leases $9.8  $9.0 
Finance leases  0.1   0.2 

Lease Term and Discount Rates

 March 31, 2021  March 31, 2020 
Weighted-average remaining lease term:      
Operating leases 6.9 years  9.3 years 
Finance leases 7.8 years  8.8 years 
       
Weighted-average discount rate:      
Operating leases  3.3%  3.5%
Finance leases  4.7%  4.7%

Maturity of Lease Liabilities
Future minimum rental payments for leases with initial non-cancellable lease terms in excess of one year were as follows at March 31, 2021:

Fiscal Year Operating Leases  Finance Leases 
2022 $12.8  $0.6 
2023  10.9   0.6 
2024  8.1   0.6 
2025  6.7   0.6 
2026  6.1   0.5 
2027 and beyond
  18.5   1.4 
Total lease payments  63.1   4.3 
Less: Interest  (7.1)  (0.7)
Present value of lease liabilities $56.0  $3.6 

The future minimum rental payments summarized above exclude payments for lease liabilities held for sale.
72
Table of Contents

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

Note 17: Indebtedness


Long-term debt was comprisedconsisted of the following:


  
Fiscal year
of maturity
  March 31, 2016 March 31, 2015
          
Foreign credit agreements  2018-2020  $0.4  $0.2 
6.8% Senior Notes  2017-2021   125.0   125.0 
Revolving credit facility  2019   -   - 
       125.4   125.2 
Other (a)  2017-2030   8.6   4.9 
       134.0   130.1 
Less: current portion      (8.5)  (0.5)
Total long-term debt     $125.5  $129.6 
io_Fiscal year of maturity 
_
March 31, 2021
 March 31, 2020
         
Term loans 
_2025_
 $$178.9 $$189.4
Revolving credit facility 2025  4.8  127.2
5.9% Senior Notes
 2029  100.0  100.0
5.8% Senior Notes
 2027  50.0  50.0
Other (a)    3.6  6.0
     337.3  472.6
Less: current portion    (21.9)  (15.6)
Less: unamortized debt issuance costs    (4.2)  (5.0)
Total long-term debt   $$311.2 $$452.0

(a)
Other long-term debt primarily includes capitalfinance lease obligations and other financing-type obligations.borrowings by foreign subsidiaries.


Long-term debt matures as follows:

Fiscal Year   
2022 $21.9 
2023  21.9 
2024  21.9 
2025  153.2 
2026  33.8 
2027 and beyond
  84.6 
Total $337.3 

The Company maintains a $175.0credit agreement with a syndicate of banks that provides for a multi-currency $250.0 million domestic revolving credit facility which expiresexpiring in August 2018.June 2024. In addition, this credit agreement provides for both U.S. dollar- and euro-denominated term loan facilities, with repayments continuing into fiscal 2025, and shorter-duration swingline loans. Borrowings under the revolving credit, agreementswingline and term loan facilities bear interest at a variable rate, based onupon the London Interbank Offered Rate (“LIBOR”) plus 125 to 225 basis points (1.8 percent at March 31, 2016) dependingapplicable reference rate and including a margin percentage dependent upon the Company’s leverage ratio, as defineddescribed below. At March 31, 20162021, the weighted-average interest rates for these variable-rate borrowings was 2.5 percent. Based upon the terms of the credit agreement, the Company classifies borrowings under its revolving credit and 2015, noswingline facilities as long-term and short-term debt, respectively, on its consolidated balance sheets.

At March 31, 2021, the Company’s borrowings were outstandingunder its revolving credit and swingline facilities totaled $4.8 million and $1.4 million, respectively, and domestic letters of credit totaled $5.7 million. As a result, available borrowing capacity under the Company’s revolving credit facility.facility was $238.1 million as of March 31, 2021.


The Company also maintains credit agreements for its foreign subsidiaries, withsubsidiaries. The $5.0 million of outstanding short-term borrowings related to these foreign credit agreements at March 31, 2021 were classified as held for sale; see Note 2 for additional information on businesses held for sale. The 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 credit2020 totaled $32.0$14.8 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,agreement, 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 debtcredit agreements in the U.S., the Company has provided liens on substantially all domestic assets.  TheAlso, as specified in the credit agreement, the term loans may require prepayments in the event of certain asset sales. In addition, at the time of each incremental borrowing under the revolving credit facility, the Company is also subjectrequired to arepresent to the lenders that there has been no material adverse effect, as defined in the credit agreement, on its business, property, or results of operations.

73
Table of Contents

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

In May 2020 and in response to risks and uncertainties introduced by the COVID-19 pandemic, the Company executed amendments to its primary credit agreements in the U.S. to provide additional financial covenant flexibility.  The amendments temporarily raised the leverage ratio covenant whichlimit during fiscal 2021 and 2022.  In May 2021, based upon its outlook for fiscal 2022, the Company determined that such financial covenant flexibility was no longer necessary and amended the primary agreements.  The May 2021 amendments reinstated the 3.25 to 1 leverage ratio covenant limit.

The leverage ratio covenant requires the Company to limit the ratio of its consolidated indebtedness, less a portion of the Company’sits cash balance, both as defined by the credit agreement,agreements, to no more than three and one-quarter timesits consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”), and. The leverage ratio covenant limit for the fourth quarter of fiscal 2021 was 5.75 to 1. The Company is also subject to an interest expense coverage ratio covenant, which requires the Company to maintain Adjusted EBITDA of at least three times consolidated interest expense.  TheAs of March 31, 2021, the Company was in compliance with its debt covenants as of March 31, 2016.; its leverage ratio and interest coverage ratio were 1.9 and 9.3, respectively.

Long-term debt matures as follows:

Fiscal Year   
2017 $8.5 
2018  16.5 
2019  16.5 
2020  16.6 
2021  69.4 
2022 & beyond  6.5 
Total $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.  AtAs of March 31, 20162021 and 2015,2020, the carrying value of Modine’sthe Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had aan aggregate fair value of approximately $139.0$146.0 million and $141.0$131.3 million, respectively.  The fair value of the Senior NotesCompany’s long-term debt 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
Table of Content
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Note 17:
Note 18: Pension and Employee Benefit Plans


Defined Contribution Employee Benefit Plans:

Plans
The Company maintains a domestic 401(k) plansplan that allowallows employees to contribute a portion of their salary to help them save for retirement.  The Company matched 50 percent ofcurrently matches employee contributions up to 54.5 percent of their compensation. During fiscal 2021, as part of its response to the negative impacts of the COVID-19 pandemic, the Company suspended matching employee compensation, during fiscal 2016, 2015, and 2014.  The Company also makes annual employer contributions into active employee accounts based upon a percentagefor part 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 year. The Company’s expense for defined contribution employee benefit plans during fiscal 2016, 2015,2021, 2020, and 20142019 was $4.6$3.0 million, $5.9$6.6 million, and $8.3$6.4 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 planplans 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:

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.laws.


Defined Benefit Employee Benefit Plans:Pension Plans

Pension plans:The Company maintains non-contributory defined benefit pension plans that cover eligible domestic employees.  These plans are closed to new participants.  The primary domestic plans cover most of its domestic employees hired on or before December 31, 2003.  The2003 and provide benefits provided are based primarily onupon years of service and average compensation for salaried and some hourly employees.  Benefits for other hourly employees are based onupon 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, Austria, and AustriaItaly and are closed to new participants. Liabilities associated with pension plans maintained in Austria and Germany have been classified as liabilities held for sale on the March 31, 2021 consolidated balance sheet since the pension plans will convey to the buyers of the Company’s liquid- and air-cooled automotive businesses.  The held for sale pension liabilities totaled $17.8 million as of March 31, 2021.  See Note 2 for additional information.


The Company contributed $6.7$19.3 million, $5.9$3.5 million, and $8.0 million to its U.S. pension plans during fiscal 2016, 2015,2021, 2020, and 2014,2019, respectively.  In addition, the Company contributed $2.2 million, $2.3 million, and $5.9 million to its non-U.S. pension plans during fiscal 2021, 2020, and 2019, 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
74
Table 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.  Contents

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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.millions, except per share amounts)


Postretirement plans: 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 duringin each of fiscal 2016, 2015,2021, 2020, and 20142019 was $0.3 million, $0.1 million, and $1.0 million, respectively.million.


Measurement Date:  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 global pension plans, for the fiscal years ended March 31, 2016 and 2015 were as follows:


 Years ended March 31, 
 2016 2015 2021  2020 
Change in benefit obligation:            
Benefit obligation at beginning of year $328.2  $295.7  $264.7  $258.8 
Service cost  0.6   0.5   0.4   0.4 
Interest cost  11.2   13.0   7.9   9.1 
Actuarial (gain) loss  (2.8)  40.6 
Benefits paid (a)  (78.1)  (14.6)
Actuarial loss  2.7   15.5 
Benefits paid  (17.1)  (18.2)
Curtailment gains (a)  (0.1)  (0.3)
Effect of exchange rate changes  1.9   (7.0)  2.1   (0.6)
Benefit obligation at end of year $261.0  $328.2  $260.6  $264.7 
                
Change in plan assets:                
Fair value of plan assets at beginning of year $217.0  $213.7  $131.1  $155.1 
Actual return on plan assets  (5.3)  10.8   47.8   (11.6)
Benefits paid (a)  (78.1)  (14.6)
Benefits paid  (17.1)  (18.2)
Employer contributions  7.9   7.1   21.5   5.8 
Fair value of plan assets at end of year $141.5  $217.0  $183.3  $131.1 
Funded status at end of year $(119.5) $(111.2) $(77.3) $(133.6)
                
Amounts recognized in the consolidated balance sheets:                
Current liability $(0.9) $(0.8) $(0.9) $(2.7)
Noncurrent liability  (118.6)  (110.4)  (58.6)  (130.9)
Liabilities held for sale  (17.8)  0 
 $(119.5) $(111.2) $(77.3) $(133.6)
(a)InThe curtailment gains in fiscal 2016, $65.3 million was paid from plan assets2021 and 2020 are associated with headcount reductions in connection with lump-sum payouts.Europe within the Automotive segment.  The Company recognizes curtailment gains as a component of net periodic benefit cost in the period headcount reductions occur.  See Note 6 for additional information on the Company’s restructuring activities.


As of March 31, 2021, 2020, and 2019, the benefit obligation associated with the Company’s non-U.S. pension plans totaled $36.4 million, $35.7 million, and $36.5 million respectively. The $0.7 million increase in the benefit obligation associated with non-U.S. pension plans as of March 31, 2021, compared with the prior year, was primarily due to a $2.2 million impact of foreign currency exchange rate changes and service and interest cost totaling $0.7 million, partially offset by employer contributions of $2.2 million for benefits paid to plan participants during the year. In fiscal 2020, the $0.8 million decrease primarily resulted from employer contributions of $2.2 million for benefits paid to plan participants during the year, partially offset by service and interest cost totaling $0.9 million.

The accumulated benefit obligation for pension plans was $257.9$258.9 million and $325.5$263.1 million as of March 31, 20162021 and 2015,2020, respectively.  The net actuarial loss related to the pension plans recognized in accumulated other comprehensive loss was $162.0$151.1 million and $192.3$191.5 million as of March 31, 20162021 and 2015,2020, 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 $0.6  $0.5  $0.6 
Interest cost  11.2   13.0   13.0 
Expected return on plan assets  (14.9)  (16.7)  (15.7)
Amortization of net actuarial loss  6.4   5.5   6.3 
Settlements (a)  42.1   -   - 
Net periodic benefit cost $45.4  $2.3  $4.2 
             
Other changes in benefit obligation recognized in other comprehensive loss (income):            
Net actuarial loss (gain) $17.5  $46.4  $(17.3)
Amortization of net actuarial loss (a)  (48.5)  (5.5)  (6.3)
Total recognized in other comprehensive (income) loss $(31.0) $40.9  $(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
75
Table of ContentContents

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


Costs for the Company’s global pension plans included the following components:

 Years ended March 31, 
  2021  2020  2019 
Components of net periodic benefit cost:         
Service cost $0.4  $0.4  $0.5 
Interest cost  7.9   9.1   9.6 
Expected return on plan assets  (11.5)  (12.0)  (12.3)
Amortization of net actuarial loss  6.9   6.0   5.6 
Settlements (a)  0.2   0.2   0.2 
Net periodic benefit cost $3.9  $3.7  $3.6 
             
Other changes in benefit obligation recognized in other comprehensive income (loss):            
Net actuarial gain (loss) $33.8  $(38.7) $(7.7)
Amortization of net actuarial loss  7.1   6.2   5.8 
Total recognized in other comprehensive income (loss) $40.9  $(32.5) $(1.9)
(a)The settlement charges resulted from activity associated with the Company’s non-U.S. pension plans.

The Company amortized $7.1 million, $6.2 million, and $5.6 million of net actuarial loss in fiscal 2021, 2020, and 2019, respectively.  In each of these years, less than $1.0 million of the amortization was attributable to the Company’s non-U.S. pension plans.  The Company estimates $5.6$6.6 million of net actuarial loss for its pension plans will be amortized from accumulated other comprehensive loss into net periodic benefit cost during fiscal 2017.2022.  The fiscal 2022 estimated amortization includes less than $1.0 million related to the Company’s non-U.S. pension plans. In addition, the Company expects to recognize approximately $7.0 million of net actuarial losses in fiscal 2022 as part of the anticipated losses to be recorded upon sale of the liquid- and air-cooled automotive businesses.


The Company used a discount rate of 4.1%3.2% and 4.0%3.4% as of March 31, 20162021 and 2015,2020, respectively, infor determining its benefit obligations under its U.S. pension plans. The Company used a weighted-average discount rate of 1.8% and 1.3%1.0% as of both March 31, 20162021 and 2015,2020, respectively, infor determining its benefit obligations under its non-U.S. pension plans.  The Company used a discount rate of 4.3%3.4%, 4.7%4.0%, and 4.4%4.0% to determine its costs under its U.S. pension plans for the fiscal years ended March 31, 2016, 2015,2021, 2020, and 2014,2019, respectively.  The Company used a weighted-average discount rate of 1.3%1.4%, 3.0%1.7%, and 3.5%1.9% to determine its costs under its non-U.S. pension plans for the fiscal years ended March 31, 2016, 2015,2021, 2020, and 2014,2019, 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 Company’s U.S. defined benefitpension 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, 20162021 and 20152020 were as follows:


 Target allocation Plan assets March 31, 2021  
March 31, 2020
 
    2016 2015 Target allocation  Plan assets  Target allocation  Plan assets 
Equity securities  55%  56%  55%  76%  73%  65%  60%
Debt securities  38%  36%  36%  18%  17%  21%  22%
Alternative assets  5%  4%  5%
Cash  2%  4%  4%
Real estate investments  5%  9%  13%  16%
Cash and cash equivalents  1%  1%  1%  2%
  100%  100%  100%  100%  100%  100%  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, 20162021 and 2015,2020, the Company’s pension plans did not directly own shares of Modine common stock.


76
Table of Contents

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

The Company employs a total return investment approach, whereby a mix of equities and fixed-income investments are used to maximize the long-term returngrowth of plan assets,principal, 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, 2015,2021, 2020, and 20142019 U.S. pension plan expense, the expected rate of return on plan assets was 8.07.5 percent.  For fiscal 20172022 U.S. pension plan expense, the Company has assumed a rate of return on plan assets of 8.07.5 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 $8.1contribute approximately $13.0 million to theseits U.S. plans during fiscal 2017.2022.


Estimated pension benefit payments, excluding payments for pension liabilities held for sale, for the next ten fiscal years are as follows:


Fiscal Year 
Estimated Pension
Benefit Payments
 
2017 $14.5 
2018  15.2 
2019  15.3 
2020  15.8 
2021  16.1 
2022-2026  79.3 
Fiscal Year 
Estimated Pension
Benefit Payments
 
2022 $15.2 
2023  15.5 
2024  15.6 
2025  15.6 
2026  15.5 
2027-2031
  74.6 

61
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Note 18:
Note 19:  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:Derivatives
The Company periodically enters into futuresover-the-counter forward 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 notdesignates certain commodity forward contracts as cash flow hedges for accounting purposes.  Accordingly, for these designated commodity contracts entered into in fiscal 2014, 2015, and 2016 for hedge accounting.  Accordingly,hedges, the Company records unrealized gains and losses on theserelated to the change in the fair value of the contracts are recordedin accumulated other comprehensive income (loss) (“AOCI”) within shareholders’ equity and subsequently recognizes the gains and losses within cost of sales.sales as the underlying inventory is sold.


Foreign exchange contracts: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 exchangeforward contracts to hedge specific foreign currency-denominated assets and liabilities.liabilities as well as forecasted transactions.  The Company designates certain hedges of forecasted transactions as cash flow hedges for accounting purposes.  Accordingly, for these designated hedges, the Company records unrealized gains and losses related to the change in the fair value of the contracts in AOCI within shareholders’ equity and subsequently recognizes the gains and losses as a component of earnings at the same time and in the same financial statement line that the underlying transactions impact earnings.  The Company has not designated forward contracts related to foreign currency-denominated assets and liabilities as hedges.  Accordingly, for these non-designated contracts, for hedge accounting.  Accordingly,the Company records 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.


77
Table of Contents

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

The fair value of the Company’s derivative financial instruments recorded in the consolidated balance sheets were as follows:


_Balance Sheet Location March 31, 2021  March 31, 2020 
Derivatives designated as hedges:       
Commodity derivativesOther current assets $0.5  $0 
Commodity derivativesOther current liabilities  0   1.3 
Foreign exchange contractsOther current assets  0.1   0.1 
Balance Sheet Location March 31, 2016  March 31, 2015          
Derivatives not designated as hedges:         
Foreign exchange contractsOther current assets $0.1  $- Other current liabilities $0  $0 
Foreign exchange contractsOther current liabilities  -   0.3 
Commodity derivativesOther current liabilities  0.1   0.1 


The amounts recorded in the consolidated statements of operations for the Company’sassociated with derivative financial instruments that the Company designated for hedge accounting during the years ended March 31 were as follows:


Statement of Operations Years ended March 31, 
Gain (loss) recognized in
other comprehensive income
 
Statement of
Operations
 
Gain (loss) reclassified
from AOCI
 
Location 2016 2015 2014 2021  2020  2019 Location 2021  2020  2019 
Commodity derivativesCost of sales $(0.7) $(0.2) $(0.5) $2.2  $(2.6) $(0.3)Cost of sales $0  $(0.8) $(0.4)
Foreign exchange contractsOther income (expense) - net  0.6   (1.1)  -   0   (0.1)  (0.4)Net sales  0   (0.1)  (0.4)
Total loss  $(0.1) $(1.3) $(0.5)
Foreign exchange contracts  (0.1)  0.2   1.0 Cost of sales  (0.1)  0.4   0.6 
Total gains (losses) $2.1  $(2.5) $0.3   $(0.1) $(0.5) $(0.2)


Note 19:Contingencies and Litigation
The amounts associated with derivative financial instruments that the Company did not designate for hedge accounting were as follows:


_
  Years ended March 31, 
 _Statement of Operations Location 2021  2020  2019 
Foreign exchange contractsNet sales $0  $(0.1) $(0.7)
Foreign exchange contractsOther income (expense) - net  0.6   (0.1)  (0.3)
Total gains (losses)  $0.6  $(0.2) $(1.0)


Note 20: Risks, Uncertainties, Contingencies and Litigation

COVID-19
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus, COVID-19, a pandemic.  The spread of COVID-19 and the resulting work and travel restrictions, including international border closings, have disrupted, and may continue to disrupt, global supply chains and have negatively impacted the global economy.  As a result of this pandemic, the Company experienced significant impacts on its operations.  Local government requirements or customer shutdowns caused the Company to suspend production at many of its manufacturing facilities in March and April 2020.  All of the temporarily-closed facilities reopened in the first or second quarter of fiscal 2021 and have generally returned to more normal production levels.  However, since reopening, production at certain of our plants has been negatively affected at times by employee absences due to COVID-19.  The Company is continuing to focus on protecting the health and wellbeing of its employees and the communities in which it operates, while also ensuring the continuity of its business operations and timely delivery of quality products and services to its customers.  Beginning largely in April 2020 and to mitigate the negative impacts of COVID-19, the Company took actions including, but not limited to, production staffing adjustments, furloughs, shortened work weeks, and temporary salary reductions at all levels of the organization.  While the Company withdrew most of the cost-saving actions in the third quarter of fiscal 2021 as production returned to more normal levels as markets recovered, it remains focused on controlling operating and administrative expenses

78
Table of Contents

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

The Company’s consolidated financial statements reflect estimates and assumptions made by management, including assumptions regarding the future impacts of the COVID-19 pandemic, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the reporting periods presented.  For example, the Company’s goodwill impairment review is particularly sensitive to assumptions that could be adversely impacted by the COVID-19 pandemic.  While the Company believes it used appropriate estimates and assumptions to prepare the consolidated financial statements, actual amounts could differ materially and future events or circumstances could have a potential negative effect on the assumptions used.  If the Company, its suppliers, or its customers experience further shutdowns or other significant business disruptions associated with the COVID-19 pandemic, its ability to conduct business in the manner and on the timelines presently planned could be materially and negatively impacted, which could have a material adverse effect on the Company’s business, financial position, results of operations and cash flows.

Market risk:  Risk
The Company sells a broad range of products that provide thermal solutions to customers operating primarily in thediverse markets, including commercial, industrial, and building HVAC&R markets and vehicular markets, including commercial vehicle, off-highway and automotive and commercial heating and air conditioning markets.light vehicle.  The Company operates in diversified markets as a strategy for offsetting the risk associated with a downturn in any one or moreCOVID-19 pandemic negatively impacted many of these markets; while we expect the markets it serves.  The Company pursues new market opportunities after careful consideration of the potential associated riskswill continue to recover, risk and benefits.  However, the risk associated with market downturns, such as the downturn experienced in fiscal 2009 and 2010, is stilluncertainties remain present.


Credit risk:  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 20162021 and 2015, two customers each2020, 1 vehicular customer accounted for more than ten percent or more of the Company’s total sales.  In fiscal 2014, one customer2019, 2 vehicular customers each accounted for ten percent or more of the Company’s total sales.  Sales to the Company’s top ten10 customers represented 63were 43 percent, 45 percent, and 50 percent of total sales in both fiscal 20162021, 2020, and 2015 and 56 percent in fiscal 2014.2019, respectively.  At March 31, 20162021 and 2015, 452020, 35 percent and 4734 percent, respectively, of the Company'sCompany’s trade accounts receivable were due from the Company'sCompany’s top ten10 customers.  These customers operate primarily in the automotive, truck,commercial vehicle, off-highway, data center cooling and heavy equipment markets and are influenced by similar market and general economic factors.  Collateralcommercial air conditioning markets.  The Company generally does not require collateral or advanced payments are generally not required.from its customers.  The Company has not experienced significant credit losses to customers in the markets served.served nor has experienced a significant increase in credit losses in connection with the COVID-19 pandemic.

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 financial ratings that are acceptable to the Company.

Counterparty Risk
The Company manages counterparty risk 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.

62
79
Table of ContentContents

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 subsurfacerelated to soil and groundwater contamination at manufacturing facilities in the U.S., one of which the Company currently owns and operates, and 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 recordedalong with accruals for other lesser environmental matters at certain other facilities located in the United States.U.S.  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$16.0 million and $3.8$18.2 million at March 31, 20162021 and 2015,2020, respectively.  As additional information becomes available, the Company will re-assess the liabilityliabilities related to these matters and revise the estimated accrual,accruals, if necessary.  Based onupon 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

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 against Modine.  The Company believes that any additional loss in excess of amounts already accrued would not have a material effect on the Company’s consolidated balance sheet, results of operations, and cash flows.  In the opinion ofaddition, management expects that the liabilities if any, which may ultimately result from such lawsuits or proceedings, areif any, would not expected to have a material adverse effect on the Company’s consolidated financial statements.position.

63
Table of Content
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Note 20:
Note 21: Accumulated Other Comprehensive Loss


Changes in accumulated other comprehensive loss were as follows:


  
Foreign
Currency
Translation
 
Defined
Benefit Plans
 Total
Balance, March 31, 2015 $(40.7) $(157.9) $(198.6)
             
Other comprehensive loss before reclassifications  4.7   (16.6)  (11.9)
Reclassifications:            
Amortization of unrecognized net loss (a)  -   48.3   48.3 
Amortization of unrecognized prior service credit (a)  -   (0.2)  (0.2)
Income taxes  -   (11.8)  (11.8)
Total other comprehensive loss  4.7   19.7   24.4 
             
Balance, March 31, 2016 $(36.0) $(138.2) $(174.2)
 
Foreign
Currency
Translation
  
Defined
Benefit Plans
  
Cash Flow
Hedges
  Total 
Balance, March 31, 2020
 $(61.4) $(160.9) $(1.0) $(223.3)
                 
Other comprehensive income before reclassifications  30.4   33.8   2.1   66.3 
Reclassifications:                
Amortization of unrecognized net loss (a)  0   6.7   0   6.7 
Realized losses - net (b)  0   0   0.1   0.1 
Income taxes  0   (10.4)  (0.6)  (11.0)
Total other comprehensive income  30.4   30.1   1.6   62.1 
                 
Balance, March 31, 2021
 $(31.0) $(130.8) $0.6  $(161.2)


 
Foreign
Currency
Translation
 
Defined
Benefit Plans
 Total 
Foreign
Currency
Translation
  
Defined
Benefit Plans
  
Cash Flow
Hedges
  Total 
Balance, March 31, 2014 $27.3  $(131.2) $(103.9)
Balance, March 31, 2019
 $(42.6) $(136.3) $0.5  $(178.4)
                            
Other comprehensive loss before reclassifications  (68.0)  (45.2)  (113.2)  (18.2)  (38.7)  (2.5)  (59.4)
Reclassifications:                            
Amortization of unrecognized net loss (a)  -   5.4   5.4   0   5.8   0   5.8 
Amortization of unrecognized prior service credit (a)  -   (0.1)  (0.1)
Realized losses - net (b)  0   0   0.5   0.5 
Foreign currency translation gains (c)  (0.6)  0   0   (0.6)
Income taxes  -   13.2   13.2   0 �� 8.3   0.5   8.8 
Total other comprehensive loss  (68.0)  (26.7)  (94.7)  (18.8)  (24.6)  (1.5)  (44.9)
                            
Balance, March 31, 2015 $(40.7) $(157.9) $(198.6)
Balance, March 31, 2020
 $(61.4) $(160.9) $(1.0) $(223.3)
(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 1718 for additional information about the Company’s pension plans.
(b)Amounts represent net gains and losses associated with cash flow hedges that were reclassified to net earnings. See Note 19 for additional information regarding derivative instruments.
(c)As a result of the sale of its investment in NEX during fiscal 2020, the Company wrote off $0.6 million of accumulated foreign currency translation gains.


80
Table of Contents

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

Note 21:
Note 22:  Segment and Geographic Information


The Company’s product lines consist of heat-transfer components and systems.  The Company serves the vehicular,commercial, industrial, and building heating, ventilatingHVAC&R markets and air conditioningvehicular markets.  During fiscal 2016, the Company combined its North America and South America segments into the Americas

The Company’s BHVAC 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 buildingprovides heating, ventilating and air conditioning products to customers throughout the world.  The Company’s CIS segment provides coils, coolers, and coating solutions to global customers.  The Company’s HDE and Automotive segments represent its vehicular businesses and primarily serve the commercial vehicle, off-highway and automotive and light vehicle markets.  In addition, the HDE segment serves the commercial vehicle and automotive aftermarkets in Brazil.
64
Table of Content

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.


Effective April 1, 2020, the Company began managing its global automotive business separate from the other businesses within the previously reported Vehicular Thermal Solutions (“VTS”) segment.  The Company is managing the automotive business as the Automotive segment as it progresses towards the sale or eventual exit of its underlying automotive business operations.  The other businesses of the VTS segment, including the commercial vehicle and off-highway businesses, are being managed as the HDE segment.  The segment realignment had no impact on the CIS and BHVAC segments or on the Company’s consolidated financial position, results of operations, and cash flows.  Segment financial information for fiscal 2020 and 2019 has been recast to conform to the fiscal 2021 presentation.

The following is a summary of net sales, gross profit, and operating income by segment:segment.  See Note 3 for additional information regarding net sales by primary end market.

 Year ended March 31, 2021 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:         
BHVAC $240.3  $0.3  $240.6 
CIS  528.1   3.9   532.0 
HDE  648.3   33.8   682.1 
Automotive  391.7   6.6   398.3 
Segment total  1,808.4   44.6   1,853.0 
Corporate and eliminations  -   (44.6)  (44.6)
Net sales $1,808.4  $-  $1,808.4 
 
 Years ended March 31,
Net sales: 2016 2015 2014
Americas $585.5  $666.9  $688.3 
Europe  524.1   578.2   584.4 
Asia  79.0   81.2   71.5 
Building HVAC  181.4   186.3   146.5 
Segment total  1,370.0   1,512.6   1,490.7 
Corporate and eliminations  (17.5)  (16.2)  (13.1)
Net sales $1,352.5  $1,496.4  $1,477.6 

 Year ended March 31, 2020 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:         
BHVAC $219.4  $1.7  $221.1 
CIS  620.1   3.8   623.9 
HDE  693.8   52.1   745.9 
Automotive  442.2   2.7   444.9 
Segment total  1,975.5   60.3   2,035.8 
Corporate and eliminations  -   (60.3)  (60.3)
Net sales $1,975.5  $-  $1,975.5 

  Years ended March 31,
  2016 2015 2014
Gross profit: $'s  
% of
sales
 $'s  
% of
sales
 $'s  
% of
sales
Americas $100.1   17.1% $109.1   16.3% $114.3   16.6%
Europe  68.1   13.0%  68.7   11.9%  70.8   12.1%
Asia  12.2   15.5%  11.5   14.2%  8.9   12.5%
Building HVAC  54.2   29.9%  55.9   30.0%  43.4   29.6%
Segment total  234.6   17.1%  245.2   16.2%  237.4   15.9%
Corporate and eliminations (a)  (11.1)  -   1.3   -   0.8   - 
Gross profit $223.5   16.5% $246.5   16.5% $238.2   16.1%
  Years ended March 31,
Operating income: 2016 2015 2014
Americas $36.2  $33.4  $49.6 
Europe  13.3   25.7   9.6 
Asia  0.8   0.3   (3.3)
Building HVAC  13.9   19.1   9.4 
Segment total  64.2   78.5   65.3 
Corporate and eliminations (a)  (71.7)  (25.8)  (28.1)
Operating (loss) income $(7.5) $52.7  $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
81
Table of ContentContents

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


 Year ended March 31, 2019 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:         
BHVAC $209.1  $3.3  $212.4 
CIS  704.7   2.9   707.6 
HDE  811.8   60.5   872.3 
Automotive  487.1   1.8   488.9 
Segment total  2,212.7   68.5   2,281.2 
Corporate and eliminations  -   (68.5)  (68.5)
Net sales $2,212.7  $-  $2,212.7 

Inter-segment sales are accounted for based upon an established markup over production costs.  Net sales for Corporate and eliminations primarily represent the elimination of inter-segment sales.

 Years ended March 31, 
  2021  2020  2019 
Gross profit: 
_$’s
  
% of
sales
  
_$’s
  
% of
sales
  
_$’s
  
% of
sales
 
BHVAC $83.0   34.5% $71.5   32.3% $63.4   29.9%
CIS  66.5   12.5%  92.9   14.9%  114.9   16.2%
HDE  88.4   13.0%  96.6   13.0%  127.8   14.7%
Automotive  56.0   14.1%  48.4   10.9%  59.0   12.1%
Segment total  293.9   15.9%  309.4   15.2%  365.1   16.0%
Corporate and eliminations  (0.5)  0   (1.9)  0   0.4   0 
Gross profit $293.4   16.2% $307.5   15.6% $365.5   16.5%

 Years ended March 31, 
Operating income: 2021  2020  2019 
BHVAC $47.2  $36.4  $26.9 
CIS  8.2   32.9   53.4 
HDE  36.8   37.8   65.0 
Automotive  (150.9)  (10.0)  (0.4)
Segment total  (58.7)  97.1   144.9 
Corporate and eliminations (a)  (39.0)  (59.2)  (35.2)
Operating (loss) income $(97.7) $37.9  $109.7 
(a)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. During fiscal 2021, 2020 and 2019, the Company recorded $6.6 million, $39.2 million, and $7.1 million respectively, of costs directly associated with its review of strategic alternatives for the liquid-and air-cooled automotive businesses, including costs to separate and prepare the underlying businesses for potential sale.

82
Table of Contents

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, 
  2021  2020 
BHVAC $110.8  $102.3 
CIS  609.2   617.7 
HDE  438.7   417.4 
Automotive (a)  124.2   272.5 
Corporate and eliminations (b)  (6.2)  126.2 
Total assets $1,276.7  $1,536.1 
  March 31, 
  2016  2015 
Americas $267.2  $277.7 
Europe  301.9   282.7 
Asia  104.0   92.2 
Building HVAC (a)  99.0   131.3 
Corporate and eliminations  148.8   147.0 
Total assets $920.9  $930.9 
(a)AsDuring fiscal 2021, the Company recorded impairment charges totaling $166.8 million within the Automotive segment, primarily related to the property, plant and equipment of the liquid- and air-cooled automotive businesses, which are classified as held for sale 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.2021.  See Note 2 for additional information.
(b)At March 31, 2021, Corporate assets totaled $17.5 million and were more than offset by eliminations for intercompany balances, including accounts receivable.  During fiscal 2021, the Company recorded income tax charges totaling $103.3 million, which established a full valuation allowance on deferred tax assets in the U.S that are recorded at Corporate.  See Note 8 for additional information. 


The following is a summary of capital expenditures and depreciation and amortization expense by segment:


 Years ended March 31, 
Capital expenditures: 2021  2020  2019 
BHVAC $1.5  $3.1  $1.3 
CIS  6.1   15.0   16.4 
HDE  13.5   31.5   29.4 
Automotive  11.1   19.1   24.9 
Corporate  0.5   2.6   1.9 
Total capital expenditures $32.7  $71.3  $73.9 

 Years ended March 31, 
Depreciation and amortization expense: 2021  2020  2019 
BHVAC $3.1  $3.4  $3.5 
CIS  25.0   24.0   23.9 
HDE  25.5   25.4   26.3 
Automotive (a)  13.2   22.3   21.2 
Corporate  1.8   2.0   2.0 
Total depreciation and amortization $68.6  $77.1  $76.9 
  Years ended March 31, 
Capital expenditures: 2016  2015  2014 
Americas $26.7  $30.2  $24.6 
Europe  24.8   21.5   22.9 
Asia  6.2   3.8   4.6 
Building HVAC  5.1   2.8   1.0 
Total capital expenditures $62.8  $58.3  $53.1 
(a)Upon classifying the liquid- and air-cooled automotive businesses as held for sale, the Company ceased depreciating  the long-lived assets within the disposal groups.  See Note 2 for additional information.


  Years ended March 31, 
Depreciation and amortization expense: 2016  2015  2014 
Americas $22.1  $21.3  $22.6 
Europe  18.0   19.8   26.6 
Asia  6.5   7.2   6.7 
Building HVAC  3.6   3.3   2.2 
Total depreciation and amortization expense $50.2  $51.6  $58.1 
83

Table of Contents

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

The following is a summary of net sales by geographical area, based upon the location of the selling unit:


 Years ended March 31, 
  2021  2020  2019 
United States $765.7  $941.9  $1,032.3 
China  217.6   168.5   172.1 
Italy  188.6   187.4   217.3 
Hungary  153.7   142.4   165.6 
United Kingdom  96.4   82.0   86.6 
Germany  83.4   97.5   123.1 
Austria  59.6   93.0   116.2 
Other  243.4   262.8   299.5 
Net sales $1,808.4  $1,975.5  $2,212.7 
  Years ended March 31, 
  2016  2015  2014 
United States $627.6  $669.3  $645.7 
Germany  155.3   193.8   229.5 
Hungary  145.9   161.0   150.3 
Austria  113.1   118.7   109.8 
Other  310.6   353.6   342.3 
Net sales $1,352.5  $1,496.4  $1,477.6 
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, 
  2021  2020 
United States $80.3  $114.6 
Mexico  43.5   50.0 
China  31.3   56.8 
Italy  30.0   49.8 
Hungary  27.6   55.4 
Germany  1.8   27.0 
Austria  0   26.0 
Other  55.4   68.4 
Total property, plant and equipment (a) $269.9  $448.0 
(a)In connection with the pending sales of the liquid- and air-cooled automotive businesses within the Automotive segment, the Company wrote-down the carrying value of the disposal groups’ property, plant and equipment to zero as of March 31, 2021.  The assets impaired were located in Hungary, Germany, Austria, China, the U.S., Italy, and the Netherlands.  See Note 2 for additional information on the held for sale businesses and impairment charges recorded during fiscal 2021.
  March 31, 
  2016  2015 
United States $92.5  $92.7 
Austria  44.2   41.5 
China  33.6   31.8 
Germany  32.1   47.2 
Hungary  31.4   28.9 
Other  104.8   80.0 
Total property, plant and equipment $338.6  $322.1 


The following is a summary of net sales by end market:

  Years ended March 31, 
  2016  2015  2014 
Commercial vehicle $459.8  $512.5  $477.0 
Automotive  396.8   401.8   395.6 
Off-highway  206.2   274.6   320.8 
Building HVAC  181.4   186.3   146.5 
Other  108.3   121.2   137.7 
Net sales $1,352.5  $1,496.4  $1,477.6 

67
84
Table of ContentContents
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:

  Fiscal 2016 quarters ended   
  June Sept. Dec. March Fiscal 2016
                
Net sales $346.1  $334.0  $328.7  $343.7  $1,352.5 
Gross profit  57.0   45.7   58.6   62.2   223.5 
Earnings (loss) from continuing operations (a)  5.5   (22.5)  8.2   7.8   (1.0)
Net earnings (loss) attributable to Modine (a)  5.1   (22.5)  8.2   7.6   (1.6)
Net earnings (loss) per share attributable to Modine shareholders:                    
Basic $0.11  $(0.47) $0.17  $0.16  $(0.03)
Diluted  0.11   (0.47)  0.17   0.16   (0.03)

  Fiscal 2015 quarters ended   
  June Sept. Dec. March Fiscal 2015
                
Net sales $392.5  $377.3  $363.6  $363.0  $1,496.4 
Gross profit  67.7   56.7   59.4   62.7   246.5 
Earnings (loss) from continuing operations (b)  14.1   2.0   9.1   (3.0)  22.2 
Net earnings (loss) attributable to Modine (b)  13.7   1.7   9.6   (3.2)  21.8 
Net earnings (loss) per share attributable to Modine shareholders:                    
Basic $0.29  $0.04  $0.20  $(0.07) $0.46 
Diluted  0.28   0.04   0.20   (0.07)  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
Table of Content

Report of Independent Registered Public Accounting Firm


To the Shareholders and Board of Directors and Shareholders of Modine Manufacturing Company:Company


In our opinion,Opinions on the accompanyingFinancial Statements and Internal Control over Financial Reporting

We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item 15(a)(1), and the financial statement schedule listed in the index appearing under Item 15(a)(2), of Modine Manufacturing Company and its subsidiaries (the “Company”) (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of March 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Modine Manufacturingthe Company and its subsidiaries atas of March 31, 20162021 and 2015,2020, and the results of theirits operations and theirits cash flows for each of the three years in the period ended March 31, 20162021 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, 2016,2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations ofCOSO.

Changes in Accounting Principles

As discussed in Note 1 to the Treadway Commission (COSO).  consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal 2020.

Basis for Opinions

The Company'sCompany’s management is responsible for these consolidated 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 thesethe Company’s consolidated financial statements on the financial statement schedule, and on the Company'sCompany’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordanceare a public accounting firm registered with the standards of the Public Company Accounting Oversight Board (United States). (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. 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.Definition and Limitations of Internal Control over Financial Reporting


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
85
Table of ContentContents
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Critical Audit Matters


The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment – CIS Reporting Units

As described in Notes 1 and 14 to the consolidated financial statements, the Company’s consolidated goodwill balance was $170.7 million as of March 31, 2021, and the goodwill associated with the CIS reporting units was $155.9 million. Management assesses goodwill for impairment annually as of March 31 of each year, 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. Management determines the fair value of a reporting unit based upon the present value of estimated future cash flows. Determining the fair value of a reporting unit involves judgment and the use of significant estimates and assumptions by management, which include assumptions regarding the revenue growth rates and operating profit margins used to calculate estimated future cash flows, the risk-adjusted discount rates, business trends and market conditions.

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment of the CIS reporting units is a critical audit matter are (i) the significant judgment by management when determining the fair value of the reporting units; (ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence relating to management’s estimated future cash flows and significant assumptions related to revenue growth rates, operating profit margins, and the risk-adjusted discount rates; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the goodwill impairment assessment, including controls over the estimated fair value of the CIS reporting units. These procedures also included, among others, testing management’s process for developing the fair value estimates; evaluating the appropriateness of the discounted cash flow model; testing the completeness, accuracy, and relevance of underlying data used in the model; and evaluating the significant assumptions used by management related to revenue growth rates, operating profit margins, and risk-adjusted discount rates. Evaluating management’s assumptions related to revenue growth rates and operating profit margins involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the reporting units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow model and the risk-adjusted discount rates significant assumption.

/s/ PricewaterhouseCoopers LLP
Milwaukee, WI
May 27, 2021

We have served as the Company’s auditor since 1935.

86
Table of Contents
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.


ITEM 9AITEM 9A.  CONTROLS AND PROCEDURES.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'sCompany’s President and Chief Executive Officer and Executive Vice President, Finance and Chief Financial Officer, evaluated the effectiveness of the Company'sCompany’s disclosure controls and procedures, at a reasonable assurance level, 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 Executive Vice President, Finance and Chief Financial Officer have concluded that the design and operation of the Company'sCompany’s disclosure controls and procedures were effective, at a reasonable assurance level, as of March 31, 2016.2021.


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 Executive Vice President, Finance and Chief Financial Officer, and effected by the Company'sCompany’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 Executive Vice President, Finance and Chief Financial Officer, has assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2016.2021.  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 onupon this assessment, management concluded that, as of March 31, 2016,2021, 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, 20162021 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 20162021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


ITEM 9BITEM 9B.   OTHER INFORMATION.OTHER INFORMATION.


None.

70
87
Table of ContentContents
PART III


ITEM 10ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.


Directors. 
The Company incorporates by reference the information appearing in the Company'sCompany’s Proxy Statement for the 20162021 Annual Meeting of Shareholders to be held on July 21, 201622, 2021 (the “2016“2021 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"“Information about our Executive Officers” in this Form 10-K.


Compliance with Section 16(a)Code of the Exchange Act. Conduct
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 20162021 Annual Meeting Proxy Statement under the caption “Corporate Governance – Code of Ethics.Conduct.”  The Company'sCompany’s Code of Ethics (labeled as the Code of Conduct)Conduct is included on its website, www.modine.com (About Modine link).  We intend to satisfy our disclosure requirements under Item 5.05 of Form 8-K regarding amendments to, or waivers of, any provision of our Code of Conduct that applies to our principal executive, financial and accounting officers and our directors by posting such information on our website.


Board Committee Charters.  Charters
The Board of Directors has approved charters for its Audit Committee, Officer NominationHuman Capital 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 20162021 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 20162021 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 20162021 Annual Meeting Proxy Statement under the caption “Shareholder Nominations and Recommendations of Director Candidates.”


ITEM 11.EXECUTIVE COMPENSATION.
Delinquent Section 16(a) Reports

The Company incorporates by reference the information appearing in the 2021 Annual Meeting Proxy Statement under the caption “Delinquent Section 16(a) Reports.”

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 11.   EXECUTIVE COMPENSATION.

The information appearing in the 20162021 Annual Meeting Proxy Statement under the captions “Compensation Discussion and Analysis,” “Compensation of Directors,” “Committees of the Board of Directors – Officer NominationHuman Capital 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.
88

The Company incorporates
Table of Contents
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Other than the information below, the information required by this Item 12 is incorporated by reference to the information relating to stock ownershipsection under the caption “Security Ownership of Certain Beneficial Owners and Management,” and under the caption “Equity Compensation Plan Information,”Management” in the 20162021 Annual Meeting Proxy Statement.


Each of the Company’s equity compensation plans, listed below, has been approved by its shareholders:

Amended and Restated 2008 Incentive Compensation Plan;
2017 Incentive Compensation Plan; and
2020 Incentive Compensation Plan.

The following table sets forth required information about equity compensation plans as of March 31, 2021:

Plan Category 
Number of shares
to be issued upon
exercise of
outstanding
options, warrants
or rights (a)
  
Weighted-average
exercise price of
outstanding
options, warrants
and rights (b)
  
Number of shares
remaining available for
future issuance
(excluding securities
reflected in 1st column)
(c)
 
Equity Compensation Plans approved by security holders  2,175,851   11.63   1,739,787 
Equity Compensation Plans not approved by security holders  -   -   - 
Total  2,175,851   11.63   1,739,787 

ITEM 13.(a)CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.Includes shares issuable under the following type of awards: options – 1,050,191 shares; restricted stock units – 904,980 shares; and performance stock assuming Target performance – 220,680 shares, regardless of any potential actual payout.  The number of shares subject to options were granted under the following plans: 2008 Incentive Plan – 389,687 shares, 2017 Incentive Plan – 302,421 shares, 2020 Incentive Plan – 358,083 shares.  Shares issuable under performance stock awards and restricted stock unit awards were granted under the following plans: 2008 Incentive Plan – 22,247 shares, 2017 Incentive Plan – 504,801 shares, 2020 Incentive Plan – 598,612 shares.
(b)The weighted average exercise price does not take into account awards of restricted stock units or performance stock which do not have an exercise price.
(c)Includes the number of shares remaining available for future issuance under the 2020 Incentive Compensation Plan.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The Company incorporates by reference the information contained in the 20162021 Annual Meeting Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Director Independence.”


ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The Company incorporates by reference the information contained in the 20162021 Annual Meeting Proxy Statement under the caption “Independent Auditors’Auditor’s Fees for Fiscal 20162021 and 2015.2020.”

71
89
Table of ContentContents
PART IV


ITEM 15ITEM 15.   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.


(a)Documents Filed(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, 20152021, 2020 and 201420193844
Consolidated Statements of Comprehensive Income for the years ended March 31, 2016, 20152021, 2020 and 201420193945
Consolidated Balance Sheets at March 31, 20162021 and 201520204046
Consolidated Statements of Cash Flows for the years ended March 31, 2016, 20152021, 2020 and 201420194147
Consolidated Statements of Shareholders'Shareholders’ Equity for the years ended March 31, 2016, 20152021, 2020 and 201420194248
Notes to Consolidated Financial Statements43-6849-84
Report of Independent Registered Public Accounting Firm6985-86
  
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 for the years ended March 31, 2021, 2020 and 20197491
  
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.75-7792-94
  
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. 

ITEM 16.   FORM 10-K SUMMARY.

None.

72
90
Table of ContentContents
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, 2016Modine 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)
May 26, 2016
/s/ Michael B. Lucareli
Michael B. Lucareli
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
May 26, 2016
/s/ Marsha C. Williams
Marsha C. Williams
Director
May 26, 2016
/s/ David J. Anderson
David J. Anderson
Director
May 26, 2016
/s/ Charles P. Cooley
Charles P. Cooley
Director
May 26, 2016
/s/ Suresh V. Garimella
Suresh V. Garimella
Director
May 26, 2016

/s/ Larry O. Moore
Larry O. Moore
Director
May 26, 2016
/s/ Christopher W. Patterson
Christopher W. Patterson
Director
May 26, 2016
/s/ Christine Y. Yan
Christine Y. Yan
Director
May 26, 2016
/s/ David G. Bills
David G. Bills
Director
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, 20152021, 2020 and 20142019
(In millions)


    Additions       
Description 
Balance at
Beginning of
Period
  
Charged
(Benefit) to
Costs and
Expenses
  
Charged to
Other
Accounts
  
Reclassified
as Held for
Sale
  
Balance at
End of Period
 
                
2021: Valuation Allowance for Deferred Tax Assets $46.9  $86.2  $2.8
(a) 
 $(45.2) $90.7 
                     
2020: Valuation Allowance for Deferred Tax Assets $43.4  $4.5  $(1.0
)(a)
 $0  $46.9 
                     
2019: Valuation Allowance for Deferred Tax Assets $48.9  $(1.6) $(3.9
)(a)
 $0  $43.4 

     Additions     
Description 
Balance at
Beginning of
Period
  
Charged
(Benefit) to
Costs and
Expenses
  
Charged to
 Other
Accounts
   
Balance at
 End of Period
 
              
2016: Valuation Allowance for Deferred Tax Assets $48.0  $1.5  $1.3  (a) $50.8 
                  
2015: Valuation Allowance for Deferred Tax Assets $61.2  $(6.8) $(6.4) (a) $48.0 
                  
2014: Valuation Allowance for Deferred Tax Assets $172.8  $(113.1) $1.5  (a) $61.2 
Notes:
(a)Foreign currency translation and other adjustmentsadjustments.

74
91
Table of ContentContents

MODINE MANUFACTURING COMPANY
(THE “REGISTRANT”)
(COMMISSION FILE NO. 1-1373)


EXHIBIT INDEX
TO
20162021 ANNUAL REPORT ON FORM 10-K


Exhibit No.Description
Incorporated Herein By

Referenced To
Filed

Herewith
    
2.1*
Securities and Asset Purchase Agreement, dated as of November 2, 2020, by and between the Company and Dana Incorporated.Exhibit 2.1 to Registrant’s Current Report on Form 8-K dated November 2, 2020
   
3.1
Amended and Restated Articles of Incorporation, as amended.Exhibit 4.23.1 to Registrant’s Registration Statement on Form S-3 (333-161030) dated August 4, 200910-K for the fiscal year ended March 31, 2018 
    
3.2
Bylaws, as amended.Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated February 10, 2015June 17, 2020 
    
4.1
Form of Stock Certificate of the Registrant.Exhibit 4(a) to Form 10-K for the fiscal year ended March 31, 2003 ("(“2003 10-K"10-K”) 
    
4.2
Amended and Restated Articles of Incorporation, as amended.See Exhibit 3.1 hereto. 
    
4.3**
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.Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated August 12, 2010 8-K (“August 12, 2010 8-K”)
4.4**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.Exhibit 4.3 to August 12, 2010 8-K 
    
4.5*
4.4**
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.Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated March 15, 2012 8-K
4.6**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.Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated April 20, 2012 8-K
4.7**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.Exhibit 4.2 to Registrant’s Current Report on Form 8-K dated August 6, 2012 8-K
4.8**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 LendersExhibit 4.1 to Registrant’s Current Report on Form 8-K dated August 30, 2013 (“August 30, 2013 8-K”)
4.9**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.Exhibit 4.2 to August 30, 2013 8-K
4.10**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 4.3 to August 30, 2013 8-K 
    
4.11
4.5
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 
4.6
Description of Registrant’s securitiesExhibit 4.14 to Registrant’s Form 10-K for fiscal year ended March 31, 2020 
    
4.7
Fourth Amended and Restated Credit Agreement dated as of June 28, 2019.Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated June 28, 2019
   
10.1*
4.8
Second Amended and Restated Note Purchase and Private Shelf Agreement dated as of August 6, 2019Exhibit 4.1 to Registrant’s Form 10-Q for the third quarter ended December 31, 2019 
4.9
First Amendment to Second Amended and Restated Note Purchase and Private Shelf Agreement dated as of January 31, 2020Exhibit 4.2 to Registrant’s Form 10-Q for the third quarter ended December 31, 2019
4.10
First Amendment to Fourth Amended and Restated Credit Agreement dated as of May 19, 2020Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated May 19, 2020 (“May 19, 2020 8-K”)

92
Table of Contents

4.11
Second Amendment to Second Amended and Restated Note Purchase and Private Shelf Agreement dated as of May 19, 2020Exhibit 4.2 to May 19, 2020 8-K
4.12
Amendment No. 2 to Fourth Amended and Restated Credit Agreement dated as of May 18, 2021Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated May 18, 2021 (“May 18, 2021 8-K”)
4.13
Third Amendment to Second Amended and Restated Note Purchase and Private Shelf Agreement dated as of May 18, 2021Exhibit 4.2 to May 18, 2021 8-K
10.1***
Director Emeritus Retirement Plan effective April 1, 1992 (and frozen as of July 1, 2000).Exhibit 10(a) to Registrant’s Form 10-K for the fiscal year ended March 31, 2002 
    
10.2*
**Employment Agreement between the Registrant and Thomas A. Burke dated as of June 15, 2007.Exhibit 10.3 to Registrant’s Current Report on Form 8-K dated June 15, 2007 
    
10.3*
**Form of Amendment No. 1 to Employment Agreement entered into as of July 1, 2008 with Thomas A. Burke.Exhibit 10.1 to Registrant���sRegistrant’s Current Report on Form 8-K dated July 1, 2008 
    
10.4*
**Form of Change in Control and Termination Agreement (amended and restated) between the Registrant and officers other than Thomas A. Burke.Neil Brinker.Exhibit 10(f) to Registrant’s Form 10-K for the fiscal year ended March 31, 2004 
    
10.5*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'sRegistrant’s Form 10-K for the fiscal year ended March 31, 2000 
    
10.7*
**Deferred Compensation Plan (as amended).Exhibit 10(y) to 2003 10-K 
    
10.8*
2007 Incentive Compensation Plan.Appendix A to the Registrant's Proxy Statement dated June 18, 2007
10.9***
2008 Incentive Compensation Plan
(Amended and Restated effective May 7, 2014).
Exhibit 10.1 to Registrant'sRegistrant’s Current Report on Form 8-K dated July 17, 2014 
 
10.10*
10.9***
Form of Fiscal 2021 Performance Cash Award Agreement.Exhibit 10.1 to Registrant’s Form 8-K dated September 30, 2020 (“September 30, 2020 8-K”) 
10.10***
Form of Fiscal 2021 Incentive Stock Option Award Agreement.Exhibit 10.2 to September 30, 2020 8-K
10.11***
Form of Fiscal 2021 Non-Qualified Stock Option Award Agreement.Exhibit 10.3 to September 30, 2020 8-K
10.12***
Form of Fiscal 2021 Restricted Stock Unit Award Agreement.Exhibit 10.4 to September 30, 2020 8-K
10.13***
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.Neil Brinker.Exhibit 10.17 to Registrant'sRegistrant’s Form 10-K for the fiscal year ended March 31, 2011 
    
10.11*
10.14***
Supplemental Severance Policy.Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated October 17, 2011 
10.15***
2017 Incentive Compensation Plan.Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated July 20, 2017 
    
10.16***
Form of Fiscal 2021 Non-Employee Director Restricted Stock Unit Award.Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated July 23, 2020 (“July 23, 2020 8-K”)
   
10.12*
10.17***
Transition and Separation Agreement between Thomas A. Burke and Modine Manufacturing Company effective as of August 4, 2020.Exhibit 10.6 to the Registrant’s Form 10-Q for the second quarter ended September 30, 2020
 Form
10.18***
[Corrected] Offer Letter dated as of Fiscal 2016 Modine Performance Stock Award AgreementNovember 10, 2020, by and between the Company and Neil Brinker.Exhibit 10.1 to the Registrant’s Form 10-Q for the third quarter ended December 31, 2020 (“December 31, 2020 10-Q”)

93
Table of Contents

10.19***
Employment Retention Agreement for Scott Wollenberg, dated as of July 26, 2019.Exhibit 10.5 to the Registrant’s Form 10-Q for the first quarter ended June 30, 2015 ("June 30, 2015 10-Q")2019 
    
10.13*
10.20***
Form of Fiscal 2016 Modine Incentive Stock OptionsMake-Whole RSU Award Agreement with Neil Brinker.Exhibit 10.2 to June 30, 2015December 31, 2020 10-Q 
    
10.14*
10.21***
Form of Fiscal 2016 Modine Restricted StockMake-Whole Performance Cash Award Agreement with Neil Brinker.Exhibit 10.3 to June 30, 2015December 31, 2020 10-Q 
    
10.15*
10.22***
Form of Fiscal 2016 Modine Non-Qualified Stock Option Award Agreement2020 Incentive Compensation Plan.Exhibit 10.410.1 to June 30, 2015 10-QJuly 23, 2020 8-K 
   
10.23***
Separation Letter Agreement between the Company and Scott L. Bowser, effective as of March 16, 2021.X
10.24***
Form of Retention Letter, effective August 31, 2020, between the Company and each of Michael B. Lucareli, Scott L. Bowser and Sylvia A. Stein.Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated August 31, 2020
    
21
List of subsidiaries of the Registrant. X
    
23
Consent of independent registered public accounting firm. X
    
31.1
Rule 13a-14(a)/15d-14(a) Certification of Thomas A. Burke,Neil D. Brinker, President and Chief Executive Officer. X
    
31.2
Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Executive Vice President, Finance and Chief Financial Officer. X
    
32.1
Section 1350 Certification of Thomas A. Burke,Neil D. Brinker, President and Chief Executive Officer. X
    
32.2
Section 1350 Certification of Michael B. Lucareli, Executive Vice President, Finance and Chief Financial Officer. X
    
101.INSInstance Document X
    
101.SCHXBRL Taxonomy Extension Schema X
    
101.CALXBRL Taxonomy Extension Calculation Linkbase Document X
    
101.DEFXBRL Taxonomy Extension Definition Linkbase Document X
    
101.LABXBRL Taxonomy Extension Label Linkbase Document X
    
101.PREXBRL Taxonomy Extension Presentation Linkbase Document X
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). X


*          Denotes management contract or executive compensation plan or arrangement required to be filed as an exhibitSchedules and similar attachments have been omitted pursuant to Item 15601(b)(2) of Form 10-K.Regulation S-K because they are not material and would likely cause competitive harm to the Company if publicly disclosed.


**          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.

***          Denotes management contract or executive compensation plan or arrangement required to be filed as an exhibit pursuant to Item 15 of Form 10-K.


77
94
Table of Contents
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 27, 2021Modine Manufacturing Company
By:/s/ Neil D. Brinker
Neil D. Brinker, 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/ Neil D. Brinker
Neil D. Brinker
President, Chief Executive Officer and Director
(Principal Executive Officer)
May 27, 2021

 
/s/ Michael B. Lucareli
Michael B. Lucareli
Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
May 27, 2021
/s/ Marsha C. Williams
Marsha C. Williams
Chairperson, Board of Directors
May 27, 2021
/s/ Eric D. Ashleman
Eric D. Ashleman
Director
May 27, 2021
/s/ David G. Bills
David G. Bills
Director
May 27, 2021
/s/ Charles P. Cooley
Charles P. Cooley
Director
May 27, 2021
/s/ Suresh V. Garimella
Suresh V. Garimella
Director
May 27, 2021
/s/ Larry O. Moore
Larry O. Moore
Director
May 27, 2021
/s/ Christopher W. Patterson
Christopher W. Patterson
Director
May 27, 2021
/s/ Christine Y. Yan
Christine Y. Yan
Director
May 27, 2021


95