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, 20172019

or

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

For the transition period from ____________ to ____________

Commission file number 1-1373

MODINE MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)

WISCONSIN
 
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(Zip Code)

Registrant'sRegistrant’s telephone number, including area code (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, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"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 checkmark if the registrant has not elected 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 is a shell company (as defined in Rule 12b-2 of the Act).
Yes ☐    No ☑

Approximately 9697 percent of the outstanding shares are held by non-affiliates.  The aggregate market value of these shares was approximately $542$733 million based upon the market price of $11.86$14.90 per share on September 30, 2016,28, 2018, 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 50,079,76150,726,269 at May 22, 2017.17, 2019.

An Exhibit Index appears at pages 80-8281-83 herein.

DOCUMENTS INCORPORATED BY REFERENCE

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

Incorporated Document
Location in Form 10-K
  
Proxy Statement for the 20172019 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.
BUSINESSBUSINESS..
1
    
 ITEM 1A.
RISK FACTORS.
109
    
 ITEM 1B.
UNRESOLVED STAFF COMMENTS.
16
    
 ITEM 2.
PROPERTIES.
1716
    
 ITEM 3.
LEGAL PROCEEDINGS.
1817
    
 ITEM 4.
MINE SAFETY DISCLOSURES.
1817
 
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT.OFFICERS.
1918
    
PART II
  
 ITEM 5.5
MARKET FOR REGISTRANT'SREGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
2019
    
 ITEM 6.
SELECTED FINANCIAL DATA.
2120
    
 ITEM 7.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
2221
    
 ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.RISK
3835
    
 ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
4138
    
 ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
7577
    
 ITEM 9A.
CONTROLS AND PROCEDURES.
7577
    
 ITEM 9B.
OTHER INFORMATION.
7577
    
PART III
  
 ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
7678
    
 ITEM 11.
EXECUTIVE COMPENSATION.
7678
    
 ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
7678
    
 ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR  INDEPENDENCE.
7678
    
 ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
7678
    
PART IV
  
 ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
7779
    
 ITEM 16.
FORM 10-K SUMMARY.SUMMARY
77
SIGNATURES
7879
  
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
7980
  
EXHIBIT INDEX
8081
SIGNATURES
84

(This page intentionally left blank.)

PART I

ITEM 1.
BUSINESS.

Modine Manufacturing Company specializes in providing innovative thermal management solutions to diversified global markets and customers.  We are a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway original equipment manufacturer (“OEM”) vehicular applications.  In addition, 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.  Our primary product groups include i) powertrain cooling and engine cooling; ii) coils, coolers, and coatings; and iii) heating, ventilation and air conditioning.  Our primary customers across the globe include:


-−Automobile, truck, bus, and specialty vehicle OEMs;

-−Agricultural, industrial and construction equipment OEMs;

-−Commercial and industrial 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 HVAC&R industries.  Our products and systems are aimed at solving complex heat transfer challenges requiring effective thermal management.  Typical customer and market demands include products and systems that are lighter weight, more compact, more efficient and more durable to meet customer standards as they work to ensure compliance with increasingly stringent global emissions, fuel economy and energy efficiency requirements.  Our heritage provides a depth and breadth of expertise in thermal management, which, when combined with our global manufacturing presence, standardized processes, and state-of-the-art technical resources, enables us to rapidly bring highly-valued, customized solutions to our customers.

History

Modine was incorporated under the laws of the State of Wisconsin on June 23, 1916 by its founder, Arthur B. Modine.  Mr. Modine’s “Turbotube” radiators became standard equipment on the famous Ford Motor Company Model T.  When he died at the age of 95, A.B. Modine had personally been granted more than 120 U.S. patents for his heat transfer innovations.  The standard of innovation exemplified by A.B. Modine remains the cornerstone of Modine today.

Terms and Year References

When we use the terms “Modine,” “we,” “us,” the “Company,” or “our” in this report, unless the context otherwise requires, we are referring to Modine Manufacturing Company.  Our fiscal year ends on March 31 and, accordingly, all references to a particular year mean the fiscal year ended March 31 of that year, unless indicated otherwise.

Business Strategy and Results

Modine pursues market leadership by being a customer-focused, global company delivering exceptional quality, innovation and value.  We will grow our core business of thermal management with superior technical solutions in systems, products and services – coupled with a cost competitive structure.

During fiscal 2016,2019, we launchedcontinued to employ our Strengthen, Diversify and Grow strategic transformation(“SDG”) strategy in order to best positiontransform Modine into a more diversified industrial thermal-management company.  We launched our business for long-term success.  We aimedSDG strategy over three years ago to strengthen our business by, among other things, right-sizing our cost structure and implementingestablish a more global, product-based organizationorganizational structure and a strategic framework for our company.  Both our Commercial and Industrial Solutions (“CIS”) and Building HVAC Systems (“BHVAC”) segments experienced significant sales and earnings growth this year, which we directly attribute to capture synergiesour SDG initiatives to further diversify and grow these higher margin business segments.  In addition, in January 2019, we announced our strategic review of alternatives for our automotive business within our Vehicular Thermal Solutions (“VTS”) segment.  Since this announcement, we have made significant progress in our evaluation and, while we are continuing to explore various alternatives, we currently believe that a sale of the automotive business is the most likely path forward to optimize the VTS segment’s profitability and reprioritize capital investments across our core businesses, effectively meet the needsall of our globalbusinesses.  We believe our SDG strategy will continue to keep us grounded, thriving, and transforming to optimize the value we offer our customers and improveto provide the highest returns for our speed to market.  In addition, we aimed to diversify by expanding our presence in non-vehicular markets, and grow through both organic and inorganic investments.shareholders.

On November 30, 2016, we addressed our “Diversify” and “Grow” commitments in particular by completing our acquisition of Luvata Heat Transfer Solutions (“Luvata HTS”) for consideration totaling $415.6 million ($388.2 million, net of cash acquired).
Luvata HTS, a leading global supplier of coils, coolers and coatings to the HVAC&R industry, generated more than $500 million of net sales in calendar 2016.  The acquisition of Luvata HTS increased our industrial business portfolio, broadened our customer base, reduced cyclical exposure, and expanded our growth profile.  Commencing from the acquisition date, we have operated Luvata HTS as our Commercial and Industrial Solutions (“CIS”) business segment.  We are actively engaged in integration activities and expect to realize cost synergies through procurement savings, operational improvements, and organizational efficiencies over three to four years.  In addition, we anticipate revenue synergies through expanded sales channels and cross-selling opportunities resulting from our highly-complementary product portfolios.

Our top five customers are in threefour different markets – automotive, commercial vehicle, off-highway, and off-highwaydata center cooling – and our ten largest customers accounted for 5450 percent of our fiscal 20172019 sales.  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.  In fiscal 2018, 61 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 5 percent generated by exports from the U.S.  In fiscal 2017, 62 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 7 percent generated by exports from the U.S.  In fiscal 2016, 63 percent of our total sales were generated from customers outside of the U.S., with 54 percent of total sales generated by foreign operations and 9 percent generated by exports from the U.S.  In fiscal 2015, 64 percent of our total sales were generated from customers outside of the U.S., with 55 percent of total sales generated by foreign operations and 9 percent generated by exports from the U.S.

During fiscal 2017,2019, our consolidated net sales were $1.50$2.21 billion, an 11a 5 percent increase from $1.35$2.10 billion in fiscal 2016.  The2018.  This increase from fiscal 2016 was primarily due to $178 million of incremental sales from our new CIS segment and higher sales in each of our Asia segment, partially offset by lower sales in our Americas and Building HVAC (“BHVAC”)operating segments.  Our operating income of $39$110 million in fiscal 2017 included costs directly related to our acquisition and integration of Luvata HTS totaling $152019 increased $18 million and, as compared with the prior year, was favorably impactedprimarily due to higher earnings in the CIS and BHVAC segments, partially offset by pension settlement losses totaling $42 millionlower earnings in fiscal 2016.the VTS segment.

In continued support of our Strengthen, Diversify and Grow strategic platformSDG initiatives and in an effort to optimize our cost structure and improve the efficiency of our operations, we have engaged in various restructuring activities.  As a result, we recorded $11$10 million of restructuring expenses during fiscal 2017,2019, primarily related to equipment transfer and plant consolidation activities and severance expenses.

A key metric by which we measure our performance is return on average capital employed (“ROACE”).  We define ROACE as operating income, plus restructuring expenses acquisition-related costs and adjustments, impairment charges, and excluding certain other gains or charges, less income tax at a 30 percent rate and earnings attributable to noncontrolling interest; divided by the average of debt plus Modine shareholders’ equity.  Our ROACE declined 150 basis points in fiscal 2017 to 6.9 percent compared with 8.4 percent in fiscal 2016.  ROACE in fiscal 2017 was negatively impacted by higher capital employed resulting from our acquisition of Luvata HTS, including goodwilltargeted headcount reductions in Europe and intangible assets totaling $281 million.
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 operating income, as presented in accordance with GAAP:
(in millions) Fiscal 2017  Fiscal 2016 
Operating income (loss) $39.4  $(7.5)
Acquisition-related costs and adjustments  19.1   0.5 
Restructuring expenses  10.9   16.6 
Gain on sale of facilities  (2.0)  - 
Legal and environmental charges  1.9   1.6 
Pension settlement losses  -   42.1 
Impairment charges  -   9.9 
Subtotal  69.3   63.2 
Tax applied at 30% rate  (20.8)  (19.0)
Noncontrolling interest  (0.7)  (0.6)
Operating income - adjusted $47.8  $43.6 
         
Average capital employed (see calculation below) $696.1  $519.7 
         
ROACE  6.9%  8.4%
         
Capital employed (debt + Modine shareholders' equity):        
Beginning of fiscal year $538.8  $504.7 
June 30  552.4   522.9 
September 30  552.9   512.5 
December 31  911.6   519.7 
End of fiscal year  924.9   538.8 
Average capital employed (a) $696.1  $519.7 

(a)Average capital employed represents the sum of capital employed for the five most recent quarter-end dates, divided by five.
the Americas within the VTS segment.

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 2017  Fiscal 2016  Fiscal 2019  Fiscal 2018 
Commercial HVAC&R  30%  31%
Automotive  31%  29%  25%  25%
Commercial vehicle  25%  34%  18%  18%
Off-highway  13%  15%  14%  13%
HVAC&R  27%  17%
Data center cooling  8%  7%
Industrial cooling  2%  3%
Other  4%  5%  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 has introduced new or restructured competitors to our markets.  Some of these market changes have caused us to experience competition from suppliers in other parts of the world that enjoy economic advantages such as lower labor costs, lower healthcare costs, and lower tax rates.  As a result, we have expanded and continue to expand our geographic footprint, in part to provide more flexibility to serve our customers around the globe.  Many 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.
Business Segments

We have assigned specific operations toEach of our operating segments based principally upon defined markets and geographic locations.  Each operating segment is managed by a vice president and has separate financial results reviewed by our chief operating decision maker.  These results are used by management in evaluating the performance of each business segment and in making decisions on the allocation of resources amongamongst our various businesses.  Financial information related toEffective April 1, 2018, we formed the VTS segment by combining our operating segments is included in Note 20 of the Notes to Consolidated Financial Statements.

Our Vehicular Businesses

Americas, Europe, and Asia Segmentsoperations to enable us to operate as a more global, product-based organization.  We also merged our Americas coils business into the CIS segment to accelerate operational improvements and organizational efficiencies.

Our Vehicular Business

VTS Segment

The continued globalization of our vehicular customer base requires us to manage our strategic approach, product offerings and the competitive environment on a global basis.  This trend offers significant opportunities for us with our market positioning, including our presence in key vehicular markets (U.S., Europe, China, Mexico, Brazil, Europe, India, China, South Korea, and Japan) and a global product-based organization with the expertise to solve technical challenges.  We are recognized for having strong technical support in all regions, an extensive product portfolio, and the ability to provide global standard designs for our customers. Many vehicular OEMs continue to expect cost reductions from suppliers while requiring a consistent level of quality.  In addition, these OEMs 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, Delphi Corporation, Denso Corporation, Mahle, Behr, 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.

The Americas, Europe, and Asia segments represent our vehicular businesses and serve the automotive, commercial vehicle, and off-highway markets.  In addition, our Americas segment provides custom-designed heat exchangers, utilizing microchannel, heat recovery, and round tube plate fin coils, to the commercial refrigeration, residential heating, and commercial heating and air conditioning markets.  We view our Americas coils products as highly-complementary to those of our new CIS segment.  As part of our CIS integration activities, we will merge our Americas coils business into CIS and expect to achieve operational improvements and organizational efficiencies as a result.  The Americas segment also serves Brazil’s automotive and commercial vehicle aftermarkets.  The following summarizes the primary markets served by our vehicular segments:VTS segment:

Automotive

Market Overview – The automotive market declined during fiscal 2019.  In fiscal 2020, we expect the global automotive market improved in most regions during fiscal 2017.markets will be relatively flat. We expect longer-term growth of this trendmarket to continue in fiscal 2018,be supported by changes in global fuel efficiency standards, in-vehicle technology enhancements and growth in emerging markets.  We are beginning to seeseeing increased activity in the automotive market focus less on traditional internal combustion engineselectric and more on alternative powertrains, such as electric, hybrid and fuel cell.powertrains.  Global automotive OEMs and their powertrain suppliers are engaged in significant development activities for these alternative powertrains.  In addition, a number of start-up companies specializedspecializing in electric vehicles are working towards establishingto establish themselves in the marketplace.marketplace, which creates new business dynamics and opportunities.  We expect this shift will increase the thermal management requirementsare actively involved in developing and manufacturing solutions for these vehicles,alternative powertrains with several traditional and start-up OEMs.  At the same time, we are capitalizingremain focused on this trend by applying our base heat transfer componentsprograms for traditional internal combustion engines which will remain as the primary automotive powertrain for years to new applications.come.  We expect our global automotive market production to increase in fiscal 2018,2020, particularly driven by market improvements and maturing program volumes in China and new program launches in our AmericasNorth America, Europe, and Europe segments.
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); chillers and cooling plates for battery cooling.thermal management.

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

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

Commercial Vehicle

Market Overview – During fiscal 2017,2019, the North AmericaAmerican commercial vehicle market weakened,experienced substantial growth, particularly within the market for heavy-duty trucks.truck market.  In fiscal 2018,2020, however, we expect both medium-duty and heavy-duty truck markets will decline.  In South America, the commercial vehicle market continued to recover in fiscal 2019; we expect this market will remain relatively flat compared with the prior year. Slow economic growth conditions, excess inventory and rising safety standards suggest uneven demand instrong, particularly for heavy-duty trucks, during fiscal 2018.  In South America, we expect the commercial vehicle market will stabilize in fiscal 2018 and remain relatively flat compared with fiscal 2017, after experiencing significant volume declines in recent years.2020.  In Europe, the commercial vehicle market experienced moderatemodest growth in fiscal 2017; however,2019; we expect thethis market to remain flatwill experience slight declines in fiscal 2018.  In Asia, we anticipate continued market growth at a moderate rate during fiscal 2018.

Other trends influencing2020.  We expect the commercial vehicle market in India will be flat or slightly down in fiscal 2020, compared with fiscal 2019.

Trends influencing the commercial and specialty vehicle markets include a calldesire by global commercial vehicle manufacturers to standardize U.S., Canadian, and Eurozone emissions regulations.regulations and the adoption of higher standards, which are more comparable to Euro 6, in China and India.  Global standardization would likely lead to further consolidation of our customer basedevelopment opportunities for Modine.  Additionally, truck and competitors, as they leverage higher volumes, consolidate development activities, and rationalize distribution channels.  Additionally, truckbus manufacturers are evaluating alternative powertrains and fuels, including electrification, waste heat recovery, and other technologies aimed to improveat improving vehicle efficiency, all of which could present opportunities for us.  These trends are driving the advancement of product development worldwide and are creating demand for incremental improvements to thermal transfer products, whichproducts.  We are active in these developments with several customers, and believe we are well positioned to support.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); and auxiliary cooling (transmission and retarder oil coolers and power steering coolers).; battery thermal management systems.

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

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

Off-Highway

Market Overview – ManyThe global off-highway markets declinedexperienced moderate growth during fiscal 2017.  The2019 and we expect this trend to continue during fiscal 2020.  Production of U.S. agricultural, construction, market was mixedand mining machinery increased in fiscal 2017, as some regions showed signs of2019 compared with the prior year.  We expect modest improvement duringgrowth in the year while others remained depressed.  The U.S. agricultural market remained under pressure from low commodity prices and associated demand, a trend that we expect to continueNorth American off-highway markets in fiscal 2018.  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 small signs of improving in fiscal 2018.  Many mining equipment buyers continued to cut capital investment plans in fiscal 2017, as the market progressed through a multiple-year cycle of demand declines.2020.  The European construction and agricultural equipment markets declined slightlyexperienced modest growth in fiscal 2017; however,2019; we expect gradualmodest growth in these markets again during fiscal 2018.2020.  In South America, we expect the off-highway markets will stabilizeexperienced strong growth in fiscal 2018 and be relatively flat compared with fiscal 2017, after experiencing significant volume declines in recent years.  In Asia, a recovery in construction markets began in the second half of fiscal 2017,2019 and we expect continued improvementmoderate growth in fiscal 2020.  In Asia, the construction market experienced moderate growth during fiscal 2019, and we expect further growth in the China and Korea excavator markets in fiscal 2018.2020.

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); 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.

Our Industrial Businesses

Commercial and Industrial Solutions Segment

Market Overview – We expect growth in theThe primary HVAC&R markets served by our CIS segment.segment experienced moderate growth during fiscal 2019 and we expect continued growth during fiscal 2020.  We anticipate growth in the global commercial and residential air conditioning markets will result fromdriven by an expansion of reliable energy sources and increases in income levels in China, India, and other developing countries.  Demand for efficient HVAC&R systems will beis driven by more stringent energy efficiency regulations and the need for higher-efficiency buildings.  WeAlso in regard to the commercial air conditioning markets, we expect growth in the global refrigeration markets, and in particular, in China and India.  We also expect increasing urbanization, changing food consumption trends and increasing global trade will drive investments in refrigeration infrastructure.  We believeprecision air conditioning market driven by increasing heat density in data centers resulting from rising levels of data traffic and storage requirements, coupled with the overall expansion of the underlying data center market, will result in growth of the global precision air conditioning market.  In addition, regulatory bodies are imposing stricter guidelines aimed to reduce carbon footprint, which is driving data centers to adopt the latest precision cooling solutions.  We expect growth in the global refrigeration markets, particularly in China and India.  We also expect increasing urbanization, changing food consumption trends and increasing global trade will drive investments in refrigeration infrastructure.  The global industrial power sector is characterized by the continuing demand for electricity as a preferred source of energy, climate change initiatives to minimize environmental impacts, growth and industrialization in emerging markets, and grid upgrades and refurbishments in more mature markets.

Products – Coils (heat-exchanger and microchannel); 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 consumers in a variety of commercial and industrial applications, including commercial and mobile air conditioning, refrigeration, 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.

Building HVAC Systems Segment

Market Overview –The North AmericaAmerican heating market contractedexpanded in fiscal 2017, primarily2019 due to warmer-than-normaloverall positive economic conditions, but was also supported by the increased length of the winter temperaturesseason in our key geographic markets.  We are planning for modest improvement in the North AmericaAmerican heating market in fiscal 2018.2020.  We also anticipate increased market demand for our data center cooling, ventilation and geothermal heat pump products in fiscal 2018.2020, as we expand our product offering in this market.  In addition to North America, we also serve HVACheating, ventilating, and air conditioning (“HVAC”) markets in the United Kingdom, mainland Europe, the Middle East, Far East and South Africa.  Similar to our CIS segment, our BHVAC segment is poised to benefit from anticipated trends in the data center market, as described above.  Likewise, weWe expect improvement in commercial investment, construction marketsmarket activity, and energy efficiency legislation to drive increased demand for our ventilation and geothermalair conditioning products.  We anticipate that recent European legislation, designed to increase equipment efficiency and reduce the use of high global warming potential refrigerants, will result in customer buying pattern shifts over the next couple years, and may increase market volatility in the short-term, as HVAC equipment providers shift products towards more efficient and environmentally-friendly alternatives.  With regard to Brexit, we are committed to being as prepared as possible to ensure continuity of service and supply to our customers.

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 from 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 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.; Commercial Environmental Solutions (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); Ingersoll Rand Inc. (Trane); Bard Manufacturing; and Aaon, Inc.

Geographical Areas

We maintain administrative organizations in all key geographical regions 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 StatesBrazilAustriaChinaUnited Arab Emirates
Mexico BelgiumIndiaSouth Africa
  GermanyJapan 
  HungarySouth Korea 
  Italy  
  Netherlands  
  Russia
Serbia  
  Spain  
  Sweden  
  United Kingdom  

Our non-U.S. subsidiaries and affiliates manufacture and sell a number of vehicular and commercial, industrial and building HVAC&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 6 percent, 5 percent and 7 percent in fiscal 2019, 2018 and 2017, and 9 percent in both fiscal 2016 and 2015.respectively.

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

Foreign and Domestic Operations

Financial information relating to our foreign and domestic operations is included in Note 20 of the Notes to Consolidated Financial Statements.

Customer Dependence

Our ten largest customers, certain of which are conglomerates or otherwise affiliated, accounted for 5450 percent of our consolidated net sales in fiscal 2017.  These customers, listed alphabetically, were: Carrier, Caterpillar; Daimler AG (including Daimler Trucks, Detroit Diesel, Mercedes-Benz, Mitsubishi Fuso Trucks and Western Star Trucks); Deere & Company; Denso Corporation; FCA Italy S.p.A. (including Chrysler, CNH, Fiat, Iveco, and VM Motori); Navistar (including MWM International); Volkswagen AG (including Audi, MAN, Porsche, and Scania); AB Volvo (including Mack Trucks and Renault Trucks); and ZF Friedrichshafen AG.2019.  In fiscal 2019, 2018, 2017, 2016 and 2015, Daimler AG and Volkswagen AG each accounted for 10 percent or more of our sales.

Our top customers operate primarily in the automotive, commercial vehicle, off-highway, data center cooling and commercial air conditioning markets. Our top customers, listed alphabetically, include: Carrier, Caterpillar; Daimler AG (including Daimler Trucks, Detroit Diesel, Mercedes-Benz, and Western Star Trucks); Deere & Company; FCA N.V. (including Chrysler, CNH, Fiat, Iveco, and VM Motori); Ingersoll Rand Inc. (Trane); Navistar (including MWM International); Volkswagen AG (including Audi, MAN, Porsche, and Scania); and AB Volvo (including Mack Trucks and Renault Trucks).  In addition, the financial results of our CIS segment includeincludes significant sales (7generated from a single global technology customer (14 percent of CIS segment sales in fiscal 2017) from a global technology customer, whose identity2019) with which we cannot disclose dueare party to confidentiality requirements, to which sales have historically fluctuated significantly from one quarter or fiscal year to the next.agreements.  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.
Backlog of Orders

Our operating segments maintain their own inventories and production schedules.  We believe that our current production capacity is capable of handling the sales volume expected in fiscal 20182020 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.suppliers, with other suppliers qualified and supplying lesser amounts to mitigate risk.  We normallytypically 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 us to adjust customer prices, on a prospective basis, based upon increases and decreases 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.

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 2,3002,500 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 automotive, powersports, commercial vehicle, construction, agricultural, and commercial, industrial, and building HVAC&R markets.  Our products and systems are often 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.

R&D expenditures, including certain application engineering costs for specific customer solutions, totaled $64$70 million, $61$66 million, and $62$64 million in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  Over the last three years, R&D expenditures have been between 43 and 5 percent of our consolidated net sales.  This level of investment reflects our continued commitment to R&D in an ever-changing 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 EGR technology, oil coolers, charge air coolers, refrigerant heat exchangers, and battery thermal management systems for the automotive, commercial vehicle, agriculture, construction, and residential and commercial energy storage markets, which enable our customers to meet more 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 cooling, building HVAC, and commercial and industrial thermal management products.  We also collaborate with several industry, university, and government-sponsored research organizations that conduct research and provide data on 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 capabilities.

Quality Improvement

Globally, we drive quality improvement by maintaining the Global Modine Management System, applying the Modine Operating 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 and administrative offices in our Americas, Europe and Asia segments are registered to ISO 9001:200820015 or ISO/TSIATF 16949:20092016 standards, helping to ensure that our customers receive high quality products and services.  We have begun to transition to ISO 9001:2015 and IATF 16949:2016 standards.   While customer expectations for performance, quality and service continue to rise, our QMSGlobal Modine Management System 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.
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Our global QMSGlobal Modine Management System operates within the context of theour Modine Operating System, (“MOS”), which focuses on well-defined improvement principles and leadership behaviors to engage our teams in facilitating rapid improvements.

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We drive sustainable and systematic continuous improvement throughout all operating segments and functional areas of the organizationour company by utilizing the principles, processes and behaviors that are core to these systems.

To ensure future quality, we established the Modine Quality Strategy, which focuses on people, process, performance, tools and methods 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 we have established specific environmental improvement targets and objectives for fiscal 2020.  The majority of our facilities maintain Environmental Management System (“EMS”) certification to the international ISO14001 standard through independent third-party audits.  Our locations have established specific environmental improvement targets

During fiscal 2018, we launched a global initiative to reduce both our energy and objectives for the upcomingwater usage by 5 percent by fiscal year.  As part2020.  Each of our integration activities with our new CIS segment,facilities around the world is actively engaged in support of this initiative, and we are assessingcurrently on pace to meet our energy and harmonizingwater usage goals in fiscal 2020.  Examples of steps being taken to meet these goals include the environmental, healthinstallation of more efficient LED lighting systems, the replacement of inefficient boilers and safety policiesair compressors, improved building HVAC management systems, increased industrial water recycling, and practices at CIS segment facilities with thosethe installation of Modine.  As such, our discussion in this section primarily excludes consideration of these recently-acquired operations.water-saving faucets.

In fiscal 2017, our carbon emission levels, primarily resulting from on-site use of natural gas and propane, and use of electricity generated by off-site sources, were consistent with the prior year.  We will continue to identify and implement carbon reduction opportunities when feasible in fiscal 2018.  Our commitment to environmental stewardship is reflected in the results of our reporting of chemical releases, as monitored by the U.S. 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 2005 to 2015.  This long-term improvement is the result of manufacturing efficiencies and our transition to more environmentally-friendly manufacturing technologies and raw materials.

Our product portfolio reflects our sense of environmental responsibility.  We continue to develop and refine environmentally-friendly product lines, including oil, fuel, and EGR coolers for gas and diesel applications, light-weight and high-performance powertrain cooling heat exchangers for both combustion and electric vehicle, air cooled refrigerant and liquid heat exchangers used in residential, commercial, and industrial applications, and our Advanced Cooling Systemadvanced cooling system technology.  These products provide increased fuel economies, and enable combustion technologies that reduce harmful gas emissions.emissions for vehicles, and provide energy efficient solutions for building and stationary applications. In our CIS segment, we are moving towards smaller diameter tubing across many of our product lines, which has not only made our products more energy efficient, but has enabled our customers to use less refrigerants in order to reduce their global warming potential.  Our Building HVACBHVAC segment offerings including the Airedale SchoolMate® water source heat pump;include the EffinityTM, a condensing gas-fired unit heater with industry-leading efficiencies; the AtherionTM Commercial Packaged Ventilation System; the Airedale SchoolMate® with a water source heat pump; and the completely redesigned GeoSyncTM geothermal heat pump featuring our patented CFTM microchannel coilAiredale Chiller product line-up, ecodesign compliant with the highest heating efficiencies in its class.European standards.  These products are helping commercial, industrial and residential users achieve high energy efficiencies and reduce utility costs.

Obligations for remedial activities may arise at our facilities due to past practices, or as a result of a property purchase or sale.  These expenditures most often relate to sites where past operations followed practices that were considered acceptable under then-existing regulations, but now require investigative and/or remedial work to ensure appropriate environmental protection or where we are a successor to the obligations of prior owners and current laws and regulations require investigative and/or remedial work to ensure sufficient environmental compliance.  Environmental liabilities for investigative work and remediation at sites in the U.S. and abroad including at CIS sites, totaled $17$19 million at March 31, 2017.2019.

We recorded a fiscal 2017 globalhave consistently out-performed the private-industry Recordable Incident Rate (“RIR” as defined by OSHA) of 1.31, which represents an improvement of 20 percent compared with our fiscal 2016 rate of 1.63.  We have consistently out-performed the private-industry RIR average for the manufacturing sector, which by comparison was 3.83.5 in 2015.

2017.  During fiscal 2019, we recorded an RIR of 1.29, which was lower than our prior year rate of 1.42.  Since our acquisition of the Luvata HTS business in fiscal 2017, we have been implementing our behavior-based safety program at CIS segment locations.  We believe our safety program, now in place at all CIS segment locations, has contributed to the decrease in the RIR in fiscal 2019.  Our behavior-based safety program is a proactive global effort under which we seekproactively seeks to correct at-risk behaviors andwhile positively reinforcereinforcing safe behaviors. As an example of our proactive efforts, we recently introduced process stream safety to our Americas segment facilities.  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.  As part of our integration activities, we are actively engaged in implementing our behavior-based safety program at our recently-acquired CIS locations.
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Employees

We employed approximately 11,20012,200 persons worldwide as of March 31, 2017.2019.

Seasonal Nature of Business

Our overall operating performance is generally not subject to a significant degree of seasonality, as sales to OEM customers are dependent upon market demand for new vehicles.  However, our second fiscal quarter production schedules are typically impacted by customer summer shut downs and our third fiscal quarter is affected by holiday schedules.  Additionally, our CIS and BHVAC segments experience some seasonality, as demand for HVAC&R products can be affected by heating and cooling seasons, weather patterns, construction, and other factors.  We expect sales volume within our CIS segment to be higher during our first two fiscal quarters due to the construction seasons in the northern hemisphere.  Sales volume within the BHVAC segment is generally stronger in our second and third fiscal quarters, corresponding with demand for heating products.

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Working Capital

We manufacture products for the majority of customers in our vehicularVTS and CIS segments on an as-ordered basis, which makes large inventories of finished products unnecessary.  In Brazil, within our VTS segment, we maintain 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 certain sales programs.  In Brazil, within our Americas segment, we maintain higher levels of aftermarket product inventory in order to timely meet customer needs in the Brazilian automotive and commercial vehicle aftermarkets.  We dohave not experienceexperienced a significant number of returned products within any of our operating segments.

Available Information

Through our website, www.modine.com (Investors link), we make available, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, other Securities Exchange Act reports and all amendments to those reports as soon as reasonably practicable after such material is electronically filed 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, among others:


-−Code of Conduct, which is applicable to all Modine directors and employees, including the principal executive officer, the principal financial officer, and the principal accounting officer;

-−Corporate Governance Guidelines;

-−Audit Committee Charter;

-−Officer Nomination and Compensation Committee Charter;

-−Corporate Governance and Nominating Committee Charter; and

-−Technology Committee Charter.

All of the reports and corporate governance documents referenced above and other materials relating to corporate governance may also be obtained without charge by contacting Corporate Secretary, Modine Manufacturing Company, 1500 DeKoven Avenue, Racine, Wisconsin 53403-2552.  We do not intend to incorporate our internet website and the information contained therein or incorporated therein into this annual report on Form 10-K.

ITEM 1A.
RISK FACTORS.

In the ordinary course of our business, we face various market, operational, strategic, and financial risks.  These risks could have an impact on our business, financial condition, and results of operations.  Our most significant risks are set forth below and elsewhere in this Annual Report on Form 10-K.

Our Enterprise Risk Management (“ERM”) process seeks to identify and address significant risks.  We believe that risk-taking is an inherent aspect of operating a global business and, in particular, one focused on growth and cost-competitiveness.  Our goal is to proactively manage risks in a structured approach in conjunction with strategic planning, with the intent to preserve and enhance shareowner value.  However, the risks set forth below and elsewhere in this report, as well as other risks currently unknown or deemed immaterial at the date of this report, could adversely affect us and cause our financial results to vary materially from recent or anticipated future results.

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A.MARKET RISKS

Customer and Supplier Matters

Our vehicular customers continually seek price reductions from us.  These price reductions adversely affect our results of 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 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 could be adversely affected.

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

Increases in the costs of raw materials and other purchased component inventory, which may be impacted by a variety of factors, including changes in trade laws and tariffs, could have a significant adverse effect on our results of operations.  We have sought to alleviate this risk by including provisions within our long-term customer contracts which allow us to adjust customer prices, on a prospective basis, based upon increases and decreases in the cost of key raw materials.  However, where these contract provisions are applicable, there can often be a three-month to one-year lag until the time of the price adjustment.  To further mitigate our exposure, from time to time we enter into forward contracts to hedge a portion of our forecasted aluminum and copper purchases.  However, these hedges may only partially offset increases in material costs, and significant increases could have an adverse effect on our results of operations.

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 upon 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 constraints, financial instability, or other circumstances experienced by our suppliers could result in shortages or delays in their supply of product to us, or a significant price increase resulting in our need to resource.  If we were to lose business withexperience a majorsignificant or prolonged shortage of critical components or materials from any of our suppliers and could not procure the components or materials from other sources, we would be unable to meet our production schedules and we would miss product delivery dates, which would adversely affect our sales, results of operations and customer ourrelationships.

Our net sales and profitability could be adversely affected.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.  Generally speaking, this risk is highest in our vehicular business segments.segments, where a large portion of sales are attributable to a relatively small number of customers.  We principally compete for new vehicular business both during the initial development of new models and upon the redesign of existing models by our major customers.  New model development generally begins two to five years prior to marketing such models to the public.  The failure to obtain new business on new models or to retain or increase business on redesigned existing models could adversely affect our business and financial results.  In addition, as a result of the relatively long lead times required for many of our complex vehicular components, it may be difficult in the short term for us to obtain new sales to replace any unexpected decline in sales of existing products.  We may incur significant expense in preparing to meet anticipated customer requirements that may not be recovered.  The loss of a major customer, the loss of business with respect to one or more of the vehicle models that use our vehicular products, or a significant decline in the production levels of such vehicles could have an adverse effect on our business, results of operations and financial condition.

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Our Commercial and Industrial Solutions business is subject to fluctuations in financial results due to the percentage of net sales derived from one customer.

The financial results of our Commercial and Industrial Solutions business includeCIS segment includes significant sales generated from onea single global technology customer (7(14 percent of CIS segment sales), a global technology company whose identity with which we cannot disclose dueare party to confidentiality requirements.agreements.  Sales to this customer have historically fluctuated significantly from one quarter or fiscal year to the next.  While we expect to be able to manage troughs and take advantage of peaks in these sales levels, to the extent we are unable to predict and mitigate lower sales levels or respond in a timely fashion to higher sales levels, ourthe results of operations for this businessthe CIS segment could be adversely affected.

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

We are highly susceptible to unfavorable trends in the markets we serve as our customers’ sales and production levels are affected by general economic conditions, including access to credit, the price of fuel and electricity, employment levels and trends, interest rates, labor relations issues, regulatory requirements, trade agreements and other market factors, as well as by customer-specific issues.  Any significant decline in production levels for current and future customers could result in asset impairment charges and a reduction in our sales, thereby adversely impacting our results of operations and financial condition.
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Fluctuations in costs of materials (including aluminum, steel, copper, nickel, other raw materials and energy) could place significant pressure on our results of operations.

Increases in the costs of materials could have a significant effect on our results of operations and on those of others in our industry.  We have sought to alleviate this risk by including material pass-through provisions in our customer contracts when possible.  Under these arrangements, we adjust customer prices, on a prospective basis, based upon increases and decreases in the cost of key raw materials.  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 price adjustment.  To further mitigate our exposure, we have, from time to time, entered into forward contracts to hedge a portion of our forecasted aluminum and copper purchases.  However, these hedges may only partially offset increases in material costs, and significant increases could have an adverse effect on our results of operations.

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 upon total value (including price, delivery and quality), taking into consideration their production capacities, financial condition and ability to meet our demand.  In some cases, it can take several months or longer to find a supplier due to qualification requirements.  However, strong demand, capacity limitations, financial instability, or other problems experienced by our suppliers could result in shortages or delays in their supply of product to us.  If we were to experience a significant or prolonged shortage of critical components or materials from any of our suppliers and could not procure the components or materials from other sources, we would be unable to meet our production schedules and we would miss product delivery dates, which would adversely affect our sales, results of operations and customer relationships.

Continual customer pressure to absorb costs adversely affects our profitability.

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 results of operations.

Competitive Environment

We face strong competition.

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

Exposure to Foreign Currencies

As a global company, we are subject to foreign currency rate fluctuations, which 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.

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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 various restructuring activities in our Americas, EuropeVTS, CIS and BHVAC segments in order to optimize our manufacturing footprint and cost structure.  These restructuring activities have included the consolidation of manufacturing facilities in North America and Europe, as well as targeted headcount reductions that support our objective of reducing operational and SG&A cost structures.structures and the consolidation and/or closure of manufacturing facilities in North America and Europe.  In addition, we are focusedcontinue 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 others,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 ProductProgram Launches

We are in the midst of launchingcontinue 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 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 ofparticularly within our segments,VTS segment, we must appropriately manage these launches and deploy our operational and administrative resources to take advantage of thisthe resulting increase in our business.  If we do not successfully launch thenew 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 productionoperating 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.Asia.  In fiscal 2017, 552019, 53 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, limitations on the repatriation of funds, changing economic conditions, unreliable intellectual property protection and legal systems, insufficient infrastructures, social unrest, political instability and disputes (including, for example, the uncertainty related to the proposed 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 is burdensome 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.

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.

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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.

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Developments or assertions by or against us relating to intellectual property rights could adversely affect our business.

We own significant intellectual property, including a large number of patents, trademarks, copyrights and trade secrets.  Our intellectual property plays an important role in maintaining our competitive position in a number of the markets we serve.  As we expand our operations in jurisdictions where the enforcement of intellectual property rights is less robust, the risk of others duplicating our proprietary technologies increases, despite our efforts to protect them.  Developments or assertions by or against us relating to intellectual property rights could adversely affect our business and results of operations.

Information Technology (IT) Systems

We may be adversely affected by any substantial disruption in, or material breach of, our information technologyIT systems.

Our operationsWe are dependent upon our information technologyIT infrastructure, including network, hardware, and software systems, which encompass all ofto conduct our major business functions.  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 information technologyIT systems for a prolonged time period, or a significantmaterial breach of our information security,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.  We recognizereputation, and could lead to significant remediation expenses and litigation risks.  Our systems, and 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 integritysystems of our systems and data.  In addition, our systems mightservice 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 man-madeoccurrences, many of which may, despite our best efforts, be beyond our ability to effectively detect, anticipate or control.  Any such events (caused by us, by our service providers or others).  Suchand the related 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 vehicular customers have extended warranty protection for their vehicles, putting pressure on the supply base to extend warranty coverage as well.  If our customers demand higher warranty-related cost recoveries, or if our products fail to perform as expected, it could have a material adverse impact on our results of operations and financial condition.  We are also involved in various legal proceedings from time to time incidental to our business.  If any such proceeding has a negative result, it could adversely affect our business, results of operations and financial condition.

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.

1413
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 put pressure on 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 and financial condition.

Attracting 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 depend significantly on the engagement of our employees and their skills, experience and industry knowledge to support our objectives and initiatives.  Difficulty attracting, developing, and retaining qualified personnel, particularly in light of tightening global labor markets, could adversely affect our business, results of operations and financial condition.

C.STRATEGIC RISKS

Growth StrategiesStrategic Business Evaluation

We may fail to realize all of the anticipated benefits from our acquisition of Luvata HTS.

The optimization of our VTS segment’s future profitability depends, in part, upon the success of our acquisitionevaluation of Luvata HTS will depend,strategic alternatives for our automotive business.

As previously disclosed, we are evaluating strategic alternatives for our automotive business within our VTS segment.  The goal of this evaluation is to identify the most successful path forward for the automotive business to optimize the value we offer customers and also provide the highest return for our shareholders.  We currently believe a large extent, on our ability to efficiently integrate the former Luvata HTS operations into Modine, realize expected cost and revenue synergies, and effectively manage unanticipated risks or events that may arise.  Difficulties of integrating the acquired business may include, but are not limited to, i) the diversion of management attention to integration matters, ii) challenges of conforming standards, internal controls, procedures, and accounting and other policiessale of the acquiredautomotive business to thoseis the most likely path forward.  There can be no assurance that the evaluation of Modine, and iii) difficultiesany strategic alternative, including the potential sale of or continued investment in our automotive business, will result in a consummated transaction or the consummation of another alternative.  If our evaluation process does not result in the integrationsuccessful consummation of a strategic alternative, or if we are otherwise unable through such consummation to realize our goal for the automotive business, we may not be able to optimize the profitability of our VTS segment, which could adversely affect our results of operations and systems.  The integration process may result in the loss of key employees and the disruption of ongoing business activities and relationships.  In addition, anticipated cost and revenue synergies may not be realized fully or at all, or may take longer to realize than expected.  We may fail to achieve the financial results that we expected from the acquisition.condition.

Growth Strategies

Inability to identify and execute on inorganic- and organic-growthgrowth opportunities may adversely impact our business and operating results.

We expect to continue to 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.markets.  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 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.

14
D.FINANCIAL RISKS

Liquidity and Access to Cash

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

In fiscal 2017, we entered into new credit agreements to fund a significant portion of our acquisition of Luvata HTS.  As of March 31, 2017,2019, we had total outstanding indebtedness of $511$450 million.  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.  If we are unable to bringmaintain our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) back intowithin our target range of 1.5 to 2.5, in an effective manner, or if we are unable to move cash globally to enable debt repayments in a tax-efficient manner, our results of operations and financial condition could be adversely affected.

The proposed phase out of the London Interbank Offer Rate (“LIBOR”) could have an adverse effect on our business

Our revolving credit facility and current term loans utilize LIBOR to set the interest rate on outstanding borrowings.  In July 2017, the Financial Conduct Authority, a regulator of financial service firms in the U.K., announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021.  Currently, there is no definitive information or consensus regarding the future utilization of LIBOR or of any particular alternative reference rates.  As a result, it is not possible to predict the effect of these changes, other reforms, or the establishment of alternative reference rates, but the potential phase out of LIBOR could adversely affect our access to the capital markets and cost of funding.

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

We have several defined benefit pension plans in the U.S., all of which are frozen to new participants.  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 liability of $82$67 million.  During fiscal 2018,2020, we anticipate making funding contributions totaling $13$3 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 financial condition could be adversely affected.

15
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 $299$285 million at March 31, 2017.  The majority of these assets relate to our recent acquisition of Luvata HTS in November 2016.2019.  We perform goodwill impairment tests annually, as of March 31, or more frequently if appropriate.  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 would write down the asset to fair value and record an impairment charge to current operations.  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.

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. Recently, the 2016 U.S. presidential election resulted in an administration and Congress that are controlled by the same party, a party publicly focused on tax reform.  Changes in U.S. tax policy and tax rates, if they occur, could have a material impact on our business activities and results of operations. In addition, we are 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.

ITEM 1B.
UNRESOLVED STAFF COMMENTS.

None.
1615
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”).  The Tax Act includes broad and complex changes to the U.S. tax code, including, but not limited to (i) a reduction in the U.S. federal corporate tax rate from 35 percent to 21 percent effective January 1, 2018, and (ii) a transition tax on certain unrepatriated earnings of foreign subsidiaries.  We completed our accounting for the Tax Act during fiscal 2019; see Note 8 of the Notes to Consolidated Financial Statements for more information.  Additional impacts from the Tax Act could result if there are changes in interpretations or applications of the Tax Act’s provisions or if supplementary regulatory guidance is issued.

ITEM 1B.
UNRESOLVED STAFF COMMENTS.

None.

ITEM 2.
PROPERTIES.

We operate manufacturing facilities in the U.S. and multiple foreign countries.  Our world headquarters, including general offices and laboratory, experimental and tooling facilities, is located in Racine, Wisconsin.  We have additional technical support functions located in Grenada, Mississippi; Guadalajara, Spain; Bonlanden, Germany; Söderköping, Sweden; Pocenia, Italy; Sao Paulo, Brazil; Leeds, United Kingdom; Changzhou, China; and Chennai, India.

The following table sets forth information regarding our principal properties as of March 31, 2017.2019.  Properties with less than 20,000 square feet of building space have been omitted from this table.

Location of FacilityBuilding SpacePrimary UseOwned or Leased
AmericasVTS Segment
North and South America
Lawrenceburg, TN554,000 sq. ft.Manufacturing144,000 Owned;Owned
410,000 Leased
Nuevo Laredo, Mexico466,000 sq. ft.Manufacturing
399,000 Owned;
Owned
67,000 Leased
Sao Paulo, Brazil343,000375,000 sq. ft.ManufacturingOwned
Jefferson City, MO220,000202,000 sq. ft.Manufacturing162,000 Owned;Owned
58,00040,000 Leased
Trenton, MO160,000 sq. ft.ManufacturingOwned
Joplin, MO140,000 sq. ft.ManufacturingOwned
Laredo, TX92,000 sq. ft.WarehouseLeased
 
Europe Segment
Bonlanden, Germany205,000 sq. ft.Administrative & technology centerOwned
Kottingbrunn, Austria221,000 sq. ft.ManufacturingOwned
Mezökövesd, HungaryPontevico, Italy154,000167,000 sq. ft.ManufacturingOwned
Pontevico, ItalyMezökövesd, Hungary151,000246,000 sq. ft.ManufacturingOwned
Pliezhausen, Germany126,000 sq. ft.Manufacturing48,000 Owned;Owned
78,000 Leased
Kirchentellinsfurt, Germany108,000 sq. ft.Manufacturing (closed)Owned
Uden, Netherlands94,000107,000 sq. ft.Manufacturing61,000 Owned;74,000 Owned
33,000 Leased
Neuenkirchen, Germany76,000 sq. ft.ManufacturingOwned
Gyöngyös, Hungary58,000 sq. ft.ManufacturingLeased
 
Asia Segment
Changzhou, China255,000 sq. ft.ManufacturingOwned
Chennai, India118,000122,000 sq. ft.ManufacturingOwned
Yangzhou, China116,000 sq. ft.Manufacturing (Joint Venture)Leased
Changzhou, China108,000 sq. ft.ManufacturingOwned
Shanghai, China80,000 sq. ft.ManufacturingLeased
Cheonan, South Korea46,000 sq. ft.Manufacturing (Joint Venture)Leased

1716
Location of FacilityBuilding SpacePrimary UseOwned or Leased
Commercial and Industrial SolutionsCIS Segment
North America
Grenada, MS809,000 sq. ft.Administrative, manufacturing & manufacturingtechnology centerLeased
Grenada, MS220,000 sq. ft.ManufacturingOwned
Grenada, MS190,000 sq. ft.ManufacturingLeased
Juarez, Mexico326,000 sq. ft.ManufacturingLeased
Jacksonville, TX55,000 sq. ft.ManufacturingOwned
Temecula, CA33,000 sq. ft.ManufacturingLeased
Louisville, KY28,000 sq. ft.ManufacturingLeased
Tampa, FL23,000 sq. ft.ManufacturingLeased
Ramos Arizpe, Mexico59,000 sq. ft.ManufacturingLeased
Europe
Pocenia, Italy449,000 sq. ft.Administrative, manufacturing & manufacturingtechnology centerOwned
Guadalajara, Spain482,000 sq. ft.ManufacturingOwned
Söderköping, Sweden216,000 sq. ft.ManufacturingOwned
Amaro, Italy196,000 sq. ft.ManufacturingLeased
Kötschach-Mauthen, Austria195,000 sq. ft.ManufacturingOwned (closed)
San Vito, Italy131,000 sq. ft.ManufacturingOwned
Sremska Mitrovica, Serbia128,000 sq. ft.ManufacturingLeased
Padova, Italy78,000 sq. ft.ManufacturingLeased
Guadalajara, Spain
482,000 sq. ft.ManufacturingOwnedAsia
Zhongshan, China143,000 sq. ft.ManufacturingLeased
Wuxi, China125,000 sq. ft.ManufacturingLeased
Juarez, Mexico204,000 sq. ft.ManufacturingLeased
Ramos Arizpe, Mexico59,000 sq. ft.ManufacturingLeased
Söderköping, Sweden237,000 sq. ft.ManufacturingOwned
Kötschach-Mauthen, Austria195,000 sq. ft.ManufacturingOwned
Sremska Mitrovica, Serbia91,00099,000 sq. ft.ManufacturingLeased
 
Building HVACBHVAC Segment
Leeds, United Kingdom247,000 sq. ft.Administrative & manufacturingLeased
Consett, United Kingdom30,000 sq. ft.ManufacturingOwned
Consett, United Kingdom20,000 sq. ft.ManufacturingLeasedNorth America
Buena Vista, VA197,000 sq. ft.ManufacturingOwned
Lexington, VA104,000 sq. ft.WarehouseOwned
West Kingston, RI93,000 sq. ft.ManufacturingOwned
Europe
Leeds, United Kingdom247,000 sq. ft.Administrative & manufacturingLeased
Consett, United Kingdom38,000 sq. ft.ManufacturingOwned
Consett, United Kingdom20,000 sq. ft.ManufacturingLeased
 
Corporate Headquarters
Racine, WI458,000 sq. ft.Headquarters & technology centerOwned

We consider our plants and equipment to be well maintained and suitable for their purposes. We review our manufacturing capacity periodically and make the determination as to our need to expand or, conversely, rationalize our facilities as necessary to meet changing market conditions and our needs.

ITEM 3.
LEGAL PROCEEDINGS.

The information required hereunder is incorporated by reference from Note 1820 of the Notes to Consolidated Financial Statements.

ITEM 4.
MINE SAFETY DISCLOSURES.

Not applicable.

1817
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT.OFFICERS.

The following sets forth the name, age (as of March 31, 2017)2019), recent business experience and certain other information relative to each executive officer of the Company.

 Name Age Position
 Brian J. Agen50Vice President, Human Resources (October 2012 – Present).
Dennis P. Appel 4244 Vice President, Commercial and Industrial Solutions (December 2016 – Present). Prior to joining Modine, Mr. Appel held a variety of leadership positions with Luvata HTS in the U.S., Europe and Asia, including most recently, President of Luvata HTS.
 
    
 Scott L. Bowser 5254 Vice President, Global Operations (October 2016Chief Operating Officer (January 2019 – Present); previously Vice President, Global Operations and Vice President of Asia and Global Procurement for the Company.
 
    
 Thomas A. Burke 5961 President and Chief Executive Officer (April 2008 – Present).
 
    
 Margaret C. KelseyJoel T. Casterton 5247 Vice President, Legal and Corporate Communications, General Counsel and Secretary (April 2014Vehicular Thermal Solutions (January 2018 – Present); previously Vice President, General Counsel and SecretaryDirector – Global Program Management & Quality for the Company.
 
    
 Michael B. Lucareli 4850 Vice President, Finance and Chief Financial Officer (October 2011 – Present).
 
Thomas F. Marry56Executive Vice President and Chief Operating Officer (February 2012 – Present).
    
 Matthew J. McBurney 4749 Vice President, Strategic Planning and Development (November 2017 – Present); previously Vice President, Luvata HTS Integration (September 2016 – Present); previouslyfor the Company and Vice President, Building HVAC for the Company.
 
    
 Scott A. Miller 5254 Vice President, Building HVAC (September 2016 – Present); previously Managing Director – Global Operations for the Company and Operations Director of the Building HVAC and North America business units for the Company.
 
    
 Holger SchwabSylvia A. Stein 52 Regional
Vice President, – Europe (July 2012General Counsel and Corporate Secretary (January 2018 – Present).  Prior to joining Modine, Mr. Schwab held various leadership positionsMs. Stein served as the Associate General Counsel, Marketing & Regulatory at Valeo in North Americathe Kraft Heinz Foods Company and Europewas Chief Counsel, Cheese & Dairy and at Thermal Werke in Europe.Grocery Business Units for Kraft Foods Group, Inc. / Kraft Foods Global, Inc.
 
    
 Scott D. Wollenberg 4850 Vice President – Americas and Chief Technology Officer (July 2016 – Present); previously Regional Vice President – Americas for the Company.

Executive Officer positions are designated in our Bylaws and the persons holding these positions are elected annually by the Board, generally at its first meeting after the annual meeting of shareholders in July of each year.  In addition, the Officer Nomination and Compensation Committee of the Board may recommend and the Board of Directors may 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, who joined Modine in July 2012 and Mr. Appel, who joined in December 2016.2016 and Ms. Stein, who joined in January 2018, whose business experience during the last five years is provided 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.

1918
PART II

ITEM 5.
MARKET FOR REGISTRANT'SREGISTRANT’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 2017 and 2016.  As of March 31, 2017,2019, shareholders of record numbered 2,607.2,338.

  Fiscal 2017  Fiscal 2016 
Quarter High  Low  High  Low 
First $11.26  $8.50  $13.50  $10.60 
Second  11.90   8.70   10.79   7.85 
Third  16.30   9.30   9.62   7.91 
Fourth  15.55   11.00   11.23   6.01 

We did not pay dividends during fiscal 20172019 or 2016.2018.  Under our debt agreements, we are permitted to pay dividends on our common stock, subject to certain restrictions based upon 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 2018.2020.

We did not purchase shares of common stock during the fourth quarter of fiscal 2019.

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, 2014  2015  2016  2017  2018  2019 
Modine Manufacturing Company $100  $91.95  $75.15  $83.28  $144.37  $94.68 
Russell 2000 Index  100   108.21   97.65   123.25   137.79   140.61 
S&P MidCap 400 Industrials Index  100   106.62   103.89   129.45   150.75   152.62 
     Indexed Returns 
  Initial Investment  Years ended March 31, 
Company / Index March 31, 2012  2013  2014  2015  2016  2017 
Modine Manufacturing Company $100  $103.06  $165.91  $152.55  $124.69  $138.17 
Russell 2000 Index  100   116.30   145.26   157.19   141.85   179.03 
S&P MidCap 400 Industrials Index  100   124.48   153.76   163.94   159.74   199.03 

2019
ISSUER PURCHASES OF EQUITY SECURITIES

The following describes our purchases of common stock during the fourth quarter of fiscal 2017:

 
 
 
 
 
 
 
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, 2017 15,675 (a) $13.99 _______ _______
          
 February 1 – February 28, 2017 _______ _______ _______ _______
          
 March 1 – March 31, 2017 _______ _______ _______ _______
          
 Total 15,675 $13.99 _______ _______

(a)Consists of shares delivered back to the Company by employees and/or directors to satisfy tax withholding obligations that arise upon the vesting of stock awards.  The Company, pursuant to its equity compensation plans, gives participants the opportunity to turn back to the Company the number of shares from the award sufficient to satisfy the person’s tax withholding obligations that arise upon the termination of restrictions.  These shares are held as treasury shares.

ITEM 6.
SELECTED FINANCIAL DATA.

The following data should be read in conjunction with the consolidated financial statements and accompanying notes included elsewhere in this report.

 Years ended March 31,  Years ended March 31, 
(in millions, except per share amounts) 2017  2016  2015  2014  2013  2019  2018  2017  2016  2015 
                              
Net sales $1,503  $1,353  $1,496  $1,478  $1,376  $2,213  $2,103  $1,503  $1,353  $1,496 
Earnings (loss) from continuing operations  15   (1)  22   132   (23)
Operating income  110   92   42   37   54 
Net earnings (loss)  86   24   15   (1)  23 
Total assets  1,450   921   931   1,030   816   1,538   1,573   1,450   921   931 
Long-term debt - excluding current portion  406   126   130   131   133   335   386   406   126   130 
Net cash provided by operating activities  42   72   64   105   49   103   124   42   72   64 
Expenditures for property, plant and equipment  64   63   58   53   50   74   71   64   63   58 
Earnings (loss) per share from continuing operations - basic:  0.29   (0.03)  0.45   2.75   (0.52)
Earnings (loss) per share from continuing operations - diluted:  0.29   (0.03)  0.44   2.72   (0.52)
Net earnings (loss) per share attributable to Modine shareholders:                    
Basic $1.67  $0.44  $0.29  $(0.03) $0.46 
Diluted  1.65   0.43   0.29   (0.03)  0.45 
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Table of Contents

The following factors impact the comparability of the selected financial data presented above:

·During fiscal 2017, we acquired Luvata HTS for total consideration of $388 million, net of cash acquired.  This transaction and the related debt financing resulted in increases in net sales ($178 million within our CIS segment), total assets and long-term debt.  During fiscal 2017, we recorded acquisition- and integration-related costs associated with our acquisition of Luvata HTS totaling $15 million.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.
On November 30, 2016, we acquired Luvata HTS for total consideration of $388 million, net of cash acquired.  Since the date of acquisition, we’ve consolidated financial results from this business within our CIS segment.  During fiscal 2019, 2018 and 2017, CIS segment net sales were $708 million, $676 million, and $232 million, respectively.  This transaction and the related debt financing also resulted in increases in total assets and long-term debt.  During fiscal 2018 and 2017, we recorded $4 million and $15 million, respectively, of costs directly related to the acquisition and integration of Luvata HTS.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.

·During fiscal 2017, 2016, 2015, 2014, and 2013, we incurred $11 million, $17 million, $5 million, $16 million, and $17 million, respectively, of restructuring expenses.  See Note 5 of the Notes to Consolidated Financial Statements for additional information.
During fiscal 2019, 2018, 2017, 2016, and 2015, we incurred $10 million, $16 million, $11 million, $17 million, and $5 million, respectively, of restructuring expenses.  See Note 6 of the Notes to Consolidated Financial Statements for additional information.

·During fiscal 2016, 2015, 2014, and 2013, we recorded impairment charges of $10 million, $8 million, $3 million, and $26 million, respectively.  See Note 5 of the Notes to Consolidated Financial Statements for additional information.
During fiscal 2018, 2016, and 2015, we recorded impairment charges of $3 million, $10 million, and $8 million, respectively.  See Notes 6 and 14 of the Notes to Consolidated Financial Statements for additional information.

·During fiscal 2016, we recorded $42 million of non-cash pension settlement losses.  See Note 16 of the Notes to Consolidated Financial Statements for additional information.
During fiscal 2018, we recorded provisional income tax charges totaling $38 million as a result of U.S. tax legislation enacted in December 2017 commonly referred to as the Tax Act.  During fiscal 2019, we recorded income tax benefits totaling $22 million related to the Tax Act and the recognition of foreign tax credits.  See Note 8 of the Notes to Consolidated Financial Statements for additional information.

·During fiscal 2016, we recorded a $10 million gain related to an insurance settlement for equipment losses.  See Note 1 of the Notes to Consolidated Financial Statements for additional information.
During fiscal 2016, we recorded $42 million of non-cash pension settlement losses associated with a voluntary lump-sum payout program offered to certain eligible former employees and a $10 million gain related to an insurance settlement for equipment losses associated with a fire at our Airedale manufacturing facility in the U.K in September 2013.

·During fiscal 2014, we reversed $119 million of deferred tax asset valuation allowances in the U.S.
20
Table of Contents
ITEM 7.
MANAGEMENT'SMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

Founded in 1916, Modine Manufacturing Company is a global leader in thermal management systems and components, bringing heating and cooling technology and solutions to diversified global markets.  We operate on five continents, in 2019 countries, and employ approximately 11,20012,200 persons worldwide.

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

Company Strategy

During fiscal 2016, weWe launched our Strengthen, DiversifySDG strategy over three years ago to establish a more global, product-based organizational structure and Grow (“SDG”)a strategic transformation in supportframework for our company.  We’re proud of our Enduring Goals, which are focused on diversification, sales growth, profitability,achievements to date under SDG’s core guiding principles.  We’ve successfully acquired and rapid improvement.  SDG included specific actions and targets intended to optimizeintegrated the Luvata HTS business, now operating within our cost structure and improve the efficiencyCIS segment.  The CIS segment has propelled our organization forward toward our vision of our operations, as well as to grow and diversify our business.

On November 30, 2016, we addressed our “Diversify” and “Grow” commitments in particular by completing our acquisition of Luvata HTS.  The acquisition of Luvata HTS,becoming a leading global supplier of coils, coolersdiversified industrial thermal management company.  This acquisition succeeded in better diversifying our product portfolio and coatings, increasedimproving our industrial business portfolio, broadened our customer base, reduced cyclical exposure, and expanded our growth profile.  Commencing from the acquisition date, we have operated Luvata HTS as our CIS business segment.  We are actively engaged in integration activities and expect to realize cost synergies through procurement savings, operational improvements, and organizational efficiencies over three to four years.  In addition, we anticipate revenue synergies through expanded sales channels and cross-selling opportunities resulting from our highly-complementary product portfolios.

We havecash flow.  We’ve also taken actions to strengthen our business.  Thesebusiness and lower our operating and SG&A cost structures, including restructuring actions, which have included i)encompassed plant consolidation activities, targeted headcount reductions, and product line transfers, and global procurement initiatives resulting in reducedto reduce costs for materials and services; ii) plant consolidation activities in North America, reflectingservices.  Reflecting on these achievements, we believe that Modine is stronger than ever.

As we look ahead, we aim to build upon our focus on operating scale manufacturing facilities to improve overall competitiveness and profitability; and iii) a voluntary retirement program in the U.S. and targeted headcount reductions at several locations, which have resulted in lower operating and SG&A cost structures.  Absent market recoveries, these cost savings are critical to offset increased costs from wage inflation, material costs and contractual price-down commitmentsSDG strategy by pursuing opportunities that best align with our customers.
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As we enter fiscal 2018, we are continuing to focus on cost controlvision for the future and lower-cost manufacturing capacity.  In addition, during fiscal 2018, we plan to complete a comprehensive assessment ofsecure our strategic opportunities for each of our business segments so that we can set appropriate new growth objectives.  As demonstrated by our acquisition of Luvata HTS, our growth strategy is grounded in our core capabilitiesposition as a global diversified industrial thermal management leader.company. We intendhave made significant progress in executing our multi-year strategy to continue to exploit these capabilities going forward with products andestablish meaningful positions in markets in whichwhere we can deliver sustainable shareholder value.consistent, profitable growth. We regularly review our product portfolio and the end markets we serve to ensure we have the right mix of business to build and move Modine forward.  We recently announced that we are evaluating strategic alternatives for our automotive business within our VTS segment in order to optimize the segment’s profitability and reprioritize capital investments across all of our businesses. We believe our SDG strategy will continue to keep us grounded, thriving, and transforming to optimize the value we offer our customers and to provide the highest returns for our shareholders.

Development of New Products and Technology

Our ability to develop new products and technologies based upon our building block strategy for new and emerging markets is one of our competitive strengths.  Under this strategy, we focus on creating core technologies that form the basis for multiple products and product lines across multiple business segments.  Our new CISEach of our business also hassegments have a strong heritage of new product development, and we expect our entire global technology organization to benefitbenefits from mutual strengths in this regard.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.

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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.  During fiscal 2017, we leveraged our strong balance sheet position to acquire Luvata HTS, a leading global supplier of coils, coolers and coatings to the HVAC&R industry.  The acquisition of Luvata HTS increased our industrial business portfolio, broadened our customer base, reduced cyclical exposure, and expanded our growth profile. We are actively engaged in integration activities and expect to realize cost and revenue synergies.  We plan to continue to pursue organic- and external-growth opportunities, particularly to grow our global, market leading positions in our industrial marketsbusinesses and in strategically important aspects ofcontinue to build on the momentum and success recently experienced by our vehicular business.CIS and BHVAC segments.

Operational and Financial Discipline

We operate in a dynamic, global marketplace; therefore, we manage our business with a disciplined focus on increasing productivity and reducing waste.  The nature 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,VTS and BHVACCIS segments and at Corporate.during recent years.  In addition, as costs for materials and purchased parts may rise from time to time due to increases in commodity markets, we seek low-cost 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, intended to enable increased profitability and cash flows over the long term.  We place particular emphasis on working capital improvement and prioritization of our capital investments.

Our executive management incentive compensation (annual cash incentive) plan for fiscal 20172019 was based upon consolidated ROACE and operating income growth.growth 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 awards.  The performance-based stock awards for the fiscal 20172019 through 20192021 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.
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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.  Effective April 1, 2018, we merged our Americas coils business into the CIS segment to accelerate operational improvements and organizational efficiencies and formed the VTS segment by combining our Americas, Europe, and Asia operations to enable us to operate as a more global, product-based organization.

Americas (35Vehicular Thermal Solutions (59 percent of fiscal 20172019 net sales)

Our AmericasVTS segment provides thermal managementpowertrain and engine cooling products, including, but not limited to, radiators, charge air coolers, condensers, oil coolers, EGR coolers, and fuel coolers, to OEMs in the automotive, commercial vehicle, off-highway, and automotiveoff-highway markets in North America, South America, Europe, 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, turf, construction, mining, and power generation equipment.Asia.  In addition, the Americasour VTS 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 AmericasVTS segment declinedincreased during fiscal 20172019, as compared with the prior year, primarily due to volume declines inhigher sales to certain key end markets.  Substantial market decline in the North America commercial vehicle market and slight decline in the off-highway markets were partially offset by modest improvement in the automotive market, which remained relatively strong throughout fiscal 2017.  Brazil experienced market declines across its primary markets.  We expect the North America commercial vehicle, off-highway, and automotive markets will be relatively flat in fiscal 2018.  We anticipate markets in Brazil will experience slow-to-moderate growth in fiscal 2018, after experiencing significant declines in the past few years.  We will continue to target higher-growth markets, within which we expect to benefit from rising efficiency standards, including the U.S. automotive and coils markets, which are influenced by vehicle electrification, improved fuel economy, and building HVAC efficiency and air quality standards, respectively.
Our Americas segment will continue to focus on growth in the markets where our products and manufacturing footprint create a competitive advantage.  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 2017, we completed the transfer of production from our Washington, Iowa manufacturing facility to other facilities in North America.  Our cost-reduction efforts in recent years, including plant consolidation activities in North America and various cost-saving initiativesAsia.  In North America, we benefited from a substantial recovery in Brazil, have allowed usthe off-highway market and experienced sales volume increases to maintain profitabilityautomotive customers, despite the challenging market environment.
Europe (35 percent of fiscal 2017 net sales)
Our Europe segment provides powertrain and engine cooling systems, as well as vehicular climate control components, to OEM end markets, including thea relatively flat automotive market.  The North American 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 moderatemarket experienced significant growth during fiscal 2017, as compared with the prior year.  Sales volumeyear; however, our sales growth to commercial vehicle customers declined in fiscal 2017,lagged behind the overall market trend, primarily due to the planned wind-down of severalcertain commercial vehicle programs.  The premium automotive market grew slightly during fiscal 2017, while the off-highway markets declined.  Sales volumeIn Asia, we benefited from growth primarily within the automotive market, was largely offset by an unfavorable impact of foreign currency exchange rate changes, primarily due to the strengthening of the U.S. dollar versus the euro in the second half of fiscal 2017.
Our Europe segment is focused on continuous improvements, sourcing production in lower-cost locations and cost containment.  In order to stay competitive across our primary markets, we are expanding our production capacity in Hungary, which we foresee playing a key role in our future manufacturing footprint in Europe.  We expect continued price-reduction pressure from our customers, along with increased global customer service expectations and competition from suppliers with significant scale and/or which are operating in lower-cost locations.  Our manufacturing footprint activities in Europe have favorably impacted our financial results and strengthened our overall competitiveness over the past several years.  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.
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Asia (7 percent of fiscal 2017 net sales)
Our Asia segment provides powertrain cooling systems and engine products to customers in the automotive, off-highway, and commercial vehicle markets.
During fiscal 2017, Asia segment sales increased 41 percent, primarily due to strong automotive market demand and maturing program volumes to automotive customers in China, the gradual recovery of off-highway markets in China and Korea and incrementalmaturing automotive program volumes in China.  In order to meet growing regional demand, we expanded our manufacturing capacity in Changzhou, China during fiscal 2019.  Tariffs unfavorably impacted our VTS segment’s financial results during fiscal 2019, both directly and indirectly.  Impacts of tariffs on our raw material costs included the direct cost of tariffs on certain imported items from China; rising prices from domestic sources, as certain suppliers leveraged tariffs to impose cost increases; and resourcing costs, as certain domestic suppliers have chosen to exit supplying certain products altogether due to capacity constraints resulting from increased demand.  The unfavorable impacts of tariffs were partially offset by the implementation of strict cost control in other areas.

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Looking forward to fiscal 2020, we anticipate varied levels of growth in our key end markets.  To meet increased demand in Asia, we will complete our expansion of manufacturing capacity in our locations near Chennai, India and Yangzhou, China.  We expect the global automotive markets will be relatively flat.  In regard to the global commercial vehicle markets, we expect a decline in North America, Europe and Asia and growth in South America.  We expect our commercial vehicle sales will decrease compared with fiscal 2019, primarily due to the planned wind-downs of certain programs in Europe and North America.  However, we expect growth in our commercial vehicle business in China, primarily due to increasing production of Euro 6 engines that have additional Modine content.  In regard to global off-highway markets, we anticipate modest growth in the majority of both construction and agricultural markets.

As recently announced, we are evaluating strategic alternatives for our automotive business.  A primary objective of our evaluation is optimizing our VTS segment’s profitability profile.  The automotive market exhibits different industry dynamics, growth trajectories, and strategic opportunities, as compared with the commercial vehicle and off-highway markets we serve, and generally requires higher capital investment from our joint venture, Modine Puxin Thermal Systems (Jiangsu) Co., Ltd, whichits supply base.  While we formed in late fiscal 2016.  We are continuing to ramp up productionexplore various alternatives to best serve our customers and provide the greatest return for our shareholders, we currently believe a sale of aluminum oil coolers in our facility in Shanghai, China, and production levels at our manufacturing facilities in Changzhou, China and Chennai, India also increased in fiscal 2017.the automotive business is the most likely path forward.  We expect this trendremain firmly committed to continue in fiscal 2018.  In recent years, our technology, performance, quality, and reputation have enabled us to win new engine products and powertrain cooling 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-the commercial vehicle and off-highway powertrain cooling customers focus on price more than technology.  We expectmarkets and making the necessary investments to benefit from additional powertrain and engine cooling opportunities resulting from the evolution of emission standards in Asia, which are projected to rise over the next several years.  We do expect, however, that customers in the Asia markets will remain price-focused in the near term.ensure our global business is successful.

Our strategy in this segment is to increase sales volume levels and enhance sustained profitability.  Our focus is on securing new business and further diversifying our product offering and customer base, while simultaneously controlling costs and increasing our asset utilization and manufacturing capabilities.  We believe our Asia segment is well positioned for growth and new programs in the future.
Commercial and Industrial Solutions (1232 percent of fiscal 20172019 net sales)

Since the November 30, 2016 acquisition date, we have operated Luvata HTS as our CIS segment.  Our CIS segment provides a broad offering of thermal management products to the HVAC&R markets, including solutions tailored to indoor 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 heat-exchanger and microchannel coils, including 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 as well as for precision climate control for other applications such as data centers, and other types such as 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.

We are currentlyDuring fiscal 2019, CIS experienced above-market sales growth, primarily driven by strong market dynamics.  The data center cooling and commercial refrigeration markets both yielded stronger than expected demand.  In order to meet growing and regional demand, we expanded our manufacturing capacity in the process of integrating the CIS business processes with those of Modine.  Looking forward, our strategy in this segment is to realize potential synergiesboth Serbia and grow future earnings.  We have announced targeted cost synergies totaling at least $15 million of savings over the next three to four years.  We plan to derive these cost savings from a variety of opportunities including procurement activities, operational improvements and organizational efficiencies.  We believe our CIS segment is well-positioned for sustained, positive long-term financial results, driven in particular by growing market demand.  Mexico.  We expect demand to increase in the coming years in markets associated with commercial and residential air conditioning, chilled and frozen food, and data storage, and we expectmodest growth at varied rates, in each of the CIS markets we serve during fiscal 2018.2020.

Looking forward, we will continue to work on manufacturing strategies to ensure we are offering competitive solutions and operating in regions with the most cost-effective footprint.  Additionally, we aim to capitalize on opportunities arising from energy and environmental regulations; we believe we are well-positioned to be the partner of choice to provide our customers innovative commercial and industrial thermal management solutions.

Building HVAC (11Systems (9 percent of fiscal 20172019 net sales)

Our BHVAC segment manufactures and distributes a variety of original equipment and aftersales HVAC products, primarily for commercial buildings and related applications in North America, the United Kingdom, 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 owners for applications such as warehouses, repair garages, greenhouses, residential garages, schools, data centers, manufacturing facilities, hotels, hospitals, restaurants, stadiums, and retail stores.  Our heating products include gas (natural and propane), electric, oil and hydronic unit heaters, low- and high-intensity infrared, and large roof-mounted direct- and indirect-fired makeup air units.  Our ventilation products include single-packaged vertical units and unit ventilators used in school room applications, air-handling equipment, and rooftop packaged ventilation units used in a variety of commercial building applications.  Our cooling products include precision air conditioning units used 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.

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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 sales growth drivers for our building HVAC products.  During fiscal 2017,2019, sales improved across all of our North America packagedproduct platforms, including heating, ventilation, products improved; however, our school ventilation product sales declined.  North America heatingair conditioning, and aftersales.  Our U.K. business experienced sales volume declined, but by less thanimprovements in air conditioning equipment and aftersales.  In fiscal 2019, we made the overall market.  Our Airedalestrategic decision to sell our business in South Africa and, as a result, recorded a $2 million loss on the U.K. began to make headway against the unfavorable currency and commodity price conditions that negatively impacted sales during fiscal 2016 and early fiscal 2017.sale.

We expect modestcontinued growth in each of the HVAC markets we serve during fiscal 2018, although at varied rates.2020.  The markets we serve are heavily impacted by construction activity, building regulations, and owner/occupant comfort requirements.  Growth rates in these markets have recently shown some strength, as manufacturing, housing, and business investment have increased.continue to increase.  In fiscal 2018,2020, we expect sales growth in our BHVAC segment through the introduction of new and unique products for the markets we serve.serve and focused market share gains.

Consolidated Results of Operations

On November 30, 2016, we acquired Luvata HTS for consideration totaling $415.6 million ($388.2 million, net of cash acquired).  Now operating as Modine’s Commercial and Industrial Solutions (“CIS”) segment, thisThis business is a leading global supplier of coils, coolers and coatings to the HVAC&R industry, with more than $500.0 millionheating, ventilation, air conditioning, and refrigeration industry.  We’ve consolidated financial results from this business within our CIS segment since the acquisition date; accordingly, fiscal 2017 included four months of net sales in calendar 2016.financial results from the acquired business.

On January 29, 2019, we announced that we are evaluating strategic alternatives for our automotive business within our VTS segment. Our acquisition of Luvata HTS addressed in particularprimary objectives include optimizing the “Diversify”VTS segment’s profitability and “Grow” commitmentsreprioritizing capital investments across all of our transformational Strengthen, Diversify and Grow strategy launchedbusinesses. While we are continuing to explore various alternatives, we currently believe a sale of the automotive business is the most likely path forward.  We expect to complete our evaluation in fiscal 2016.  This acquisition increased our industrial business portfolio, broadened our customer base, reduced cyclical exposure, and expanded our growth profile.  We are actively engaged in integration activities and expect2020 to realize cost synergies through procurement savings, operational improvements, and organizational efficiencies over three to four years.  In addition,determine what actions we anticipate revenue synergies through expanded sales channels and cross-selling opportunities resulting from our highly-complementary product portfolios.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding our acquisition of Luvata HTS.may take as a result, if any.

Fiscal 20172019 net sales increased $150$110 million, or 115 percent, from the prior year, primarily due to $178 million of incremental sales from our new CIS segment and higher sales in each of our Asia segment, partially offset by lower sales in our Americas and BHVACoperating segments.  Gross profit increased $9 million, yet gross margin improved 40declined 50 basis points to 16.9 percent.16.5 percent, as the benefit from higher sales volume was more than offset by unfavorable material costs, including the impacts of tariffs, and temporary operating inefficiencies largely resulting from increased volumes and new program launches at certain facilities.  SG&A expenses decreased $2 million, or 70 basis points as a percentage of sales.  During fiscal 2017,2019, we recorded $11$10 million of restructuring expenses, for activities, including Strengthen, Diversify and Grow initiatives, intendedprimarily related to optimize our cost structure and improvetargeted headcount reductions within the efficiencyVTS segment.  Fiscal 2019 operating income increased $18 million to $110 million.  The impacts of our operations.  In addition, we incurred $15accounting for the Tax Act significantly impacted our $5 million income tax benefit in fiscal 2019, as compared with an income tax provision of costs directly related to$40 million in the acquisition and integrationprior year.  As a result of Luvata HTS.  Ourthe higher operating income was $39and the impact of income taxes, our fiscal 2019 net earnings of $86 million in fiscal 2017 and, asimproved $62 million compared with the prior year, was favorably impacted by the absence of pension settlement losses totaling $42 million in fiscal 2016.year.

Fiscal 20162018 net sales decreased $143increased $600 million, or 1040 percent, from the prior year, primarily due to $444 million of additional sales from our CIS segment and higher sales in our other operating segments.  We owned the Luvata HTS business (CIS segment) for four months in fiscal 2017.  Gross profit increased $103 million, including $66 million of additional contribution from our CIS segment.  SG&A expenses increased $43 million, primarily due to a $110$39 million unfavorable impactincrease in SG&A expenses in our CIS segment.  During fiscal 2018, we recorded $16 million of foreign currency exchange rate changesrestructuring expenses, primarily related to a facility closure in our CIS segment and targeted headcount reductions in our VTS segment.  Fiscal 2018 operating income increased $50 million to $92 million.  Our fiscal 2018 net earnings of $24 million increased $9 million compared with the prior year, primarily due to the $50 million increase in operating income, partially offset by $38 million of provisional income tax charges associated with the strengthening of the U.S. dollar,Tax Act and lower sales in our Americas segment.  During fiscal 2016, we completed a voluntary lump-sum payout program offered to certain eligible former employees participating in our U.S. pension plans.  As a result of lump-sum payouts in fiscal 2016, we recorded $42 million of non-cash pension settlement losses to costs of sales ($9 million) and SG&A expenses ($33 million).  Also in fiscal 2016, we recorded restructuring expenses totaling $17 million and a $10 million asset impairment charge related to a manufacturing facility in Germany.  Our operating loss was $8 million in fiscal 2016, compared with operating income of $53 million in the prior year.  In addition, we recorded a $10 million gain in fiscal 2016 within other income related to an insurance settlement for equipment losses resulting from a fire at our Airedale manufacturing facility and offices in the U.K. during fiscal 2014.higher interest expense.

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The following table presents our consolidated financial results on a comparative basis for fiscal years 2017, 2016,2019, 2018, and 2015.2017.

 Years ended March 31,  Years ended March 31, 
 2017  2016  2015  2019  2018  2017 
(in millions) 

Year Ended March 31, 20172019 Compared with Year Ended March 31, 2016:2018:

Fiscal 20172019 net sales increased $150$110 million, or 115 percent, from the prior year, primarily due to $178 million of incremental sales from our new CIS segment and higher sales in each of our Asia segment,operating segments, partially offset by lower sales in our Americas and BHVAC segments.  Sales volume increases in our BHVAC segment were more than offset by an $11a $28 million unfavorable impact of foreign currency exchange rate changes.

Fiscal 20172019 gross profit of $253 million increased $29$9 million from the prior year, andyet gross margin increased 40declined 50 basis points to 16.916.5 percent.  These increases wereThe decline in gross margin was primarily due to $26 millionunfavorable material costs, including the direct and indirect impacts of gross profit contributed by the CIStariffs, and temporary operating inefficiencies largely related to increased volumes and multiple new program launches in our VTS segment, cost savings resulting from procurement initiatives, and the absence of $9 million of pension settlement losses recognized in the prior year, partially offset by temporary production inefficiencies in the Americas segment, the unfavorable impact of ahigher sales volume.  In addition, gross profit was unfavorably impacted by $4 million inventory purchase accounting adjustmentfrom foreign currency exchange rate changes.

Fiscal 2019 SG&A expenses of $244 million decreased $2 million, or 70 basis points as a percentage of sales, from the prior year.  The decrease in SG&A expenses was primarily due to lower integration costs associated with our November 2016 acquisition of the Luvata HTS business and unfavorable material costs.  In addition,a $3 million favorable impact of foreign currency exchange rate changes, negatively impacted fiscal 2017 gross profit by $2 million.

Fiscal 2017 SG&A expenses of $205 million were consistent with the prior year, but decreased as a percentage of net sales.  During fiscal 2017, $19 million of SG&A expenses in the CIS segment and $15 million of acquisition- and integration-related costs associated with our acquisition of Luvata HTS were largely offset by the absence of $33 million of pension settlement losses recognized in the prior year.

Restructuring expenses decreased $6 million in fiscal 2017 compared with the prior year, primarily due to lower severance expenses, partially offset by higher equipment transferthird-party strategic advisory costs recorded at Corporate and plant consolidationhigher environmental charges within our VTS segment.  During fiscal 2019, we recorded $7 million of costs, in the Americas segment.primarily consisting of third-party consulting fees, related to our evaluation of strategic alternatives for our VTS segment’s automotive business.

During fiscal 2017, we sold two previously-closed manufacturing facilities within our Americas segment and a facility within our Europe segment.  As a resultFiscal 2019 restructuring expenses of these sales, we recognized net gains totaling $2 million.

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.

Operating income of $39 million in fiscal 2017 represents a $47 million improvement compared with an operating loss of $8 million in the prior year.  Fiscal 2017 operating performance improved in our Europe and Asia segments, while operating performance declined in our Americas and BHVAC segments.  Operating income was favorably impacted by the absence of $42 million of pension settlement losses and a $10 million impairment charge recognized in the prior year, $8 million of operating income contributed by the CIS segment, and lower restructuring expenses, partially offset by acquisition- and integration-related costs and the impact of the inventory purchase accounting adjustment totaling $19 million.
Fiscal 2017 interest expense increaseddecreased $6 million compared with the prior year, primarily due to new debt used to financelower severance-related expenses associated with the fiscal 2018 closure of a significant portion of our acquisition of Luvata HTS.manufacturing facility in Gailtal, Austria within the CIS segment.

OtherDuring fiscal 2019, we sold our South African business within the BHVAC segment and, as a result, recorded a loss of $2 million.

Operating income during fiscal 2016 included a $10of $110 million gain related to an insurance settlement for equipment losses resulting from the Airedale fire in fiscal 2014.2019 increased $18 million compared with the prior year, primarily due to higher earnings in the CIS and BHVAC segments, partially offset by lower earnings in the VTS segment.

OurThe benefit for income taxes was $5 million in fiscal 2019, compared with a provision for income taxes was $6of $40 million in fiscal 2017,2018.  The $45 million change was primarily due to our accounting for the impacts of the Tax Act.  As a result of the Tax Act, we recorded provisional income tax charges totaling $38 million in the prior year, compared with a benefit for income taxes of $9tax benefits totaling $8 million in fiscal 2016.  Thethe current year.  In addition, we recorded income tax benefitbenefits totaling $17 million in fiscal 2016 includedthe current year resulting from the recognition of tax assets for foreign tax credits and other attributes, partially offset by the absence of a $16 million benefit related to pension settlement losses and a $3$9 million benefit from a development tax credit in Hungary recorded in the reversalprior year and changes in the mix of a deferred tax asset valuation allowance in a foreign tax jurisdiction.  The income tax provision in fiscal 2017 includes a $2 million provisionoperating earnings.  See Note 8 of the Notes to establish a valuation allowance in a separate foreign tax jurisdiction.Consolidated Financial Statements for additional information.

Year Ended March 31, 20162018 Compared with Year Ended March 31, 2015:2017:

Fiscal 20162018 net sales decreased $143increased $600 million, or 1040 percent, from the prior year, primarily due to lower$444 million of additional sales from our CIS segment, which included sales from the acquired Luvata HTS business that we owned for four months of fiscal 2017, higher sales in each of our Americas and Europe segments. Sales volume increases in our Europe segment were more than offset by a $76 million unfavorable impact of foreign currency exchange rate changes.  In total, our fiscal 2016 sales were negatively affected by a $110 million unfavorable impact of foreign currency exchange rate changes, primarily associated with the strengthening of the U.S. dollar.

Fiscal 2016 gross profit decreased $23 million to $224 million, 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 favorable 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 initiativesother operating segments, and a $10$55 million favorable impact of foreign currency exchange rate changes.

Restructuring expensesFiscal 2018 gross profit of $357 million increased $12$103 million in fiscal 2016 compared withfrom the prior year, primarily due to severance expenses$66 million of additional gross profit from our CIS segment and higher gross profit in our VTS and BHVAC segments.  Gross profit was favorably impacted by $9 million from foreign currency exchange rate changes.  Gross margin improved 10 basis points to 17.0 percent, primarily due to higher sales volume, savings resulting from cost-reduction initiatives, improved operating efficiencies, and the absence of a $4 million inventory purchase accounting adjustment recorded in the Europeprior year, partially offset by unfavorable material costs and Americas segmentsincremental depreciation and equipment transfer costs related to plant consolidation activities in the Americas segment.amortization expense resulting from purchase accounting for Luvata HTS.

In fiscal 2016, we recorded a $10Fiscal 2018 SG&A expenses of $246 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 $3increased $43 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 wasyear, primarily due to $42a $39 million increase in SG&A expenses in our CIS segment, $4 million of pension settlement losses, lower gross profit,strategy consulting fees incurred during fiscal 2018, higher restructuringcompensation-related expenses, and a $4 million unfavorable impact of foreign currency exchange rate changes, partially offset by ongoing cost-control initiatives.lower costs incurred related to the acquisition of Luvata HTS.  SG&A expenses, as a percentage of net sales, decreased 180 basis points compared with the prior year.

Other income duringRestructuring expenses of $16 million in fiscal 2016 included a $102018 increased $5 million gaincompared with the prior year, primarily due to severance-related expenses in the CIS segment related to an insurance settlement for equipment losses resulting from the Airedale fireclosure of a manufacturing facility in Austria.

During fiscal 2018, we recorded impairment charges totaling $3 million related to the closure of the CIS manufacturing facility in Austria and the discontinuance of a product line in our BHVAC segment.

During fiscal 2017, we sold three manufacturing facilities within our VTS segment, two of which were previously closed, and recognized net gains totaling $2 million.

Operating income of $92 million in fiscal 2014.2018 increased $50 million compared with the prior year, primarily due to $18 million of additional operating income contributed by our CIS segment and higher earnings in the VTS and BHVAC segments.

Our benefitFiscal 2018 interest expense increased $9 million compared with the prior year, primarily due to debt issued to finance a significant portion of our acquisition of Luvata HTS.

The provision for income taxes was $9$40 million and $6 million in fiscal 2016, compared with a provision for income taxes of $192018 and 2017, respectively.  The $34 million in fiscal 2015.  This $28 million changeincrease was primarily due to $16$38 million of provisional charges recorded in fiscal 2018 related to the Tax Act and increased operating earnings, partially offset by income tax benefits related to pension settlement lossestotaling $14 million resulting from i) a development tax credit in fiscal 2016, a decrease in operating earnings, and a $3 million income tax benefit related toHungary ($9 million); ii) the reversal of a deferredportion of the valuation allowance in a foreign jurisdiction ($3 million); and iii) a reduction of unrecognized tax assetbenefits resulting from a lapse in statutes of limitations ($2 million), and the absence of a $2 million provision recorded in the prior year to establish a valuation allowance.allowance in a separate foreign jurisdiction.

Segment Results of Operations

Americas                  
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $534   100.0% $586   100.0% $667   100.0%
Cost of sales  447   83.8%  486   82.9%  558   83.7%
Gross profit  87   16.2%  100   17.1%  109   16.3%
Selling, general and administrative expenses  54   10.1%  55   9.4%  65   9.7%
Restructuring expenses  7   1.3%  9   1.5%  3   0.4%
Gain on sale of facilities  (1)  -0.2%  -   -   -   - 
Impairment charge  -   -   -   -   8   1.2%
Operating income $27   5.0% $36   6.2% $33   5.0%
Since the date we acquired Luvata HTS (November 30, 2016), we have included financial results of this acquired business within our CIS segment.  Effective April 1, 2018, we merged our Americas coils business into the CIS segment to accelerate operational improvements and organizational efficiencies and formed the VTS segment by combining our Americas, Europe, and Asia operations to enable us to operate as a more global, product-based organization.  We began reporting financial results for our new segments beginning in fiscal 2019.  Segment financial information for fiscal 2018 and 2017 has been recast to conform to the fiscal 2019 presentation.

VTS   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $1,352   100.0% $1,296   100.0% $1,152   100.0%
Cost of sales  1,165   86.2%  1,095   84.5%  970   84.2%
Gross profit  187   13.8%  201   15.5%  182   15.8%
Selling, general and administrative expenses  113   8.3%  110   8.4%  106   9.2%
Restructuring expenses  9   0.7%  7   0.6%  10   0.9%
Gain on sale of assets  -   -   -   -   (2)  -0.2%
Operating income $65   4.8% $84   6.5% $68   5.9%

Year Ended March 31, 20172019 Compared with Year Ended March 31, 2016:2018:

AmericasVTS net sales decreased $52increased $56 million, or 94 percent, in fiscal 20172019 compared with the prior year, primarily due to higher sales volume to off-highway and automotive customers in North America and Asia, partially offset by lower sales volume to commercial vehicle and off-highway customers in North America,Europe and a $21 million unfavorable impact of foreign currency exchange rate changes.  Gross profit decreased $14 million and gross margin declined 170 basis points to 13.8 percent.  The decline in gross margin was primarily due to unfavorable material costs, including the impacts of tariffs, and temporary operating inefficiencies largely related to increased volumes and new program launches at certain manufacturing facilities, partially offset by higher sales volume.  In addition, foreign currency exchange rate changes had an unfavorable $3 million impact on gross profit.  SG&A expenses increased $3 million compared with the prior year, yet decreased 10 basis points as a percentage of sales.  The increase in SG&A expenses primarily resulted from higher environmental charges related to previously-owned manufacturing facilities in the U.S. and higher compensation-related expenses, partially offset by a $2 million favorable impact of foreign currency exchange rate changes.  Restructuring expenses increased $2 million, primarily due to higher severance expenses.  Operating income decreased $19 million to $65 million, primarily due to lower gross profit and higher SG&A and restructuring expenses.

Year Ended March 31, 2018 Compared with Year Ended March 31, 2017:

VTS net sales increased $144 million, or 12 percent, in fiscal 2018 compared with the prior year, primarily due to higher sales volume to off-highway and automotive customers and a $5$42 million favorable impact of foreign currency exchange rate changes.  Gross profit decreased $13increased $19 million, and gross margin decreased 90 basis points to 16.2 percent in fiscal 2017.  These decreases were primarily due to lowerhigher sales volumevolume.  Gross margin declined 30 basis points, primarily due to unfavorable material costs, the absence of favorable customer pricing settlements recorded in the prior year, and temporaryhigher depreciation expense resulting from recent production inefficiencies in North America, largely related to product launches and plant consolidation activities,capacity investments, partially offset by cost savings resulting from procurement initiatives,improved operating efficiencies.  In addition, foreign currency exchange rate changes had a favorable material costs and lower environmental costs related to a previously-owned manufacturing facility, as compared with the prior year.  Fiscal 2017$7 million impact on gross profit.  SG&A expenses decreased $1 million from fiscal 2016, primarily due to lower compensation-related expenses and a higher recovery of development costs, partially offset by a $1.6 million charge related to a legal matter in Brazil for which the Company has agreed to a settlement.  In fiscal 2017, we recorded $7 million of restructuring expenses, primarily consisting of equipment transfer and plant consolidation costs related to the closure of our Washington, Iowa manufacturing facility, which we completed during fiscal 2017, and severance expenses.  In addition, we sold two closed manufacturing facilities in North America and recognized gains totaling $1 million as a result.  Operating income of $27 million in fiscal 2017 decreased $9increased $4 million compared with the prior year, primarily due to lower gross profit.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

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.  Gross profit decreased $9 million, yet gross margin increased 80 basis points to 17.1 percent in fiscal 2016.  The decrease in gross profit was primarily due to lower sales volume, a $3 million unfavorable impact of foreign currency exchange rate changes, higher compensation-related expenses, and $2 million ofhigher environmental charges related to a previously-owned manufacturing facility in the U.S., partially offset by lower material costs, cost savings from completed restructuring activities, and improved production efficiencies.  Fiscal 2016 SG&A expenses decreased $10 million from fiscal 2015, primarily due to cost-control initiatives, the absence of a $3$2 million charge forrecorded in the prior year related to a legal matter in Brazil, in the prior year,which has since been settled and paid.  As a percentage of sales, SG&A expenses decreased 80 basis points to 8.4 percent.  Restructuring expenses decreased $3 million, favorable impact of foreign currency exchange rate changes.  In fiscal 2016, we recorded $9 million of restructuring expenses, primarily consisting of severance expenses associated with a voluntary retirement program in the U.S. and the closure of our Washington, Iowa manufacturing facility,due to lower plant consolidation and equipment transfer costs.  In fiscal 2017, we sold three manufacturing facilities and, plant consolidation costs in North America.  Operating incomeas a result, recognized gains totaling $2 million.

CIS   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $708   100.0% $676   100.0% $232   100.0%
Cost of sales  593   83.8%  578   85.5%  200   86.1%
Gross profit  115   16.2%  98   14.5%  32   13.9%
Selling, general and administrative expenses  61   8.6%  60   8.8%  21   9.2%
Restructuring expenses  -   -   8   1.2%  -   - 
Impairment charges  -   0.1%  1   0.2%  -   - 
Operating income $53   7.5% $29   4.2% $11   4.7%

Year Ended March 31, 2019 Compared with Year Ended March 31, 2018:

CIS net sales increased $32 million, or 5 percent, in fiscal 2016 increased $3 million2019 compared with the prior year, primarily due to lower SG&A expenses and the absence of an $8 million goodwill impairment charge in fiscal 2015, partially offset by lower gross profit and higher restructuring expenses.
Europe
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $524   100.0% $524   100.0% $578   100.0%
Cost of sales  443   84.6%  456   87.0%  509   88.1%
Gross profit  81   15.4%  68   13.0%  69   11.9%
Selling, general and administrative expenses  42   7.9%  39   7.4%  44   7.6%
Restructuring expenses  3   0.6%  6   1.2%  2   0.4%
Gain on sale of facility  (1)  -0.2%  -   -   (3)  -0.6%
Impairment charge  -   -   10   1.9%  -   - 
Operating income $37   7.1% $13   2.5% $26   4.5%
Year Ended March 31, 2017 Compared with Year Ended March 31, 2016:

Europe net sales of $524 million in fiscal 2017 were consistent with the prior year, as higher sales volume to automotivedata center and commercial HVAC&R customers, waspartially offset by lower sales volume to commercial vehicle and off-highwayindustrial customers and a $3$5 million unfavorable impact of foreign currency exchange rate changes.  Gross profit increased $13$17 million and gross margin improved 240170 basis points to 15.416.2 percent, in fiscal 2017, primarily due to cost savings resulting from procurement initiatives, favorable sales mix, and improved production efficiencies, partially offset by unfavorable material costs.  SG&A expenses increased $3 million in fiscal 2017, primarily due to higher compensation-related expenses.  In fiscal 2017, we recorded $3 million of restructuring expenses, primarily consisting of severance expenses.  In addition, we sold a manufacturing facility in Europe and recognized a gain of $1 million as a result.  Operating income of $37 million in fiscal 2017 increased $24 million compared with the prior year, primarily due to higher gross profit and the absence of a $10 million impairment charge in the prior year.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

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.  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.  Fiscal 2016favorable sales mix.  SG&A expenses increased $1 million, yet decreased $520 basis points as a percentage of sales.  The $1 million from the prior year,increase in SG&A expenses was primarily due to higher compensation-related expenses, including higher commission costs, partially offset by a $6$1 million favorable impact of foreign currency exchange rate changes.  In fiscal 2016, weRestructuring expenses decreased $8 million, primarily due to the absence of severance-related expenses recorded $6 million of restructuring expenses, primarilyin the prior year related to severance expenses.  In addition, we recorded a $10 million asset impairment charge.  These restructuring expenses and impairment charge primarily related tothe closure of a manufacturing facility in Germany, which was generating pre-tax losses, resulting in management decidingAustria.  In fiscal 2018, we recorded a $1 million impairment charge related to exit a certain product line.the closure of the Austrian facility.  In fiscal 2019, we recorded an additional impairment charge of less than $1 million related to this facility.  Operating income of $13$53 million in fiscal 2016 decreased $13increased $24 million, compared with the prior year, primarily due to higher restructuring expenses, an impairment charge,gross profit and the absence of a $3 million gain on the sale of a wind tunnel in the prior year, partially offset by lower SG&Arestructuring expenses.
Asia
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $112   100.0% $79   100.0% $81   100.0%
Cost of sales  93   83.2%  67   84.5%  69   85.8%
Gross profit  19   16.8%  12   15.5%  12   14.2%
Selling, general and administrative expenses  11   9.9%  11   14.5%  12   13.9%
Operating income $8   6.9% $1   1.0% $-   0.3%
Year Ended March 31, 20172018 Compared with Year Ended March 31, 2016:2017:

AsiaCIS financial results for fiscal 2017 primarily include four months of results from the acquired Luvata HTS business.  These financial results are not comparable to fiscal 2018, which included a full year of Luvata HTS results.

BHVAC   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $212   100.0% $191   100.0% $172   100.0%
Cost of sales  149   70.1%  133   69.7%  124   72.2%
Gross profit  63   29.9%  58   30.3%  48   27.8%
Selling, general and administrative expenses  35   16.4%  36   18.8%  34   19.7%
Restructuring expenses  -   -   -   0.2%  1   0.4%
Impairment charge  -   -   1   0.7%  -   - 
Loss on sale of assets  2   0.8%  -   -   -   - 
Operating income $27   12.6% $20   10.6% $13   7.7%

Year Ended March 31, 2019 Compared with Year Ended March 31, 2018:

BHVAC net sales increased $33$21 million, or 4211 percent, in fiscal 20172019 compared with the prior year, primarily due to higher sales volume to automotiveof air conditioning products and off-highway customersparts and controls in Chinathe U.K. and incremental sales from our recently-formed joint ventureheating products in China,North America, partially offset by a $4$1 million unfavorable impact of foreign currency exchange rate changes.  Gross profit increased $7$5 million, andyet gross margin improved 130declined 40 basis points to 16.8 percent29.9 percent.  This slight decline in gross margin primarily resulted from unfavorable material costs and sales mix, partially offset by higher sales volume.  SG&A expenses decreased $1 million compared with the prior year and decreased 240 basis points as a percentage of sales, primarily due to cost-control initiatives.  During fiscal 2017,2019, we completed the sale of our business in South Africa, and, as a result, recorded a loss of $2 million.  Operating income of $27 million increased $7 million, primarily due to higher gross profit.

Year Ended March 31, 2018 Compared with Year Ended March 31, 2017:

BHVAC net sales volume. Fiscal 2017 SG&A expenses were consistent with the prior year.  Operating income of $8increased $19 million, or 11 percent, in fiscal 2017 increased $7 million2018 compared with the prior year, primarily due to higher gross profit.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

Asia net sales decreased $2 million, or 3 percent, in fiscal 2016 compared with the prior year, primarily due to lower sales volume to off-highway customers in Chinaheating and Korea and a $4 million unfavorable impact of foreign currency exchange rate changes, partially offset by higher sales volume to automotive customers in China and increased overall sales in India.  Gross margin improved 130 basis points to 15.5 percent in fiscal 2016 compared with the prior year, primarily due to favorable sales mix.  Fiscal 2016 SG&A expenses decreased $1 million from the prior year, primarily due to cost-control initiatives, partially offset by acquisition-related costs associated with a joint venture that we formed in late fiscal 2016.  Operating income of $1 million in fiscal 2016 increased $1 million compared with the prior year, primarily due to lower SG&A expenses.
BHVAC
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $172   100.0% $181   100.0% $186   100.0%
Cost of sales  124   72.2%  127   70.1%  130   70.0%
Gross profit  48   27.8%  54   29.9%  56   30.0%
Selling, general and administrative expenses  34   19.8%  39   21.6%  37   19.8%
Restructuring expenses  1   0.4%  1   0.6%  -   - 
Operating income $13   7.6% $14   7.7% $19   10.2%
Year Ended March 31, 2017 Compared with Year Ended March 31, 2016:

BHVAC net sales decreased $9 million, or 5 percent, in fiscal 2017 compared with the prior year, primarily due to an $11 million unfavorable impact of foreign currency exchange rate changes and lower school ventilation and heating product sales in North America partially offset by increased air conditioning product sales in the U.K.  Gross profit decreased $6 million and gross margin decreased 210 basis points to 27.8 percent in fiscal 2017, primarily due to unfavorable sales mix, unfavorable material costs and higher depreciation expense in the current year resulting from replacement assets associated with the Airedale fire, which we started to depreciate in the fourth quarter of fiscal 2016.  In addition, gross profit was unfavorably impacted by $2 million from foreign currency exchange rate changes.  Fiscal 2017 SG&A expenses decreased $5 million from fiscal 2016, primarily due to lower commission costs and compensation-related expenses and a $2 million favorable impact of foreign currency exchange rate changes.  In fiscal 2017, we recorded $1 million of restructuring expenses consisting of severance expenses.  Operating income of $13 million in fiscal 2017 decreased $1 million compared with the prior year, primarily due to lower gross profit, partially offset by lower SG&A expenses.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

BHVAC net sales decreased $5 million, or 3 percent, in fiscal 2016 compared with the prior year, primarily due to a $6 million unfavorable impact of foreign currency exchange rate changes and lower sales at our businesses in the U.K., as unfavorable currency conditions resulted in increased competition from other mainland European suppliers, partially offset by increased ventilation product sales in North America.  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.  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.  In fiscal 2016, we recordedGross profit increased $10 million and gross margin improved 250 basis points to 30.3 percent, primarily due to higher sales volume and improved operating efficiencies in the U.K.  SG&A expenses increased $2 million, primarily due to higher commission costs resulting from higher sales.  As a percentage of sales, SG&A expenses decreased 90 basis points.  Restructuring expenses decreased $1 million, of restructuring expenses consistingprimarily due to the absence of severance expenses.expenses recorded in the prior year.  During fiscal 2018, we discontinued a geothermal product line and, as a result, recorded a $1 million impairment charge for intangible assets we no longer use.  Operating income of $14$20 million in fiscal 2016 decreased $5increased $7 million, compared with the prior year, primarily due to lowerhigher gross profit and higher SG&A expenses.profit.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents atas of March 31, 20172019 of $34$42 million, and an available borrowing capacity of $153$124 million under lines ofour revolving credit provided by banks in the United States and abroad.facility.  Given our extensive international operations, $32approximately $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 may be subject to U.S. taxforeign withholding taxes if repatriated.  We have not encountered, and do not expect to encounter, any difficulty meeting the liquidity requirements of our global operations.

Net Cash Provided by Operating Activities

Net cash provided by operating activities in fiscal 20172019 was $42$103 million, a decrease of $30$21 million from $72$124 million in the prior year.  This decrease in operating cash flow was primarily due to payments for acquisition- and integration-related costs,resulted from unfavorable net changes in working capital, partially offset by the favorable impact of stronger earnings.  The unfavorable changes in working capital, as compared with the prior year, included higher incentive compensation and other employee benefit payments and higher payments for restructuring activities.inventory levels associated with higher sales levels.

Net cash provided by operating activities in fiscal 20162018 was $72$124 million, an increase of $8$82 million from $64$42 million in the prior year.fiscal 2017.  This increase in operating cash flow was primarily due toresulted from an increase in operating earnings, including additional contributions from our CIS segment, lower payments for costs associated with the acquisition and integration of Luvata HTS and restructuring expenses in the current year, and favorable net changes in working capital, including lower incentive compensation payments during fiscal 2016 and the timing of value-added tax payments.capital.

Capital Expenditures

Capital expenditures of $64$74 million during fiscal 20172019 increased $1$3 million compared with fiscal 2016.  In fiscal 2017,2018, primarily due to higher capital expenditures in our CIS segment, including investments to expand manufacturing capacity in Serbia and Mexico.  Similar to prior years, our capital spending in fiscal 2019 primarily occurred in the Americas and Europe segments,VTS segment, which totaled $26$56 million, and $25 million, respectively.  Capital projects in fiscal 2017 included tooling and equipment purchases in conjunction with new and renewal programs with customers, as well as expansions of ourinvestments to expand manufacturing capacity in MexicoChina and Hungary.

At March 31, 2017,2019, our capital expenditure commitments totaled $18$24 million.  Significant commitments included tooling and equipment expenditures for new and renewal programs with customers in the Americas, Asia, North America, and Europe segments.

Dividends

We did not pay dividends in fiscal 2017, 2016, or 2015.  We currently do not intend to pay dividends in fiscal 2018.within the VTS segment.

Debt

Our total debt outstanding increased $348decreased $30 million to $511$450 million at March 31, 20172019 compared with the prior year, primarily due to new long-termrepayments of debt and borrowings under our revolving credit facility used to finance a significant portion of the $364 million cash consideration for our acquisition of Luvata HTS.during fiscal 2019.  See Note 1517 of the Notes to Consolidated Financial Statements for additional information regarding our new credit agreements.

Our debt agreements require us to maintain compliance with various covenants.  The term loans require prepayments, asAs defined in the credit agreement, the term loans may require prepayments in the event the Company’sour annual excess cash flow exceeds defined levels, depending upon our leverage ratio, or in the event of certain asset sales.  In addition, under our primary debt agreements in the U.S., we are subject to a leverage ratio covenant,covenants, the most restrictive of which requires us to limit our consolidated indebtedness, less a certain portion of our cash balance, both as defined by the credit agreements,agreement, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).  As permitted by the credit agreements and in connection with our acquisition of Luvata HTS, the leverage ratio covenant limit has been temporarily raised to no more than three and three-quarters times Adjusted EBITDA through the second quarter of fiscal 2018, and thereafter to no more than three and one-half times Adjusted EBITDA through the first quarter of fiscal 2019.  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.
OurMarch 31, 2019, our leverage ratio at March 31, 2017 was 2.9, which was below the maximum permitted ratio of 3.75.  Ourand interest expense coverage ratio at March 31, 2017 was 7.0, which exceeded the minimum requirement of 3.0.were 2.1 and 9.0, respectively.  We were in compliance with our debt covenants as of March 31, 20172019 and expect to remain in compliance during fiscal 20182020 and beyond.

Off-Balance Sheet Arrangements

None.

Contractual Obligations

 March 31, 2017  March 31, 2019 
(in millions) Total  
Less than 1
year
  1 - 3 years  4 - 5 years  
More than
5 years
  Total  
Less than
1 year
  1 - 3 years  4 - 5 years  
More than 5
years
 
                              
Long-term debt $436.2  $31.3  $81.6  $281.6  $41.7  $377.7  $48.2  $287.8  $16.7  $25.0 
Interest associated with long-term debt  73.9   18.5   31.8   17.0   6.6   40.9   16.0   18.3   4.1   2.5 
Capital lease obligations  8.0   0.5   0.8   0.8   5.9 
Operating lease obligations  69.3   12.2   19.2   13.2   24.7   70.4   14.2   21.5   11.8   22.9 
Capital expenditure commitments  18.1   17.1   1.0   -   -   23.6   23.6   -   -   - 
Other long-term obligations  4.8   2.4   1.7   0.7   - 
Other long-term obligations (a)  13.3   1.4   2.1   2.0   7.8 
Total contractual obligations $610.3  $82.0  $136.1  $313.3  $78.9  $525.9  $103.4  $329.7  $34.6  $58.2 

(a)Includes capital lease obligations and other long-term obligations.

Our liabilities for pensions, postretirement benefits, and uncertain tax positions totaled $139$119 million as of March 31, 2017.2019.  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 $13$3 million to our U.S. pension plans during fiscal 2018.2020.

Critical Accounting Policies

The following critical accounting policies reflect the more significant judgments and estimates used in preparing our consolidated financial statements.  Application of these policies results in accounting estimates that have the greatest potential for a significant impact on our financial statements.  The following discussion of these judgments and estimates is intended to supplement the significant accounting policies presented in Note 1 of the Notes to Consolidated Financial Statements.  In addition, recently issued accounting pronouncements that could significantly impact our financial statementsstatement are includeddisclosed in Note 1 of the Notes to Consolidated Financial Statements.

Revenue Recognition

In fiscal 2019, we adopted new revenue recognition accounting guidance.  See Note 1 of the Notes to Consolidated Financial Statements for additional information.  In accordance with this new accounting guidance, we recognize revenue based upon consideration specified in a contract and as we satisfy performance obligations by transferring control over our products to our customers, which may be at a point in time or over time.  The majority of our revenue is recognized at a point in time, based upon shipment terms.  A limited number of our customer contracts provide an enforceable right to payment for 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 doubtful accounts for estimated uncollectible receivables and we accrue for estimated warranty costs at the time of sale.  We base these estimates upon historical experience, current business trends, and current economic conditions.

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 are also required to 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.  During fiscal 2017, we acquired Luvata HTS.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.

Revenue Recognition
We recognize revenue, including agreed-upon commodity prices, when the risks and rewards of ownership are transferred to our customers, which generally occurs upon shipment.  Revenue is recorded net of applicable provisions for sales rebates, volume incentives, and returns and allowances.  At the time of revenue recognition, we also record estimates for bad debt expense and warranty expense.  We base these estimates on historical experience, current business trends, and current economic conditions.  We recognize price increases that are agreed upon in advance as revenue when the products are shipped to our customers.
Impairment of Long-Lived Assets

We perform impairment evaluations of long-lived assets, including property, plant and equipment, intangible assets and equity investments, whenever business conditions or events indicate that those assets may be impaired.  We consider factors such as operating losses, declining financial outlooks and market conditions, when evaluating the necessity for an impairment analysis.  When the net asset values exceed undiscounted cash flows expected to be generated by the assets, or the decline in value is considered to be “other than temporary,” we write down the assets to fair value and record an impairment charge to current operations.  We estimate fair value in various ways depending on the nature of the assets under review.underlying assets.  Fair value is generally based upon 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 $459$485 million and $134$116 million, respectively, at March 31, 2017, respectively.2019.  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 recent acquisition of Luvata HTS.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.  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.

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.  We consider factors such as operating losses, declining financial and market outlooks, and market capitalization when evaluating the necessity for an interim impairment analysis.  We test goodwill for impairment at a reporting unit level.  Reporting units resulting from recent acquisitions generally represent the highest risk of impairment, which typically decreases as the businesses are integrated into the Company and positioned for future operating and financial performance.  Our first step in theWe test goodwill for impairment test is to compareby 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 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, business trends and market conditions.  We determine the expected future revenue growth rates and operating profit margins after consideration of our historical revenue growth rates and earnings levels, our assessment of future market potential and our expectations of future business performance.  The discount rate used in determining discounted cash flows is a rate corresponding to our cost of capital, adjusted for country-specific risks where appropriate.

At March 31, 2017,2019, our goodwill totaled $165$169 million, primarily related to our recently-acquired CIS segment and our BHVAC segment.  We will complete goodwill impairment tests for the CISsegments.  Each of these segments is comprised of two reporting units in fiscal 2018, within one year of the acquisition date.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.units.  We conducted annual goodwill impairment tests for our BHVAC and Asia segments during the fourth quarter of fiscal 20172019 by applying a fair value-based test and determined the fair value of theeach of our reporting units substantially exceeded theirthe respective book values.value.

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 $10$9 million at March 31, 2017,2019, 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, 2017,2019, our pension liabilities totaled $122$104 million.  The most significant assumptions include the discount rate, long-term expected return on plan assets, and mortality rate tables.  We base our selection of assumptions on historical trends and economic and market conditions at the time of valuation.  In accordance with U.S. GAAP, actual results that differ from these assumptions are accumulated and amortized over future periods.  These differences impact future pension expenses.  Currently, participants in our domestic pension plans are not accruing benefits based upon their current service as the plans do not include increases in annual earnings or for future service in calculating the average annual earnings and years of credited service under the pension plan formula.

For the following discussion regarding sensitivity of assumptions, all amounts presented are in reference to our domestic pension plans, since our domestic plans comprise all of our benefit plan assets and the large majority of our pension plan expense.

To determine the expected rate of return on pension plan assets, we consider such factors as (a) the actual return earned on plan assets, (b) historical rates of return on the various asset classes in the plan portfolio, (c) projections of returns on those asset classes, (d) the amount of active management of the assets, (e) capital market conditions and economic forecasts, and (f) administrative expenses paid with the plan assets.  The long-term rate of return utilized in both fiscal 20172019 and 20162018 was 8.07.5 percent.  For fiscal 2018,2020, we have also assumed a rate of 7.5 percent.  This 50A change of 25 basis point decreasepoints in the expected rate of return on assets as compared with the prior year, resulted in an increase of less than $1 million inwould impact our estimated fiscal 20182020 pension expense.expense by $0.4 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 20172019 and 2016,2018, for purposes of determining pension expense, we used a discount rate of 4.0 and 4.1 percent.percent, 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 1618 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 20182020 pension expense by less than $1 million.

Income Taxes

We operate in numerous taxing jurisdictions; therefore, we are 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.

The Tax Act was enacted in December 2017 and included numerous changes to existing U.S. tax regulations, including U.S. corporate tax rates, business deductions, and taxes on income in foreign jurisdictions.  We completed our accounting for the impacts of the Tax Act during fiscal 2019.  Additional impacts from the Tax Act could result if there are changes in interpretations or applications of the Tax Act’s provisions or if supplementary regulatory guidance is issued.

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 a particular jurisdiction will not be realized.  This determination involves significant judgment.  In performing this assessment on a jurisdiction-by-jurisdiction basis, we consider historical and projected financial results along with other pertinent information.

We have not recorded a provision for U.S. income taxes on undistributed earnings from our non-U.S. subsidiaries that we have determined to be permanently reinvested in our foreign operations.  If management’s intentions or U.S. tax law changes in the future, there could be a significant negative impact on our provision for income taxes.  See Note 78 of the Notes to Consolidated Financial Statements for additional information regarding income taxes.

Other Loss Reserves

We maintain liabilities and reserves for a number of other loss exposures, such as environmental remediation costs, self-insurance reserves, uncollectible accounts receivable, regulatory compliance matters, and litigation.  Establishing loss reserves for these exposures requires the use of estimates and judgment to determine the risk exposure and ultimate potential liability.  We estimate these reserve requirements by using consistent and suitable methodologies for the particular type of loss reserve being calculated.  See Note 1820 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 and uncertainty associated with cross-border trade, and, in particular, the continuing recovery and/or instability of certain markets in which we operate in China and North America, the still-weak forecasts for the Brazilian economy, and the general uncertainties about the impact of potential regulatory and/or policy changes, including those related to tax and trade, that may be implemented in the United States, as well as continuing uncertainty regarding the longer-term implications of “Brexit”;
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, and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, that have been or may be implemented in the United States or by its trade partners, as well as continuing uncertainty regarding the timing and the short- and long-term implications of “Brexit”;

·The impact of potential increases in commodity prices, including our ability to successfully manage our exposure and/or pass increasing prices of aluminum, copper, steel and stainless steel (nickel) on to customers, as well as the inherent lag in timing of such pass-through arrangements; and
The impact of 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 and the behavior of our suppliers.  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

·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.
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:

·Our ability to integrate the former Luvata HTS operations into Modine, realize cost and revenue synergies in accordance with our expectations, and effectively manage any unanticipated risks that arise, while also maintaining stability within the acquired business and appropriate focus on the rest of Modine’s business;
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;

·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;
Unanticipated 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;

·
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 and overall service pressures from customers, particularly in the face of macro-economic instability;

·Unanticipated product or manufacturing difficulties or inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims;

·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;
Unanticipated product or manufacturing difficulties or operating inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims;

·Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor pools, 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;
Unanticipated delays or modifications initiated by major customers with respect to program launches, product applications or requirements;

·Costs and other effects of the investigation and remediation of environmental contamination;
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;

·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;
Our ability to effectively and efficiently complete restructuring activities and realize the anticipated benefits of those activities;

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

·The constant and increasing pressures associated with healthcare and associated insurance costs; and
Our ability to recruit and maintain talent, including personnel in managerial, leadership and administrative functions, in light of tightening global labor markets;

·Costs and other effects of unanticipated litigation, claims, or other obligations, including those associated with our acquisition of Luvata HTS.
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;

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 unanticipated litigation, claims, or other obligations.

Strategic Risks:

·Our ability to successfully take advantage of our increased presence in the “industrial” markets, with our Building HVAC and Commercial and Industrial Solutions businesses, without shifting attention away from our vehicular business, where we enjoy and desire to preserve a leading position; and
Our ability to successfully take advantage of our increased presence in the “industrial” markets, with our CIS and BHVAC businesses, while maintaining appropriate focus on the market opportunities presented by our VTS business;

·Our ability to identify and execute additional growth and diversification opportunities in order to position us for long-term success.
The success of our evaluation of strategic alternatives for our automotive business within our VTS segment in optimizing the segment’s future profitability;

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

The potential expense, disruption or other impacts that could result from unanticipated actions by activist shareholders.

Financial Risks:

·Our ability to fund our global liquidity requirements efficiently for Modine’s current operations, particularly those in our Asia business segment, and meet our long-term commitments in the event of an unexpected disruption in or tightening of the credit markets or extended recessionary conditions in the global economy;
Our ability to fund our global liquidity requirements efficiently for Modine’s current operations and meet our long-term commitments in the event of an 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 potential increases in interest rates, particularly in LIBOR and EURIBOR in relation to our variable-rate debt obligations;
Our ability to maintain our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) in our target range of 1.5 to 2.5 in an efficient manner;

·Our ability to bring our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) back into our target range of 1.5 to 2.5 in an efficient manner following our acquisition of Luvata HTS;
The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and

·Costs arising from the integration of Luvata HTS and the timing and impact of potential purchase accounting adjustments;
Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate.

·The impact of foreign currency exchange rate fluctuations, particularly the value of the euro, Brazilian real, and British pound, relative to the U.S. dollar; and

·Our ability to effectively realize the benefits of tax assets in various jurisdictions in whichForward-looking statements are as of the date of this report; we operate.

In addition to the risks set forth above, we are subject to other risks and uncertainties as identified in our public filings with the U.S. Securities and Exchange Commission.  We do not assume any obligation to update any forward-looking statements.

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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.

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 entity engaging in the transaction.  In 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 2017,2019, we recorded realized and unrealizeda net loss of $1 million within our statement of operations related to foreign currency gains and losses that netted to a loss of $2 million, which we reported in other income and expense in the consolidated statement of operations.derivative contracts.  In addition, our consolidated financial results are impacted 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 2017,2019, 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 2017,2019, changes in foreign currency exchange rates negativelyunfavorably impacted our sales by $13$28 million; however, the impact on our operating income was less than $1 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 2017,2019, there would not have been a material impact on our fiscal 20172019 earnings.

We maintain 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, 2017, 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 could materially impact our net earnings.loans; however, Fromfrom 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 accounted 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 variable-rate debt to manage exposure to changes in interest rates.  Interest on both our term loans and borrowings under our primary multi-currency revolving credit facility is based upon a variable interest rate, primarily either the London Interbank Offered Rate (“LIBOR”)LIBOR or Euro Interbank Offered Rate (“EURIBOR”),EURIBOR, plus 137.5 to 250 basis points, depending on our leverage ratio.  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.  As of March 31, 2017,2019, our outstanding borrowings on the variable-rate term loans and the revolving credit facility totaled $269$238 million and $40$47 million, respectively.  Based upon our outstanding debt with variable interest rates at March 31, 2017,2019, a 100 basis point increase in interest rates would increase our annual interest expense in fiscal 20182020 by approximately $3 million.

Commodity Price Risk

We are dependent upon the supply of raw materials and supplies in our production processes and, from time to time, enter into firm purchase commitments for aluminum, copper, nickel, and natural gas.  We maintain agreements with certainCommodity price risk is most prevalent to our vehicular businesses, which provide customized production and service parts to customers to pass through specified raw material price fluctuations inunder multi-year programs.  In order to mitigate commodity price risk.  The majority ofrisk specific to these agreements containlong-term sales programs, we maintain contract provisions in which the pass-through of thewith certain customers that allow us to prospectively adjust prices based upon raw material price fluctuations canfluctuations.  These prospective price adjustments 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 and exclude additional cost elements, such as related premiums and fabrication.  For our industrial businesses, we predominantly seek to mitigate commodity price risk by adjusting product pricing in response to any applicable price increases.
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, 2017, 352019, 38 percent of our trade accounts receivable balance was concentrated with our top ten customers.  These customers operate primarily in the automotive, commercial vehicle, off-highway, data center cooling and off-highwaycommercial air conditioning 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, 2017;
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, 2019;
·
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
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.
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.

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 automotive, commercial vehicle, off-highway, and commercial, industrial, and building HVAC&R 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 is still present.

We monitor economic conditions in the U.S. and abroad.  As we expand our global presence, we also encounter risks imposed by potential trade restrictions, including tariffs, embargoes, and the like.  We continue to pursue non-speculative opportunities to mitigate these economic risks, and capitalize, when possible, on changing market conditions.

We pursue new market opportunities after careful consideration of the potential associated risks and benefits.  Successes in new markets are dependent upon our ability to commercialize our investments.  Current examples of new and emerging markets for us include those related to waste heat recovery,electric vehicles, coils and coolers outside of North America and the U.K.,in certain markets, and coatings.  Our investment in these areas is subject to the risks associated with business integration, technological success, customer and market acceptance, and our ability to meet the demands of our customers as these markets grow.

We anticipate that recovery within some
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In an effort to manage and reduce our costs, we 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 geographic and end markets 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.
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, customers occasionally link price reductions to future program awards, and we must assess the overall implications of such requests on a case-by-case basis.

Hedging and Foreign Currency Forward Contracts

We use derivative financial instruments as a tool to manage certain financial risks.  We prohibit the use of leveraged derivatives.

Commodity derivatives:  From time to time, we enter into 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 2019 and 2018, 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 2017, 2016we did not designate commodity forward contracts for hedge accounting.  Accordingly, unrealized gains and 2015,losses on these contracts were recorded within cost of sales.  In fiscal 2019, 2018, and 2017, net gains and losses related to commodity derivativeforward contracts which are reported in cost of sales in the consolidated statements of operations, were less than $1 million in each year.

Foreign currency 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.  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:  We manage counterparty risks by ensuring that counterparties to derivative instruments havemaintain credit ratings acceptable to us.  At March 31, 2017,2019, all counterparties had a sufficient long-term credit rating.

ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions, except per share amounts)

 2017  2016  2015  2019  2018  2017 
Net sales $1,503.0  $1,352.5  $1,496.4  $2,212.7  $2,103.1  $1,503.0 
Cost of sales  1,249.7   1,129.0   1,249.9   1,847.2   1,746.6   1,248.6 
Gross profit  253.3   223.5   246.5   365.5   356.5   254.4 
Selling, general and administrative expenses  205.0   204.5   184.5   244.1   245.8   203.2 
Restructuring expenses  10.9   16.6   4.7   9.6   16.0   10.9 
Gain on sale of facilities  (2.0)  -   (3.2)
Impairment charges  -   9.9   7.8   0.4   2.5   - 
Operating income (loss)  39.4   (7.5)  52.7 
Loss (gain) on sale of assets  1.7   -   (2.0)
Operating income  109.7   92.2   42.3 
Interest expense  (17.2)  (11.1)  (11.7)  (24.8)  (25.6)  (17.2)
Other (expense) income – net  (1.4)  8.7   0.2 
Earnings (loss) from continuing operations before income taxes  20.8   (9.9)  41.2 
(Provision) benefit for income taxes  (5.9)  8.9   (19.0)
Earnings (loss) from continuing operations  14.9   (1.0)  22.2 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss)  14.9   (1.0)  22.8 
Other expense - net  (4.1)  (3.3)  (4.3)
Earnings before income taxes  80.8   63.3   20.8 
Benefit (provision) for income taxes  5.1   (39.5)  (5.9)
Net earnings  85.9   23.8   14.9 
Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)  (1.1)  (1.6)  (0.7)
Net earnings (loss) attributable to Modine $14.2  $(1.6) $21.8 
Net earnings attributable to Modine $84.8  $22.2  $14.2 
                        
Earnings (loss) per share from continuing operations attributable to Modine shareholders:            
Basic $0.29  $(0.03) $0.45 
Diluted $0.29  $(0.03) $0.44 
            
Net earnings (loss) per share attributable to Modine shareholders:            
Net earnings per share attributable to Modine shareholders:            
Basic $0.29  $(0.03) $0.46  $1.67  $0.44  $0.29 
Diluted $0.29  $(0.03) $0.45  $1.65  $0.43  $0.29 
                        
Weighted-average shares outstanding:                        
Basic  47.8   47.3   47.2   50.5   49.9   47.8 
Diluted  48.3   47.3   47.8   51.3   50.9   48.3 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

  2017  2016  2015 
Net earnings (loss) $14.9  $(1.0) $22.8 
Other comprehensive income (loss):            
Foreign currency translation  (10.8)  4.6   (68.2)
Defined benefit plans, net of income taxes of $1.7, $11.8 and ($13.2) million  3.2   19.7   (26.7)
Total other comprehensive (loss) income  (7.6)  24.3   (94.9)
             
Comprehensive income (loss)  7.3   23.3   (72.1)
Comprehensive income attributable to noncontrolling interest  (0.7)  (0.5)  (0.8)
Comprehensive income (loss) attributable to Modine $6.6  $22.8  $(72.9)
  2019  2018  2017 
Net earnings $85.9  $23.8  $14.9 
Other comprehensive income (loss):            
Foreign currency translation  (37.6)  41.8   (10.8)
Defined benefit plans, net of income taxes of ($0.3), ($0.2) and $1.7 million  (1.4)  0.1   3.2 
Cash flow hedges, net of income taxes of $0.1, $0.1 and $0 million  0.4   0.1   - 
Total other comprehensive income (loss)  (38.6)  42.0   (7.6)
             
Comprehensive income  47.3   65.8   7.3 
Comprehensive income attributable to noncontrolling interest  (0.6)  (2.1)  (0.7)
Comprehensive income attributable to Modine $46.7  $63.7  $6.6 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
March 31, 20172019 and 20162018
(In millions, except per share amounts)

 2017  2016  2019  2018 
ASSETS
            
Cash and cash equivalents $34.2  $68.9  $41.7  $39.3 
Trade accounts receivable – net  295.2   189.1   338.6   342.4 
Inventories  168.5   111.0   200.7   191.3 
Other current assets  55.4   43.5   65.8   70.1 
Total current assets  553.3   412.5   646.8   643.1 
Property, plant and equipment – net  459.0   338.6   484.7   504.3 
Intangible assets – net  134.1   8.2   116.2   129.9 
Goodwill  165.1   15.8   168.5   173.8 
Deferred income taxes  108.4   123.1   97.1   96.9 
Other noncurrent assets  29.6   22.7   24.7   25.4 
Total assets $1,449.5  $920.9  $1,538.0  $1,573.4 
                
LIABILITIES AND SHAREHOLDERS' EQUITY
        
LIABILITIES AND SHAREHOLDERS’ EQUITY
        
Short-term debt $73.4  $28.6  $66.0  $53.2 
Long-term debt – current portion  31.8   8.5   48.6   39.9 
Accounts payable  230.3   142.4   280.9   277.9 
Accrued compensation and employee benefits  74.8   58.6   81.7   97.3 
Other current liabilities  45.1   35.5   39.9   47.2 
Total current liabilities  455.4   273.6   517.1   515.5 
Long-term debt  405.7   125.5   335.1   386.3 
Deferred income taxes  9.7   4.2   8.2   9.9 
Pensions  119.4   118.6   101.7   109.6 
Other noncurrent liabilities  38.1   16.3   34.8   53.6 
Total liabilities  1,028.3   538.2   996.9   1,074.9 
Commitments and contingencies (see Note 18)        
Shareholders' equity:        
Commitments and contingencies (see Note 20)        
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 51.8 million and 49.0 million shares  32.4   30.6 
Common stock, $0.625 par value, authorized 80.0 million shares, issued 52.8 million and 52.3 million shares
  33.0   32.7 
Additional paid-in capital  216.4   185.6   238.6   229.9 
Retained earnings  372.4   358.2   472.1   394.9 
Accumulated other comprehensive loss  (181.8)  (174.2)  (178.4)  (140.3)
Treasury stock, at cost, 1.7 million and 1.6 million shares  (25.4)  (24.0)
Total Modine shareholders' equity  414.0   376.2 
Treasury stock, at cost, 2.1 million and 1.8 million shares  (31.4)  (27.1)
Total Modine shareholders’ equity  533.9   490.1 
Noncontrolling interest  7.2   6.5   7.2   8.4 
Total equity  421.2   382.7   541.1   498.5 
Total liabilities and equity $1,449.5  $920.9  $1,538.0  $1,573.4 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

 2017  2016  2015  2019  2018  2017 
Cash flows from operating activities:                  
Net earnings (loss) $14.9  $(1.0) $22.8 
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:            
Net earnings $85.9  $23.8  $14.9 
Adjustments to reconcile net earnings to net cash provided by operating activities:            
Depreciation and amortization  58.3   50.2   51.6   76.9   76.7   58.3 
Gain on sale of facilities  (2.0)  -   (3.2)
Loss (gain) on sale of assets  1.7   -   (2.0)
Impairment charges  -   9.9   7.8   0.4   2.5   - 
Insurance proceeds from Airedale fire  -   5.9   12.9 
Pension and postretirement expense  3.4   45.1   2.3 
Stock-based compensation expense  7.9   9.5   7.4 
Deferred income taxes  (4.6)  (18.8)  5.9   (4.4)  12.1   (4.6)
Stock-based compensation expense  7.4   4.9   4.0 
Other – net  0.5   0.1   0.4   5.3   9.0   3.9 
Changes in operating assets and liabilities, excluding acquisitions:            
Changes in operating assets and liabilities, excluding acquisition:            
Trade accounts receivable  (25.7)  8.0   (0.1)  (15.3)  (26.1)  (25.7)
Inventories  (3.3)  (2.7)  (4.2)  (22.0)  (12.5)  (3.3)
Accounts payable  19.9   (9.9)  (2.4)  16.6   25.2   19.9 
Accrued compensation and employee benefits  (6.5)  0.8   (5.3)  (10.1)  16.4   (6.5)
Other assets  (2.5)  (14.5)  (24.5)  (11.8)  (5.0)  (2.4)
Other liabilities  (18.2)  (5.6)  (4.5)  (27.8)  (7.4)  (18.2)
Net cash provided by operating activities  41.6   72.4   63.5   103.3   124.2   41.7 
                        
Cash flows from investing activities:                        
Acquisitions – net of cash acquired  (364.2)  (1.4)  - 
Expenditures for property, plant and equipment  (64.4)  (62.8)  (58.3)  (73.9)  (71.0)  (64.4)
Insurance proceeds from Airedale fire  3.0   27.4   12.2 
Costs to replace building and equipment damaged in Airedale fire  (1.0)  (41.7)  (16.7)
Acquisition – net of cash acquired  -   -   (364.2)
Proceeds from dispositions of assets  5.7   0.4   7.6   0.3   0.3   5.7 
Proceeds from maturities of short-term investments  4.9   4.8   2.2 
Purchases of short-term investments  (3.5)  (2.7)  (5.2)  (3.8)  (5.5)  (3.5)
Proceeds from maturities of short-term investments  2.2   2.1   2.4 
Other – net  -   0.9   0.8   (0.3)  (0.2)  2.0 
Net cash used for investing activities  (422.2)  (77.8)  (57.2)  (72.8)  (71.6)  (422.2)
                        
Cash flows from financing activities:                        
Borrowings of debt  559.1   38.0   36.4   231.2   171.0   559.1 
Repayments of debt  (202.4)  (27.1)  (50.9)  (251.9)  (222.9)  (202.4)
Dividend paid to noncontrolling interest  (1.8)  (0.9)  - 
Financing fees paid  (8.7)  -   (0.1)  -   -   (8.7)
Purchases of treasury stock under share repurchase program  -   (6.9)  - 
Dividend paid to noncontrolling interest  -   (0.9)  - 
Other – net  (0.4)  (0.4)  -   (3.4)  2.7   (0.4)
Net cash provided by (used for) financing activities  347.6   2.7   (14.6)
Net cash (used for) provided by financing activities  (25.9)  (50.1)  347.6 
                        
Effect of exchange rate changes on cash  (1.7)  1.1   (8.4)  (2.7)  3.0   (1.7)
Net decrease in cash and cash equivalents  (34.7)  (1.6)  (16.7)
Cash and cash equivalents - beginning of year  68.9   70.5   87.2 
Cash and cash equivalents - end of year $34.2  $68.9  $70.5 
Net increase (decrease) in cash, cash equivalents and restricted cash  1.9   5.5   (34.6)
Cash, cash equivalents and restricted cash - beginning of year  40.3   34.8   69.4 
Cash, cash equivalents and restricted cash - end of year $42.2  $40.3  $34.8 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'SHAREHOLDERS’ EQUITY
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

   
Additional
paid-in
capital
  
Retained
earnings
  
Accumulated
other
comprehensive
loss
  
Treasury
stock, at
cost
  
Non-
controlling
interest
  Total   

Common stock
    
Additional
paid-in
capital
    
Retained
earnings
    
Accumulated other
comprehensive loss
    
Treasury
stock, at
cost
    
Non-controlling
interest
    Total  
Shares  Amount
Common stock
Shares  Amount
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   49.0  $30.6  $185.6  $358.2  $(174.2) $(24.0) $6.5  $382.7 
Net earnings attributable to Modine  -   -   -   14.2   -   -   -   14.2   -   -   -   14.2   -   -   -   14.2 
Other comprehensive loss  -   -   -   -   (7.6)  -   -   (7.6)  -   -   -   -   (7.6)  -   -   (7.6)
Shares issued for acquisition of Luvata HTS  2.2   1.4   22.9   -   -   -   -   24.3   2.2   1.4   22.9   -   -   -   -   24.3 
Stock options and awards including related tax benefits  0.6   0.4   0.5   -   -   -   -   0.9   0.6   0.4   0.5   -   -   -   -   0.9 
Purchase of treasury stock  -   -   -   -   -   (1.4)  -   (1.4)  -   -   -   -   -   (1.4)  -   (1.4)
Stock-based compensation expense  -   -   7.4   -   -   -   -   7.4   -   -   7.4   -   -   -   -   7.4 
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   0.7   0.7   -   -   -   -   -   -   0.7   0.7 
Balance, March 31, 2017  51.8  $32.4  $216.4  $372.4  $(181.8) $(25.4) $7.2  $421.2   51.8   32.4   216.4   372.4   (181.8)  (25.4)  7.2   421.2 
Net earnings attributable to Modine  -   -   -   22.2   -   -   -   22.2 
Other comprehensive income  -   -   -   -   41.5   -   0.5   42.0 
Stock options and awards  0.5   0.3   3.9   -   -   -   -   4.2 
Purchase of treasury stock  -   -   -   -   -   (1.7)  -   (1.7)
Adoption of new accounting guidance (Note 1)  -   -   0.1   0.3   -   -   -   0.4 
Stock-based compensation expense  -   -   9.5   -   -   -   -   9.5 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (0.9)  (0.9)
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   1.6   1.6 
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)  -   -   -   (7.6)  -   -   -   (7.6)
Net earnings attributable to Modine  -   -   -   84.8   -   -   -   84.8 
Other comprehensive loss  -   -   -   -   (38.1)  -   (0.5)  (38.6)
Stock options and awards  0.5   0.3   0.8   -   -   -   -   1.1 
Purchase of treasury stock  -   -   -   -   -   (4.3)  -   (4.3)
Stock-based compensation expense  -   -   7.9   -   -   -   -   7.9 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (1.8)  (1.8)
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   1.1   1.1 
Balance, March 31, 2019  52.8  $33.0  $238.6  $472.1  $(178.4) $(31.4) $7.2  $541.1 

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

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

Note 1: 
Note 1:Significant Accounting Policies

Nature of operations:  Modine Manufacturing Company (“Modine” or the “Company”) specializes in providing innovative thermal management solutions to diversified global markets and customers.  The Company is a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway original equipment manufacturer (“OEM”) vehicular applications.  In addition, 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.  The Company’s primary product groups include i) powertrain cooling and engine cooling; ii) coils, coolers, and coatings; and iii) heating, ventilation and air conditioning.

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 on the loss on sale of assets line of the consolidated statements of operations.  Annual net sales attributable to this disposed business were less than $2.0 million.

Acquisition of Luvata HTS:  On November 30, 2016, the Company completed the acquisition of 100%100 percent of the shares of multiple companies held by Luvata Heat Transfer Solutions II AB, a company incorporated in Sweden.  Combined, these acquired companies represented the Luvata Heat Transfer Solutions (“Luvata HTS”) business.  See Note 2 for additional information.

Airedale facility fire: In September 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 (“BHVAC”) segment.  There were no injuries caused by the fire.  The Rawdon facility, which was leased, was used to manufacture cooling products and solutions for a variety of applications, including data centers, clean rooms, retail, leisure and process cooling.  The Company suspended operations at the Rawdon site as a result of the fire; however, it transferred operations to temporary facilities while it rebuilt the leased facility.  The Company completed the reconstruction and relocation to the Rawdon facility in fiscal 2016.  In fiscal 2016, the Company recorded a $9.5 million gain within other income related to an insurance settlement for equipment losses.  This gain represented the replacement assets’ cost in excess of the carrying value of the equipment at the time they were destroyed by the fire.

Basis of presentation:  The Company prepares its consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States.  These principles require management to make certain estimates and assumptions in determining assets, liabilities, revenue, expenses and related disclosures.  Actual amounts could differ materially from those estimates.

Consolidation principles:  The consolidated financial statements include the accounts of Modine Manufacturing Company and its majority-owned or Modine-controlled subsidiaries.  The Company eliminates intercompany transactions and balances in consolidation.

The Company accounts for investments in non-consolidated affiliated companies in which its ownership is 20 percent or more using the equity method.  The Company states these investments at cost, plus or minus a proportionate share of undistributed net earnings.  The Company includes Modine’s share of the affiliate’s net earnings in other income and expense.  See Note 1113 for additional information.

Discontinued operations: Revenue recognition:  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 customers, which may be at a point in time or over time.  The majority of the Company’s revenue is recognized at a point in 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 3 for additional information.

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 records an allowance for doubtful accounts for estimated uncollectible receivables based upon historical experience or specific customer economic data.  The Company recorded an allowance for doubtful accounts of $1.6 million and $2.3 million at March 31, 2019 and 2018, 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 fiscal 2009,2019, 2018, and 2017, the Company sold its Electronics Cooling business.  The buyer financed a portion$85.1 million, $65.8 million, and $55.4 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,2019, 2018, and 2017, the Company recorded a gainloss on the sale of $0.9accounts receivable of $0.6 million, ($0.6$0.4 million, after income taxes) during fiscal 2015.and $0.3 million, respectively, in the consolidated statements of operations.

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 16 for additional information.

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

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, 2019 and 2018, Company-owned tooling totaled $24.2 million and $22.4 million, respectively.  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.  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, 2019 and 2018, cost reimbursement receivables related to customer-owned tooling totaled $11.6 million and $10.7 million, respectively.

Stock-based compensation:  The Company recognizes stock-based compensation using the fair value method.  Accordingly, compensation expense for stock options, restricted stock and performance-based stock awards is calculated based upon the fair value of the instruments at the time of grant, and is recognized as expense over the respective vesting periods.  See Note 5 for additional information.

Research and development:  The Company expenses research and development costs as incurred within selling, general and administrative (“SG&A”) expenses.  During fiscal 2019, 2018, and 2017, research and development costs charged to operations totaled $69.8 million, $65.8 million, and $64.4 million, respectively.

Translation of foreign currencies:  The Company translates assets and liabilities of foreign subsidiaries and equity investments into U.S. dollars at the period-end exchange rates, and translates income and expense items at the monthly average exchange rate for the period in which the transactions occur.  The Company reports resulting translation adjustments within accumulated other comprehensive income (loss) within shareholders’ equity.  The Company includes foreign currency transaction gains or losses in the statement of operations within other income and expense.

Derivative instruments:  The Company enters into derivative financial instruments from time to time to manage certain financial risks.  The Company enters into forward 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 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 19 for additional information.

Income taxes:  The Company determines deferred tax assets and liabilities based upon the difference between the amounts reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse.  The Company establishes a valuation allowance if it is more likely than not that a deferred tax asset, or portion thereof, will not be realized.  See Note 8 for additional information.

Earnings per share:  The Company calculates basic earnings per share based upon the weighted-average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.  The calculation of diluted earnings per share excludes potential common shares if their inclusion would have an anti-dilutive effect.  Certain outstanding restricted stock awards provide recipients with a non-forfeitable right to receive dividends declared by the Company.  Therefore, these restricted stock awards are included in computing earnings per share pursuant to the two-class method.  See Note 9 for additional information.

Cash and cash equivalents: The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment.  To the extent checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the Company reports the amount of those checks within accounts payable in the consolidated balance sheets.

Short-term investments:  The Company invests in time deposits with original maturities of more than three months but no more than one year.  The Company records these short-term investments at cost, which approximates fair value, within other current assets in the consolidated balance sheets.  As of March 31, 2019 and 2018, the Company’s short-term investments totaled $4.3 million and $5.7 million, respectively.

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.

Property, plant and equipment:  The Company records property, plant and equipment at cost.  For financial reporting purposes, the Company computes depreciation using the straight-line method over the expected useful lives of the assets.  The Company charges maintenance and repair costs to operations as incurred.  The Company capitalizes costs of improvements.  Upon the sale or other disposition of an asset, the Company removes the cost and related accumulated depreciation from the accounts and includes the gain or loss in the consolidated statements of operations.  Capital expenditures of $17.9 million, $15.8 million, and $12.5 million were accrued within accounts payable at March 31, 2019, 2018, and 2017, respectively.

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, 2019, which did not result in an impairment charge.  See Note 15 for additional information.

Impairment of long-lived assets:  The Company reviews long-lived assets, including property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.  In these instances, the Company compares the undiscounted future cash flows expected to be generated from the asset with its carrying value.  If the asset’s carrying value exceeds expected future cash flows, the Company measures and records an impairment loss, if any, as the amount by which the carrying value of the asset exceeds its fair value.  The Company estimates fair value using a variety of valuation techniques, including discounted cash flows, market values and comparison values for similar assets.

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, within other noncurrent assets.  The Company ceases to record depreciation expense at the time of designation as held for sale.  The carrying value of assets held for sale totaled $5.0$1.1 million and $8.5$1.7 million at March 31, 20172019 and 2016,2018, respectively.

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 upon 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
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, 2017 and 2016, Company-owned tooling totaled $20.8 million and $18.8 million, respectively.  In certain instances, the Company makes upfront payments for customer-owned tooling costs, and subsequently receives reimbursement from customers for the upfront payments.  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 its consolidated statements of operations.  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, 2017 and 2016, cost reimbursement receivables related to customer-owned tooling totaled $7.8 million and $8.5 million, respectively.

Warranty:  The Company provides product warranties for specific product lines and accrues for estimated future warranty costs in the period in which the sale is recorded.  The Company records warranty expense, 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 14 for additional information.

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.

Research and development:  The Company expenses research and development costs as incurred within selling, general and administrative (“SG&A”) expenses.  For the years ended March 31, 2017, 2016, and 2015, research and development costs charged to operations totaled $64.4 million, $61.1 million, and $62.0 million, respectively.

Translation of foreign currencies:  The Company translates assets and liabilities of foreign subsidiaries and equity investments into U.S. dollars at the period-end exchange rates, and translates income and expense items at the monthly average exchange rate for the period in which the transactions occur.  The Company reports resulting translation adjustments within accumulated other comprehensive income (loss) within shareholders' equity.  The Company includes foreign currency transaction gains or losses in the statement of operations within other income and expense.

Derivative instruments:  The Company enters into derivative financial instruments from time to time to manage certain financial risks.  The Company enters into futures contracts to reduce exposure to changing future purchase prices for aluminum and copper and into foreign currency exchange contracts to hedge specific foreign currency-denominated assets and liabilities.  These instruments are used to manage financial risks and are not speculative.  See Note 17 for additional information.

Income taxes:  The Company determines deferred tax assets and liabilities based upon the difference between the amounts reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse.  The Company establishes a valuation allowance if it is more likely than not that a deferred tax asset, or portion thereof, will not be realized.  See Note 7 for additional information.

Earnings per share:  The Company calculates basic earnings per share based upon the weighted-average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.  The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect.  Restricted stock award recipients have a non-forfeitable right to receive dividends declared by the Company.  Therefore, these restricted stock awards are included in computing earnings per share pursuant to the two-class method.  See Note 8 for additional information.

Cash and cash equivalents: The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment.  To the extent checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the Company reports the amount of those un-presented checks within accounts payable in the consolidated balance sheets.

Short-term investments:  The Company invests in time deposits with original maturities of more than three months but no more than one year.  The Company records these short-term investments at cost, which approximates fair value, within other current assets in the consolidated balance sheets.  As of March 31, 2017 and 2016, the Company’s short-term investments totaled $4.7 million and $3.3 million, respectively.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Deferred compensation trusts:  The Company maintains deferred compensation trusts to fund future obligations under its non-qualified deferred compensation plan.plans.  The trust’strusts’ investments in third-party debt and equity securities are presented within other noncurrent assets in the consolidated balance sheets.

Trade accounts receivable:  The Company records trade receivables at the invoiced amount.  Trade receivables do not bear interest if paid according to the original terms.  The Company recorded an allowance for doubtful accounts of $1.4 million and $0.5 million at March 31, 2017 and 2016, 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, 2017, 2016, and 2015, the Company sold $55.4 million, $71.3 million, and $87.0 million, respectively, of accounts receivable to accelerate cash receipts.  During each of the years ended March 31, 2017, 2016, and 2015, the Company recorded a loss on the sale of accounts receivables of $0.3 million in the consolidated statements of operations.

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

Property, plant and equipment:  The Company records property, plant and equipment at cost.  For financial reporting purposes, the Company computes depreciation using the straight-line method over the expected useful lives of the assets.  The Company charges maintenance and repair costs to operations as incurred.  The Company capitalizes costs of improvements.  Upon the sale or other disposition of an asset, the Company removes the cost and related accumulated depreciation from the accounts and includes the gain or loss in the consolidated statements of operations.

Goodwill:  The Company does not amortize goodwill; rather, it tests for impairment annually unless conditions exist that would require a more frequent evaluation.  The Company performs an assessment of the fair value of its reporting units for goodwill impairment testing based upon, among other things, the present value of expected future cash flows.  The Company performed its goodwill impairment test as of March 31, 2017, which did not result in an impairment charge.  See Note 13 for additional information.

Impairment of long-lived assets:  The Company reviews long-lived assets, including property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.  In these instances, the Company compares the undiscounted future cash flows expected to be generated from the asset with its carrying value.  If the asset’s carrying value exceeds expected future cash flows, the Company measures and records an impairment loss, if any, as the amount by which the carrying value of the asset exceeds its fair value.  The Company estimates fair value using a variety of valuation techniques, including discounted cash flows, market values and comparison values for similar assets.

Environmental liabilities:  The Company records liabilities for environmental assessments and remediation efforts in the period in which its responsibility is probable and the costs can be reasonably estimated.  The Company records environmental indemnification assets from third parties, including prior owners, when recovery is probable.  To the extent that the required remediation procedures change, or additional contamination is identified, the Company’s estimated environmental liabilities may also change.  See Note 18 for additional information.

Self-insurance 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 420 for additional information.

Supplemental cash flow information:

  Years ended March 31, 
  2019  2018  2017 
Interest paid $22.3  $23.4  $15.4 
Income taxes paid  22.2   20.1   12.7 

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

New Accounting Guidance:

Pension costsStock-based Compensation
In March 2017,2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the income statement presentationsimplify several aspects of net periodic pension costs and net periodic postretirement benefit costs.  This guidance requires companies to continue to present the service cost component of net benefit cost within the same financial statement line item as other employee compensation costs; however, other components of net benefit costs are required to be presented outside of results from operations.  This will not impact consolidated net earnings.  Early adoption is permitted, and theaccounting for stock-based payment transactions.  The Company plans to adoptadopted this guidance for thebeginning in its first quarter of fiscal 2018.  The Company will recast prior periodselected to conformaccount for forfeitures in the period in which they occur and recorded a cumulative-effect adjustment to the new income statement presentation.  As a result,equity.  In addition, the Company expectsprospectively adopted the guidance requiring all excess tax benefits or deficiencies to reclassify net benefit costs related to its pension plans totaling approximately $3.0 million in fiscal 2017 ($1.0 million from cost of sales and $2.0 million from SG&A expenses) and $45.0 million in fiscal 2016 ($10.0 million from cost of sales and $35.0 million from SG&A expenses) to other income and expense.  The fiscal 2016 net benefit costs included $42.1 million of pension settlement losses related to a completed voluntary lump-sum payout program; see Note 16 for additional information.  In fiscal 2018, the Company expects to record approximately $3.0 to $4.0 million of net benefit costs within other income and expense.

Share-based compensation
In March 2016, the FASB issued new guidance to simplify several aspects of accounting for share-based payment transactions, including thebe recognized as income tax effects ofexpense or benefit when share-based payments, recognition of forfeitures, and presentation requirements in the statement of cash flows.  This guidance is effective for the Company’s first quarter of fiscal 2018.awards are settled.  The Company does not expect the adoptionprovisions of this new guidance willdid not have a material impact on itsthe Company’s consolidated financial statements

Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance.  Upon adoptionstatements.  As a result of adopting this new guidance, the Company will be requiredrecorded a $0.4 million increase to recognize most leases on its balance sheet.  This guidance is effective for the Company’s first quarterboth deferred tax assets and equity as of fiscal 2020.  The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.April 1, 2017.

Revenue recognitionRecognition
In May 2014, the FASB issued new guidance that outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the new guidance is that companies are to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about revenue arising from contracts with customers.  The Company adopted this new guidance is effective for the Company’s first quarter of fiscal 2019 and allows for either a full-retrospective or ausing the modified-retrospective transition method.

The Company is currently in the process of assessingassessed customer contracts and evaluatingevaluated contractual provisions that may result in a change inlight of the timing of revenue recognized in comparison with currentnew guidance. Under current guidance,Through its evaluation process, the Company generally recognizes revenue when products are shipped and riskidentified a limited number of loss has transferred to the customer.  The Company is evaluating whether contractual provisions maycustomer contracts that provide an enforceable right to payment for its customized products, which may require revenue recognition prior to the product being shipped to the customer. In addition,As a result of its adoption of the new guidance, the Company is evaluating pricing provisions contained in certainrecorded an increase of its customer contracts$0.7 million to determine the appropriate timingretained earnings as of revenue recognition based uponApril 1, 2018, along with related balance sheet reclassifications.  The increase to retained earnings represented $3.0 million of net sales that, had the new guidance.guidance been in effect, the Company would have recognized as of March 31, 2018. See Note 3 for additional information regarding revenue recognition.

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 continues to evaluate the impactadopted 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.

Statement of Cash Flows: Restricted Cash
In November 2016, the FASB issued new guidance that requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending balances presented within the statement of cash flows.  The Company adopted this new guidance for fiscal 2019 using the retrospective transition method.  As a result, all prior period information has been recast to be comparable to the new presentation requirements.  See Note 10 for information regarding the Company’s restricted cash.

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 is effective for the Company as of April 1, 2019 and provides the option to reclassify stranded income tax effects to retained earnings.  The Company has determined it will have onnot reclassify stranded income tax effects upon adoption, and therefore, this guidance will not impact its consolidated financial statements.

Supplemental cash flow information:Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance and requires balance sheet recognition for most leases.  The Company will adopt this guidance effective April 1, 2019 using a modified-retrospective transition method, under which it expects to elect not to adjust comparative periods.  The Company intends to elect the package of practical expedients permitted under the new guidance, and, as a result, the Company has not reassessed the classification of existing leases or initial direct costs thereof, or whether existing contracts contain leases.  In addition, the Company plans to elect accounting policies to not record short-term leases on the balance sheet and to not separate lease and non-lease components.  The Company does not intend to elect the hindsight practical expedient.

  Years ended March 31, 
  2017  2016  2015 
Interest paid $15.4  $10.7  $10.3 
Income taxes paid  12.7   10.1   15.9 
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Note 2:  AcquisitionsThe Company has completed its assessment of its global lease portfolio and is in the process of finalizing the testing of its new lease accounting software solution and implementing new processes and controls to account for leases in accordance with the new guidance.  The Company’s most significant leases represent leases of real estate, such as manufacturing facilities, warehouses, and office buildings.  In addition, the Company leases certain manufacturing and IT equipment and vehicles.  Upon adoption of this new guidance, the Company expects to recognize $60.0 to $70.0 million of right-of-use assets and corresponding lease liabilities on its consolidated balance sheet.  The Company does not expect the adoption will have a material impact on its consolidated statements of operations or consolidated statements of cash flows.

The cumulative effects on the Company’s consolidated balance sheet, as of April 1, 2018, resulting from the adoption of new accounting guidance were as follows:

     
Adjustments Due to
New Accounting Guidance
    
  
Balance as of
March 31, 2018
  
Revenue
Recognition
  
Intra-entity Transfers
of Assets
  
Balance as of
April 1, 2018
 
ASSETS
            
Inventories $191.3  $(2.0) $-  $189.3 
Other current assets  70.1   3.0   (8.3)  64.8 
Deferred income taxes  96.9   (0.2)  -   96.7 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Deferred income taxes $9.9  $0.1  $-  $10.0 
Retained earnings  394.9   0.7   (8.3)  387.3 

Note 2:Acquisition

Luvata HTS

On November 30, 2016, the Company completed its acquisition of a 100%100 percent ownership interest in the Luvata HTS business for consideration totaling $415.6 million ($388.2 million, net of cash acquired).  The purchase price included 2.2 million Modine common shares.  The Company estimated the fair value of the common shares, to bevalued at $24.3 million atas of November 30, 2016, which reflects restrictions on the sale of the shares for a minimum of one year.  Now operating2016.  Operating as Modine’s Commercial and Industrial Solutions (“CIS”) segment, this business is a leading global supplier of coils, coolers and coatings to the heating, ventilation, air conditioning, and refrigeration (“HVAC&R”) industry.  CIS’s products coverSee Note 22 for a broad range of heat exchanger coils, commercial refrigeration and industrial coolers, and anti-corrosion coating solutions.  The Company’s acquisition of Luvata HTS addressed, in particular, both the “Diversify” and “Grow” commitments of its transformational Strengthen, Diversify and Grow strategy launched in fiscal 2016.  This acquisition provided Modine with an expanded industrial business portfolio, broader customer base, and reduced cyclical exposure.  For the year ended March 31, 2017, the Company included $177.7 millionsummary of net sales and operating income of $7.5 million within its consolidated statement of operations attributable to four months ofreported by the CIS operations.  During the year ended March 31,segment.  In fiscal 2018 and 2017, the Company recorded $4.3 million and $14.8 million, respectively, of costs incurred directly related to the acquisition and integration of Luvata HTS as SG&A expenses within the consolidated statementstatements of operations.  TheseThe fiscal 2018 costs principallyprimarily consisted of fees for i) transaction advisors, ii)incremental costs associated with integration activities, including legal accounting, and otheraccounting professional services and iii)severance expenses.  The fiscal 2017 costs primarily consisted of transaction advisory and due diligence costs and incremental costs directly associated with integration activities.

To fund a significant portion of the Luvata HTS purchase price,  In addition, during fiscal 2017, the Company entered into new credit agreements in November 2016.  See Note 15 for additional information.charged $4.3 million to cost of sales related to inventory that it wrote-up to fair value upon acquisition.

The Company completed its accounting for the acquisition of Luvata HTS during fiscal 2018 and allocated the total purchase price of Luvata HTS$415.6 million to the identifiable tangible and intangible assets acquired and the liabilities assumed based upon their estimated fair values as of the acquisition date.  The Company based the estimated fair values primarily upon third-party valuations using assumptions developed by management and other information compiled by management, including, but not limited to, future expected cash flows.  The Company allocated the excess of the purchase price over the net assets recognized to goodwill in the amount of $150.6$151.9 million, none of which the Company expects to beis deductible for income tax purposes.  Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.  Specifically, the goodwill recorded as part of the acquisition includes Luvata HTS’s workforce and anticipated future cost and revenue synergies.

At the time the March 31, 2017 financial statements were finalized, the Company was awaiting additional information to determine the fair value of certain assets acquired and liabilities assumed and therefore, the allocation of purchase price is considered preliminary.  The Company expects to complete its evaluation of these matters in the first or second quarter of fiscal 2018.  These matters primarily relate to income tax reserves and contingent liabilities, including reserves for environmental, legal, product warranty, and trade compliance matters.

The Company’s preliminary allocation of the purchase price for its acquisition of Luvata HTS is as follows:

Cash and cash equivalents $27.4 
Trade accounts receivable  86.3 
Inventories  55.7 
Property, plant and equipment  120.6 
Intangible assets  130.2 
Goodwill  150.6 
Other assets  38.6 
Accounts payable  (73.7)
Accrued compensation and employee benefits  (24.3)
Deferred income taxes  (39.3)
Pensions  (14.3)
Other liabilities  (42.2)
Purchase price $415.6 

Below is a summary of the methodologies and significant assumptions used in estimating the fair value of certain classes of acquired assets.  The fair values were primarily based upon significant inputs that are not observable in the market and thus represent Level 3 measurements.  See Note 3 for information regarding Level 3 fair value measurements.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Inventories:  The Company determined the fair value of acquired inventory by estimating the selling priceCompany’s allocation of the respective finished goods, less an estimatepurchase price for its acquisition of costs to be incurred to sell the inventory and to complete the work-in-process inventory, if applicable.  For raw materials acquired, the Company estimated the cost of replacement.  As a result, the Company wrote-up acquired inventory by $4.3 million and subsequently charged this write-up to cost of salesLuvata HTS was as the underlying inventory was sold in the third and fourth quarters of fiscal 2017.

Property, plant and equipment:  The Company valued property, plant and equipment primarily utilizing the cost approach and also utilized the market approach in valuing acquired land and buildings.  The cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility and adjusting the value in consideration of depreciation as of the acquisition date.  The cost approach relies on assumptions regarding replacement costs and the age and estimated remaining useful lives of the assets.  The fair value of property, plant and equipment will be recognized as depreciation expense in our results of operations over the expected remaining useful lives of the individual assets.follows:

Intangible assets: The Company determined the fair value of acquired intangible assets by using variations of the income approach.  These methods generally forecast expected future net cash flows discretely associated with each of the identified intangible assets and adjust the forecasts to present value by applying a discount rate intended to reflect risk factors associated with the cash flows and the time value of money.  Acquired intangible assets were as follows:

  
Gross
Carrying
Value
 
Weighted-
Average
Useful Life
Customer relationships $58.4 17 years
Trade names  50.1 20 years
Acquired technology  21.7 12 years
Total intangible assets acquired $130.2  

Customer relationships, for valuation purposes, represent the estimated fair value of Luvata HTS’s business relationship with existing customers, and were calculated by projecting the future after-tax cash flows from these customers, including the right to deploy and market additional products to them.  The Company forecasted anticipated earnings from existing customers using recent years’ sales levels and considering a customer attrition rate based upon historical customer revenue information.

The Company determined the value of acquired trade names using the relief-from-royalty method, a variation of the income approach, which applies an assumed royalty rate to revenue expected to be derived under the acquired trade names.  The fair value was estimated to be the present value of the royalties saved because the Company owns the trade names.

The Company also used the relief-from royalty method for its valuation of acquired technology, which largely relates to the design of mechanical and electrical components.  The Company considered factors including the estimated contribution of the technology to the overall profitability of the products and the awareness level of the technology and its position in the market.
Cash and cash equivalents $27.4 
Trade accounts receivable  86.1 
Inventories  55.0 
Property, plant and equipment  120.4 
Intangible assets  130.2 
Goodwill  151.9 
Other assets  39.1 
Accounts payable  (73.7)
Accrued compensation and employee benefits  (24.3)
Deferred income taxes  (39.5)
Pensions  (14.3)
Other liabilities  (42.7)
Purchase price $415.6 

The following unaudited supplemental pro forma information presents the Company’s consolidated results of operations as though the acquisition of Luvata HTS had occurred at the beginning of fiscal 2016.  This pro forma financial information is presented for illustrative purposes only and is not considered to be indicative of the operating results that would have been achieved had the acquisition been completed as of the date indicated or the operating results that may be obtained in the future.indicated.

 Years ended March 31, 
 2017  2016  Year ended March 31, 2017 
Net sales $1,881.6  $1,871.9  $1,881.6 
Net earnings attributable to Modine  35.8   1.5   35.8 
Net earnings per share attributable to Modine shareholders:            
Basic $0.72  $0.03  $0.72 
Diluted  0.71   0.03   0.71 

The supplemental pro forma financial information includes adjustments for: (i) annual amortization and depreciation expense totaling approximately $13.0 million for acquired tangible and intangible assets, (ii) estimated annual interest expense of approximately $14.0 million resulting from acquisition-related borrowings, and (iii) the estimated income tax impacts related to the pro forma adjustments, considering the statutory tax rates within the applicable jurisdictions.  In addition, the pro forma financial information assumes that both $8.6 million of acquisition-related transaction costs, not including costs for integration-related activities, and $4.3 million of inventory purchase accounting adjustments were incurred during fiscal 2016.  The pro forma financial information does not reflect achieved or expected cost or revenue synergies.

Note 3:Revenue Recognition

Effective April 1, 2018, the Company adopted new revenue recognition accounting guidance using the modified-retrospective transition method and, as a result, recorded a cumulative-effect adjustment to increase retained earnings by $0.7 million.  The Company’s consolidated financial statements for the fiscal year ended March 31, 2019 reflect the adoption of this new guidance; however, the comparable prior-year periods have not been recast.  See Note 1 for additional information regarding the adjustments to the Company’s consolidated balance sheet as of April 1, 2018.

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 customers, which may be at a point in time or over time.  The majority of the Company’s revenue is recognized at a point in time, based upon shipment terms.  The Company records an allowance for doubtful accounts for estimated uncollectible receivables 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.

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

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

Vehicular Thermal Solutions (“VTS”)
The VTS segment principally generates revenue from providing engineered heat transfer systems and components for use in on- and off-highway original equipment.  This segment provides 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 automotive, commercial vehicle, and off-highway markets in the Americas, Europe, and Asia regions.  In addition, the VTS segment designs customer-owned tooling for OEMs and also serves Brazil’s automotive and commercial vehicle aftermarkets.

While the VTS segment provides 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 VTS 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, the VTS segment recognizes revenue primarily at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

In regard to VTS 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 VTS 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.

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.

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 related applications 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 generally 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 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.

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.

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

  Year ended March 31, 2019 
  VTS  CIS  BHVAC  
Segment
Total
 
Primary end market:            
Automotive $542.8  $-  $-  $542.8 
Commercial vehicle  387.6   -   -   387.6 
Off-highway  314.1   -   -   314.1 
Commercial HVAC&R  -   506.3   167.7   674.0 
Data center cooling  -   145.7   41.3   187.0 
Industrial cooling  -   47.8   -   47.8 
Other  107.2   7.8   3.4   118.4 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 
                 
Geographic location:                
Americas $613.7  $413.6  $124.9  $1,152.2 
Europe  538.2   244.8   87.5   870.5 
Asia  199.8   49.2   -   249.0 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 
                 
Timing of revenue recognition:                
Products transferred at a point in time $1,308.5  $571.1  $212.4  $2,092.0 
Products transferred over time  43.2   136.5   -   179.7 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 

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

  March 31, 2019  March 31, 2018 
Contract assets $22.6  $13.5 
Contract liabilities  4.0   6.8 

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 $9.1 million increase in contract assets during fiscal 2019 was primarily related to contract assets totaling $7.4 million as of March 31, 2019 for revenue recognized over time, which were recorded as a result of the Company’s adoption of the new revenue recognition accounting guidance, and customer-owned tooling contracts, under which more costs were capitalized than reimbursed.

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. The $2.8 million decrease in contract liabilities during fiscal 2019 was primarily due to the Company’s satisfaction of performance obligations under customer contracts for which payment had been received in advance.

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Modine Puxin Thermal Systems (Jiangsu) Co. Ltd

On January 29, 2016,
Impacts of Adopting New Accounting Guidance
The impacts from the Company formed a joint venture, Modine Puxin Thermal Systems (Jiangsu) Co. Ltd. of Yangzhou, China, of which it owns 67 percent, and the joint venture partner, Jiangsu Puxin Heat Exchange System Co., Ltd, owns 33 percent.  This joint venture, which is reported in the Asia segment, expedited the Company’s introduction of stainless steel heat exchangers for the light-, medium-, and heavy-duty commercial vehicle markets in China.  In fiscal 2016, the Company contributed $1.4 million of cash and equipment and other assets totaling $2.3 million.  In fiscal 2017, the Company contributed $0.3 million of additional cash consideration after certain seller indemnification obligations under the agreement were satisfied.  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 activitiesadoption of the joint venture, and, therefore, the financial results of the joint venture are included innew revenue recognition guidance to the Company’s consolidated financial statements.  The Company did not present pro forma financial information for this acquisition as the effect is not material to its resultsstatement of operations or financial position.for the year ended March 31, 2019 and its consolidated balance sheet as of March 31, 2019 were as follows:

  Year ended March 31, 2019 
  As Reported  Impact of New
Accounting Guidance		  
Results Without
Impact of New Accounting
Guidance
 
Net sales $2,212.7  $(4.4) $2,208.3 
Net earnings attributable to Modine  84.8   (2.0)  82.8 
             
Net earnings per share attributable to Modine shareholders:            
Basic $1.67  $(0.04) $1.63 
Diluted  1.65   (0.04)  1.61 

  March 31, 2019 
  As Reported  
Impact of New
Accounting Guidance
  
Balances Without
Impact of New Accounting
Guidance
 
ASSETS
         
Inventories $200.7  $3.8  $204.5 
Other current assets  65.8   (7.4)  58.4 
Deferred income taxes  97.1   0.6   97.7 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
            
Deferred income taxes $8.2  $(0.3) $7.9 
Retained earnings  472.1   (2.7)  469.4 

Note 3: 
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 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 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.
Level 3 – Model-derived valuations in which one or more significant inputs are not observable.

When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1.  In some cases, where market prices are not available, the Company uses observable market-based inputs to calculate fair value, in which case the measurements are classified as Level 2.  If quoted or observable market prices are not available, the Company determines fair value 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.  The Company holds trading securities in deferred compensation trusts to fund obligations under certain non-qualified deferred compensation plans.  The securities’ fair values, which are recorded as other noncurrent assets, are determined based upon quoted prices from active markets and classified within Level 1 of the valuation hierarchy.  The Company’s deferred compensation obligations, which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trust.  The fair values of the Company’s trading securities and deferred compensation obligations each totaled $5.0$6.0 million and $3.2$5.8 million atas of March 31, 20172019 and 2016,2018, respectively.  The year-over-year increase primarily relates to a deferred compensation plan in the recently-acquired CIS segment.  The fair value of the Company’s long-term debt is disclosed in Note 15.17.

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

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

 March 31, 2017  March 31, 2019 
 Level 1  Level 2  Total  Level 1  Level 2  Total 
                  
Money market investments $-  $5.6  $5.6  $-  $3.9  $3.9 
Common stocks  17.8   2.0   19.8 
Corporate bonds  -   9.3   9.3   -   9.4   9.4 
Pooled equity funds  56.8   -   56.8   27.7   -   27.7 
Pooled fixed-income funds  26.5   -   26.5 
U.S. government and agency securities  -   18.7   18.7   -   12.3   12.3 
Other  1.4   1.4   2.8   0.1   0.9   1.0 
Fair value excluding investment measured at net asset value  102.5   37.0   139.5 
Investment measured at net asset value (a)          8.7 
Total Fair Value         $148.2 
            
 March 31, 2016 
 Level 1  Level 2  Total 
            
Money market investments $-  $5.8  $5.8 
Common stocks  23.7   1.3   25.0 
Corporate bonds  -   8.4   8.4 
Pooled equity funds  48.7   -   48.7 
Pooled fixed-income funds  26.3   -   26.3 
U.S. government and agency securities  -   18.4   18.4 
Other  0.4   1.2   1.6 
Fair value excluding investment measured at net asset value  99.1   35.1   134.2 
Investment measured at net asset value (a)          7.3 
Total Fair Value         $141.5 
Fair value excluding investments measured at net asset value  27.8   26.5   54.3 
Investments measured at net asset value          100.8 
Total fair value         $155.1 

(a)As a practical expedient, the Company valued a collective trust fund using its net asset value per unit, and therefore, has not classified this investment within the fair value hierarchy.
  March 31, 2018 
  Level 1  Level 2  Total 
          
Money market investments $-  $11.4  $11.4 
Common stocks  9.4   2.6   12.0 
Corporate bonds  -   9.7   9.7 
Pooled equity funds  64.4   -   64.4 
Pooled fixed-income funds  27.3   -   27.3 
U.S. government and agency securities  -   16.2   16.2 
Other  0.2   1.7   1.9 
Fair value excluding investment measured at net asset value  101.3   41.6   142.9 
Investment measured at net asset value          14.8 
Total fair value         $157.7 

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 upon quoted prices from active markets and classified them within Level 1 of the valuation hierarchy.  The Company determined the fair value of certain common stocks, corporate bonds pooled equity funds and U.S. government and agency securities based upon recent bid prices or the average of recent bid and asking prices when available and, if not available, the Company valued them through matrix pricing models developed by sources considered by management to be reliable.  The Company classified these assets within Level 2 of the valuation hierarchy.  As of March 31, 20172019 and 2016,2018, the Company held no Level 3 assets within its pension plans.

As a practical expedient, the Company valued certain investments, including pooled equity, fixed-income and real estate funds, using their net asset value (NAV) per unit, and therefore, has not classified these investments within the fair value hierarchy.  The increase in investments valued at NAV in fiscal 2019 was associated with the Company’s revised target asset allocations for its U.S. pension plan; see Note 18 for additional information.  The terms and conditions for redemptions vary for the investments valued at NAV.  The real estate investment fund may be redeemed at any time with a 90-day notice period.  Other investments valued at NAV do not have restrictive redemption frequency or notice period requirements.  The Company does not intend to sell or otherwise dispose of these investments at prices different than the NAV per unit.

Note 4: 
Note 5:Stock-Based Compensation

The Company’s stock-based incentive programs consist of the following: (1) a long-term incentive compensation program for officers and 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 key employees, and (3) stock awards for non-employee directors.  The Company’s Board of Directors and the Officer Nomination and Compensation Committee, as applicable, have discretionary authority to set the terms of the awards of stockstock-based awards.  Grants to employees during fiscal 2019 were issued under the Company’s Amended and Restated 20082017 Incentive Compensation Plan (“Plan”).Plan.  At present, the Company accomplishes the fulfillment of equity-based grants through the issuance of new common shares.  As of March 31, 2017,2019, approximately 1.62.7 million shares authorized under the 2017 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 $7.4$7.9 million, $4.9$9.5 million, and $4.0$7.4 million in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.

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

Stock Options:  The Company recorded $1.1$1.2 million, $0.9$1.2 million, and $0.9$1.1 million of compensation expense related to stock options in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  The fair value of stock options that vested during fiscal 2019, 2018, and 2017 2016, and 2015 was $1.0$1.2 million, $0.9$1.2 million, and $0.9$1.0 million, respectively.  As of March 31, 2017,2019, the total compensation expense not yet recognized related to non-vested stock options was $2.1$2.2 million and the weighted-average period in which the remaining expense is expected to be recognized was 2.52.6 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:

  Years ended March 31, 
  2017  2016  2015 
Weighted-average fair value of options $4.60  $7.11  $10.21 
Expected life of awards in years  6.4   6.3   6.3 
Risk-free interest rate  1.4%  1.9%  2.1%
Expected volatility of the Company's stock  45.5%  66.9%  76.1%
Expected dividend yield on the Company's stock  0.0%  0.0%  0.0%
  Years ended March 31, 
  2019  2018  2017 
Fair value of options $7.81  $7.30  $4.60 
Expected life of awards in years  6.3   6.4   6.4 
Risk-free interest rate  2.8%  1.9%  1.4%
Expected volatility of the Company’s stock  39.7%  44.3%  45.5%
Expected dividend yield on the Company’s stock  0.0%  0.0%  0.0%

Stock options expire no later than 10 years after the grant date and have an exercise price equal to the fair market value of Modine’s common stock on the date of grant.  The risk-free interest rate was based upon 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 upon changes in the Company’s historical common stock prices over the same time frame as the expected life of the awards.  The expected dividend yield is zero, as the Company currently does not anticipate paying dividends over the expected life of the options.  The expected lives of the awards are based upon historical patterns and the terms of the options.  Outstanding options granted vest 25 percent annually for four years.  The Company used a pre-vesting forfeiture rate of 2.5 percent as an estimate of expected forfeitures prior to completing the required service period.

A summary of stock option activity for fiscal 20172019 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  $10.82         1.2  $11.16       
Granted  0.3   10.00         0.2   17.90       
Exercised  (0.1)  9.23         (0.1)  9.93       
Forfeited or expired  (0.2)  21.76         (0.1)  14.51       
Outstanding, ending  1.5  $9.83   5.5  $4.4   1.2  $12.24   5.5  $3.3 
                                
Exercisable, March 31, 2017  1.0  $9.27   4.0  $3.6 
Exercisable, March 31, 2019  0.8  $10.59   4.0  $2.9 

The aggregate intrinsic value represents the difference between the closing price of Modine’s common shares on the last trading day of fiscal 20172019 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 is as follows:

  Years ended March 31, 
  2019  2018  2017 
Intrinsic value of stock options exercised $0.7  $4.9  $0.5 
Proceeds from stock options exercised  1.1   4.3   0.9 
  Years ended March 31, 
  2017  2016  2015 
Intrinsic value of stock options exercised $0.5  $0.4  $0.4 
Proceeds from stock options exercised $0.9  $0.5  $0.6 

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Restricted Stock:  The Company recorded $3.8$4.3 million, $3.5$3.9 million, and $2.8$3.8 million of compensation expense related to restricted stock in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  The fair value of restricted stock awards that vested during fiscal 2019, 2018, and 2017 2016, and 2015 was $4.0$4.3 million, $3.4$3.9 million, and $2.3$4.0 million, respectively.  At March 31, 2017,2019, the Company had $4.8$5.3 million of unrecognized compensation expense related to non-vested restricted stock, which it expects to recognize over a weighted-average period of 2.42.5 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 vest 25 percent annually for four years, with the exception of awards to non-employee directors, which fully vest upon grant.

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

A summary of restricted stock activity for fiscal 20172019 was as follows:

 Shares  
Weighted-
average
price
  Shares  
Weighted-average
price
 
Non-vested balance, beginning  0.6  $11.29   0.6  $12.24 
Granted  0.4   9.98   0.3   17.72 
Vested  (0.4)  10.05   (0.3)  13.75 
Forfeited  (0.1)  15.03 
Non-vested balance, ending  0.6  $11.21   0.5  $14.95 

Restricted Stock – Performance-Based Shares:  The Company recorded $2.5$2.4 million, $0.5$4.4 million, and $0.3$2.5 million of compensation expense related to performance-based stock awards in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  At March 31, 2017,2019, the Company had $3.2$2.4 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 1.81.5 years.  The Company values performance-based stock awards using the closing market valueprice of its common shares on the date of grant.

Shares are earned under the performance portion of the restricted stock award program based upon the attainment of certain financial goals over a three-year period and are awarded after the end of that three-year performance period, if the performance targets have been achieved.  The performance components of the programsprogram initiated in fiscal 2017, 2016, and 2015 were2019 is 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.  The performance components of the programs initiated in fiscal 2018 and 2017 were based upon both a target three-year average consolidated return on capital employed and a target three-year average annual revenue growth at the end of a three-year performance period.

Note 5: 
Note 6:Restructuring Activities

During fiscal 2019, restructuring and repositioning expenses primarily resulted from targeted headcount reductions in Europe and the Americas within the VTS segment.  These headcount reductions support the Company’s objective to reduce operational and SG&A cost structures at certain locations.  In addition, the Company is in process of transferring product lines associated with the merger of its North American coils business into the CIS segment, in order to accelerate operational improvements and organizational efficiencies.

During fiscal 2018, the Company ceased production at its Gailtal, Austria manufacturing facility, primarily to reduce excess capacity and lower manufacturing costs in Europe.  As a result of this facility closure, the Company recorded $8.3 million of restructuring expenses within the CIS segment.  These restructuring expenses primarily related to employee severance and related benefits.  Fiscal 2018 restructuring activities also included plant consolidation activities, targeted headcount reductions, and certain product line transfers in Europe within the VTS segment.  In addition, the Company recorded restructuring expenses associated with the discontinuance of its geothermal product line within the BHVAC segment.

During fiscal 2017, the Company completed a voluntary retirement program for certain U.S. salaried employees and implemented targeted headcount reductions at several locations.  The Company engaged in these restructuring activities as part of its Strengthen, Diversify and Grow strategic initiative, particularlylocations, both in support of its objective to reduce operational and SG&A cost structures.

During fiscal 2016, the Company announced a plan to close its Washington, Iowa manufacturing facility and recorded severance costs as a result.  The Company completed the transfer of production from Washington to other Americas segment manufacturing facilities in fiscal 2017.  Also during fiscal 2016,2017, the Company completed the transfer of production from its McHenry, IllinoisWashington, Iowa manufacturing facility, which was closed and sold, to other AmericasVTS segment manufacturing facilities.  These restructuring activities reflect the Company’s focus on operating scale manufacturing facilities to improve overall competitiveness and profitability.in North America.

During fiscal 2015, the Company initiated a headcount reduction plan for the Brazil manufacturing facility within its Americas segment.  The headcount reductions were in response to the economic slowdown in Brazil and were aimed at maintaining profitability in this business despite lower sales volume.

In addition, the Company has engaged in 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Restructuring and repositioning expenses were as follows:

 Years ended March 31,  Years ended March 31, 
 2017  2016  2015  2019  2018  2017 
Employee severance and related benefits $5.3  $12.8  $1.2  $8.7  $13.0  $5.3 
Other restructuring and repositioning expenses  5.6   3.8   3.5   0.9   3.0   5.6 
Total $10.9  $16.6  $4.7  $9.6  $16.0  $10.9 

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, 
  2019  2018 
Beginning balance $11.0  $6.5 
Additions  8.7   13.0 
Payments  (9.1)  (9.4)
Effect of exchange rate changes  (0.6)  0.9 
Ending balance $10.0  $11.0 
  Years ended March 31, 
  2017  2016 
Beginning balance $14.7  $9.9 
Additions  5.3   12.8 
Payments  (12.9)  (8.5)
Effect of exchange rate changes  (0.6)  0.5 
Ending balance $6.5  $14.7 

During fiscal 2018, the Company recorded a $1.3 million asset impairment charge as a result of the closure of the CIS Austrian facility.  During fiscal 2019, the Company recorded an additional $0.4 million asset impairment charge related to this closed facility to reduce its carrying value to its current estimated fair value, less costs to sell.

During fiscal 2017, the Company sold twothree previously-closed manufacturing facilities within its Americas segment and a facility within its EuropeVTS segment for cash proceeds totaling $5.4 million.  As a result of the facility sales, the Company recorded net gains totaling $2.0 million.

During fiscal 2015, the Company sold a wind tunnel within its Europe segment for cash proceeds of $5.8 million and recognized a gain of $3.2 million as a result.

During fiscal 2016, the Company recorded an asset impairment charge of $9.9 million within its Europe segment to write down long-lived assets at a manufacturing facility in Germany to fair value.

Note 6: 
Note 7:Other Income and Expense

Other income and expense consisted of the following:

  Years ended March 31, 
  2019  2018  2017 
Equity in earnings of non-consolidated affiliate $0.7  $0.2  $0.1 
Interest income  0.4   0.4   0.4 
Foreign currency transactions (a)  (2.3)  (0.6)  (1.9)
Net periodic benefit cost (b)  (2.9)  (3.3)  (2.9)
Total other expense - net $(4.1) $(3.3) $(4.3)
  Years ended March 31, 
  2017  2016  2015 
Equity in earnings of non-consolidated affiliate $0.1  $0.1  $0.6 
Interest income  0.4   0.4   0.5 
Foreign currency transactions (a)  (1.9)  (1.3)  (0.9)
Gain from insurance recovery (b)  -   9.5   - 
Total other (expense) income - net $(1.4) $8.7  $0.2 

(a)Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses on foreign currency exchange contracts.
(b)During fiscal 2016,Represents net periodic benefit cost, exclusive of service cost, for the Company settled an insurance claim related to machineryCompany’s pension and equipment destroyed in a fire at its Airedale facility and recorded a gain of $9.5 million.  See Note 1 for additional information.postretirement plans.

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

Note 7: 
Note 8:Income Taxes

The U.S. and foreign components of earnings from continuing operations before income taxes and the provisionbenefit or benefitprovision for income taxes consisted of the following:

  Years ended March 31, 
  2019  2018  2017 
Components of earnings (loss) before income taxes:         
United States $22.4  $2.5  $(8.6)
Foreign  58.4   60.8   29.4 
Total earnings before income taxes $80.8  $63.3  $20.8 
             
Income tax (benefit) provision:            
Federal:            
Current $(20.4) $11.6  $0.1 
Deferred  (4.2)  23.3   (3.8)
State:            
Current  0.7   (0.3)  0.3 
Deferred  1.9   2.0   (0.2)
Foreign:            
Current  19.0   16.1   10.1 
Deferred  (2.1)  (13.2)  (0.6)
Total income tax (benefit) provision $(5.1) $39.5  $5.9 
  Years ended March 31, 
  2017  2016  2015 
Components of earnings (loss) from continuing operations before income taxes:         
United States $(8.6) $(15.4) $31.1 
Foreign  29.4   5.5   10.1 
Total earnings (loss) from continuing operations before income taxes $20.8  $(9.9) $41.2 
             
Income tax expense (benefit):            
Federal:            
Current $0.1  $0.1  $0.4 
Deferred  (3.8)  (13.0)  7.1 
State:            
Current  0.3   0.2   - 
Deferred  (0.2)  (2.5)  1.1 
Foreign:            
Current  10.1   9.6   12.7 
Deferred  (0.6)  (3.3)  (2.3)
Total income tax expense (benefit) $5.9  $(8.9) $19.0 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act.  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.  To the extent a company’s accounting for certain income tax effects of the Tax Act was incomplete, the company could determine a reasonable estimate for those effects and record a provisional estimate in its financial statements.  If a company could not determine a provisional estimate to be included in the financial statements, it was to continue applying the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.

During fiscal 2018, the Company recorded provisional discrete tax charges totaling $38.0 million related to the Tax Act.  The Company adjusted its U.S. deferred tax assets by $19.0 million due to the reduction in the U.S. federal corporate tax rate.  This net reduction in deferred tax assets also included the estimated impact on the Company’s net state deferred tax assets.  In addition, the Company recorded a $19.0 million charge for the transition tax required under 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 determined it will utilize 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.

The Tax Act included a new provision designed to tax global intangible low taxed income (“GILTI”) starting in fiscal 2019.  The Company allocateselected to record the tax effects of the GILTI provision as a period expense in the applicable tax year.

The Company’s accounting policy is to allocate the 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 from
56
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

The 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, 
  2019  2018  2017 
Statutory federal tax  21.0%  31.5%  35.0%
State taxes, net of federal benefit  3.6   2.9   (3.3)
Taxes on non-U.S. earnings and losses  3.9   (3.8)  (3.5)
Valuation allowances  4.0   (5.6)  1.2 
Tax credits  (26.1)  (17.3)  (9.0)
Compensation  (0.1)  (0.8)  2.9 
Tax rate or law changes  (12.0)  60.1   (2.5)
Uncertain tax positions, net of settlements  0.4   (0.8)  5.6 
Notional interest deductions  (2.5)  (3.2)  (8.8)
Dividend repatriation  1.6   0.2   7.1 
Other  (0.1)  (0.8)  3.7 
Effective tax rate  (6.3%)  62.4%  28.4%

During fiscal 2019, the Company recorded income tax ratebenefits totaling $7.7 million related to the Tax Act, as discussed above; recorded income tax benefits totaling $14.5 million as a result of amending previous-year tax returns to recognize foreign tax credits that are 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 following:United States.  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 related to other tax jurisdictions 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.

  Years ended March 31, 
  2017  2016  2015 
Statutory federal tax  35.0%  35.0%  35.0%
State taxes, net of federal benefit  (3.3)  11.5   2.4 
Taxes on non-U.S. earnings and losses  (3.5)  26.4   (4.9)
Valuation allowance  1.2   (20.9)  8.3 
Tax credits  (9.0)  20.5   (6.1)
Compensation  2.9   (3.7)  1.0 
Tax rate or law changes  (2.5)  1.3   1.2 
Uncertain tax positions, net of settlements  5.6   (4.3)  2.2 
Notional interest deductions  (8.8)  -   - 
Dividend repatriation  7.1   16.0   2.4 
Other  3.7   8.1   4.6 
Effective tax rate  28.4%  89.9%  46.1%
During fiscal 2018, the Company recorded provisional charges totaling $38.0 million related to the Tax Act, as discussed above, and recognized a $9.0 million Hungarian development tax credit.  Also in fiscal 2018, the Company reversed a portion of the valuation allowance on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not these assets would be realized, and, as a result, recorded an income tax benefit of $2.8 million.  In addition, the Company recorded a $1.8 million income tax benefit in fiscal 2018 associated with the reduction in unrecognized tax benefits resulting from a lapse in statutes of limitations.

During fiscal 2017, the Company recorded a valuation allowance of $2.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would not be realized.  Also during fiscal 2017, the Company recorded a net reduction of deferred tax asset valuation allowances totaling $1.8 million in other tax jurisdictions.  During fiscal 2016, the Company reversed a valuation allowance of $3.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would be realized.   In fiscal 2016 and 2015, the Company recorded a net increase in deferred tax asset valuation allowances totaling $5.0 million and $2.6 million, respectively, in other tax jurisdictions. 

The Company will continue to provide valuation allowances against its net deferred tax assets in each applicable tax jurisdiction until the need for a valuation allowance is eliminated.  The need for a valuation allowance is eliminated when the Company determines it is more likely than not the deferred tax assets will be realized.

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, 
 2017  2016  2019  2018 
Deferred tax assets:            
Accounts receivable $0.4  $0.1  $0.2  $0.3 
Inventories  5.0   3.6   3.4   4.1 
Plant and equipment  3.7   4.3   1.8   2.3 
Pension and employee benefits  51.8   52.6   32.7   36.0 
Net operating loss, capital loss, and credit carry-forwards  147.5   109.4 
Net operating and capital losses  73.5   102.5 
Credit carryforwards  60.3   36.7 
Other, principally accrued liabilities  10.9   7.5   10.0   9.9 
Total gross deferred tax assets  219.3   177.5   181.9   191.8 
Less: valuation allowances  (49.6)  (50.8)  (43.4)  (48.9)
Net deferred tax assets  169.7   126.7   138.5   142.9 
                
Deferred tax liabilities:                
Plant and equipment  21.2   5.5   15.1   17.6 
Goodwill  4.7   0.6   4.8   5.2 
Intangible assets  43.3   1.5   28.8   32.4 
Other  1.8   0.2   0.9   0.7 
Total gross deferred tax liabilities  71.0   7.8   49.6   55.9 
Net deferred tax asset $98.7  $118.9 
Net deferred tax assets $88.9  $87.0 

Unrecognized tax benefits were as follows:

  Years ended March 31, 
  2019  2018 
Beginning balance $13.6  $14.2 
Gross increases - tax positions in prior period  1.6   0.8 
Gross decreases - tax positions in prior period (a)  (0.2)  (1.2)
Gross increases - due to acquisition  -   1.4 
Gross increases - tax positions in current period  1.1   0.5 
Settlements  (0.1)  (0.3)
Lapse of statute of limitations  (2.2)  (1.8)
Ending balance $13.8  $13.6 
  Years ended March 31, 
  2017  2016 
Beginning balance $5.9  $5.6 
Gross increases - tax positions in prior period  0.3   - 
Gross decreases - tax positions in prior period  (0.2)  (0.1)
Gross increases - due to acquisition  7.3   - 
Gross increases - tax positions in current period  0.9   0.4 
Ending balance $14.2  $5.9 

(a)Fiscal 2018 includes $1.0 million related to the reduction of the U.S. federal corporate tax rate as a result of the Tax Act.

The Company’s liability for unrecognized tax benefits as of March 31, 20172019 was $14.2$13.8 million, and if recognized, $11.9$12.2 million would have an effective tax rate impact.  The Company estimates that reductions toa $0.2 million decrease in unrecognized tax benefits induring fiscal 20182020 due to lapses in statutes of limitations and audit settlements will total $2.4 million, which, ifsettlements.  If recognized, these reductions would not have a $1.6 millionsignificant 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 20172019 and 2016,2018, interest and penalties included within income tax expense in the consolidated statements of operations were not significant.  At March 31, 2017, $0.8 million of2019 and 2018, accrued interest and penalties were included in the consolidated balance sheet.  At March 31, 2016, accrued interesttotaled $1.1 million and penalties were not significant.$1.0 million, respectively.

The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world.  At March 31, 2017,2019, the Company was under income tax examination in a number of foreign jurisdictions.  The following tax years remain subject to examination for the Company’s major tax jurisdictions:

GermanyFiscal 2011 - Fiscal 20162018
ItalyCalendar 20112014 - Fiscal 20162018
United StatesFiscal 20142016 - Fiscal 20162018

At March 31, 2017, the Company had federal and state tax credits of $27.4 million that, if not utilized against U.S. taxes, will expire between fiscal 2018 and 2037.  The Company also had state and local tax loss carry-forwards of $212.7 million that, if not utilized against state apportioned taxable income, will expire at various times during fiscal 2018 and 2037.  In addition, the Company had tax loss and foreign attribute carry-forwards of $485.0 million in various tax jurisdictions throughout the world.  Certain of the carry-forwards in the U.S. and many in foreign jurisdictions are offset by a valuation allowance.  If not utilized against taxable income, $167.0 million of these carry-forwards will expire at various times during fiscal 2018 through 2037, and $318.0 million, mainly related to Germany, Italy, and India, will not expire due to an unlimited carry-forward period.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

At March 31, 2017,2019, the Company provided $0.3had federal and state tax credits of $60.0 million that, if not utilized against U.S. taxes, will expire between fiscal 2020 and 2039.  The Company also had state and local tax loss carryforwards totaling $129.5 million that, if not utilized against state apportioned taxable income, will expire between fiscal 2020 and 2039.  In addition, the Company had tax loss and foreign attribute carryforwards totaling $351.6 million in various tax jurisdictions throughout the world.  Certain of the carryforwards in the U.S. and in foreign jurisdictions are offset by valuation allowances.  If not utilized against taxable income, $9.7 million of tax on undistributedthese carryforwards will expire between fiscal 2020 and 2034, and $341.9 million, mainly related to Germany and Italy, will not expire due to an unlimited carryforward period.

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 has not recorded foreign withholding taxes or deferred income taxes for certain subsidiaries not considered permanently reinvested.  Undistributed earnings totaling $505.0 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 $7.0 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 8: 
Note 9:Earnings Per Share

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

  Years ended March 31, 
  2017  2016  2015 
Basic:         
Earnings (loss) from continuing operations $14.9  $(1.0) $22.2 
Less: Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Less: Undistributed earnings attributable to unvested shares  (0.2)  -   (0.2)
Earnings (loss) from continuing operations available to Modine shareholders  14.0   (1.6)  21.0 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss) available to Modine shareholders $14.0  $(1.6) $21.6 
             
Weighted-average shares outstanding - basic  47.8   47.3   47.2 
             
Basic Earnings Per Share:            
Earnings (loss) per share - continuing operations $0.29  $(0.03) $0.45 
Earnings per share - discontinued operations  -   -   0.01 
Net earnings (loss) per share - basic $0.29  $(0.03) $0.46 
             
Diluted:            
Earnings (loss) from continuing operations $14.9  $(1.0) $22.2 
Less: Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Less: Undistributed earnings attributable to unvested shares  (0.1)  -   (0.2)
Earnings (loss) from continuing operations available to Modine shareholders  14.1   (1.6)  21.0 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss) available to Modine shareholders $14.1  $(1.6) $21.6 
             
Weighted-average shares outstanding - basic  47.8   47.3   47.2 
Effect of dilutive securities  0.5   -   0.6 
Weighted-average shares outstanding - diluted  48.3   47.3   47.8 
             
Diluted Earnings Per Share:            
Earnings (loss) per share - continuing operations $0.29  $(0.03) $0.44 
Earnings per share - discontinued operations  -   -   0.01 
Net earnings (loss) per share - diluted $0.29  $(0.03) $0.45 
  Years ended March 31, 
  2019  2018  2017 
Basic Earnings Per Share:         
Net earnings attributable to Modine $84.8  $22.2  $14.2 
Less: Undistributed earnings attributable to unvested shares  (0.4)  (0.2)  (0.2)
Net earnings available to Modine shareholders $84.4  $22.0  $14.0 
             
Weighted-average shares outstanding - basic  50.5   49.9   47.8 
             
Net earnings per share - basic $1.67  $0.44  $0.29 
             
Diluted Earnings Per Share:            
Net earnings attributable to Modine $84.8  $22.2  $14.2 
Less: Undistributed earnings attributable to unvested shares  (0.2)  (0.1)  (0.1)
Net earnings available to Modine shareholders $84.6  $22.1  $14.1 
             
Weighted-average shares outstanding - basic  50.5   49.9   47.8 
Effect of dilutive securities  0.8   1.0   0.5 
Weighted-average shares outstanding - diluted  51.3   50.9   48.3 
             
Net earnings per share - diluted $1.65  $0.43  $0.29 

For the years ended March 31,fiscal 2019, 2018 and 2017, 2016, and 2015, the calculation of diluted earnings per share excluded 0.80.4 million, 0.80.2 million, and 0.60.8 million stock options, respectively, because they were anti-dilutive.  For

Note 10:Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash consisted of the year ended March 31, 2016,following:

  March 31, 
  2019  2018 
Cash and cash equivalents $41.7  $39.3 
Restricted cash  0.5   1.0 
Total cash, cash equivalents and restricted cash $42.2  $40.3 

Restricted cash, which is reported within other noncurrent assets on the total numberconsolidated balance sheets, consists primarily of potentially-dilutive securities was 0.4 million.  However, these securities were not included in the computation of diluted net loss per share since to do so would have decreased the loss per share.deposits for contractual guarantees or commitments required for rents, import and export duties, and commercial agreements.

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

Note 9: 
Note 11:Inventories

Inventories consisted of the following:

 March 31,  March 31, 
 2017  2016  2019  2018 
Raw materials and work in process $127.7  $79.5 
Raw materials $122.8  $114.4 
Work in process  32.2   34.8 
Finished goods  40.8   31.5   45.7   42.1 
Total inventories $168.5  $111.0  $200.7  $191.3 

Note 10: 
Note 12:Property, Plant and Equipment

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

 March 31,  March 31, 
 2017  2016  2019  2018 
Land $18.9  $7.2  $20.7  $22.6 
Buildings and improvements (10-40 years)  255.6   221.3   285.9   295.6 
Machinery and equipment (3-12 years)  755.5   694.3 
Machinery and equipment (3-15 years)  848.7   840.8 
Office equipment (3-10 years)  92.5   84.1   92.0   93.0 
Construction in progress  55.1   36.7   57.4   50.2 
  1,177.6   1,043.6   1,304.7   1,302.2 
Less: accumulated depreciation  (718.6)  (705.0)  (820.0)  (797.9)
Net property, plant and equipment $459.0  $338.6  $484.7  $504.3 

Depreciation expense totaled $67.9 million, $67.0 million, and $54.2 million $48.6 million,for fiscal 2019, 2018, and $50.0 million for the years ended March 31, 2017, 2016, and 2015, respectively.  Gains and losses related to the disposal of property, plant and equipment are recorded inwithin SG&A expenses.  For the years ended March 31,fiscal 2019, 2018, and 2017, 2016, and 2015, total losses related to the disposal of property, plant and equipment were $0.4totaled $0.9 million, $0.4$0.7 million, and $1.1$0.4 million, respectively.

Note 11: 
Note 13:Investment in Affiliate

The Company owns 50 percent of Nikkei Heat Exchanger Company, Ltd. (“NEX”).  The Company accounts for its investment in this non-consolidated affiliate using the equity method.  At March 31, 20172019 and 2016,2018, the Company included its investment in NEX of $3.3$3.8 million and $3.2$3.6 million, respectively, within other noncurrent assets on the consolidated balance sheets.  At March 31, 2017,2019, the investment in NEX is equal to the Company'sCompany’s investment in the underlying net assets.

The Company reports its equity in earnings from NEX within other income and expense in the consolidated statements of operations, using a one-month reporting delay.  The Company’s share of NEX’s earnings for the years ended March 31,fiscal 2019, 2018, and 2017 2016,was $0.7 million, $0.2 million, and 2015 was $0.1 million, $0.1 million, and $0.6 million, respectively.

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

Note 12: 
Note 14:Intangible Assets

Intangible assets consisted of the following:

  March 31, 2017  March 31, 2016 
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
 
Customer relationships $60.5  $(1.7) $58.8  $2.0  $(0.4) $1.6 
Trade names  58.4   (7.2)  51.2   8.9   (6.3)  2.6 
Acquired technology  27.0   (2.9)  24.1   5.5   (1.5)  4.0 
Total intangible assets $145.9  $(11.8) $134.1  $16.4  $(8.2) $8.2 
Intangible assets as of March 31, 2017 include intangible assets related to the Company’s acquisition of Luvata HTS.  See Note 2 for additional information.
  March 31, 2019  March 31, 2018 
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
 
Customer relationships $61.5  $(9.1) $52.4  $64.2  $(5.7) $58.5 
Trade names  58.9   (13.5)  45.4   60.6   (10.8)  49.8 
Acquired technology  23.9   (5.5)  18.4   25.2   (3.6)  21.6 
Total intangible assets $144.3  $(28.1) $116.2  $150.0  $(20.1) $129.9 

The Company recorded $4.1$9.0 million, $1.6$9.7 million, and $1.6$4.1 million of amortization expense during fiscal 2019, 2018, and 2017, 2016, and 2015, respectively.  Estimated futureThe Company estimates that it will record $9.0 million of amortization expense is as follows:in fiscal 2020 and approximately $8.0 million of annual amortization expense in fiscal 2021 through 2024.

Fiscal Year 
Estimated
Amortization
Expense
 
2018 $9.4 
2019  9.2 
2020  9.1 
2021  8.5 
2022  7.4 
2023 & Beyond  90.5 
During fiscal 2018, the BHVAC segment discontinued its geothermal product line and, as a result, recorded a $1.2 million impairment for acquired technology intangible assets it will no longer use.  Annual revenue for this discontinued product line was less than $1.0 million.

Note 13: 
Note 15:Goodwill

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

 Asia  BHVAC  CIS  Total  VTS  CIS  BHVAC  Total 
Balance, March 31, 2015 $0.5  $15.7  $-  $16.2 
Balance, March 31, 2017 $0.5  $150.9  $13.7  $165.1 
Acquired goodwill (a)  -   1.3   -   1.3 
Effect of exchange rate changes  -   (0.4)  -   (0.4)  -   6.1   1.3   7.4 
Balance, March 31, 2016  0.5   15.3   -   15.8 
Acquired Goodwill  -   -   150.6   150.6 
Balance, March 31, 2018  0.5   158.3   15.0   173.8 
Effect of exchange rate changes  -   (1.6)  0.3   (1.3)  -   (4.4)  (0.9)  (5.3)
Balance, March 31, 2017 $0.5  $13.7  $150.9  $165.1 
Balance, March 31, 2019 $0.5  $153.9  $14.1  $168.5 

As a result of its acquisition of Luvata HTS, the Company recorded $150.6 million of goodwill.  See Note 2 for additional information.
(a)Represents measurement-period adjustments related to the Company’s acquisition of Luvata HTS.  See Note 2 for additional information about this acquisition.

The Company assesses goodwill for impairment annually, or more frequently if events or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below its carrying value.  The Company conducted its annual assessment for goodwill impairment during the fourth quarter of fiscal 20172019 for the reporting units within its BHVACVTS, CIS, and AsiaBHVAC segments, by applying a fair value-based test, and determined that the fair value of its reporting units exceeded their respective book values.  The Company will perform goodwill impairment testing for its recently-acquired CIS segment beginning in fiscal 2018.

At both March 31, 20172019 and 2016,2018, accumulated goodwill impairment losses totaled $31.6 million and $8.7$40.3 million within the Americas and Europe segments, respectively.VTS segment.

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

Note 14: 
Note 16:Product Warranties, Operating Leases, and Other Commitments

Product warranties: Most of the Company’s products are covered under a warranty period ranging from one to five years.  The Company records a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience.  In addition, the Company adjusts its warranty accruals if it becomes probable that expected claims will differ from initial estimates.

Changes in accrued warranty costs were as follows:

 Years ended March 31,  Years ended March 31, 
 2017  2016  2019  2018 
Beginning balance $8.3  $10.4  $9.3  $10.0 
Warranties recorded at time of sale  5.2   5.7   5.5   6.7 
Adjustments to pre-existing warranties  0.3   (1.1)  2.2   (0.8)
Additions due to acquisition  4.1   - 
Adjustments due to acquisition (a)  -   (1.0)
Settlements  (7.6)  (6.7)  (7.3)  (6.2)
Effect of exchange rate changes  (0.3)  -   (0.5)  0.6 
Ending balance $10.0  $8.3  $9.2  $9.3 

(a)During fiscal 2018, the Company decreased its liability for product warranties by $1.0 million as a result of measurement-period adjustments made in connection with purchase accounting for the acquisition of Luvata HTS.  See Note 2 for additional information about this acquisition.

Operating leases: The Company leases various facilities and equipment under operating leases.  Rental expense for these leases totaled $12.8$19.3 million, $11.9$18.5 million, and $11.5$12.8 million in fiscal 2019, 2018, and 2017, 2016, and 2015, respectively.

Future minimum rental commitments at March 31, 20172019 under non-cancelable operating leases were as follows:

Fiscal Year      
2018 $12.2 
2019  10.1 
2020  9.1  $14.2 
2021  7.8   12.4 
2022  5.4   9.1 
2023 and beyond  24.7 
2023  7.1 
2024  4.7 
2025 and beyond  22.9 
Total $69.3  $70.4 

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, 20172019 was not material.

Commitments: At March 31, 2017,2019, the Company had capital expenditure commitments of $18.1$23.6 million.  Significant commitments include tooling and equipment expenditures for new and renewal programs with customers in the Americas, Asia, and Europe segments.VTS segment.  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.

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

Note 15: 
Note 17:Indebtedness

In November 2016,Long-term debt consisted of the Company entered into new credit agreements to fund a significant portion of its acquisition of Luvata HTS (see Note 2 for additional information).  following:

  
Fiscal year
of maturity
  March 31, 2019  March 31, 2018 
          
Term loans 2022  $238.4  $267.8 
6.8% Senior Notes 2021   85.0   101.0 
5.8% Senior Notes 2027   50.0   50.0 
Other (a) -   14.3   12.8 
       387.7   431.6 
Less: current portion      (48.6)  (39.9)
Less: unamortized debt issuance costs   (4.0)  (5.4)
Total long-term debt     $335.1  $386.3 

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

Long-term debt matures as follows:

Fiscal Year   
2020 $48.6 
2021  101.3 
2022  187.4 
2023  8.8 
2024  8.8 
2025 & beyond  32.8 
Total $387.7 

The Company executed an amended and restatedmaintains a credit agreement with a syndicate of banks that provides for both U.S. dollar- and euro-denominated term loan facilities and a multi-currency $175.0 million revolving credit facility expiring in November 2021, which replaced the Company’s then-existing revolver that would have expired in August 2018.2021.  Based upon the terms of the credit agreement and currency denomination, borrowings under both the term loans and revolving credit facility bear interest at a variable rate, primarily either the London Interbank Offered Rate (“LIBOR”) or Euro Interbank Offered Rate (“EURIBOR”), plus 137.5 to 250 basis points (3.0 percent weighted-average at March 31, 2017) depending on the Company’s leverage ratio, as described below.  At March 31, 2017,2019, the Company’sweighted-average interest rates for the outstanding term loanloans and the revolving credit facility borrowings totaled $268.9 million, with repayments scheduled through fiscal 2022.  Also in November 2016, the Company issued $50.0 million of 5.8were 3.3 percent Senior Notes with repayments ending in fiscal 2027.and 3.7 percent, respectively.

Long-term debt consisted of the following:

 
Fiscal year
of maturity
  March 31, 2017  March 31, 2016 
           
Term Loans  2022  $268.9  $- 
6.8% Senior Notes  2021   117.0   125.0 
5.8% Senior Notes  2027   50.0   - 
Other (a)  2032   8.3   9.0 
       444.2   134.0 
Less: current portion      (31.8)  (8.5)
Less: unamortized debt issuance costs      (6.7)  - 
Total long-term debt     $405.7  $125.5 
(a)Other long-term debt includes capital lease obligations and other financing-type obligations.
Long-term debt matures as follows:

Fiscal Year   
2018 $31.8 
2019  38.6 
2020  43.8 
2021  98.3 
2022  184.1 
2023 & beyond  47.6 
Total $444.2 

At March 31, 2017,2019 and 2018, the Company reported its revolving credit facility borrowings of $40.4$47.1 million and $21.3 million, respectively, as short-term debt on the consolidated balance sheet.sheets.  At March 31, 2017,2019, domestic letters of credit totaled $2.0$4.3 million, resulting in available borrowings under the Company’s revolving credit facility of $132.6$123.6 million.  The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings at March 31, 20172019 and 20162018 of $33.0$18.9 million and $28.6$31.9 million, respectively.  At March 31, 2017, the Company’s foreign unused lines of credit totaled $20.0 million.  In aggregate, the Company had total available lines of credit of $152.6 million at March 31, 2017.

Provisions in the Company’s amended and restated credit 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 debt agreements in the U.S., the Company has provided liens on substantially all domestic assets.  In addition, the term loans require prepayments, as definedspecified in the credit agreement, the term loans may require prepayments in the event the Company’s annual excess cash flow exceeds defined levels, depending upon the Company’s leverage ratio, or in the event of certain asset sales.  The Company is also subject to a leverage ratio covenant,covenants, the most restrictive of which requires the Company to limit its consolidated indebtedness, less a portion of its 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”).  As permitted by the credit agreements and in connection with the Company’s acquisition of Luvata HTS, this leverage ratio covenant limit has been temporarily raised to no more than three and three-quarters times Adjusted EBITDA through the second quarter of fiscal 2018, and thereafter to no more than three and one-half times Adjusted EBITDA through the first quarter of fiscal 2019.  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.  The Company was in compliance with its debt covenants as of March 31, 2017.2019.

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

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, 20172019 and 2016,2018, the carrying value of Modine’sthe Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of approximately $170.0$137.2 million and $139.0$153.1 million, respectively.  The fair value of the Senior Notes areCompany’s long-term debt is categorized as Level 2 within the fair value hierarchy.  Refer to Note 34 for the definition of a Level 2 fair value measurement.

Note 16: 
Note 18:Pension and Employee Benefit Plans

Defined Contribution Employee Benefit 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 employeetheir compensation during fiscal 2017, 2016, and 2015 related to its primary domestic 401(k) plans.  The Company also makes annual employer contributions into eligible active employee accounts based upon a percentage of employee compensation.  Employees can choose among various investment alternatives, including (subject to restrictions) Modine stock.  The Company’s matching contributions and annual employer contributions are discretionary.for participants.  The Company’s expense for defined contribution employee benefit plans during fiscal 2019, 2018, and 2017 2016, and 2015 was $4.7$6.4 million, $4.6$5.2 million, and $5.9$4.7 million, respectively.

In addition, the Company maintains non-qualified deferred compensation plans for eligible employees, and various non-U.S. subsidiaries have government-required defined contribution plans in place, under which they contribute a percentage of employee earnings into accounts, consistent with local laws.

Statutory Termination Plans:

Certain non-U.S. subsidiaries have statutory termination indemnity plans covering eligible employees.  The benefits under these plans are based upon years of service and final average compensation levels or a monthly retirement benefit amount.  These programs are all substantially unfunded in accordance with local laws, but are often covered by national obligatory umbrella insurance programs that protect employees from losses in the event that an employer defaults on its obligations.laws.

Defined Benefit Employee Benefit Plans:

Pension plans: As a result of its acquisition of Luvata HTS, the Company acquired defined benefit pension plans in Italy, Austria, and the U.S. with liabilities totaling $14.3 million, representing the aggregate funded status of these acquired plans.  These acquired plans are closed to new participants.

In addition, theThe 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 upon years of service and average compensation for salaried and some hourly employees.  Benefits for other hourly employees are based upon a monthly retirement benefit amount.  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.

The Company contributed $8.1$8.0 million, $6.7$13.4 million, and $5.9$8.1 million to its U.S. pension plans during fiscal 2019, 2018, and 2017, 2016,respectively.  In addition, the Company contributed $5.9 million, $2.6 million, and 2015,$1.4 million to its non-U.S. pension plans during fiscal 2019, 2018, and 2017, 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 offered a voluntary lump-sum payout program to certain eligible former employees.  Approximately 2,000 participants accepted the lump-sum settlement offer and a total of $65.3 million was paid from pension plan assets during fiscal 2016, which reduced the Company’s pension obligation by the same amount.  In connection with these lump-sum payouts, the Company recorded $42.1 million of non-cash settlement losses related to the accelerated recognition of unamortized actuarial losses previously recorded on the consolidated balance sheets within accumulated other comprehensive loss.  During fiscal 2016, the Company recorded $33.3 million and $8.8 million of settlement losses as SG&A expenses and cost of sales, respectively, within the consolidated statements of operations.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Postretirement plans: The Company provides selected healthcare and life insurance benefits for eligible retired domestic employees.  The Company periodically amends these unfunded plans to change the contribution rate of retirees and the amounts and forms of coverage.  An annual limit on the Company’s cost is defined for the majority of these plans.  The Company’s net periodic income for its postretirement plans during fiscal 2017, 2016,2019, 2018, and 20152017 was $0.3 million, $0.2 million, and $0.3 million, and $0.1 million, respectively.

Measurement Date:date:  The Company uses March 31 as the measurement date for its pension and postretirement plans.

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, 2017 and 2016 were as follows:

 Years ended March 31, 
 2017  2016  2019  2018 
Change in benefit obligation:            
Benefit obligation at beginning of year $261.0  $328.2  $273.6  $269.8 
Service cost  0.6   0.6   0.5   0.5 
Interest cost  9.8   11.2   9.6   9.9 
Actuarial gain  (0.5)  (2.8)
Benefits paid (a)  (19.8)  (78.1)
Acquired obligations (b)  20.3   - 
Actuarial loss  1.7   4.4 
Benefits paid  (22.8)  (16.9)
Curtailment gain (a)  -   (0.3)
Effect of exchange rate changes  (1.6)  1.9   (3.8)  6.2 
Benefit obligation at end of year $269.8  $261.0  $258.8  $273.6 
                
Change in plan assets:                
Fair value of plan assets at beginning of year $141.5  $217.0  $157.7  $148.2 
Actual return on plan assets  11.0   (5.3)  6.3   10.4 
Benefits paid (a)  (19.8)  (78.1)
Benefits paid  (22.8)  (16.9)
Employer contributions  9.5   7.9   13.9   16.0 
Acquired plan assets (b)  6.0   - 
Fair value of plan assets at end of year $148.2  $141.5  $155.1  $157.7 
Funded status at end of year $(121.6) $(119.5) $(103.7) $(115.9)
                
Amounts recognized in the consolidated balance sheets:                
Current liability $(2.2) $(0.9) $(2.0) $(6.3)
Noncurrent liability  (119.4)  (118.6)  (101.7)  (109.6)
 $(121.6) $(119.5) $(103.7) $(115.9)

 (a)InDuring fiscal 2016, $65.3 million was paid from plan assets2018, the Company recorded a pension curtailment gain associated with the closure of a manufacturing facility in connection with lump-sum payouts.Austria (CIS segment).  See Note 6 for additional information regarding the closure of this facility.
(b)As a result of its acquisition of Luvata HTS, the Company acquired pension plans in Italy, Austria and the U.S.  See Note 2 for additional information.

As of March 31, 2019, 2018, and 2017, the benefit obligation associated with the Company’s non-U.S. pension plans totaled $36.5 million, $43.4 million, and $39.3 million respectively.  In fiscal 2019, the $6.9 million decrease primarily resulted from employer contributions of $5.9 million for benefits paid to plan participants during the year and the impact of foreign currency exchange rate changes, partially offset by service and interest cost totaling $1.1 million.  In fiscal 2018, the $4.1 million increase primarily resulted from the impact of foreign currency exchange rate changes and service and interest cost totaling $1.3 million, partially offset by $2.6 million of benefits paid to plan participants.

The accumulated benefit obligation for pension plans was $266.8$256.9 million and $257.9$271.8 million as of March 31, 20172019 and 2016,2018, respectively.  The net actuarial loss related to the pension plans recognized in accumulated other comprehensive loss was $156.8$159.1 million and $162.0$157.9 million as of March 31, 20172019 and 2016,2018, respectively.

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 for the fiscal years ended March 31, 2017, 2016, and 2015:components:

 Years ended March 31, 
 2017  2016  2015  2019  2018  2017 
Components of net periodic benefit cost:                  
Service cost $0.6  $0.6  $0.5  $0.5  $0.5  $0.6 
Interest cost  9.8   11.2   13.0   9.6   9.9   9.8 
Expected return on plan assets  (12.3)  (14.9)  (16.7)  (12.3)  (11.9)  (12.3)
Amortization of net actuarial loss  5.6   6.4   5.5   5.6   5.6   5.6 
Settlements (a)  -   42.1   -   0.2   0.3   - 
Curtailment gain (a)  -   (0.3)  - 
Net periodic benefit cost $3.7  $45.4  $2.3  $3.6  $4.1  $3.7 
                        
Other changes in benefit obligation recognized in other comprehensive loss (income):            
Other changes in benefit obligation recognized in other comprehensive income (loss):
            
Net actuarial loss $1.0  $17.5  $46.4  $(7.7) $(5.8) $(1.0)
Amortization of net actuarial loss (a)  (5.6)  (48.5)  (5.5)
Total recognized in other comprehensive (income) loss $(4.6) $(31.0) $40.9 
Amortization of net actuarial loss  5.8   5.9   5.6 
Total recognized in other comprehensive income (loss) $(1.9) $0.1  $4.6 

(a)During fiscal 2016, in connectionThe settlement charges and curtailment gain resulted from activity associated with lump-sum payouts tothe Company’s non-U.S. pension plan participants, the Company recorded $42.1 million of settlement losses, which were previously recorded in accumulated other comprehensive loss.plans.

The Company amortized $5.6 million of net actuarial loss in fiscal 2019, 2018, and 2017.  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$6.0 million of net actuarial loss for its pension plans will be amortized from accumulated other comprehensive loss into net periodic benefit cost during fiscal 2018.2020.  The fiscal 2020 estimated amortization includes less than $1.0 million related to the Company’s non-U.S. pension plans.

The Company used a discount rate of 4.1%4.0% as of both March 31, 20172019 and 20162018 for determining its benefit obligations under its U.S. pension plans. The Company used a weighted-average discount rate of 1.7%1.4% and 1.8%1.7% as of March 31, 20172019 and 2016,2018, respectively, infor determining its benefit obligations under its non-U.S. pension plans.  The Company used a discount rate of 4.1%4.0%, 4.3%4.1%, and 4.7%4.1% to determine its costs under its U.S. pension plans for the fiscal years ended March 31,2019, 2018, and 2017, 2016, and 2015, respectively.  The Company used a weighted-average discount rate of 1.7%1.9%, 1.3%1.9%, and 3.0%1.7% to determine its costs under its non-U.S. pension plans for the fiscal years ended March 31,2019, 2018, and 2017, 2016, and 2015, 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, 2017 and 2016 were as follows:

 
Target allocation as
of March 31, 2017
  Plan assets  March 31, 2019  March 31, 2018 
    2017  2016  Target allocation  Plan assets  Target allocation  Plan assets 
Equity securities  60%  58%  56%  65%  66%  60%  58%
Debt securities  38%  38%  36%  21%  19%  38%  38%
Cash  2%  4%  4%
Alternative assets  -   -   4%
Real estate investments  13%  12%  -   - 
Cash and cash equivalents  1%  3%  2%  4%
  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, 20172019 and 2016,2018, the Company’s pension plans did not directly own shares of Modine common stock.

The Company employs a total return investment approach, whereby a mix of equities and fixed-income investments are used to maximize the long-term 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.

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

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 2017, 2016,2019, 2018, and 20152017 U.S. pension plan expense, the expected rate of return on plan assets was 7.5 percent, 7.5 percent and 8.0 percent.percent, respectively.  For fiscal 20182020 U.S. pension plan expense, the Company has assumed a rate of return on plan assets of 7.5 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 $13.1contribute approximately $3.0 million to these plans during fiscal 2018.2020.

Estimated pension benefit payments for the next ten fiscal years are as follows:

Fiscal Year 
Estimated Pension
Benefit Payments
  
Estimated Pension
Benefit Payments
 
2018 $17.1 
2019  16.4 
2020  17.0  $16.0 
2021  17.1   16.0 
2022  17.6   16.4 
2023-2027  90.4 
2023  16.4 
2024  16.6 
2025-2029  82.0 

Note 17: 
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.  In fiscal 2019 and 2018, the Company designated certain commodity forward contracts 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 accumulated other comprehensive income (loss) (“AOCI”) within shareholders’ equity and subsequently recognizes the gains and losses within cost of sales as the underlying inventory is sold.  The Company hasdid not designateddesignate commodity contracts entered into in fiscal 2017 2016, and 2015 for hedge accounting.  Accordingly, unrealized gains and losses on thesethose contracts arewere recorded within cost of sales.

Foreign exchange contracts: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.  In fiscal 2019 and 2018, the Company designated 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.

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, 2017  March 31, 2016  Balance Sheet Location March 31, 2019  March 31, 2018 
Derivatives designated as hedges:        
Commodity derivativesOther current assets $0.7  $-  Other current assets $0.6  $0.1 
Commodity derivativesOther current liabilities  -   0.1  Other current liabilities  0.3   - 
Foreign exchange contractsOther current assets  0.2   0.1  Other current assets  0.2   0.1 
          
Derivatives not designated as hedges:          
Commodity derivatives Other current liabilities $-  $0.2 
Foreign exchange contracts Other current assets  -   0.2 
Foreign exchange contracts Other current liabilities  0.5   0.6 

The amounts recorded in the consolidated statements of operations for the Company’sassociated with derivative financial instruments that the Company designated for hedge accounting 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 2017  2016  2015  2019  2018  2017 Location 2019  2018  2017 
Commodity derivativesCost of sales $0.5  $(0.7) $(0.2) $(0.3) $0.2  $- Cost of sales $(0.4) $-  $- 
Foreign exchange contractsOther income (expense) - net  1.3   0.6   (1.1)  (0.4)  0.1   - Net sales  (0.4)  0.1   - 
Foreign exchange contracts  1.0   -   - Cost of sales  0.6   -   - 
Total gains (losses)  $1.8  $(0.1) $(1.3) $0.3  $0.3  $-   $(0.2) $0.1  $- 

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 2019  2018  2017 
Commodity derivatives Cost of sales $-  $0.4  $0.5 
Foreign exchange contracts Net sales  (0.7)  (0.1)  - 
Foreign exchange contracts Other income (expense) - net  (0.3)  (0.5)  1.3 
Total gains (losses)   $(1.0) $(0.2) $1.8 

67
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 18: 
Note 20:Contingencies and Litigation

Market risk:  Risk
The Company sells a broad range of products that provide thermal solutions to customers operating primarily in the automotive, commercial vehicle, construction, agricultural,off-highway, and commercial, industrial, and building HVAC&R markets.  The Company operates in diversified markets as a strategy for offsetting the risk associated with a downturn in any one or more of the markets it serves.  The Company pursues new market opportunities after careful consideration of the potential associated risks and benefits.  However, the risk associated with market downturns is still 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 2019, 2018, and 2017, 2016 and 2015, two VTS segment customers each accounted for ten percent or more of the Company’s total sales.  Sales to the Company’s top ten customers representedwere 50 percent, 48 percent, and 54 percent of total sales in fiscal 2019, 2018, and 2017, and 63 percent of total sales in both fiscal 2016 and 2015.respectively.  At March 31, 20172019 and 2016, 352018, 38 percent and 4536 percent, respectively, of the Company'sCompany’s trade accounts receivable were due from the Company'sCompany’s top ten customers.  These customers operate primarily in the automotive, truck,commercial vehicle, off-highway, data center cooling and heavy equipmentcommercial air conditioning markets, andwhich are influenced by similar market and general economic factors.  Collateral or advanced payments are generally not required.  The Company has not experienced significant credit losses to customers in the markets served.

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;
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;
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
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.
Insurance – ensuring that insurance providers maintain financial ratings that are acceptable to the Company.

Counterparty risks:  Risk
The Company manages counterparty risksrisk through its focus on the following:

·Customers – performing thorough reviews of customer credit reports and accounts receivable aging reports by internal credit committees;
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
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.
Derivatives – ensuring that counterparties to derivative instruments maintain credit ratings that are acceptable to the Company.

Environmental: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.

As a result of its acquisition of Luvata HTS in fiscal 2017, the Company assumed certain environmental obligations.  The Company has recorded environmental accruals related to these matters, the most significant of which relates to historical soil and groundwater contamination remediation and monitoring for a manufacturing site in the United States.  In addition, the Company has recorded environmental investigation and remediation accruals related to subsurfacesoil and groundwater contamination at manufacturing facilities in the United States, one of which the Company currently owns and operates, and at its former manufacturing facility in the Netherlands, investigative work related to a previously-owned manufacturing facility in the United States, and groundwater contamination at its manufacturing facility in Brazil, along with accruals for lesser environmental matters at certain other facilities in the United States.States and Brazil.  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 $16.8$18.9 million and $5.1$16.7 million at March 31, 20172019 and 2016,2018, respectively.  As additional information becomes available, the Company will re-assess the liabilities related to these matters and revise the estimated accruals, if necessary.  Based upon 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Brazil antitrust investigation:  During fiscal 2015, Brazil’s Administrative Council for Economic Defense (CADE) provided formal notice to the Company’s subsidiary in Brazil (“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, the Company accrued $2.8 million (BRL 10 million) related to this matter.  During fiscal 2017, the Company increased its accrual and reached agreement with CADE to settle the matter for $4.7 million (BRL 15 million).  As a result, the Company recorded a charge of $1.6 million (BRL 5 million) within SG&A expenses during fiscal 2017.  The Company expects to remit payment for the settlement in early fiscal 2018.

Other litigation: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.  In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits or proceedings are not expected to have a material adverse effect on the Company’s consolidated financial statements.position.

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

Note 19: 
Note 21:Accumulated Other Comprehensive Loss

Changes in accumulated other comprehensive loss were as follows:

 
Foreign
Currency
Translation
  
Defined
Benefit Plans
  Total  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  
Cash Flow
Hedges
  Total 
Balance, March 31, 2016 $(36.0) $(138.2) $(174.2)
Balance, March 31, 2018 $(5.5) $(134.9) $0.1  $(140.3)
                            
Other comprehensive income (loss) before reclassifications  (10.8)  (0.3)  (11.1)  (37.9)  (7.1)  0.3   (44.7)
Reclassifications for amortization of unrecognized net loss (a)  -   5.2   5.2 
Reclassifications:                
Amortization of unrecognized net loss (a)  -   5.4   -   5.4 
Foreign currency translation losses (b)  0.8   -   -   0.8 
Realized losses - net (c)  -   -   0.2   0.2 
Income taxes  -   (1.7)  (1.7)  -   0.3   (0.1)  0.2 
Total other comprehensive income (loss)  (10.8)  3.2   (7.6)  (37.1)  (1.4)  0.4   (38.1)
                            
Balance, March 31, 2019 $(42.6) $(136.3) $0.5  $(178.4)
                
 
Foreign
Currency
Translation
  
Defined
Benefit Plans
  
Cash Flow
Hedges
  Total 
Balance, March 31, 2017 $(46.8) $(135.0) $(181.8) $(46.8) $(135.0) $-  $(181.8)
                
Other comprehensive income (loss) before reclassifications  41.3   (5.7)  0.3   35.9 
Reclassifications:                
Amortization of unrecognized net loss (a)  -   5.6   -   5.6 
Realized gains - net (c)  -   -   (0.1)  (0.1)
Income taxes  -   0.2   (0.1)  0.1 
Total other comprehensive income  41.3   0.1   0.1   41.5 
                
Balance, March 31, 2018 $(5.5) $(134.9) $0.1  $(140.3)

  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  Total 
Balance, March 31, 2015 $(40.7) $(157.9) $(198.6)
             
Other comprehensive income (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)

(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 1618 for additional information about the Company’s pension plans.
(b)As a result of the sale of a business in South Africa during fiscal 2019, the Company wrote-off $0.8 million of accumulated foreign currency translation losses.  See Note 1 for additional information about this transaction.
(c)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.

69
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 20: 
Note 22:Segment and Geographic Information

The Company’s product lines consist of heat-transfer components and systems.  The Company serves vehicular and commercial, industrial, and building HVAC&R markets.  In November 2016, the Company acquired Luvata HTS and, commencing from the acquisition date, has operated and reported results for the acquired business as its Commercial and Industrial Solutions (“CIS”)CIS segment.  See Note 2 for additional information regarding the Luvata HTS acquisition.

The Company’sEffective April 1, 2018, the Company formed the VTS segment by combining its Americas, Europe, and Asia operations to enable it to operate as a more global, product-based organization.  The Company also merged its Americas coils business into the CIS segment to accelerate operational improvements and organizational efficiencies.  The Company began reporting financial results for its new segments representbeginning in fiscal 2019.  Segment financial information for fiscal 2018 and 2017 has been recast to conform to the fiscal 2019 presentation.

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

The Company’s VTS segment represents its vehicular businessesbusiness and primarily serveserves the automotive, commercial vehicle, and off-highway markets.  In addition, the AmericasVTS segment serves the automotive and commercial vehicle aftermarket in Brazil and provides coils to the commercial HVAC&R market in North America.Brazil.  The Company’s CIS segment provides coils, coolers, and coating solutions to customers throughout the world.  The Company’s BHVAC segment provides heating, ventilating and air conditioning products to customers throughout the world.

Each operating segment is managed by a vice president and has separate financial results reviewed by the Company’s chief operating decision maker.  These results are used by management in evaluating the performance of each segment and in making decisions on the allocation of resources among the Company’s various businesses.

The following is a summary of net sales, gross profit, and operating income by segment:

  Years ended March 31, 
Net sales: 2017  2016  2015 
Americas $534.0  $585.5  $666.9 
Europe  524.3   524.1   578.2 
Asia  111.5   79.0   81.2 
CIS  177.7   -   - 
BHVAC  171.6   181.4   186.3 
Segment total  1,519.1   1,370.0   1,512.6 
Corporate and eliminations  (16.1)  (17.5)  (16.2)
Net sales $1,503.0  $1,352.5  $1,496.4 

  Years ended March 31, 
  2017  2016  2015 
Gross profit: $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
 
Americas $86.6   16.2% $100.1   17.1% $109.1   16.3%
Europe  80.9   15.4%  68.1   13.0%  68.7   11.9%
Asia  18.7   16.8%  12.2   15.5%  11.5   14.2%
CIS  26.0   14.6%  -   -   -   - 
BHVAC  47.8   27.8%  54.2   29.9%  55.9   30.0%
Segment total  260.0   17.1%  234.6   17.1%  245.2   16.2%
Corporate and eliminations (a)  (6.7)  -   (11.1)  -   1.3   - 
Gross profit $253.3   16.9% $223.5   16.5% $246.5   16.5%
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
 Years ended March 31, 
Operating income: 2017  2016  2015 
Americas $26.7  $36.2  $33.4 
Europe  37.1   13.3   25.7 
Asia  7.7   0.8   0.3 
CIS  7.5   -   - 
BHVAC  13.1   13.9   19.1 
Segment total  92.1   64.2   78.5 
Corporate and eliminations (a)  (52.7)  (71.7)  (25.8)
Operating income (loss) $39.4  $(7.5) $52.7 

(a)During fiscal 2017, the Company recorded $14.8 million of costs incurred directly related to the acquisition and integration of Luvata HTS within SG&A expenses at Corporate.  In addition, as a result of purchase accounting for the Luvata HTS acquisition, the Company wrote up acquired inventory to its estimated fair value and charged the write-up to cost of sales as the underlying inventory was sold.  The Company recorded $4.3 million in cost of sales related to this inventory step-up at Corporate, as the impact of this purchase accounting adjustment is excluded from the Company’s measure of segment operating performance.  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 16 for additional information about the Company’s pension plans.
  Year ended March 31, 2019 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:         
VTS $1,298.9  $52.8  $1,351.7 
CIS  704.7   2.9   707.6 
BHVAC  209.1   3.3   212.4 
Segment total  2,212.7   59.0   2,271.7 
Corporate and eliminations  -   (59.0)  (59.0)
Net sales $2,212.7  $-  $2,212.7 
             
  Year ended March 31, 2018 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:            
VTS $1,239.3  $56.4  $1,295.7 
CIS  674.4   1.3   675.7 
BHVAC  189.4   1.8   191.2 
Segment total  2,103.1   59.5   2,162.6 
Corporate and eliminations  -   (59.5)  (59.5)
Net sales $2,103.1  $-  $2,103.1 
             
  Year ended March 31, 2017 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:            
VTS $1,099.9  $52.3  $1,152.2 
CIS  231.5   0.3   231.8 
BHVAC  171.6   -   171.6 
Segment total  1,503.0   52.6   1,555.6 
Corporate and eliminations  -   (52.6)  (52.6)
Net sales $1,503.0  $-  $1,503.0 

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.  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.

The following is a summary of total assets by segment:

  March 31, 
  2017  2016 
Americas $282.9  $267.2 
Europe  269.4   301.9 
Asia  111.3   104.0 
CIS  576.0   - 
BHVAC  85.2   99.0 
Corporate and eliminations  124.7   148.8 
Total assets $1,449.5  $920.9 

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

  Years ended March 31, 
Capital expenditures: 2017  2016  2015 
Americas $26.3  $26.7  $30.2 
Europe  24.7   24.8   21.5 
Asia  8.5   6.2   3.8 
CIS  3.4   -   - 
BHVAC  1.5   5.1   2.8 
Total capital expenditures $64.4  $62.8  $58.3 
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

  Years ended March 31, 
Depreciation and amortization expense: 2017  2016  2015 
Americas $22.7  $22.1  $21.3 
Europe  16.5   18.0   19.8 
Asia  7.0   6.5   7.2 
CIS  7.9   -   - 
BHVAC  4.2   3.6   3.3 
Total depreciation and amortization expense $58.3  $50.2  $51.6 
  Years ended March 31, 
  2019  2018  2017 
Gross profit: $’s  
% of
sales
  $’s  
% of
sales
  $’s  % of
sales		 
VTS $186.9   13.8% $201.0   15.5% $182.0   15.8%
CIS  114.9   16.2%  97.8   14.5%  32.2   13.9%
BHVAC  63.4   29.9%  58.0   30.3%  47.8   27.8%
Segment total  365.2   16.1%  356.8   16.5%  262.0   16.8%
Corporate and eliminations (a)  0.3   -   (0.3)  -   (7.6)  - 
Gross profit $365.5   16.5% $356.5   17.0% $254.4   16.9%

  Years ended March 31, 
Operating income: 2019  2018  2017 
VTS $64.8  $84.2  $68.4 
CIS  53.4   28.5   10.9 
BHVAC  26.9   20.3   13.2 
Segment total  145.1   133.0   92.5 
Corporate and eliminations (a)  (35.4)  (40.8)  (50.2)
Operating income $109.7  $92.2  $42.3 

(a)During fiscal 2018 and 2017, the Company recorded $4.3 million and $14.8 million, respectively, of costs incurred directly related to the acquisition and integration of Luvata HTS within SG&A expenses at Corporate.  During fiscal 2017, the Company recorded $4.3 million in cost of sales related to an inventory purchase accounting adjustment at Corporate, as the impact was excluded from the Company’s measure of segment operating performance.  In addition, 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.

The following is a summary of total assets by segment:

  March 31, 
  2019  2018 
VTS $749.9  $754.8 
CIS  604.2   630.2 
BHVAC  89.4   88.1 
Corporate and eliminations  94.5   100.3 
Total assets $1,538.0  $1,573.4 

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

  Years ended March 31, 
Capital expenditures: 2019  2018  2017 
VTS $56.2  $61.4  $59.5 
CIS  16.4   9.0   3.4 
BHVAC  1.3   0.6   1.5 
Total capital expenditures $73.9  $71.0  $64.4 

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

  Years ended March 31, 
Depreciation and amortization expense: 2019  2018  2017 
VTS $49.5  $48.2  $46.2 
CIS  23.9   24.3   7.9 
BHVAC  3.5   4.2   4.2 
Total depreciation and amortization expense $76.9  $76.7  $58.3 

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

 Years ended March 31,  Years ended March 31, 
 2017  2016  2015  2019  2018  2017 
United States $657.8  $627.6  $669.3  $1,032.3  $911.4  $657.8 
Italy  217.3   211.5   94.4 
China  172.1   156.0   73.7 
Hungary  145.6   145.9   161.0   165.6   153.9   145.6 
Germany  130.1   155.3   193.8   123.1   132.6   130.1 
Austria  125.2   113.1   118.7   116.2   151.7   125.2 
Italy  94.4   44.1   40.6 
Other  349.9   266.5   313.0   386.1   386.0   276.2 
Net sales $1,503.0  $1,352.5  $1,496.4  $2,212.7  $2,103.1  $1,503.0 

The following is a summary of property, plant and equipment by geographical area:

  March 31, 
  2017  2016 
United States $124.7  $92.5 
Italy  55.8   20.3 
Mexico  47.0   30.9 
Austria  44.3   44.2 
China  40.0   33.6 
Hungary  37.7   31.4 
Germany  28.9   32.1 
Other  80.6   53.6 
Total property, plant and equipment $459.0  $338.6 

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

  Years ended March 31, 
  2017  2016  2015 
Automotive $461.0  $396.8  $401.8 
Commercial vehicle  382.5   459.8   512.5 
Off-highway  202.8   206.2   274.6 
HVAC&R  400.9   232.1   229.6 
Other  55.8   57.6   77.9 
Net sales $1,503.0  $1,352.5  $1,496.4 
  March 31, 
  2019  2018 
United States $117.7  $121.5 
China  57.6   49.6 
Mexico  56.3   49.4 
Hungary  55.3   59.3 
Italy  52.4   62.0 
Austria  36.9   42.8 
Germany  32.8   37.2 
Other  75.7   82.5 
Total property, plant and equipment $484.7  $504.3 

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

Note 21:  The following is a summary of net sales by end market:

  Years ended March 31, 
  2019  2018  2017 
Commercial HVAC&R $674.0  $648.3  $323.8 
Automotive  542.8   526.0   461.0 
Commercial vehicle  387.6   381.7   382.5 
Off-highway  314.1   271.2   202.8 
Data center cooling  187.0   137.6   57.1 
Industrial cooling  47.8   67.6   18.6 
Other  59.4   70.7   57.2 
Net sales $2,212.7  $2,103.1  $1,503.0 

Note 23:Quarterly Financial Data (Unaudited)

QuarterlyThe following is a summary of quarterly financial data is summarized below for the years ended March 31, 2017 and 2016:data:

 Fiscal 2017 quarters ended     Fiscal 2019 quarters ended    
 June  Sept.  Dec.  March  Fiscal 2017  June  Sept.  Dec.  March  Fiscal 2019 
                              
Net sales $347.2  $317.7  $349.8  $488.3  $1,503.0  $566.1  $548.9  $541.0  $556.7  $2,212.7 
Gross profit  62.0   47.7   58.7   84.9   253.3   94.3   87.9   91.7   91.6   365.5 
Earnings (loss) from continuing operations (a)  8.9   (4.0)  1.9   8.1   14.9 
Net earnings (loss) attributable to Modine (a)  8.6   (4.1)  1.7   8.0   14.2 
Net earnings (a)  22.5   38.7   18.3   6.4   85.9 
Net earnings attributable to Modine (a)  22.0   38.5   18.0   6.3   84.8 
Net earnings per share attributable to Modine shareholders:                    
Basic $0.43  $0.76  $0.36  $0.12  $1.67 
Diluted  0.43   0.75   0.35   0.12   1.65 
                    
 Fiscal 2018 quarters ended     
 June  Sept.  Dec.  March  Fiscal 2018 
                    
Net sales $515.5  $508.3  $512.7  $566.6  $2,103.1 
Gross profit  88.5   86.1   85.4   96.5   356.5 
Net earnings (loss) (b)  17.4   16.3   (27.9)  18.0   23.8 
Net earnings (loss) attributable to Modine (b)  17.0   15.9   (28.3)  17.6   22.2 
Net earnings (loss) per share attributable to Modine shareholders:                                        
Basic $0.18  $(0.09) $0.04  $0.16  $0.29  $0.34  $0.32  $(0.57) $0.35  $0.44 
Diluted  0.18   (0.09)  0.04   0.16   0.29   0.34   0.31   (0.57)  0.34   0.43 
  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 (b)  5.5   (22.5)  8.2   7.8   (1.0)
Net earnings (loss) attributable to Modine (b)  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)

(a)During fiscal 2017,2019, restructuring expenses totaled $2.3$0.2 million, $2.1 million, $1.6$0.5 million, and $4.9$8.9 million for the quarters ended June 30, 2016, September 30, 2016,2018, December 31, 2016,2018, and March 31, 2017,2019, respectively (see Note 5)6).  During the second quarter of fiscal 2019, the Company sold its South African business within the BHVAC segment and, as a result, recorded a loss of $1.7 million (see Note 1).  During the third quarter of fiscal 2019, the Company recorded a $0.4 million impairment charge related to a manufacturing facility in Austria (see Note 6).  The Company’s income tax benefit for fiscal 2019 includes net benefits of $24.4 million and net charges of $2.2 million in the second and third quarters, respectively, related to the Tax Act and the recognition of foreign tax credits (see Note 8).  During fiscal 2017,2019, the Company soldadjusted its valuation allowances on deferred tax assets related to two previously-closed manufacturing facilitiesseparate subsidiaries in its Americas segmentChina and, as a result, recorded a $2.0 million income tax benefit and a facility$1.0 million income tax charge in its Europe segmentthe first and recognized net gains totaling $1.2second quarters, respectively (see Note 8).
(b)During fiscal 2018, restructuring expenses totaled $1.7 million, $0.4 million, $9.4 million, and $0.8 million in the quarters ended September 30, 2016 and March 31, 2017, respectively.  During fiscal 2017, acquisition- and integration-related costs totaled $1.4 million, $3.0 million, $7.2 million, and $3.2$4.5 million for the quarters ended June 30, 2016,2017, September 30, 2016,2017, December 31, 2016,2017, and March 31, 2017,2018, respectively (see Note 2)6).  During the third quarter of fiscal 2018, the Company recorded a $1.3 million asset impairment charge related to a manufacturing facility in Austria (see Note 6).  During the fourth quarter of fiscal 2017,2018, the Company recorded a deferred$1.2 million impairment charge related to intangible assets (see Note 14).  The Company recorded income tax charges totaling $35.7 million and $2.3 million during the third and fourth quarters of fiscal 2018, respectively, related to the Tax Act (see Note 8).  During the fourth quarter of fiscal 2018, the Company reversed a portion of a valuation allowance related to a foreign tax jurisdiction, and, as a result, recorded income tax expense of $2.0 million (see Note 7).
(b)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 5).  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 5).  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 16).  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.  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 related to a foreign tax jurisdiction of $3.0$2.8 million (see Note 7)8).

Report of Independent Registered Public Accounting Firm

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

Opinions on the Financial 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, 2019, 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 listed in the index appearing under Item 15(a)(1)referred to above present fairly, in all material respects, the financial position of Modine Manufacturingthe Company and its subsidiaries atas of March 31, 20172019 and 2016, 2018, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2017 2019 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, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the CommitteeCOSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for the income tax effects of Sponsoring Organizationsintra-entity transfers of the Treadway Commission (COSO).  assets other than inventory in 2019.

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.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 are a public accounting firm registered with 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 Public Company Accounting Oversight Board (United States).PCAOB.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial 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 consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial 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 consolidatedfinancial 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 consolidatedfinancial 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.

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.

As described in Management's Report on Internal Control Over Financial Reporting, management has excluded the Luvata HTS business, operated as the Company's CIS segment, from its assessment of internal control over financial reporting as of March 31, 2017 because it was acquired by the Company in a purchase business combination on November 30, 2016.  We have also excluded Luvata HTS from our audit of internal control over financial reporting.  Luvata HTS total assets and net sales excluded from management’s assessment and our audit of internal control over financial reporting represent $297 million and $178 million, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended March 31, 2017.

/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 25, 201723, 2019

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

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A.
CONTROLS AND PROCEDURES.

Conclusion Regarding Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, management of the Company, at the direction of the General Counsel and under the supervision, and with the participation, of the Company'sCompany’s President and Chief Executive Officer and 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 Vice President, Finance and Chief Financial Officer have concluded that the Company'sCompany’s disclosure controls and procedures were effective, at a reasonable assurance level, as of March 31, 2017.2019.

Management’s Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s President and Chief Executive Officer and Vice President, Finance and Chief Financial Officer, and effected by the Company'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 Vice President, Finance and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2017.2019.  In making its assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control—Integrated Framework (2013).”  Based upon this assessment, management concluded that, as of March 31, 2017,2019, the Company’s internal control over financial reporting was effective.

Management excluded the Luvata HTS business, operated as the Company’s CIS segment, from its assessment of internal control over financial reporting as of March 31, 2017 because it was acquired by the Company in a purchase business combination on November 30, 2016.  The total assets and net sales of Luvata HTS excluded from management’s assessment represent $297 million and $178 million, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended March 31, 2017.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 20172019 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

As part of its post-closing integration activities for the Luvata HTS acquisition, the Company is engagedThere have been no changes in assessing, refining and harmonizing the internal controls and processes of the acquired business with those of the Company.

This process has resulted in a change in the Company’s internal control over financial reporting during the fourth quarter of fiscal 20172019 that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.
OTHER INFORMATION.

None.

PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors.  The Company incorporates by reference the information appearing in the Company'sCompany’s Proxy Statement for the 20172019 Annual Meeting of Shareholders to be held on July 20, 201725, 2019 (the “2017“2019 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 ActConduct. The Company incorporates by reference the information appearing in the 2017 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 20172019 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.  The Board of Directors has approved charters for its Audit Committee, Officer Nomination and Compensation Committee, Corporate Governance and Nominating Committee and Technology Committee.  These charters are included on the Company’s website, www.modine.com (Investors link).


Audit Committee Financial Expert. The Company incorporates by reference the information appearing in the 20172019 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 20172019 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 20172019 Annual Meeting Proxy Statement under the caption “Shareholder Nominations and Recommendations of Director Candidates.”

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 20172019 Annual Meeting Proxy Statement under the captions “Compensation Discussion and Analysis,” “Compensation of Directors,” “Committees of the Board of Directors – Officer Nomination and Compensation Committee: Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is incorporated herein by reference.

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The Company incorporates by reference the information relating to stock ownership under the caption “Security Ownership of Certain Beneficial Owners and Management,” and under the caption “Equity Compensation Plan Information,” in the 20172019 Annual Meeting Proxy Statement.

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

The Company incorporates by reference the information contained in the 20172019 Annual Meeting Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Director Independence.”

ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The Company incorporates by reference the information contained in the 20172019 Annual Meeting Proxy Statement under the caption “Independent Auditors’Auditor’s Fees for Fiscal 20172019 and 2016.2018.”

PART IV

ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)
Documents Filed.  The following documents are filed as part of this Report:

 
Page in Form 10-K
  
1. The consolidated financial statements of Modine Manufacturing Company and its subsidiaries filed under Item 8: 
  
Consolidated Statements of Operations for the years ended March 31, 2017, 20162019, 2018 and 201520174138
Consolidated Statements of Comprehensive Income for the years ended March 31, 2017, 20162019, 2018 and 201520174239
Consolidated Balance Sheets at March 31, 20172019 and 201620184340
Consolidated Statements of Cash Flows for the years ended March 31, 2017, 20162019, 2018 and 201520174441
Consolidated Statements of Shareholders'Shareholders’ Equity for the years ended March 31, 2017, 20162019, 2018 and 201520174542
Notes to Consolidated Financial Statements46-7343-74
Report of Independent Registered Public Accounting Firm7475-76
  
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 Accounts7980
  
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.80-8281-83
  
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.
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 25, 2017Modine 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. BurkeMay 25, 2017 
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Michael B. Lucareli
Michael B. LucareliMay 25, 2017
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Marsha C. Williams
Marsha C. WilliamsMay 25, 2017 
Director
/s/ David J. Anderson
David J. AndersonMay 25, 2017
Director
/s/ Charles P. Cooley
Charles P. Cooley
May 25, 2017
Director
/s/ Suresh V. Garimella
Suresh V. Garimella
May 25, 2017
Director
/s/ Larry O. Moore
Larry O. MooreMay 25, 2017
Director
/s/ Christopher W. Patterson
Christopher W. PattersonMay 25, 2017
Director
/s/ Christine Y. Yan
Christine Y. YanMay 25, 2017
Director
/s/ David G. Bills
David G. BillsMay 25, 2017
Director
MODINE MANUFACTURING COMPANY AND SUBSIDIARIES
(A Wisconsin Corporation)
SCHEDULE II ‑ VALUATION AND QUALIFYING ACCOUNTS
For the years ended March 31, 2017, 2016 and 2015
(In millions)

     Additions     
Description 
Balance at
Beginning of
Period
  
Charged
(Benefit) to
Costs and
Expenses
  
Charged to
Other
Accounts
   
Balance at
End of Period
 
              
2017: Valuation Allowance for Deferred Tax Assets $50.8  $(0.3) $(0.9)(a) $49.6 
                  
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 
                  
Notes:                 
(a)Foreign currency translation, increases due to the acquisition of Luvata HTS and other adjustments
MODINE MANUFACTURING COMPANY AND SUBSIDIARIES
(A Wisconsin Corporation)

SCHEDULE II ‑ VALUATION AND QUALIFYING ACCOUNTS
For the years ended March 31, 2019, 2018 and 2017
(In millions)

     Additions     
Description 
Balance at
Beginning of
Period
  
Charged
(Benefit) to
Costs and
Expenses
  
Charged to
Other Accounts
   
Balance at End
of Period
 
              
2019: Valuation Allowance for Deferred Tax Assets $48.9  $(1.6) $(3.9) (a) $43.4 
                  
2018: Valuation Allowance for Deferred Tax Assets $49.6  $(6.7) $6.0  (a) $48.9 
                  
2017: Valuation Allowance for Deferred Tax Assets $50.8  $(0.3) $(0.9) (a) $49.6 

(a)Foreign currency translation and other adjustments.  The fiscal 2018 and 2017 amounts also included increases associated with the Company’s acquisition of Luvata HTS.

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

EXHIBIT INDEX
TO
20172019 ANNUAL REPORT ON FORM 10-K

Exhibit
No.
Description 
Incorporated Herein By
Referenced To
 
Filed
Herewith
      
2.1
3.1
Share SaleAmended and Purchase Agreement between Luvata Heat Transfer Solutions II AB and Modine Manufacturing Company, datedRestated Articles of Incorporation, as of September 6, 2016.amended. Exhibit 2.13.1 to Registrant’s Current Report on Form 8-K dated September 6, 201610-K for the fiscal year ended March 31, 2018  
      
3.1Amended and Restated Articles of Incorporation, as amended.Exhibit 4.2 to Registrant’s Registration Statement on Form S-3 (333-161030) dated August 4, 2009
3.2
Bylaws, as amended. Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated February 10, 201520, 2019  
      
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**
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 Lenders.Lenders Exhibit 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
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  
      
4.12
Third Amended and Restated Credit Agreement dated as of November 15, 2016, with JPMorgan Chase Bank, N.A. as Administrative Agent and Collateral Agent, Bank of Montreal, U.S. Bank National Association and Wells Fargo Bank, National Association as Syndication Agents, and Bank of America, N.A. and PNC Bank, National Association as Senior Managing Agent.2016. Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated November 15, 2016 (“November 15, 2016 8-K”)  
      
4.13
Amended and Restated Note Purchase and Private Shelf Agreement dated as of November 15, 2016, with PGIM, Inc. and each of the Purchasers described therein relating to the $125,000,000 6.83% Secured Senior Notes, Series A, due August 12, 2020, the $50,000,000 5.75% Secured Senior Notes, Series B and Private Shelf Facility.2016. Exhibit 4.2 to  November 15, 2016 8-K  
      
4.14
Description of Registrant’s securitiesAmendment No 1. to the Company’s Registration Statement on Form 8-A filed on July 17, 2008 
10.1* 
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’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. Exhibit 10(f) to Registrant’s Form 10-K for the 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  
      
10.9*
Form of Fiscal 2019 Modine Performance Stock Award Agreement.Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended June 30, 2018

10.10*
Form of Fiscal 2019 Modine Incentive Stock Option Award Agreement.Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended June 30, 2018 
10.10* 
10.11*
Form of Fiscal 2019 Modine Restricted Stock Unit Award Agreement.Exhibit 10.3 to Registrant’s Form 10-Q for the quarter ended June 30, 2018
10.12*
Form of Fiscal 2019 Modine Non-Qualified Stock Option Award Agreement.Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended June 30, 2018
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. 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  
      
10.12*
10.15*
Form of Fiscal 2017 Modine Performance Stock Award Agreement.Incentive Compensation Plan. Exhibit 10.1 to Registrant’s Current Report on Form  10-Q for the first quarter ended June 30, 2016 ("June 30, 2016 10-Q")8-K dated July 20, 2017  
      
10.13*
10.16*
Form of Fiscal 20172019 Modine IncentiveNon-Employee Director Restricted Stock OptionsUnit Award Agreement. Exhibit 10.210.1 to JuneRegistrant’s Form 10-Q for the quarter ended September 30, 2016 10-Q2018  
      
10.14*Form of Fiscal 2017 Modine Restricted Stock Award Agreement.Exhibit 10.3 to June 30, 2016 10-Q
10.15*Form of Fiscal 2017 Modine Non-Qualified Stock Option Award Agreement.Exhibit 10.4 to June 30, 2016 10-Q
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, President and Chief Executive Officer.   X
      
31.2
Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Vice President, Finance and Chief Financial Officer.   X
      
32.1
Section 1350 Certification of Thomas A. Burke, President and Chief Executive Officer.   X
 ��     
32.2
Section 1350 Certification of Michael B. Lucareli, 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

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

**    Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has omitted certain agreements with respect to long-term debt not exceeding 10% of consolidated total assets.  The Registrant agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request.

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 23, 2019Modine 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 DirectorMay 23, 2019
(Principal Executive Officer)
/s/ Michael B. Lucareli

Michael B. LucareliMay 23, 2019
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Marsha C. Williams

Marsha C. WilliamsMay 23, 2019
Director
/s/ David J. Anderson

David J. AndersonMay 23, 2019
Director
/s/ Eric D. Ashleman

Eric D. AshlemanMay 23, 2019
Director
/s/ David G. Bills

David G. BillsMay 23, 2019
Director
/s/ Charles P. Cooley

Charles P. CooleyMay 23, 2019
Director
/s/ Suresh V. Garimella

Suresh V. GarimellaMay 23, 2019
Director
/s/ Larry O. Moore

Larry O. MooreMay 23, 2019
Director
/s/ Christopher W. Patterson

Christopher W. PattersonMay 23, 2019
Director
/s/ Christine Y. Yan

Christine Y. YanMay 23, 2019
Director


84
s
  % of sales  

Year Ended March 31, 20172019 Compared with Year Ended March 31, 2016:2018:

Fiscal 20172019 net sales increased $150$110 million, or 115 percent, from the prior year, primarily due to $178 million of incremental sales from our new CIS segment and higher sales in each of our Asia segment,operating segments, partially offset by lower sales in our Americas and BHVAC segments.  Sales volume increases in our BHVAC segment were more than offset by an $11a $28 million unfavorable impact of foreign currency exchange rate changes.

Fiscal 20172019 gross profit of $253 million increased $29$9 million from the prior year, andyet gross margin increased 40declined 50 basis points to 16.916.5 percent.  These increases wereThe decline in gross margin was primarily due to $26 millionunfavorable material costs, including the direct and indirect impacts of gross profit contributed by the CIStariffs, and temporary operating inefficiencies largely related to increased volumes and multiple new program launches in our VTS segment, cost savings resulting from procurement initiatives, and the absence of $9 million of pension settlement losses recognized in the prior year, partially offset by temporary production inefficiencies in the Americas segment, the unfavorable impact of ahigher sales volume.  In addition, gross profit was unfavorably impacted by $4 million inventory purchase accounting adjustmentfrom foreign currency exchange rate changes.

Fiscal 2019 SG&A expenses of $244 million decreased $2 million, or 70 basis points as a percentage of sales, from the prior year.  The decrease in SG&A expenses was primarily due to lower integration costs associated with our November 2016 acquisition of the Luvata HTS business and unfavorable material costs.  In addition,a $3 million favorable impact of foreign currency exchange rate changes, negatively impacted fiscal 2017 gross profit by $2 million.

Fiscal 2017 SG&A expenses of $205 million were consistent with the prior year, but decreased as a percentage of net sales.  During fiscal 2017, $19 million of SG&A expenses in the CIS segment and $15 million of acquisition- and integration-related costs associated with our acquisition of Luvata HTS were largely offset by the absence of $33 million of pension settlement losses recognized in the prior year.

Restructuring expenses decreased $6 million in fiscal 2017 compared with the prior year, primarily due to lower severance expenses, partially offset by higher equipment transferthird-party strategic advisory costs recorded at Corporate and plant consolidationhigher environmental charges within our VTS segment.  During fiscal 2019, we recorded $7 million of costs, in the Americas segment.primarily consisting of third-party consulting fees, related to our evaluation of strategic alternatives for our VTS segment’s automotive business.

During fiscal 2017, we sold two previously-closed manufacturing facilities within our Americas segment and a facility within our Europe segment.  As a resultFiscal 2019 restructuring expenses of these sales, we recognized net gains totaling $2 million.

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.

Operating income of $39 million in fiscal 2017 represents a $47 million improvement compared with an operating loss of $8 million in the prior year.  Fiscal 2017 operating performance improved in our Europe and Asia segments, while operating performance declined in our Americas and BHVAC segments.  Operating income was favorably impacted by the absence of $42 million of pension settlement losses and a $10 million impairment charge recognized in the prior year, $8 million of operating income contributed by the CIS segment, and lower restructuring expenses, partially offset by acquisition- and integration-related costs and the impact of the inventory purchase accounting adjustment totaling $19 million.
Fiscal 2017 interest expense increaseddecreased $6 million compared with the prior year, primarily due to new debt used to financelower severance-related expenses associated with the fiscal 2018 closure of a significant portion of our acquisition of Luvata HTS.manufacturing facility in Gailtal, Austria within the CIS segment.

OtherDuring fiscal 2019, we sold our South African business within the BHVAC segment and, as a result, recorded a loss of $2 million.

Operating income during fiscal 2016 included a $10of $110 million gain related to an insurance settlement for equipment losses resulting from the Airedale fire in fiscal 2014.2019 increased $18 million compared with the prior year, primarily due to higher earnings in the CIS and BHVAC segments, partially offset by lower earnings in the VTS segment.

OurThe benefit for income taxes was $5 million in fiscal 2019, compared with a provision for income taxes was $6of $40 million in fiscal 2017,2018.  The $45 million change was primarily due to our accounting for the impacts of the Tax Act.  As a result of the Tax Act, we recorded provisional income tax charges totaling $38 million in the prior year, compared with a benefit for income taxes of $9tax benefits totaling $8 million in fiscal 2016.  Thethe current year.  In addition, we recorded income tax benefitbenefits totaling $17 million in fiscal 2016 includedthe current year resulting from the recognition of tax assets for foreign tax credits and other attributes, partially offset by the absence of a $16 million benefit related to pension settlement losses and a $3$9 million benefit from a development tax credit in Hungary recorded in the reversalprior year and changes in the mix of a deferred tax asset valuation allowance in a foreign tax jurisdiction.  The income tax provision in fiscal 2017 includes a $2 million provisionoperating earnings.  See Note 8 of the Notes to establish a valuation allowance in a separate foreign tax jurisdiction.Consolidated Financial Statements for additional information.

Year Ended March 31, 20162018 Compared with Year Ended March 31, 2015:2017:

Fiscal 20162018 net sales decreased $143increased $600 million, or 1040 percent, from the prior year, primarily due to lower$444 million of additional sales from our CIS segment, which included sales from the acquired Luvata HTS business that we owned for four months of fiscal 2017, higher sales in each of our Americas and Europe segments. Sales volume increases in our Europe segment were more than offset by a $76 million unfavorable impact of foreign currency exchange rate changes.  In total, our fiscal 2016 sales were negatively affected by a $110 million unfavorable impact of foreign currency exchange rate changes, primarily associated with the strengthening of the U.S. dollar.

Fiscal 2016 gross profit decreased $23 million to $224 million, 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 favorable 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 initiativesother operating segments, and a $10$55 million favorable impact of foreign currency exchange rate changes.

Restructuring expensesFiscal 2018 gross profit of $357 million increased $12$103 million in fiscal 2016 compared withfrom the prior year, primarily due to severance expenses$66 million of additional gross profit from our CIS segment and higher gross profit in our VTS and BHVAC segments.  Gross profit was favorably impacted by $9 million from foreign currency exchange rate changes.  Gross margin improved 10 basis points to 17.0 percent, primarily due to higher sales volume, savings resulting from cost-reduction initiatives, improved operating efficiencies, and the absence of a $4 million inventory purchase accounting adjustment recorded in the Europeprior year, partially offset by unfavorable material costs and Americas segmentsincremental depreciation and equipment transfer costs related to plant consolidation activities in the Americas segment.amortization expense resulting from purchase accounting for Luvata HTS.

In fiscal 2016, we recorded a $10Fiscal 2018 SG&A expenses of $246 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 $3increased $43 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 wasyear, primarily due to $42a $39 million increase in SG&A expenses in our CIS segment, $4 million of pension settlement losses, lower gross profit,strategy consulting fees incurred during fiscal 2018, higher restructuringcompensation-related expenses, and a $4 million unfavorable impact of foreign currency exchange rate changes, partially offset by ongoing cost-control initiatives.lower costs incurred related to the acquisition of Luvata HTS.  SG&A expenses, as a percentage of net sales, decreased 180 basis points compared with the prior year.

Other income duringRestructuring expenses of $16 million in fiscal 2016 included a $102018 increased $5 million gaincompared with the prior year, primarily due to severance-related expenses in the CIS segment related to an insurance settlement for equipment losses resulting from the Airedale fireclosure of a manufacturing facility in Austria.

During fiscal 2018, we recorded impairment charges totaling $3 million related to the closure of the CIS manufacturing facility in Austria and the discontinuance of a product line in our BHVAC segment.

During fiscal 2017, we sold three manufacturing facilities within our VTS segment, two of which were previously closed, and recognized net gains totaling $2 million.

Operating income of $92 million in fiscal 2014.2018 increased $50 million compared with the prior year, primarily due to $18 million of additional operating income contributed by our CIS segment and higher earnings in the VTS and BHVAC segments.

Our benefitFiscal 2018 interest expense increased $9 million compared with the prior year, primarily due to debt issued to finance a significant portion of our acquisition of Luvata HTS.

The provision for income taxes was $9$40 million and $6 million in fiscal 2016, compared with a provision for income taxes of $192018 and 2017, respectively.  The $34 million in fiscal 2015.  This $28 million changeincrease was primarily due to $16$38 million of provisional charges recorded in fiscal 2018 related to the Tax Act and increased operating earnings, partially offset by income tax benefits related to pension settlement lossestotaling $14 million resulting from i) a development tax credit in fiscal 2016, a decrease in operating earnings, and a $3 million income tax benefit related toHungary ($9 million); ii) the reversal of a deferredportion of the valuation allowance in a foreign jurisdiction ($3 million); and iii) a reduction of unrecognized tax assetbenefits resulting from a lapse in statutes of limitations ($2 million), and the absence of a $2 million provision recorded in the prior year to establish a valuation allowance.allowance in a separate foreign jurisdiction.

Segment Results of Operations

Americas                  
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $534   100.0% $586   100.0% $667   100.0%
Cost of sales  447   83.8%  486   82.9%  558   83.7%
Gross profit  87   16.2%  100   17.1%  109   16.3%
Selling, general and administrative expenses  54   10.1%  55   9.4%  65   9.7%
Restructuring expenses  7   1.3%  9   1.5%  3   0.4%
Gain on sale of facilities  (1)  -0.2%  -   -   -   - 
Impairment charge  -   -   -   -   8   1.2%
Operating income $27   5.0% $36   6.2% $33   5.0%
Since the date we acquired Luvata HTS (November 30, 2016), we have included financial results of this acquired business within our CIS segment.  Effective April 1, 2018, we merged our Americas coils business into the CIS segment to accelerate operational improvements and organizational efficiencies and formed the VTS segment by combining our Americas, Europe, and Asia operations to enable us to operate as a more global, product-based organization.  We began reporting financial results for our new segments beginning in fiscal 2019.  Segment financial information for fiscal 2018 and 2017 has been recast to conform to the fiscal 2019 presentation.

VTS   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $1,352   100.0% $1,296   100.0% $1,152   100.0%
Cost of sales  1,165   86.2%  1,095   84.5%  970   84.2%
Gross profit  187   13.8%  201   15.5%  182   15.8%
Selling, general and administrative expenses  113   8.3%  110   8.4%  106   9.2%
Restructuring expenses  9   0.7%  7   0.6%  10   0.9%
Gain on sale of assets  -   -   -   -   (2)  -0.2%
Operating income $65   4.8% $84   6.5% $68   5.9%

Year Ended March 31, 20172019 Compared with Year Ended March 31, 2016:2018:

AmericasVTS net sales decreased $52increased $56 million, or 94 percent, in fiscal 20172019 compared with the prior year, primarily due to higher sales volume to off-highway and automotive customers in North America and Asia, partially offset by lower sales volume to commercial vehicle and off-highway customers in North America,Europe and a $21 million unfavorable impact of foreign currency exchange rate changes.  Gross profit decreased $14 million and gross margin declined 170 basis points to 13.8 percent.  The decline in gross margin was primarily due to unfavorable material costs, including the impacts of tariffs, and temporary operating inefficiencies largely related to increased volumes and new program launches at certain manufacturing facilities, partially offset by higher sales volume.  In addition, foreign currency exchange rate changes had an unfavorable $3 million impact on gross profit.  SG&A expenses increased $3 million compared with the prior year, yet decreased 10 basis points as a percentage of sales.  The increase in SG&A expenses primarily resulted from higher environmental charges related to previously-owned manufacturing facilities in the U.S. and higher compensation-related expenses, partially offset by a $2 million favorable impact of foreign currency exchange rate changes.  Restructuring expenses increased $2 million, primarily due to higher severance expenses.  Operating income decreased $19 million to $65 million, primarily due to lower gross profit and higher SG&A and restructuring expenses.

Year Ended March 31, 2018 Compared with Year Ended March 31, 2017:

VTS net sales increased $144 million, or 12 percent, in fiscal 2018 compared with the prior year, primarily due to higher sales volume to off-highway and automotive customers and a $5$42 million favorable impact of foreign currency exchange rate changes.  Gross profit decreased $13increased $19 million, and gross margin decreased 90 basis points to 16.2 percent in fiscal 2017.  These decreases were primarily due to lowerhigher sales volumevolume.  Gross margin declined 30 basis points, primarily due to unfavorable material costs, the absence of favorable customer pricing settlements recorded in the prior year, and temporaryhigher depreciation expense resulting from recent production inefficiencies in North America, largely related to product launches and plant consolidation activities,capacity investments, partially offset by cost savings resulting from procurement initiatives,improved operating efficiencies.  In addition, foreign currency exchange rate changes had a favorable material costs and lower environmental costs related to a previously-owned manufacturing facility, as compared with the prior year.  Fiscal 2017$7 million impact on gross profit.  SG&A expenses decreased $1 million from fiscal 2016, primarily due to lower compensation-related expenses and a higher recovery of development costs, partially offset by a $1.6 million charge related to a legal matter in Brazil for which the Company has agreed to a settlement.  In fiscal 2017, we recorded $7 million of restructuring expenses, primarily consisting of equipment transfer and plant consolidation costs related to the closure of our Washington, Iowa manufacturing facility, which we completed during fiscal 2017, and severance expenses.  In addition, we sold two closed manufacturing facilities in North America and recognized gains totaling $1 million as a result.  Operating income of $27 million in fiscal 2017 decreased $9increased $4 million compared with the prior year, primarily due to lower gross profit.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

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.  Gross profit decreased $9 million, yet gross margin increased 80 basis points to 17.1 percent in fiscal 2016.  The decrease in gross profit was primarily due to lower sales volume, a $3 million unfavorable impact of foreign currency exchange rate changes, higher compensation-related expenses, and $2 million ofhigher environmental charges related to a previously-owned manufacturing facility in the U.S., partially offset by lower material costs, cost savings from completed restructuring activities, and improved production efficiencies.  Fiscal 2016 SG&A expenses decreased $10 million from fiscal 2015, primarily due to cost-control initiatives, the absence of a $3$2 million charge forrecorded in the prior year related to a legal matter in Brazil, in the prior year,which has since been settled and paid.  As a percentage of sales, SG&A expenses decreased 80 basis points to 8.4 percent.  Restructuring expenses decreased $3 million, favorable impact of foreign currency exchange rate changes.  In fiscal 2016, we recorded $9 million of restructuring expenses, primarily consisting of severance expenses associated with a voluntary retirement program in the U.S. and the closure of our Washington, Iowa manufacturing facility,due to lower plant consolidation and equipment transfer costs.  In fiscal 2017, we sold three manufacturing facilities and, plant consolidation costs in North America.  Operating incomeas a result, recognized gains totaling $2 million.

CIS   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $708   100.0% $676   100.0% $232   100.0%
Cost of sales  593   83.8%  578   85.5%  200   86.1%
Gross profit  115   16.2%  98   14.5%  32   13.9%
Selling, general and administrative expenses  61   8.6%  60   8.8%  21   9.2%
Restructuring expenses  -   -   8   1.2%  -   - 
Impairment charges  -   0.1%  1   0.2%  -   - 
Operating income $53   7.5% $29   4.2% $11   4.7%

Year Ended March 31, 2019 Compared with Year Ended March 31, 2018:

CIS net sales increased $32 million, or 5 percent, in fiscal 2016 increased $3 million2019 compared with the prior year, primarily due to lower SG&A expenses and the absence of an $8 million goodwill impairment charge in fiscal 2015, partially offset by lower gross profit and higher restructuring expenses.
Europe
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $524   100.0% $524   100.0% $578   100.0%
Cost of sales  443   84.6%  456   87.0%  509   88.1%
Gross profit  81   15.4%  68   13.0%  69   11.9%
Selling, general and administrative expenses  42   7.9%  39   7.4%  44   7.6%
Restructuring expenses  3   0.6%  6   1.2%  2   0.4%
Gain on sale of facility  (1)  -0.2%  -   -   (3)  -0.6%
Impairment charge  -   -   10   1.9%  -   - 
Operating income $37   7.1% $13   2.5% $26   4.5%
Year Ended March 31, 2017 Compared with Year Ended March 31, 2016:

Europe net sales of $524 million in fiscal 2017 were consistent with the prior year, as higher sales volume to automotivedata center and commercial HVAC&R customers, waspartially offset by lower sales volume to commercial vehicle and off-highwayindustrial customers and a $3$5 million unfavorable impact of foreign currency exchange rate changes.  Gross profit increased $13$17 million and gross margin improved 240170 basis points to 15.416.2 percent, in fiscal 2017, primarily due to cost savings resulting from procurement initiatives, favorable sales mix, and improved production efficiencies, partially offset by unfavorable material costs.  SG&A expenses increased $3 million in fiscal 2017, primarily due to higher compensation-related expenses.  In fiscal 2017, we recorded $3 million of restructuring expenses, primarily consisting of severance expenses.  In addition, we sold a manufacturing facility in Europe and recognized a gain of $1 million as a result.  Operating income of $37 million in fiscal 2017 increased $24 million compared with the prior year, primarily due to higher gross profit and the absence of a $10 million impairment charge in the prior year.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

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.  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.  Fiscal 2016favorable sales mix.  SG&A expenses increased $1 million, yet decreased $520 basis points as a percentage of sales.  The $1 million from the prior year,increase in SG&A expenses was primarily due to higher compensation-related expenses, including higher commission costs, partially offset by a $6$1 million favorable impact of foreign currency exchange rate changes.  In fiscal 2016, weRestructuring expenses decreased $8 million, primarily due to the absence of severance-related expenses recorded $6 million of restructuring expenses, primarilyin the prior year related to severance expenses.  In addition, we recorded a $10 million asset impairment charge.  These restructuring expenses and impairment charge primarily related tothe closure of a manufacturing facility in Germany, which was generating pre-tax losses, resulting in management decidingAustria.  In fiscal 2018, we recorded a $1 million impairment charge related to exit a certain product line.the closure of the Austrian facility.  In fiscal 2019, we recorded an additional impairment charge of less than $1 million related to this facility.  Operating income of $13$53 million in fiscal 2016 decreased $13increased $24 million, compared with the prior year, primarily due to higher restructuring expenses, an impairment charge,gross profit and the absence of a $3 million gain on the sale of a wind tunnel in the prior year, partially offset by lower SG&Arestructuring expenses.
Asia
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $112   100.0% $79   100.0% $81   100.0%
Cost of sales  93   83.2%  67   84.5%  69   85.8%
Gross profit  19   16.8%  12   15.5%  12   14.2%
Selling, general and administrative expenses  11   9.9%  11   14.5%  12   13.9%
Operating income $8   6.9% $1   1.0% $-   0.3%
Year Ended March 31, 20172018 Compared with Year Ended March 31, 2016:2017:

AsiaCIS financial results for fiscal 2017 primarily include four months of results from the acquired Luvata HTS business.  These financial results are not comparable to fiscal 2018, which included a full year of Luvata HTS results.

BHVAC   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $212   100.0% $191   100.0% $172   100.0%
Cost of sales  149   70.1%  133   69.7%  124   72.2%
Gross profit  63   29.9%  58   30.3%  48   27.8%
Selling, general and administrative expenses  35   16.4%  36   18.8%  34   19.7%
Restructuring expenses  -   -   -   0.2%  1   0.4%
Impairment charge  -   -   1   0.7%  -   - 
Loss on sale of assets  2   0.8%  -   -   -   - 
Operating income $27   12.6% $20   10.6% $13   7.7%

Year Ended March 31, 2019 Compared with Year Ended March 31, 2018:

BHVAC net sales increased $33$21 million, or 4211 percent, in fiscal 20172019 compared with the prior year, primarily due to higher sales volume to automotiveof air conditioning products and off-highway customersparts and controls in Chinathe U.K. and incremental sales from our recently-formed joint ventureheating products in China,North America, partially offset by a $4$1 million unfavorable impact of foreign currency exchange rate changes.  Gross profit increased $7$5 million, andyet gross margin improved 130declined 40 basis points to 16.8 percent29.9 percent.  This slight decline in gross margin primarily resulted from unfavorable material costs and sales mix, partially offset by higher sales volume.  SG&A expenses decreased $1 million compared with the prior year and decreased 240 basis points as a percentage of sales, primarily due to cost-control initiatives.  During fiscal 2017,2019, we completed the sale of our business in South Africa, and, as a result, recorded a loss of $2 million.  Operating income of $27 million increased $7 million, primarily due to higher gross profit.

Year Ended March 31, 2018 Compared with Year Ended March 31, 2017:

BHVAC net sales volume. Fiscal 2017 SG&A expenses were consistent with the prior year.  Operating income of $8increased $19 million, or 11 percent, in fiscal 2017 increased $7 million2018 compared with the prior year, primarily due to higher gross profit.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

Asia net sales decreased $2 million, or 3 percent, in fiscal 2016 compared with the prior year, primarily due to lower sales volume to off-highway customers in Chinaheating and Korea and a $4 million unfavorable impact of foreign currency exchange rate changes, partially offset by higher sales volume to automotive customers in China and increased overall sales in India.  Gross margin improved 130 basis points to 15.5 percent in fiscal 2016 compared with the prior year, primarily due to favorable sales mix.  Fiscal 2016 SG&A expenses decreased $1 million from the prior year, primarily due to cost-control initiatives, partially offset by acquisition-related costs associated with a joint venture that we formed in late fiscal 2016.  Operating income of $1 million in fiscal 2016 increased $1 million compared with the prior year, primarily due to lower SG&A expenses.
BHVAC
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $172   100.0% $181   100.0% $186   100.0%
Cost of sales  124   72.2%  127   70.1%  130   70.0%
Gross profit  48   27.8%  54   29.9%  56   30.0%
Selling, general and administrative expenses  34   19.8%  39   21.6%  37   19.8%
Restructuring expenses  1   0.4%  1   0.6%  -   - 
Operating income $13   7.6% $14   7.7% $19   10.2%
Year Ended March 31, 2017 Compared with Year Ended March 31, 2016:

BHVAC net sales decreased $9 million, or 5 percent, in fiscal 2017 compared with the prior year, primarily due to an $11 million unfavorable impact of foreign currency exchange rate changes and lower school ventilation and heating product sales in North America partially offset by increased air conditioning product sales in the U.K.  Gross profit decreased $6 million and gross margin decreased 210 basis points to 27.8 percent in fiscal 2017, primarily due to unfavorable sales mix, unfavorable material costs and higher depreciation expense in the current year resulting from replacement assets associated with the Airedale fire, which we started to depreciate in the fourth quarter of fiscal 2016.  In addition, gross profit was unfavorably impacted by $2 million from foreign currency exchange rate changes.  Fiscal 2017 SG&A expenses decreased $5 million from fiscal 2016, primarily due to lower commission costs and compensation-related expenses and a $2 million favorable impact of foreign currency exchange rate changes.  In fiscal 2017, we recorded $1 million of restructuring expenses consisting of severance expenses.  Operating income of $13 million in fiscal 2017 decreased $1 million compared with the prior year, primarily due to lower gross profit, partially offset by lower SG&A expenses.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

BHVAC net sales decreased $5 million, or 3 percent, in fiscal 2016 compared with the prior year, primarily due to a $6 million unfavorable impact of foreign currency exchange rate changes and lower sales at our businesses in the U.K., as unfavorable currency conditions resulted in increased competition from other mainland European suppliers, partially offset by increased ventilation product sales in North America.  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.  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.  In fiscal 2016, we recordedGross profit increased $10 million and gross margin improved 250 basis points to 30.3 percent, primarily due to higher sales volume and improved operating efficiencies in the U.K.  SG&A expenses increased $2 million, primarily due to higher commission costs resulting from higher sales.  As a percentage of sales, SG&A expenses decreased 90 basis points.  Restructuring expenses decreased $1 million, of restructuring expenses consistingprimarily due to the absence of severance expenses.expenses recorded in the prior year.  During fiscal 2018, we discontinued a geothermal product line and, as a result, recorded a $1 million impairment charge for intangible assets we no longer use.  Operating income of $14$20 million in fiscal 2016 decreased $5increased $7 million, compared with the prior year, primarily due to lowerhigher gross profit and higher SG&A expenses.profit.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents atas of March 31, 20172019 of $34$42 million, and an available borrowing capacity of $153$124 million under lines ofour revolving credit provided by banks in the United States and abroad.facility.  Given our extensive international operations, $32approximately $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 may be subject to U.S. taxforeign withholding taxes if repatriated.  We have not encountered, and do not expect to encounter, any difficulty meeting the liquidity requirements of our global operations.

Net Cash Provided by Operating Activities

Net cash provided by operating activities in fiscal 20172019 was $42$103 million, a decrease of $30$21 million from $72$124 million in the prior year.  This decrease in operating cash flow was primarily due to payments for acquisition- and integration-related costs,resulted from unfavorable net changes in working capital, partially offset by the favorable impact of stronger earnings.  The unfavorable changes in working capital, as compared with the prior year, included higher incentive compensation and other employee benefit payments and higher payments for restructuring activities.inventory levels associated with higher sales levels.

Net cash provided by operating activities in fiscal 20162018 was $72$124 million, an increase of $8$82 million from $64$42 million in the prior year.fiscal 2017.  This increase in operating cash flow was primarily due toresulted from an increase in operating earnings, including additional contributions from our CIS segment, lower payments for costs associated with the acquisition and integration of Luvata HTS and restructuring expenses in the current year, and favorable net changes in working capital, including lower incentive compensation payments during fiscal 2016 and the timing of value-added tax payments.capital.

Capital Expenditures

Capital expenditures of $64$74 million during fiscal 20172019 increased $1$3 million compared with fiscal 2016.  In fiscal 2017,2018, primarily due to higher capital expenditures in our CIS segment, including investments to expand manufacturing capacity in Serbia and Mexico.  Similar to prior years, our capital spending in fiscal 2019 primarily occurred in the Americas and Europe segments,VTS segment, which totaled $26$56 million, and $25 million, respectively.  Capital projects in fiscal 2017 included tooling and equipment purchases in conjunction with new and renewal programs with customers, as well as expansions of ourinvestments to expand manufacturing capacity in MexicoChina and Hungary.

At March 31, 2017,2019, our capital expenditure commitments totaled $18$24 million.  Significant commitments included tooling and equipment expenditures for new and renewal programs with customers in the Americas, Asia, North America, and Europe segments.

Dividends

We did not pay dividends in fiscal 2017, 2016, or 2015.  We currently do not intend to pay dividends in fiscal 2018.within the VTS segment.

Debt

Our total debt outstanding increased $348decreased $30 million to $511$450 million at March 31, 20172019 compared with the prior year, primarily due to new long-termrepayments of debt and borrowings under our revolving credit facility used to finance a significant portion of the $364 million cash consideration for our acquisition of Luvata HTS.during fiscal 2019.  See Note 1517 of the Notes to Consolidated Financial Statements for additional information regarding our new credit agreements.

Our debt agreements require us to maintain compliance with various covenants.  The term loans require prepayments, asAs defined in the credit agreement, the term loans may require prepayments in the event the Company’sour annual excess cash flow exceeds defined levels, depending upon our leverage ratio, or in the event of certain asset sales.  In addition, under our primary debt agreements in the U.S., we are subject to a leverage ratio covenant,covenants, the most restrictive of which requires us to limit our consolidated indebtedness, less a certain portion of our cash balance, both as defined by the credit agreements,agreement, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).  As permitted by the credit agreements and in connection with our acquisition of Luvata HTS, the leverage ratio covenant limit has been temporarily raised to no more than three and three-quarters times Adjusted EBITDA through the second quarter of fiscal 2018, and thereafter to no more than three and one-half times Adjusted EBITDA through the first quarter of fiscal 2019.  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.
OurMarch 31, 2019, our leverage ratio at March 31, 2017 was 2.9, which was below the maximum permitted ratio of 3.75.  Ourand interest expense coverage ratio at March 31, 2017 was 7.0, which exceeded the minimum requirement of 3.0.were 2.1 and 9.0, respectively.  We were in compliance with our debt covenants as of March 31, 20172019 and expect to remain in compliance during fiscal 20182020 and beyond.

Off-Balance Sheet Arrangements

None.

Contractual Obligations

  March 31, 2017 
(in millions) Total  
Less than 1
year
  1 - 3 years  4 - 5 years  
More than
5 years
 
                
Long-term debt $436.2  $31.3  $81.6  $281.6  $41.7 
Interest associated with long-term debt  73.9   18.5   31.8   17.0   6.6 
Capital lease obligations  8.0   0.5   0.8   0.8   5.9 
Operating lease obligations  69.3   12.2   19.2   13.2   24.7 
Capital expenditure commitments  18.1   17.1   1.0   -   - 
Other long-term obligations  4.8   2.4   1.7   0.7   - 
Total contractual obligations $610.3  $82.0  $136.1  $313.3  $78.9 
  March 31, 2019 
(in millions) Total  
Less than
1 year
  1 - 3 years  4 - 5 years  
More than 5
years
 
                
Long-term debt $377.7  $48.2  $287.8  $16.7  $25.0 
Interest associated with long-term debt  40.9   16.0   18.3   4.1   2.5 
Operating lease obligations  70.4   14.2   21.5   11.8   22.9 
Capital expenditure commitments  23.6   23.6   -   -   - 
Other long-term obligations (a)  13.3   1.4   2.1   2.0   7.8 
Total contractual obligations $525.9  $103.4  $329.7  $34.6  $58.2 

(a)Includes capital lease obligations and other long-term obligations.

Our liabilities for pensions, postretirement benefits, and uncertain tax positions totaled $139$119 million as of March 31, 2017.2019.  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 $13$3 million to our U.S. pension plans during fiscal 2018.2020.

Critical Accounting Policies

The following critical accounting policies reflect the more significant judgments and estimates used in preparing our consolidated financial statements.  Application of these policies results in accounting estimates that have the greatest potential for a significant impact on our financial statements.  The following discussion of these judgments and estimates is intended to supplement the significant accounting policies presented in Note 1 of the Notes to Consolidated Financial Statements.  In addition, recently issued accounting pronouncements that could significantly impact our financial statementsstatement are includeddisclosed in Note 1 of the Notes to Consolidated Financial Statements.

Revenue Recognition

In fiscal 2019, we adopted new revenue recognition accounting guidance.  See Note 1 of the Notes to Consolidated Financial Statements for additional information.  In accordance with this new accounting guidance, we recognize revenue based upon consideration specified in a contract and as we satisfy performance obligations by transferring control over our products to our customers, which may be at a point in time or over time.  The majority of our revenue is recognized at a point in time, based upon shipment terms.  A limited number of our customer contracts provide an enforceable right to payment for 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 doubtful accounts for estimated uncollectible receivables and we accrue for estimated warranty costs at the time of sale.  We base these estimates upon historical experience, current business trends, and current economic conditions.

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 are also required to 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.  During fiscal 2017, we acquired Luvata HTS.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.

Revenue Recognition
We recognize revenue, including agreed-upon commodity prices, when the risks and rewards of ownership are transferred to our customers, which generally occurs upon shipment.  Revenue is recorded net of applicable provisions for sales rebates, volume incentives, and returns and allowances.  At the time of revenue recognition, we also record estimates for bad debt expense and warranty expense.  We base these estimates on historical experience, current business trends, and current economic conditions.  We recognize price increases that are agreed upon in advance as revenue when the products are shipped to our customers.
Impairment of Long-Lived Assets

We perform impairment evaluations of long-lived assets, including property, plant and equipment, intangible assets and equity investments, whenever business conditions or events indicate that those assets may be impaired.  We consider factors such as operating losses, declining financial outlooks and market conditions, when evaluating the necessity for an impairment analysis.  When the net asset values exceed undiscounted cash flows expected to be generated by the assets, or the decline in value is considered to be “other than temporary,” we write down the assets to fair value and record an impairment charge to current operations.  We estimate fair value in various ways depending on the nature of the assets under review.underlying assets.  Fair value is generally based upon 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 $459$485 million and $134$116 million, respectively, at March 31, 2017, respectively.2019.  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 recent acquisition of Luvata HTS.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.  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.

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.  We consider factors such as operating losses, declining financial and market outlooks, and market capitalization when evaluating the necessity for an interim impairment analysis.  We test goodwill for impairment at a reporting unit level.  Reporting units resulting from recent acquisitions generally represent the highest risk of impairment, which typically decreases as the businesses are integrated into the Company and positioned for future operating and financial performance.  Our first step in theWe test goodwill for impairment test is to compareby 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 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, business trends and market conditions.  We determine the expected future revenue growth rates and operating profit margins after consideration of our historical revenue growth rates and earnings levels, our assessment of future market potential and our expectations of future business performance.  The discount rate used in determining discounted cash flows is a rate corresponding to our cost of capital, adjusted for country-specific risks where appropriate.

At March 31, 2017,2019, our goodwill totaled $165$169 million, primarily related to our recently-acquired CIS segment and our BHVAC segment.  We will complete goodwill impairment tests for the CISsegments.  Each of these segments is comprised of two reporting units in fiscal 2018, within one year of the acquisition date.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.units.  We conducted annual goodwill impairment tests for our BHVAC and Asia segments during the fourth quarter of fiscal 20172019 by applying a fair value-based test and determined the fair value of theeach of our reporting units substantially exceeded theirthe respective book values.value.

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 $10$9 million at March 31, 2017,2019, 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, 2017,2019, our pension liabilities totaled $122$104 million.  The most significant assumptions include the discount rate, long-term expected return on plan assets, and mortality rate tables.  We base our selection of assumptions on historical trends and economic and market conditions at the time of valuation.  In accordance with U.S. GAAP, actual results that differ from these assumptions are accumulated and amortized over future periods.  These differences impact future pension expenses.  Currently, participants in our domestic pension plans are not accruing benefits based upon their current service as the plans do not include increases in annual earnings or for future service in calculating the average annual earnings and years of credited service under the pension plan formula.

For the following discussion regarding sensitivity of assumptions, all amounts presented are in reference to our domestic pension plans, since our domestic plans comprise all of our benefit plan assets and the large majority of our pension plan expense.

To determine the expected rate of return on pension plan assets, we consider such factors as (a) the actual return earned on plan assets, (b) historical rates of return on the various asset classes in the plan portfolio, (c) projections of returns on those asset classes, (d) the amount of active management of the assets, (e) capital market conditions and economic forecasts, and (f) administrative expenses paid with the plan assets.  The long-term rate of return utilized in both fiscal 20172019 and 20162018 was 8.07.5 percent.  For fiscal 2018,2020, we have also assumed a rate of 7.5 percent.  This 50A change of 25 basis point decreasepoints in the expected rate of return on assets as compared with the prior year, resulted in an increase of less than $1 million inwould impact our estimated fiscal 20182020 pension expense.expense by $0.4 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 20172019 and 2016,2018, for purposes of determining pension expense, we used a discount rate of 4.0 and 4.1 percent.percent, 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 1618 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 20182020 pension expense by less than $1 million.

Income Taxes

We operate in numerous taxing jurisdictions; therefore, we are 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.

The Tax Act was enacted in December 2017 and included numerous changes to existing U.S. tax regulations, including U.S. corporate tax rates, business deductions, and taxes on income in foreign jurisdictions.  We completed our accounting for the impacts of the Tax Act during fiscal 2019.  Additional impacts from the Tax Act could result if there are changes in interpretations or applications of the Tax Act’s provisions or if supplementary regulatory guidance is issued.

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 a particular jurisdiction will not be realized.  This determination involves significant judgment.  In performing this assessment on a jurisdiction-by-jurisdiction basis, we consider historical and projected financial results along with other pertinent information.

We have not recorded a provision for U.S. income taxes on undistributed earnings from our non-U.S. subsidiaries that we have determined to be permanently reinvested in our foreign operations.  If management’s intentions or U.S. tax law changes in the future, there could be a significant negative impact on our provision for income taxes.  See Note 78 of the Notes to Consolidated Financial Statements for additional information regarding income taxes.

Other Loss Reserves

We maintain liabilities and reserves for a number of other loss exposures, such as environmental remediation costs, self-insurance reserves, uncollectible accounts receivable, regulatory compliance matters, and litigation.  Establishing loss reserves for these exposures requires the use of estimates and judgment to determine the risk exposure and ultimate potential liability.  We estimate these reserve requirements by using consistent and suitable methodologies for the particular type of loss reserve being calculated.  See Note 1820 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 and uncertainty associated with cross-border trade, and, in particular, the continuing recovery and/or instability of certain markets in which we operate in China and North America, the still-weak forecasts for the Brazilian economy, and the general uncertainties about the impact of potential regulatory and/or policy changes, including those related to tax and trade, that may be implemented in the United States, as well as continuing uncertainty regarding the longer-term implications of “Brexit”;
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, and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, that have been or may be implemented in the United States or by its trade partners, as well as continuing uncertainty regarding the timing and the short- and long-term implications of “Brexit”;

·The impact of potential increases in commodity prices, including our ability to successfully manage our exposure and/or pass increasing prices of aluminum, copper, steel and stainless steel (nickel) on to customers, as well as the inherent lag in timing of such pass-through arrangements; and
The impact of 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 and the behavior of our suppliers.  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

·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.
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:

·Our ability to integrate the former Luvata HTS operations into Modine, realize cost and revenue synergies in accordance with our expectations, and effectively manage any unanticipated risks that arise, while also maintaining stability within the acquired business and appropriate focus on the rest of Modine’s business;
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;

·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;
Unanticipated 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;

·
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 and overall service pressures from customers, particularly in the face of macro-economic instability;

·Unanticipated product or manufacturing difficulties or inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims;

·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;
Unanticipated product or manufacturing difficulties or operating inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims;

·Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor pools, 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;
Unanticipated delays or modifications initiated by major customers with respect to program launches, product applications or requirements;

·Costs and other effects of the investigation and remediation of environmental contamination;
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;

·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;
Our ability to effectively and efficiently complete restructuring activities and realize the anticipated benefits of those activities;

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

·The constant and increasing pressures associated with healthcare and associated insurance costs; and
Our ability to recruit and maintain talent, including personnel in managerial, leadership and administrative functions, in light of tightening global labor markets;

·Costs and other effects of unanticipated litigation, claims, or other obligations, including those associated with our acquisition of Luvata HTS.
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;

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 unanticipated litigation, claims, or other obligations.

Strategic Risks:

·Our ability to successfully take advantage of our increased presence in the “industrial” markets, with our Building HVAC and Commercial and Industrial Solutions businesses, without shifting attention away from our vehicular business, where we enjoy and desire to preserve a leading position; and
Our ability to successfully take advantage of our increased presence in the “industrial” markets, with our CIS and BHVAC businesses, while maintaining appropriate focus on the market opportunities presented by our VTS business;

·Our ability to identify and execute additional growth and diversification opportunities in order to position us for long-term success.
The success of our evaluation of strategic alternatives for our automotive business within our VTS segment in optimizing the segment’s future profitability;

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

The potential expense, disruption or other impacts that could result from unanticipated actions by activist shareholders.

Financial Risks:

·Our ability to fund our global liquidity requirements efficiently for Modine’s current operations, particularly those in our Asia business segment, and meet our long-term commitments in the event of an unexpected disruption in or tightening of the credit markets or extended recessionary conditions in the global economy;
Our ability to fund our global liquidity requirements efficiently for Modine’s current operations and meet our long-term commitments in the event of an 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 potential increases in interest rates, particularly in LIBOR and EURIBOR in relation to our variable-rate debt obligations;
Our ability to maintain our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) in our target range of 1.5 to 2.5 in an efficient manner;

·Our ability to bring our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) back into our target range of 1.5 to 2.5 in an efficient manner following our acquisition of Luvata HTS;
The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and

·Costs arising from the integration of Luvata HTS and the timing and impact of potential purchase accounting adjustments;
Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate.

·The impact of foreign currency exchange rate fluctuations, particularly the value of the euro, Brazilian real, and British pound, relative to the U.S. dollar; and

·Our ability to effectively realize the benefits of tax assets in various jurisdictions in whichForward-looking statements are as of the date of this report; we operate.

In addition to the risks set forth above, we are subject to other risks and uncertainties as identified in our public filings with the U.S. Securities and Exchange Commission.  We do not assume any obligation to update any forward-looking statements.

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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.

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 entity engaging in the transaction.  In 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 2017,2019, we recorded realized and unrealizeda net loss of $1 million within our statement of operations related to foreign currency gains and losses that netted to a loss of $2 million, which we reported in other income and expense in the consolidated statement of operations.derivative contracts.  In addition, our consolidated financial results are impacted 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 2017,2019, 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 2017,2019, changes in foreign currency exchange rates negativelyunfavorably impacted our sales by $13$28 million; however, the impact on our operating income was less than $1 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 2017,2019, there would not have been a material impact on our fiscal 20172019 earnings.

We maintain 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, 2017, 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 could materially impact our net earnings.loans; however, Fromfrom 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 accounted 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 variable-rate debt to manage exposure to changes in interest rates.  Interest on both our term loans and borrowings under our primary multi-currency revolving credit facility is based upon a variable interest rate, primarily either the London Interbank Offered Rate (“LIBOR”)LIBOR or Euro Interbank Offered Rate (“EURIBOR”),EURIBOR, plus 137.5 to 250 basis points, depending on our leverage ratio.  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.  As of March 31, 2017,2019, our outstanding borrowings on the variable-rate term loans and the revolving credit facility totaled $269$238 million and $40$47 million, respectively.  Based upon our outstanding debt with variable interest rates at March 31, 2017,2019, a 100 basis point increase in interest rates would increase our annual interest expense in fiscal 20182020 by approximately $3 million.

Commodity Price Risk

We are dependent upon the supply of raw materials and supplies in our production processes and, from time to time, enter into firm purchase commitments for aluminum, copper, nickel, and natural gas.  We maintain agreements with certainCommodity price risk is most prevalent to our vehicular businesses, which provide customized production and service parts to customers to pass through specified raw material price fluctuations inunder multi-year programs.  In order to mitigate commodity price risk.  The majority ofrisk specific to these agreements containlong-term sales programs, we maintain contract provisions in which the pass-through of thewith certain customers that allow us to prospectively adjust prices based upon raw material price fluctuations canfluctuations.  These prospective price adjustments 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 and exclude additional cost elements, such as related premiums and fabrication.  For our industrial businesses, we predominantly seek to mitigate commodity price risk by adjusting product pricing in response to any applicable price increases.
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, 2017, 352019, 38 percent of our trade accounts receivable balance was concentrated with our top ten customers.  These customers operate primarily in the automotive, commercial vehicle, off-highway, data center cooling and off-highwaycommercial air conditioning 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, 2017;
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, 2019;
·
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
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.
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.

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 automotive, commercial vehicle, off-highway, and commercial, industrial, and building HVAC&R 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 is still present.

We monitor economic conditions in the U.S. and abroad.  As we expand our global presence, we also encounter risks imposed by potential trade restrictions, including tariffs, embargoes, and the like.  We continue to pursue non-speculative opportunities to mitigate these economic risks, and capitalize, when possible, on changing market conditions.

We pursue new market opportunities after careful consideration of the potential associated risks and benefits.  Successes in new markets are dependent upon our ability to commercialize our investments.  Current examples of new and emerging markets for us include those related to waste heat recovery,electric vehicles, coils and coolers outside of North America and the U.K.,in certain markets, and coatings.  Our investment in these areas is subject to the risks associated with business integration, technological success, customer and market acceptance, and our ability to meet the demands of our customers as these markets grow.

We anticipate that recovery within some
36
In an effort to manage and reduce our costs, we 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 geographic and end markets 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.
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, customers occasionally link price reductions to future program awards, and we must assess the overall implications of such requests on a case-by-case basis.

Hedging and Foreign Currency Forward Contracts

We use derivative financial instruments as a tool to manage certain financial risks.  We prohibit the use of leveraged derivatives.

Commodity derivatives:  From time to time, we enter into 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 2019 and 2018, 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 2017, 2016we did not designate commodity forward contracts for hedge accounting.  Accordingly, unrealized gains and 2015,losses on these contracts were recorded within cost of sales.  In fiscal 2019, 2018, and 2017, net gains and losses related to commodity derivativeforward contracts which are reported in cost of sales in the consolidated statements of operations, were less than $1 million in each year.

Foreign currency 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.  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:  We manage counterparty risks by ensuring that counterparties to derivative instruments havemaintain credit ratings acceptable to us.  At March 31, 2017,2019, all counterparties had a sufficient long-term credit rating.

ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions, except per share amounts)

  2017  2016  2015 
Net sales $1,503.0  $1,352.5  $1,496.4 
Cost of sales  1,249.7   1,129.0   1,249.9 
Gross profit  253.3   223.5   246.5 
Selling, general and administrative expenses  205.0   204.5   184.5 
Restructuring expenses  10.9   16.6   4.7 
Gain on sale of facilities  (2.0)  -   (3.2)
Impairment charges  -   9.9   7.8 
Operating income (loss)  39.4   (7.5)  52.7 
Interest expense  (17.2)  (11.1)  (11.7)
Other (expense) income – net  (1.4)  8.7   0.2 
Earnings (loss) from continuing operations before income taxes  20.8   (9.9)  41.2 
(Provision) benefit for income taxes  (5.9)  8.9   (19.0)
Earnings (loss) from continuing operations  14.9   (1.0)  22.2 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss)  14.9   (1.0)  22.8 
Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Net earnings (loss) attributable to Modine $14.2  $(1.6) $21.8 
             
Earnings (loss) per share from continuing operations attributable to Modine shareholders:            
Basic $0.29  $(0.03) $0.45 
Diluted $0.29  $(0.03) $0.44 
             
Net earnings (loss) per share attributable to Modine shareholders:            
Basic $0.29  $(0.03) $0.46 
Diluted $0.29  $(0.03) $0.45 
             
Weighted-average shares outstanding:            
Basic  47.8   47.3   47.2 
Diluted  48.3   47.3   47.8 
  2019  2018  2017 
Net sales $2,212.7  $2,103.1  $1,503.0 
Cost of sales  1,847.2   1,746.6   1,248.6 
Gross profit  365.5   356.5   254.4 
Selling, general and administrative expenses  244.1   245.8   203.2 
Restructuring expenses  9.6   16.0   10.9 
Impairment charges  0.4   2.5   - 
Loss (gain) on sale of assets  1.7   -   (2.0)
Operating income  109.7   92.2   42.3 
Interest expense  (24.8)  (25.6)  (17.2)
Other expense - net  (4.1)  (3.3)  (4.3)
Earnings before income taxes  80.8   63.3   20.8 
Benefit (provision) for income taxes  5.1   (39.5)  (5.9)
Net earnings  85.9   23.8   14.9 
Net earnings attributable to noncontrolling interest  (1.1)  (1.6)  (0.7)
Net earnings attributable to Modine $84.8  $22.2  $14.2 
             
Net earnings per share attributable to Modine shareholders:            
Basic $1.67  $0.44  $0.29 
Diluted $1.65  $0.43  $0.29 
             
Weighted-average shares outstanding:            
Basic  50.5   49.9   47.8 
Diluted  51.3   50.9   48.3 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

  2017  2016  2015 
Net earnings (loss) $14.9  $(1.0) $22.8 
Other comprehensive income (loss):            
Foreign currency translation  (10.8)  4.6   (68.2)
Defined benefit plans, net of income taxes of $1.7, $11.8 and ($13.2) million  3.2   19.7   (26.7)
Total other comprehensive (loss) income  (7.6)  24.3   (94.9)
             
Comprehensive income (loss)  7.3   23.3   (72.1)
Comprehensive income attributable to noncontrolling interest  (0.7)  (0.5)  (0.8)
Comprehensive income (loss) attributable to Modine $6.6  $22.8  $(72.9)
  2019  2018  2017 
Net earnings $85.9  $23.8  $14.9 
Other comprehensive income (loss):            
Foreign currency translation  (37.6)  41.8   (10.8)
Defined benefit plans, net of income taxes of ($0.3), ($0.2) and $1.7 million  (1.4)  0.1   3.2 
Cash flow hedges, net of income taxes of $0.1, $0.1 and $0 million  0.4   0.1   - 
Total other comprehensive income (loss)  (38.6)  42.0   (7.6)
             
Comprehensive income  47.3   65.8   7.3 
Comprehensive income attributable to noncontrolling interest  (0.6)  (2.1)  (0.7)
Comprehensive income attributable to Modine $46.7  $63.7  $6.6 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
March 31, 20172019 and 20162018
(In millions, except per share amounts)

  2017  2016 
ASSETS
      
Cash and cash equivalents $34.2  $68.9 
Trade accounts receivable – net  295.2   189.1 
Inventories  168.5   111.0 
Other current assets  55.4   43.5 
Total current assets  553.3   412.5 
Property, plant and equipment – net  459.0   338.6 
Intangible assets – net  134.1   8.2 
Goodwill  165.1   15.8 
Deferred income taxes  108.4   123.1 
Other noncurrent assets  29.6   22.7 
Total assets $1,449.5  $920.9 
         
LIABILITIES AND SHAREHOLDERS' EQUITY
        
Short-term debt $73.4  $28.6 
Long-term debt – current portion  31.8   8.5 
Accounts payable  230.3   142.4 
Accrued compensation and employee benefits  74.8   58.6 
Other current liabilities  45.1   35.5 
Total current liabilities  455.4   273.6 
Long-term debt  405.7   125.5 
Deferred income taxes  9.7   4.2 
Pensions  119.4   118.6 
Other noncurrent liabilities  38.1   16.3 
Total liabilities  1,028.3   538.2 
Commitments and contingencies (see Note 18)        
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 51.8 million and 49.0 million shares  32.4   30.6 
Additional paid-in capital  216.4   185.6 
Retained earnings  372.4   358.2 
Accumulated other comprehensive loss  (181.8)  (174.2)
Treasury stock, at cost, 1.7 million and 1.6 million shares  (25.4)  (24.0)
Total Modine shareholders' equity  414.0   376.2 
Noncontrolling interest  7.2   6.5 
Total equity  421.2   382.7 
Total liabilities and equity $1,449.5  $920.9 
  2019  2018 
ASSETS
      
Cash and cash equivalents $41.7  $39.3 
Trade accounts receivable – net  338.6   342.4 
Inventories  200.7   191.3 
Other current assets  65.8   70.1 
Total current assets  646.8   643.1 
Property, plant and equipment – net  484.7   504.3 
Intangible assets – net  116.2   129.9 
Goodwill  168.5   173.8 
Deferred income taxes  97.1   96.9 
Other noncurrent assets  24.7   25.4 
Total assets $1,538.0  $1,573.4 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY
        
Short-term debt $66.0  $53.2 
Long-term debt – current portion  48.6   39.9 
Accounts payable  280.9   277.9 
Accrued compensation and employee benefits  81.7   97.3 
Other current liabilities  39.9   47.2 
Total current liabilities  517.1   515.5 
Long-term debt  335.1   386.3 
Deferred income taxes  8.2   9.9 
Pensions  101.7   109.6 
Other noncurrent liabilities  34.8   53.6 
Total liabilities  996.9   1,074.9 
Commitments and contingencies (see Note 20)        
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 52.8 million and 52.3 million shares
  33.0   32.7 
Additional paid-in capital  238.6   229.9 
Retained earnings  472.1   394.9 
Accumulated other comprehensive loss  (178.4)  (140.3)
Treasury stock, at cost, 2.1 million and 1.8 million shares  (31.4)  (27.1)
Total Modine shareholders’ equity  533.9   490.1 
Noncontrolling interest  7.2   8.4 
Total equity  541.1   498.5 
Total liabilities and equity $1,538.0  $1,573.4 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

  2017  2016  2015 
Cash flows from operating activities:         
Net earnings (loss) $14.9  $(1.0) $22.8 
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:            
Depreciation and amortization  58.3   50.2   51.6 
Gain on sale of facilities  (2.0)  -   (3.2)
Impairment charges  -   9.9   7.8 
Insurance proceeds from Airedale fire  -   5.9   12.9 
Pension and postretirement expense  3.4   45.1   2.3 
Deferred income taxes  (4.6)  (18.8)  5.9 
Stock-based compensation expense  7.4   4.9   4.0 
Other – net  0.5   0.1   0.4 
Changes in operating assets and liabilities, excluding acquisitions:            
Trade accounts receivable  (25.7)  8.0   (0.1)
Inventories  (3.3)  (2.7)  (4.2)
Accounts payable  19.9   (9.9)  (2.4)
Accrued compensation and employee benefits  (6.5)  0.8   (5.3)
Other assets  (2.5)  (14.5)  (24.5)
Other liabilities  (18.2)  (5.6)  (4.5)
Net cash provided by operating activities  41.6   72.4   63.5 
             
Cash flows from investing activities:            
Acquisitions – net of cash acquired  (364.2)  (1.4)  - 
Expenditures for property, plant and equipment  (64.4)  (62.8)  (58.3)
Insurance proceeds from Airedale fire  3.0   27.4   12.2 
Costs to replace building and equipment damaged in Airedale fire  (1.0)  (41.7)  (16.7)
Proceeds from dispositions of assets  5.7   0.4   7.6 
Purchases of short-term investments  (3.5)  (2.7)  (5.2)
Proceeds from maturities of short-term investments  2.2   2.1   2.4 
Other – net  -   0.9   0.8 
Net cash used for investing activities  (422.2)  (77.8)  (57.2)
             
Cash flows from financing activities:            
Borrowings of debt  559.1   38.0   36.4 
Repayments of debt  (202.4)  (27.1)  (50.9)
Financing fees paid  (8.7)  -   (0.1)
Purchases of treasury stock under share repurchase program  -   (6.9)  - 
Dividend paid to noncontrolling interest  -   (0.9)  - 
Other – net  (0.4)  (0.4)  - 
Net cash provided by (used for) financing activities  347.6   2.7   (14.6)
             
Effect of exchange rate changes on cash  (1.7)  1.1   (8.4)
Net decrease in cash and cash equivalents  (34.7)  (1.6)  (16.7)
Cash and cash equivalents - beginning of year  68.9   70.5   87.2 
Cash and cash equivalents - end of year $34.2  $68.9  $70.5 
  2019  2018  2017 
Cash flows from operating activities:         
Net earnings $85.9  $23.8  $14.9 
Adjustments to reconcile net earnings to net cash provided by operating activities:            
Depreciation and amortization  76.9   76.7   58.3 
Loss (gain) on sale of assets  1.7   -   (2.0)
Impairment charges  0.4   2.5   - 
Stock-based compensation expense  7.9   9.5   7.4 
Deferred income taxes  (4.4)  12.1   (4.6)
Other – net  5.3   9.0   3.9 
Changes in operating assets and liabilities, excluding acquisition:            
Trade accounts receivable  (15.3)  (26.1)  (25.7)
Inventories  (22.0)  (12.5)  (3.3)
Accounts payable  16.6   25.2   19.9 
Accrued compensation and employee benefits  (10.1)  16.4   (6.5)
Other assets  (11.8)  (5.0)  (2.4)
Other liabilities  (27.8)  (7.4)  (18.2)
Net cash provided by operating activities  103.3   124.2   41.7 
             
Cash flows from investing activities:            
Expenditures for property, plant and equipment  (73.9)  (71.0)  (64.4)
Acquisition – net of cash acquired  -   -   (364.2)
Proceeds from dispositions of assets  0.3   0.3   5.7 
Proceeds from maturities of short-term investments  4.9   4.8   2.2 
Purchases of short-term investments  (3.8)  (5.5)  (3.5)
Other – net  (0.3)  (0.2)  2.0 
Net cash used for investing activities  (72.8)  (71.6)  (422.2)
             
Cash flows from financing activities:            
Borrowings of debt  231.2   171.0   559.1 
Repayments of debt  (251.9)  (222.9)  (202.4)
Dividend paid to noncontrolling interest  (1.8)  (0.9)  - 
Financing fees paid  -   -   (8.7)
Other – net  (3.4)  2.7   (0.4)
Net cash (used for) provided by financing activities  (25.9)  (50.1)  347.6 
             
Effect of exchange rate changes on cash  (2.7)  3.0   (1.7)
Net increase (decrease) in cash, cash equivalents and restricted cash  1.9   5.5   (34.6)
Cash, cash equivalents and restricted cash - beginning of year  40.3   34.8   69.4 
Cash, cash equivalents and restricted cash - end of year $42.2  $40.3  $34.8 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'SHAREHOLDERS’ EQUITY
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

    
Additional
paid-in
capital
  
Retained
earnings
  
Accumulated
other
comprehensive
loss
  
Treasury
stock, at
cost
  
Non-
controlling
interest
  Total 
 
Common stock 
Shares  Amount
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 
Net earnings attributable to Modine  -   -   -   14.2   -   -   -   14.2 
Other comprehensive loss  -   -   -   -   (7.6)  -   -   (7.6)
Shares issued for acquisition of Luvata HTS  2.2   1.4   22.9   -   -   -   -   24.3 
Stock options and awards including related tax benefits  0.6   0.4   0.5   -   -   -   -   0.9 
Purchase of treasury stock  -   -   -   -   -   (1.4)  -   (1.4)
Stock-based compensation expense  -   -   7.4   -   -   -   -   7.4 
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   0.7   0.7 
Balance, March 31, 2017  51.8  $32.4  $216.4  $372.4  $(181.8) $(25.4) $7.2  $421.2 
    

Common stock
    
Additional
paid-in
capital
    
Retained
earnings
    
Accumulated other
comprehensive loss
    
Treasury
stock, at
cost
    
Non-controlling
interest
    Total  
Shares  Amount
Balance, March 31, 2016  49.0  $30.6  $185.6  $358.2  $(174.2) $(24.0) $6.5  $382.7 
Net earnings attributable to Modine  -   -   -   14.2   -   -   -   14.2 
Other comprehensive loss  -   -   -   -   (7.6)  -   -   (7.6)
Shares issued for acquisition of Luvata HTS  2.2   1.4   22.9   -   -   -   -   24.3 
Stock options and awards including related tax benefits  0.6   0.4   0.5   -   -   -   -   0.9 
Purchase of treasury stock  -   -   -   -   -   (1.4)  -   (1.4)
Stock-based compensation expense  -   -   7.4   -   -   -   -   7.4 
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   0.7   0.7 
Balance, March 31, 2017  51.8   32.4   216.4   372.4   (181.8)  (25.4)  7.2   421.2 
Net earnings attributable to Modine  -   -   -   22.2   -   -   -   22.2 
Other comprehensive income  -   -   -   -   41.5   -   0.5   42.0 
Stock options and awards  0.5   0.3   3.9   -   -   -   -   4.2 
Purchase of treasury stock  -   -   -   -   -   (1.7)  -   (1.7)
Adoption of new accounting guidance (Note 1)  -   -   0.1   0.3   -   -   -   0.4 
Stock-based compensation expense  -   -   9.5   -   -   -   -   9.5 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (0.9)  (0.9)
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   1.6   1.6 
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)  -   -   -   (7.6)  -   -   -   (7.6)
Net earnings attributable to Modine  -   -   -   84.8   -   -   -   84.8 
Other comprehensive loss  -   -   -   -   (38.1)  -   (0.5)  (38.6)
Stock options and awards  0.5   0.3   0.8   -   -   -   -   1.1 
Purchase of treasury stock  -   -   -   -   -   (4.3)  -   (4.3)
Stock-based compensation expense  -   -   7.9   -   -   -   -   7.9 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (1.8)  (1.8)
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   1.1   1.1 
Balance, March 31, 2019  52.8  $33.0  $238.6  $472.1  $(178.4) $(31.4) $7.2  $541.1 

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

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

Note 1: 
Note 1:Significant Accounting Policies

Nature of operations:  Modine Manufacturing Company (“Modine” or the “Company”) specializes in providing innovative thermal management solutions to diversified global markets and customers.  The Company is a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway original equipment manufacturer (“OEM”) vehicular applications.  In addition, 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.  The Company’s primary product groups include i) powertrain cooling and engine cooling; ii) coils, coolers, and coatings; and iii) heating, ventilation and air conditioning.

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 on the loss on sale of assets line of the consolidated statements of operations.  Annual net sales attributable to this disposed business were less than $2.0 million.

Acquisition of Luvata HTS:  On November 30, 2016, the Company completed the acquisition of 100%100 percent of the shares of multiple companies held by Luvata Heat Transfer Solutions II AB, a company incorporated in Sweden.  Combined, these acquired companies represented the Luvata Heat Transfer Solutions (“Luvata HTS”) business.  See Note 2 for additional information.

Airedale facility fire: In September 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 (“BHVAC”) segment.  There were no injuries caused by the fire.  The Rawdon facility, which was leased, was used to manufacture cooling products and solutions for a variety of applications, including data centers, clean rooms, retail, leisure and process cooling.  The Company suspended operations at the Rawdon site as a result of the fire; however, it transferred operations to temporary facilities while it rebuilt the leased facility.  The Company completed the reconstruction and relocation to the Rawdon facility in fiscal 2016.  In fiscal 2016, the Company recorded a $9.5 million gain within other income related to an insurance settlement for equipment losses.  This gain represented the replacement assets’ cost in excess of the carrying value of the equipment at the time they were destroyed by the fire.

Basis of presentation:  The Company prepares its consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States.  These principles require management to make certain estimates and assumptions in determining assets, liabilities, revenue, expenses and related disclosures.  Actual amounts could differ materially from those estimates.

Consolidation principles:  The consolidated financial statements include the accounts of Modine Manufacturing Company and its majority-owned or Modine-controlled subsidiaries.  The Company eliminates intercompany transactions and balances in consolidation.

The Company accounts for investments in non-consolidated affiliated companies in which its ownership is 20 percent or more using the equity method.  The Company states these investments at cost, plus or minus a proportionate share of undistributed net earnings.  The Company includes Modine’s share of the affiliate’s net earnings in other income and expense.  See Note 1113 for additional information.

Discontinued operations: Revenue recognition:  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 customers, which may be at a point in time or over time.  The majority of the Company’s revenue is recognized at a point in 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 3 for additional information.

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 records an allowance for doubtful accounts for estimated uncollectible receivables based upon historical experience or specific customer economic data.  The Company recorded an allowance for doubtful accounts of $1.6 million and $2.3 million at March 31, 2019 and 2018, 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 fiscal 2009,2019, 2018, and 2017, the Company sold its Electronics Cooling business.  The buyer financed a portion$85.1 million, $65.8 million, and $55.4 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,2019, 2018, and 2017, the Company recorded a gainloss on the sale of $0.9accounts receivable of $0.6 million, ($0.6$0.4 million, after income taxes) during fiscal 2015.and $0.3 million, respectively, in the consolidated statements of operations.

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 16 for additional information.

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

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, 2019 and 2018, Company-owned tooling totaled $24.2 million and $22.4 million, respectively.  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.  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, 2019 and 2018, cost reimbursement receivables related to customer-owned tooling totaled $11.6 million and $10.7 million, respectively.

Stock-based compensation:  The Company recognizes stock-based compensation using the fair value method.  Accordingly, compensation expense for stock options, restricted stock and performance-based stock awards is calculated based upon the fair value of the instruments at the time of grant, and is recognized as expense over the respective vesting periods.  See Note 5 for additional information.

Research and development:  The Company expenses research and development costs as incurred within selling, general and administrative (“SG&A”) expenses.  During fiscal 2019, 2018, and 2017, research and development costs charged to operations totaled $69.8 million, $65.8 million, and $64.4 million, respectively.

Translation of foreign currencies:  The Company translates assets and liabilities of foreign subsidiaries and equity investments into U.S. dollars at the period-end exchange rates, and translates income and expense items at the monthly average exchange rate for the period in which the transactions occur.  The Company reports resulting translation adjustments within accumulated other comprehensive income (loss) within shareholders’ equity.  The Company includes foreign currency transaction gains or losses in the statement of operations within other income and expense.

Derivative instruments:  The Company enters into derivative financial instruments from time to time to manage certain financial risks.  The Company enters into forward 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 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 19 for additional information.

Income taxes:  The Company determines deferred tax assets and liabilities based upon the difference between the amounts reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse.  The Company establishes a valuation allowance if it is more likely than not that a deferred tax asset, or portion thereof, will not be realized.  See Note 8 for additional information.

Earnings per share:  The Company calculates basic earnings per share based upon the weighted-average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.  The calculation of diluted earnings per share excludes potential common shares if their inclusion would have an anti-dilutive effect.  Certain outstanding restricted stock awards provide recipients with a non-forfeitable right to receive dividends declared by the Company.  Therefore, these restricted stock awards are included in computing earnings per share pursuant to the two-class method.  See Note 9 for additional information.

Cash and cash equivalents: The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment.  To the extent checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the Company reports the amount of those checks within accounts payable in the consolidated balance sheets.

Short-term investments:  The Company invests in time deposits with original maturities of more than three months but no more than one year.  The Company records these short-term investments at cost, which approximates fair value, within other current assets in the consolidated balance sheets.  As of March 31, 2019 and 2018, the Company’s short-term investments totaled $4.3 million and $5.7 million, respectively.

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.

Property, plant and equipment:  The Company records property, plant and equipment at cost.  For financial reporting purposes, the Company computes depreciation using the straight-line method over the expected useful lives of the assets.  The Company charges maintenance and repair costs to operations as incurred.  The Company capitalizes costs of improvements.  Upon the sale or other disposition of an asset, the Company removes the cost and related accumulated depreciation from the accounts and includes the gain or loss in the consolidated statements of operations.  Capital expenditures of $17.9 million, $15.8 million, and $12.5 million were accrued within accounts payable at March 31, 2019, 2018, and 2017, respectively.

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, 2019, which did not result in an impairment charge.  See Note 15 for additional information.

Impairment of long-lived assets:  The Company reviews long-lived assets, including property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.  In these instances, the Company compares the undiscounted future cash flows expected to be generated from the asset with its carrying value.  If the asset’s carrying value exceeds expected future cash flows, the Company measures and records an impairment loss, if any, as the amount by which the carrying value of the asset exceeds its fair value.  The Company estimates fair value using a variety of valuation techniques, including discounted cash flows, market values and comparison values for similar assets.

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, within other noncurrent assets.  The Company ceases to record depreciation expense at the time of designation as held for sale.  The carrying value of assets held for sale totaled $5.0$1.1 million and $8.5$1.7 million at March 31, 20172019 and 2016,2018, respectively.

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 upon 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
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, 2017 and 2016, Company-owned tooling totaled $20.8 million and $18.8 million, respectively.  In certain instances, the Company makes upfront payments for customer-owned tooling costs, and subsequently receives reimbursement from customers for the upfront payments.  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 its consolidated statements of operations.  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, 2017 and 2016, cost reimbursement receivables related to customer-owned tooling totaled $7.8 million and $8.5 million, respectively.

Warranty:  The Company provides product warranties for specific product lines and accrues for estimated future warranty costs in the period in which the sale is recorded.  The Company records warranty expense, 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 14 for additional information.

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.

Research and development:  The Company expenses research and development costs as incurred within selling, general and administrative (“SG&A”) expenses.  For the years ended March 31, 2017, 2016, and 2015, research and development costs charged to operations totaled $64.4 million, $61.1 million, and $62.0 million, respectively.

Translation of foreign currencies:  The Company translates assets and liabilities of foreign subsidiaries and equity investments into U.S. dollars at the period-end exchange rates, and translates income and expense items at the monthly average exchange rate for the period in which the transactions occur.  The Company reports resulting translation adjustments within accumulated other comprehensive income (loss) within shareholders' equity.  The Company includes foreign currency transaction gains or losses in the statement of operations within other income and expense.

Derivative instruments:  The Company enters into derivative financial instruments from time to time to manage certain financial risks.  The Company enters into futures contracts to reduce exposure to changing future purchase prices for aluminum and copper and into foreign currency exchange contracts to hedge specific foreign currency-denominated assets and liabilities.  These instruments are used to manage financial risks and are not speculative.  See Note 17 for additional information.

Income taxes:  The Company determines deferred tax assets and liabilities based upon the difference between the amounts reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse.  The Company establishes a valuation allowance if it is more likely than not that a deferred tax asset, or portion thereof, will not be realized.  See Note 7 for additional information.

Earnings per share:  The Company calculates basic earnings per share based upon the weighted-average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.  The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect.  Restricted stock award recipients have a non-forfeitable right to receive dividends declared by the Company.  Therefore, these restricted stock awards are included in computing earnings per share pursuant to the two-class method.  See Note 8 for additional information.

Cash and cash equivalents: The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment.  To the extent checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the Company reports the amount of those un-presented checks within accounts payable in the consolidated balance sheets.

Short-term investments:  The Company invests in time deposits with original maturities of more than three months but no more than one year.  The Company records these short-term investments at cost, which approximates fair value, within other current assets in the consolidated balance sheets.  As of March 31, 2017 and 2016, the Company’s short-term investments totaled $4.7 million and $3.3 million, respectively.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Deferred compensation trusts:  The Company maintains deferred compensation trusts to fund future obligations under its non-qualified deferred compensation plan.plans.  The trust’strusts’ investments in third-party debt and equity securities are presented within other noncurrent assets in the consolidated balance sheets.

Trade accounts receivable:  The Company records trade receivables at the invoiced amount.  Trade receivables do not bear interest if paid according to the original terms.  The Company recorded an allowance for doubtful accounts of $1.4 million and $0.5 million at March 31, 2017 and 2016, 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, 2017, 2016, and 2015, the Company sold $55.4 million, $71.3 million, and $87.0 million, respectively, of accounts receivable to accelerate cash receipts.  During each of the years ended March 31, 2017, 2016, and 2015, the Company recorded a loss on the sale of accounts receivables of $0.3 million in the consolidated statements of operations.

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

Property, plant and equipment:  The Company records property, plant and equipment at cost.  For financial reporting purposes, the Company computes depreciation using the straight-line method over the expected useful lives of the assets.  The Company charges maintenance and repair costs to operations as incurred.  The Company capitalizes costs of improvements.  Upon the sale or other disposition of an asset, the Company removes the cost and related accumulated depreciation from the accounts and includes the gain or loss in the consolidated statements of operations.

Goodwill:  The Company does not amortize goodwill; rather, it tests for impairment annually unless conditions exist that would require a more frequent evaluation.  The Company performs an assessment of the fair value of its reporting units for goodwill impairment testing based upon, among other things, the present value of expected future cash flows.  The Company performed its goodwill impairment test as of March 31, 2017, which did not result in an impairment charge.  See Note 13 for additional information.

Impairment of long-lived assets:  The Company reviews long-lived assets, including property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.  In these instances, the Company compares the undiscounted future cash flows expected to be generated from the asset with its carrying value.  If the asset’s carrying value exceeds expected future cash flows, the Company measures and records an impairment loss, if any, as the amount by which the carrying value of the asset exceeds its fair value.  The Company estimates fair value using a variety of valuation techniques, including discounted cash flows, market values and comparison values for similar assets.

Environmental liabilities:  The Company records liabilities for environmental assessments and remediation efforts in the period in which its responsibility is probable and the costs can be reasonably estimated.  The Company records environmental indemnification assets from third parties, including prior owners, when recovery is probable.  To the extent that the required remediation procedures change, or additional contamination is identified, the Company’s estimated environmental liabilities may also change.  See Note 18 for additional information.

Self-insurance 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 420 for additional information.

Supplemental cash flow information:

  Years ended March 31, 
  2019  2018  2017 
Interest paid $22.3  $23.4  $15.4 
Income taxes paid  22.2   20.1   12.7 

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

New Accounting Guidance:

Pension costsStock-based Compensation
In March 2017,2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the income statement presentationsimplify several aspects of net periodic pension costs and net periodic postretirement benefit costs.  This guidance requires companies to continue to present the service cost component of net benefit cost within the same financial statement line item as other employee compensation costs; however, other components of net benefit costs are required to be presented outside of results from operations.  This will not impact consolidated net earnings.  Early adoption is permitted, and theaccounting for stock-based payment transactions.  The Company plans to adoptadopted this guidance for thebeginning in its first quarter of fiscal 2018.  The Company will recast prior periodselected to conformaccount for forfeitures in the period in which they occur and recorded a cumulative-effect adjustment to the new income statement presentation.  As a result,equity.  In addition, the Company expectsprospectively adopted the guidance requiring all excess tax benefits or deficiencies to reclassify net benefit costs related to its pension plans totaling approximately $3.0 million in fiscal 2017 ($1.0 million from cost of sales and $2.0 million from SG&A expenses) and $45.0 million in fiscal 2016 ($10.0 million from cost of sales and $35.0 million from SG&A expenses) to other income and expense.  The fiscal 2016 net benefit costs included $42.1 million of pension settlement losses related to a completed voluntary lump-sum payout program; see Note 16 for additional information.  In fiscal 2018, the Company expects to record approximately $3.0 to $4.0 million of net benefit costs within other income and expense.

Share-based compensation
In March 2016, the FASB issued new guidance to simplify several aspects of accounting for share-based payment transactions, including thebe recognized as income tax effects ofexpense or benefit when share-based payments, recognition of forfeitures, and presentation requirements in the statement of cash flows.  This guidance is effective for the Company’s first quarter of fiscal 2018.awards are settled.  The Company does not expect the adoptionprovisions of this new guidance willdid not have a material impact on itsthe Company’s consolidated financial statements

Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance.  Upon adoptionstatements.  As a result of adopting this new guidance, the Company will be requiredrecorded a $0.4 million increase to recognize most leases on its balance sheet.  This guidance is effective for the Company’s first quarterboth deferred tax assets and equity as of fiscal 2020.  The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.April 1, 2017.

Revenue recognitionRecognition
In May 2014, the FASB issued new guidance that outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the new guidance is that companies are to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about revenue arising from contracts with customers.  The Company adopted this new guidance is effective for the Company’s first quarter of fiscal 2019 and allows for either a full-retrospective or ausing the modified-retrospective transition method.

The Company is currently in the process of assessingassessed customer contracts and evaluatingevaluated contractual provisions that may result in a change inlight of the timing of revenue recognized in comparison with currentnew guidance. Under current guidance,Through its evaluation process, the Company generally recognizes revenue when products are shipped and riskidentified a limited number of loss has transferred to the customer.  The Company is evaluating whether contractual provisions maycustomer contracts that provide an enforceable right to payment for its customized products, which may require revenue recognition prior to the product being shipped to the customer. In addition,As a result of its adoption of the new guidance, the Company is evaluating pricing provisions contained in certainrecorded an increase of its customer contracts$0.7 million to determine the appropriate timingretained earnings as of revenue recognition based uponApril 1, 2018, along with related balance sheet reclassifications.  The increase to retained earnings represented $3.0 million of net sales that, had the new guidance.guidance been in effect, the Company would have recognized as of March 31, 2018. See Note 3 for additional information regarding revenue recognition.

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 continues to evaluate the impactadopted 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.

Statement of Cash Flows: Restricted Cash
In November 2016, the FASB issued new guidance that requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending balances presented within the statement of cash flows.  The Company adopted this new guidance for fiscal 2019 using the retrospective transition method.  As a result, all prior period information has been recast to be comparable to the new presentation requirements.  See Note 10 for information regarding the Company’s restricted cash.

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 is effective for the Company as of April 1, 2019 and provides the option to reclassify stranded income tax effects to retained earnings.  The Company has determined it will have onnot reclassify stranded income tax effects upon adoption, and therefore, this guidance will not impact its consolidated financial statements.

Supplemental cash flow information:Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance and requires balance sheet recognition for most leases.  The Company will adopt this guidance effective April 1, 2019 using a modified-retrospective transition method, under which it expects to elect not to adjust comparative periods.  The Company intends to elect the package of practical expedients permitted under the new guidance, and, as a result, the Company has not reassessed the classification of existing leases or initial direct costs thereof, or whether existing contracts contain leases.  In addition, the Company plans to elect accounting policies to not record short-term leases on the balance sheet and to not separate lease and non-lease components.  The Company does not intend to elect the hindsight practical expedient.

  Years ended March 31, 
  2017  2016  2015 
Interest paid $15.4  $10.7  $10.3 
Income taxes paid  12.7   10.1   15.9 
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Note 2:  AcquisitionsThe Company has completed its assessment of its global lease portfolio and is in the process of finalizing the testing of its new lease accounting software solution and implementing new processes and controls to account for leases in accordance with the new guidance.  The Company’s most significant leases represent leases of real estate, such as manufacturing facilities, warehouses, and office buildings.  In addition, the Company leases certain manufacturing and IT equipment and vehicles.  Upon adoption of this new guidance, the Company expects to recognize $60.0 to $70.0 million of right-of-use assets and corresponding lease liabilities on its consolidated balance sheet.  The Company does not expect the adoption will have a material impact on its consolidated statements of operations or consolidated statements of cash flows.

The cumulative effects on the Company’s consolidated balance sheet, as of April 1, 2018, resulting from the adoption of new accounting guidance were as follows:

     
Adjustments Due to
New Accounting Guidance
    
  
Balance as of
March 31, 2018
  
Revenue
Recognition
  
Intra-entity Transfers
of Assets
  
Balance as of
April 1, 2018
 
ASSETS
            
Inventories $191.3  $(2.0) $-  $189.3 
Other current assets  70.1   3.0   (8.3)  64.8 
Deferred income taxes  96.9   (0.2)  -   96.7 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Deferred income taxes $9.9  $0.1  $-  $10.0 
Retained earnings  394.9   0.7   (8.3)  387.3 

Note 2:Acquisition

Luvata HTS

On November 30, 2016, the Company completed its acquisition of a 100%100 percent ownership interest in the Luvata HTS business for consideration totaling $415.6 million ($388.2 million, net of cash acquired).  The purchase price included 2.2 million Modine common shares.  The Company estimated the fair value of the common shares, to bevalued at $24.3 million atas of November 30, 2016, which reflects restrictions on the sale of the shares for a minimum of one year.  Now operating2016.  Operating as Modine’s Commercial and Industrial Solutions (“CIS”) segment, this business is a leading global supplier of coils, coolers and coatings to the heating, ventilation, air conditioning, and refrigeration (“HVAC&R”) industry.  CIS’s products coverSee Note 22 for a broad range of heat exchanger coils, commercial refrigeration and industrial coolers, and anti-corrosion coating solutions.  The Company’s acquisition of Luvata HTS addressed, in particular, both the “Diversify” and “Grow” commitments of its transformational Strengthen, Diversify and Grow strategy launched in fiscal 2016.  This acquisition provided Modine with an expanded industrial business portfolio, broader customer base, and reduced cyclical exposure.  For the year ended March 31, 2017, the Company included $177.7 millionsummary of net sales and operating income of $7.5 million within its consolidated statement of operations attributable to four months ofreported by the CIS operations.  During the year ended March 31,segment.  In fiscal 2018 and 2017, the Company recorded $4.3 million and $14.8 million, respectively, of costs incurred directly related to the acquisition and integration of Luvata HTS as SG&A expenses within the consolidated statementstatements of operations.  TheseThe fiscal 2018 costs principallyprimarily consisted of fees for i) transaction advisors, ii)incremental costs associated with integration activities, including legal accounting, and otheraccounting professional services and iii)severance expenses.  The fiscal 2017 costs primarily consisted of transaction advisory and due diligence costs and incremental costs directly associated with integration activities.

To fund a significant portion of the Luvata HTS purchase price,  In addition, during fiscal 2017, the Company entered into new credit agreements in November 2016.  See Note 15 for additional information.charged $4.3 million to cost of sales related to inventory that it wrote-up to fair value upon acquisition.

The Company completed its accounting for the acquisition of Luvata HTS during fiscal 2018 and allocated the total purchase price of Luvata HTS$415.6 million to the identifiable tangible and intangible assets acquired and the liabilities assumed based upon their estimated fair values as of the acquisition date.  The Company based the estimated fair values primarily upon third-party valuations using assumptions developed by management and other information compiled by management, including, but not limited to, future expected cash flows.  The Company allocated the excess of the purchase price over the net assets recognized to goodwill in the amount of $150.6$151.9 million, none of which the Company expects to beis deductible for income tax purposes.  Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.  Specifically, the goodwill recorded as part of the acquisition includes Luvata HTS’s workforce and anticipated future cost and revenue synergies.

At the time the March 31, 2017 financial statements were finalized, the Company was awaiting additional information to determine the fair value of certain assets acquired and liabilities assumed and therefore, the allocation of purchase price is considered preliminary.  The Company expects to complete its evaluation of these matters in the first or second quarter of fiscal 2018.  These matters primarily relate to income tax reserves and contingent liabilities, including reserves for environmental, legal, product warranty, and trade compliance matters.

The Company’s preliminary allocation of the purchase price for its acquisition of Luvata HTS is as follows:

Cash and cash equivalents $27.4 
Trade accounts receivable  86.3 
Inventories  55.7 
Property, plant and equipment  120.6 
Intangible assets  130.2 
Goodwill  150.6 
Other assets  38.6 
Accounts payable  (73.7)
Accrued compensation and employee benefits  (24.3)
Deferred income taxes  (39.3)
Pensions  (14.3)
Other liabilities  (42.2)
Purchase price $415.6 

Below is a summary of the methodologies and significant assumptions used in estimating the fair value of certain classes of acquired assets.  The fair values were primarily based upon significant inputs that are not observable in the market and thus represent Level 3 measurements.  See Note 3 for information regarding Level 3 fair value measurements.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Inventories:  The Company determined the fair value of acquired inventory by estimating the selling priceCompany’s allocation of the respective finished goods, less an estimatepurchase price for its acquisition of costs to be incurred to sell the inventory and to complete the work-in-process inventory, if applicable.  For raw materials acquired, the Company estimated the cost of replacement.  As a result, the Company wrote-up acquired inventory by $4.3 million and subsequently charged this write-up to cost of salesLuvata HTS was as the underlying inventory was sold in the third and fourth quarters of fiscal 2017.

Property, plant and equipment:  The Company valued property, plant and equipment primarily utilizing the cost approach and also utilized the market approach in valuing acquired land and buildings.  The cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility and adjusting the value in consideration of depreciation as of the acquisition date.  The cost approach relies on assumptions regarding replacement costs and the age and estimated remaining useful lives of the assets.  The fair value of property, plant and equipment will be recognized as depreciation expense in our results of operations over the expected remaining useful lives of the individual assets.follows:

Intangible assets: The Company determined the fair value of acquired intangible assets by using variations of the income approach.  These methods generally forecast expected future net cash flows discretely associated with each of the identified intangible assets and adjust the forecasts to present value by applying a discount rate intended to reflect risk factors associated with the cash flows and the time value of money.  Acquired intangible assets were as follows:

  
Gross
Carrying
Value
 
Weighted-
Average
Useful Life
Customer relationships $58.4 17 years
Trade names  50.1 20 years
Acquired technology  21.7 12 years
Total intangible assets acquired $130.2  

Customer relationships, for valuation purposes, represent the estimated fair value of Luvata HTS’s business relationship with existing customers, and were calculated by projecting the future after-tax cash flows from these customers, including the right to deploy and market additional products to them.  The Company forecasted anticipated earnings from existing customers using recent years’ sales levels and considering a customer attrition rate based upon historical customer revenue information.

The Company determined the value of acquired trade names using the relief-from-royalty method, a variation of the income approach, which applies an assumed royalty rate to revenue expected to be derived under the acquired trade names.  The fair value was estimated to be the present value of the royalties saved because the Company owns the trade names.

The Company also used the relief-from royalty method for its valuation of acquired technology, which largely relates to the design of mechanical and electrical components.  The Company considered factors including the estimated contribution of the technology to the overall profitability of the products and the awareness level of the technology and its position in the market.
Cash and cash equivalents $27.4 
Trade accounts receivable  86.1 
Inventories  55.0 
Property, plant and equipment  120.4 
Intangible assets  130.2 
Goodwill  151.9 
Other assets  39.1 
Accounts payable  (73.7)
Accrued compensation and employee benefits  (24.3)
Deferred income taxes  (39.5)
Pensions  (14.3)
Other liabilities  (42.7)
Purchase price $415.6 

The following unaudited supplemental pro forma information presents the Company’s consolidated results of operations as though the acquisition of Luvata HTS had occurred at the beginning of fiscal 2016.  This pro forma financial information is presented for illustrative purposes only and is not considered to be indicative of the operating results that would have been achieved had the acquisition been completed as of the date indicated or the operating results that may be obtained in the future.indicated.

  Years ended March 31, 
  2017  2016 
Net sales $1,881.6  $1,871.9 
Net earnings attributable to Modine  35.8   1.5 
Net earnings per share attributable to Modine shareholders:        
Basic $0.72  $0.03 
Diluted  0.71   0.03 
  Year ended March 31, 2017 
Net sales $1,881.6 
Net earnings attributable to Modine  35.8 
Net earnings per share attributable to Modine shareholders:    
Basic $0.72 
Diluted  0.71 

The supplemental pro forma financial information includes adjustments for: (i) annual amortization and depreciation expense totaling approximately $13.0 million for acquired tangible and intangible assets, (ii) estimated annual interest expense of approximately $14.0 million resulting from acquisition-related borrowings, and (iii) the estimated income tax impacts related to the pro forma adjustments, considering the statutory tax rates within the applicable jurisdictions.  In addition, the pro forma financial information assumes that both $8.6 million of acquisition-related transaction costs, not including costs for integration-related activities, and $4.3 million of inventory purchase accounting adjustments were incurred during fiscal 2016.  The pro forma financial information does not reflect achieved or expected cost or revenue synergies.

Note 3:Revenue Recognition

Effective April 1, 2018, the Company adopted new revenue recognition accounting guidance using the modified-retrospective transition method and, as a result, recorded a cumulative-effect adjustment to increase retained earnings by $0.7 million.  The Company’s consolidated financial statements for the fiscal year ended March 31, 2019 reflect the adoption of this new guidance; however, the comparable prior-year periods have not been recast.  See Note 1 for additional information regarding the adjustments to the Company’s consolidated balance sheet as of April 1, 2018.

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 customers, which may be at a point in time or over time.  The majority of the Company’s revenue is recognized at a point in time, based upon shipment terms.  The Company records an allowance for doubtful accounts for estimated uncollectible receivables 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.

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

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

Vehicular Thermal Solutions (“VTS”)
The VTS segment principally generates revenue from providing engineered heat transfer systems and components for use in on- and off-highway original equipment.  This segment provides 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 automotive, commercial vehicle, and off-highway markets in the Americas, Europe, and Asia regions.  In addition, the VTS segment designs customer-owned tooling for OEMs and also serves Brazil’s automotive and commercial vehicle aftermarkets.

While the VTS segment provides 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 VTS 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, the VTS segment recognizes revenue primarily at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

In regard to VTS 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 VTS 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.

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.

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 related applications 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 generally 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 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.

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.

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

  Year ended March 31, 2019 
  VTS  CIS  BHVAC  
Segment
Total
 
Primary end market:            
Automotive $542.8  $-  $-  $542.8 
Commercial vehicle  387.6   -   -   387.6 
Off-highway  314.1   -   -   314.1 
Commercial HVAC&R  -   506.3   167.7   674.0 
Data center cooling  -   145.7   41.3   187.0 
Industrial cooling  -   47.8   -   47.8 
Other  107.2   7.8   3.4   118.4 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 
                 
Geographic location:                
Americas $613.7  $413.6  $124.9  $1,152.2 
Europe  538.2   244.8   87.5   870.5 
Asia  199.8   49.2   -   249.0 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 
                 
Timing of revenue recognition:                
Products transferred at a point in time $1,308.5  $571.1  $212.4  $2,092.0 
Products transferred over time  43.2   136.5   -   179.7 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 

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

  March 31, 2019  March 31, 2018 
Contract assets $22.6  $13.5 
Contract liabilities  4.0   6.8 

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 $9.1 million increase in contract assets during fiscal 2019 was primarily related to contract assets totaling $7.4 million as of March 31, 2019 for revenue recognized over time, which were recorded as a result of the Company’s adoption of the new revenue recognition accounting guidance, and customer-owned tooling contracts, under which more costs were capitalized than reimbursed.

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. The $2.8 million decrease in contract liabilities during fiscal 2019 was primarily due to the Company’s satisfaction of performance obligations under customer contracts for which payment had been received in advance.

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Modine Puxin Thermal Systems (Jiangsu) Co. Ltd

On January 29, 2016,
Impacts of Adopting New Accounting Guidance
The impacts from the Company formed a joint venture, Modine Puxin Thermal Systems (Jiangsu) Co. Ltd. of Yangzhou, China, of which it owns 67 percent, and the joint venture partner, Jiangsu Puxin Heat Exchange System Co., Ltd, owns 33 percent.  This joint venture, which is reported in the Asia segment, expedited the Company’s introduction of stainless steel heat exchangers for the light-, medium-, and heavy-duty commercial vehicle markets in China.  In fiscal 2016, the Company contributed $1.4 million of cash and equipment and other assets totaling $2.3 million.  In fiscal 2017, the Company contributed $0.3 million of additional cash consideration after certain seller indemnification obligations under the agreement were satisfied.  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 activitiesadoption of the joint venture, and, therefore, the financial results of the joint venture are included innew revenue recognition guidance to the Company’s consolidated financial statements.  The Company did not present pro forma financial information for this acquisition as the effect is not material to its resultsstatement of operations or financial position.for the year ended March 31, 2019 and its consolidated balance sheet as of March 31, 2019 were as follows:

  Year ended March 31, 2019 
  As Reported  Impact of New
Accounting Guidance		  
Results Without
Impact of New Accounting
Guidance
 
Net sales $2,212.7  $(4.4) $2,208.3 
Net earnings attributable to Modine  84.8   (2.0)  82.8 
             
Net earnings per share attributable to Modine shareholders:            
Basic $1.67  $(0.04) $1.63 
Diluted  1.65   (0.04)  1.61 

  March 31, 2019 
  As Reported  
Impact of New
Accounting Guidance
  
Balances Without
Impact of New Accounting
Guidance
 
ASSETS
         
Inventories $200.7  $3.8  $204.5 
Other current assets  65.8   (7.4)  58.4 
Deferred income taxes  97.1   0.6   97.7 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
            
Deferred income taxes $8.2  $(0.3) $7.9 
Retained earnings  472.1   (2.7)  469.4 

Note 3: 
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 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 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.
Level 3 – Model-derived valuations in which one or more significant inputs are not observable.

When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1.  In some cases, where market prices are not available, the Company uses observable market-based inputs to calculate fair value, in which case the measurements are classified as Level 2.  If quoted or observable market prices are not available, the Company determines fair value 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.  The Company holds trading securities in deferred compensation trusts to fund obligations under certain non-qualified deferred compensation plans.  The securities’ fair values, which are recorded as other noncurrent assets, are determined based upon quoted prices from active markets and classified within Level 1 of the valuation hierarchy.  The Company’s deferred compensation obligations, which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trust.  The fair values of the Company’s trading securities and deferred compensation obligations each totaled $5.0$6.0 million and $3.2$5.8 million atas of March 31, 20172019 and 2016,2018, respectively.  The year-over-year increase primarily relates to a deferred compensation plan in the recently-acquired CIS segment.  The fair value of the Company’s long-term debt is disclosed in Note 15.17.

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

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

  March 31, 2017 
  Level 1  Level 2  Total 
          
Money market investments $-  $5.6  $5.6 
Common stocks  17.8   2.0   19.8 
Corporate bonds  -   9.3   9.3 
Pooled equity funds  56.8   -   56.8 
Pooled fixed-income funds  26.5   -   26.5 
U.S. government and agency securities  -   18.7   18.7 
Other  1.4   1.4   2.8 
Fair value excluding investment measured at net asset value  102.5   37.0   139.5 
Investment measured at net asset value (a)          8.7 
Total Fair Value         $148.2 
             
  March 31, 2016 
  Level 1  Level 2  Total 
             
Money market investments $-  $5.8  $5.8 
Common stocks  23.7   1.3   25.0 
Corporate bonds  -   8.4   8.4 
Pooled equity funds  48.7   -   48.7 
Pooled fixed-income funds  26.3   -   26.3 
U.S. government and agency securities  -   18.4   18.4 
Other  0.4   1.2   1.6 
Fair value excluding investment measured at net asset value  99.1   35.1   134.2 
Investment measured at net asset value (a)          7.3 
Total Fair Value         $141.5 
  March 31, 2019 
  Level 1  Level 2  Total 
          
Money market investments $-  $3.9  $3.9 
Corporate bonds  -   9.4   9.4 
Pooled equity funds  27.7   -   27.7 
U.S. government and agency securities  -   12.3   12.3 
Other  0.1   0.9   1.0 
Fair value excluding investments measured at net asset value  27.8   26.5   54.3 
Investments measured at net asset value          100.8 
Total fair value         $155.1 

(a)As a practical expedient, the Company valued a collective trust fund using its net asset value per unit, and therefore, has not classified this investment within the fair value hierarchy.
  March 31, 2018 
  Level 1  Level 2  Total 
          
Money market investments $-  $11.4  $11.4 
Common stocks  9.4   2.6   12.0 
Corporate bonds  -   9.7   9.7 
Pooled equity funds  64.4   -   64.4 
Pooled fixed-income funds  27.3   -   27.3 
U.S. government and agency securities  -   16.2   16.2 
Other  0.2   1.7   1.9 
Fair value excluding investment measured at net asset value  101.3   41.6   142.9 
Investment measured at net asset value          14.8 
Total fair value         $157.7 

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 upon quoted prices from active markets and classified them within Level 1 of the valuation hierarchy.  The Company determined the fair value of certain common stocks, corporate bonds pooled equity funds and U.S. government and agency securities based upon recent bid prices or the average of recent bid and asking prices when available and, if not available, the Company valued them through matrix pricing models developed by sources considered by management to be reliable.  The Company classified these assets within Level 2 of the valuation hierarchy.  As of March 31, 20172019 and 2016,2018, the Company held no Level 3 assets within its pension plans.

As a practical expedient, the Company valued certain investments, including pooled equity, fixed-income and real estate funds, using their net asset value (NAV) per unit, and therefore, has not classified these investments within the fair value hierarchy.  The increase in investments valued at NAV in fiscal 2019 was associated with the Company’s revised target asset allocations for its U.S. pension plan; see Note 18 for additional information.  The terms and conditions for redemptions vary for the investments valued at NAV.  The real estate investment fund may be redeemed at any time with a 90-day notice period.  Other investments valued at NAV do not have restrictive redemption frequency or notice period requirements.  The Company does not intend to sell or otherwise dispose of these investments at prices different than the NAV per unit.

Note 4: 
Note 5:Stock-Based Compensation

The Company’s stock-based incentive programs consist of the following: (1) a long-term incentive compensation program for officers and 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 key employees, and (3) stock awards for non-employee directors.  The Company’s Board of Directors and the Officer Nomination and Compensation Committee, as applicable, have discretionary authority to set the terms of the awards of stockstock-based awards.  Grants to employees during fiscal 2019 were issued under the Company’s Amended and Restated 20082017 Incentive Compensation Plan (“Plan”).Plan.  At present, the Company accomplishes the fulfillment of equity-based grants through the issuance of new common shares.  As of March 31, 2017,2019, approximately 1.62.7 million shares authorized under the 2017 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 $7.4$7.9 million, $4.9$9.5 million, and $4.0$7.4 million in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.

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

Stock Options:  The Company recorded $1.1$1.2 million, $0.9$1.2 million, and $0.9$1.1 million of compensation expense related to stock options in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  The fair value of stock options that vested during fiscal 2019, 2018, and 2017 2016, and 2015 was $1.0$1.2 million, $0.9$1.2 million, and $0.9$1.0 million, respectively.  As of March 31, 2017,2019, the total compensation expense not yet recognized related to non-vested stock options was $2.1$2.2 million and the weighted-average period in which the remaining expense is expected to be recognized was 2.52.6 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:

  Years ended March 31, 
  2017  2016  2015 
Weighted-average fair value of options $4.60  $7.11  $10.21 
Expected life of awards in years  6.4   6.3   6.3 
Risk-free interest rate  1.4%  1.9%  2.1%
Expected volatility of the Company's stock  45.5%  66.9%  76.1%
Expected dividend yield on the Company's stock  0.0%  0.0%  0.0%
  Years ended March 31, 
  2019  2018  2017 
Fair value of options $7.81  $7.30  $4.60 
Expected life of awards in years  6.3   6.4   6.4 
Risk-free interest rate  2.8%  1.9%  1.4%
Expected volatility of the Company’s stock  39.7%  44.3%  45.5%
Expected dividend yield on the Company’s stock  0.0%  0.0%  0.0%

Stock options expire no later than 10 years after the grant date and have an exercise price equal to the fair market value of Modine’s common stock on the date of grant.  The risk-free interest rate was based upon 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 upon changes in the Company’s historical common stock prices over the same time frame as the expected life of the awards.  The expected dividend yield is zero, as the Company currently does not anticipate paying dividends over the expected life of the options.  The expected lives of the awards are based upon historical patterns and the terms of the options.  Outstanding options granted vest 25 percent annually for four years.  The Company used a pre-vesting forfeiture rate of 2.5 percent as an estimate of expected forfeitures prior to completing the required service period.

A summary of stock option activity for fiscal 20172019 was as follows:

  Shares  
Weighted-average
exercise price
  
Weighted-average
remaining contractual
term (years)
  
Aggregate
intrinsic value
 
Outstanding, beginning  1.5  $10.82       
Granted  0.3   10.00       
Exercised  (0.1)  9.23       
Forfeited or expired  (0.2)  21.76       
Outstanding, ending  1.5  $9.83   5.5  $4.4 
                 
Exercisable, March 31, 2017  1.0  $9.27   4.0  $3.6 
  Shares  Weighted-average
exercise price		  
Weighted-average
remaining contractual
term (years)
  
Aggregate
intrinsic value
 
Outstanding, beginning  1.2  $11.16       
Granted  0.2   17.90       
Exercised  (0.1)  9.93       
Forfeited or expired  (0.1)  14.51       
Outstanding, ending  1.2  $12.24   5.5  $3.3 
                 
Exercisable, March 31, 2019  0.8  $10.59   4.0  $2.9 

The aggregate intrinsic value represents the difference between the closing price of Modine’s common shares on the last trading day of fiscal 20172019 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 is as follows:

  Years ended March 31, 
  2019  2018  2017 
Intrinsic value of stock options exercised $0.7  $4.9  $0.5 
Proceeds from stock options exercised  1.1   4.3   0.9 
  Years ended March 31, 
  2017  2016  2015 
Intrinsic value of stock options exercised $0.5  $0.4  $0.4 
Proceeds from stock options exercised $0.9  $0.5  $0.6 

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Restricted Stock:  The Company recorded $3.8$4.3 million, $3.5$3.9 million, and $2.8$3.8 million of compensation expense related to restricted stock in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  The fair value of restricted stock awards that vested during fiscal 2019, 2018, and 2017 2016, and 2015 was $4.0$4.3 million, $3.4$3.9 million, and $2.3$4.0 million, respectively.  At March 31, 2017,2019, the Company had $4.8$5.3 million of unrecognized compensation expense related to non-vested restricted stock, which it expects to recognize over a weighted-average period of 2.42.5 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 vest 25 percent annually for four years, with the exception of awards to non-employee directors, which fully vest upon grant.

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

A summary of restricted stock activity for fiscal 20172019 was as follows:

  Shares  
Weighted-
average
price
 
Non-vested balance, beginning  0.6  $11.29 
Granted  0.4   9.98 
Vested  (0.4)  10.05 
Non-vested balance, ending  0.6  $11.21 
  Shares  
Weighted-average
price
 
Non-vested balance, beginning  0.6  $12.24 
Granted  0.3   17.72 
Vested  (0.3)  13.75 
Forfeited  (0.1)  15.03 
Non-vested balance, ending  0.5  $14.95 

Restricted Stock – Performance-Based Shares:  The Company recorded $2.5$2.4 million, $0.5$4.4 million, and $0.3$2.5 million of compensation expense related to performance-based stock awards in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  At March 31, 2017,2019, the Company had $3.2$2.4 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 1.81.5 years.  The Company values performance-based stock awards using the closing market valueprice of its common shares on the date of grant.

Shares are earned under the performance portion of the restricted stock award program based upon the attainment of certain financial goals over a three-year period and are awarded after the end of that three-year performance period, if the performance targets have been achieved.  The performance components of the programsprogram initiated in fiscal 2017, 2016, and 2015 were2019 is 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.  The performance components of the programs initiated in fiscal 2018 and 2017 were based upon both a target three-year average consolidated return on capital employed and a target three-year average annual revenue growth at the end of a three-year performance period.

Note 5: 
Note 6:Restructuring Activities

During fiscal 2019, restructuring and repositioning expenses primarily resulted from targeted headcount reductions in Europe and the Americas within the VTS segment.  These headcount reductions support the Company’s objective to reduce operational and SG&A cost structures at certain locations.  In addition, the Company is in process of transferring product lines associated with the merger of its North American coils business into the CIS segment, in order to accelerate operational improvements and organizational efficiencies.

During fiscal 2018, the Company ceased production at its Gailtal, Austria manufacturing facility, primarily to reduce excess capacity and lower manufacturing costs in Europe.  As a result of this facility closure, the Company recorded $8.3 million of restructuring expenses within the CIS segment.  These restructuring expenses primarily related to employee severance and related benefits.  Fiscal 2018 restructuring activities also included plant consolidation activities, targeted headcount reductions, and certain product line transfers in Europe within the VTS segment.  In addition, the Company recorded restructuring expenses associated with the discontinuance of its geothermal product line within the BHVAC segment.

During fiscal 2017, the Company completed a voluntary retirement program for certain U.S. salaried employees and implemented targeted headcount reductions at several locations.  The Company engaged in these restructuring activities as part of its Strengthen, Diversify and Grow strategic initiative, particularlylocations, both in support of its objective to reduce operational and SG&A cost structures.

During fiscal 2016, the Company announced a plan to close its Washington, Iowa manufacturing facility and recorded severance costs as a result.  The Company completed the transfer of production from Washington to other Americas segment manufacturing facilities in fiscal 2017.  Also during fiscal 2016,2017, the Company completed the transfer of production from its McHenry, IllinoisWashington, Iowa manufacturing facility, which was closed and sold, to other AmericasVTS segment manufacturing facilities.  These restructuring activities reflect the Company’s focus on operating scale manufacturing facilities to improve overall competitiveness and profitability.in North America.

During fiscal 2015, the Company initiated a headcount reduction plan for the Brazil manufacturing facility within its Americas segment.  The headcount reductions were in response to the economic slowdown in Brazil and were aimed at maintaining profitability in this business despite lower sales volume.

In addition, the Company has engaged in 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Restructuring and repositioning expenses were as follows:

  Years ended March 31, 
  2017  2016  2015 
Employee severance and related benefits $5.3  $12.8  $1.2 
Other restructuring and repositioning expenses  5.6   3.8   3.5 
Total $10.9  $16.6  $4.7 
  Years ended March 31, 
  2019  2018  2017 
Employee severance and related benefits $8.7  $13.0  $5.3 
Other restructuring and repositioning expenses  0.9   3.0   5.6 
Total $9.6  $16.0  $10.9 

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, 
  2019  2018 
Beginning balance $11.0  $6.5 
Additions  8.7   13.0 
Payments  (9.1)  (9.4)
Effect of exchange rate changes  (0.6)  0.9 
Ending balance $10.0  $11.0 
  Years ended March 31, 
  2017  2016 
Beginning balance $14.7  $9.9 
Additions  5.3   12.8 
Payments  (12.9)  (8.5)
Effect of exchange rate changes  (0.6)  0.5 
Ending balance $6.5  $14.7 

During fiscal 2018, the Company recorded a $1.3 million asset impairment charge as a result of the closure of the CIS Austrian facility.  During fiscal 2019, the Company recorded an additional $0.4 million asset impairment charge related to this closed facility to reduce its carrying value to its current estimated fair value, less costs to sell.

During fiscal 2017, the Company sold twothree previously-closed manufacturing facilities within its Americas segment and a facility within its EuropeVTS segment for cash proceeds totaling $5.4 million.  As a result of the facility sales, the Company recorded net gains totaling $2.0 million.

During fiscal 2015, the Company sold a wind tunnel within its Europe segment for cash proceeds of $5.8 million and recognized a gain of $3.2 million as a result.

During fiscal 2016, the Company recorded an asset impairment charge of $9.9 million within its Europe segment to write down long-lived assets at a manufacturing facility in Germany to fair value.

Note 6: 
Note 7:Other Income and Expense

Other income and expense consisted of the following:

  Years ended March 31, 
  2019  2018  2017 
Equity in earnings of non-consolidated affiliate $0.7  $0.2  $0.1 
Interest income  0.4   0.4   0.4 
Foreign currency transactions (a)  (2.3)  (0.6)  (1.9)
Net periodic benefit cost (b)  (2.9)  (3.3)  (2.9)
Total other expense - net $(4.1) $(3.3) $(4.3)
  Years ended March 31, 
  2017  2016  2015 
Equity in earnings of non-consolidated affiliate $0.1  $0.1  $0.6 
Interest income  0.4   0.4   0.5 
Foreign currency transactions (a)  (1.9)  (1.3)  (0.9)
Gain from insurance recovery (b)  -   9.5   - 
Total other (expense) income - net $(1.4) $8.7  $0.2 

(a)Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses on foreign currency exchange contracts.
(b)During fiscal 2016,Represents net periodic benefit cost, exclusive of service cost, for the Company settled an insurance claim related to machineryCompany’s pension and equipment destroyed in a fire at its Airedale facility and recorded a gain of $9.5 million.  See Note 1 for additional information.postretirement plans.

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

Note 7: 
Note 8:Income Taxes

The U.S. and foreign components of earnings from continuing operations before income taxes and the provisionbenefit or benefitprovision for income taxes consisted of the following:

  Years ended March 31, 
  2019  2018  2017 
Components of earnings (loss) before income taxes:         
United States $22.4  $2.5  $(8.6)
Foreign  58.4   60.8   29.4 
Total earnings before income taxes $80.8  $63.3  $20.8 
             
Income tax (benefit) provision:            
Federal:            
Current $(20.4) $11.6  $0.1 
Deferred  (4.2)  23.3   (3.8)
State:            
Current  0.7   (0.3)  0.3 
Deferred  1.9   2.0   (0.2)
Foreign:            
Current  19.0   16.1   10.1 
Deferred  (2.1)  (13.2)  (0.6)
Total income tax (benefit) provision $(5.1) $39.5  $5.9 
  Years ended March 31, 
  2017  2016  2015 
Components of earnings (loss) from continuing operations before income taxes:         
United States $(8.6) $(15.4) $31.1 
Foreign  29.4   5.5   10.1 
Total earnings (loss) from continuing operations before income taxes $20.8  $(9.9) $41.2 
             
Income tax expense (benefit):            
Federal:            
Current $0.1  $0.1  $0.4 
Deferred  (3.8)  (13.0)  7.1 
State:            
Current  0.3   0.2   - 
Deferred  (0.2)  (2.5)  1.1 
Foreign:            
Current  10.1   9.6   12.7 
Deferred  (0.6)  (3.3)  (2.3)
Total income tax expense (benefit) $5.9  $(8.9) $19.0 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act.  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.  To the extent a company’s accounting for certain income tax effects of the Tax Act was incomplete, the company could determine a reasonable estimate for those effects and record a provisional estimate in its financial statements.  If a company could not determine a provisional estimate to be included in the financial statements, it was to continue applying the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.

During fiscal 2018, the Company recorded provisional discrete tax charges totaling $38.0 million related to the Tax Act.  The Company adjusted its U.S. deferred tax assets by $19.0 million due to the reduction in the U.S. federal corporate tax rate.  This net reduction in deferred tax assets also included the estimated impact on the Company’s net state deferred tax assets.  In addition, the Company recorded a $19.0 million charge for the transition tax required under 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 determined it will utilize 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.

The Tax Act included a new provision designed to tax global intangible low taxed income (“GILTI”) starting in fiscal 2019.  The Company allocateselected to record the tax effects of the GILTI provision as a period expense in the applicable tax year.

The Company’s accounting policy is to allocate the 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 from
56
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

The 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, 
  2019  2018  2017 
Statutory federal tax  21.0%  31.5%  35.0%
State taxes, net of federal benefit  3.6   2.9   (3.3)
Taxes on non-U.S. earnings and losses  3.9   (3.8)  (3.5)
Valuation allowances  4.0   (5.6)  1.2 
Tax credits  (26.1)  (17.3)  (9.0)
Compensation  (0.1)  (0.8)  2.9 
Tax rate or law changes  (12.0)  60.1   (2.5)
Uncertain tax positions, net of settlements  0.4   (0.8)  5.6 
Notional interest deductions  (2.5)  (3.2)  (8.8)
Dividend repatriation  1.6   0.2   7.1 
Other  (0.1)  (0.8)  3.7 
Effective tax rate  (6.3%)  62.4%  28.4%

During fiscal 2019, the Company recorded income tax ratebenefits totaling $7.7 million related to the Tax Act, as discussed above; recorded income tax benefits totaling $14.5 million as a result of amending previous-year tax returns to recognize foreign tax credits that are 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 following:United States.  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 related to other tax jurisdictions 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.

  Years ended March 31, 
  2017  2016  2015 
Statutory federal tax  35.0%  35.0%  35.0%
State taxes, net of federal benefit  (3.3)  11.5   2.4 
Taxes on non-U.S. earnings and losses  (3.5)  26.4   (4.9)
Valuation allowance  1.2   (20.9)  8.3 
Tax credits  (9.0)  20.5   (6.1)
Compensation  2.9   (3.7)  1.0 
Tax rate or law changes  (2.5)  1.3   1.2 
Uncertain tax positions, net of settlements  5.6   (4.3)  2.2 
Notional interest deductions  (8.8)  -   - 
Dividend repatriation  7.1   16.0   2.4 
Other  3.7   8.1   4.6 
Effective tax rate  28.4%  89.9%  46.1%
During fiscal 2018, the Company recorded provisional charges totaling $38.0 million related to the Tax Act, as discussed above, and recognized a $9.0 million Hungarian development tax credit.  Also in fiscal 2018, the Company reversed a portion of the valuation allowance on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not these assets would be realized, and, as a result, recorded an income tax benefit of $2.8 million.  In addition, the Company recorded a $1.8 million income tax benefit in fiscal 2018 associated with the reduction in unrecognized tax benefits resulting from a lapse in statutes of limitations.

During fiscal 2017, the Company recorded a valuation allowance of $2.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would not be realized.  Also during fiscal 2017, the Company recorded a net reduction of deferred tax asset valuation allowances totaling $1.8 million in other tax jurisdictions.  During fiscal 2016, the Company reversed a valuation allowance of $3.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would be realized.   In fiscal 2016 and 2015, the Company recorded a net increase in deferred tax asset valuation allowances totaling $5.0 million and $2.6 million, respectively, in other tax jurisdictions. 

The Company will continue to provide valuation allowances against its net deferred tax assets in each applicable tax jurisdiction until the need for a valuation allowance is eliminated.  The need for a valuation allowance is eliminated when the Company determines it is more likely than not the deferred tax assets will be realized.

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, 
  2017  2016 
Deferred tax assets:      
Accounts receivable $0.4  $0.1 
Inventories  5.0   3.6 
Plant and equipment  3.7   4.3 
Pension and employee benefits  51.8   52.6 
Net operating loss, capital loss, and credit carry-forwards  147.5   109.4 
Other, principally accrued liabilities  10.9   7.5 
Total gross deferred tax assets  219.3   177.5 
Less: valuation allowances  (49.6)  (50.8)
Net deferred tax assets  169.7   126.7 
         
Deferred tax liabilities:        
Plant and equipment  21.2   5.5 
Goodwill  4.7   0.6 
Intangible assets  43.3   1.5 
Other  1.8   0.2 
Total gross deferred tax liabilities  71.0   7.8 
Net deferred tax asset $98.7  $118.9 
  March 31, 
  2019  2018 
Deferred tax assets:      
Accounts receivable $0.2  $0.3 
Inventories  3.4   4.1 
Plant and equipment  1.8   2.3 
Pension and employee benefits  32.7   36.0 
Net operating and capital losses  73.5   102.5 
Credit carryforwards  60.3   36.7 
Other, principally accrued liabilities  10.0   9.9 
Total gross deferred tax assets  181.9   191.8 
Less: valuation allowances  (43.4)  (48.9)
Net deferred tax assets  138.5   142.9 
         
Deferred tax liabilities:        
Plant and equipment  15.1   17.6 
Goodwill  4.8   5.2 
Intangible assets  28.8   32.4 
Other  0.9   0.7 
Total  gross deferred tax liabilities  49.6   55.9 
Net deferred tax assets $88.9  $87.0 

Unrecognized tax benefits were as follows:

  Years ended March 31, 
  2019  2018 
Beginning balance $13.6  $14.2 
Gross increases - tax positions in prior period  1.6   0.8 
Gross decreases - tax positions in prior period (a)  (0.2)  (1.2)
Gross increases - due to acquisition  -   1.4 
Gross increases - tax positions in current period  1.1   0.5 
Settlements  (0.1)  (0.3)
Lapse of statute of limitations  (2.2)  (1.8)
Ending balance $13.8  $13.6 
  Years ended March 31, 
  2017  2016 
Beginning balance $5.9  $5.6 
Gross increases - tax positions in prior period  0.3   - 
Gross decreases - tax positions in prior period  (0.2)  (0.1)
Gross increases - due to acquisition  7.3   - 
Gross increases - tax positions in current period  0.9   0.4 
Ending balance $14.2  $5.9 

(a)Fiscal 2018 includes $1.0 million related to the reduction of the U.S. federal corporate tax rate as a result of the Tax Act.

The Company’s liability for unrecognized tax benefits as of March 31, 20172019 was $14.2$13.8 million, and if recognized, $11.9$12.2 million would have an effective tax rate impact.  The Company estimates that reductions toa $0.2 million decrease in unrecognized tax benefits induring fiscal 20182020 due to lapses in statutes of limitations and audit settlements will total $2.4 million, which, ifsettlements.  If recognized, these reductions would not have a $1.6 millionsignificant 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 20172019 and 2016,2018, interest and penalties included within income tax expense in the consolidated statements of operations were not significant.  At March 31, 2017, $0.8 million of2019 and 2018, accrued interest and penalties were included in the consolidated balance sheet.  At March 31, 2016, accrued interesttotaled $1.1 million and penalties were not significant.$1.0 million, respectively.

The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world.  At March 31, 2017,2019, the Company was under income tax examination in a number of foreign jurisdictions.  The following tax years remain subject to examination for the Company’s major tax jurisdictions:

GermanyFiscal 2011 - Fiscal 20162018
ItalyCalendar 20112014 - Fiscal 20162018
United StatesFiscal 20142016 - Fiscal 20162018

At March 31, 2017, the Company had federal and state tax credits of $27.4 million that, if not utilized against U.S. taxes, will expire between fiscal 2018 and 2037.  The Company also had state and local tax loss carry-forwards of $212.7 million that, if not utilized against state apportioned taxable income, will expire at various times during fiscal 2018 and 2037.  In addition, the Company had tax loss and foreign attribute carry-forwards of $485.0 million in various tax jurisdictions throughout the world.  Certain of the carry-forwards in the U.S. and many in foreign jurisdictions are offset by a valuation allowance.  If not utilized against taxable income, $167.0 million of these carry-forwards will expire at various times during fiscal 2018 through 2037, and $318.0 million, mainly related to Germany, Italy, and India, will not expire due to an unlimited carry-forward period.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

At March 31, 2017,2019, the Company provided $0.3had federal and state tax credits of $60.0 million that, if not utilized against U.S. taxes, will expire between fiscal 2020 and 2039.  The Company also had state and local tax loss carryforwards totaling $129.5 million that, if not utilized against state apportioned taxable income, will expire between fiscal 2020 and 2039.  In addition, the Company had tax loss and foreign attribute carryforwards totaling $351.6 million in various tax jurisdictions throughout the world.  Certain of the carryforwards in the U.S. and in foreign jurisdictions are offset by valuation allowances.  If not utilized against taxable income, $9.7 million of tax on undistributedthese carryforwards will expire between fiscal 2020 and 2034, and $341.9 million, mainly related to Germany and Italy, will not expire due to an unlimited carryforward period.

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 has not recorded foreign withholding taxes or deferred income taxes for certain subsidiaries not considered permanently reinvested.  Undistributed earnings totaling $505.0 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 $7.0 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 8: 
Note 9:Earnings Per Share

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

  Years ended March 31, 
  2017  2016  2015 
Basic:         
Earnings (loss) from continuing operations $14.9  $(1.0) $22.2 
Less: Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Less: Undistributed earnings attributable to unvested shares  (0.2)  -   (0.2)
Earnings (loss) from continuing operations available to Modine shareholders  14.0   (1.6)  21.0 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss) available to Modine shareholders $14.0  $(1.6) $21.6 
             
Weighted-average shares outstanding - basic  47.8   47.3   47.2 
             
Basic Earnings Per Share:            
Earnings (loss) per share - continuing operations $0.29  $(0.03) $0.45 
Earnings per share - discontinued operations  -   -   0.01 
Net earnings (loss) per share - basic $0.29  $(0.03) $0.46 
             
Diluted:            
Earnings (loss) from continuing operations $14.9  $(1.0) $22.2 
Less: Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Less: Undistributed earnings attributable to unvested shares  (0.1)  -   (0.2)
Earnings (loss) from continuing operations available to Modine shareholders  14.1   (1.6)  21.0 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss) available to Modine shareholders $14.1  $(1.6) $21.6 
             
Weighted-average shares outstanding - basic  47.8   47.3   47.2 
Effect of dilutive securities  0.5   -   0.6 
Weighted-average shares outstanding - diluted  48.3   47.3   47.8 
             
Diluted Earnings Per Share:            
Earnings (loss) per share - continuing operations $0.29  $(0.03) $0.44 
Earnings per share - discontinued operations  -   -   0.01 
Net earnings (loss) per share - diluted $0.29  $(0.03) $0.45 
  Years ended March 31, 
  2019  2018  2017 
Basic Earnings Per Share:         
Net earnings attributable to Modine $84.8  $22.2  $14.2 
Less: Undistributed earnings attributable to unvested shares  (0.4)  (0.2)  (0.2)
Net earnings available to Modine shareholders $84.4  $22.0  $14.0 
             
Weighted-average shares outstanding - basic  50.5   49.9   47.8 
             
Net earnings per share - basic $1.67  $0.44  $0.29 
             
Diluted Earnings Per Share:            
Net earnings attributable to Modine $84.8  $22.2  $14.2 
Less: Undistributed earnings attributable to unvested shares  (0.2)  (0.1)  (0.1)
Net earnings available to Modine shareholders $84.6  $22.1  $14.1 
             
Weighted-average shares outstanding - basic  50.5   49.9   47.8 
Effect of dilutive securities  0.8   1.0   0.5 
Weighted-average shares outstanding - diluted  51.3   50.9   48.3 
             
Net earnings per share - diluted $1.65  $0.43  $0.29 

For the years ended March 31,fiscal 2019, 2018 and 2017, 2016, and 2015, the calculation of diluted earnings per share excluded 0.80.4 million, 0.80.2 million, and 0.60.8 million stock options, respectively, because they were anti-dilutive.  For

Note 10:Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash consisted of the year ended March 31, 2016,following:

  March 31, 
  2019  2018 
Cash and cash equivalents $41.7  $39.3 
Restricted cash  0.5   1.0 
Total cash, cash equivalents and restricted cash $42.2  $40.3 

Restricted cash, which is reported within other noncurrent assets on the total numberconsolidated balance sheets, consists primarily of potentially-dilutive securities was 0.4 million.  However, these securities were not included in the computation of diluted net loss per share since to do so would have decreased the loss per share.deposits for contractual guarantees or commitments required for rents, import and export duties, and commercial agreements.

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

Note 9: 
Note 11:Inventories

Inventories consisted of the following:

  March 31, 
  2017  2016 
Raw materials and work in process $127.7  $79.5 
Finished goods  40.8   31.5 
Total inventories $168.5  $111.0 
  March 31, 
  2019  2018 
Raw materials $122.8  $114.4 
Work in process  32.2   34.8 
Finished goods  45.7   42.1 
Total inventories $200.7  $191.3 

Note 10: 
Note 12:Property, Plant and Equipment

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

  March 31, 
  2017  2016 
Land $18.9  $7.2 
Buildings and improvements (10-40 years)  255.6   221.3 
Machinery and equipment (3-12 years)  755.5   694.3 
Office equipment (3-10 years)  92.5   84.1 
Construction in progress  55.1   36.7 
   1,177.6   1,043.6 
Less: accumulated depreciation  (718.6)  (705.0)
Net property, plant and equipment $459.0  $338.6 
  March 31, 
  2019  2018 
Land $20.7  $22.6 
Buildings and improvements (10-40 years)  285.9   295.6 
Machinery and equipment (3-15 years)  848.7   840.8 
Office equipment (3-10 years)  92.0   93.0 
Construction in progress  57.4   50.2 
   1,304.7   1,302.2 
Less: accumulated depreciation  (820.0)  (797.9)
Net property, plant and equipment $484.7  $504.3 

Depreciation expense totaled $67.9 million, $67.0 million, and $54.2 million $48.6 million,for fiscal 2019, 2018, and $50.0 million for the years ended March 31, 2017, 2016, and 2015, respectively.  Gains and losses related to the disposal of property, plant and equipment are recorded inwithin SG&A expenses.  For the years ended March 31,fiscal 2019, 2018, and 2017, 2016, and 2015, total losses related to the disposal of property, plant and equipment were $0.4totaled $0.9 million, $0.4$0.7 million, and $1.1$0.4 million, respectively.

Note 11: 
Note 13:Investment in Affiliate

The Company owns 50 percent of Nikkei Heat Exchanger Company, Ltd. (“NEX”).  The Company accounts for its investment in this non-consolidated affiliate using the equity method.  At March 31, 20172019 and 2016,2018, the Company included its investment in NEX of $3.3$3.8 million and $3.2$3.6 million, respectively, within other noncurrent assets on the consolidated balance sheets.  At March 31, 2017,2019, the investment in NEX is equal to the Company'sCompany’s investment in the underlying net assets.

The Company reports its equity in earnings from NEX within other income and expense in the consolidated statements of operations, using a one-month reporting delay.  The Company’s share of NEX’s earnings for the years ended March 31,fiscal 2019, 2018, and 2017 2016,was $0.7 million, $0.2 million, and 2015 was $0.1 million, $0.1 million, and $0.6 million, respectively.

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

Note 12: 
Note 14:Intangible Assets

Intangible assets consisted of the following:

  March 31, 2017  March 31, 2016 
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
 
Customer relationships $60.5  $(1.7) $58.8  $2.0  $(0.4) $1.6 
Trade names  58.4   (7.2)  51.2   8.9   (6.3)  2.6 
Acquired technology  27.0   (2.9)  24.1   5.5   (1.5)  4.0 
Total intangible assets $145.9  $(11.8) $134.1  $16.4  $(8.2) $8.2 
Intangible assets as of March 31, 2017 include intangible assets related to the Company’s acquisition of Luvata HTS.  See Note 2 for additional information.
  March 31, 2019  March 31, 2018 
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
 
Customer relationships $61.5  $(9.1) $52.4  $64.2  $(5.7) $58.5 
Trade names  58.9   (13.5)  45.4   60.6   (10.8)  49.8 
Acquired technology  23.9   (5.5)  18.4   25.2   (3.6)  21.6 
Total intangible assets $144.3  $(28.1) $116.2  $150.0  $(20.1) $129.9 

The Company recorded $4.1$9.0 million, $1.6$9.7 million, and $1.6$4.1 million of amortization expense during fiscal 2019, 2018, and 2017, 2016, and 2015, respectively.  Estimated futureThe Company estimates that it will record $9.0 million of amortization expense is as follows:in fiscal 2020 and approximately $8.0 million of annual amortization expense in fiscal 2021 through 2024.

Fiscal Year 
Estimated
Amortization
Expense
 
2018 $9.4 
2019  9.2 
2020  9.1 
2021  8.5 
2022  7.4 
2023 & Beyond  90.5 
During fiscal 2018, the BHVAC segment discontinued its geothermal product line and, as a result, recorded a $1.2 million impairment for acquired technology intangible assets it will no longer use.  Annual revenue for this discontinued product line was less than $1.0 million.

Note 13: 
Note 15:Goodwill

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

  Asia  BHVAC  CIS  Total 
Balance, March 31, 2015 $0.5  $15.7  $-  $16.2 
Effect of exchange rate changes  -   (0.4)  -   (0.4)
Balance, March 31, 2016  0.5   15.3   -   15.8 
Acquired Goodwill  -   -   150.6   150.6 
Effect of exchange rate changes  -   (1.6)  0.3   (1.3)
Balance, March 31, 2017 $0.5  $13.7  $150.9  $165.1 
  VTS  CIS  BHVAC  Total 
Balance, March 31, 2017 $0.5  $150.9  $13.7  $165.1 
Acquired goodwill (a)  -   1.3   -   1.3 
Effect of exchange rate changes  -   6.1   1.3   7.4 
Balance, March 31, 2018  0.5   158.3   15.0   173.8 
Effect of exchange rate changes  -   (4.4)  (0.9)  (5.3)
Balance, March 31, 2019 $0.5  $153.9  $14.1  $168.5 

As a result of its acquisition of Luvata HTS, the Company recorded $150.6 million of goodwill.  See Note 2 for additional information.
(a)Represents measurement-period adjustments related to the Company’s acquisition of Luvata HTS.  See Note 2 for additional information about this acquisition.

The Company assesses goodwill for impairment annually, or more frequently if events or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below its carrying value.  The Company conducted its annual assessment for goodwill impairment during the fourth quarter of fiscal 20172019 for the reporting units within its BHVACVTS, CIS, and AsiaBHVAC segments, by applying a fair value-based test, and determined that the fair value of its reporting units exceeded their respective book values.  The Company will perform goodwill impairment testing for its recently-acquired CIS segment beginning in fiscal 2018.

At both March 31, 20172019 and 2016,2018, accumulated goodwill impairment losses totaled $31.6 million and $8.7$40.3 million within the Americas and Europe segments, respectively.VTS segment.

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

Note 14: 
Note 16:Product Warranties, Operating Leases, and Other Commitments

Product warranties: Most of the Company’s products are covered under a warranty period ranging from one to five years.  The Company records a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience.  In addition, the Company adjusts its warranty accruals if it becomes probable that expected claims will differ from initial estimates.

Changes in accrued warranty costs were as follows:

  Years ended March 31, 
  2017  2016 
Beginning balance $8.3  $10.4 
Warranties recorded at time of sale  5.2   5.7 
Adjustments to pre-existing warranties  0.3   (1.1)
Additions due to acquisition  4.1   - 
Settlements  (7.6)  (6.7)
Effect of exchange rate changes  (0.3)  - 
Ending balance $10.0  $8.3 
  Years ended March 31, 
  2019  2018 
Beginning balance $9.3  $10.0 
Warranties recorded at time of sale  5.5   6.7 
Adjustments to pre-existing warranties  2.2   (0.8)
Adjustments due to acquisition (a)  -   (1.0)
Settlements  (7.3)  (6.2)
Effect of exchange rate changes  (0.5)  0.6 
Ending balance $9.2  $9.3 

(a)During fiscal 2018, the Company decreased its liability for product warranties by $1.0 million as a result of measurement-period adjustments made in connection with purchase accounting for the acquisition of Luvata HTS.  See Note 2 for additional information about this acquisition.

Operating leases: The Company leases various facilities and equipment under operating leases.  Rental expense for these leases totaled $12.8$19.3 million, $11.9$18.5 million, and $11.5$12.8 million in fiscal 2019, 2018, and 2017, 2016, and 2015, respectively.

Future minimum rental commitments at March 31, 20172019 under non-cancelable operating leases were as follows:

Fiscal Year   
2018 $12.2 
2019  10.1 
2020  9.1 
2021  7.8 
2022  5.4 
2023 and beyond  24.7 
Total $69.3 
Fiscal Year   
2020 $14.2 
2021  12.4 
2022  9.1 
2023  7.1 
2024  4.7 
2025 and beyond  22.9 
Total $70.4 

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, 20172019 was not material.

Commitments: At March 31, 2017,2019, the Company had capital expenditure commitments of $18.1$23.6 million.  Significant commitments include tooling and equipment expenditures for new and renewal programs with customers in the Americas, Asia, and Europe segments.VTS segment.  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.

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

Note 15: 
Note 17:Indebtedness

In November 2016,Long-term debt consisted of the Company entered into new credit agreements to fund a significant portion of its acquisition of Luvata HTS (see Note 2 for additional information).  following:

  
Fiscal year
of maturity
  March 31, 2019  March 31, 2018 
          
Term loans 2022  $238.4  $267.8 
6.8% Senior Notes 2021   85.0   101.0 
5.8% Senior Notes 2027   50.0   50.0 
Other (a) -   14.3   12.8 
       387.7   431.6 
Less: current portion      (48.6)  (39.9)
Less: unamortized debt issuance costs   (4.0)  (5.4)
Total long-term debt     $335.1  $386.3 

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

Long-term debt matures as follows:

Fiscal Year   
2020 $48.6 
2021  101.3 
2022  187.4 
2023  8.8 
2024  8.8 
2025 & beyond  32.8 
Total $387.7 

The Company executed an amended and restatedmaintains a credit agreement with a syndicate of banks that provides for both U.S. dollar- and euro-denominated term loan facilities and a multi-currency $175.0 million revolving credit facility expiring in November 2021, which replaced the Company’s then-existing revolver that would have expired in August 2018.2021.  Based upon the terms of the credit agreement and currency denomination, borrowings under both the term loans and revolving credit facility bear interest at a variable rate, primarily either the London Interbank Offered Rate (“LIBOR”) or Euro Interbank Offered Rate (“EURIBOR”), plus 137.5 to 250 basis points (3.0 percent weighted-average at March 31, 2017) depending on the Company’s leverage ratio, as described below.  At March 31, 2017,2019, the Company’sweighted-average interest rates for the outstanding term loanloans and the revolving credit facility borrowings totaled $268.9 million, with repayments scheduled through fiscal 2022.  Also in November 2016, the Company issued $50.0 million of 5.8were 3.3 percent Senior Notes with repayments ending in fiscal 2027.and 3.7 percent, respectively.

Long-term debt consisted of the following:

 
Fiscal year
of maturity
  March 31, 2017  March 31, 2016 
           
Term Loans  2022  $268.9  $- 
6.8% Senior Notes  2021   117.0   125.0 
5.8% Senior Notes  2027   50.0   - 
Other (a)  2032   8.3   9.0 
       444.2   134.0 
Less: current portion      (31.8)  (8.5)
Less: unamortized debt issuance costs      (6.7)  - 
Total long-term debt     $405.7  $125.5 
(a)Other long-term debt includes capital lease obligations and other financing-type obligations.
Long-term debt matures as follows:

Fiscal Year   
2018 $31.8 
2019  38.6 
2020  43.8 
2021  98.3 
2022  184.1 
2023 & beyond  47.6 
Total $444.2 

At March 31, 2017,2019 and 2018, the Company reported its revolving credit facility borrowings of $40.4$47.1 million and $21.3 million, respectively, as short-term debt on the consolidated balance sheet.sheets.  At March 31, 2017,2019, domestic letters of credit totaled $2.0$4.3 million, resulting in available borrowings under the Company’s revolving credit facility of $132.6$123.6 million.  The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings at March 31, 20172019 and 20162018 of $33.0$18.9 million and $28.6$31.9 million, respectively.  At March 31, 2017, the Company’s foreign unused lines of credit totaled $20.0 million.  In aggregate, the Company had total available lines of credit of $152.6 million at March 31, 2017.

Provisions in the Company’s amended and restated credit 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 debt agreements in the U.S., the Company has provided liens on substantially all domestic assets.  In addition, the term loans require prepayments, as definedspecified in the credit agreement, the term loans may require prepayments in the event the Company’s annual excess cash flow exceeds defined levels, depending upon the Company’s leverage ratio, or in the event of certain asset sales.  The Company is also subject to a leverage ratio covenant,covenants, the most restrictive of which requires the Company to limit its consolidated indebtedness, less a portion of its 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”).  As permitted by the credit agreements and in connection with the Company’s acquisition of Luvata HTS, this leverage ratio covenant limit has been temporarily raised to no more than three and three-quarters times Adjusted EBITDA through the second quarter of fiscal 2018, and thereafter to no more than three and one-half times Adjusted EBITDA through the first quarter of fiscal 2019.  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.  The Company was in compliance with its debt covenants as of March 31, 2017.2019.

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

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, 20172019 and 2016,2018, the carrying value of Modine’sthe Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of approximately $170.0$137.2 million and $139.0$153.1 million, respectively.  The fair value of the Senior Notes areCompany’s long-term debt is categorized as Level 2 within the fair value hierarchy.  Refer to Note 34 for the definition of a Level 2 fair value measurement.

Note 16: 
Note 18:Pension and Employee Benefit Plans

Defined Contribution Employee Benefit 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 employeetheir compensation during fiscal 2017, 2016, and 2015 related to its primary domestic 401(k) plans.  The Company also makes annual employer contributions into eligible active employee accounts based upon a percentage of employee compensation.  Employees can choose among various investment alternatives, including (subject to restrictions) Modine stock.  The Company’s matching contributions and annual employer contributions are discretionary.for participants.  The Company’s expense for defined contribution employee benefit plans during fiscal 2019, 2018, and 2017 2016, and 2015 was $4.7$6.4 million, $4.6$5.2 million, and $5.9$4.7 million, respectively.

In addition, the Company maintains non-qualified deferred compensation plans for eligible employees, and various non-U.S. subsidiaries have government-required defined contribution plans in place, under which they contribute a percentage of employee earnings into accounts, consistent with local laws.

Statutory Termination Plans:

Certain non-U.S. subsidiaries have statutory termination indemnity plans covering eligible employees.  The benefits under these plans are based upon years of service and final average compensation levels or a monthly retirement benefit amount.  These programs are all substantially unfunded in accordance with local laws, but are often covered by national obligatory umbrella insurance programs that protect employees from losses in the event that an employer defaults on its obligations.laws.

Defined Benefit Employee Benefit Plans:

Pension plans: As a result of its acquisition of Luvata HTS, the Company acquired defined benefit pension plans in Italy, Austria, and the U.S. with liabilities totaling $14.3 million, representing the aggregate funded status of these acquired plans.  These acquired plans are closed to new participants.

In addition, theThe 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 upon years of service and average compensation for salaried and some hourly employees.  Benefits for other hourly employees are based upon a monthly retirement benefit amount.  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.

The Company contributed $8.1$8.0 million, $6.7$13.4 million, and $5.9$8.1 million to its U.S. pension plans during fiscal 2019, 2018, and 2017, 2016,respectively.  In addition, the Company contributed $5.9 million, $2.6 million, and 2015,$1.4 million to its non-U.S. pension plans during fiscal 2019, 2018, and 2017, 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 offered a voluntary lump-sum payout program to certain eligible former employees.  Approximately 2,000 participants accepted the lump-sum settlement offer and a total of $65.3 million was paid from pension plan assets during fiscal 2016, which reduced the Company’s pension obligation by the same amount.  In connection with these lump-sum payouts, the Company recorded $42.1 million of non-cash settlement losses related to the accelerated recognition of unamortized actuarial losses previously recorded on the consolidated balance sheets within accumulated other comprehensive loss.  During fiscal 2016, the Company recorded $33.3 million and $8.8 million of settlement losses as SG&A expenses and cost of sales, respectively, within the consolidated statements of operations.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Postretirement plans: The Company provides selected healthcare and life insurance benefits for eligible retired domestic employees.  The Company periodically amends these unfunded plans to change the contribution rate of retirees and the amounts and forms of coverage.  An annual limit on the Company’s cost is defined for the majority of these plans.  The Company’s net periodic income for its postretirement plans during fiscal 2017, 2016,2019, 2018, and 20152017 was $0.3 million, $0.2 million, and $0.3 million, and $0.1 million, respectively.

Measurement Date:date:  The Company uses March 31 as the measurement date for its pension and postretirement plans.

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, 2017 and 2016 were as follows:

  2017  2016 
Change in benefit obligation:      
Benefit obligation at beginning of year $261.0  $328.2 
Service cost  0.6   0.6 
Interest cost  9.8   11.2 
Actuarial gain  (0.5)  (2.8)
Benefits paid (a)  (19.8)  (78.1)
Acquired obligations (b)  20.3   - 
Effect of exchange rate changes  (1.6)  1.9 
Benefit obligation at end of year $269.8  $261.0 
         
Change in plan assets:        
Fair value of plan assets at beginning of year $141.5  $217.0 
Actual return on plan assets  11.0   (5.3)
Benefits paid (a)  (19.8)  (78.1)
Employer contributions  9.5   7.9 
Acquired plan assets (b)  6.0   - 
Fair value of plan assets at end of year $148.2  $141.5 
Funded status at end of year $(121.6) $(119.5)
         
Amounts recognized in the consolidated balance sheets:        
Current liability $(2.2) $(0.9)
Noncurrent liability  (119.4)  (118.6)
  $(121.6) $(119.5)
  Years ended March 31, 
  2019  2018 
Change in benefit obligation:      
Benefit obligation at beginning of year $273.6  $269.8 
Service cost  0.5   0.5 
Interest cost  9.6   9.9 
Actuarial loss  1.7   4.4 
Benefits paid  (22.8)  (16.9)
Curtailment gain (a)  -   (0.3)
Effect of exchange rate changes  (3.8)  6.2 
Benefit obligation at end of year $258.8  $273.6 
         
Change in plan assets:        
Fair value of plan assets at beginning of year $157.7  $148.2 
Actual return on plan assets  6.3   10.4 
Benefits paid  (22.8)  (16.9)
Employer contributions  13.9   16.0 
Fair value of plan assets at end of year $155.1  $157.7 
Funded status at end of year $(103.7) $(115.9)
         
Amounts recognized in the consolidated balance sheets:        
Current liability $(2.0) $(6.3)
Noncurrent liability  (101.7)  (109.6)
  $(103.7) $(115.9)

 (a)InDuring fiscal 2016, $65.3 million was paid from plan assets2018, the Company recorded a pension curtailment gain associated with the closure of a manufacturing facility in connection with lump-sum payouts.Austria (CIS segment).  See Note 6 for additional information regarding the closure of this facility.
(b)As a result of its acquisition of Luvata HTS, the Company acquired pension plans in Italy, Austria and the U.S.  See Note 2 for additional information.

As of March 31, 2019, 2018, and 2017, the benefit obligation associated with the Company’s non-U.S. pension plans totaled $36.5 million, $43.4 million, and $39.3 million respectively.  In fiscal 2019, the $6.9 million decrease primarily resulted from employer contributions of $5.9 million for benefits paid to plan participants during the year and the impact of foreign currency exchange rate changes, partially offset by service and interest cost totaling $1.1 million.  In fiscal 2018, the $4.1 million increase primarily resulted from the impact of foreign currency exchange rate changes and service and interest cost totaling $1.3 million, partially offset by $2.6 million of benefits paid to plan participants.

The accumulated benefit obligation for pension plans was $266.8$256.9 million and $257.9$271.8 million as of March 31, 20172019 and 2016,2018, respectively.  The net actuarial loss related to the pension plans recognized in accumulated other comprehensive loss was $156.8$159.1 million and $162.0$157.9 million as of March 31, 20172019 and 2016,2018, respectively.

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 for the fiscal years ended March 31, 2017, 2016, and 2015:components:

  2017  2016  2015 
Components of net periodic benefit cost:         
Service cost $0.6  $0.6  $0.5 
Interest cost  9.8   11.2   13.0 
Expected return on plan assets  (12.3)  (14.9)  (16.7)
Amortization of net actuarial loss  5.6   6.4   5.5 
Settlements (a)  -   42.1   - 
Net periodic benefit cost $3.7  $45.4  $2.3 
             
Other changes in benefit obligation recognized in other comprehensive loss (income):            
Net actuarial loss $1.0  $17.5  $46.4 
Amortization of net actuarial loss (a)  (5.6)  (48.5)  (5.5)
Total recognized in other comprehensive (income) loss $(4.6) $(31.0) $40.9 
  Years ended March 31, 
  2019  2018  2017 
Components of net periodic benefit cost:         
Service cost $0.5  $0.5  $0.6 
Interest cost  9.6   9.9   9.8 
Expected return on plan assets  (12.3)  (11.9)  (12.3)
Amortization of net actuarial loss  5.6   5.6   5.6 
Settlements (a)  0.2   0.3   - 
Curtailment gain (a)  -   (0.3)  - 
Net periodic benefit cost $3.6  $4.1  $3.7 
             
Other changes in benefit obligation recognized in other comprehensive income (loss):
            
Net actuarial loss $(7.7) $(5.8) $(1.0)
Amortization of net actuarial loss  5.8   5.9   5.6 
Total recognized in other comprehensive income (loss) $(1.9) $0.1  $4.6 

(a)During fiscal 2016, in connectionThe settlement charges and curtailment gain resulted from activity associated with lump-sum payouts tothe Company’s non-U.S. pension plan participants, the Company recorded $42.1 million of settlement losses, which were previously recorded in accumulated other comprehensive loss.plans.

The Company amortized $5.6 million of net actuarial loss in fiscal 2019, 2018, and 2017.  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$6.0 million of net actuarial loss for its pension plans will be amortized from accumulated other comprehensive loss into net periodic benefit cost during fiscal 2018.2020.  The fiscal 2020 estimated amortization includes less than $1.0 million related to the Company’s non-U.S. pension plans.

The Company used a discount rate of 4.1%4.0% as of both March 31, 20172019 and 20162018 for determining its benefit obligations under its U.S. pension plans. The Company used a weighted-average discount rate of 1.7%1.4% and 1.8%1.7% as of March 31, 20172019 and 2016,2018, respectively, infor determining its benefit obligations under its non-U.S. pension plans.  The Company used a discount rate of 4.1%4.0%, 4.3%4.1%, and 4.7%4.1% to determine its costs under its U.S. pension plans for the fiscal years ended March 31,2019, 2018, and 2017, 2016, and 2015, respectively.  The Company used a weighted-average discount rate of 1.7%1.9%, 1.3%1.9%, and 3.0%1.7% to determine its costs under its non-U.S. pension plans for the fiscal years ended March 31,2019, 2018, and 2017, 2016, and 2015, 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, 2017 and 2016 were as follows:

  
Target allocation as
of March 31, 2017
  Plan assets 
     2017  2016 
Equity securities  60%  58%  56%
Debt securities  38%  38%  36%
Cash  2%  4%  4%
Alternative assets  -   -   4%
   100%  100%  100%
  March 31, 2019  March 31, 2018 
  Target allocation  Plan assets  Target allocation  Plan assets 
Equity securities  65%  66%  60%  58%
Debt securities  21%  19%  38%  38%
Real estate investments  13%  12%  -   - 
Cash and cash equivalents  1%  3%  2%  4%
   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, 20172019 and 2016,2018, the Company’s pension plans did not directly own shares of Modine common stock.

The Company employs a total return investment approach, whereby a mix of equities and fixed-income investments are used to maximize the long-term 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.

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

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 2017, 2016,2019, 2018, and 20152017 U.S. pension plan expense, the expected rate of return on plan assets was 7.5 percent, 7.5 percent and 8.0 percent.percent, respectively.  For fiscal 20182020 U.S. pension plan expense, the Company has assumed a rate of return on plan assets of 7.5 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 $13.1contribute approximately $3.0 million to these plans during fiscal 2018.2020.

Estimated pension benefit payments for the next ten fiscal years are as follows:

Fiscal Year 
Estimated Pension
Benefit Payments
 
2018 $17.1 
2019  16.4 
2020  17.0 
2021  17.1 
2022  17.6 
2023-2027  90.4 
Fiscal Year
 
Estimated Pension
Benefit Payments
 
2020 $16.0 
2021  16.0 
2022  16.4 
2023  16.4 
2024  16.6 
2025-2029  82.0 

Note 17: 
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.  In fiscal 2019 and 2018, the Company designated certain commodity forward contracts 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 accumulated other comprehensive income (loss) (“AOCI”) within shareholders’ equity and subsequently recognizes the gains and losses within cost of sales as the underlying inventory is sold.  The Company hasdid not designateddesignate commodity contracts entered into in fiscal 2017 2016, and 2015 for hedge accounting.  Accordingly, unrealized gains and losses on thesethose contracts arewere recorded within cost of sales.

Foreign exchange contracts: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.  In fiscal 2019 and 2018, the Company designated 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.

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, 2017  March 31, 2016 
Commodity derivativesOther current assets $0.7  $- 
Commodity derivativesOther current liabilities  -   0.1 
Foreign exchange contractsOther current assets  0.2   0.1 

 Balance Sheet Location March 31, 2019  March 31, 2018 
Derivatives designated as hedges:        
Commodity derivatives Other current assets $0.6  $0.1 
Commodity derivatives Other current liabilities  0.3   - 
Foreign exchange contracts Other current assets  0.2   0.1 
           
Derivatives not designated as hedges:          
Commodity derivatives Other current liabilities $-  $0.2 
Foreign exchange contracts Other current assets  -   0.2 
Foreign exchange contracts Other current liabilities  0.5   0.6 

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

 Statement of Operations Years ended March 31, 
Location 2017  2016  2015 
Commodity derivativesCost of sales $0.5  $(0.7) $(0.2)
Foreign exchange contractsOther income (expense) - net  1.3   0.6   (1.1)
Total gains (losses)  $1.8  $(0.1) $(1.3)
  
Gain (loss) recognized in
other comprehensive income
 
Statement of
Operations
 
Gain (loss) reclassified
from AOCI
 
  2019  2018  2017 Location 2019  2018  2017 
Commodity derivatives $(0.3) $0.2  $- Cost of sales $(0.4) $-  $- 
Foreign exchange contracts  (0.4)  0.1   - Net sales  (0.4)  0.1   - 
Foreign exchange contracts  1.0   -   - Cost of sales  0.6   -   - 
Total gains (losses) $0.3  $0.3  $-   $(0.2) $0.1  $- 

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 2019  2018  2017 
Commodity derivatives Cost of sales $-  $0.4  $0.5 
Foreign exchange contracts Net sales  (0.7)  (0.1)  - 
Foreign exchange contracts Other income (expense) - net  (0.3)  (0.5)  1.3 
Total gains (losses)   $(1.0) $(0.2) $1.8 

67
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 18: 
Note 20:Contingencies and Litigation

Market risk:  Risk
The Company sells a broad range of products that provide thermal solutions to customers operating primarily in the automotive, commercial vehicle, construction, agricultural,off-highway, and commercial, industrial, and building HVAC&R markets.  The Company operates in diversified markets as a strategy for offsetting the risk associated with a downturn in any one or more of the markets it serves.  The Company pursues new market opportunities after careful consideration of the potential associated risks and benefits.  However, the risk associated with market downturns is still 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 2019, 2018, and 2017, 2016 and 2015, two VTS segment customers each accounted for ten percent or more of the Company’s total sales.  Sales to the Company’s top ten customers representedwere 50 percent, 48 percent, and 54 percent of total sales in fiscal 2019, 2018, and 2017, and 63 percent of total sales in both fiscal 2016 and 2015.respectively.  At March 31, 20172019 and 2016, 352018, 38 percent and 4536 percent, respectively, of the Company'sCompany’s trade accounts receivable were due from the Company'sCompany’s top ten customers.  These customers operate primarily in the automotive, truck,commercial vehicle, off-highway, data center cooling and heavy equipmentcommercial air conditioning markets, andwhich are influenced by similar market and general economic factors.  Collateral or advanced payments are generally not required.  The Company has not experienced significant credit losses to customers in the markets served.

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;
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;
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
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.
Insurance – ensuring that insurance providers maintain financial ratings that are acceptable to the Company.

Counterparty risks:  Risk
The Company manages counterparty risksrisk through its focus on the following:

·Customers – performing thorough reviews of customer credit reports and accounts receivable aging reports by internal credit committees;
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
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.
Derivatives – ensuring that counterparties to derivative instruments maintain credit ratings that are acceptable to the Company.

Environmental: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.

As a result of its acquisition of Luvata HTS in fiscal 2017, the Company assumed certain environmental obligations.  The Company has recorded environmental accruals related to these matters, the most significant of which relates to historical soil and groundwater contamination remediation and monitoring for a manufacturing site in the United States.  In addition, the Company has recorded environmental investigation and remediation accruals related to subsurfacesoil and groundwater contamination at manufacturing facilities in the United States, one of which the Company currently owns and operates, and at its former manufacturing facility in the Netherlands, investigative work related to a previously-owned manufacturing facility in the United States, and groundwater contamination at its manufacturing facility in Brazil, along with accruals for lesser environmental matters at certain other facilities in the United States.States and Brazil.  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 $16.8$18.9 million and $5.1$16.7 million at March 31, 20172019 and 2016,2018, respectively.  As additional information becomes available, the Company will re-assess the liabilities related to these matters and revise the estimated accruals, if necessary.  Based upon 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Brazil antitrust investigation:  During fiscal 2015, Brazil’s Administrative Council for Economic Defense (CADE) provided formal notice to the Company’s subsidiary in Brazil (“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, the Company accrued $2.8 million (BRL 10 million) related to this matter.  During fiscal 2017, the Company increased its accrual and reached agreement with CADE to settle the matter for $4.7 million (BRL 15 million).  As a result, the Company recorded a charge of $1.6 million (BRL 5 million) within SG&A expenses during fiscal 2017.  The Company expects to remit payment for the settlement in early fiscal 2018.

Other litigation: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.  In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits or proceedings are not expected to have a material adverse effect on the Company’s consolidated financial statements.position.

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

Note 19: 
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, 2016 $(36.0) $(138.2) $(174.2)
             
Other comprehensive income (loss) before reclassifications  (10.8)  (0.3)  (11.1)
Reclassifications for amortization of unrecognized net loss (a)  -   5.2   5.2 
Income taxes  -   (1.7)  (1.7)
Total other comprehensive income (loss)  (10.8)  3.2   (7.6)
             
Balance, March 31, 2017 $(46.8) $(135.0) $(181.8)
  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  
Cash Flow
Hedges
  Total 
Balance, March 31, 2018 $(5.5) $(134.9) $0.1  $(140.3)
                 
Other comprehensive income (loss) before reclassifications  (37.9)  (7.1)  0.3   (44.7)
Reclassifications:                
Amortization of unrecognized net loss (a)  -   5.4   -   5.4 
Foreign currency translation losses (b)  0.8   -   -   0.8 
Realized losses - net (c)  -   -   0.2   0.2 
Income taxes  -   0.3   (0.1)  0.2 
Total other comprehensive income (loss)  (37.1)  (1.4)  0.4   (38.1)
                 
Balance, March 31, 2019 $(42.6) $(136.3) $0.5  $(178.4)
                 
  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  
Cash Flow
Hedges
  Total 
Balance, March 31, 2017 $(46.8) $(135.0) $-  $(181.8)
                 
Other comprehensive income (loss) before reclassifications  41.3   (5.7)  0.3   35.9 
Reclassifications:                
Amortization of unrecognized net loss (a)  -   5.6   -   5.6 
Realized gains - net (c)  -   -   (0.1)  (0.1)
Income taxes  -   0.2   (0.1)  0.1 
Total other comprehensive income  41.3   0.1   0.1   41.5 
                 
Balance, March 31, 2018 $(5.5) $(134.9) $0.1  $(140.3)

  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  Total 
Balance, March 31, 2015 $(40.7) $(157.9) $(198.6)
             
Other comprehensive income (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)

(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 1618 for additional information about the Company’s pension plans.
(b)As a result of the sale of a business in South Africa during fiscal 2019, the Company wrote-off $0.8 million of accumulated foreign currency translation losses.  See Note 1 for additional information about this transaction.
(c)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.

69
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 20: 
Note 22:Segment and Geographic Information

The Company’s product lines consist of heat-transfer components and systems.  The Company serves vehicular and commercial, industrial, and building HVAC&R markets.  In November 2016, the Company acquired Luvata HTS and, commencing from the acquisition date, has operated and reported results for the acquired business as its Commercial and Industrial Solutions (“CIS”)CIS segment.  See Note 2 for additional information regarding the Luvata HTS acquisition.

The Company’sEffective April 1, 2018, the Company formed the VTS segment by combining its Americas, Europe, and Asia operations to enable it to operate as a more global, product-based organization.  The Company also merged its Americas coils business into the CIS segment to accelerate operational improvements and organizational efficiencies.  The Company began reporting financial results for its new segments representbeginning in fiscal 2019.  Segment financial information for fiscal 2018 and 2017 has been recast to conform to the fiscal 2019 presentation.

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

The Company’s VTS segment represents its vehicular businessesbusiness and primarily serveserves the automotive, commercial vehicle, and off-highway markets.  In addition, the AmericasVTS segment serves the automotive and commercial vehicle aftermarket in Brazil and provides coils to the commercial HVAC&R market in North America.Brazil.  The Company’s CIS segment provides coils, coolers, and coating solutions to customers throughout the world.  The Company’s BHVAC segment provides heating, ventilating and air conditioning products to customers throughout the world.

Each operating segment is managed by a vice president and has separate financial results reviewed by the Company’s chief operating decision maker.  These results are used by management in evaluating the performance of each segment and in making decisions on the allocation of resources among the Company’s various businesses.

The following is a summary of net sales, gross profit, and operating income by segment:

  Years ended March 31, 
Net sales: 2017  2016  2015 
Americas $534.0  $585.5  $666.9 
Europe  524.3   524.1   578.2 
Asia  111.5   79.0   81.2 
CIS  177.7   -   - 
BHVAC  171.6   181.4   186.3 
Segment total  1,519.1   1,370.0   1,512.6 
Corporate and eliminations  (16.1)  (17.5)  (16.2)
Net sales $1,503.0  $1,352.5  $1,496.4 

  Years ended March 31, 
  2017  2016  2015 
Gross profit: $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
 
Americas $86.6   16.2% $100.1   17.1% $109.1   16.3%
Europe  80.9   15.4%  68.1   13.0%  68.7   11.9%
Asia  18.7   16.8%  12.2   15.5%  11.5   14.2%
CIS  26.0   14.6%  -   -   -   - 
BHVAC  47.8   27.8%  54.2   29.9%  55.9   30.0%
Segment total  260.0   17.1%  234.6   17.1%  245.2   16.2%
Corporate and eliminations (a)  (6.7)  -   (11.1)  -   1.3   - 
Gross profit $253.3   16.9% $223.5   16.5% $246.5   16.5%
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
 Years ended March 31, 
Operating income: 2017  2016  2015 
Americas $26.7  $36.2  $33.4 
Europe  37.1   13.3   25.7 
Asia  7.7   0.8   0.3 
CIS  7.5   -   - 
BHVAC  13.1   13.9   19.1 
Segment total  92.1   64.2   78.5 
Corporate and eliminations (a)  (52.7)  (71.7)  (25.8)
Operating income (loss) $39.4  $(7.5) $52.7 

(a)During fiscal 2017, the Company recorded $14.8 million of costs incurred directly related to the acquisition and integration of Luvata HTS within SG&A expenses at Corporate.  In addition, as a result of purchase accounting for the Luvata HTS acquisition, the Company wrote up acquired inventory to its estimated fair value and charged the write-up to cost of sales as the underlying inventory was sold.  The Company recorded $4.3 million in cost of sales related to this inventory step-up at Corporate, as the impact of this purchase accounting adjustment is excluded from the Company’s measure of segment operating performance.  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 16 for additional information about the Company’s pension plans.
  Year ended March 31, 2019 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:         
VTS $1,298.9  $52.8  $1,351.7 
CIS  704.7   2.9   707.6 
BHVAC  209.1   3.3   212.4 
Segment total  2,212.7   59.0   2,271.7 
Corporate and eliminations  -   (59.0)  (59.0)
Net sales $2,212.7  $-  $2,212.7 
             
  Year ended March 31, 2018 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:            
VTS $1,239.3  $56.4  $1,295.7 
CIS  674.4   1.3   675.7 
BHVAC  189.4   1.8   191.2 
Segment total  2,103.1   59.5   2,162.6 
Corporate and eliminations  -   (59.5)  (59.5)
Net sales $2,103.1  $-  $2,103.1 
             
  Year ended March 31, 2017 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:            
VTS $1,099.9  $52.3  $1,152.2 
CIS  231.5   0.3   231.8 
BHVAC  171.6   -   171.6 
Segment total  1,503.0   52.6   1,555.6 
Corporate and eliminations  -   (52.6)  (52.6)
Net sales $1,503.0  $-  $1,503.0 

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.  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.

The following is a summary of total assets by segment:

  March 31, 
  2017  2016 
Americas $282.9  $267.2 
Europe  269.4   301.9 
Asia  111.3   104.0 
CIS  576.0   - 
BHVAC  85.2   99.0 
Corporate and eliminations  124.7   148.8 
Total assets $1,449.5  $920.9 

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

  Years ended March 31, 
Capital expenditures: 2017  2016  2015 
Americas $26.3  $26.7  $30.2 
Europe  24.7   24.8   21.5 
Asia  8.5   6.2   3.8 
CIS  3.4   -   - 
BHVAC  1.5   5.1   2.8 
Total capital expenditures $64.4  $62.8  $58.3 
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

  Years ended March 31, 
Depreciation and amortization expense: 2017  2016  2015 
Americas $22.7  $22.1  $21.3 
Europe  16.5   18.0   19.8 
Asia  7.0   6.5   7.2 
CIS  7.9   -   - 
BHVAC  4.2   3.6   3.3 
Total depreciation and amortization expense $58.3  $50.2  $51.6 
  Years ended March 31, 
  2019  2018  2017 
Gross profit: $’s  
% of
sales
  $’s  
% of
sales
  $’s  % of
sales		 
VTS $186.9   13.8% $201.0   15.5% $182.0   15.8%
CIS  114.9   16.2%  97.8   14.5%  32.2   13.9%
BHVAC  63.4   29.9%  58.0   30.3%  47.8   27.8%
Segment total  365.2   16.1%  356.8   16.5%  262.0   16.8%
Corporate and eliminations (a)  0.3   -   (0.3)  -   (7.6)  - 
Gross profit $365.5   16.5% $356.5   17.0% $254.4   16.9%

  Years ended March 31, 
Operating income: 2019  2018  2017 
VTS $64.8  $84.2  $68.4 
CIS  53.4   28.5   10.9 
BHVAC  26.9   20.3   13.2 
Segment total  145.1   133.0   92.5 
Corporate and eliminations (a)  (35.4)  (40.8)  (50.2)
Operating income $109.7  $92.2  $42.3 

(a)During fiscal 2018 and 2017, the Company recorded $4.3 million and $14.8 million, respectively, of costs incurred directly related to the acquisition and integration of Luvata HTS within SG&A expenses at Corporate.  During fiscal 2017, the Company recorded $4.3 million in cost of sales related to an inventory purchase accounting adjustment at Corporate, as the impact was excluded from the Company’s measure of segment operating performance.  In addition, 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.

The following is a summary of total assets by segment:

  March 31, 
  2019  2018 
VTS $749.9  $754.8 
CIS  604.2   630.2 
BHVAC  89.4   88.1 
Corporate and eliminations  94.5   100.3 
Total assets $1,538.0  $1,573.4 

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

  Years ended March 31, 
Capital expenditures: 2019  2018  2017 
VTS $56.2  $61.4  $59.5 
CIS  16.4   9.0   3.4 
BHVAC  1.3   0.6   1.5 
Total capital expenditures $73.9  $71.0  $64.4 

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

  Years ended March 31, 
Depreciation and amortization expense: 2019  2018  2017 
VTS $49.5  $48.2  $46.2 
CIS  23.9   24.3   7.9 
BHVAC  3.5   4.2   4.2 
Total depreciation and amortization expense $76.9  $76.7  $58.3 

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

  Years ended March 31, 
  2017  2016  2015 
United States $657.8  $627.6  $669.3 
Hungary  145.6   145.9   161.0 
Germany  130.1   155.3   193.8 
Austria  125.2   113.1   118.7 
Italy  94.4   44.1   40.6 
Other  349.9   266.5   313.0 
Net sales $1,503.0  $1,352.5  $1,496.4 
  Years ended March 31, 
  2019  2018  2017 
United States $1,032.3  $911.4  $657.8 
Italy  217.3   211.5   94.4 
China  172.1   156.0   73.7 
Hungary  165.6   153.9   145.6 
Germany  123.1   132.6   130.1 
Austria  116.2   151.7   125.2 
Other  386.1   386.0   276.2 
Net sales $2,212.7  $2,103.1  $1,503.0 

The following is a summary of property, plant and equipment by geographical area:

  March 31, 
  2017  2016 
United States $124.7  $92.5 
Italy  55.8   20.3 
Mexico  47.0   30.9 
Austria  44.3   44.2 
China  40.0   33.6 
Hungary  37.7   31.4 
Germany  28.9   32.1 
Other  80.6   53.6 
Total property, plant and equipment $459.0  $338.6 

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

  Years ended March 31, 
  2017  2016  2015 
Automotive $461.0  $396.8  $401.8 
Commercial vehicle  382.5   459.8   512.5 
Off-highway  202.8   206.2   274.6 
HVAC&R  400.9   232.1   229.6 
Other  55.8   57.6   77.9 
Net sales $1,503.0  $1,352.5  $1,496.4 
  March 31, 
  2019  2018 
United States $117.7  $121.5 
China  57.6   49.6 
Mexico  56.3   49.4 
Hungary  55.3   59.3 
Italy  52.4   62.0 
Austria  36.9   42.8 
Germany  32.8   37.2 
Other  75.7   82.5 
Total property, plant and equipment $484.7  $504.3 

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

Note 21:  The following is a summary of net sales by end market:

  Years ended March 31, 
  2019  2018  2017 
Commercial HVAC&R $674.0  $648.3  $323.8 
Automotive  542.8   526.0   461.0 
Commercial vehicle  387.6   381.7   382.5 
Off-highway  314.1   271.2   202.8 
Data center cooling  187.0   137.6   57.1 
Industrial cooling  47.8   67.6   18.6 
Other  59.4   70.7   57.2 
Net sales $2,212.7  $2,103.1  $1,503.0 

Note 23:Quarterly Financial Data (Unaudited)

QuarterlyThe following is a summary of quarterly financial data is summarized below for the years ended March 31, 2017 and 2016:data:

  Fiscal 2017 quarters ended    
  June  Sept.  Dec.  March  Fiscal 2017 
                
Net sales $347.2  $317.7  $349.8  $488.3  $1,503.0 
Gross profit  62.0   47.7   58.7   84.9   253.3 
Earnings (loss) from continuing operations (a)  8.9   (4.0)  1.9   8.1   14.9 
Net earnings (loss) attributable to Modine (a)  8.6   (4.1)  1.7   8.0   14.2 
Net earnings (loss) per share attributable to Modine shareholders:                    
Basic $0.18  $(0.09) $0.04  $0.16  $0.29 
Diluted  0.18   (0.09)  0.04   0.16   0.29 
  Fiscal 2019 quarters ended    
  June  Sept.  Dec.  March  Fiscal 2019 
                
Net sales $566.1  $548.9  $541.0  $556.7  $2,212.7 
Gross profit  94.3   87.9   91.7   91.6   365.5 
Net earnings (a)  22.5   38.7   18.3   6.4   85.9 
Net earnings attributable to Modine (a)  22.0   38.5   18.0   6.3   84.8 
Net earnings per share attributable to Modine shareholders:                    
Basic $0.43  $0.76  $0.36  $0.12  $1.67 
Diluted  0.43   0.75   0.35   0.12   1.65 
                     
  Fiscal 2018 quarters ended     
  June  Sept.  Dec.  March  Fiscal 2018 
                     
Net sales $515.5  $508.3  $512.7  $566.6  $2,103.1 
Gross profit  88.5   86.1   85.4   96.5   356.5 
Net earnings (loss) (b)  17.4   16.3   (27.9)  18.0   23.8 
Net earnings (loss) attributable to Modine (b)  17.0   15.9   (28.3)  17.6   22.2 
Net earnings (loss) per share attributable to Modine shareholders:                    
Basic $0.34  $0.32  $(0.57) $0.35  $0.44 
Diluted  0.34   0.31   (0.57)  0.34   0.43 
  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 (b)  5.5   (22.5)  8.2   7.8   (1.0)
Net earnings (loss) attributable to Modine (b)  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)

(a)During fiscal 2017,2019, restructuring expenses totaled $2.3$0.2 million, $2.1 million, $1.6$0.5 million, and $4.9$8.9 million for the quarters ended June 30, 2016, September 30, 2016,2018, December 31, 2016,2018, and March 31, 2017,2019, respectively (see Note 5)6).  During the second quarter of fiscal 2019, the Company sold its South African business within the BHVAC segment and, as a result, recorded a loss of $1.7 million (see Note 1).  During the third quarter of fiscal 2019, the Company recorded a $0.4 million impairment charge related to a manufacturing facility in Austria (see Note 6).  The Company’s income tax benefit for fiscal 2019 includes net benefits of $24.4 million and net charges of $2.2 million in the second and third quarters, respectively, related to the Tax Act and the recognition of foreign tax credits (see Note 8).  During fiscal 2017,2019, the Company soldadjusted its valuation allowances on deferred tax assets related to two previously-closed manufacturing facilitiesseparate subsidiaries in its Americas segmentChina and, as a result, recorded a $2.0 million income tax benefit and a facility$1.0 million income tax charge in its Europe segmentthe first and recognized net gains totaling $1.2second quarters, respectively (see Note 8).
(b)During fiscal 2018, restructuring expenses totaled $1.7 million, $0.4 million, $9.4 million, and $0.8 million in the quarters ended September 30, 2016 and March 31, 2017, respectively.  During fiscal 2017, acquisition- and integration-related costs totaled $1.4 million, $3.0 million, $7.2 million, and $3.2$4.5 million for the quarters ended June 30, 2016,2017, September 30, 2016,2017, December 31, 2016,2017, and March 31, 2017,2018, respectively (see Note 2)6).  During the third quarter of fiscal 2018, the Company recorded a $1.3 million asset impairment charge related to a manufacturing facility in Austria (see Note 6).  During the fourth quarter of fiscal 2017,2018, the Company recorded a deferred$1.2 million impairment charge related to intangible assets (see Note 14).  The Company recorded income tax charges totaling $35.7 million and $2.3 million during the third and fourth quarters of fiscal 2018, respectively, related to the Tax Act (see Note 8).  During the fourth quarter of fiscal 2018, the Company reversed a portion of a valuation allowance related to a foreign tax jurisdiction, and, as a result, recorded income tax expense of $2.0 million (see Note 7).
(b)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 5).  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 5).  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 16).  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.  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 related to a foreign tax jurisdiction of $3.0$2.8 million (see Note 7)8).

Report of Independent Registered Public Accounting Firm

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

Opinions on the Financial 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, 2019, 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 listed in the index appearing under Item 15(a)(1)referred to above present fairly, in all material respects, the financial position of Modine Manufacturingthe Company and its subsidiaries atas of March 31, 20172019 and 2016, 2018, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2017 2019 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, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the CommitteeCOSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for the income tax effects of Sponsoring Organizationsintra-entity transfers of the Treadway Commission (COSO).  assets other than inventory in 2019.

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.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 are a public accounting firm registered with 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 Public Company Accounting Oversight Board (United States).PCAOB.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial 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 consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial 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 consolidatedfinancial 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 consolidatedfinancial 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.

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.

As described in Management's Report on Internal Control Over Financial Reporting, management has excluded the Luvata HTS business, operated as the Company's CIS segment, from its assessment of internal control over financial reporting as of March 31, 2017 because it was acquired by the Company in a purchase business combination on November 30, 2016.  We have also excluded Luvata HTS from our audit of internal control over financial reporting.  Luvata HTS total assets and net sales excluded from management’s assessment and our audit of internal control over financial reporting represent $297 million and $178 million, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended March 31, 2017.

/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 25, 201723, 2019

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

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A.
CONTROLS AND PROCEDURES.

Conclusion Regarding Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, management of the Company, at the direction of the General Counsel and under the supervision, and with the participation, of the Company'sCompany’s President and Chief Executive Officer and 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 Vice President, Finance and Chief Financial Officer have concluded that the Company'sCompany’s disclosure controls and procedures were effective, at a reasonable assurance level, as of March 31, 2017.2019.

Management’s Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s President and Chief Executive Officer and Vice President, Finance and Chief Financial Officer, and effected by the Company'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 Vice President, Finance and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2017.2019.  In making its assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control—Integrated Framework (2013).”  Based upon this assessment, management concluded that, as of March 31, 2017,2019, the Company’s internal control over financial reporting was effective.

Management excluded the Luvata HTS business, operated as the Company’s CIS segment, from its assessment of internal control over financial reporting as of March 31, 2017 because it was acquired by the Company in a purchase business combination on November 30, 2016.  The total assets and net sales of Luvata HTS excluded from management’s assessment represent $297 million and $178 million, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended March 31, 2017.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 20172019 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

As part of its post-closing integration activities for the Luvata HTS acquisition, the Company is engagedThere have been no changes in assessing, refining and harmonizing the internal controls and processes of the acquired business with those of the Company.

This process has resulted in a change in the Company’s internal control over financial reporting during the fourth quarter of fiscal 20172019 that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.
OTHER INFORMATION.

None.

PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors.  The Company incorporates by reference the information appearing in the Company'sCompany’s Proxy Statement for the 20172019 Annual Meeting of Shareholders to be held on July 20, 201725, 2019 (the “2017“2019 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 ActConduct. The Company incorporates by reference the information appearing in the 2017 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 20172019 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.  The Board of Directors has approved charters for its Audit Committee, Officer Nomination and Compensation Committee, Corporate Governance and Nominating Committee and Technology Committee.  These charters are included on the Company’s website, www.modine.com (Investors link).


Audit Committee Financial Expert. The Company incorporates by reference the information appearing in the 20172019 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 20172019 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 20172019 Annual Meeting Proxy Statement under the caption “Shareholder Nominations and Recommendations of Director Candidates.”

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 20172019 Annual Meeting Proxy Statement under the captions “Compensation Discussion and Analysis,” “Compensation of Directors,” “Committees of the Board of Directors – Officer Nomination and Compensation Committee: Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is incorporated herein by reference.

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The Company incorporates by reference the information relating to stock ownership under the caption “Security Ownership of Certain Beneficial Owners and Management,” and under the caption “Equity Compensation Plan Information,” in the 20172019 Annual Meeting Proxy Statement.

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

The Company incorporates by reference the information contained in the 20172019 Annual Meeting Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Director Independence.”

ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The Company incorporates by reference the information contained in the 20172019 Annual Meeting Proxy Statement under the caption “Independent Auditors’Auditor’s Fees for Fiscal 20172019 and 2016.2018.”

PART IV

ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)
Documents Filed.  The following documents are filed as part of this Report:

 
Page in Form 10-K
  
1. The consolidated financial statements of Modine Manufacturing Company and its subsidiaries filed under Item 8: 
  
Consolidated Statements of Operations for the years ended March 31, 2017, 20162019, 2018 and 201520174138
Consolidated Statements of Comprehensive Income for the years ended March 31, 2017, 20162019, 2018 and 201520174239
Consolidated Balance Sheets at March 31, 20172019 and 201620184340
Consolidated Statements of Cash Flows for the years ended March 31, 2017, 20162019, 2018 and 201520174441
Consolidated Statements of Shareholders'Shareholders’ Equity for the years ended March 31, 2017, 20162019, 2018 and 201520174542
Notes to Consolidated Financial Statements46-7343-74
Report of Independent Registered Public Accounting Firm7475-76
  
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 Accounts7980
  
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.80-8281-83
  
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.
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 25, 2017Modine 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. BurkeMay 25, 2017 
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Michael B. Lucareli
Michael B. LucareliMay 25, 2017
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Marsha C. Williams
Marsha C. WilliamsMay 25, 2017 
Director
/s/ David J. Anderson
David J. AndersonMay 25, 2017
Director
/s/ Charles P. Cooley
Charles P. Cooley
May 25, 2017
Director
/s/ Suresh V. Garimella
Suresh V. Garimella
May 25, 2017
Director
/s/ Larry O. Moore
Larry O. MooreMay 25, 2017
Director
/s/ Christopher W. Patterson
Christopher W. PattersonMay 25, 2017
Director
/s/ Christine Y. Yan
Christine Y. YanMay 25, 2017
Director
/s/ David G. Bills
David G. BillsMay 25, 2017
Director
MODINE MANUFACTURING COMPANY AND SUBSIDIARIES
(A Wisconsin Corporation)
SCHEDULE II ‑ VALUATION AND QUALIFYING ACCOUNTS
For the years ended March 31, 2017, 2016 and 2015
(In millions)

     Additions     
Description 
Balance at
Beginning of
Period
  
Charged
(Benefit) to
Costs and
Expenses
  
Charged to
Other
Accounts
   
Balance at
End of Period
 
              
2017: Valuation Allowance for Deferred Tax Assets $50.8  $(0.3) $(0.9)(a) $49.6 
                  
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 
                  
Notes:                 
(a)Foreign currency translation, increases due to the acquisition of Luvata HTS and other adjustments
MODINE MANUFACTURING COMPANY AND SUBSIDIARIES
(A Wisconsin Corporation)

SCHEDULE II ‑ VALUATION AND QUALIFYING ACCOUNTS
For the years ended March 31, 2019, 2018 and 2017
(In millions)

     Additions     
Description 
Balance at
Beginning of
Period
  
Charged
(Benefit) to
Costs and
Expenses
  
Charged to
Other Accounts
   
Balance at End
of Period
 
              
2019: Valuation Allowance for Deferred Tax Assets $48.9  $(1.6) $(3.9) (a) $43.4 
                  
2018: Valuation Allowance for Deferred Tax Assets $49.6  $(6.7) $6.0  (a) $48.9 
                  
2017: Valuation Allowance for Deferred Tax Assets $50.8  $(0.3) $(0.9) (a) $49.6 

(a)Foreign currency translation and other adjustments.  The fiscal 2018 and 2017 amounts also included increases associated with the Company’s acquisition of Luvata HTS.

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

EXHIBIT INDEX
TO
20172019 ANNUAL REPORT ON FORM 10-K

Exhibit
No.
Description 
Incorporated Herein By
Referenced To
 
Filed
Herewith
      
2.1
3.1
Share SaleAmended and Purchase Agreement between Luvata Heat Transfer Solutions II AB and Modine Manufacturing Company, datedRestated Articles of Incorporation, as of September 6, 2016.amended. Exhibit 2.13.1 to Registrant’s Current Report on Form 8-K dated September 6, 201610-K for the fiscal year ended March 31, 2018  
      
3.1Amended and Restated Articles of Incorporation, as amended.Exhibit 4.2 to Registrant’s Registration Statement on Form S-3 (333-161030) dated August 4, 2009
3.2
Bylaws, as amended. Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated February 10, 201520, 2019  
      
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**
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 Lenders.Lenders Exhibit 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
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  
      
4.12
Third Amended and Restated Credit Agreement dated as of November 15, 2016, with JPMorgan Chase Bank, N.A. as Administrative Agent and Collateral Agent, Bank of Montreal, U.S. Bank National Association and Wells Fargo Bank, National Association as Syndication Agents, and Bank of America, N.A. and PNC Bank, National Association as Senior Managing Agent.2016. Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated November 15, 2016 (“November 15, 2016 8-K”)  
      
4.13
Amended and Restated Note Purchase and Private Shelf Agreement dated as of November 15, 2016, with PGIM, Inc. and each of the Purchasers described therein relating to the $125,000,000 6.83% Secured Senior Notes, Series A, due August 12, 2020, the $50,000,000 5.75% Secured Senior Notes, Series B and Private Shelf Facility.2016. Exhibit 4.2 to  November 15, 2016 8-K  
      
4.14
Description of Registrant’s securitiesAmendment No 1. to the Company’s Registration Statement on Form 8-A filed on July 17, 2008 
10.1* 
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’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. Exhibit 10(f) to Registrant’s Form 10-K for the 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  
      
10.9*
Form of Fiscal 2019 Modine Performance Stock Award Agreement.Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended June 30, 2018

10.10*
Form of Fiscal 2019 Modine Incentive Stock Option Award Agreement.Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended June 30, 2018 
10.10* 
10.11*
Form of Fiscal 2019 Modine Restricted Stock Unit Award Agreement.Exhibit 10.3 to Registrant’s Form 10-Q for the quarter ended June 30, 2018
10.12*
Form of Fiscal 2019 Modine Non-Qualified Stock Option Award Agreement.Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended June 30, 2018
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. 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  
      
10.12*
10.15*
Form of Fiscal 2017 Modine Performance Stock Award Agreement.Incentive Compensation Plan. Exhibit 10.1 to Registrant’s Current Report on Form  10-Q for the first quarter ended June 30, 2016 ("June 30, 2016 10-Q")8-K dated July 20, 2017  
      
10.13*
10.16*
Form of Fiscal 20172019 Modine IncentiveNon-Employee Director Restricted Stock OptionsUnit Award Agreement. Exhibit 10.210.1 to JuneRegistrant’s Form 10-Q for the quarter ended September 30, 2016 10-Q2018  
      
10.14*Form of Fiscal 2017 Modine Restricted Stock Award Agreement.Exhibit 10.3 to June 30, 2016 10-Q
10.15*Form of Fiscal 2017 Modine Non-Qualified Stock Option Award Agreement.Exhibit 10.4 to June 30, 2016 10-Q
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, President and Chief Executive Officer.   X
      
31.2
Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Vice President, Finance and Chief Financial Officer.   X
      
32.1
Section 1350 Certification of Thomas A. Burke, President and Chief Executive Officer.   X
 ��     
32.2
Section 1350 Certification of Michael B. Lucareli, 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

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

**    Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has omitted certain agreements with respect to long-term debt not exceeding 10% of consolidated total assets.  The Registrant agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request.

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 23, 2019Modine 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 DirectorMay 23, 2019
(Principal Executive Officer)
/s/ Michael B. Lucareli

Michael B. LucareliMay 23, 2019
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Marsha C. Williams

Marsha C. WilliamsMay 23, 2019
Director
/s/ David J. Anderson

David J. AndersonMay 23, 2019
Director
/s/ Eric D. Ashleman

Eric D. AshlemanMay 23, 2019
Director
/s/ David G. Bills

David G. BillsMay 23, 2019
Director
/s/ Charles P. Cooley

Charles P. CooleyMay 23, 2019
Director
/s/ Suresh V. Garimella

Suresh V. GarimellaMay 23, 2019
Director
/s/ Larry O. Moore

Larry O. MooreMay 23, 2019
Director
/s/ Christopher W. Patterson

Christopher W. PattersonMay 23, 2019
Director
/s/ Christine Y. Yan

Christine Y. YanMay 23, 2019
Director


84
s
  % of sales  

Year Ended March 31, 20172019 Compared with Year Ended March 31, 2016:2018:

Fiscal 20172019 net sales increased $150$110 million, or 115 percent, from the prior year, primarily due to $178 million of incremental sales from our new CIS segment and higher sales in each of our Asia segment,operating segments, partially offset by lower sales in our Americas and BHVAC segments.  Sales volume increases in our BHVAC segment were more than offset by an $11a $28 million unfavorable impact of foreign currency exchange rate changes.

Fiscal 20172019 gross profit of $253 million increased $29$9 million from the prior year, andyet gross margin increased 40declined 50 basis points to 16.916.5 percent.  These increases wereThe decline in gross margin was primarily due to $26 millionunfavorable material costs, including the direct and indirect impacts of gross profit contributed by the CIStariffs, and temporary operating inefficiencies largely related to increased volumes and multiple new program launches in our VTS segment, cost savings resulting from procurement initiatives, and the absence of $9 million of pension settlement losses recognized in the prior year, partially offset by temporary production inefficiencies in the Americas segment, the unfavorable impact of ahigher sales volume.  In addition, gross profit was unfavorably impacted by $4 million inventory purchase accounting adjustmentfrom foreign currency exchange rate changes.

Fiscal 2019 SG&A expenses of $244 million decreased $2 million, or 70 basis points as a percentage of sales, from the prior year.  The decrease in SG&A expenses was primarily due to lower integration costs associated with our November 2016 acquisition of the Luvata HTS business and unfavorable material costs.  In addition,a $3 million favorable impact of foreign currency exchange rate changes, negatively impacted fiscal 2017 gross profit by $2 million.

Fiscal 2017 SG&A expenses of $205 million were consistent with the prior year, but decreased as a percentage of net sales.  During fiscal 2017, $19 million of SG&A expenses in the CIS segment and $15 million of acquisition- and integration-related costs associated with our acquisition of Luvata HTS were largely offset by the absence of $33 million of pension settlement losses recognized in the prior year.

Restructuring expenses decreased $6 million in fiscal 2017 compared with the prior year, primarily due to lower severance expenses, partially offset by higher equipment transferthird-party strategic advisory costs recorded at Corporate and plant consolidationhigher environmental charges within our VTS segment.  During fiscal 2019, we recorded $7 million of costs, in the Americas segment.primarily consisting of third-party consulting fees, related to our evaluation of strategic alternatives for our VTS segment’s automotive business.

During fiscal 2017, we sold two previously-closed manufacturing facilities within our Americas segment and a facility within our Europe segment.  As a resultFiscal 2019 restructuring expenses of these sales, we recognized net gains totaling $2 million.

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.

Operating income of $39 million in fiscal 2017 represents a $47 million improvement compared with an operating loss of $8 million in the prior year.  Fiscal 2017 operating performance improved in our Europe and Asia segments, while operating performance declined in our Americas and BHVAC segments.  Operating income was favorably impacted by the absence of $42 million of pension settlement losses and a $10 million impairment charge recognized in the prior year, $8 million of operating income contributed by the CIS segment, and lower restructuring expenses, partially offset by acquisition- and integration-related costs and the impact of the inventory purchase accounting adjustment totaling $19 million.
Fiscal 2017 interest expense increaseddecreased $6 million compared with the prior year, primarily due to new debt used to financelower severance-related expenses associated with the fiscal 2018 closure of a significant portion of our acquisition of Luvata HTS.manufacturing facility in Gailtal, Austria within the CIS segment.

OtherDuring fiscal 2019, we sold our South African business within the BHVAC segment and, as a result, recorded a loss of $2 million.

Operating income during fiscal 2016 included a $10of $110 million gain related to an insurance settlement for equipment losses resulting from the Airedale fire in fiscal 2014.2019 increased $18 million compared with the prior year, primarily due to higher earnings in the CIS and BHVAC segments, partially offset by lower earnings in the VTS segment.

OurThe benefit for income taxes was $5 million in fiscal 2019, compared with a provision for income taxes was $6of $40 million in fiscal 2017,2018.  The $45 million change was primarily due to our accounting for the impacts of the Tax Act.  As a result of the Tax Act, we recorded provisional income tax charges totaling $38 million in the prior year, compared with a benefit for income taxes of $9tax benefits totaling $8 million in fiscal 2016.  Thethe current year.  In addition, we recorded income tax benefitbenefits totaling $17 million in fiscal 2016 includedthe current year resulting from the recognition of tax assets for foreign tax credits and other attributes, partially offset by the absence of a $16 million benefit related to pension settlement losses and a $3$9 million benefit from a development tax credit in Hungary recorded in the reversalprior year and changes in the mix of a deferred tax asset valuation allowance in a foreign tax jurisdiction.  The income tax provision in fiscal 2017 includes a $2 million provisionoperating earnings.  See Note 8 of the Notes to establish a valuation allowance in a separate foreign tax jurisdiction.Consolidated Financial Statements for additional information.

Year Ended March 31, 20162018 Compared with Year Ended March 31, 2015:2017:

Fiscal 20162018 net sales decreased $143increased $600 million, or 1040 percent, from the prior year, primarily due to lower$444 million of additional sales from our CIS segment, which included sales from the acquired Luvata HTS business that we owned for four months of fiscal 2017, higher sales in each of our Americas and Europe segments. Sales volume increases in our Europe segment were more than offset by a $76 million unfavorable impact of foreign currency exchange rate changes.  In total, our fiscal 2016 sales were negatively affected by a $110 million unfavorable impact of foreign currency exchange rate changes, primarily associated with the strengthening of the U.S. dollar.

Fiscal 2016 gross profit decreased $23 million to $224 million, 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 favorable 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 initiativesother operating segments, and a $10$55 million favorable impact of foreign currency exchange rate changes.

Restructuring expensesFiscal 2018 gross profit of $357 million increased $12$103 million in fiscal 2016 compared withfrom the prior year, primarily due to severance expenses$66 million of additional gross profit from our CIS segment and higher gross profit in our VTS and BHVAC segments.  Gross profit was favorably impacted by $9 million from foreign currency exchange rate changes.  Gross margin improved 10 basis points to 17.0 percent, primarily due to higher sales volume, savings resulting from cost-reduction initiatives, improved operating efficiencies, and the absence of a $4 million inventory purchase accounting adjustment recorded in the Europeprior year, partially offset by unfavorable material costs and Americas segmentsincremental depreciation and equipment transfer costs related to plant consolidation activities in the Americas segment.amortization expense resulting from purchase accounting for Luvata HTS.

In fiscal 2016, we recorded a $10Fiscal 2018 SG&A expenses of $246 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 $3increased $43 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 wasyear, primarily due to $42a $39 million increase in SG&A expenses in our CIS segment, $4 million of pension settlement losses, lower gross profit,strategy consulting fees incurred during fiscal 2018, higher restructuringcompensation-related expenses, and a $4 million unfavorable impact of foreign currency exchange rate changes, partially offset by ongoing cost-control initiatives.lower costs incurred related to the acquisition of Luvata HTS.  SG&A expenses, as a percentage of net sales, decreased 180 basis points compared with the prior year.

Other income duringRestructuring expenses of $16 million in fiscal 2016 included a $102018 increased $5 million gaincompared with the prior year, primarily due to severance-related expenses in the CIS segment related to an insurance settlement for equipment losses resulting from the Airedale fireclosure of a manufacturing facility in Austria.

During fiscal 2018, we recorded impairment charges totaling $3 million related to the closure of the CIS manufacturing facility in Austria and the discontinuance of a product line in our BHVAC segment.

During fiscal 2017, we sold three manufacturing facilities within our VTS segment, two of which were previously closed, and recognized net gains totaling $2 million.

Operating income of $92 million in fiscal 2014.2018 increased $50 million compared with the prior year, primarily due to $18 million of additional operating income contributed by our CIS segment and higher earnings in the VTS and BHVAC segments.

Our benefitFiscal 2018 interest expense increased $9 million compared with the prior year, primarily due to debt issued to finance a significant portion of our acquisition of Luvata HTS.

The provision for income taxes was $9$40 million and $6 million in fiscal 2016, compared with a provision for income taxes of $192018 and 2017, respectively.  The $34 million in fiscal 2015.  This $28 million changeincrease was primarily due to $16$38 million of provisional charges recorded in fiscal 2018 related to the Tax Act and increased operating earnings, partially offset by income tax benefits related to pension settlement lossestotaling $14 million resulting from i) a development tax credit in fiscal 2016, a decrease in operating earnings, and a $3 million income tax benefit related toHungary ($9 million); ii) the reversal of a deferredportion of the valuation allowance in a foreign jurisdiction ($3 million); and iii) a reduction of unrecognized tax assetbenefits resulting from a lapse in statutes of limitations ($2 million), and the absence of a $2 million provision recorded in the prior year to establish a valuation allowance.allowance in a separate foreign jurisdiction.

Segment Results of Operations

Americas                  
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $534   100.0% $586   100.0% $667   100.0%
Cost of sales  447   83.8%  486   82.9%  558   83.7%
Gross profit  87   16.2%  100   17.1%  109   16.3%
Selling, general and administrative expenses  54   10.1%  55   9.4%  65   9.7%
Restructuring expenses  7   1.3%  9   1.5%  3   0.4%
Gain on sale of facilities  (1)  -0.2%  -   -   -   - 
Impairment charge  -   -   -   -   8   1.2%
Operating income $27   5.0% $36   6.2% $33   5.0%
Since the date we acquired Luvata HTS (November 30, 2016), we have included financial results of this acquired business within our CIS segment.  Effective April 1, 2018, we merged our Americas coils business into the CIS segment to accelerate operational improvements and organizational efficiencies and formed the VTS segment by combining our Americas, Europe, and Asia operations to enable us to operate as a more global, product-based organization.  We began reporting financial results for our new segments beginning in fiscal 2019.  Segment financial information for fiscal 2018 and 2017 has been recast to conform to the fiscal 2019 presentation.

VTS   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $1,352   100.0% $1,296   100.0% $1,152   100.0%
Cost of sales  1,165   86.2%  1,095   84.5%  970   84.2%
Gross profit  187   13.8%  201   15.5%  182   15.8%
Selling, general and administrative expenses  113   8.3%  110   8.4%  106   9.2%
Restructuring expenses  9   0.7%  7   0.6%  10   0.9%
Gain on sale of assets  -   -   -   -   (2)  -0.2%
Operating income $65   4.8% $84   6.5% $68   5.9%

Year Ended March 31, 20172019 Compared with Year Ended March 31, 2016:2018:

AmericasVTS net sales decreased $52increased $56 million, or 94 percent, in fiscal 20172019 compared with the prior year, primarily due to higher sales volume to off-highway and automotive customers in North America and Asia, partially offset by lower sales volume to commercial vehicle and off-highway customers in North America,Europe and a $21 million unfavorable impact of foreign currency exchange rate changes.  Gross profit decreased $14 million and gross margin declined 170 basis points to 13.8 percent.  The decline in gross margin was primarily due to unfavorable material costs, including the impacts of tariffs, and temporary operating inefficiencies largely related to increased volumes and new program launches at certain manufacturing facilities, partially offset by higher sales volume.  In addition, foreign currency exchange rate changes had an unfavorable $3 million impact on gross profit.  SG&A expenses increased $3 million compared with the prior year, yet decreased 10 basis points as a percentage of sales.  The increase in SG&A expenses primarily resulted from higher environmental charges related to previously-owned manufacturing facilities in the U.S. and higher compensation-related expenses, partially offset by a $2 million favorable impact of foreign currency exchange rate changes.  Restructuring expenses increased $2 million, primarily due to higher severance expenses.  Operating income decreased $19 million to $65 million, primarily due to lower gross profit and higher SG&A and restructuring expenses.

Year Ended March 31, 2018 Compared with Year Ended March 31, 2017:

VTS net sales increased $144 million, or 12 percent, in fiscal 2018 compared with the prior year, primarily due to higher sales volume to off-highway and automotive customers and a $5$42 million favorable impact of foreign currency exchange rate changes.  Gross profit decreased $13increased $19 million, and gross margin decreased 90 basis points to 16.2 percent in fiscal 2017.  These decreases were primarily due to lowerhigher sales volumevolume.  Gross margin declined 30 basis points, primarily due to unfavorable material costs, the absence of favorable customer pricing settlements recorded in the prior year, and temporaryhigher depreciation expense resulting from recent production inefficiencies in North America, largely related to product launches and plant consolidation activities,capacity investments, partially offset by cost savings resulting from procurement initiatives,improved operating efficiencies.  In addition, foreign currency exchange rate changes had a favorable material costs and lower environmental costs related to a previously-owned manufacturing facility, as compared with the prior year.  Fiscal 2017$7 million impact on gross profit.  SG&A expenses decreased $1 million from fiscal 2016, primarily due to lower compensation-related expenses and a higher recovery of development costs, partially offset by a $1.6 million charge related to a legal matter in Brazil for which the Company has agreed to a settlement.  In fiscal 2017, we recorded $7 million of restructuring expenses, primarily consisting of equipment transfer and plant consolidation costs related to the closure of our Washington, Iowa manufacturing facility, which we completed during fiscal 2017, and severance expenses.  In addition, we sold two closed manufacturing facilities in North America and recognized gains totaling $1 million as a result.  Operating income of $27 million in fiscal 2017 decreased $9increased $4 million compared with the prior year, primarily due to lower gross profit.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

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.  Gross profit decreased $9 million, yet gross margin increased 80 basis points to 17.1 percent in fiscal 2016.  The decrease in gross profit was primarily due to lower sales volume, a $3 million unfavorable impact of foreign currency exchange rate changes, higher compensation-related expenses, and $2 million ofhigher environmental charges related to a previously-owned manufacturing facility in the U.S., partially offset by lower material costs, cost savings from completed restructuring activities, and improved production efficiencies.  Fiscal 2016 SG&A expenses decreased $10 million from fiscal 2015, primarily due to cost-control initiatives, the absence of a $3$2 million charge forrecorded in the prior year related to a legal matter in Brazil, in the prior year,which has since been settled and paid.  As a percentage of sales, SG&A expenses decreased 80 basis points to 8.4 percent.  Restructuring expenses decreased $3 million, favorable impact of foreign currency exchange rate changes.  In fiscal 2016, we recorded $9 million of restructuring expenses, primarily consisting of severance expenses associated with a voluntary retirement program in the U.S. and the closure of our Washington, Iowa manufacturing facility,due to lower plant consolidation and equipment transfer costs.  In fiscal 2017, we sold three manufacturing facilities and, plant consolidation costs in North America.  Operating incomeas a result, recognized gains totaling $2 million.

CIS   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $708   100.0% $676   100.0% $232   100.0%
Cost of sales  593   83.8%  578   85.5%  200   86.1%
Gross profit  115   16.2%  98   14.5%  32   13.9%
Selling, general and administrative expenses  61   8.6%  60   8.8%  21   9.2%
Restructuring expenses  -   -   8   1.2%  -   - 
Impairment charges  -   0.1%  1   0.2%  -   - 
Operating income $53   7.5% $29   4.2% $11   4.7%

Year Ended March 31, 2019 Compared with Year Ended March 31, 2018:

CIS net sales increased $32 million, or 5 percent, in fiscal 2016 increased $3 million2019 compared with the prior year, primarily due to lower SG&A expenses and the absence of an $8 million goodwill impairment charge in fiscal 2015, partially offset by lower gross profit and higher restructuring expenses.
Europe
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $524   100.0% $524   100.0% $578   100.0%
Cost of sales  443   84.6%  456   87.0%  509   88.1%
Gross profit  81   15.4%  68   13.0%  69   11.9%
Selling, general and administrative expenses  42   7.9%  39   7.4%  44   7.6%
Restructuring expenses  3   0.6%  6   1.2%  2   0.4%
Gain on sale of facility  (1)  -0.2%  -   -   (3)  -0.6%
Impairment charge  -   -   10   1.9%  -   - 
Operating income $37   7.1% $13   2.5% $26   4.5%
Year Ended March 31, 2017 Compared with Year Ended March 31, 2016:

Europe net sales of $524 million in fiscal 2017 were consistent with the prior year, as higher sales volume to automotivedata center and commercial HVAC&R customers, waspartially offset by lower sales volume to commercial vehicle and off-highwayindustrial customers and a $3$5 million unfavorable impact of foreign currency exchange rate changes.  Gross profit increased $13$17 million and gross margin improved 240170 basis points to 15.416.2 percent, in fiscal 2017, primarily due to cost savings resulting from procurement initiatives, favorable sales mix, and improved production efficiencies, partially offset by unfavorable material costs.  SG&A expenses increased $3 million in fiscal 2017, primarily due to higher compensation-related expenses.  In fiscal 2017, we recorded $3 million of restructuring expenses, primarily consisting of severance expenses.  In addition, we sold a manufacturing facility in Europe and recognized a gain of $1 million as a result.  Operating income of $37 million in fiscal 2017 increased $24 million compared with the prior year, primarily due to higher gross profit and the absence of a $10 million impairment charge in the prior year.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

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.  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.  Fiscal 2016favorable sales mix.  SG&A expenses increased $1 million, yet decreased $520 basis points as a percentage of sales.  The $1 million from the prior year,increase in SG&A expenses was primarily due to higher compensation-related expenses, including higher commission costs, partially offset by a $6$1 million favorable impact of foreign currency exchange rate changes.  In fiscal 2016, weRestructuring expenses decreased $8 million, primarily due to the absence of severance-related expenses recorded $6 million of restructuring expenses, primarilyin the prior year related to severance expenses.  In addition, we recorded a $10 million asset impairment charge.  These restructuring expenses and impairment charge primarily related tothe closure of a manufacturing facility in Germany, which was generating pre-tax losses, resulting in management decidingAustria.  In fiscal 2018, we recorded a $1 million impairment charge related to exit a certain product line.the closure of the Austrian facility.  In fiscal 2019, we recorded an additional impairment charge of less than $1 million related to this facility.  Operating income of $13$53 million in fiscal 2016 decreased $13increased $24 million, compared with the prior year, primarily due to higher restructuring expenses, an impairment charge,gross profit and the absence of a $3 million gain on the sale of a wind tunnel in the prior year, partially offset by lower SG&Arestructuring expenses.
Asia
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $112   100.0% $79   100.0% $81   100.0%
Cost of sales  93   83.2%  67   84.5%  69   85.8%
Gross profit  19   16.8%  12   15.5%  12   14.2%
Selling, general and administrative expenses  11   9.9%  11   14.5%  12   13.9%
Operating income $8   6.9% $1   1.0% $-   0.3%
Year Ended March 31, 20172018 Compared with Year Ended March 31, 2016:2017:

AsiaCIS financial results for fiscal 2017 primarily include four months of results from the acquired Luvata HTS business.  These financial results are not comparable to fiscal 2018, which included a full year of Luvata HTS results.

BHVAC   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $212   100.0% $191   100.0% $172   100.0%
Cost of sales  149   70.1%  133   69.7%  124   72.2%
Gross profit  63   29.9%  58   30.3%  48   27.8%
Selling, general and administrative expenses  35   16.4%  36   18.8%  34   19.7%
Restructuring expenses  -   -   -   0.2%  1   0.4%
Impairment charge  -   -   1   0.7%  -   - 
Loss on sale of assets  2   0.8%  -   -   -   - 
Operating income $27   12.6% $20   10.6% $13   7.7%

Year Ended March 31, 2019 Compared with Year Ended March 31, 2018:

BHVAC net sales increased $33$21 million, or 4211 percent, in fiscal 20172019 compared with the prior year, primarily due to higher sales volume to automotiveof air conditioning products and off-highway customersparts and controls in Chinathe U.K. and incremental sales from our recently-formed joint ventureheating products in China,North America, partially offset by a $4$1 million unfavorable impact of foreign currency exchange rate changes.  Gross profit increased $7$5 million, andyet gross margin improved 130declined 40 basis points to 16.8 percent29.9 percent.  This slight decline in gross margin primarily resulted from unfavorable material costs and sales mix, partially offset by higher sales volume.  SG&A expenses decreased $1 million compared with the prior year and decreased 240 basis points as a percentage of sales, primarily due to cost-control initiatives.  During fiscal 2017,2019, we completed the sale of our business in South Africa, and, as a result, recorded a loss of $2 million.  Operating income of $27 million increased $7 million, primarily due to higher gross profit.

Year Ended March 31, 2018 Compared with Year Ended March 31, 2017:

BHVAC net sales volume. Fiscal 2017 SG&A expenses were consistent with the prior year.  Operating income of $8increased $19 million, or 11 percent, in fiscal 2017 increased $7 million2018 compared with the prior year, primarily due to higher gross profit.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

Asia net sales decreased $2 million, or 3 percent, in fiscal 2016 compared with the prior year, primarily due to lower sales volume to off-highway customers in Chinaheating and Korea and a $4 million unfavorable impact of foreign currency exchange rate changes, partially offset by higher sales volume to automotive customers in China and increased overall sales in India.  Gross margin improved 130 basis points to 15.5 percent in fiscal 2016 compared with the prior year, primarily due to favorable sales mix.  Fiscal 2016 SG&A expenses decreased $1 million from the prior year, primarily due to cost-control initiatives, partially offset by acquisition-related costs associated with a joint venture that we formed in late fiscal 2016.  Operating income of $1 million in fiscal 2016 increased $1 million compared with the prior year, primarily due to lower SG&A expenses.
BHVAC
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $172   100.0% $181   100.0% $186   100.0%
Cost of sales  124   72.2%  127   70.1%  130   70.0%
Gross profit  48   27.8%  54   29.9%  56   30.0%
Selling, general and administrative expenses  34   19.8%  39   21.6%  37   19.8%
Restructuring expenses  1   0.4%  1   0.6%  -   - 
Operating income $13   7.6% $14   7.7% $19   10.2%
Year Ended March 31, 2017 Compared with Year Ended March 31, 2016:

BHVAC net sales decreased $9 million, or 5 percent, in fiscal 2017 compared with the prior year, primarily due to an $11 million unfavorable impact of foreign currency exchange rate changes and lower school ventilation and heating product sales in North America partially offset by increased air conditioning product sales in the U.K.  Gross profit decreased $6 million and gross margin decreased 210 basis points to 27.8 percent in fiscal 2017, primarily due to unfavorable sales mix, unfavorable material costs and higher depreciation expense in the current year resulting from replacement assets associated with the Airedale fire, which we started to depreciate in the fourth quarter of fiscal 2016.  In addition, gross profit was unfavorably impacted by $2 million from foreign currency exchange rate changes.  Fiscal 2017 SG&A expenses decreased $5 million from fiscal 2016, primarily due to lower commission costs and compensation-related expenses and a $2 million favorable impact of foreign currency exchange rate changes.  In fiscal 2017, we recorded $1 million of restructuring expenses consisting of severance expenses.  Operating income of $13 million in fiscal 2017 decreased $1 million compared with the prior year, primarily due to lower gross profit, partially offset by lower SG&A expenses.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

BHVAC net sales decreased $5 million, or 3 percent, in fiscal 2016 compared with the prior year, primarily due to a $6 million unfavorable impact of foreign currency exchange rate changes and lower sales at our businesses in the U.K., as unfavorable currency conditions resulted in increased competition from other mainland European suppliers, partially offset by increased ventilation product sales in North America.  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.  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.  In fiscal 2016, we recordedGross profit increased $10 million and gross margin improved 250 basis points to 30.3 percent, primarily due to higher sales volume and improved operating efficiencies in the U.K.  SG&A expenses increased $2 million, primarily due to higher commission costs resulting from higher sales.  As a percentage of sales, SG&A expenses decreased 90 basis points.  Restructuring expenses decreased $1 million, of restructuring expenses consistingprimarily due to the absence of severance expenses.expenses recorded in the prior year.  During fiscal 2018, we discontinued a geothermal product line and, as a result, recorded a $1 million impairment charge for intangible assets we no longer use.  Operating income of $14$20 million in fiscal 2016 decreased $5increased $7 million, compared with the prior year, primarily due to lowerhigher gross profit and higher SG&A expenses.profit.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents atas of March 31, 20172019 of $34$42 million, and an available borrowing capacity of $153$124 million under lines ofour revolving credit provided by banks in the United States and abroad.facility.  Given our extensive international operations, $32approximately $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 may be subject to U.S. taxforeign withholding taxes if repatriated.  We have not encountered, and do not expect to encounter, any difficulty meeting the liquidity requirements of our global operations.

Net Cash Provided by Operating Activities

Net cash provided by operating activities in fiscal 20172019 was $42$103 million, a decrease of $30$21 million from $72$124 million in the prior year.  This decrease in operating cash flow was primarily due to payments for acquisition- and integration-related costs,resulted from unfavorable net changes in working capital, partially offset by the favorable impact of stronger earnings.  The unfavorable changes in working capital, as compared with the prior year, included higher incentive compensation and other employee benefit payments and higher payments for restructuring activities.inventory levels associated with higher sales levels.

Net cash provided by operating activities in fiscal 20162018 was $72$124 million, an increase of $8$82 million from $64$42 million in the prior year.fiscal 2017.  This increase in operating cash flow was primarily due toresulted from an increase in operating earnings, including additional contributions from our CIS segment, lower payments for costs associated with the acquisition and integration of Luvata HTS and restructuring expenses in the current year, and favorable net changes in working capital, including lower incentive compensation payments during fiscal 2016 and the timing of value-added tax payments.capital.

Capital Expenditures

Capital expenditures of $64$74 million during fiscal 20172019 increased $1$3 million compared with fiscal 2016.  In fiscal 2017,2018, primarily due to higher capital expenditures in our CIS segment, including investments to expand manufacturing capacity in Serbia and Mexico.  Similar to prior years, our capital spending in fiscal 2019 primarily occurred in the Americas and Europe segments,VTS segment, which totaled $26$56 million, and $25 million, respectively.  Capital projects in fiscal 2017 included tooling and equipment purchases in conjunction with new and renewal programs with customers, as well as expansions of ourinvestments to expand manufacturing capacity in MexicoChina and Hungary.

At March 31, 2017,2019, our capital expenditure commitments totaled $18$24 million.  Significant commitments included tooling and equipment expenditures for new and renewal programs with customers in the Americas, Asia, North America, and Europe segments.

Dividends

We did not pay dividends in fiscal 2017, 2016, or 2015.  We currently do not intend to pay dividends in fiscal 2018.within the VTS segment.

Debt

Our total debt outstanding increased $348decreased $30 million to $511$450 million at March 31, 20172019 compared with the prior year, primarily due to new long-termrepayments of debt and borrowings under our revolving credit facility used to finance a significant portion of the $364 million cash consideration for our acquisition of Luvata HTS.during fiscal 2019.  See Note 1517 of the Notes to Consolidated Financial Statements for additional information regarding our new credit agreements.

Our debt agreements require us to maintain compliance with various covenants.  The term loans require prepayments, asAs defined in the credit agreement, the term loans may require prepayments in the event the Company’sour annual excess cash flow exceeds defined levels, depending upon our leverage ratio, or in the event of certain asset sales.  In addition, under our primary debt agreements in the U.S., we are subject to a leverage ratio covenant,covenants, the most restrictive of which requires us to limit our consolidated indebtedness, less a certain portion of our cash balance, both as defined by the credit agreements,agreement, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).  As permitted by the credit agreements and in connection with our acquisition of Luvata HTS, the leverage ratio covenant limit has been temporarily raised to no more than three and three-quarters times Adjusted EBITDA through the second quarter of fiscal 2018, and thereafter to no more than three and one-half times Adjusted EBITDA through the first quarter of fiscal 2019.  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.
OurMarch 31, 2019, our leverage ratio at March 31, 2017 was 2.9, which was below the maximum permitted ratio of 3.75.  Ourand interest expense coverage ratio at March 31, 2017 was 7.0, which exceeded the minimum requirement of 3.0.were 2.1 and 9.0, respectively.  We were in compliance with our debt covenants as of March 31, 20172019 and expect to remain in compliance during fiscal 20182020 and beyond.

Off-Balance Sheet Arrangements

None.

Contractual Obligations

  March 31, 2017 
(in millions) Total  
Less than 1
year
  1 - 3 years  4 - 5 years  
More than
5 years
 
                
Long-term debt $436.2  $31.3  $81.6  $281.6  $41.7 
Interest associated with long-term debt  73.9   18.5   31.8   17.0   6.6 
Capital lease obligations  8.0   0.5   0.8   0.8   5.9 
Operating lease obligations  69.3   12.2   19.2   13.2   24.7 
Capital expenditure commitments  18.1   17.1   1.0   -   - 
Other long-term obligations  4.8   2.4   1.7   0.7   - 
Total contractual obligations $610.3  $82.0  $136.1  $313.3  $78.9 
  March 31, 2019 
(in millions) Total  
Less than
1 year
  1 - 3 years  4 - 5 years  
More than 5
years
 
                
Long-term debt $377.7  $48.2  $287.8  $16.7  $25.0 
Interest associated with long-term debt  40.9   16.0   18.3   4.1   2.5 
Operating lease obligations  70.4   14.2   21.5   11.8   22.9 
Capital expenditure commitments  23.6   23.6   -   -   - 
Other long-term obligations (a)  13.3   1.4   2.1   2.0   7.8 
Total contractual obligations $525.9  $103.4  $329.7  $34.6  $58.2 

(a)Includes capital lease obligations and other long-term obligations.

Our liabilities for pensions, postretirement benefits, and uncertain tax positions totaled $139$119 million as of March 31, 2017.2019.  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 $13$3 million to our U.S. pension plans during fiscal 2018.2020.

Critical Accounting Policies

The following critical accounting policies reflect the more significant judgments and estimates used in preparing our consolidated financial statements.  Application of these policies results in accounting estimates that have the greatest potential for a significant impact on our financial statements.  The following discussion of these judgments and estimates is intended to supplement the significant accounting policies presented in Note 1 of the Notes to Consolidated Financial Statements.  In addition, recently issued accounting pronouncements that could significantly impact our financial statementsstatement are includeddisclosed in Note 1 of the Notes to Consolidated Financial Statements.

Revenue Recognition

In fiscal 2019, we adopted new revenue recognition accounting guidance.  See Note 1 of the Notes to Consolidated Financial Statements for additional information.  In accordance with this new accounting guidance, we recognize revenue based upon consideration specified in a contract and as we satisfy performance obligations by transferring control over our products to our customers, which may be at a point in time or over time.  The majority of our revenue is recognized at a point in time, based upon shipment terms.  A limited number of our customer contracts provide an enforceable right to payment for 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 doubtful accounts for estimated uncollectible receivables and we accrue for estimated warranty costs at the time of sale.  We base these estimates upon historical experience, current business trends, and current economic conditions.

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 are also required to 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.  During fiscal 2017, we acquired Luvata HTS.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.

Revenue Recognition
We recognize revenue, including agreed-upon commodity prices, when the risks and rewards of ownership are transferred to our customers, which generally occurs upon shipment.  Revenue is recorded net of applicable provisions for sales rebates, volume incentives, and returns and allowances.  At the time of revenue recognition, we also record estimates for bad debt expense and warranty expense.  We base these estimates on historical experience, current business trends, and current economic conditions.  We recognize price increases that are agreed upon in advance as revenue when the products are shipped to our customers.
Impairment of Long-Lived Assets

We perform impairment evaluations of long-lived assets, including property, plant and equipment, intangible assets and equity investments, whenever business conditions or events indicate that those assets may be impaired.  We consider factors such as operating losses, declining financial outlooks and market conditions, when evaluating the necessity for an impairment analysis.  When the net asset values exceed undiscounted cash flows expected to be generated by the assets, or the decline in value is considered to be “other than temporary,” we write down the assets to fair value and record an impairment charge to current operations.  We estimate fair value in various ways depending on the nature of the assets under review.underlying assets.  Fair value is generally based upon 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 $459$485 million and $134$116 million, respectively, at March 31, 2017, respectively.2019.  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 recent acquisition of Luvata HTS.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.  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.

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.  We consider factors such as operating losses, declining financial and market outlooks, and market capitalization when evaluating the necessity for an interim impairment analysis.  We test goodwill for impairment at a reporting unit level.  Reporting units resulting from recent acquisitions generally represent the highest risk of impairment, which typically decreases as the businesses are integrated into the Company and positioned for future operating and financial performance.  Our first step in theWe test goodwill for impairment test is to compareby 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 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, business trends and market conditions.  We determine the expected future revenue growth rates and operating profit margins after consideration of our historical revenue growth rates and earnings levels, our assessment of future market potential and our expectations of future business performance.  The discount rate used in determining discounted cash flows is a rate corresponding to our cost of capital, adjusted for country-specific risks where appropriate.

At March 31, 2017,2019, our goodwill totaled $165$169 million, primarily related to our recently-acquired CIS segment and our BHVAC segment.  We will complete goodwill impairment tests for the CISsegments.  Each of these segments is comprised of two reporting units in fiscal 2018, within one year of the acquisition date.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.units.  We conducted annual goodwill impairment tests for our BHVAC and Asia segments during the fourth quarter of fiscal 20172019 by applying a fair value-based test and determined the fair value of theeach of our reporting units substantially exceeded theirthe respective book values.value.

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 $10$9 million at March 31, 2017,2019, 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, 2017,2019, our pension liabilities totaled $122$104 million.  The most significant assumptions include the discount rate, long-term expected return on plan assets, and mortality rate tables.  We base our selection of assumptions on historical trends and economic and market conditions at the time of valuation.  In accordance with U.S. GAAP, actual results that differ from these assumptions are accumulated and amortized over future periods.  These differences impact future pension expenses.  Currently, participants in our domestic pension plans are not accruing benefits based upon their current service as the plans do not include increases in annual earnings or for future service in calculating the average annual earnings and years of credited service under the pension plan formula.

For the following discussion regarding sensitivity of assumptions, all amounts presented are in reference to our domestic pension plans, since our domestic plans comprise all of our benefit plan assets and the large majority of our pension plan expense.

To determine the expected rate of return on pension plan assets, we consider such factors as (a) the actual return earned on plan assets, (b) historical rates of return on the various asset classes in the plan portfolio, (c) projections of returns on those asset classes, (d) the amount of active management of the assets, (e) capital market conditions and economic forecasts, and (f) administrative expenses paid with the plan assets.  The long-term rate of return utilized in both fiscal 20172019 and 20162018 was 8.07.5 percent.  For fiscal 2018,2020, we have also assumed a rate of 7.5 percent.  This 50A change of 25 basis point decreasepoints in the expected rate of return on assets as compared with the prior year, resulted in an increase of less than $1 million inwould impact our estimated fiscal 20182020 pension expense.expense by $0.4 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 20172019 and 2016,2018, for purposes of determining pension expense, we used a discount rate of 4.0 and 4.1 percent.percent, 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 1618 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 20182020 pension expense by less than $1 million.

Income Taxes

We operate in numerous taxing jurisdictions; therefore, we are 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.

The Tax Act was enacted in December 2017 and included numerous changes to existing U.S. tax regulations, including U.S. corporate tax rates, business deductions, and taxes on income in foreign jurisdictions.  We completed our accounting for the impacts of the Tax Act during fiscal 2019.  Additional impacts from the Tax Act could result if there are changes in interpretations or applications of the Tax Act’s provisions or if supplementary regulatory guidance is issued.

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 a particular jurisdiction will not be realized.  This determination involves significant judgment.  In performing this assessment on a jurisdiction-by-jurisdiction basis, we consider historical and projected financial results along with other pertinent information.

We have not recorded a provision for U.S. income taxes on undistributed earnings from our non-U.S. subsidiaries that we have determined to be permanently reinvested in our foreign operations.  If management’s intentions or U.S. tax law changes in the future, there could be a significant negative impact on our provision for income taxes.  See Note 78 of the Notes to Consolidated Financial Statements for additional information regarding income taxes.

Other Loss Reserves

We maintain liabilities and reserves for a number of other loss exposures, such as environmental remediation costs, self-insurance reserves, uncollectible accounts receivable, regulatory compliance matters, and litigation.  Establishing loss reserves for these exposures requires the use of estimates and judgment to determine the risk exposure and ultimate potential liability.  We estimate these reserve requirements by using consistent and suitable methodologies for the particular type of loss reserve being calculated.  See Note 1820 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 and uncertainty associated with cross-border trade, and, in particular, the continuing recovery and/or instability of certain markets in which we operate in China and North America, the still-weak forecasts for the Brazilian economy, and the general uncertainties about the impact of potential regulatory and/or policy changes, including those related to tax and trade, that may be implemented in the United States, as well as continuing uncertainty regarding the longer-term implications of “Brexit”;
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, and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, that have been or may be implemented in the United States or by its trade partners, as well as continuing uncertainty regarding the timing and the short- and long-term implications of “Brexit”;

·The impact of potential increases in commodity prices, including our ability to successfully manage our exposure and/or pass increasing prices of aluminum, copper, steel and stainless steel (nickel) on to customers, as well as the inherent lag in timing of such pass-through arrangements; and
The impact of 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 and the behavior of our suppliers.  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

·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.
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:

·Our ability to integrate the former Luvata HTS operations into Modine, realize cost and revenue synergies in accordance with our expectations, and effectively manage any unanticipated risks that arise, while also maintaining stability within the acquired business and appropriate focus on the rest of Modine’s business;
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;

·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;
Unanticipated 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;

·
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 and overall service pressures from customers, particularly in the face of macro-economic instability;

·Unanticipated product or manufacturing difficulties or inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims;

·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;
Unanticipated product or manufacturing difficulties or operating inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims;

·Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor pools, 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;
Unanticipated delays or modifications initiated by major customers with respect to program launches, product applications or requirements;

·Costs and other effects of the investigation and remediation of environmental contamination;
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;

·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;
Our ability to effectively and efficiently complete restructuring activities and realize the anticipated benefits of those activities;

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

·The constant and increasing pressures associated with healthcare and associated insurance costs; and
Our ability to recruit and maintain talent, including personnel in managerial, leadership and administrative functions, in light of tightening global labor markets;

·Costs and other effects of unanticipated litigation, claims, or other obligations, including those associated with our acquisition of Luvata HTS.
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;

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 unanticipated litigation, claims, or other obligations.

Strategic Risks:

·Our ability to successfully take advantage of our increased presence in the “industrial” markets, with our Building HVAC and Commercial and Industrial Solutions businesses, without shifting attention away from our vehicular business, where we enjoy and desire to preserve a leading position; and
Our ability to successfully take advantage of our increased presence in the “industrial” markets, with our CIS and BHVAC businesses, while maintaining appropriate focus on the market opportunities presented by our VTS business;

·Our ability to identify and execute additional growth and diversification opportunities in order to position us for long-term success.
The success of our evaluation of strategic alternatives for our automotive business within our VTS segment in optimizing the segment’s future profitability;

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

The potential expense, disruption or other impacts that could result from unanticipated actions by activist shareholders.

Financial Risks:

·Our ability to fund our global liquidity requirements efficiently for Modine’s current operations, particularly those in our Asia business segment, and meet our long-term commitments in the event of an unexpected disruption in or tightening of the credit markets or extended recessionary conditions in the global economy;
Our ability to fund our global liquidity requirements efficiently for Modine’s current operations and meet our long-term commitments in the event of an 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 potential increases in interest rates, particularly in LIBOR and EURIBOR in relation to our variable-rate debt obligations;
Our ability to maintain our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) in our target range of 1.5 to 2.5 in an efficient manner;

·Our ability to bring our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) back into our target range of 1.5 to 2.5 in an efficient manner following our acquisition of Luvata HTS;
The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and

·Costs arising from the integration of Luvata HTS and the timing and impact of potential purchase accounting adjustments;
Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate.

·The impact of foreign currency exchange rate fluctuations, particularly the value of the euro, Brazilian real, and British pound, relative to the U.S. dollar; and

·Our ability to effectively realize the benefits of tax assets in various jurisdictions in whichForward-looking statements are as of the date of this report; we operate.

In addition to the risks set forth above, we are subject to other risks and uncertainties as identified in our public filings with the U.S. Securities and Exchange Commission.  We do not assume any obligation to update any forward-looking statements.

37
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.

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 entity engaging in the transaction.  In 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 2017,2019, we recorded realized and unrealizeda net loss of $1 million within our statement of operations related to foreign currency gains and losses that netted to a loss of $2 million, which we reported in other income and expense in the consolidated statement of operations.derivative contracts.  In addition, our consolidated financial results are impacted 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 2017,2019, 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 2017,2019, changes in foreign currency exchange rates negativelyunfavorably impacted our sales by $13$28 million; however, the impact on our operating income was less than $1 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 2017,2019, there would not have been a material impact on our fiscal 20172019 earnings.

We maintain 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, 2017, 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 could materially impact our net earnings.loans; however, Fromfrom 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 accounted 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 variable-rate debt to manage exposure to changes in interest rates.  Interest on both our term loans and borrowings under our primary multi-currency revolving credit facility is based upon a variable interest rate, primarily either the London Interbank Offered Rate (“LIBOR”)LIBOR or Euro Interbank Offered Rate (“EURIBOR”),EURIBOR, plus 137.5 to 250 basis points, depending on our leverage ratio.  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.  As of March 31, 2017,2019, our outstanding borrowings on the variable-rate term loans and the revolving credit facility totaled $269$238 million and $40$47 million, respectively.  Based upon our outstanding debt with variable interest rates at March 31, 2017,2019, a 100 basis point increase in interest rates would increase our annual interest expense in fiscal 20182020 by approximately $3 million.

Commodity Price Risk

We are dependent upon the supply of raw materials and supplies in our production processes and, from time to time, enter into firm purchase commitments for aluminum, copper, nickel, and natural gas.  We maintain agreements with certainCommodity price risk is most prevalent to our vehicular businesses, which provide customized production and service parts to customers to pass through specified raw material price fluctuations inunder multi-year programs.  In order to mitigate commodity price risk.  The majority ofrisk specific to these agreements containlong-term sales programs, we maintain contract provisions in which the pass-through of thewith certain customers that allow us to prospectively adjust prices based upon raw material price fluctuations canfluctuations.  These prospective price adjustments 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 and exclude additional cost elements, such as related premiums and fabrication.  For our industrial businesses, we predominantly seek to mitigate commodity price risk by adjusting product pricing in response to any applicable price increases.
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, 2017, 352019, 38 percent of our trade accounts receivable balance was concentrated with our top ten customers.  These customers operate primarily in the automotive, commercial vehicle, off-highway, data center cooling and off-highwaycommercial air conditioning 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, 2017;
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, 2019;
·
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
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.
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.

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 automotive, commercial vehicle, off-highway, and commercial, industrial, and building HVAC&R 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 is still present.

We monitor economic conditions in the U.S. and abroad.  As we expand our global presence, we also encounter risks imposed by potential trade restrictions, including tariffs, embargoes, and the like.  We continue to pursue non-speculative opportunities to mitigate these economic risks, and capitalize, when possible, on changing market conditions.

We pursue new market opportunities after careful consideration of the potential associated risks and benefits.  Successes in new markets are dependent upon our ability to commercialize our investments.  Current examples of new and emerging markets for us include those related to waste heat recovery,electric vehicles, coils and coolers outside of North America and the U.K.,in certain markets, and coatings.  Our investment in these areas is subject to the risks associated with business integration, technological success, customer and market acceptance, and our ability to meet the demands of our customers as these markets grow.

We anticipate that recovery within some
36
In an effort to manage and reduce our costs, we 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 geographic and end markets 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.
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, customers occasionally link price reductions to future program awards, and we must assess the overall implications of such requests on a case-by-case basis.

Hedging and Foreign Currency Forward Contracts

We use derivative financial instruments as a tool to manage certain financial risks.  We prohibit the use of leveraged derivatives.

Commodity derivatives:  From time to time, we enter into 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 2019 and 2018, 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 2017, 2016we did not designate commodity forward contracts for hedge accounting.  Accordingly, unrealized gains and 2015,losses on these contracts were recorded within cost of sales.  In fiscal 2019, 2018, and 2017, net gains and losses related to commodity derivativeforward contracts which are reported in cost of sales in the consolidated statements of operations, were less than $1 million in each year.

Foreign currency 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.  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:  We manage counterparty risks by ensuring that counterparties to derivative instruments havemaintain credit ratings acceptable to us.  At March 31, 2017,2019, all counterparties had a sufficient long-term credit rating.

ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions, except per share amounts)

  2017  2016  2015 
Net sales $1,503.0  $1,352.5  $1,496.4 
Cost of sales  1,249.7   1,129.0   1,249.9 
Gross profit  253.3   223.5   246.5 
Selling, general and administrative expenses  205.0   204.5   184.5 
Restructuring expenses  10.9   16.6   4.7 
Gain on sale of facilities  (2.0)  -   (3.2)
Impairment charges  -   9.9   7.8 
Operating income (loss)  39.4   (7.5)  52.7 
Interest expense  (17.2)  (11.1)  (11.7)
Other (expense) income – net  (1.4)  8.7   0.2 
Earnings (loss) from continuing operations before income taxes  20.8   (9.9)  41.2 
(Provision) benefit for income taxes  (5.9)  8.9   (19.0)
Earnings (loss) from continuing operations  14.9   (1.0)  22.2 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss)  14.9   (1.0)  22.8 
Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Net earnings (loss) attributable to Modine $14.2  $(1.6) $21.8 
             
Earnings (loss) per share from continuing operations attributable to Modine shareholders:            
Basic $0.29  $(0.03) $0.45 
Diluted $0.29  $(0.03) $0.44 
             
Net earnings (loss) per share attributable to Modine shareholders:            
Basic $0.29  $(0.03) $0.46 
Diluted $0.29  $(0.03) $0.45 
             
Weighted-average shares outstanding:            
Basic  47.8   47.3   47.2 
Diluted  48.3   47.3   47.8 
  2019  2018  2017 
Net sales $2,212.7  $2,103.1  $1,503.0 
Cost of sales  1,847.2   1,746.6   1,248.6 
Gross profit  365.5   356.5   254.4 
Selling, general and administrative expenses  244.1   245.8   203.2 
Restructuring expenses  9.6   16.0   10.9 
Impairment charges  0.4   2.5   - 
Loss (gain) on sale of assets  1.7   -   (2.0)
Operating income  109.7   92.2   42.3 
Interest expense  (24.8)  (25.6)  (17.2)
Other expense - net  (4.1)  (3.3)  (4.3)
Earnings before income taxes  80.8   63.3   20.8 
Benefit (provision) for income taxes  5.1   (39.5)  (5.9)
Net earnings  85.9   23.8   14.9 
Net earnings attributable to noncontrolling interest  (1.1)  (1.6)  (0.7)
Net earnings attributable to Modine $84.8  $22.2  $14.2 
             
Net earnings per share attributable to Modine shareholders:            
Basic $1.67  $0.44  $0.29 
Diluted $1.65  $0.43  $0.29 
             
Weighted-average shares outstanding:            
Basic  50.5   49.9   47.8 
Diluted  51.3   50.9   48.3 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

  2017  2016  2015 
Net earnings (loss) $14.9  $(1.0) $22.8 
Other comprehensive income (loss):            
Foreign currency translation  (10.8)  4.6   (68.2)
Defined benefit plans, net of income taxes of $1.7, $11.8 and ($13.2) million  3.2   19.7   (26.7)
Total other comprehensive (loss) income  (7.6)  24.3   (94.9)
             
Comprehensive income (loss)  7.3   23.3   (72.1)
Comprehensive income attributable to noncontrolling interest  (0.7)  (0.5)  (0.8)
Comprehensive income (loss) attributable to Modine $6.6  $22.8  $(72.9)
  2019  2018  2017 
Net earnings $85.9  $23.8  $14.9 
Other comprehensive income (loss):            
Foreign currency translation  (37.6)  41.8   (10.8)
Defined benefit plans, net of income taxes of ($0.3), ($0.2) and $1.7 million  (1.4)  0.1   3.2 
Cash flow hedges, net of income taxes of $0.1, $0.1 and $0 million  0.4   0.1   - 
Total other comprehensive income (loss)  (38.6)  42.0   (7.6)
             
Comprehensive income  47.3   65.8   7.3 
Comprehensive income attributable to noncontrolling interest  (0.6)  (2.1)  (0.7)
Comprehensive income attributable to Modine $46.7  $63.7  $6.6 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
March 31, 20172019 and 20162018
(In millions, except per share amounts)

  2017  2016 
ASSETS
      
Cash and cash equivalents $34.2  $68.9 
Trade accounts receivable – net  295.2   189.1 
Inventories  168.5   111.0 
Other current assets  55.4   43.5 
Total current assets  553.3   412.5 
Property, plant and equipment – net  459.0   338.6 
Intangible assets – net  134.1   8.2 
Goodwill  165.1   15.8 
Deferred income taxes  108.4   123.1 
Other noncurrent assets  29.6   22.7 
Total assets $1,449.5  $920.9 
         
LIABILITIES AND SHAREHOLDERS' EQUITY
        
Short-term debt $73.4  $28.6 
Long-term debt – current portion  31.8   8.5 
Accounts payable  230.3   142.4 
Accrued compensation and employee benefits  74.8   58.6 
Other current liabilities  45.1   35.5 
Total current liabilities  455.4   273.6 
Long-term debt  405.7   125.5 
Deferred income taxes  9.7   4.2 
Pensions  119.4   118.6 
Other noncurrent liabilities  38.1   16.3 
Total liabilities  1,028.3   538.2 
Commitments and contingencies (see Note 18)        
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 51.8 million and 49.0 million shares  32.4   30.6 
Additional paid-in capital  216.4   185.6 
Retained earnings  372.4   358.2 
Accumulated other comprehensive loss  (181.8)  (174.2)
Treasury stock, at cost, 1.7 million and 1.6 million shares  (25.4)  (24.0)
Total Modine shareholders' equity  414.0   376.2 
Noncontrolling interest  7.2   6.5 
Total equity  421.2   382.7 
Total liabilities and equity $1,449.5  $920.9 
  2019  2018 
ASSETS
      
Cash and cash equivalents $41.7  $39.3 
Trade accounts receivable – net  338.6   342.4 
Inventories  200.7   191.3 
Other current assets  65.8   70.1 
Total current assets  646.8   643.1 
Property, plant and equipment – net  484.7   504.3 
Intangible assets – net  116.2   129.9 
Goodwill  168.5   173.8 
Deferred income taxes  97.1   96.9 
Other noncurrent assets  24.7   25.4 
Total assets $1,538.0  $1,573.4 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY
        
Short-term debt $66.0  $53.2 
Long-term debt – current portion  48.6   39.9 
Accounts payable  280.9   277.9 
Accrued compensation and employee benefits  81.7   97.3 
Other current liabilities  39.9   47.2 
Total current liabilities  517.1   515.5 
Long-term debt  335.1   386.3 
Deferred income taxes  8.2   9.9 
Pensions  101.7   109.6 
Other noncurrent liabilities  34.8   53.6 
Total liabilities  996.9   1,074.9 
Commitments and contingencies (see Note 20)        
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 52.8 million and 52.3 million shares
  33.0   32.7 
Additional paid-in capital  238.6   229.9 
Retained earnings  472.1   394.9 
Accumulated other comprehensive loss  (178.4)  (140.3)
Treasury stock, at cost, 2.1 million and 1.8 million shares  (31.4)  (27.1)
Total Modine shareholders’ equity  533.9   490.1 
Noncontrolling interest  7.2   8.4 
Total equity  541.1   498.5 
Total liabilities and equity $1,538.0  $1,573.4 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

  2017  2016  2015 
Cash flows from operating activities:         
Net earnings (loss) $14.9  $(1.0) $22.8 
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:            
Depreciation and amortization  58.3   50.2   51.6 
Gain on sale of facilities  (2.0)  -   (3.2)
Impairment charges  -   9.9   7.8 
Insurance proceeds from Airedale fire  -   5.9   12.9 
Pension and postretirement expense  3.4   45.1   2.3 
Deferred income taxes  (4.6)  (18.8)  5.9 
Stock-based compensation expense  7.4   4.9   4.0 
Other – net  0.5   0.1   0.4 
Changes in operating assets and liabilities, excluding acquisitions:            
Trade accounts receivable  (25.7)  8.0   (0.1)
Inventories  (3.3)  (2.7)  (4.2)
Accounts payable  19.9   (9.9)  (2.4)
Accrued compensation and employee benefits  (6.5)  0.8   (5.3)
Other assets  (2.5)  (14.5)  (24.5)
Other liabilities  (18.2)  (5.6)  (4.5)
Net cash provided by operating activities  41.6   72.4   63.5 
             
Cash flows from investing activities:            
Acquisitions – net of cash acquired  (364.2)  (1.4)  - 
Expenditures for property, plant and equipment  (64.4)  (62.8)  (58.3)
Insurance proceeds from Airedale fire  3.0   27.4   12.2 
Costs to replace building and equipment damaged in Airedale fire  (1.0)  (41.7)  (16.7)
Proceeds from dispositions of assets  5.7   0.4   7.6 
Purchases of short-term investments  (3.5)  (2.7)  (5.2)
Proceeds from maturities of short-term investments  2.2   2.1   2.4 
Other – net  -   0.9   0.8 
Net cash used for investing activities  (422.2)  (77.8)  (57.2)
             
Cash flows from financing activities:            
Borrowings of debt  559.1   38.0   36.4 
Repayments of debt  (202.4)  (27.1)  (50.9)
Financing fees paid  (8.7)  -   (0.1)
Purchases of treasury stock under share repurchase program  -   (6.9)  - 
Dividend paid to noncontrolling interest  -   (0.9)  - 
Other – net  (0.4)  (0.4)  - 
Net cash provided by (used for) financing activities  347.6   2.7   (14.6)
             
Effect of exchange rate changes on cash  (1.7)  1.1   (8.4)
Net decrease in cash and cash equivalents  (34.7)  (1.6)  (16.7)
Cash and cash equivalents - beginning of year  68.9   70.5   87.2 
Cash and cash equivalents - end of year $34.2  $68.9  $70.5 
  2019  2018  2017 
Cash flows from operating activities:         
Net earnings $85.9  $23.8  $14.9 
Adjustments to reconcile net earnings to net cash provided by operating activities:            
Depreciation and amortization  76.9   76.7   58.3 
Loss (gain) on sale of assets  1.7   -   (2.0)
Impairment charges  0.4   2.5   - 
Stock-based compensation expense  7.9   9.5   7.4 
Deferred income taxes  (4.4)  12.1   (4.6)
Other – net  5.3   9.0   3.9 
Changes in operating assets and liabilities, excluding acquisition:            
Trade accounts receivable  (15.3)  (26.1)  (25.7)
Inventories  (22.0)  (12.5)  (3.3)
Accounts payable  16.6   25.2   19.9 
Accrued compensation and employee benefits  (10.1)  16.4   (6.5)
Other assets  (11.8)  (5.0)  (2.4)
Other liabilities  (27.8)  (7.4)  (18.2)
Net cash provided by operating activities  103.3   124.2   41.7 
             
Cash flows from investing activities:            
Expenditures for property, plant and equipment  (73.9)  (71.0)  (64.4)
Acquisition – net of cash acquired  -   -   (364.2)
Proceeds from dispositions of assets  0.3   0.3   5.7 
Proceeds from maturities of short-term investments  4.9   4.8   2.2 
Purchases of short-term investments  (3.8)  (5.5)  (3.5)
Other – net  (0.3)  (0.2)  2.0 
Net cash used for investing activities  (72.8)  (71.6)  (422.2)
             
Cash flows from financing activities:            
Borrowings of debt  231.2   171.0   559.1 
Repayments of debt  (251.9)  (222.9)  (202.4)
Dividend paid to noncontrolling interest  (1.8)  (0.9)  - 
Financing fees paid  -   -   (8.7)
Other – net  (3.4)  2.7   (0.4)
Net cash (used for) provided by financing activities  (25.9)  (50.1)  347.6 
             
Effect of exchange rate changes on cash  (2.7)  3.0   (1.7)
Net increase (decrease) in cash, cash equivalents and restricted cash  1.9   5.5   (34.6)
Cash, cash equivalents and restricted cash - beginning of year  40.3   34.8   69.4 
Cash, cash equivalents and restricted cash - end of year $42.2  $40.3  $34.8 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'SHAREHOLDERS’ EQUITY
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

    
Additional
paid-in
capital
  
Retained
earnings
  
Accumulated
other
comprehensive
loss
  
Treasury
stock, at
cost
  
Non-
controlling
interest
  Total 
 
Common stock 
Shares  Amount
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 
Net earnings attributable to Modine  -   -   -   14.2   -   -   -   14.2 
Other comprehensive loss  -   -   -   -   (7.6)  -   -   (7.6)
Shares issued for acquisition of Luvata HTS  2.2   1.4   22.9   -   -   -   -   24.3 
Stock options and awards including related tax benefits  0.6   0.4   0.5   -   -   -   -   0.9 
Purchase of treasury stock  -   -   -   -   -   (1.4)  -   (1.4)
Stock-based compensation expense  -   -   7.4   -   -   -   -   7.4 
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   0.7   0.7 
Balance, March 31, 2017  51.8  $32.4  $216.4  $372.4  $(181.8) $(25.4) $7.2  $421.2 
    

Common stock
    
Additional
paid-in
capital
    
Retained
earnings
    
Accumulated other
comprehensive loss
    
Treasury
stock, at
cost
    
Non-controlling
interest
    Total  
Shares  Amount
Balance, March 31, 2016  49.0  $30.6  $185.6  $358.2  $(174.2) $(24.0) $6.5  $382.7 
Net earnings attributable to Modine  -   -   -   14.2   -   -   -   14.2 
Other comprehensive loss  -   -   -   -   (7.6)  -   -   (7.6)
Shares issued for acquisition of Luvata HTS  2.2   1.4   22.9   -   -   -   -   24.3 
Stock options and awards including related tax benefits  0.6   0.4   0.5   -   -   -   -   0.9 
Purchase of treasury stock  -   -   -   -   -   (1.4)  -   (1.4)
Stock-based compensation expense  -   -   7.4   -   -   -   -   7.4 
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   0.7   0.7 
Balance, March 31, 2017  51.8   32.4   216.4   372.4   (181.8)  (25.4)  7.2   421.2 
Net earnings attributable to Modine  -   -   -   22.2   -   -   -   22.2 
Other comprehensive income  -   -   -   -   41.5   -   0.5   42.0 
Stock options and awards  0.5   0.3   3.9   -   -   -   -   4.2 
Purchase of treasury stock  -   -   -   -   -   (1.7)  -   (1.7)
Adoption of new accounting guidance (Note 1)  -   -   0.1   0.3   -   -   -   0.4 
Stock-based compensation expense  -   -   9.5   -   -   -   -   9.5 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (0.9)  (0.9)
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   1.6   1.6 
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)  -   -   -   (7.6)  -   -   -   (7.6)
Net earnings attributable to Modine  -   -   -   84.8   -   -   -   84.8 
Other comprehensive loss  -   -   -   -   (38.1)  -   (0.5)  (38.6)
Stock options and awards  0.5   0.3   0.8   -   -   -   -   1.1 
Purchase of treasury stock  -   -   -   -   -   (4.3)  -   (4.3)
Stock-based compensation expense  -   -   7.9   -   -   -   -   7.9 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (1.8)  (1.8)
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   1.1   1.1 
Balance, March 31, 2019  52.8  $33.0  $238.6  $472.1  $(178.4) $(31.4) $7.2  $541.1 

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

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

Note 1: 
Note 1:Significant Accounting Policies

Nature of operations:  Modine Manufacturing Company (“Modine” or the “Company”) specializes in providing innovative thermal management solutions to diversified global markets and customers.  The Company is a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway original equipment manufacturer (“OEM”) vehicular applications.  In addition, 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.  The Company’s primary product groups include i) powertrain cooling and engine cooling; ii) coils, coolers, and coatings; and iii) heating, ventilation and air conditioning.

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 on the loss on sale of assets line of the consolidated statements of operations.  Annual net sales attributable to this disposed business were less than $2.0 million.

Acquisition of Luvata HTS:  On November 30, 2016, the Company completed the acquisition of 100%100 percent of the shares of multiple companies held by Luvata Heat Transfer Solutions II AB, a company incorporated in Sweden.  Combined, these acquired companies represented the Luvata Heat Transfer Solutions (“Luvata HTS”) business.  See Note 2 for additional information.

Airedale facility fire: In September 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 (“BHVAC”) segment.  There were no injuries caused by the fire.  The Rawdon facility, which was leased, was used to manufacture cooling products and solutions for a variety of applications, including data centers, clean rooms, retail, leisure and process cooling.  The Company suspended operations at the Rawdon site as a result of the fire; however, it transferred operations to temporary facilities while it rebuilt the leased facility.  The Company completed the reconstruction and relocation to the Rawdon facility in fiscal 2016.  In fiscal 2016, the Company recorded a $9.5 million gain within other income related to an insurance settlement for equipment losses.  This gain represented the replacement assets’ cost in excess of the carrying value of the equipment at the time they were destroyed by the fire.

Basis of presentation:  The Company prepares its consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States.  These principles require management to make certain estimates and assumptions in determining assets, liabilities, revenue, expenses and related disclosures.  Actual amounts could differ materially from those estimates.

Consolidation principles:  The consolidated financial statements include the accounts of Modine Manufacturing Company and its majority-owned or Modine-controlled subsidiaries.  The Company eliminates intercompany transactions and balances in consolidation.

The Company accounts for investments in non-consolidated affiliated companies in which its ownership is 20 percent or more using the equity method.  The Company states these investments at cost, plus or minus a proportionate share of undistributed net earnings.  The Company includes Modine’s share of the affiliate’s net earnings in other income and expense.  See Note 1113 for additional information.

Discontinued operations: Revenue recognition:  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 customers, which may be at a point in time or over time.  The majority of the Company’s revenue is recognized at a point in 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 3 for additional information.

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 records an allowance for doubtful accounts for estimated uncollectible receivables based upon historical experience or specific customer economic data.  The Company recorded an allowance for doubtful accounts of $1.6 million and $2.3 million at March 31, 2019 and 2018, 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 fiscal 2009,2019, 2018, and 2017, the Company sold its Electronics Cooling business.  The buyer financed a portion$85.1 million, $65.8 million, and $55.4 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,2019, 2018, and 2017, the Company recorded a gainloss on the sale of $0.9accounts receivable of $0.6 million, ($0.6$0.4 million, after income taxes) during fiscal 2015.and $0.3 million, respectively, in the consolidated statements of operations.

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 16 for additional information.

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

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, 2019 and 2018, Company-owned tooling totaled $24.2 million and $22.4 million, respectively.  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.  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, 2019 and 2018, cost reimbursement receivables related to customer-owned tooling totaled $11.6 million and $10.7 million, respectively.

Stock-based compensation:  The Company recognizes stock-based compensation using the fair value method.  Accordingly, compensation expense for stock options, restricted stock and performance-based stock awards is calculated based upon the fair value of the instruments at the time of grant, and is recognized as expense over the respective vesting periods.  See Note 5 for additional information.

Research and development:  The Company expenses research and development costs as incurred within selling, general and administrative (“SG&A”) expenses.  During fiscal 2019, 2018, and 2017, research and development costs charged to operations totaled $69.8 million, $65.8 million, and $64.4 million, respectively.

Translation of foreign currencies:  The Company translates assets and liabilities of foreign subsidiaries and equity investments into U.S. dollars at the period-end exchange rates, and translates income and expense items at the monthly average exchange rate for the period in which the transactions occur.  The Company reports resulting translation adjustments within accumulated other comprehensive income (loss) within shareholders’ equity.  The Company includes foreign currency transaction gains or losses in the statement of operations within other income and expense.

Derivative instruments:  The Company enters into derivative financial instruments from time to time to manage certain financial risks.  The Company enters into forward 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 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 19 for additional information.

Income taxes:  The Company determines deferred tax assets and liabilities based upon the difference between the amounts reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse.  The Company establishes a valuation allowance if it is more likely than not that a deferred tax asset, or portion thereof, will not be realized.  See Note 8 for additional information.

Earnings per share:  The Company calculates basic earnings per share based upon the weighted-average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.  The calculation of diluted earnings per share excludes potential common shares if their inclusion would have an anti-dilutive effect.  Certain outstanding restricted stock awards provide recipients with a non-forfeitable right to receive dividends declared by the Company.  Therefore, these restricted stock awards are included in computing earnings per share pursuant to the two-class method.  See Note 9 for additional information.

Cash and cash equivalents: The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment.  To the extent checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the Company reports the amount of those checks within accounts payable in the consolidated balance sheets.

Short-term investments:  The Company invests in time deposits with original maturities of more than three months but no more than one year.  The Company records these short-term investments at cost, which approximates fair value, within other current assets in the consolidated balance sheets.  As of March 31, 2019 and 2018, the Company’s short-term investments totaled $4.3 million and $5.7 million, respectively.

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.

Property, plant and equipment:  The Company records property, plant and equipment at cost.  For financial reporting purposes, the Company computes depreciation using the straight-line method over the expected useful lives of the assets.  The Company charges maintenance and repair costs to operations as incurred.  The Company capitalizes costs of improvements.  Upon the sale or other disposition of an asset, the Company removes the cost and related accumulated depreciation from the accounts and includes the gain or loss in the consolidated statements of operations.  Capital expenditures of $17.9 million, $15.8 million, and $12.5 million were accrued within accounts payable at March 31, 2019, 2018, and 2017, respectively.

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, 2019, which did not result in an impairment charge.  See Note 15 for additional information.

Impairment of long-lived assets:  The Company reviews long-lived assets, including property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.  In these instances, the Company compares the undiscounted future cash flows expected to be generated from the asset with its carrying value.  If the asset’s carrying value exceeds expected future cash flows, the Company measures and records an impairment loss, if any, as the amount by which the carrying value of the asset exceeds its fair value.  The Company estimates fair value using a variety of valuation techniques, including discounted cash flows, market values and comparison values for similar assets.

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, within other noncurrent assets.  The Company ceases to record depreciation expense at the time of designation as held for sale.  The carrying value of assets held for sale totaled $5.0$1.1 million and $8.5$1.7 million at March 31, 20172019 and 2016,2018, respectively.

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 upon 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
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, 2017 and 2016, Company-owned tooling totaled $20.8 million and $18.8 million, respectively.  In certain instances, the Company makes upfront payments for customer-owned tooling costs, and subsequently receives reimbursement from customers for the upfront payments.  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 its consolidated statements of operations.  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, 2017 and 2016, cost reimbursement receivables related to customer-owned tooling totaled $7.8 million and $8.5 million, respectively.

Warranty:  The Company provides product warranties for specific product lines and accrues for estimated future warranty costs in the period in which the sale is recorded.  The Company records warranty expense, 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 14 for additional information.

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.

Research and development:  The Company expenses research and development costs as incurred within selling, general and administrative (“SG&A”) expenses.  For the years ended March 31, 2017, 2016, and 2015, research and development costs charged to operations totaled $64.4 million, $61.1 million, and $62.0 million, respectively.

Translation of foreign currencies:  The Company translates assets and liabilities of foreign subsidiaries and equity investments into U.S. dollars at the period-end exchange rates, and translates income and expense items at the monthly average exchange rate for the period in which the transactions occur.  The Company reports resulting translation adjustments within accumulated other comprehensive income (loss) within shareholders' equity.  The Company includes foreign currency transaction gains or losses in the statement of operations within other income and expense.

Derivative instruments:  The Company enters into derivative financial instruments from time to time to manage certain financial risks.  The Company enters into futures contracts to reduce exposure to changing future purchase prices for aluminum and copper and into foreign currency exchange contracts to hedge specific foreign currency-denominated assets and liabilities.  These instruments are used to manage financial risks and are not speculative.  See Note 17 for additional information.

Income taxes:  The Company determines deferred tax assets and liabilities based upon the difference between the amounts reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse.  The Company establishes a valuation allowance if it is more likely than not that a deferred tax asset, or portion thereof, will not be realized.  See Note 7 for additional information.

Earnings per share:  The Company calculates basic earnings per share based upon the weighted-average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.  The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect.  Restricted stock award recipients have a non-forfeitable right to receive dividends declared by the Company.  Therefore, these restricted stock awards are included in computing earnings per share pursuant to the two-class method.  See Note 8 for additional information.

Cash and cash equivalents: The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment.  To the extent checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the Company reports the amount of those un-presented checks within accounts payable in the consolidated balance sheets.

Short-term investments:  The Company invests in time deposits with original maturities of more than three months but no more than one year.  The Company records these short-term investments at cost, which approximates fair value, within other current assets in the consolidated balance sheets.  As of March 31, 2017 and 2016, the Company’s short-term investments totaled $4.7 million and $3.3 million, respectively.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Deferred compensation trusts:  The Company maintains deferred compensation trusts to fund future obligations under its non-qualified deferred compensation plan.plans.  The trust’strusts’ investments in third-party debt and equity securities are presented within other noncurrent assets in the consolidated balance sheets.

Trade accounts receivable:  The Company records trade receivables at the invoiced amount.  Trade receivables do not bear interest if paid according to the original terms.  The Company recorded an allowance for doubtful accounts of $1.4 million and $0.5 million at March 31, 2017 and 2016, 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, 2017, 2016, and 2015, the Company sold $55.4 million, $71.3 million, and $87.0 million, respectively, of accounts receivable to accelerate cash receipts.  During each of the years ended March 31, 2017, 2016, and 2015, the Company recorded a loss on the sale of accounts receivables of $0.3 million in the consolidated statements of operations.

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

Property, plant and equipment:  The Company records property, plant and equipment at cost.  For financial reporting purposes, the Company computes depreciation using the straight-line method over the expected useful lives of the assets.  The Company charges maintenance and repair costs to operations as incurred.  The Company capitalizes costs of improvements.  Upon the sale or other disposition of an asset, the Company removes the cost and related accumulated depreciation from the accounts and includes the gain or loss in the consolidated statements of operations.

Goodwill:  The Company does not amortize goodwill; rather, it tests for impairment annually unless conditions exist that would require a more frequent evaluation.  The Company performs an assessment of the fair value of its reporting units for goodwill impairment testing based upon, among other things, the present value of expected future cash flows.  The Company performed its goodwill impairment test as of March 31, 2017, which did not result in an impairment charge.  See Note 13 for additional information.

Impairment of long-lived assets:  The Company reviews long-lived assets, including property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.  In these instances, the Company compares the undiscounted future cash flows expected to be generated from the asset with its carrying value.  If the asset’s carrying value exceeds expected future cash flows, the Company measures and records an impairment loss, if any, as the amount by which the carrying value of the asset exceeds its fair value.  The Company estimates fair value using a variety of valuation techniques, including discounted cash flows, market values and comparison values for similar assets.

Environmental liabilities:  The Company records liabilities for environmental assessments and remediation efforts in the period in which its responsibility is probable and the costs can be reasonably estimated.  The Company records environmental indemnification assets from third parties, including prior owners, when recovery is probable.  To the extent that the required remediation procedures change, or additional contamination is identified, the Company’s estimated environmental liabilities may also change.  See Note 18 for additional information.

Self-insurance 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 420 for additional information.

Supplemental cash flow information:

  Years ended March 31, 
  2019  2018  2017 
Interest paid $22.3  $23.4  $15.4 
Income taxes paid  22.2   20.1   12.7 

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

New Accounting Guidance:

Pension costsStock-based Compensation
In March 2017,2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the income statement presentationsimplify several aspects of net periodic pension costs and net periodic postretirement benefit costs.  This guidance requires companies to continue to present the service cost component of net benefit cost within the same financial statement line item as other employee compensation costs; however, other components of net benefit costs are required to be presented outside of results from operations.  This will not impact consolidated net earnings.  Early adoption is permitted, and theaccounting for stock-based payment transactions.  The Company plans to adoptadopted this guidance for thebeginning in its first quarter of fiscal 2018.  The Company will recast prior periodselected to conformaccount for forfeitures in the period in which they occur and recorded a cumulative-effect adjustment to the new income statement presentation.  As a result,equity.  In addition, the Company expectsprospectively adopted the guidance requiring all excess tax benefits or deficiencies to reclassify net benefit costs related to its pension plans totaling approximately $3.0 million in fiscal 2017 ($1.0 million from cost of sales and $2.0 million from SG&A expenses) and $45.0 million in fiscal 2016 ($10.0 million from cost of sales and $35.0 million from SG&A expenses) to other income and expense.  The fiscal 2016 net benefit costs included $42.1 million of pension settlement losses related to a completed voluntary lump-sum payout program; see Note 16 for additional information.  In fiscal 2018, the Company expects to record approximately $3.0 to $4.0 million of net benefit costs within other income and expense.

Share-based compensation
In March 2016, the FASB issued new guidance to simplify several aspects of accounting for share-based payment transactions, including thebe recognized as income tax effects ofexpense or benefit when share-based payments, recognition of forfeitures, and presentation requirements in the statement of cash flows.  This guidance is effective for the Company’s first quarter of fiscal 2018.awards are settled.  The Company does not expect the adoptionprovisions of this new guidance willdid not have a material impact on itsthe Company’s consolidated financial statements

Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance.  Upon adoptionstatements.  As a result of adopting this new guidance, the Company will be requiredrecorded a $0.4 million increase to recognize most leases on its balance sheet.  This guidance is effective for the Company’s first quarterboth deferred tax assets and equity as of fiscal 2020.  The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.April 1, 2017.

Revenue recognitionRecognition
In May 2014, the FASB issued new guidance that outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the new guidance is that companies are to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about revenue arising from contracts with customers.  The Company adopted this new guidance is effective for the Company’s first quarter of fiscal 2019 and allows for either a full-retrospective or ausing the modified-retrospective transition method.

The Company is currently in the process of assessingassessed customer contracts and evaluatingevaluated contractual provisions that may result in a change inlight of the timing of revenue recognized in comparison with currentnew guidance. Under current guidance,Through its evaluation process, the Company generally recognizes revenue when products are shipped and riskidentified a limited number of loss has transferred to the customer.  The Company is evaluating whether contractual provisions maycustomer contracts that provide an enforceable right to payment for its customized products, which may require revenue recognition prior to the product being shipped to the customer. In addition,As a result of its adoption of the new guidance, the Company is evaluating pricing provisions contained in certainrecorded an increase of its customer contracts$0.7 million to determine the appropriate timingretained earnings as of revenue recognition based uponApril 1, 2018, along with related balance sheet reclassifications.  The increase to retained earnings represented $3.0 million of net sales that, had the new guidance.guidance been in effect, the Company would have recognized as of March 31, 2018. See Note 3 for additional information regarding revenue recognition.

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 continues to evaluate the impactadopted 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.

Statement of Cash Flows: Restricted Cash
In November 2016, the FASB issued new guidance that requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending balances presented within the statement of cash flows.  The Company adopted this new guidance for fiscal 2019 using the retrospective transition method.  As a result, all prior period information has been recast to be comparable to the new presentation requirements.  See Note 10 for information regarding the Company’s restricted cash.

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 is effective for the Company as of April 1, 2019 and provides the option to reclassify stranded income tax effects to retained earnings.  The Company has determined it will have onnot reclassify stranded income tax effects upon adoption, and therefore, this guidance will not impact its consolidated financial statements.

Supplemental cash flow information:Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance and requires balance sheet recognition for most leases.  The Company will adopt this guidance effective April 1, 2019 using a modified-retrospective transition method, under which it expects to elect not to adjust comparative periods.  The Company intends to elect the package of practical expedients permitted under the new guidance, and, as a result, the Company has not reassessed the classification of existing leases or initial direct costs thereof, or whether existing contracts contain leases.  In addition, the Company plans to elect accounting policies to not record short-term leases on the balance sheet and to not separate lease and non-lease components.  The Company does not intend to elect the hindsight practical expedient.

  Years ended March 31, 
  2017  2016  2015 
Interest paid $15.4  $10.7  $10.3 
Income taxes paid  12.7   10.1   15.9 
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Note 2:  AcquisitionsThe Company has completed its assessment of its global lease portfolio and is in the process of finalizing the testing of its new lease accounting software solution and implementing new processes and controls to account for leases in accordance with the new guidance.  The Company’s most significant leases represent leases of real estate, such as manufacturing facilities, warehouses, and office buildings.  In addition, the Company leases certain manufacturing and IT equipment and vehicles.  Upon adoption of this new guidance, the Company expects to recognize $60.0 to $70.0 million of right-of-use assets and corresponding lease liabilities on its consolidated balance sheet.  The Company does not expect the adoption will have a material impact on its consolidated statements of operations or consolidated statements of cash flows.

The cumulative effects on the Company’s consolidated balance sheet, as of April 1, 2018, resulting from the adoption of new accounting guidance were as follows:

     
Adjustments Due to
New Accounting Guidance
    
  
Balance as of
March 31, 2018
  
Revenue
Recognition
  
Intra-entity Transfers
of Assets
  
Balance as of
April 1, 2018
 
ASSETS
            
Inventories $191.3  $(2.0) $-  $189.3 
Other current assets  70.1   3.0   (8.3)  64.8 
Deferred income taxes  96.9   (0.2)  -   96.7 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Deferred income taxes $9.9  $0.1  $-  $10.0 
Retained earnings  394.9   0.7   (8.3)  387.3 

Note 2:Acquisition

Luvata HTS

On November 30, 2016, the Company completed its acquisition of a 100%100 percent ownership interest in the Luvata HTS business for consideration totaling $415.6 million ($388.2 million, net of cash acquired).  The purchase price included 2.2 million Modine common shares.  The Company estimated the fair value of the common shares, to bevalued at $24.3 million atas of November 30, 2016, which reflects restrictions on the sale of the shares for a minimum of one year.  Now operating2016.  Operating as Modine’s Commercial and Industrial Solutions (“CIS”) segment, this business is a leading global supplier of coils, coolers and coatings to the heating, ventilation, air conditioning, and refrigeration (“HVAC&R”) industry.  CIS’s products coverSee Note 22 for a broad range of heat exchanger coils, commercial refrigeration and industrial coolers, and anti-corrosion coating solutions.  The Company’s acquisition of Luvata HTS addressed, in particular, both the “Diversify” and “Grow” commitments of its transformational Strengthen, Diversify and Grow strategy launched in fiscal 2016.  This acquisition provided Modine with an expanded industrial business portfolio, broader customer base, and reduced cyclical exposure.  For the year ended March 31, 2017, the Company included $177.7 millionsummary of net sales and operating income of $7.5 million within its consolidated statement of operations attributable to four months ofreported by the CIS operations.  During the year ended March 31,segment.  In fiscal 2018 and 2017, the Company recorded $4.3 million and $14.8 million, respectively, of costs incurred directly related to the acquisition and integration of Luvata HTS as SG&A expenses within the consolidated statementstatements of operations.  TheseThe fiscal 2018 costs principallyprimarily consisted of fees for i) transaction advisors, ii)incremental costs associated with integration activities, including legal accounting, and otheraccounting professional services and iii)severance expenses.  The fiscal 2017 costs primarily consisted of transaction advisory and due diligence costs and incremental costs directly associated with integration activities.

To fund a significant portion of the Luvata HTS purchase price,  In addition, during fiscal 2017, the Company entered into new credit agreements in November 2016.  See Note 15 for additional information.charged $4.3 million to cost of sales related to inventory that it wrote-up to fair value upon acquisition.

The Company completed its accounting for the acquisition of Luvata HTS during fiscal 2018 and allocated the total purchase price of Luvata HTS$415.6 million to the identifiable tangible and intangible assets acquired and the liabilities assumed based upon their estimated fair values as of the acquisition date.  The Company based the estimated fair values primarily upon third-party valuations using assumptions developed by management and other information compiled by management, including, but not limited to, future expected cash flows.  The Company allocated the excess of the purchase price over the net assets recognized to goodwill in the amount of $150.6$151.9 million, none of which the Company expects to beis deductible for income tax purposes.  Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.  Specifically, the goodwill recorded as part of the acquisition includes Luvata HTS’s workforce and anticipated future cost and revenue synergies.

At the time the March 31, 2017 financial statements were finalized, the Company was awaiting additional information to determine the fair value of certain assets acquired and liabilities assumed and therefore, the allocation of purchase price is considered preliminary.  The Company expects to complete its evaluation of these matters in the first or second quarter of fiscal 2018.  These matters primarily relate to income tax reserves and contingent liabilities, including reserves for environmental, legal, product warranty, and trade compliance matters.

The Company’s preliminary allocation of the purchase price for its acquisition of Luvata HTS is as follows:

Cash and cash equivalents $27.4 
Trade accounts receivable  86.3 
Inventories  55.7 
Property, plant and equipment  120.6 
Intangible assets  130.2 
Goodwill  150.6 
Other assets  38.6 
Accounts payable  (73.7)
Accrued compensation and employee benefits  (24.3)
Deferred income taxes  (39.3)
Pensions  (14.3)
Other liabilities  (42.2)
Purchase price $415.6 

Below is a summary of the methodologies and significant assumptions used in estimating the fair value of certain classes of acquired assets.  The fair values were primarily based upon significant inputs that are not observable in the market and thus represent Level 3 measurements.  See Note 3 for information regarding Level 3 fair value measurements.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Inventories:  The Company determined the fair value of acquired inventory by estimating the selling priceCompany’s allocation of the respective finished goods, less an estimatepurchase price for its acquisition of costs to be incurred to sell the inventory and to complete the work-in-process inventory, if applicable.  For raw materials acquired, the Company estimated the cost of replacement.  As a result, the Company wrote-up acquired inventory by $4.3 million and subsequently charged this write-up to cost of salesLuvata HTS was as the underlying inventory was sold in the third and fourth quarters of fiscal 2017.

Property, plant and equipment:  The Company valued property, plant and equipment primarily utilizing the cost approach and also utilized the market approach in valuing acquired land and buildings.  The cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility and adjusting the value in consideration of depreciation as of the acquisition date.  The cost approach relies on assumptions regarding replacement costs and the age and estimated remaining useful lives of the assets.  The fair value of property, plant and equipment will be recognized as depreciation expense in our results of operations over the expected remaining useful lives of the individual assets.follows:

Intangible assets: The Company determined the fair value of acquired intangible assets by using variations of the income approach.  These methods generally forecast expected future net cash flows discretely associated with each of the identified intangible assets and adjust the forecasts to present value by applying a discount rate intended to reflect risk factors associated with the cash flows and the time value of money.  Acquired intangible assets were as follows:

  
Gross
Carrying
Value
 
Weighted-
Average
Useful Life
Customer relationships $58.4 17 years
Trade names  50.1 20 years
Acquired technology  21.7 12 years
Total intangible assets acquired $130.2  

Customer relationships, for valuation purposes, represent the estimated fair value of Luvata HTS’s business relationship with existing customers, and were calculated by projecting the future after-tax cash flows from these customers, including the right to deploy and market additional products to them.  The Company forecasted anticipated earnings from existing customers using recent years’ sales levels and considering a customer attrition rate based upon historical customer revenue information.

The Company determined the value of acquired trade names using the relief-from-royalty method, a variation of the income approach, which applies an assumed royalty rate to revenue expected to be derived under the acquired trade names.  The fair value was estimated to be the present value of the royalties saved because the Company owns the trade names.

The Company also used the relief-from royalty method for its valuation of acquired technology, which largely relates to the design of mechanical and electrical components.  The Company considered factors including the estimated contribution of the technology to the overall profitability of the products and the awareness level of the technology and its position in the market.
Cash and cash equivalents $27.4 
Trade accounts receivable  86.1 
Inventories  55.0 
Property, plant and equipment  120.4 
Intangible assets  130.2 
Goodwill  151.9 
Other assets  39.1 
Accounts payable  (73.7)
Accrued compensation and employee benefits  (24.3)
Deferred income taxes  (39.5)
Pensions  (14.3)
Other liabilities  (42.7)
Purchase price $415.6 

The following unaudited supplemental pro forma information presents the Company’s consolidated results of operations as though the acquisition of Luvata HTS had occurred at the beginning of fiscal 2016.  This pro forma financial information is presented for illustrative purposes only and is not considered to be indicative of the operating results that would have been achieved had the acquisition been completed as of the date indicated or the operating results that may be obtained in the future.indicated.

  Years ended March 31, 
  2017  2016 
Net sales $1,881.6  $1,871.9 
Net earnings attributable to Modine  35.8   1.5 
Net earnings per share attributable to Modine shareholders:        
Basic $0.72  $0.03 
Diluted  0.71   0.03 
  Year ended March 31, 2017 
Net sales $1,881.6 
Net earnings attributable to Modine  35.8 
Net earnings per share attributable to Modine shareholders:    
Basic $0.72 
Diluted  0.71 

The supplemental pro forma financial information includes adjustments for: (i) annual amortization and depreciation expense totaling approximately $13.0 million for acquired tangible and intangible assets, (ii) estimated annual interest expense of approximately $14.0 million resulting from acquisition-related borrowings, and (iii) the estimated income tax impacts related to the pro forma adjustments, considering the statutory tax rates within the applicable jurisdictions.  In addition, the pro forma financial information assumes that both $8.6 million of acquisition-related transaction costs, not including costs for integration-related activities, and $4.3 million of inventory purchase accounting adjustments were incurred during fiscal 2016.  The pro forma financial information does not reflect achieved or expected cost or revenue synergies.

Note 3:Revenue Recognition

Effective April 1, 2018, the Company adopted new revenue recognition accounting guidance using the modified-retrospective transition method and, as a result, recorded a cumulative-effect adjustment to increase retained earnings by $0.7 million.  The Company’s consolidated financial statements for the fiscal year ended March 31, 2019 reflect the adoption of this new guidance; however, the comparable prior-year periods have not been recast.  See Note 1 for additional information regarding the adjustments to the Company’s consolidated balance sheet as of April 1, 2018.

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 customers, which may be at a point in time or over time.  The majority of the Company’s revenue is recognized at a point in time, based upon shipment terms.  The Company records an allowance for doubtful accounts for estimated uncollectible receivables 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.

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

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

Vehicular Thermal Solutions (“VTS”)
The VTS segment principally generates revenue from providing engineered heat transfer systems and components for use in on- and off-highway original equipment.  This segment provides 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 automotive, commercial vehicle, and off-highway markets in the Americas, Europe, and Asia regions.  In addition, the VTS segment designs customer-owned tooling for OEMs and also serves Brazil’s automotive and commercial vehicle aftermarkets.

While the VTS segment provides 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 VTS 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, the VTS segment recognizes revenue primarily at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

In regard to VTS 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 VTS 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.

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.

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 related applications 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 generally 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 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.

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.

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

  Year ended March 31, 2019 
  VTS  CIS  BHVAC  
Segment
Total
 
Primary end market:            
Automotive $542.8  $-  $-  $542.8 
Commercial vehicle  387.6   -   -   387.6 
Off-highway  314.1   -   -   314.1 
Commercial HVAC&R  -   506.3   167.7   674.0 
Data center cooling  -   145.7   41.3   187.0 
Industrial cooling  -   47.8   -   47.8 
Other  107.2   7.8   3.4   118.4 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 
                 
Geographic location:                
Americas $613.7  $413.6  $124.9  $1,152.2 
Europe  538.2   244.8   87.5   870.5 
Asia  199.8   49.2   -   249.0 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 
                 
Timing of revenue recognition:                
Products transferred at a point in time $1,308.5  $571.1  $212.4  $2,092.0 
Products transferred over time  43.2   136.5   -   179.7 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 

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

  March 31, 2019  March 31, 2018 
Contract assets $22.6  $13.5 
Contract liabilities  4.0   6.8 

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 $9.1 million increase in contract assets during fiscal 2019 was primarily related to contract assets totaling $7.4 million as of March 31, 2019 for revenue recognized over time, which were recorded as a result of the Company’s adoption of the new revenue recognition accounting guidance, and customer-owned tooling contracts, under which more costs were capitalized than reimbursed.

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. The $2.8 million decrease in contract liabilities during fiscal 2019 was primarily due to the Company’s satisfaction of performance obligations under customer contracts for which payment had been received in advance.

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Modine Puxin Thermal Systems (Jiangsu) Co. Ltd

On January 29, 2016,
Impacts of Adopting New Accounting Guidance
The impacts from the Company formed a joint venture, Modine Puxin Thermal Systems (Jiangsu) Co. Ltd. of Yangzhou, China, of which it owns 67 percent, and the joint venture partner, Jiangsu Puxin Heat Exchange System Co., Ltd, owns 33 percent.  This joint venture, which is reported in the Asia segment, expedited the Company’s introduction of stainless steel heat exchangers for the light-, medium-, and heavy-duty commercial vehicle markets in China.  In fiscal 2016, the Company contributed $1.4 million of cash and equipment and other assets totaling $2.3 million.  In fiscal 2017, the Company contributed $0.3 million of additional cash consideration after certain seller indemnification obligations under the agreement were satisfied.  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 activitiesadoption of the joint venture, and, therefore, the financial results of the joint venture are included innew revenue recognition guidance to the Company’s consolidated financial statements.  The Company did not present pro forma financial information for this acquisition as the effect is not material to its resultsstatement of operations or financial position.for the year ended March 31, 2019 and its consolidated balance sheet as of March 31, 2019 were as follows:

  Year ended March 31, 2019 
  As Reported  Impact of New
Accounting Guidance		  
Results Without
Impact of New Accounting
Guidance
 
Net sales $2,212.7  $(4.4) $2,208.3 
Net earnings attributable to Modine  84.8   (2.0)  82.8 
             
Net earnings per share attributable to Modine shareholders:            
Basic $1.67  $(0.04) $1.63 
Diluted  1.65   (0.04)  1.61 

  March 31, 2019 
  As Reported  
Impact of New
Accounting Guidance
  
Balances Without
Impact of New Accounting
Guidance
 
ASSETS
         
Inventories $200.7  $3.8  $204.5 
Other current assets  65.8   (7.4)  58.4 
Deferred income taxes  97.1   0.6   97.7 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
            
Deferred income taxes $8.2  $(0.3) $7.9 
Retained earnings  472.1   (2.7)  469.4 

Note 3: 
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 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 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.
Level 3 – Model-derived valuations in which one or more significant inputs are not observable.

When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1.  In some cases, where market prices are not available, the Company uses observable market-based inputs to calculate fair value, in which case the measurements are classified as Level 2.  If quoted or observable market prices are not available, the Company determines fair value 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.  The Company holds trading securities in deferred compensation trusts to fund obligations under certain non-qualified deferred compensation plans.  The securities’ fair values, which are recorded as other noncurrent assets, are determined based upon quoted prices from active markets and classified within Level 1 of the valuation hierarchy.  The Company’s deferred compensation obligations, which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trust.  The fair values of the Company’s trading securities and deferred compensation obligations each totaled $5.0$6.0 million and $3.2$5.8 million atas of March 31, 20172019 and 2016,2018, respectively.  The year-over-year increase primarily relates to a deferred compensation plan in the recently-acquired CIS segment.  The fair value of the Company’s long-term debt is disclosed in Note 15.17.

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

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

  March 31, 2017 
  Level 1  Level 2  Total 
          
Money market investments $-  $5.6  $5.6 
Common stocks  17.8   2.0   19.8 
Corporate bonds  -   9.3   9.3 
Pooled equity funds  56.8   -   56.8 
Pooled fixed-income funds  26.5   -   26.5 
U.S. government and agency securities  -   18.7   18.7 
Other  1.4   1.4   2.8 
Fair value excluding investment measured at net asset value  102.5   37.0   139.5 
Investment measured at net asset value (a)          8.7 
Total Fair Value         $148.2 
             
  March 31, 2016 
  Level 1  Level 2  Total 
             
Money market investments $-  $5.8  $5.8 
Common stocks  23.7   1.3   25.0 
Corporate bonds  -   8.4   8.4 
Pooled equity funds  48.7   -   48.7 
Pooled fixed-income funds  26.3   -   26.3 
U.S. government and agency securities  -   18.4   18.4 
Other  0.4   1.2   1.6 
Fair value excluding investment measured at net asset value  99.1   35.1   134.2 
Investment measured at net asset value (a)          7.3 
Total Fair Value         $141.5 
  March 31, 2019 
  Level 1  Level 2  Total 
          
Money market investments $-  $3.9  $3.9 
Corporate bonds  -   9.4   9.4 
Pooled equity funds  27.7   -   27.7 
U.S. government and agency securities  -   12.3   12.3 
Other  0.1   0.9   1.0 
Fair value excluding investments measured at net asset value  27.8   26.5   54.3 
Investments measured at net asset value          100.8 
Total fair value         $155.1 

(a)As a practical expedient, the Company valued a collective trust fund using its net asset value per unit, and therefore, has not classified this investment within the fair value hierarchy.
  March 31, 2018 
  Level 1  Level 2  Total 
          
Money market investments $-  $11.4  $11.4 
Common stocks  9.4   2.6   12.0 
Corporate bonds  -   9.7   9.7 
Pooled equity funds  64.4   -   64.4 
Pooled fixed-income funds  27.3   -   27.3 
U.S. government and agency securities  -   16.2   16.2 
Other  0.2   1.7   1.9 
Fair value excluding investment measured at net asset value  101.3   41.6   142.9 
Investment measured at net asset value          14.8 
Total fair value         $157.7 

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 upon quoted prices from active markets and classified them within Level 1 of the valuation hierarchy.  The Company determined the fair value of certain common stocks, corporate bonds pooled equity funds and U.S. government and agency securities based upon recent bid prices or the average of recent bid and asking prices when available and, if not available, the Company valued them through matrix pricing models developed by sources considered by management to be reliable.  The Company classified these assets within Level 2 of the valuation hierarchy.  As of March 31, 20172019 and 2016,2018, the Company held no Level 3 assets within its pension plans.

As a practical expedient, the Company valued certain investments, including pooled equity, fixed-income and real estate funds, using their net asset value (NAV) per unit, and therefore, has not classified these investments within the fair value hierarchy.  The increase in investments valued at NAV in fiscal 2019 was associated with the Company’s revised target asset allocations for its U.S. pension plan; see Note 18 for additional information.  The terms and conditions for redemptions vary for the investments valued at NAV.  The real estate investment fund may be redeemed at any time with a 90-day notice period.  Other investments valued at NAV do not have restrictive redemption frequency or notice period requirements.  The Company does not intend to sell or otherwise dispose of these investments at prices different than the NAV per unit.

Note 4: 
Note 5:Stock-Based Compensation

The Company’s stock-based incentive programs consist of the following: (1) a long-term incentive compensation program for officers and 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 key employees, and (3) stock awards for non-employee directors.  The Company’s Board of Directors and the Officer Nomination and Compensation Committee, as applicable, have discretionary authority to set the terms of the awards of stockstock-based awards.  Grants to employees during fiscal 2019 were issued under the Company’s Amended and Restated 20082017 Incentive Compensation Plan (“Plan”).Plan.  At present, the Company accomplishes the fulfillment of equity-based grants through the issuance of new common shares.  As of March 31, 2017,2019, approximately 1.62.7 million shares authorized under the 2017 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 $7.4$7.9 million, $4.9$9.5 million, and $4.0$7.4 million in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.

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

Stock Options:  The Company recorded $1.1$1.2 million, $0.9$1.2 million, and $0.9$1.1 million of compensation expense related to stock options in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  The fair value of stock options that vested during fiscal 2019, 2018, and 2017 2016, and 2015 was $1.0$1.2 million, $0.9$1.2 million, and $0.9$1.0 million, respectively.  As of March 31, 2017,2019, the total compensation expense not yet recognized related to non-vested stock options was $2.1$2.2 million and the weighted-average period in which the remaining expense is expected to be recognized was 2.52.6 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:

  Years ended March 31, 
  2017  2016  2015 
Weighted-average fair value of options $4.60  $7.11  $10.21 
Expected life of awards in years  6.4   6.3   6.3 
Risk-free interest rate  1.4%  1.9%  2.1%
Expected volatility of the Company's stock  45.5%  66.9%  76.1%
Expected dividend yield on the Company's stock  0.0%  0.0%  0.0%
  Years ended March 31, 
  2019  2018  2017 
Fair value of options $7.81  $7.30  $4.60 
Expected life of awards in years  6.3   6.4   6.4 
Risk-free interest rate  2.8%  1.9%  1.4%
Expected volatility of the Company’s stock  39.7%  44.3%  45.5%
Expected dividend yield on the Company’s stock  0.0%  0.0%  0.0%

Stock options expire no later than 10 years after the grant date and have an exercise price equal to the fair market value of Modine’s common stock on the date of grant.  The risk-free interest rate was based upon 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 upon changes in the Company’s historical common stock prices over the same time frame as the expected life of the awards.  The expected dividend yield is zero, as the Company currently does not anticipate paying dividends over the expected life of the options.  The expected lives of the awards are based upon historical patterns and the terms of the options.  Outstanding options granted vest 25 percent annually for four years.  The Company used a pre-vesting forfeiture rate of 2.5 percent as an estimate of expected forfeitures prior to completing the required service period.

A summary of stock option activity for fiscal 20172019 was as follows:

  Shares  
Weighted-average
exercise price
  
Weighted-average
remaining contractual
term (years)
  
Aggregate
intrinsic value
 
Outstanding, beginning  1.5  $10.82       
Granted  0.3   10.00       
Exercised  (0.1)  9.23       
Forfeited or expired  (0.2)  21.76       
Outstanding, ending  1.5  $9.83   5.5  $4.4 
                 
Exercisable, March 31, 2017  1.0  $9.27   4.0  $3.6 
  Shares  Weighted-average
exercise price		  
Weighted-average
remaining contractual
term (years)
  
Aggregate
intrinsic value
 
Outstanding, beginning  1.2  $11.16       
Granted  0.2   17.90       
Exercised  (0.1)  9.93       
Forfeited or expired  (0.1)  14.51       
Outstanding, ending  1.2  $12.24   5.5  $3.3 
                 
Exercisable, March 31, 2019  0.8  $10.59   4.0  $2.9 

The aggregate intrinsic value represents the difference between the closing price of Modine’s common shares on the last trading day of fiscal 20172019 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 is as follows:

  Years ended March 31, 
  2019  2018  2017 
Intrinsic value of stock options exercised $0.7  $4.9  $0.5 
Proceeds from stock options exercised  1.1   4.3   0.9 
  Years ended March 31, 
  2017  2016  2015 
Intrinsic value of stock options exercised $0.5  $0.4  $0.4 
Proceeds from stock options exercised $0.9  $0.5  $0.6 

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Restricted Stock:  The Company recorded $3.8$4.3 million, $3.5$3.9 million, and $2.8$3.8 million of compensation expense related to restricted stock in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  The fair value of restricted stock awards that vested during fiscal 2019, 2018, and 2017 2016, and 2015 was $4.0$4.3 million, $3.4$3.9 million, and $2.3$4.0 million, respectively.  At March 31, 2017,2019, the Company had $4.8$5.3 million of unrecognized compensation expense related to non-vested restricted stock, which it expects to recognize over a weighted-average period of 2.42.5 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 vest 25 percent annually for four years, with the exception of awards to non-employee directors, which fully vest upon grant.

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

A summary of restricted stock activity for fiscal 20172019 was as follows:

  Shares  
Weighted-
average
price
 
Non-vested balance, beginning  0.6  $11.29 
Granted  0.4   9.98 
Vested  (0.4)  10.05 
Non-vested balance, ending  0.6  $11.21 
  Shares  
Weighted-average
price
 
Non-vested balance, beginning  0.6  $12.24 
Granted  0.3   17.72 
Vested  (0.3)  13.75 
Forfeited  (0.1)  15.03 
Non-vested balance, ending  0.5  $14.95 

Restricted Stock – Performance-Based Shares:  The Company recorded $2.5$2.4 million, $0.5$4.4 million, and $0.3$2.5 million of compensation expense related to performance-based stock awards in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  At March 31, 2017,2019, the Company had $3.2$2.4 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 1.81.5 years.  The Company values performance-based stock awards using the closing market valueprice of its common shares on the date of grant.

Shares are earned under the performance portion of the restricted stock award program based upon the attainment of certain financial goals over a three-year period and are awarded after the end of that three-year performance period, if the performance targets have been achieved.  The performance components of the programsprogram initiated in fiscal 2017, 2016, and 2015 were2019 is 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.  The performance components of the programs initiated in fiscal 2018 and 2017 were based upon both a target three-year average consolidated return on capital employed and a target three-year average annual revenue growth at the end of a three-year performance period.

Note 5: 
Note 6:Restructuring Activities

During fiscal 2019, restructuring and repositioning expenses primarily resulted from targeted headcount reductions in Europe and the Americas within the VTS segment.  These headcount reductions support the Company’s objective to reduce operational and SG&A cost structures at certain locations.  In addition, the Company is in process of transferring product lines associated with the merger of its North American coils business into the CIS segment, in order to accelerate operational improvements and organizational efficiencies.

During fiscal 2018, the Company ceased production at its Gailtal, Austria manufacturing facility, primarily to reduce excess capacity and lower manufacturing costs in Europe.  As a result of this facility closure, the Company recorded $8.3 million of restructuring expenses within the CIS segment.  These restructuring expenses primarily related to employee severance and related benefits.  Fiscal 2018 restructuring activities also included plant consolidation activities, targeted headcount reductions, and certain product line transfers in Europe within the VTS segment.  In addition, the Company recorded restructuring expenses associated with the discontinuance of its geothermal product line within the BHVAC segment.

During fiscal 2017, the Company completed a voluntary retirement program for certain U.S. salaried employees and implemented targeted headcount reductions at several locations.  The Company engaged in these restructuring activities as part of its Strengthen, Diversify and Grow strategic initiative, particularlylocations, both in support of its objective to reduce operational and SG&A cost structures.

During fiscal 2016, the Company announced a plan to close its Washington, Iowa manufacturing facility and recorded severance costs as a result.  The Company completed the transfer of production from Washington to other Americas segment manufacturing facilities in fiscal 2017.  Also during fiscal 2016,2017, the Company completed the transfer of production from its McHenry, IllinoisWashington, Iowa manufacturing facility, which was closed and sold, to other AmericasVTS segment manufacturing facilities.  These restructuring activities reflect the Company’s focus on operating scale manufacturing facilities to improve overall competitiveness and profitability.in North America.

During fiscal 2015, the Company initiated a headcount reduction plan for the Brazil manufacturing facility within its Americas segment.  The headcount reductions were in response to the economic slowdown in Brazil and were aimed at maintaining profitability in this business despite lower sales volume.

In addition, the Company has engaged in 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Restructuring and repositioning expenses were as follows:

  Years ended March 31, 
  2017  2016  2015 
Employee severance and related benefits $5.3  $12.8  $1.2 
Other restructuring and repositioning expenses  5.6   3.8   3.5 
Total $10.9  $16.6  $4.7 
  Years ended March 31, 
  2019  2018  2017 
Employee severance and related benefits $8.7  $13.0  $5.3 
Other restructuring and repositioning expenses  0.9   3.0   5.6 
Total $9.6  $16.0  $10.9 

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, 
  2019  2018 
Beginning balance $11.0  $6.5 
Additions  8.7   13.0 
Payments  (9.1)  (9.4)
Effect of exchange rate changes  (0.6)  0.9 
Ending balance $10.0  $11.0 
  Years ended March 31, 
  2017  2016 
Beginning balance $14.7  $9.9 
Additions  5.3   12.8 
Payments  (12.9)  (8.5)
Effect of exchange rate changes  (0.6)  0.5 
Ending balance $6.5  $14.7 

During fiscal 2018, the Company recorded a $1.3 million asset impairment charge as a result of the closure of the CIS Austrian facility.  During fiscal 2019, the Company recorded an additional $0.4 million asset impairment charge related to this closed facility to reduce its carrying value to its current estimated fair value, less costs to sell.

During fiscal 2017, the Company sold twothree previously-closed manufacturing facilities within its Americas segment and a facility within its EuropeVTS segment for cash proceeds totaling $5.4 million.  As a result of the facility sales, the Company recorded net gains totaling $2.0 million.

During fiscal 2015, the Company sold a wind tunnel within its Europe segment for cash proceeds of $5.8 million and recognized a gain of $3.2 million as a result.

During fiscal 2016, the Company recorded an asset impairment charge of $9.9 million within its Europe segment to write down long-lived assets at a manufacturing facility in Germany to fair value.

Note 6: 
Note 7:Other Income and Expense

Other income and expense consisted of the following:

  Years ended March 31, 
  2019  2018  2017 
Equity in earnings of non-consolidated affiliate $0.7  $0.2  $0.1 
Interest income  0.4   0.4   0.4 
Foreign currency transactions (a)  (2.3)  (0.6)  (1.9)
Net periodic benefit cost (b)  (2.9)  (3.3)  (2.9)
Total other expense - net $(4.1) $(3.3) $(4.3)
  Years ended March 31, 
  2017  2016  2015 
Equity in earnings of non-consolidated affiliate $0.1  $0.1  $0.6 
Interest income  0.4   0.4   0.5 
Foreign currency transactions (a)  (1.9)  (1.3)  (0.9)
Gain from insurance recovery (b)  -   9.5   - 
Total other (expense) income - net $(1.4) $8.7  $0.2 

(a)Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses on foreign currency exchange contracts.
(b)During fiscal 2016,Represents net periodic benefit cost, exclusive of service cost, for the Company settled an insurance claim related to machineryCompany’s pension and equipment destroyed in a fire at its Airedale facility and recorded a gain of $9.5 million.  See Note 1 for additional information.postretirement plans.

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

Note 7: 
Note 8:Income Taxes

The U.S. and foreign components of earnings from continuing operations before income taxes and the provisionbenefit or benefitprovision for income taxes consisted of the following:

  Years ended March 31, 
  2019  2018  2017 
Components of earnings (loss) before income taxes:         
United States $22.4  $2.5  $(8.6)
Foreign  58.4   60.8   29.4 
Total earnings before income taxes $80.8  $63.3  $20.8 
             
Income tax (benefit) provision:            
Federal:            
Current $(20.4) $11.6  $0.1 
Deferred  (4.2)  23.3   (3.8)
State:            
Current  0.7   (0.3)  0.3 
Deferred  1.9   2.0   (0.2)
Foreign:            
Current  19.0   16.1   10.1 
Deferred  (2.1)  (13.2)  (0.6)
Total income tax (benefit) provision $(5.1) $39.5  $5.9 
  Years ended March 31, 
  2017  2016  2015 
Components of earnings (loss) from continuing operations before income taxes:         
United States $(8.6) $(15.4) $31.1 
Foreign  29.4   5.5   10.1 
Total earnings (loss) from continuing operations before income taxes $20.8  $(9.9) $41.2 
             
Income tax expense (benefit):            
Federal:            
Current $0.1  $0.1  $0.4 
Deferred  (3.8)  (13.0)  7.1 
State:            
Current  0.3   0.2   - 
Deferred  (0.2)  (2.5)  1.1 
Foreign:            
Current  10.1   9.6   12.7 
Deferred  (0.6)  (3.3)  (2.3)
Total income tax expense (benefit) $5.9  $(8.9) $19.0 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act.  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.  To the extent a company’s accounting for certain income tax effects of the Tax Act was incomplete, the company could determine a reasonable estimate for those effects and record a provisional estimate in its financial statements.  If a company could not determine a provisional estimate to be included in the financial statements, it was to continue applying the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.

During fiscal 2018, the Company recorded provisional discrete tax charges totaling $38.0 million related to the Tax Act.  The Company adjusted its U.S. deferred tax assets by $19.0 million due to the reduction in the U.S. federal corporate tax rate.  This net reduction in deferred tax assets also included the estimated impact on the Company’s net state deferred tax assets.  In addition, the Company recorded a $19.0 million charge for the transition tax required under 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 determined it will utilize 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.

The Tax Act included a new provision designed to tax global intangible low taxed income (“GILTI”) starting in fiscal 2019.  The Company allocateselected to record the tax effects of the GILTI provision as a period expense in the applicable tax year.

The Company’s accounting policy is to allocate the 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 from
56
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

The 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, 
  2019  2018  2017 
Statutory federal tax  21.0%  31.5%  35.0%
State taxes, net of federal benefit  3.6   2.9   (3.3)
Taxes on non-U.S. earnings and losses  3.9   (3.8)  (3.5)
Valuation allowances  4.0   (5.6)  1.2 
Tax credits  (26.1)  (17.3)  (9.0)
Compensation  (0.1)  (0.8)  2.9 
Tax rate or law changes  (12.0)  60.1   (2.5)
Uncertain tax positions, net of settlements  0.4   (0.8)  5.6 
Notional interest deductions  (2.5)  (3.2)  (8.8)
Dividend repatriation  1.6   0.2   7.1 
Other  (0.1)  (0.8)  3.7 
Effective tax rate  (6.3%)  62.4%  28.4%

During fiscal 2019, the Company recorded income tax ratebenefits totaling $7.7 million related to the Tax Act, as discussed above; recorded income tax benefits totaling $14.5 million as a result of amending previous-year tax returns to recognize foreign tax credits that are 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 following:United States.  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 related to other tax jurisdictions 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.

  Years ended March 31, 
  2017  2016  2015 
Statutory federal tax  35.0%  35.0%  35.0%
State taxes, net of federal benefit  (3.3)  11.5   2.4 
Taxes on non-U.S. earnings and losses  (3.5)  26.4   (4.9)
Valuation allowance  1.2   (20.9)  8.3 
Tax credits  (9.0)  20.5   (6.1)
Compensation  2.9   (3.7)  1.0 
Tax rate or law changes  (2.5)  1.3   1.2 
Uncertain tax positions, net of settlements  5.6   (4.3)  2.2 
Notional interest deductions  (8.8)  -   - 
Dividend repatriation  7.1   16.0   2.4 
Other  3.7   8.1   4.6 
Effective tax rate  28.4%  89.9%  46.1%
During fiscal 2018, the Company recorded provisional charges totaling $38.0 million related to the Tax Act, as discussed above, and recognized a $9.0 million Hungarian development tax credit.  Also in fiscal 2018, the Company reversed a portion of the valuation allowance on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not these assets would be realized, and, as a result, recorded an income tax benefit of $2.8 million.  In addition, the Company recorded a $1.8 million income tax benefit in fiscal 2018 associated with the reduction in unrecognized tax benefits resulting from a lapse in statutes of limitations.

During fiscal 2017, the Company recorded a valuation allowance of $2.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would not be realized.  Also during fiscal 2017, the Company recorded a net reduction of deferred tax asset valuation allowances totaling $1.8 million in other tax jurisdictions.  During fiscal 2016, the Company reversed a valuation allowance of $3.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would be realized.   In fiscal 2016 and 2015, the Company recorded a net increase in deferred tax asset valuation allowances totaling $5.0 million and $2.6 million, respectively, in other tax jurisdictions. 

The Company will continue to provide valuation allowances against its net deferred tax assets in each applicable tax jurisdiction until the need for a valuation allowance is eliminated.  The need for a valuation allowance is eliminated when the Company determines it is more likely than not the deferred tax assets will be realized.

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, 
  2017  2016 
Deferred tax assets:      
Accounts receivable $0.4  $0.1 
Inventories  5.0   3.6 
Plant and equipment  3.7   4.3 
Pension and employee benefits  51.8   52.6 
Net operating loss, capital loss, and credit carry-forwards  147.5   109.4 
Other, principally accrued liabilities  10.9   7.5 
Total gross deferred tax assets  219.3   177.5 
Less: valuation allowances  (49.6)  (50.8)
Net deferred tax assets  169.7   126.7 
         
Deferred tax liabilities:        
Plant and equipment  21.2   5.5 
Goodwill  4.7   0.6 
Intangible assets  43.3   1.5 
Other  1.8   0.2 
Total gross deferred tax liabilities  71.0   7.8 
Net deferred tax asset $98.7  $118.9 
  March 31, 
  2019  2018 
Deferred tax assets:      
Accounts receivable $0.2  $0.3 
Inventories  3.4   4.1 
Plant and equipment  1.8   2.3 
Pension and employee benefits  32.7   36.0 
Net operating and capital losses  73.5   102.5 
Credit carryforwards  60.3   36.7 
Other, principally accrued liabilities  10.0   9.9 
Total gross deferred tax assets  181.9   191.8 
Less: valuation allowances  (43.4)  (48.9)
Net deferred tax assets  138.5   142.9 
         
Deferred tax liabilities:        
Plant and equipment  15.1   17.6 
Goodwill  4.8   5.2 
Intangible assets  28.8   32.4 
Other  0.9   0.7 
Total  gross deferred tax liabilities  49.6   55.9 
Net deferred tax assets $88.9  $87.0 

Unrecognized tax benefits were as follows:

  Years ended March 31, 
  2019  2018 
Beginning balance $13.6  $14.2 
Gross increases - tax positions in prior period  1.6   0.8 
Gross decreases - tax positions in prior period (a)  (0.2)  (1.2)
Gross increases - due to acquisition  -   1.4 
Gross increases - tax positions in current period  1.1   0.5 
Settlements  (0.1)  (0.3)
Lapse of statute of limitations  (2.2)  (1.8)
Ending balance $13.8  $13.6 
  Years ended March 31, 
  2017  2016 
Beginning balance $5.9  $5.6 
Gross increases - tax positions in prior period  0.3   - 
Gross decreases - tax positions in prior period  (0.2)  (0.1)
Gross increases - due to acquisition  7.3   - 
Gross increases - tax positions in current period  0.9   0.4 
Ending balance $14.2  $5.9 

(a)Fiscal 2018 includes $1.0 million related to the reduction of the U.S. federal corporate tax rate as a result of the Tax Act.

The Company’s liability for unrecognized tax benefits as of March 31, 20172019 was $14.2$13.8 million, and if recognized, $11.9$12.2 million would have an effective tax rate impact.  The Company estimates that reductions toa $0.2 million decrease in unrecognized tax benefits induring fiscal 20182020 due to lapses in statutes of limitations and audit settlements will total $2.4 million, which, ifsettlements.  If recognized, these reductions would not have a $1.6 millionsignificant 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 20172019 and 2016,2018, interest and penalties included within income tax expense in the consolidated statements of operations were not significant.  At March 31, 2017, $0.8 million of2019 and 2018, accrued interest and penalties were included in the consolidated balance sheet.  At March 31, 2016, accrued interesttotaled $1.1 million and penalties were not significant.$1.0 million, respectively.

The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world.  At March 31, 2017,2019, the Company was under income tax examination in a number of foreign jurisdictions.  The following tax years remain subject to examination for the Company’s major tax jurisdictions:

GermanyFiscal 2011 - Fiscal 20162018
ItalyCalendar 20112014 - Fiscal 20162018
United StatesFiscal 20142016 - Fiscal 20162018

At March 31, 2017, the Company had federal and state tax credits of $27.4 million that, if not utilized against U.S. taxes, will expire between fiscal 2018 and 2037.  The Company also had state and local tax loss carry-forwards of $212.7 million that, if not utilized against state apportioned taxable income, will expire at various times during fiscal 2018 and 2037.  In addition, the Company had tax loss and foreign attribute carry-forwards of $485.0 million in various tax jurisdictions throughout the world.  Certain of the carry-forwards in the U.S. and many in foreign jurisdictions are offset by a valuation allowance.  If not utilized against taxable income, $167.0 million of these carry-forwards will expire at various times during fiscal 2018 through 2037, and $318.0 million, mainly related to Germany, Italy, and India, will not expire due to an unlimited carry-forward period.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

At March 31, 2017,2019, the Company provided $0.3had federal and state tax credits of $60.0 million that, if not utilized against U.S. taxes, will expire between fiscal 2020 and 2039.  The Company also had state and local tax loss carryforwards totaling $129.5 million that, if not utilized against state apportioned taxable income, will expire between fiscal 2020 and 2039.  In addition, the Company had tax loss and foreign attribute carryforwards totaling $351.6 million in various tax jurisdictions throughout the world.  Certain of the carryforwards in the U.S. and in foreign jurisdictions are offset by valuation allowances.  If not utilized against taxable income, $9.7 million of tax on undistributedthese carryforwards will expire between fiscal 2020 and 2034, and $341.9 million, mainly related to Germany and Italy, will not expire due to an unlimited carryforward period.

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 has not recorded foreign withholding taxes or deferred income taxes for certain subsidiaries not considered permanently reinvested.  Undistributed earnings totaling $505.0 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 $7.0 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 8: 
Note 9:Earnings Per Share

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

  Years ended March 31, 
  2017  2016  2015 
Basic:         
Earnings (loss) from continuing operations $14.9  $(1.0) $22.2 
Less: Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Less: Undistributed earnings attributable to unvested shares  (0.2)  -   (0.2)
Earnings (loss) from continuing operations available to Modine shareholders  14.0   (1.6)  21.0 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss) available to Modine shareholders $14.0  $(1.6) $21.6 
             
Weighted-average shares outstanding - basic  47.8   47.3   47.2 
             
Basic Earnings Per Share:            
Earnings (loss) per share - continuing operations $0.29  $(0.03) $0.45 
Earnings per share - discontinued operations  -   -   0.01 
Net earnings (loss) per share - basic $0.29  $(0.03) $0.46 
             
Diluted:            
Earnings (loss) from continuing operations $14.9  $(1.0) $22.2 
Less: Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Less: Undistributed earnings attributable to unvested shares  (0.1)  -   (0.2)
Earnings (loss) from continuing operations available to Modine shareholders  14.1   (1.6)  21.0 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss) available to Modine shareholders $14.1  $(1.6) $21.6 
             
Weighted-average shares outstanding - basic  47.8   47.3   47.2 
Effect of dilutive securities  0.5   -   0.6 
Weighted-average shares outstanding - diluted  48.3   47.3   47.8 
             
Diluted Earnings Per Share:            
Earnings (loss) per share - continuing operations $0.29  $(0.03) $0.44 
Earnings per share - discontinued operations  -   -   0.01 
Net earnings (loss) per share - diluted $0.29  $(0.03) $0.45 
  Years ended March 31, 
  2019  2018  2017 
Basic Earnings Per Share:         
Net earnings attributable to Modine $84.8  $22.2  $14.2 
Less: Undistributed earnings attributable to unvested shares  (0.4)  (0.2)  (0.2)
Net earnings available to Modine shareholders $84.4  $22.0  $14.0 
             
Weighted-average shares outstanding - basic  50.5   49.9   47.8 
             
Net earnings per share - basic $1.67  $0.44  $0.29 
             
Diluted Earnings Per Share:            
Net earnings attributable to Modine $84.8  $22.2  $14.2 
Less: Undistributed earnings attributable to unvested shares  (0.2)  (0.1)  (0.1)
Net earnings available to Modine shareholders $84.6  $22.1  $14.1 
             
Weighted-average shares outstanding - basic  50.5   49.9   47.8 
Effect of dilutive securities  0.8   1.0   0.5 
Weighted-average shares outstanding - diluted  51.3   50.9   48.3 
             
Net earnings per share - diluted $1.65  $0.43  $0.29 

For the years ended March 31,fiscal 2019, 2018 and 2017, 2016, and 2015, the calculation of diluted earnings per share excluded 0.80.4 million, 0.80.2 million, and 0.60.8 million stock options, respectively, because they were anti-dilutive.  For

Note 10:Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash consisted of the year ended March 31, 2016,following:

  March 31, 
  2019  2018 
Cash and cash equivalents $41.7  $39.3 
Restricted cash  0.5   1.0 
Total cash, cash equivalents and restricted cash $42.2  $40.3 

Restricted cash, which is reported within other noncurrent assets on the total numberconsolidated balance sheets, consists primarily of potentially-dilutive securities was 0.4 million.  However, these securities were not included in the computation of diluted net loss per share since to do so would have decreased the loss per share.deposits for contractual guarantees or commitments required for rents, import and export duties, and commercial agreements.

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

Note 9: 
Note 11:Inventories

Inventories consisted of the following:

  March 31, 
  2017  2016 
Raw materials and work in process $127.7  $79.5 
Finished goods  40.8   31.5 
Total inventories $168.5  $111.0 
  March 31, 
  2019  2018 
Raw materials $122.8  $114.4 
Work in process  32.2   34.8 
Finished goods  45.7   42.1 
Total inventories $200.7  $191.3 

Note 10: 
Note 12:Property, Plant and Equipment

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

  March 31, 
  2017  2016 
Land $18.9  $7.2 
Buildings and improvements (10-40 years)  255.6   221.3 
Machinery and equipment (3-12 years)  755.5   694.3 
Office equipment (3-10 years)  92.5   84.1 
Construction in progress  55.1   36.7 
   1,177.6   1,043.6 
Less: accumulated depreciation  (718.6)  (705.0)
Net property, plant and equipment $459.0  $338.6 
  March 31, 
  2019  2018 
Land $20.7  $22.6 
Buildings and improvements (10-40 years)  285.9   295.6 
Machinery and equipment (3-15 years)  848.7   840.8 
Office equipment (3-10 years)  92.0   93.0 
Construction in progress  57.4   50.2 
   1,304.7   1,302.2 
Less: accumulated depreciation  (820.0)  (797.9)
Net property, plant and equipment $484.7  $504.3 

Depreciation expense totaled $67.9 million, $67.0 million, and $54.2 million $48.6 million,for fiscal 2019, 2018, and $50.0 million for the years ended March 31, 2017, 2016, and 2015, respectively.  Gains and losses related to the disposal of property, plant and equipment are recorded inwithin SG&A expenses.  For the years ended March 31,fiscal 2019, 2018, and 2017, 2016, and 2015, total losses related to the disposal of property, plant and equipment were $0.4totaled $0.9 million, $0.4$0.7 million, and $1.1$0.4 million, respectively.

Note 11: 
Note 13:Investment in Affiliate

The Company owns 50 percent of Nikkei Heat Exchanger Company, Ltd. (“NEX”).  The Company accounts for its investment in this non-consolidated affiliate using the equity method.  At March 31, 20172019 and 2016,2018, the Company included its investment in NEX of $3.3$3.8 million and $3.2$3.6 million, respectively, within other noncurrent assets on the consolidated balance sheets.  At March 31, 2017,2019, the investment in NEX is equal to the Company'sCompany’s investment in the underlying net assets.

The Company reports its equity in earnings from NEX within other income and expense in the consolidated statements of operations, using a one-month reporting delay.  The Company’s share of NEX’s earnings for the years ended March 31,fiscal 2019, 2018, and 2017 2016,was $0.7 million, $0.2 million, and 2015 was $0.1 million, $0.1 million, and $0.6 million, respectively.

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

Note 12: 
Note 14:Intangible Assets

Intangible assets consisted of the following:

  March 31, 2017  March 31, 2016 
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
 
Customer relationships $60.5  $(1.7) $58.8  $2.0  $(0.4) $1.6 
Trade names  58.4   (7.2)  51.2   8.9   (6.3)  2.6 
Acquired technology  27.0   (2.9)  24.1   5.5   (1.5)  4.0 
Total intangible assets $145.9  $(11.8) $134.1  $16.4  $(8.2) $8.2 
Intangible assets as of March 31, 2017 include intangible assets related to the Company’s acquisition of Luvata HTS.  See Note 2 for additional information.
  March 31, 2019  March 31, 2018 
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
 
Customer relationships $61.5  $(9.1) $52.4  $64.2  $(5.7) $58.5 
Trade names  58.9   (13.5)  45.4   60.6   (10.8)  49.8 
Acquired technology  23.9   (5.5)  18.4   25.2   (3.6)  21.6 
Total intangible assets $144.3  $(28.1) $116.2  $150.0  $(20.1) $129.9 

The Company recorded $4.1$9.0 million, $1.6$9.7 million, and $1.6$4.1 million of amortization expense during fiscal 2019, 2018, and 2017, 2016, and 2015, respectively.  Estimated futureThe Company estimates that it will record $9.0 million of amortization expense is as follows:in fiscal 2020 and approximately $8.0 million of annual amortization expense in fiscal 2021 through 2024.

Fiscal Year 
Estimated
Amortization
Expense
 
2018 $9.4 
2019  9.2 
2020  9.1 
2021  8.5 
2022  7.4 
2023 & Beyond  90.5 
During fiscal 2018, the BHVAC segment discontinued its geothermal product line and, as a result, recorded a $1.2 million impairment for acquired technology intangible assets it will no longer use.  Annual revenue for this discontinued product line was less than $1.0 million.

Note 13: 
Note 15:Goodwill

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

  Asia  BHVAC  CIS  Total 
Balance, March 31, 2015 $0.5  $15.7  $-  $16.2 
Effect of exchange rate changes  -   (0.4)  -   (0.4)
Balance, March 31, 2016  0.5   15.3   -   15.8 
Acquired Goodwill  -   -   150.6   150.6 
Effect of exchange rate changes  -   (1.6)  0.3   (1.3)
Balance, March 31, 2017 $0.5  $13.7  $150.9  $165.1 
  VTS  CIS  BHVAC  Total 
Balance, March 31, 2017 $0.5  $150.9  $13.7  $165.1 
Acquired goodwill (a)  -   1.3   -   1.3 
Effect of exchange rate changes  -   6.1   1.3   7.4 
Balance, March 31, 2018  0.5   158.3   15.0   173.8 
Effect of exchange rate changes  -   (4.4)  (0.9)  (5.3)
Balance, March 31, 2019 $0.5  $153.9  $14.1  $168.5 

As a result of its acquisition of Luvata HTS, the Company recorded $150.6 million of goodwill.  See Note 2 for additional information.
(a)Represents measurement-period adjustments related to the Company’s acquisition of Luvata HTS.  See Note 2 for additional information about this acquisition.

The Company assesses goodwill for impairment annually, or more frequently if events or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below its carrying value.  The Company conducted its annual assessment for goodwill impairment during the fourth quarter of fiscal 20172019 for the reporting units within its BHVACVTS, CIS, and AsiaBHVAC segments, by applying a fair value-based test, and determined that the fair value of its reporting units exceeded their respective book values.  The Company will perform goodwill impairment testing for its recently-acquired CIS segment beginning in fiscal 2018.

At both March 31, 20172019 and 2016,2018, accumulated goodwill impairment losses totaled $31.6 million and $8.7$40.3 million within the Americas and Europe segments, respectively.VTS segment.

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

Note 14: 
Note 16:Product Warranties, Operating Leases, and Other Commitments

Product warranties: Most of the Company’s products are covered under a warranty period ranging from one to five years.  The Company records a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience.  In addition, the Company adjusts its warranty accruals if it becomes probable that expected claims will differ from initial estimates.

Changes in accrued warranty costs were as follows:

  Years ended March 31, 
  2017  2016 
Beginning balance $8.3  $10.4 
Warranties recorded at time of sale  5.2   5.7 
Adjustments to pre-existing warranties  0.3   (1.1)
Additions due to acquisition  4.1   - 
Settlements  (7.6)  (6.7)
Effect of exchange rate changes  (0.3)  - 
Ending balance $10.0  $8.3 
  Years ended March 31, 
  2019  2018 
Beginning balance $9.3  $10.0 
Warranties recorded at time of sale  5.5   6.7 
Adjustments to pre-existing warranties  2.2   (0.8)
Adjustments due to acquisition (a)  -   (1.0)
Settlements  (7.3)  (6.2)
Effect of exchange rate changes  (0.5)  0.6 
Ending balance $9.2  $9.3 

(a)During fiscal 2018, the Company decreased its liability for product warranties by $1.0 million as a result of measurement-period adjustments made in connection with purchase accounting for the acquisition of Luvata HTS.  See Note 2 for additional information about this acquisition.

Operating leases: The Company leases various facilities and equipment under operating leases.  Rental expense for these leases totaled $12.8$19.3 million, $11.9$18.5 million, and $11.5$12.8 million in fiscal 2019, 2018, and 2017, 2016, and 2015, respectively.

Future minimum rental commitments at March 31, 20172019 under non-cancelable operating leases were as follows:

Fiscal Year   
2018 $12.2 
2019  10.1 
2020  9.1 
2021  7.8 
2022  5.4 
2023 and beyond  24.7 
Total $69.3 
Fiscal Year   
2020 $14.2 
2021  12.4 
2022  9.1 
2023  7.1 
2024  4.7 
2025 and beyond  22.9 
Total $70.4 

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, 20172019 was not material.

Commitments: At March 31, 2017,2019, the Company had capital expenditure commitments of $18.1$23.6 million.  Significant commitments include tooling and equipment expenditures for new and renewal programs with customers in the Americas, Asia, and Europe segments.VTS segment.  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.

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

Note 15: 
Note 17:Indebtedness

In November 2016,Long-term debt consisted of the Company entered into new credit agreements to fund a significant portion of its acquisition of Luvata HTS (see Note 2 for additional information).  following:

  
Fiscal year
of maturity
  March 31, 2019  March 31, 2018 
          
Term loans 2022  $238.4  $267.8 
6.8% Senior Notes 2021   85.0   101.0 
5.8% Senior Notes 2027   50.0   50.0 
Other (a) -   14.3   12.8 
       387.7   431.6 
Less: current portion      (48.6)  (39.9)
Less: unamortized debt issuance costs   (4.0)  (5.4)
Total long-term debt     $335.1  $386.3 

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

Long-term debt matures as follows:

Fiscal Year   
2020 $48.6 
2021  101.3 
2022  187.4 
2023  8.8 
2024  8.8 
2025 & beyond  32.8 
Total $387.7 

The Company executed an amended and restatedmaintains a credit agreement with a syndicate of banks that provides for both U.S. dollar- and euro-denominated term loan facilities and a multi-currency $175.0 million revolving credit facility expiring in November 2021, which replaced the Company’s then-existing revolver that would have expired in August 2018.2021.  Based upon the terms of the credit agreement and currency denomination, borrowings under both the term loans and revolving credit facility bear interest at a variable rate, primarily either the London Interbank Offered Rate (“LIBOR”) or Euro Interbank Offered Rate (“EURIBOR”), plus 137.5 to 250 basis points (3.0 percent weighted-average at March 31, 2017) depending on the Company’s leverage ratio, as described below.  At March 31, 2017,2019, the Company’sweighted-average interest rates for the outstanding term loanloans and the revolving credit facility borrowings totaled $268.9 million, with repayments scheduled through fiscal 2022.  Also in November 2016, the Company issued $50.0 million of 5.8were 3.3 percent Senior Notes with repayments ending in fiscal 2027.and 3.7 percent, respectively.

Long-term debt consisted of the following:

 
Fiscal year
of maturity
  March 31, 2017  March 31, 2016 
           
Term Loans  2022  $268.9  $- 
6.8% Senior Notes  2021   117.0   125.0 
5.8% Senior Notes  2027   50.0   - 
Other (a)  2032   8.3   9.0 
       444.2   134.0 
Less: current portion      (31.8)  (8.5)
Less: unamortized debt issuance costs      (6.7)  - 
Total long-term debt     $405.7  $125.5 
(a)Other long-term debt includes capital lease obligations and other financing-type obligations.
Long-term debt matures as follows:

Fiscal Year   
2018 $31.8 
2019  38.6 
2020  43.8 
2021  98.3 
2022  184.1 
2023 & beyond  47.6 
Total $444.2 

At March 31, 2017,2019 and 2018, the Company reported its revolving credit facility borrowings of $40.4$47.1 million and $21.3 million, respectively, as short-term debt on the consolidated balance sheet.sheets.  At March 31, 2017,2019, domestic letters of credit totaled $2.0$4.3 million, resulting in available borrowings under the Company’s revolving credit facility of $132.6$123.6 million.  The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings at March 31, 20172019 and 20162018 of $33.0$18.9 million and $28.6$31.9 million, respectively.  At March 31, 2017, the Company’s foreign unused lines of credit totaled $20.0 million.  In aggregate, the Company had total available lines of credit of $152.6 million at March 31, 2017.

Provisions in the Company’s amended and restated credit 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 debt agreements in the U.S., the Company has provided liens on substantially all domestic assets.  In addition, the term loans require prepayments, as definedspecified in the credit agreement, the term loans may require prepayments in the event the Company’s annual excess cash flow exceeds defined levels, depending upon the Company’s leverage ratio, or in the event of certain asset sales.  The Company is also subject to a leverage ratio covenant,covenants, the most restrictive of which requires the Company to limit its consolidated indebtedness, less a portion of its 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”).  As permitted by the credit agreements and in connection with the Company’s acquisition of Luvata HTS, this leverage ratio covenant limit has been temporarily raised to no more than three and three-quarters times Adjusted EBITDA through the second quarter of fiscal 2018, and thereafter to no more than three and one-half times Adjusted EBITDA through the first quarter of fiscal 2019.  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.  The Company was in compliance with its debt covenants as of March 31, 2017.2019.

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

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, 20172019 and 2016,2018, the carrying value of Modine’sthe Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of approximately $170.0$137.2 million and $139.0$153.1 million, respectively.  The fair value of the Senior Notes areCompany’s long-term debt is categorized as Level 2 within the fair value hierarchy.  Refer to Note 34 for the definition of a Level 2 fair value measurement.

Note 16: 
Note 18:Pension and Employee Benefit Plans

Defined Contribution Employee Benefit 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 employeetheir compensation during fiscal 2017, 2016, and 2015 related to its primary domestic 401(k) plans.  The Company also makes annual employer contributions into eligible active employee accounts based upon a percentage of employee compensation.  Employees can choose among various investment alternatives, including (subject to restrictions) Modine stock.  The Company’s matching contributions and annual employer contributions are discretionary.for participants.  The Company’s expense for defined contribution employee benefit plans during fiscal 2019, 2018, and 2017 2016, and 2015 was $4.7$6.4 million, $4.6$5.2 million, and $5.9$4.7 million, respectively.

In addition, the Company maintains non-qualified deferred compensation plans for eligible employees, and various non-U.S. subsidiaries have government-required defined contribution plans in place, under which they contribute a percentage of employee earnings into accounts, consistent with local laws.

Statutory Termination Plans:

Certain non-U.S. subsidiaries have statutory termination indemnity plans covering eligible employees.  The benefits under these plans are based upon years of service and final average compensation levels or a monthly retirement benefit amount.  These programs are all substantially unfunded in accordance with local laws, but are often covered by national obligatory umbrella insurance programs that protect employees from losses in the event that an employer defaults on its obligations.laws.

Defined Benefit Employee Benefit Plans:

Pension plans: As a result of its acquisition of Luvata HTS, the Company acquired defined benefit pension plans in Italy, Austria, and the U.S. with liabilities totaling $14.3 million, representing the aggregate funded status of these acquired plans.  These acquired plans are closed to new participants.

In addition, theThe 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 upon years of service and average compensation for salaried and some hourly employees.  Benefits for other hourly employees are based upon a monthly retirement benefit amount.  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.

The Company contributed $8.1$8.0 million, $6.7$13.4 million, and $5.9$8.1 million to its U.S. pension plans during fiscal 2019, 2018, and 2017, 2016,respectively.  In addition, the Company contributed $5.9 million, $2.6 million, and 2015,$1.4 million to its non-U.S. pension plans during fiscal 2019, 2018, and 2017, 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 offered a voluntary lump-sum payout program to certain eligible former employees.  Approximately 2,000 participants accepted the lump-sum settlement offer and a total of $65.3 million was paid from pension plan assets during fiscal 2016, which reduced the Company’s pension obligation by the same amount.  In connection with these lump-sum payouts, the Company recorded $42.1 million of non-cash settlement losses related to the accelerated recognition of unamortized actuarial losses previously recorded on the consolidated balance sheets within accumulated other comprehensive loss.  During fiscal 2016, the Company recorded $33.3 million and $8.8 million of settlement losses as SG&A expenses and cost of sales, respectively, within the consolidated statements of operations.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Postretirement plans: The Company provides selected healthcare and life insurance benefits for eligible retired domestic employees.  The Company periodically amends these unfunded plans to change the contribution rate of retirees and the amounts and forms of coverage.  An annual limit on the Company’s cost is defined for the majority of these plans.  The Company’s net periodic income for its postretirement plans during fiscal 2017, 2016,2019, 2018, and 20152017 was $0.3 million, $0.2 million, and $0.3 million, and $0.1 million, respectively.

Measurement Date:date:  The Company uses March 31 as the measurement date for its pension and postretirement plans.

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, 2017 and 2016 were as follows:

  2017  2016 
Change in benefit obligation:      
Benefit obligation at beginning of year $261.0  $328.2 
Service cost  0.6   0.6 
Interest cost  9.8   11.2 
Actuarial gain  (0.5)  (2.8)
Benefits paid (a)  (19.8)  (78.1)
Acquired obligations (b)  20.3   - 
Effect of exchange rate changes  (1.6)  1.9 
Benefit obligation at end of year $269.8  $261.0 
         
Change in plan assets:        
Fair value of plan assets at beginning of year $141.5  $217.0 
Actual return on plan assets  11.0   (5.3)
Benefits paid (a)  (19.8)  (78.1)
Employer contributions  9.5   7.9 
Acquired plan assets (b)  6.0   - 
Fair value of plan assets at end of year $148.2  $141.5 
Funded status at end of year $(121.6) $(119.5)
         
Amounts recognized in the consolidated balance sheets:        
Current liability $(2.2) $(0.9)
Noncurrent liability  (119.4)  (118.6)
  $(121.6) $(119.5)
  Years ended March 31, 
  2019  2018 
Change in benefit obligation:      
Benefit obligation at beginning of year $273.6  $269.8 
Service cost  0.5   0.5 
Interest cost  9.6   9.9 
Actuarial loss  1.7   4.4 
Benefits paid  (22.8)  (16.9)
Curtailment gain (a)  -   (0.3)
Effect of exchange rate changes  (3.8)  6.2 
Benefit obligation at end of year $258.8  $273.6 
         
Change in plan assets:        
Fair value of plan assets at beginning of year $157.7  $148.2 
Actual return on plan assets  6.3   10.4 
Benefits paid  (22.8)  (16.9)
Employer contributions  13.9   16.0 
Fair value of plan assets at end of year $155.1  $157.7 
Funded status at end of year $(103.7) $(115.9)
         
Amounts recognized in the consolidated balance sheets:        
Current liability $(2.0) $(6.3)
Noncurrent liability  (101.7)  (109.6)
  $(103.7) $(115.9)

 (a)InDuring fiscal 2016, $65.3 million was paid from plan assets2018, the Company recorded a pension curtailment gain associated with the closure of a manufacturing facility in connection with lump-sum payouts.Austria (CIS segment).  See Note 6 for additional information regarding the closure of this facility.
(b)As a result of its acquisition of Luvata HTS, the Company acquired pension plans in Italy, Austria and the U.S.  See Note 2 for additional information.

As of March 31, 2019, 2018, and 2017, the benefit obligation associated with the Company’s non-U.S. pension plans totaled $36.5 million, $43.4 million, and $39.3 million respectively.  In fiscal 2019, the $6.9 million decrease primarily resulted from employer contributions of $5.9 million for benefits paid to plan participants during the year and the impact of foreign currency exchange rate changes, partially offset by service and interest cost totaling $1.1 million.  In fiscal 2018, the $4.1 million increase primarily resulted from the impact of foreign currency exchange rate changes and service and interest cost totaling $1.3 million, partially offset by $2.6 million of benefits paid to plan participants.

The accumulated benefit obligation for pension plans was $266.8$256.9 million and $257.9$271.8 million as of March 31, 20172019 and 2016,2018, respectively.  The net actuarial loss related to the pension plans recognized in accumulated other comprehensive loss was $156.8$159.1 million and $162.0$157.9 million as of March 31, 20172019 and 2016,2018, respectively.

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 for the fiscal years ended March 31, 2017, 2016, and 2015:components:

  2017  2016  2015 
Components of net periodic benefit cost:         
Service cost $0.6  $0.6  $0.5 
Interest cost  9.8   11.2   13.0 
Expected return on plan assets  (12.3)  (14.9)  (16.7)
Amortization of net actuarial loss  5.6   6.4   5.5 
Settlements (a)  -   42.1   - 
Net periodic benefit cost $3.7  $45.4  $2.3 
             
Other changes in benefit obligation recognized in other comprehensive loss (income):            
Net actuarial loss $1.0  $17.5  $46.4 
Amortization of net actuarial loss (a)  (5.6)  (48.5)  (5.5)
Total recognized in other comprehensive (income) loss $(4.6) $(31.0) $40.9 
  Years ended March 31, 
  2019  2018  2017 
Components of net periodic benefit cost:         
Service cost $0.5  $0.5  $0.6 
Interest cost  9.6   9.9   9.8 
Expected return on plan assets  (12.3)  (11.9)  (12.3)
Amortization of net actuarial loss  5.6   5.6   5.6 
Settlements (a)  0.2   0.3   - 
Curtailment gain (a)  -   (0.3)  - 
Net periodic benefit cost $3.6  $4.1  $3.7 
             
Other changes in benefit obligation recognized in other comprehensive income (loss):
            
Net actuarial loss $(7.7) $(5.8) $(1.0)
Amortization of net actuarial loss  5.8   5.9   5.6 
Total recognized in other comprehensive income (loss) $(1.9) $0.1  $4.6 

(a)During fiscal 2016, in connectionThe settlement charges and curtailment gain resulted from activity associated with lump-sum payouts tothe Company’s non-U.S. pension plan participants, the Company recorded $42.1 million of settlement losses, which were previously recorded in accumulated other comprehensive loss.plans.

The Company amortized $5.6 million of net actuarial loss in fiscal 2019, 2018, and 2017.  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$6.0 million of net actuarial loss for its pension plans will be amortized from accumulated other comprehensive loss into net periodic benefit cost during fiscal 2018.2020.  The fiscal 2020 estimated amortization includes less than $1.0 million related to the Company’s non-U.S. pension plans.

The Company used a discount rate of 4.1%4.0% as of both March 31, 20172019 and 20162018 for determining its benefit obligations under its U.S. pension plans. The Company used a weighted-average discount rate of 1.7%1.4% and 1.8%1.7% as of March 31, 20172019 and 2016,2018, respectively, infor determining its benefit obligations under its non-U.S. pension plans.  The Company used a discount rate of 4.1%4.0%, 4.3%4.1%, and 4.7%4.1% to determine its costs under its U.S. pension plans for the fiscal years ended March 31,2019, 2018, and 2017, 2016, and 2015, respectively.  The Company used a weighted-average discount rate of 1.7%1.9%, 1.3%1.9%, and 3.0%1.7% to determine its costs under its non-U.S. pension plans for the fiscal years ended March 31,2019, 2018, and 2017, 2016, and 2015, 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, 2017 and 2016 were as follows:

  
Target allocation as
of March 31, 2017
  Plan assets 
     2017  2016 
Equity securities  60%  58%  56%
Debt securities  38%  38%  36%
Cash  2%  4%  4%
Alternative assets  -   -   4%
   100%  100%  100%
  March 31, 2019  March 31, 2018 
  Target allocation  Plan assets  Target allocation  Plan assets 
Equity securities  65%  66%  60%  58%
Debt securities  21%  19%  38%  38%
Real estate investments  13%  12%  -   - 
Cash and cash equivalents  1%  3%  2%  4%
   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, 20172019 and 2016,2018, the Company’s pension plans did not directly own shares of Modine common stock.

The Company employs a total return investment approach, whereby a mix of equities and fixed-income investments are used to maximize the long-term 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.

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

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 2017, 2016,2019, 2018, and 20152017 U.S. pension plan expense, the expected rate of return on plan assets was 7.5 percent, 7.5 percent and 8.0 percent.percent, respectively.  For fiscal 20182020 U.S. pension plan expense, the Company has assumed a rate of return on plan assets of 7.5 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 $13.1contribute approximately $3.0 million to these plans during fiscal 2018.2020.

Estimated pension benefit payments for the next ten fiscal years are as follows:

Fiscal Year 
Estimated Pension
Benefit Payments
 
2018 $17.1 
2019  16.4 
2020  17.0 
2021  17.1 
2022  17.6 
2023-2027  90.4 
Fiscal Year
 
Estimated Pension
Benefit Payments
 
2020 $16.0 
2021  16.0 
2022  16.4 
2023  16.4 
2024  16.6 
2025-2029  82.0 

Note 17: 
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.  In fiscal 2019 and 2018, the Company designated certain commodity forward contracts 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 accumulated other comprehensive income (loss) (“AOCI”) within shareholders’ equity and subsequently recognizes the gains and losses within cost of sales as the underlying inventory is sold.  The Company hasdid not designateddesignate commodity contracts entered into in fiscal 2017 2016, and 2015 for hedge accounting.  Accordingly, unrealized gains and losses on thesethose contracts arewere recorded within cost of sales.

Foreign exchange contracts: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.  In fiscal 2019 and 2018, the Company designated 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.

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, 2017  March 31, 2016 
Commodity derivativesOther current assets $0.7  $- 
Commodity derivativesOther current liabilities  -   0.1 
Foreign exchange contractsOther current assets  0.2   0.1 

 Balance Sheet Location March 31, 2019  March 31, 2018 
Derivatives designated as hedges:        
Commodity derivatives Other current assets $0.6  $0.1 
Commodity derivatives Other current liabilities  0.3   - 
Foreign exchange contracts Other current assets  0.2   0.1 
           
Derivatives not designated as hedges:          
Commodity derivatives Other current liabilities $-  $0.2 
Foreign exchange contracts Other current assets  -   0.2 
Foreign exchange contracts Other current liabilities  0.5   0.6 

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

 Statement of Operations Years ended March 31, 
Location 2017  2016  2015 
Commodity derivativesCost of sales $0.5  $(0.7) $(0.2)
Foreign exchange contractsOther income (expense) - net  1.3   0.6   (1.1)
Total gains (losses)  $1.8  $(0.1) $(1.3)
  
Gain (loss) recognized in
other comprehensive income
 
Statement of
Operations
 
Gain (loss) reclassified
from AOCI
 
  2019  2018  2017 Location 2019  2018  2017 
Commodity derivatives $(0.3) $0.2  $- Cost of sales $(0.4) $-  $- 
Foreign exchange contracts  (0.4)  0.1   - Net sales  (0.4)  0.1   - 
Foreign exchange contracts  1.0   -   - Cost of sales  0.6   -   - 
Total gains (losses) $0.3  $0.3  $-   $(0.2) $0.1  $- 

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 2019  2018  2017 
Commodity derivatives Cost of sales $-  $0.4  $0.5 
Foreign exchange contracts Net sales  (0.7)  (0.1)  - 
Foreign exchange contracts Other income (expense) - net  (0.3)  (0.5)  1.3 
Total gains (losses)   $(1.0) $(0.2) $1.8 

67
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 18: 
Note 20:Contingencies and Litigation

Market risk:  Risk
The Company sells a broad range of products that provide thermal solutions to customers operating primarily in the automotive, commercial vehicle, construction, agricultural,off-highway, and commercial, industrial, and building HVAC&R markets.  The Company operates in diversified markets as a strategy for offsetting the risk associated with a downturn in any one or more of the markets it serves.  The Company pursues new market opportunities after careful consideration of the potential associated risks and benefits.  However, the risk associated with market downturns is still 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 2019, 2018, and 2017, 2016 and 2015, two VTS segment customers each accounted for ten percent or more of the Company’s total sales.  Sales to the Company’s top ten customers representedwere 50 percent, 48 percent, and 54 percent of total sales in fiscal 2019, 2018, and 2017, and 63 percent of total sales in both fiscal 2016 and 2015.respectively.  At March 31, 20172019 and 2016, 352018, 38 percent and 4536 percent, respectively, of the Company'sCompany’s trade accounts receivable were due from the Company'sCompany’s top ten customers.  These customers operate primarily in the automotive, truck,commercial vehicle, off-highway, data center cooling and heavy equipmentcommercial air conditioning markets, andwhich are influenced by similar market and general economic factors.  Collateral or advanced payments are generally not required.  The Company has not experienced significant credit losses to customers in the markets served.

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;
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;
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
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.
Insurance – ensuring that insurance providers maintain financial ratings that are acceptable to the Company.

Counterparty risks:  Risk
The Company manages counterparty risksrisk through its focus on the following:

·Customers – performing thorough reviews of customer credit reports and accounts receivable aging reports by internal credit committees;
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
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.
Derivatives – ensuring that counterparties to derivative instruments maintain credit ratings that are acceptable to the Company.

Environmental: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.

As a result of its acquisition of Luvata HTS in fiscal 2017, the Company assumed certain environmental obligations.  The Company has recorded environmental accruals related to these matters, the most significant of which relates to historical soil and groundwater contamination remediation and monitoring for a manufacturing site in the United States.  In addition, the Company has recorded environmental investigation and remediation accruals related to subsurfacesoil and groundwater contamination at manufacturing facilities in the United States, one of which the Company currently owns and operates, and at its former manufacturing facility in the Netherlands, investigative work related to a previously-owned manufacturing facility in the United States, and groundwater contamination at its manufacturing facility in Brazil, along with accruals for lesser environmental matters at certain other facilities in the United States.States and Brazil.  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 $16.8$18.9 million and $5.1$16.7 million at March 31, 20172019 and 2016,2018, respectively.  As additional information becomes available, the Company will re-assess the liabilities related to these matters and revise the estimated accruals, if necessary.  Based upon 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Brazil antitrust investigation:  During fiscal 2015, Brazil’s Administrative Council for Economic Defense (CADE) provided formal notice to the Company’s subsidiary in Brazil (“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, the Company accrued $2.8 million (BRL 10 million) related to this matter.  During fiscal 2017, the Company increased its accrual and reached agreement with CADE to settle the matter for $4.7 million (BRL 15 million).  As a result, the Company recorded a charge of $1.6 million (BRL 5 million) within SG&A expenses during fiscal 2017.  The Company expects to remit payment for the settlement in early fiscal 2018.

Other litigation: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.  In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits or proceedings are not expected to have a material adverse effect on the Company’s consolidated financial statements.position.

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

Note 19: 
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, 2016 $(36.0) $(138.2) $(174.2)
             
Other comprehensive income (loss) before reclassifications  (10.8)  (0.3)  (11.1)
Reclassifications for amortization of unrecognized net loss (a)  -   5.2   5.2 
Income taxes  -   (1.7)  (1.7)
Total other comprehensive income (loss)  (10.8)  3.2   (7.6)
             
Balance, March 31, 2017 $(46.8) $(135.0) $(181.8)
  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  
Cash Flow
Hedges
  Total 
Balance, March 31, 2018 $(5.5) $(134.9) $0.1  $(140.3)
                 
Other comprehensive income (loss) before reclassifications  (37.9)  (7.1)  0.3   (44.7)
Reclassifications:                
Amortization of unrecognized net loss (a)  -   5.4   -   5.4 
Foreign currency translation losses (b)  0.8   -   -   0.8 
Realized losses - net (c)  -   -   0.2   0.2 
Income taxes  -   0.3   (0.1)  0.2 
Total other comprehensive income (loss)  (37.1)  (1.4)  0.4   (38.1)
                 
Balance, March 31, 2019 $(42.6) $(136.3) $0.5  $(178.4)
                 
  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  
Cash Flow
Hedges
  Total 
Balance, March 31, 2017 $(46.8) $(135.0) $-  $(181.8)
                 
Other comprehensive income (loss) before reclassifications  41.3   (5.7)  0.3   35.9 
Reclassifications:                
Amortization of unrecognized net loss (a)  -   5.6   -   5.6 
Realized gains - net (c)  -   -   (0.1)  (0.1)
Income taxes  -   0.2   (0.1)  0.1 
Total other comprehensive income  41.3   0.1   0.1   41.5 
                 
Balance, March 31, 2018 $(5.5) $(134.9) $0.1  $(140.3)

  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  Total 
Balance, March 31, 2015 $(40.7) $(157.9) $(198.6)
             
Other comprehensive income (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)

(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 1618 for additional information about the Company’s pension plans.
(b)As a result of the sale of a business in South Africa during fiscal 2019, the Company wrote-off $0.8 million of accumulated foreign currency translation losses.  See Note 1 for additional information about this transaction.
(c)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.

69
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 20: 
Note 22:Segment and Geographic Information

The Company’s product lines consist of heat-transfer components and systems.  The Company serves vehicular and commercial, industrial, and building HVAC&R markets.  In November 2016, the Company acquired Luvata HTS and, commencing from the acquisition date, has operated and reported results for the acquired business as its Commercial and Industrial Solutions (“CIS”)CIS segment.  See Note 2 for additional information regarding the Luvata HTS acquisition.

The Company’sEffective April 1, 2018, the Company formed the VTS segment by combining its Americas, Europe, and Asia operations to enable it to operate as a more global, product-based organization.  The Company also merged its Americas coils business into the CIS segment to accelerate operational improvements and organizational efficiencies.  The Company began reporting financial results for its new segments representbeginning in fiscal 2019.  Segment financial information for fiscal 2018 and 2017 has been recast to conform to the fiscal 2019 presentation.

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

The Company’s VTS segment represents its vehicular businessesbusiness and primarily serveserves the automotive, commercial vehicle, and off-highway markets.  In addition, the AmericasVTS segment serves the automotive and commercial vehicle aftermarket in Brazil and provides coils to the commercial HVAC&R market in North America.Brazil.  The Company’s CIS segment provides coils, coolers, and coating solutions to customers throughout the world.  The Company’s BHVAC segment provides heating, ventilating and air conditioning products to customers throughout the world.

Each operating segment is managed by a vice president and has separate financial results reviewed by the Company’s chief operating decision maker.  These results are used by management in evaluating the performance of each segment and in making decisions on the allocation of resources among the Company’s various businesses.

The following is a summary of net sales, gross profit, and operating income by segment:

  Years ended March 31, 
Net sales: 2017  2016  2015 
Americas $534.0  $585.5  $666.9 
Europe  524.3   524.1   578.2 
Asia  111.5   79.0   81.2 
CIS  177.7   -   - 
BHVAC  171.6   181.4   186.3 
Segment total  1,519.1   1,370.0   1,512.6 
Corporate and eliminations  (16.1)  (17.5)  (16.2)
Net sales $1,503.0  $1,352.5  $1,496.4 

  Years ended March 31, 
  2017  2016  2015 
Gross profit: $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
 
Americas $86.6   16.2% $100.1   17.1% $109.1   16.3%
Europe  80.9   15.4%  68.1   13.0%  68.7   11.9%
Asia  18.7   16.8%  12.2   15.5%  11.5   14.2%
CIS  26.0   14.6%  -   -   -   - 
BHVAC  47.8   27.8%  54.2   29.9%  55.9   30.0%
Segment total  260.0   17.1%  234.6   17.1%  245.2   16.2%
Corporate and eliminations (a)  (6.7)  -   (11.1)  -   1.3   - 
Gross profit $253.3   16.9% $223.5   16.5% $246.5   16.5%
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
 Years ended March 31, 
Operating income: 2017  2016  2015 
Americas $26.7  $36.2  $33.4 
Europe  37.1   13.3   25.7 
Asia  7.7   0.8   0.3 
CIS  7.5   -   - 
BHVAC  13.1   13.9   19.1 
Segment total  92.1   64.2   78.5 
Corporate and eliminations (a)  (52.7)  (71.7)  (25.8)
Operating income (loss) $39.4  $(7.5) $52.7 

(a)During fiscal 2017, the Company recorded $14.8 million of costs incurred directly related to the acquisition and integration of Luvata HTS within SG&A expenses at Corporate.  In addition, as a result of purchase accounting for the Luvata HTS acquisition, the Company wrote up acquired inventory to its estimated fair value and charged the write-up to cost of sales as the underlying inventory was sold.  The Company recorded $4.3 million in cost of sales related to this inventory step-up at Corporate, as the impact of this purchase accounting adjustment is excluded from the Company’s measure of segment operating performance.  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 16 for additional information about the Company’s pension plans.
  Year ended March 31, 2019 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:         
VTS $1,298.9  $52.8  $1,351.7 
CIS  704.7   2.9   707.6 
BHVAC  209.1   3.3   212.4 
Segment total  2,212.7   59.0   2,271.7 
Corporate and eliminations  -   (59.0)  (59.0)
Net sales $2,212.7  $-  $2,212.7 
             
  Year ended March 31, 2018 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:            
VTS $1,239.3  $56.4  $1,295.7 
CIS  674.4   1.3   675.7 
BHVAC  189.4   1.8   191.2 
Segment total  2,103.1   59.5   2,162.6 
Corporate and eliminations  -   (59.5)  (59.5)
Net sales $2,103.1  $-  $2,103.1 
             
  Year ended March 31, 2017 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:            
VTS $1,099.9  $52.3  $1,152.2 
CIS  231.5   0.3   231.8 
BHVAC  171.6   -   171.6 
Segment total  1,503.0   52.6   1,555.6 
Corporate and eliminations  -   (52.6)  (52.6)
Net sales $1,503.0  $-  $1,503.0 

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.  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.

The following is a summary of total assets by segment:

  March 31, 
  2017  2016 
Americas $282.9  $267.2 
Europe  269.4   301.9 
Asia  111.3   104.0 
CIS  576.0   - 
BHVAC  85.2   99.0 
Corporate and eliminations  124.7   148.8 
Total assets $1,449.5  $920.9 

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

  Years ended March 31, 
Capital expenditures: 2017  2016  2015 
Americas $26.3  $26.7  $30.2 
Europe  24.7   24.8   21.5 
Asia  8.5   6.2   3.8 
CIS  3.4   -   - 
BHVAC  1.5   5.1   2.8 
Total capital expenditures $64.4  $62.8  $58.3 
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

  Years ended March 31, 
Depreciation and amortization expense: 2017  2016  2015 
Americas $22.7  $22.1  $21.3 
Europe  16.5   18.0   19.8 
Asia  7.0   6.5   7.2 
CIS  7.9   -   - 
BHVAC  4.2   3.6   3.3 
Total depreciation and amortization expense $58.3  $50.2  $51.6 
  Years ended March 31, 
  2019  2018  2017 
Gross profit: $’s  
% of
sales
  $’s  
% of
sales
  $’s  % of
sales		 
VTS $186.9   13.8% $201.0   15.5% $182.0   15.8%
CIS  114.9   16.2%  97.8   14.5%  32.2   13.9%
BHVAC  63.4   29.9%  58.0   30.3%  47.8   27.8%
Segment total  365.2   16.1%  356.8   16.5%  262.0   16.8%
Corporate and eliminations (a)  0.3   -   (0.3)  -   (7.6)  - 
Gross profit $365.5   16.5% $356.5   17.0% $254.4   16.9%

  Years ended March 31, 
Operating income: 2019  2018  2017 
VTS $64.8  $84.2  $68.4 
CIS  53.4   28.5   10.9 
BHVAC  26.9   20.3   13.2 
Segment total  145.1   133.0   92.5 
Corporate and eliminations (a)  (35.4)  (40.8)  (50.2)
Operating income $109.7  $92.2  $42.3 

(a)During fiscal 2018 and 2017, the Company recorded $4.3 million and $14.8 million, respectively, of costs incurred directly related to the acquisition and integration of Luvata HTS within SG&A expenses at Corporate.  During fiscal 2017, the Company recorded $4.3 million in cost of sales related to an inventory purchase accounting adjustment at Corporate, as the impact was excluded from the Company’s measure of segment operating performance.  In addition, 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.

The following is a summary of total assets by segment:

  March 31, 
  2019  2018 
VTS $749.9  $754.8 
CIS  604.2   630.2 
BHVAC  89.4   88.1 
Corporate and eliminations  94.5   100.3 
Total assets $1,538.0  $1,573.4 

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

  Years ended March 31, 
Capital expenditures: 2019  2018  2017 
VTS $56.2  $61.4  $59.5 
CIS  16.4   9.0   3.4 
BHVAC  1.3   0.6   1.5 
Total capital expenditures $73.9  $71.0  $64.4 

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

  Years ended March 31, 
Depreciation and amortization expense: 2019  2018  2017 
VTS $49.5  $48.2  $46.2 
CIS  23.9   24.3   7.9 
BHVAC  3.5   4.2   4.2 
Total depreciation and amortization expense $76.9  $76.7  $58.3 

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

  Years ended March 31, 
  2017  2016  2015 
United States $657.8  $627.6  $669.3 
Hungary  145.6   145.9   161.0 
Germany  130.1   155.3   193.8 
Austria  125.2   113.1   118.7 
Italy  94.4   44.1   40.6 
Other  349.9   266.5   313.0 
Net sales $1,503.0  $1,352.5  $1,496.4 
  Years ended March 31, 
  2019  2018  2017 
United States $1,032.3  $911.4  $657.8 
Italy  217.3   211.5   94.4 
China  172.1   156.0   73.7 
Hungary  165.6   153.9   145.6 
Germany  123.1   132.6   130.1 
Austria  116.2   151.7   125.2 
Other  386.1   386.0   276.2 
Net sales $2,212.7  $2,103.1  $1,503.0 

The following is a summary of property, plant and equipment by geographical area:

  March 31, 
  2017  2016 
United States $124.7  $92.5 
Italy  55.8   20.3 
Mexico  47.0   30.9 
Austria  44.3   44.2 
China  40.0   33.6 
Hungary  37.7   31.4 
Germany  28.9   32.1 
Other  80.6   53.6 
Total property, plant and equipment $459.0  $338.6 

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

  Years ended March 31, 
  2017  2016  2015 
Automotive $461.0  $396.8  $401.8 
Commercial vehicle  382.5   459.8   512.5 
Off-highway  202.8   206.2   274.6 
HVAC&R  400.9   232.1   229.6 
Other  55.8   57.6   77.9 
Net sales $1,503.0  $1,352.5  $1,496.4 
  March 31, 
  2019  2018 
United States $117.7  $121.5 
China  57.6   49.6 
Mexico  56.3   49.4 
Hungary  55.3   59.3 
Italy  52.4   62.0 
Austria  36.9   42.8 
Germany  32.8   37.2 
Other  75.7   82.5 
Total property, plant and equipment $484.7  $504.3 

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

Note 21:  The following is a summary of net sales by end market:

  Years ended March 31, 
  2019  2018  2017 
Commercial HVAC&R $674.0  $648.3  $323.8 
Automotive  542.8   526.0   461.0 
Commercial vehicle  387.6   381.7   382.5 
Off-highway  314.1   271.2   202.8 
Data center cooling  187.0   137.6   57.1 
Industrial cooling  47.8   67.6   18.6 
Other  59.4   70.7   57.2 
Net sales $2,212.7  $2,103.1  $1,503.0 

Note 23:Quarterly Financial Data (Unaudited)

QuarterlyThe following is a summary of quarterly financial data is summarized below for the years ended March 31, 2017 and 2016:data:

  Fiscal 2017 quarters ended    
  June  Sept.  Dec.  March  Fiscal 2017 
                
Net sales $347.2  $317.7  $349.8  $488.3  $1,503.0 
Gross profit  62.0   47.7   58.7   84.9   253.3 
Earnings (loss) from continuing operations (a)  8.9   (4.0)  1.9   8.1   14.9 
Net earnings (loss) attributable to Modine (a)  8.6   (4.1)  1.7   8.0   14.2 
Net earnings (loss) per share attributable to Modine shareholders:                    
Basic $0.18  $(0.09) $0.04  $0.16  $0.29 
Diluted  0.18   (0.09)  0.04   0.16   0.29 
  Fiscal 2019 quarters ended    
  June  Sept.  Dec.  March  Fiscal 2019 
                
Net sales $566.1  $548.9  $541.0  $556.7  $2,212.7 
Gross profit  94.3   87.9   91.7   91.6   365.5 
Net earnings (a)  22.5   38.7   18.3   6.4   85.9 
Net earnings attributable to Modine (a)  22.0   38.5   18.0   6.3   84.8 
Net earnings per share attributable to Modine shareholders:                    
Basic $0.43  $0.76  $0.36  $0.12  $1.67 
Diluted  0.43   0.75   0.35   0.12   1.65 
                     
  Fiscal 2018 quarters ended     
  June  Sept.  Dec.  March  Fiscal 2018 
                     
Net sales $515.5  $508.3  $512.7  $566.6  $2,103.1 
Gross profit  88.5   86.1   85.4   96.5   356.5 
Net earnings (loss) (b)  17.4   16.3   (27.9)  18.0   23.8 
Net earnings (loss) attributable to Modine (b)  17.0   15.9   (28.3)  17.6   22.2 
Net earnings (loss) per share attributable to Modine shareholders:                    
Basic $0.34  $0.32  $(0.57) $0.35  $0.44 
Diluted  0.34   0.31   (0.57)  0.34   0.43 
  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 (b)  5.5   (22.5)  8.2   7.8   (1.0)
Net earnings (loss) attributable to Modine (b)  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)

(a)During fiscal 2017,2019, restructuring expenses totaled $2.3$0.2 million, $2.1 million, $1.6$0.5 million, and $4.9$8.9 million for the quarters ended June 30, 2016, September 30, 2016,2018, December 31, 2016,2018, and March 31, 2017,2019, respectively (see Note 5)6).  During the second quarter of fiscal 2019, the Company sold its South African business within the BHVAC segment and, as a result, recorded a loss of $1.7 million (see Note 1).  During the third quarter of fiscal 2019, the Company recorded a $0.4 million impairment charge related to a manufacturing facility in Austria (see Note 6).  The Company’s income tax benefit for fiscal 2019 includes net benefits of $24.4 million and net charges of $2.2 million in the second and third quarters, respectively, related to the Tax Act and the recognition of foreign tax credits (see Note 8).  During fiscal 2017,2019, the Company soldadjusted its valuation allowances on deferred tax assets related to two previously-closed manufacturing facilitiesseparate subsidiaries in its Americas segmentChina and, as a result, recorded a $2.0 million income tax benefit and a facility$1.0 million income tax charge in its Europe segmentthe first and recognized net gains totaling $1.2second quarters, respectively (see Note 8).
(b)During fiscal 2018, restructuring expenses totaled $1.7 million, $0.4 million, $9.4 million, and $0.8 million in the quarters ended September 30, 2016 and March 31, 2017, respectively.  During fiscal 2017, acquisition- and integration-related costs totaled $1.4 million, $3.0 million, $7.2 million, and $3.2$4.5 million for the quarters ended June 30, 2016,2017, September 30, 2016,2017, December 31, 2016,2017, and March 31, 2017,2018, respectively (see Note 2)6).  During the third quarter of fiscal 2018, the Company recorded a $1.3 million asset impairment charge related to a manufacturing facility in Austria (see Note 6).  During the fourth quarter of fiscal 2017,2018, the Company recorded a deferred$1.2 million impairment charge related to intangible assets (see Note 14).  The Company recorded income tax charges totaling $35.7 million and $2.3 million during the third and fourth quarters of fiscal 2018, respectively, related to the Tax Act (see Note 8).  During the fourth quarter of fiscal 2018, the Company reversed a portion of a valuation allowance related to a foreign tax jurisdiction, and, as a result, recorded income tax expense of $2.0 million (see Note 7).
(b)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 5).  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 5).  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 16).  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.  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 related to a foreign tax jurisdiction of $3.0$2.8 million (see Note 7)8).

Report of Independent Registered Public Accounting Firm

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

Opinions on the Financial 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, 2019, 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 listed in the index appearing under Item 15(a)(1)referred to above present fairly, in all material respects, the financial position of Modine Manufacturingthe Company and its subsidiaries atas of March 31, 20172019 and 2016, 2018, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2017 2019 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, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the CommitteeCOSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for the income tax effects of Sponsoring Organizationsintra-entity transfers of the Treadway Commission (COSO).  assets other than inventory in 2019.

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.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 are a public accounting firm registered with 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 Public Company Accounting Oversight Board (United States).PCAOB.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial 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 consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial 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 consolidatedfinancial 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 consolidatedfinancial 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.

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.

As described in Management's Report on Internal Control Over Financial Reporting, management has excluded the Luvata HTS business, operated as the Company's CIS segment, from its assessment of internal control over financial reporting as of March 31, 2017 because it was acquired by the Company in a purchase business combination on November 30, 2016.  We have also excluded Luvata HTS from our audit of internal control over financial reporting.  Luvata HTS total assets and net sales excluded from management’s assessment and our audit of internal control over financial reporting represent $297 million and $178 million, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended March 31, 2017.

/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 25, 201723, 2019

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

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A.
CONTROLS AND PROCEDURES.

Conclusion Regarding Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, management of the Company, at the direction of the General Counsel and under the supervision, and with the participation, of the Company'sCompany’s President and Chief Executive Officer and 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 Vice President, Finance and Chief Financial Officer have concluded that the Company'sCompany’s disclosure controls and procedures were effective, at a reasonable assurance level, as of March 31, 2017.2019.

Management’s Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s President and Chief Executive Officer and Vice President, Finance and Chief Financial Officer, and effected by the Company'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 Vice President, Finance and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2017.2019.  In making its assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control—Integrated Framework (2013).”  Based upon this assessment, management concluded that, as of March 31, 2017,2019, the Company’s internal control over financial reporting was effective.

Management excluded the Luvata HTS business, operated as the Company’s CIS segment, from its assessment of internal control over financial reporting as of March 31, 2017 because it was acquired by the Company in a purchase business combination on November 30, 2016.  The total assets and net sales of Luvata HTS excluded from management’s assessment represent $297 million and $178 million, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended March 31, 2017.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 20172019 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

As part of its post-closing integration activities for the Luvata HTS acquisition, the Company is engagedThere have been no changes in assessing, refining and harmonizing the internal controls and processes of the acquired business with those of the Company.

This process has resulted in a change in the Company’s internal control over financial reporting during the fourth quarter of fiscal 20172019 that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.
OTHER INFORMATION.

None.

PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors.  The Company incorporates by reference the information appearing in the Company'sCompany’s Proxy Statement for the 20172019 Annual Meeting of Shareholders to be held on July 20, 201725, 2019 (the “2017“2019 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 ActConduct. The Company incorporates by reference the information appearing in the 2017 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 20172019 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.  The Board of Directors has approved charters for its Audit Committee, Officer Nomination and Compensation Committee, Corporate Governance and Nominating Committee and Technology Committee.  These charters are included on the Company’s website, www.modine.com (Investors link).


Audit Committee Financial Expert. The Company incorporates by reference the information appearing in the 20172019 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 20172019 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 20172019 Annual Meeting Proxy Statement under the caption “Shareholder Nominations and Recommendations of Director Candidates.”

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 20172019 Annual Meeting Proxy Statement under the captions “Compensation Discussion and Analysis,” “Compensation of Directors,” “Committees of the Board of Directors – Officer Nomination and Compensation Committee: Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is incorporated herein by reference.

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The Company incorporates by reference the information relating to stock ownership under the caption “Security Ownership of Certain Beneficial Owners and Management,” and under the caption “Equity Compensation Plan Information,” in the 20172019 Annual Meeting Proxy Statement.

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

The Company incorporates by reference the information contained in the 20172019 Annual Meeting Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Director Independence.”

ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The Company incorporates by reference the information contained in the 20172019 Annual Meeting Proxy Statement under the caption “Independent Auditors’Auditor’s Fees for Fiscal 20172019 and 2016.2018.”

PART IV

ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)
Documents Filed.  The following documents are filed as part of this Report:

 
Page in Form 10-K
  
1. The consolidated financial statements of Modine Manufacturing Company and its subsidiaries filed under Item 8: 
  
Consolidated Statements of Operations for the years ended March 31, 2017, 20162019, 2018 and 201520174138
Consolidated Statements of Comprehensive Income for the years ended March 31, 2017, 20162019, 2018 and 201520174239
Consolidated Balance Sheets at March 31, 20172019 and 201620184340
Consolidated Statements of Cash Flows for the years ended March 31, 2017, 20162019, 2018 and 201520174441
Consolidated Statements of Shareholders'Shareholders’ Equity for the years ended March 31, 2017, 20162019, 2018 and 201520174542
Notes to Consolidated Financial Statements46-7343-74
Report of Independent Registered Public Accounting Firm7475-76
  
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 Accounts7980
  
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.80-8281-83
  
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.
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 25, 2017Modine 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. BurkeMay 25, 2017 
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Michael B. Lucareli
Michael B. LucareliMay 25, 2017
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Marsha C. Williams
Marsha C. WilliamsMay 25, 2017 
Director
/s/ David J. Anderson
David J. AndersonMay 25, 2017
Director
/s/ Charles P. Cooley
Charles P. Cooley
May 25, 2017
Director
/s/ Suresh V. Garimella
Suresh V. Garimella
May 25, 2017
Director
/s/ Larry O. Moore
Larry O. MooreMay 25, 2017
Director
/s/ Christopher W. Patterson
Christopher W. PattersonMay 25, 2017
Director
/s/ Christine Y. Yan
Christine Y. YanMay 25, 2017
Director
/s/ David G. Bills
David G. BillsMay 25, 2017
Director
MODINE MANUFACTURING COMPANY AND SUBSIDIARIES
(A Wisconsin Corporation)
SCHEDULE II ‑ VALUATION AND QUALIFYING ACCOUNTS
For the years ended March 31, 2017, 2016 and 2015
(In millions)

     Additions     
Description 
Balance at
Beginning of
Period
  
Charged
(Benefit) to
Costs and
Expenses
  
Charged to
Other
Accounts
   
Balance at
End of Period
 
              
2017: Valuation Allowance for Deferred Tax Assets $50.8  $(0.3) $(0.9)(a) $49.6 
                  
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 
                  
Notes:                 
(a)Foreign currency translation, increases due to the acquisition of Luvata HTS and other adjustments
MODINE MANUFACTURING COMPANY AND SUBSIDIARIES
(A Wisconsin Corporation)

SCHEDULE II ‑ VALUATION AND QUALIFYING ACCOUNTS
For the years ended March 31, 2019, 2018 and 2017
(In millions)

     Additions     
Description 
Balance at
Beginning of
Period
  
Charged
(Benefit) to
Costs and
Expenses
  
Charged to
Other Accounts
   
Balance at End
of Period
 
              
2019: Valuation Allowance for Deferred Tax Assets $48.9  $(1.6) $(3.9) (a) $43.4 
                  
2018: Valuation Allowance for Deferred Tax Assets $49.6  $(6.7) $6.0  (a) $48.9 
                  
2017: Valuation Allowance for Deferred Tax Assets $50.8  $(0.3) $(0.9) (a) $49.6 

(a)Foreign currency translation and other adjustments.  The fiscal 2018 and 2017 amounts also included increases associated with the Company’s acquisition of Luvata HTS.

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

EXHIBIT INDEX
TO
20172019 ANNUAL REPORT ON FORM 10-K

Exhibit
No.
Description 
Incorporated Herein By
Referenced To
 
Filed
Herewith
      
2.1
3.1
Share SaleAmended and Purchase Agreement between Luvata Heat Transfer Solutions II AB and Modine Manufacturing Company, datedRestated Articles of Incorporation, as of September 6, 2016.amended. Exhibit 2.13.1 to Registrant’s Current Report on Form 8-K dated September 6, 201610-K for the fiscal year ended March 31, 2018  
      
3.1Amended and Restated Articles of Incorporation, as amended.Exhibit 4.2 to Registrant’s Registration Statement on Form S-3 (333-161030) dated August 4, 2009
3.2
Bylaws, as amended. Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated February 10, 201520, 2019  
      
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**
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 Lenders.Lenders Exhibit 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
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  
      
4.12
Third Amended and Restated Credit Agreement dated as of November 15, 2016, with JPMorgan Chase Bank, N.A. as Administrative Agent and Collateral Agent, Bank of Montreal, U.S. Bank National Association and Wells Fargo Bank, National Association as Syndication Agents, and Bank of America, N.A. and PNC Bank, National Association as Senior Managing Agent.2016. Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated November 15, 2016 (“November 15, 2016 8-K”)  
      
4.13
Amended and Restated Note Purchase and Private Shelf Agreement dated as of November 15, 2016, with PGIM, Inc. and each of the Purchasers described therein relating to the $125,000,000 6.83% Secured Senior Notes, Series A, due August 12, 2020, the $50,000,000 5.75% Secured Senior Notes, Series B and Private Shelf Facility.2016. Exhibit 4.2 to  November 15, 2016 8-K  
      
4.14
Description of Registrant’s securitiesAmendment No 1. to the Company’s Registration Statement on Form 8-A filed on July 17, 2008 
10.1* 
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’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. Exhibit 10(f) to Registrant’s Form 10-K for the 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  
      
10.9*
Form of Fiscal 2019 Modine Performance Stock Award Agreement.Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended June 30, 2018

10.10*
Form of Fiscal 2019 Modine Incentive Stock Option Award Agreement.Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended June 30, 2018 
10.10* 
10.11*
Form of Fiscal 2019 Modine Restricted Stock Unit Award Agreement.Exhibit 10.3 to Registrant’s Form 10-Q for the quarter ended June 30, 2018
10.12*
Form of Fiscal 2019 Modine Non-Qualified Stock Option Award Agreement.Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended June 30, 2018
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. 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  
      
10.12*
10.15*
Form of Fiscal 2017 Modine Performance Stock Award Agreement.Incentive Compensation Plan. Exhibit 10.1 to Registrant’s Current Report on Form  10-Q for the first quarter ended June 30, 2016 ("June 30, 2016 10-Q")8-K dated July 20, 2017  
      
10.13*
10.16*
Form of Fiscal 20172019 Modine IncentiveNon-Employee Director Restricted Stock OptionsUnit Award Agreement. Exhibit 10.210.1 to JuneRegistrant’s Form 10-Q for the quarter ended September 30, 2016 10-Q2018  
      
10.14*Form of Fiscal 2017 Modine Restricted Stock Award Agreement.Exhibit 10.3 to June 30, 2016 10-Q
10.15*Form of Fiscal 2017 Modine Non-Qualified Stock Option Award Agreement.Exhibit 10.4 to June 30, 2016 10-Q
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, President and Chief Executive Officer.   X
      
31.2
Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Vice President, Finance and Chief Financial Officer.   X
      
32.1
Section 1350 Certification of Thomas A. Burke, President and Chief Executive Officer.   X
 ��     
32.2
Section 1350 Certification of Michael B. Lucareli, 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

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

**    Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has omitted certain agreements with respect to long-term debt not exceeding 10% of consolidated total assets.  The Registrant agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request.

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 23, 2019Modine 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 DirectorMay 23, 2019
(Principal Executive Officer)
/s/ Michael B. Lucareli

Michael B. LucareliMay 23, 2019
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Marsha C. Williams

Marsha C. WilliamsMay 23, 2019
Director
/s/ David J. Anderson

David J. AndersonMay 23, 2019
Director
/s/ Eric D. Ashleman

Eric D. AshlemanMay 23, 2019
Director
/s/ David G. Bills

David G. BillsMay 23, 2019
Director
/s/ Charles P. Cooley

Charles P. CooleyMay 23, 2019
Director
/s/ Suresh V. Garimella

Suresh V. GarimellaMay 23, 2019
Director
/s/ Larry O. Moore

Larry O. MooreMay 23, 2019
Director
/s/ Christopher W. Patterson

Christopher W. PattersonMay 23, 2019
Director
/s/ Christine Y. Yan

Christine Y. YanMay 23, 2019
Director


84
s
  % of sales  $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $1,503   100.0% $1,353   100.0% $1,496   100.0% $2,213   100.0% $2,103   100.0% $1,503   100.0%
Cost of sales  1,250   83.1%  1,129   83.5%  1,249   83.5%  1,847   83.5%  1,747   83.0%  1,249   83.1%
Gross profit  253   16.9%  224   16.5%  247   16.5%  366   16.5%  357   17.0%  254   16.9%
Selling, general and administrative expenses  205   13.7%  205   15.2%  184   12.3%  244   11.0%  246   11.7%  203   13.5%
Restructuring expenses  11   0.7%  17   1.2%  5   0.3%  10   0.4%  16   0.8%  11   0.7%
Gain on sale of facilities  (2)  -0.1%  -   -   (3)  -0.2%
Impairment charges  -   -   10   0.7%  8   0.5%  -   -   3   0.1%  -   - 
Operating income (loss)  39   2.6%  (8)  -0.6%  53   3.6%
Loss (gain) on sale of assets  2   0.1%  -   -   (2)  -0.1%
Operating income  110   5.0%  92   4.4%  42   2.8%
Interest expense  (17)  1.1%  (11)  -0.8%  (12)  -0.8%  (25)  -1.1%  (26)  -1.2%  (17)  -1.1%
Other (expense) income – net  (1)  0.1%  9   0.6%  -   - 
Earnings (loss) from continuing operations before income taxes  21   1.4%  (10)  -0.7%  41   2.8%
(Provision) benefit for income taxes  (6)  -0.4%  9   0.6%  (19)  -1.3%
Earnings (loss) from continuing operations $15   1.0% $(1)  -0.1% $22   1.5%
Other expense - net  (4)  -0.2%  (3)  -0.2%  (4)  -0.3%
Earnings before income taxes  81   3.7%  63   3.0%  21   1.4%
Benefit (provision) for income taxes  5   0.2%  (40)  -1.9%  (6)  -0.4%
Net earnings $86   3.9% $24   1.1% $15   1.0%

Year Ended March 31, 20172019 Compared with Year Ended March 31, 2016:2018:

Fiscal 20172019 net sales increased $150$110 million, or 115 percent, from the prior year, primarily due to $178 million of incremental sales from our new CIS segment and higher sales in each of our Asia segment,operating segments, partially offset by lower sales in our Americas and BHVAC segments.  Sales volume increases in our BHVAC segment were more than offset by an $11a $28 million unfavorable impact of foreign currency exchange rate changes.

Fiscal 20172019 gross profit of $253 million increased $29$9 million from the prior year, andyet gross margin increased 40declined 50 basis points to 16.916.5 percent.  These increases wereThe decline in gross margin was primarily due to $26 millionunfavorable material costs, including the direct and indirect impacts of gross profit contributed by the CIStariffs, and temporary operating inefficiencies largely related to increased volumes and multiple new program launches in our VTS segment, cost savings resulting from procurement initiatives, and the absence of $9 million of pension settlement losses recognized in the prior year, partially offset by temporary production inefficiencies in the Americas segment, the unfavorable impact of ahigher sales volume.  In addition, gross profit was unfavorably impacted by $4 million inventory purchase accounting adjustmentfrom foreign currency exchange rate changes.

Fiscal 2019 SG&A expenses of $244 million decreased $2 million, or 70 basis points as a percentage of sales, from the prior year.  The decrease in SG&A expenses was primarily due to lower integration costs associated with our November 2016 acquisition of the Luvata HTS business and unfavorable material costs.  In addition,a $3 million favorable impact of foreign currency exchange rate changes, negatively impacted fiscal 2017 gross profit by $2 million.

Fiscal 2017 SG&A expenses of $205 million were consistent with the prior year, but decreased as a percentage of net sales.  During fiscal 2017, $19 million of SG&A expenses in the CIS segment and $15 million of acquisition- and integration-related costs associated with our acquisition of Luvata HTS were largely offset by the absence of $33 million of pension settlement losses recognized in the prior year.

Restructuring expenses decreased $6 million in fiscal 2017 compared with the prior year, primarily due to lower severance expenses, partially offset by higher equipment transferthird-party strategic advisory costs recorded at Corporate and plant consolidationhigher environmental charges within our VTS segment.  During fiscal 2019, we recorded $7 million of costs, in the Americas segment.primarily consisting of third-party consulting fees, related to our evaluation of strategic alternatives for our VTS segment’s automotive business.

During fiscal 2017, we sold two previously-closed manufacturing facilities within our Americas segment and a facility within our Europe segment.  As a resultFiscal 2019 restructuring expenses of these sales, we recognized net gains totaling $2 million.

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.

Operating income of $39 million in fiscal 2017 represents a $47 million improvement compared with an operating loss of $8 million in the prior year.  Fiscal 2017 operating performance improved in our Europe and Asia segments, while operating performance declined in our Americas and BHVAC segments.  Operating income was favorably impacted by the absence of $42 million of pension settlement losses and a $10 million impairment charge recognized in the prior year, $8 million of operating income contributed by the CIS segment, and lower restructuring expenses, partially offset by acquisition- and integration-related costs and the impact of the inventory purchase accounting adjustment totaling $19 million.
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Fiscal 2017 interest expense increaseddecreased $6 million compared with the prior year, primarily due to new debt used to financelower severance-related expenses associated with the fiscal 2018 closure of a significant portion of our acquisition of Luvata HTS.manufacturing facility in Gailtal, Austria within the CIS segment.

OtherDuring fiscal 2019, we sold our South African business within the BHVAC segment and, as a result, recorded a loss of $2 million.

Operating income during fiscal 2016 included a $10of $110 million gain related to an insurance settlement for equipment losses resulting from the Airedale fire in fiscal 2014.2019 increased $18 million compared with the prior year, primarily due to higher earnings in the CIS and BHVAC segments, partially offset by lower earnings in the VTS segment.

OurThe benefit for income taxes was $5 million in fiscal 2019, compared with a provision for income taxes was $6of $40 million in fiscal 2017,2018.  The $45 million change was primarily due to our accounting for the impacts of the Tax Act.  As a result of the Tax Act, we recorded provisional income tax charges totaling $38 million in the prior year, compared with a benefit for income taxes of $9tax benefits totaling $8 million in fiscal 2016.  Thethe current year.  In addition, we recorded income tax benefitbenefits totaling $17 million in fiscal 2016 includedthe current year resulting from the recognition of tax assets for foreign tax credits and other attributes, partially offset by the absence of a $16 million benefit related to pension settlement losses and a $3$9 million benefit from a development tax credit in Hungary recorded in the reversalprior year and changes in the mix of a deferred tax asset valuation allowance in a foreign tax jurisdiction.  The income tax provision in fiscal 2017 includes a $2 million provisionoperating earnings.  See Note 8 of the Notes to establish a valuation allowance in a separate foreign tax jurisdiction.Consolidated Financial Statements for additional information.

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Year Ended March 31, 20162018 Compared with Year Ended March 31, 2015:2017:

Fiscal 20162018 net sales decreased $143increased $600 million, or 1040 percent, from the prior year, primarily due to lower$444 million of additional sales from our CIS segment, which included sales from the acquired Luvata HTS business that we owned for four months of fiscal 2017, higher sales in each of our Americas and Europe segments. Sales volume increases in our Europe segment were more than offset by a $76 million unfavorable impact of foreign currency exchange rate changes.  In total, our fiscal 2016 sales were negatively affected by a $110 million unfavorable impact of foreign currency exchange rate changes, primarily associated with the strengthening of the U.S. dollar.

Fiscal 2016 gross profit decreased $23 million to $224 million, 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 favorable 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 initiativesother operating segments, and a $10$55 million favorable impact of foreign currency exchange rate changes.

Restructuring expensesFiscal 2018 gross profit of $357 million increased $12$103 million in fiscal 2016 compared withfrom the prior year, primarily due to severance expenses$66 million of additional gross profit from our CIS segment and higher gross profit in our VTS and BHVAC segments.  Gross profit was favorably impacted by $9 million from foreign currency exchange rate changes.  Gross margin improved 10 basis points to 17.0 percent, primarily due to higher sales volume, savings resulting from cost-reduction initiatives, improved operating efficiencies, and the absence of a $4 million inventory purchase accounting adjustment recorded in the Europeprior year, partially offset by unfavorable material costs and Americas segmentsincremental depreciation and equipment transfer costs related to plant consolidation activities in the Americas segment.amortization expense resulting from purchase accounting for Luvata HTS.

In fiscal 2016, we recorded a $10Fiscal 2018 SG&A expenses of $246 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 $3increased $43 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 wasyear, primarily due to $42a $39 million increase in SG&A expenses in our CIS segment, $4 million of pension settlement losses, lower gross profit,strategy consulting fees incurred during fiscal 2018, higher restructuringcompensation-related expenses, and a $4 million unfavorable impact of foreign currency exchange rate changes, partially offset by ongoing cost-control initiatives.lower costs incurred related to the acquisition of Luvata HTS.  SG&A expenses, as a percentage of net sales, decreased 180 basis points compared with the prior year.

Other income duringRestructuring expenses of $16 million in fiscal 2016 included a $102018 increased $5 million gaincompared with the prior year, primarily due to severance-related expenses in the CIS segment related to an insurance settlement for equipment losses resulting from the Airedale fireclosure of a manufacturing facility in Austria.

During fiscal 2018, we recorded impairment charges totaling $3 million related to the closure of the CIS manufacturing facility in Austria and the discontinuance of a product line in our BHVAC segment.

During fiscal 2017, we sold three manufacturing facilities within our VTS segment, two of which were previously closed, and recognized net gains totaling $2 million.

Operating income of $92 million in fiscal 2014.2018 increased $50 million compared with the prior year, primarily due to $18 million of additional operating income contributed by our CIS segment and higher earnings in the VTS and BHVAC segments.

Our benefitFiscal 2018 interest expense increased $9 million compared with the prior year, primarily due to debt issued to finance a significant portion of our acquisition of Luvata HTS.

The provision for income taxes was $9$40 million and $6 million in fiscal 2016, compared with a provision for income taxes of $192018 and 2017, respectively.  The $34 million in fiscal 2015.  This $28 million changeincrease was primarily due to $16$38 million of provisional charges recorded in fiscal 2018 related to the Tax Act and increased operating earnings, partially offset by income tax benefits related to pension settlement lossestotaling $14 million resulting from i) a development tax credit in fiscal 2016, a decrease in operating earnings, and a $3 million income tax benefit related toHungary ($9 million); ii) the reversal of a deferredportion of the valuation allowance in a foreign jurisdiction ($3 million); and iii) a reduction of unrecognized tax assetbenefits resulting from a lapse in statutes of limitations ($2 million), and the absence of a $2 million provision recorded in the prior year to establish a valuation allowance.allowance in a separate foreign jurisdiction.

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Segment Results of Operations

Americas                  
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $534   100.0% $586   100.0% $667   100.0%
Cost of sales  447   83.8%  486   82.9%  558   83.7%
Gross profit  87   16.2%  100   17.1%  109   16.3%
Selling, general and administrative expenses  54   10.1%  55   9.4%  65   9.7%
Restructuring expenses  7   1.3%  9   1.5%  3   0.4%
Gain on sale of facilities  (1)  -0.2%  -   -   -   - 
Impairment charge  -   -   -   -   8   1.2%
Operating income $27   5.0% $36   6.2% $33   5.0%
Since the date we acquired Luvata HTS (November 30, 2016), we have included financial results of this acquired business within our CIS segment.  Effective April 1, 2018, we merged our Americas coils business into the CIS segment to accelerate operational improvements and organizational efficiencies and formed the VTS segment by combining our Americas, Europe, and Asia operations to enable us to operate as a more global, product-based organization.  We began reporting financial results for our new segments beginning in fiscal 2019.  Segment financial information for fiscal 2018 and 2017 has been recast to conform to the fiscal 2019 presentation.

VTS   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $1,352   100.0% $1,296   100.0% $1,152   100.0%
Cost of sales  1,165   86.2%  1,095   84.5%  970   84.2%
Gross profit  187   13.8%  201   15.5%  182   15.8%
Selling, general and administrative expenses  113   8.3%  110   8.4%  106   9.2%
Restructuring expenses  9   0.7%  7   0.6%  10   0.9%
Gain on sale of assets  -   -   -   -   (2)  -0.2%
Operating income $65   4.8% $84   6.5% $68   5.9%

Year Ended March 31, 20172019 Compared with Year Ended March 31, 2016:2018:

AmericasVTS net sales decreased $52increased $56 million, or 94 percent, in fiscal 20172019 compared with the prior year, primarily due to higher sales volume to off-highway and automotive customers in North America and Asia, partially offset by lower sales volume to commercial vehicle and off-highway customers in North America,Europe and a $21 million unfavorable impact of foreign currency exchange rate changes.  Gross profit decreased $14 million and gross margin declined 170 basis points to 13.8 percent.  The decline in gross margin was primarily due to unfavorable material costs, including the impacts of tariffs, and temporary operating inefficiencies largely related to increased volumes and new program launches at certain manufacturing facilities, partially offset by higher sales volume.  In addition, foreign currency exchange rate changes had an unfavorable $3 million impact on gross profit.  SG&A expenses increased $3 million compared with the prior year, yet decreased 10 basis points as a percentage of sales.  The increase in SG&A expenses primarily resulted from higher environmental charges related to previously-owned manufacturing facilities in the U.S. and higher compensation-related expenses, partially offset by a $2 million favorable impact of foreign currency exchange rate changes.  Restructuring expenses increased $2 million, primarily due to higher severance expenses.  Operating income decreased $19 million to $65 million, primarily due to lower gross profit and higher SG&A and restructuring expenses.

Year Ended March 31, 2018 Compared with Year Ended March 31, 2017:

VTS net sales increased $144 million, or 12 percent, in fiscal 2018 compared with the prior year, primarily due to higher sales volume to off-highway and automotive customers and a $5$42 million favorable impact of foreign currency exchange rate changes.  Gross profit decreased $13increased $19 million, and gross margin decreased 90 basis points to 16.2 percent in fiscal 2017.  These decreases were primarily due to lowerhigher sales volumevolume.  Gross margin declined 30 basis points, primarily due to unfavorable material costs, the absence of favorable customer pricing settlements recorded in the prior year, and temporaryhigher depreciation expense resulting from recent production inefficiencies in North America, largely related to product launches and plant consolidation activities,capacity investments, partially offset by cost savings resulting from procurement initiatives,improved operating efficiencies.  In addition, foreign currency exchange rate changes had a favorable material costs and lower environmental costs related to a previously-owned manufacturing facility, as compared with the prior year.  Fiscal 2017$7 million impact on gross profit.  SG&A expenses decreased $1 million from fiscal 2016, primarily due to lower compensation-related expenses and a higher recovery of development costs, partially offset by a $1.6 million charge related to a legal matter in Brazil for which the Company has agreed to a settlement.  In fiscal 2017, we recorded $7 million of restructuring expenses, primarily consisting of equipment transfer and plant consolidation costs related to the closure of our Washington, Iowa manufacturing facility, which we completed during fiscal 2017, and severance expenses.  In addition, we sold two closed manufacturing facilities in North America and recognized gains totaling $1 million as a result.  Operating income of $27 million in fiscal 2017 decreased $9increased $4 million compared with the prior year, primarily due to lower gross profit.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

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.  Gross profit decreased $9 million, yet gross margin increased 80 basis points to 17.1 percent in fiscal 2016.  The decrease in gross profit was primarily due to lower sales volume, a $3 million unfavorable impact of foreign currency exchange rate changes, higher compensation-related expenses, and $2 million ofhigher environmental charges related to a previously-owned manufacturing facility in the U.S., partially offset by lower material costs, cost savings from completed restructuring activities, and improved production efficiencies.  Fiscal 2016 SG&A expenses decreased $10 million from fiscal 2015, primarily due to cost-control initiatives, the absence of a $3$2 million charge forrecorded in the prior year related to a legal matter in Brazil, in the prior year,which has since been settled and paid.  As a percentage of sales, SG&A expenses decreased 80 basis points to 8.4 percent.  Restructuring expenses decreased $3 million, favorable impact of foreign currency exchange rate changes.  In fiscal 2016, we recorded $9 million of restructuring expenses, primarily consisting of severance expenses associated with a voluntary retirement program in the U.S. and the closure of our Washington, Iowa manufacturing facility,due to lower plant consolidation and equipment transfer costs.  In fiscal 2017, we sold three manufacturing facilities and, plant consolidation costs in North America.  Operating incomeas a result, recognized gains totaling $2 million.

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Table of $36Contents
CIS   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $708   100.0% $676   100.0% $232   100.0%
Cost of sales  593   83.8%  578   85.5%  200   86.1%
Gross profit  115   16.2%  98   14.5%  32   13.9%
Selling, general and administrative expenses  61   8.6%  60   8.8%  21   9.2%
Restructuring expenses  -   -   8   1.2%  -   - 
Impairment charges  -   0.1%  1   0.2%  -   - 
Operating income $53   7.5% $29   4.2% $11   4.7%

Year Ended March 31, 2019 Compared with Year Ended March 31, 2018:

CIS net sales increased $32 million, or 5 percent, in fiscal 2016 increased $3 million2019 compared with the prior year, primarily due to lower SG&A expenses and the absence of an $8 million goodwill impairment charge in fiscal 2015, partially offset by lower gross profit and higher restructuring expenses.
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Europe
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $524   100.0% $524   100.0% $578   100.0%
Cost of sales  443   84.6%  456   87.0%  509   88.1%
Gross profit  81   15.4%  68   13.0%  69   11.9%
Selling, general and administrative expenses  42   7.9%  39   7.4%  44   7.6%
Restructuring expenses  3   0.6%  6   1.2%  2   0.4%
Gain on sale of facility  (1)  -0.2%  -   -   (3)  -0.6%
Impairment charge  -   -   10   1.9%  -   - 
Operating income $37   7.1% $13   2.5% $26   4.5%
Year Ended March 31, 2017 Compared with Year Ended March 31, 2016:

Europe net sales of $524 million in fiscal 2017 were consistent with the prior year, as higher sales volume to automotivedata center and commercial HVAC&R customers, waspartially offset by lower sales volume to commercial vehicle and off-highwayindustrial customers and a $3$5 million unfavorable impact of foreign currency exchange rate changes.  Gross profit increased $13$17 million and gross margin improved 240170 basis points to 15.416.2 percent, in fiscal 2017, primarily due to cost savings resulting from procurement initiatives, favorable sales mix, and improved production efficiencies, partially offset by unfavorable material costs.  SG&A expenses increased $3 million in fiscal 2017, primarily due to higher compensation-related expenses.  In fiscal 2017, we recorded $3 million of restructuring expenses, primarily consisting of severance expenses.  In addition, we sold a manufacturing facility in Europe and recognized a gain of $1 million as a result.  Operating income of $37 million in fiscal 2017 increased $24 million compared with the prior year, primarily due to higher gross profit and the absence of a $10 million impairment charge in the prior year.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

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.  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.  Fiscal 2016favorable sales mix.  SG&A expenses increased $1 million, yet decreased $520 basis points as a percentage of sales.  The $1 million from the prior year,increase in SG&A expenses was primarily due to higher compensation-related expenses, including higher commission costs, partially offset by a $6$1 million favorable impact of foreign currency exchange rate changes.  In fiscal 2016, weRestructuring expenses decreased $8 million, primarily due to the absence of severance-related expenses recorded $6 million of restructuring expenses, primarilyin the prior year related to severance expenses.  In addition, we recorded a $10 million asset impairment charge.  These restructuring expenses and impairment charge primarily related tothe closure of a manufacturing facility in Germany, which was generating pre-tax losses, resulting in management decidingAustria.  In fiscal 2018, we recorded a $1 million impairment charge related to exit a certain product line.the closure of the Austrian facility.  In fiscal 2019, we recorded an additional impairment charge of less than $1 million related to this facility.  Operating income of $13$53 million in fiscal 2016 decreased $13increased $24 million, compared with the prior year, primarily due to higher restructuring expenses, an impairment charge,gross profit and the absence of a $3 million gain on the sale of a wind tunnel in the prior year, partially offset by lower SG&Arestructuring expenses.
Asia
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $112   100.0% $79   100.0% $81   100.0%
Cost of sales  93   83.2%  67   84.5%  69   85.8%
Gross profit  19   16.8%  12   15.5%  12   14.2%
Selling, general and administrative expenses  11   9.9%  11   14.5%  12   13.9%
Operating income $8   6.9% $1   1.0% $-   0.3%
Year Ended March 31, 20172018 Compared with Year Ended March 31, 2016:2017:

AsiaCIS financial results for fiscal 2017 primarily include four months of results from the acquired Luvata HTS business.  These financial results are not comparable to fiscal 2018, which included a full year of Luvata HTS results.

BHVAC   
  Years ended March 31, 
  2019  2018  2017 
(in millions) $’s  % of sales  $’s  % of sales  $’s  % of sales 
Net sales $212   100.0% $191   100.0% $172   100.0%
Cost of sales  149   70.1%  133   69.7%  124   72.2%
Gross profit  63   29.9%  58   30.3%  48   27.8%
Selling, general and administrative expenses  35   16.4%  36   18.8%  34   19.7%
Restructuring expenses  -   -   -   0.2%  1   0.4%
Impairment charge  -   -   1   0.7%  -   - 
Loss on sale of assets  2   0.8%  -   -   -   - 
Operating income $27   12.6% $20   10.6% $13   7.7%

Year Ended March 31, 2019 Compared with Year Ended March 31, 2018:

BHVAC net sales increased $33$21 million, or 4211 percent, in fiscal 20172019 compared with the prior year, primarily due to higher sales volume to automotiveof air conditioning products and off-highway customersparts and controls in Chinathe U.K. and incremental sales from our recently-formed joint ventureheating products in China,North America, partially offset by a $4$1 million unfavorable impact of foreign currency exchange rate changes.  Gross profit increased $7$5 million, andyet gross margin improved 130declined 40 basis points to 16.8 percent29.9 percent.  This slight decline in gross margin primarily resulted from unfavorable material costs and sales mix, partially offset by higher sales volume.  SG&A expenses decreased $1 million compared with the prior year and decreased 240 basis points as a percentage of sales, primarily due to cost-control initiatives.  During fiscal 2017,2019, we completed the sale of our business in South Africa, and, as a result, recorded a loss of $2 million.  Operating income of $27 million increased $7 million, primarily due to higher gross profit.

Year Ended March 31, 2018 Compared with Year Ended March 31, 2017:

BHVAC net sales volume. Fiscal 2017 SG&A expenses were consistent with the prior year.  Operating income of $8increased $19 million, or 11 percent, in fiscal 2017 increased $7 million2018 compared with the prior year, primarily due to higher gross profit.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

Asia net sales decreased $2 million, or 3 percent, in fiscal 2016 compared with the prior year, primarily due to lower sales volume to off-highway customers in Chinaheating and Korea and a $4 million unfavorable impact of foreign currency exchange rate changes, partially offset by higher sales volume to automotive customers in China and increased overall sales in India.  Gross margin improved 130 basis points to 15.5 percent in fiscal 2016 compared with the prior year, primarily due to favorable sales mix.  Fiscal 2016 SG&A expenses decreased $1 million from the prior year, primarily due to cost-control initiatives, partially offset by acquisition-related costs associated with a joint venture that we formed in late fiscal 2016.  Operating income of $1 million in fiscal 2016 increased $1 million compared with the prior year, primarily due to lower SG&A expenses.
BHVAC
  Years ended March 31, 
  2017  2016  2015 
(in millions) $'s  % of sales  $'s  % of sales  $'s  % of sales 
Net sales $172   100.0% $181   100.0% $186   100.0%
Cost of sales  124   72.2%  127   70.1%  130   70.0%
Gross profit  48   27.8%  54   29.9%  56   30.0%
Selling, general and administrative expenses  34   19.8%  39   21.6%  37   19.8%
Restructuring expenses  1   0.4%  1   0.6%  -   - 
Operating income $13   7.6% $14   7.7% $19   10.2%
Year Ended March 31, 2017 Compared with Year Ended March 31, 2016:

BHVAC net sales decreased $9 million, or 5 percent, in fiscal 2017 compared with the prior year, primarily due to an $11 million unfavorable impact of foreign currency exchange rate changes and lower school ventilation and heating product sales in North America partially offset by increased air conditioning product sales in the U.K.  Gross profit decreased $6 million and gross margin decreased 210 basis points to 27.8 percent in fiscal 2017, primarily due to unfavorable sales mix, unfavorable material costs and higher depreciation expense in the current year resulting from replacement assets associated with the Airedale fire, which we started to depreciate in the fourth quarter of fiscal 2016.  In addition, gross profit was unfavorably impacted by $2 million from foreign currency exchange rate changes.  Fiscal 2017 SG&A expenses decreased $5 million from fiscal 2016, primarily due to lower commission costs and compensation-related expenses and a $2 million favorable impact of foreign currency exchange rate changes.  In fiscal 2017, we recorded $1 million of restructuring expenses consisting of severance expenses.  Operating income of $13 million in fiscal 2017 decreased $1 million compared with the prior year, primarily due to lower gross profit, partially offset by lower SG&A expenses.

Year Ended March 31, 2016 Compared with Year Ended March 31, 2015:

BHVAC net sales decreased $5 million, or 3 percent, in fiscal 2016 compared with the prior year, primarily due to a $6 million unfavorable impact of foreign currency exchange rate changes and lower sales at our businesses in the U.K., as unfavorable currency conditions resulted in increased competition from other mainland European suppliers, partially offset by increased ventilation product sales in North America.  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.  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.  In fiscal 2016, we recordedGross profit increased $10 million and gross margin improved 250 basis points to 30.3 percent, primarily due to higher sales volume and improved operating efficiencies in the U.K.  SG&A expenses increased $2 million, primarily due to higher commission costs resulting from higher sales.  As a percentage of sales, SG&A expenses decreased 90 basis points.  Restructuring expenses decreased $1 million, of restructuring expenses consistingprimarily due to the absence of severance expenses.expenses recorded in the prior year.  During fiscal 2018, we discontinued a geothermal product line and, as a result, recorded a $1 million impairment charge for intangible assets we no longer use.  Operating income of $14$20 million in fiscal 2016 decreased $5increased $7 million, compared with the prior year, primarily due to lowerhigher gross profit and higher SG&A expenses.profit.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow from operating activities, our cash and cash equivalents atas of March 31, 20172019 of $34$42 million, and an available borrowing capacity of $153$124 million under lines ofour revolving credit provided by banks in the United States and abroad.facility.  Given our extensive international operations, $32approximately $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 may be subject to U.S. taxforeign withholding taxes if repatriated.  We have not encountered, and do not expect to encounter, any difficulty meeting the liquidity requirements of our global operations.

Net Cash Provided by Operating Activities

Net cash provided by operating activities in fiscal 20172019 was $42$103 million, a decrease of $30$21 million from $72$124 million in the prior year.  This decrease in operating cash flow was primarily due to payments for acquisition- and integration-related costs,resulted from unfavorable net changes in working capital, partially offset by the favorable impact of stronger earnings.  The unfavorable changes in working capital, as compared with the prior year, included higher incentive compensation and other employee benefit payments and higher payments for restructuring activities.inventory levels associated with higher sales levels.

Net cash provided by operating activities in fiscal 20162018 was $72$124 million, an increase of $8$82 million from $64$42 million in the prior year.fiscal 2017.  This increase in operating cash flow was primarily due toresulted from an increase in operating earnings, including additional contributions from our CIS segment, lower payments for costs associated with the acquisition and integration of Luvata HTS and restructuring expenses in the current year, and favorable net changes in working capital, including lower incentive compensation payments during fiscal 2016 and the timing of value-added tax payments.capital.

Capital Expenditures

Capital expenditures of $64$74 million during fiscal 20172019 increased $1$3 million compared with fiscal 2016.  In fiscal 2017,2018, primarily due to higher capital expenditures in our CIS segment, including investments to expand manufacturing capacity in Serbia and Mexico.  Similar to prior years, our capital spending in fiscal 2019 primarily occurred in the Americas and Europe segments,VTS segment, which totaled $26$56 million, and $25 million, respectively.  Capital projects in fiscal 2017 included tooling and equipment purchases in conjunction with new and renewal programs with customers, as well as expansions of ourinvestments to expand manufacturing capacity in MexicoChina and Hungary.

At March 31, 2017,2019, our capital expenditure commitments totaled $18$24 million.  Significant commitments included tooling and equipment expenditures for new and renewal programs with customers in the Americas, Asia, North America, and Europe segments.

Dividends

We did not pay dividends in fiscal 2017, 2016, or 2015.  We currently do not intend to pay dividends in fiscal 2018.within the VTS segment.

Debt

Our total debt outstanding increased $348decreased $30 million to $511$450 million at March 31, 20172019 compared with the prior year, primarily due to new long-termrepayments of debt and borrowings under our revolving credit facility used to finance a significant portion of the $364 million cash consideration for our acquisition of Luvata HTS.during fiscal 2019.  See Note 1517 of the Notes to Consolidated Financial Statements for additional information regarding our new credit agreements.

Our debt agreements require us to maintain compliance with various covenants.  The term loans require prepayments, asAs defined in the credit agreement, the term loans may require prepayments in the event the Company’sour annual excess cash flow exceeds defined levels, depending upon our leverage ratio, or in the event of certain asset sales.  In addition, under our primary debt agreements in the U.S., we are subject to a leverage ratio covenant,covenants, the most restrictive of which requires us to limit our consolidated indebtedness, less a certain portion of our cash balance, both as defined by the credit agreements,agreement, to no more than three and one-quarter times consolidated net earnings before interest, taxes, depreciation, amortization, and certain other adjustments (“Adjusted EBITDA”).  As permitted by the credit agreements and in connection with our acquisition of Luvata HTS, the leverage ratio covenant limit has been temporarily raised to no more than three and three-quarters times Adjusted EBITDA through the second quarter of fiscal 2018, and thereafter to no more than three and one-half times Adjusted EBITDA through the first quarter of fiscal 2019.  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.
OurMarch 31, 2019, our leverage ratio at March 31, 2017 was 2.9, which was below the maximum permitted ratio of 3.75.  Ourand interest expense coverage ratio at March 31, 2017 was 7.0, which exceeded the minimum requirement of 3.0.were 2.1 and 9.0, respectively.  We were in compliance with our debt covenants as of March 31, 20172019 and expect to remain in compliance during fiscal 20182020 and beyond.

Off-Balance Sheet Arrangements

None.

Contractual Obligations

  March 31, 2017 
(in millions) Total  
Less than 1
year
  1 - 3 years  4 - 5 years  
More than
5 years
 
                
Long-term debt $436.2  $31.3  $81.6  $281.6  $41.7 
Interest associated with long-term debt  73.9   18.5   31.8   17.0   6.6 
Capital lease obligations  8.0   0.5   0.8   0.8   5.9 
Operating lease obligations  69.3   12.2   19.2   13.2   24.7 
Capital expenditure commitments  18.1   17.1   1.0   -   - 
Other long-term obligations  4.8   2.4   1.7   0.7   - 
Total contractual obligations $610.3  $82.0  $136.1  $313.3  $78.9 
  March 31, 2019 
(in millions) Total  
Less than
1 year
  1 - 3 years  4 - 5 years  
More than 5
years
 
                
Long-term debt $377.7  $48.2  $287.8  $16.7  $25.0 
Interest associated with long-term debt  40.9   16.0   18.3   4.1   2.5 
Operating lease obligations  70.4   14.2   21.5   11.8   22.9 
Capital expenditure commitments  23.6   23.6   -   -   - 
Other long-term obligations (a)  13.3   1.4   2.1   2.0   7.8 
Total contractual obligations $525.9  $103.4  $329.7  $34.6  $58.2 

(a)Includes capital lease obligations and other long-term obligations.

Our liabilities for pensions, postretirement benefits, and uncertain tax positions totaled $139$119 million as of March 31, 2017.2019.  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 $13$3 million to our U.S. pension plans during fiscal 2018.2020.

Critical Accounting Policies

The following critical accounting policies reflect the more significant judgments and estimates used in preparing our consolidated financial statements.  Application of these policies results in accounting estimates that have the greatest potential for a significant impact on our financial statements.  The following discussion of these judgments and estimates is intended to supplement the significant accounting policies presented in Note 1 of the Notes to Consolidated Financial Statements.  In addition, recently issued accounting pronouncements that could significantly impact our financial statementsstatement are includeddisclosed in Note 1 of the Notes to Consolidated Financial Statements.

Revenue Recognition

In fiscal 2019, we adopted new revenue recognition accounting guidance.  See Note 1 of the Notes to Consolidated Financial Statements for additional information.  In accordance with this new accounting guidance, we recognize revenue based upon consideration specified in a contract and as we satisfy performance obligations by transferring control over our products to our customers, which may be at a point in time or over time.  The majority of our revenue is recognized at a point in time, based upon shipment terms.  A limited number of our customer contracts provide an enforceable right to payment for 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 doubtful accounts for estimated uncollectible receivables and we accrue for estimated warranty costs at the time of sale.  We base these estimates upon historical experience, current business trends, and current economic conditions.

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 are also required to 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.  During fiscal 2017, we acquired Luvata HTS.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.

Revenue Recognition
We recognize revenue, including agreed-upon commodity prices, when the risks and rewards of ownership are transferred to our customers, which generally occurs upon shipment.  Revenue is recorded net of applicable provisions for sales rebates, volume incentives, and returns and allowances.  At the time of revenue recognition, we also record estimates for bad debt expense and warranty expense.  We base these estimates on historical experience, current business trends, and current economic conditions.  We recognize price increases that are agreed upon in advance as revenue when the products are shipped to our customers.
Impairment of Long-Lived Assets

We perform impairment evaluations of long-lived assets, including property, plant and equipment, intangible assets and equity investments, whenever business conditions or events indicate that those assets may be impaired.  We consider factors such as operating losses, declining financial outlooks and market conditions, when evaluating the necessity for an impairment analysis.  When the net asset values exceed undiscounted cash flows expected to be generated by the assets, or the decline in value is considered to be “other than temporary,” we write down the assets to fair value and record an impairment charge to current operations.  We estimate fair value in various ways depending on the nature of the assets under review.underlying assets.  Fair value is generally based upon 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 $459$485 million and $134$116 million, respectively, at March 31, 2017, respectively.2019.  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 recent acquisition of Luvata HTS.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.  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.

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.  We consider factors such as operating losses, declining financial and market outlooks, and market capitalization when evaluating the necessity for an interim impairment analysis.  We test goodwill for impairment at a reporting unit level.  Reporting units resulting from recent acquisitions generally represent the highest risk of impairment, which typically decreases as the businesses are integrated into the Company and positioned for future operating and financial performance.  Our first step in theWe test goodwill for impairment test is to compareby 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 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, business trends and market conditions.  We determine the expected future revenue growth rates and operating profit margins after consideration of our historical revenue growth rates and earnings levels, our assessment of future market potential and our expectations of future business performance.  The discount rate used in determining discounted cash flows is a rate corresponding to our cost of capital, adjusted for country-specific risks where appropriate.

At March 31, 2017,2019, our goodwill totaled $165$169 million, primarily related to our recently-acquired CIS segment and our BHVAC segment.  We will complete goodwill impairment tests for the CISsegments.  Each of these segments is comprised of two reporting units in fiscal 2018, within one year of the acquisition date.  See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding this acquisition.units.  We conducted annual goodwill impairment tests for our BHVAC and Asia segments during the fourth quarter of fiscal 20172019 by applying a fair value-based test and determined the fair value of theeach of our reporting units substantially exceeded theirthe respective book values.value.

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 $10$9 million at March 31, 2017,2019, 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, 2017,2019, our pension liabilities totaled $122$104 million.  The most significant assumptions include the discount rate, long-term expected return on plan assets, and mortality rate tables.  We base our selection of assumptions on historical trends and economic and market conditions at the time of valuation.  In accordance with U.S. GAAP, actual results that differ from these assumptions are accumulated and amortized over future periods.  These differences impact future pension expenses.  Currently, participants in our domestic pension plans are not accruing benefits based upon their current service as the plans do not include increases in annual earnings or for future service in calculating the average annual earnings and years of credited service under the pension plan formula.

For the following discussion regarding sensitivity of assumptions, all amounts presented are in reference to our domestic pension plans, since our domestic plans comprise all of our benefit plan assets and the large majority of our pension plan expense.

To determine the expected rate of return on pension plan assets, we consider such factors as (a) the actual return earned on plan assets, (b) historical rates of return on the various asset classes in the plan portfolio, (c) projections of returns on those asset classes, (d) the amount of active management of the assets, (e) capital market conditions and economic forecasts, and (f) administrative expenses paid with the plan assets.  The long-term rate of return utilized in both fiscal 20172019 and 20162018 was 8.07.5 percent.  For fiscal 2018,2020, we have also assumed a rate of 7.5 percent.  This 50A change of 25 basis point decreasepoints in the expected rate of return on assets as compared with the prior year, resulted in an increase of less than $1 million inwould impact our estimated fiscal 20182020 pension expense.expense by $0.4 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 20172019 and 2016,2018, for purposes of determining pension expense, we used a discount rate of 4.0 and 4.1 percent.percent, 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 1618 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 20182020 pension expense by less than $1 million.

Income Taxes

We operate in numerous taxing jurisdictions; therefore, we are 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.

The Tax Act was enacted in December 2017 and included numerous changes to existing U.S. tax regulations, including U.S. corporate tax rates, business deductions, and taxes on income in foreign jurisdictions.  We completed our accounting for the impacts of the Tax Act during fiscal 2019.  Additional impacts from the Tax Act could result if there are changes in interpretations or applications of the Tax Act’s provisions or if supplementary regulatory guidance is issued.

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 a particular jurisdiction will not be realized.  This determination involves significant judgment.  In performing this assessment on a jurisdiction-by-jurisdiction basis, we consider historical and projected financial results along with other pertinent information.

We have not recorded a provision for U.S. income taxes on undistributed earnings from our non-U.S. subsidiaries that we have determined to be permanently reinvested in our foreign operations.  If management’s intentions or U.S. tax law changes in the future, there could be a significant negative impact on our provision for income taxes.  See Note 78 of the Notes to Consolidated Financial Statements for additional information regarding income taxes.

Other Loss Reserves

We maintain liabilities and reserves for a number of other loss exposures, such as environmental remediation costs, self-insurance reserves, uncollectible accounts receivable, regulatory compliance matters, and litigation.  Establishing loss reserves for these exposures requires the use of estimates and judgment to determine the risk exposure and ultimate potential liability.  We estimate these reserve requirements by using consistent and suitable methodologies for the particular type of loss reserve being calculated.  See Note 1820 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 and uncertainty associated with cross-border trade, and, in particular, the continuing recovery and/or instability of certain markets in which we operate in China and North America, the still-weak forecasts for the Brazilian economy, and the general uncertainties about the impact of potential regulatory and/or policy changes, including those related to tax and trade, that may be implemented in the United States, as well as continuing uncertainty regarding the longer-term implications of “Brexit”;
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, and the general uncertainties about the impact of regulatory and/or policy changes, including those related to tax and trade, that have been or may be implemented in the United States or by its trade partners, as well as continuing uncertainty regarding the timing and the short- and long-term implications of “Brexit”;

·The impact of potential increases in commodity prices, including our ability to successfully manage our exposure and/or pass increasing prices of aluminum, copper, steel and stainless steel (nickel) on to customers, as well as the inherent lag in timing of such pass-through arrangements; and
The impact of 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 and the behavior of our suppliers.  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

·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.
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:

·Our ability to integrate the former Luvata HTS operations into Modine, realize cost and revenue synergies in accordance with our expectations, and effectively manage any unanticipated risks that arise, while also maintaining stability within the acquired business and appropriate focus on the rest of Modine’s business;
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;

·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;
Unanticipated 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;

·
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 and overall service pressures from customers, particularly in the face of macro-economic instability;

·Unanticipated product or manufacturing difficulties or inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims;

·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;
Unanticipated product or manufacturing difficulties or operating inefficiencies, including unanticipated program launch and product transfer challenges and warranty claims;

·Our ability to consistently structure our operations in order to develop and maintain a competitive cost base with appropriately skilled and stable labor pools, 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;
Unanticipated delays or modifications initiated by major customers with respect to program launches, product applications or requirements;

·Costs and other effects of the investigation and remediation of environmental contamination;
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;

·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;
Our ability to effectively and efficiently complete restructuring activities and realize the anticipated benefits of those activities;

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

·The constant and increasing pressures associated with healthcare and associated insurance costs; and
Our ability to recruit and maintain talent, including personnel in managerial, leadership and administrative functions, in light of tightening global labor markets;

·Costs and other effects of unanticipated litigation, claims, or other obligations, including those associated with our acquisition of Luvata HTS.
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;

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 unanticipated litigation, claims, or other obligations.

Strategic Risks:

·Our ability to successfully take advantage of our increased presence in the “industrial” markets, with our Building HVAC and Commercial and Industrial Solutions businesses, without shifting attention away from our vehicular business, where we enjoy and desire to preserve a leading position; and
Our ability to successfully take advantage of our increased presence in the “industrial” markets, with our CIS and BHVAC businesses, while maintaining appropriate focus on the market opportunities presented by our VTS business;

·Our ability to identify and execute additional growth and diversification opportunities in order to position us for long-term success.
The success of our evaluation of strategic alternatives for our automotive business within our VTS segment in optimizing the segment’s future profitability;

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

The potential expense, disruption or other impacts that could result from unanticipated actions by activist shareholders.

Financial Risks:

·Our ability to fund our global liquidity requirements efficiently for Modine’s current operations, particularly those in our Asia business segment, and meet our long-term commitments in the event of an unexpected disruption in or tightening of the credit markets or extended recessionary conditions in the global economy;
Our ability to fund our global liquidity requirements efficiently for Modine’s current operations and meet our long-term commitments in the event of an 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 potential increases in interest rates, particularly in LIBOR and EURIBOR in relation to our variable-rate debt obligations;
Our ability to maintain our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) in our target range of 1.5 to 2.5 in an efficient manner;

·Our ability to bring our leverage ratio (net debt divided by Adjusted EBITDA, as defined in our credit agreements) back into our target range of 1.5 to 2.5 in an efficient manner following our acquisition of Luvata HTS;
The potential unfavorable impact of foreign currency exchange rate fluctuations on our financial results; and

·Costs arising from the integration of Luvata HTS and the timing and impact of potential purchase accounting adjustments;
Our ability to effectively realize the benefits of deferred tax assets in various jurisdictions in which we operate.

·The impact of foreign currency exchange rate fluctuations, particularly the value of the euro, Brazilian real, and British pound, relative to the U.S. dollar; and

·Our ability to effectively realize the benefits of tax assets in various jurisdictions in whichForward-looking statements are as of the date of this report; we operate.

In addition to the risks set forth above, we are subject to other risks and uncertainties as identified in our public filings with the U.S. Securities and Exchange Commission.  We do not assume any obligation to update any forward-looking statements.

37
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.

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 entity engaging in the transaction.  In 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 2017,2019, we recorded realized and unrealizeda net loss of $1 million within our statement of operations related to foreign currency gains and losses that netted to a loss of $2 million, which we reported in other income and expense in the consolidated statement of operations.derivative contracts.  In addition, our consolidated financial results are impacted 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 2017,2019, 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 2017,2019, changes in foreign currency exchange rates negativelyunfavorably impacted our sales by $13$28 million; however, the impact on our operating income was less than $1 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 2017,2019, there would not have been a material impact on our fiscal 20172019 earnings.

We maintain 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, 2017, 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 could materially impact our net earnings.loans; however, Fromfrom 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 accounted 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 variable-rate debt to manage exposure to changes in interest rates.  Interest on both our term loans and borrowings under our primary multi-currency revolving credit facility is based upon a variable interest rate, primarily either the London Interbank Offered Rate (“LIBOR”)LIBOR or Euro Interbank Offered Rate (“EURIBOR”),EURIBOR, plus 137.5 to 250 basis points, depending on our leverage ratio.  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.  As of March 31, 2017,2019, our outstanding borrowings on the variable-rate term loans and the revolving credit facility totaled $269$238 million and $40$47 million, respectively.  Based upon our outstanding debt with variable interest rates at March 31, 2017,2019, a 100 basis point increase in interest rates would increase our annual interest expense in fiscal 20182020 by approximately $3 million.

35
Commodity Price Risk

We are dependent upon the supply of raw materials and supplies in our production processes and, from time to time, enter into firm purchase commitments for aluminum, copper, nickel, and natural gas.  We maintain agreements with certainCommodity price risk is most prevalent to our vehicular businesses, which provide customized production and service parts to customers to pass through specified raw material price fluctuations inunder multi-year programs.  In order to mitigate commodity price risk.  The majority ofrisk specific to these agreements containlong-term sales programs, we maintain contract provisions in which the pass-through of thewith certain customers that allow us to prospectively adjust prices based upon raw material price fluctuations canfluctuations.  These prospective price adjustments 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 and exclude additional cost elements, such as related premiums and fabrication.  For our industrial businesses, we predominantly seek to mitigate commodity price risk by adjusting product pricing in response to any applicable price increases.
38

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, 2017, 352019, 38 percent of our trade accounts receivable balance was concentrated with our top ten customers.  These customers operate primarily in the automotive, commercial vehicle, off-highway, data center cooling and off-highwaycommercial air conditioning 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, 2017;
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, 2019;
·
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
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.
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.

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 automotive, commercial vehicle, off-highway, and commercial, industrial, and building HVAC&R 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 is still present.

We monitor economic conditions in the U.S. and abroad.  As we expand our global presence, we also encounter risks imposed by potential trade restrictions, including tariffs, embargoes, and the like.  We continue to pursue non-speculative opportunities to mitigate these economic risks, and capitalize, when possible, on changing market conditions.

We pursue new market opportunities after careful consideration of the potential associated risks and benefits.  Successes in new markets are dependent upon our ability to commercialize our investments.  Current examples of new and emerging markets for us include those related to waste heat recovery,electric vehicles, coils and coolers outside of North America and the U.K.,in certain markets, and coatings.  Our investment in these areas is subject to the risks associated with business integration, technological success, customer and market acceptance, and our ability to meet the demands of our customers as these markets grow.

We anticipate that recovery within some
36
In an effort to manage and reduce our costs, we 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 geographic and end markets 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.
39

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, customers occasionally link price reductions to future program awards, and we must assess the overall implications of such requests on a case-by-case basis.

Hedging and Foreign Currency Forward Contracts

We use derivative financial instruments as a tool to manage certain financial risks.  We prohibit the use of leveraged derivatives.

Commodity derivatives:  From time to time, we enter into 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 2019 and 2018, 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 2017, 2016we did not designate commodity forward contracts for hedge accounting.  Accordingly, unrealized gains and 2015,losses on these contracts were recorded within cost of sales.  In fiscal 2019, 2018, and 2017, net gains and losses related to commodity derivativeforward contracts which are reported in cost of sales in the consolidated statements of operations, were less than $1 million in each year.

Foreign currency 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.  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:  We manage counterparty risks by ensuring that counterparties to derivative instruments havemaintain credit ratings acceptable to us.  At March 31, 2017,2019, all counterparties had a sufficient long-term credit rating.

4037
ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions, except per share amounts)

  2017  2016  2015 
Net sales $1,503.0  $1,352.5  $1,496.4 
Cost of sales  1,249.7   1,129.0   1,249.9 
Gross profit  253.3   223.5   246.5 
Selling, general and administrative expenses  205.0   204.5   184.5 
Restructuring expenses  10.9   16.6   4.7 
Gain on sale of facilities  (2.0)  -   (3.2)
Impairment charges  -   9.9   7.8 
Operating income (loss)  39.4   (7.5)  52.7 
Interest expense  (17.2)  (11.1)  (11.7)
Other (expense) income – net  (1.4)  8.7   0.2 
Earnings (loss) from continuing operations before income taxes  20.8   (9.9)  41.2 
(Provision) benefit for income taxes  (5.9)  8.9   (19.0)
Earnings (loss) from continuing operations  14.9   (1.0)  22.2 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss)  14.9   (1.0)  22.8 
Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Net earnings (loss) attributable to Modine $14.2  $(1.6) $21.8 
             
Earnings (loss) per share from continuing operations attributable to Modine shareholders:            
Basic $0.29  $(0.03) $0.45 
Diluted $0.29  $(0.03) $0.44 
             
Net earnings (loss) per share attributable to Modine shareholders:            
Basic $0.29  $(0.03) $0.46 
Diluted $0.29  $(0.03) $0.45 
             
Weighted-average shares outstanding:            
Basic  47.8   47.3   47.2 
Diluted  48.3   47.3   47.8 
  2019  2018  2017 
Net sales $2,212.7  $2,103.1  $1,503.0 
Cost of sales  1,847.2   1,746.6   1,248.6 
Gross profit  365.5   356.5   254.4 
Selling, general and administrative expenses  244.1   245.8   203.2 
Restructuring expenses  9.6   16.0   10.9 
Impairment charges  0.4   2.5   - 
Loss (gain) on sale of assets  1.7   -   (2.0)
Operating income  109.7   92.2   42.3 
Interest expense  (24.8)  (25.6)  (17.2)
Other expense - net  (4.1)  (3.3)  (4.3)
Earnings before income taxes  80.8   63.3   20.8 
Benefit (provision) for income taxes  5.1   (39.5)  (5.9)
Net earnings  85.9   23.8   14.9 
Net earnings attributable to noncontrolling interest  (1.1)  (1.6)  (0.7)
Net earnings attributable to Modine $84.8  $22.2  $14.2 
             
Net earnings per share attributable to Modine shareholders:            
Basic $1.67  $0.44  $0.29 
Diluted $1.65  $0.43  $0.29 
             
Weighted-average shares outstanding:            
Basic  50.5   49.9   47.8 
Diluted  51.3   50.9   48.3 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

  2017  2016  2015 
Net earnings (loss) $14.9  $(1.0) $22.8 
Other comprehensive income (loss):            
Foreign currency translation  (10.8)  4.6   (68.2)
Defined benefit plans, net of income taxes of $1.7, $11.8 and ($13.2) million  3.2   19.7   (26.7)
Total other comprehensive (loss) income  (7.6)  24.3   (94.9)
             
Comprehensive income (loss)  7.3   23.3   (72.1)
Comprehensive income attributable to noncontrolling interest  (0.7)  (0.5)  (0.8)
Comprehensive income (loss) attributable to Modine $6.6  $22.8  $(72.9)
  2019  2018  2017 
Net earnings $85.9  $23.8  $14.9 
Other comprehensive income (loss):            
Foreign currency translation  (37.6)  41.8   (10.8)
Defined benefit plans, net of income taxes of ($0.3), ($0.2) and $1.7 million  (1.4)  0.1   3.2 
Cash flow hedges, net of income taxes of $0.1, $0.1 and $0 million  0.4   0.1   - 
Total other comprehensive income (loss)  (38.6)  42.0   (7.6)
             
Comprehensive income  47.3   65.8   7.3 
Comprehensive income attributable to noncontrolling interest  (0.6)  (2.1)  (0.7)
Comprehensive income attributable to Modine $46.7  $63.7  $6.6 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED BALANCE SHEETS
March 31, 20172019 and 20162018
(In millions, except per share amounts)

  2017  2016 
ASSETS
      
Cash and cash equivalents $34.2  $68.9 
Trade accounts receivable – net  295.2   189.1 
Inventories  168.5   111.0 
Other current assets  55.4   43.5 
Total current assets  553.3   412.5 
Property, plant and equipment – net  459.0   338.6 
Intangible assets – net  134.1   8.2 
Goodwill  165.1   15.8 
Deferred income taxes  108.4   123.1 
Other noncurrent assets  29.6   22.7 
Total assets $1,449.5  $920.9 
         
LIABILITIES AND SHAREHOLDERS' EQUITY
        
Short-term debt $73.4  $28.6 
Long-term debt – current portion  31.8   8.5 
Accounts payable  230.3   142.4 
Accrued compensation and employee benefits  74.8   58.6 
Other current liabilities  45.1   35.5 
Total current liabilities  455.4   273.6 
Long-term debt  405.7   125.5 
Deferred income taxes  9.7   4.2 
Pensions  119.4   118.6 
Other noncurrent liabilities  38.1   16.3 
Total liabilities  1,028.3   538.2 
Commitments and contingencies (see Note 18)        
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 51.8 million and 49.0 million shares  32.4   30.6 
Additional paid-in capital  216.4   185.6 
Retained earnings  372.4   358.2 
Accumulated other comprehensive loss  (181.8)  (174.2)
Treasury stock, at cost, 1.7 million and 1.6 million shares  (25.4)  (24.0)
Total Modine shareholders' equity  414.0   376.2 
Noncontrolling interest  7.2   6.5 
Total equity  421.2   382.7 
Total liabilities and equity $1,449.5  $920.9 
  2019  2018 
ASSETS
      
Cash and cash equivalents $41.7  $39.3 
Trade accounts receivable – net  338.6   342.4 
Inventories  200.7   191.3 
Other current assets  65.8   70.1 
Total current assets  646.8   643.1 
Property, plant and equipment – net  484.7   504.3 
Intangible assets – net  116.2   129.9 
Goodwill  168.5   173.8 
Deferred income taxes  97.1   96.9 
Other noncurrent assets  24.7   25.4 
Total assets $1,538.0  $1,573.4 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY
        
Short-term debt $66.0  $53.2 
Long-term debt – current portion  48.6   39.9 
Accounts payable  280.9   277.9 
Accrued compensation and employee benefits  81.7   97.3 
Other current liabilities  39.9   47.2 
Total current liabilities  517.1   515.5 
Long-term debt  335.1   386.3 
Deferred income taxes  8.2   9.9 
Pensions  101.7   109.6 
Other noncurrent liabilities  34.8   53.6 
Total liabilities  996.9   1,074.9 
Commitments and contingencies (see Note 20)        
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 52.8 million and 52.3 million shares
  33.0   32.7 
Additional paid-in capital  238.6   229.9 
Retained earnings  472.1   394.9 
Accumulated other comprehensive loss  (178.4)  (140.3)
Treasury stock, at cost, 2.1 million and 1.8 million shares  (31.4)  (27.1)
Total Modine shareholders’ equity  533.9   490.1 
Noncontrolling interest  7.2   8.4 
Total equity  541.1   498.5 
Total liabilities and equity $1,538.0  $1,573.4 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

  2017  2016  2015 
Cash flows from operating activities:         
Net earnings (loss) $14.9  $(1.0) $22.8 
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:            
Depreciation and amortization  58.3   50.2   51.6 
Gain on sale of facilities  (2.0)  -   (3.2)
Impairment charges  -   9.9   7.8 
Insurance proceeds from Airedale fire  -   5.9   12.9 
Pension and postretirement expense  3.4   45.1   2.3 
Deferred income taxes  (4.6)  (18.8)  5.9 
Stock-based compensation expense  7.4   4.9   4.0 
Other – net  0.5   0.1   0.4 
Changes in operating assets and liabilities, excluding acquisitions:            
Trade accounts receivable  (25.7)  8.0   (0.1)
Inventories  (3.3)  (2.7)  (4.2)
Accounts payable  19.9   (9.9)  (2.4)
Accrued compensation and employee benefits  (6.5)  0.8   (5.3)
Other assets  (2.5)  (14.5)  (24.5)
Other liabilities  (18.2)  (5.6)  (4.5)
Net cash provided by operating activities  41.6   72.4   63.5 
             
Cash flows from investing activities:            
Acquisitions – net of cash acquired  (364.2)  (1.4)  - 
Expenditures for property, plant and equipment  (64.4)  (62.8)  (58.3)
Insurance proceeds from Airedale fire  3.0   27.4   12.2 
Costs to replace building and equipment damaged in Airedale fire  (1.0)  (41.7)  (16.7)
Proceeds from dispositions of assets  5.7   0.4   7.6 
Purchases of short-term investments  (3.5)  (2.7)  (5.2)
Proceeds from maturities of short-term investments  2.2   2.1   2.4 
Other – net  -   0.9   0.8 
Net cash used for investing activities  (422.2)  (77.8)  (57.2)
             
Cash flows from financing activities:            
Borrowings of debt  559.1   38.0   36.4 
Repayments of debt  (202.4)  (27.1)  (50.9)
Financing fees paid  (8.7)  -   (0.1)
Purchases of treasury stock under share repurchase program  -   (6.9)  - 
Dividend paid to noncontrolling interest  -   (0.9)  - 
Other – net  (0.4)  (0.4)  - 
Net cash provided by (used for) financing activities  347.6   2.7   (14.6)
             
Effect of exchange rate changes on cash  (1.7)  1.1   (8.4)
Net decrease in cash and cash equivalents  (34.7)  (1.6)  (16.7)
Cash and cash equivalents - beginning of year  68.9   70.5   87.2 
Cash and cash equivalents - end of year $34.2  $68.9  $70.5 
  2019  2018  2017 
Cash flows from operating activities:         
Net earnings $85.9  $23.8  $14.9 
Adjustments to reconcile net earnings to net cash provided by operating activities:            
Depreciation and amortization  76.9   76.7   58.3 
Loss (gain) on sale of assets  1.7   -   (2.0)
Impairment charges  0.4   2.5   - 
Stock-based compensation expense  7.9   9.5   7.4 
Deferred income taxes  (4.4)  12.1   (4.6)
Other – net  5.3   9.0   3.9 
Changes in operating assets and liabilities, excluding acquisition:            
Trade accounts receivable  (15.3)  (26.1)  (25.7)
Inventories  (22.0)  (12.5)  (3.3)
Accounts payable  16.6   25.2   19.9 
Accrued compensation and employee benefits  (10.1)  16.4   (6.5)
Other assets  (11.8)  (5.0)  (2.4)
Other liabilities  (27.8)  (7.4)  (18.2)
Net cash provided by operating activities  103.3   124.2   41.7 
             
Cash flows from investing activities:            
Expenditures for property, plant and equipment  (73.9)  (71.0)  (64.4)
Acquisition – net of cash acquired  -   -   (364.2)
Proceeds from dispositions of assets  0.3   0.3   5.7 
Proceeds from maturities of short-term investments  4.9   4.8   2.2 
Purchases of short-term investments  (3.8)  (5.5)  (3.5)
Other – net  (0.3)  (0.2)  2.0 
Net cash used for investing activities  (72.8)  (71.6)  (422.2)
             
Cash flows from financing activities:            
Borrowings of debt  231.2   171.0   559.1 
Repayments of debt  (251.9)  (222.9)  (202.4)
Dividend paid to noncontrolling interest  (1.8)  (0.9)  - 
Financing fees paid  -   -   (8.7)
Other – net  (3.4)  2.7   (0.4)
Net cash (used for) provided by financing activities  (25.9)  (50.1)  347.6 
             
Effect of exchange rate changes on cash  (2.7)  3.0   (1.7)
Net increase (decrease) in cash, cash equivalents and restricted cash  1.9   5.5   (34.6)
Cash, cash equivalents and restricted cash - beginning of year  40.3   34.8   69.4 
Cash, cash equivalents and restricted cash - end of year $42.2  $40.3  $34.8 

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

MODINE MANUFACTURING COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'SHAREHOLDERS’ EQUITY
For the years ended March 31, 2017, 20162019, 2018 and 20152017
(In millions)

    
Additional
paid-in
capital
  
Retained
earnings
  
Accumulated
other
comprehensive
loss
  
Treasury
stock, at
cost
  
Non-
controlling
interest
  Total 
 
Common stock 
Shares  Amount
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 
Net earnings attributable to Modine  -   -   -   14.2   -   -   -   14.2 
Other comprehensive loss  -   -   -   -   (7.6)  -   -   (7.6)
Shares issued for acquisition of Luvata HTS  2.2   1.4   22.9   -   -   -   -   24.3 
Stock options and awards including related tax benefits  0.6   0.4   0.5   -   -   -   -   0.9 
Purchase of treasury stock  -   -   -   -   -   (1.4)  -   (1.4)
Stock-based compensation expense  -   -   7.4   -   -   -   -   7.4 
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   0.7   0.7 
Balance, March 31, 2017  51.8  $32.4  $216.4  $372.4  $(181.8) $(25.4) $7.2  $421.2 
    

Common stock
    
Additional
paid-in
capital
    
Retained
earnings
    
Accumulated other
comprehensive loss
    
Treasury
stock, at
cost
    
Non-controlling
interest
    Total  
Shares  Amount
Balance, March 31, 2016  49.0  $30.6  $185.6  $358.2  $(174.2) $(24.0) $6.5  $382.7 
Net earnings attributable to Modine  -   -   -   14.2   -   -   -   14.2 
Other comprehensive loss  -   -   -   -   (7.6)  -   -   (7.6)
Shares issued for acquisition of Luvata HTS  2.2   1.4   22.9   -   -   -   -   24.3 
Stock options and awards including related tax benefits  0.6   0.4   0.5   -   -   -   -   0.9 
Purchase of treasury stock  -   -   -   -   -   (1.4)  -   (1.4)
Stock-based compensation expense  -   -   7.4   -   -   -   -   7.4 
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   0.7   0.7 
Balance, March 31, 2017  51.8   32.4   216.4   372.4   (181.8)  (25.4)  7.2   421.2 
Net earnings attributable to Modine  -   -   -   22.2   -   -   -   22.2 
Other comprehensive income  -   -   -   -   41.5   -   0.5   42.0 
Stock options and awards  0.5   0.3   3.9   -   -   -   -   4.2 
Purchase of treasury stock  -   -   -   -   -   (1.7)  -   (1.7)
Adoption of new accounting guidance (Note 1)  -   -   0.1   0.3   -   -   -   0.4 
Stock-based compensation expense  -   -   9.5   -   -   -   -   9.5 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (0.9)  (0.9)
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   1.6   1.6 
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)  -   -   -   (7.6)  -   -   -   (7.6)
Net earnings attributable to Modine  -   -   -   84.8   -   -   -   84.8 
Other comprehensive loss  -   -   -   -   (38.1)  -   (0.5)  (38.6)
Stock options and awards  0.5   0.3   0.8   -   -   -   -   1.1 
Purchase of treasury stock  -   -   -   -   -   (4.3)  -   (4.3)
Stock-based compensation expense  -   -   7.9   -   -   -   -   7.9 
Dividend paid to noncontrolling interest  -   -   -   -   -   -   (1.8)  (1.8)
Net earnings attributable to noncontrolling interest  -   -   -   -   -   -   1.1   1.1 
Balance, March 31, 2019  52.8  $33.0  $238.6  $472.1  $(178.4) $(31.4) $7.2  $541.1 

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

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

Note 1: 
Note 1:Significant Accounting Policies

Nature of operations:  Modine Manufacturing Company (“Modine” or the “Company”) specializes in providing innovative thermal management solutions to diversified global markets and customers.  The Company is a leading provider of engineered heat transfer systems and high-quality heat transfer components for use in on- and off-highway original equipment manufacturer (“OEM”) vehicular applications.  In addition, 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.  The Company’s primary product groups include i) powertrain cooling and engine cooling; ii) coils, coolers, and coatings; and iii) heating, ventilation and air conditioning.

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 on the loss on sale of assets line of the consolidated statements of operations.  Annual net sales attributable to this disposed business were less than $2.0 million.

Acquisition of Luvata HTS:  On November 30, 2016, the Company completed the acquisition of 100%100 percent of the shares of multiple companies held by Luvata Heat Transfer Solutions II AB, a company incorporated in Sweden.  Combined, these acquired companies represented the Luvata Heat Transfer Solutions (“Luvata HTS”) business.  See Note 2 for additional information.

Airedale facility fire: In September 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 (“BHVAC”) segment.  There were no injuries caused by the fire.  The Rawdon facility, which was leased, was used to manufacture cooling products and solutions for a variety of applications, including data centers, clean rooms, retail, leisure and process cooling.  The Company suspended operations at the Rawdon site as a result of the fire; however, it transferred operations to temporary facilities while it rebuilt the leased facility.  The Company completed the reconstruction and relocation to the Rawdon facility in fiscal 2016.  In fiscal 2016, the Company recorded a $9.5 million gain within other income related to an insurance settlement for equipment losses.  This gain represented the replacement assets’ cost in excess of the carrying value of the equipment at the time they were destroyed by the fire.

Basis of presentation:  The Company prepares its consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States.  These principles require management to make certain estimates and assumptions in determining assets, liabilities, revenue, expenses and related disclosures.  Actual amounts could differ materially from those estimates.

Consolidation principles:  The consolidated financial statements include the accounts of Modine Manufacturing Company and its majority-owned or Modine-controlled subsidiaries.  The Company eliminates intercompany transactions and balances in consolidation.

The Company accounts for investments in non-consolidated affiliated companies in which its ownership is 20 percent or more using the equity method.  The Company states these investments at cost, plus or minus a proportionate share of undistributed net earnings.  The Company includes Modine’s share of the affiliate’s net earnings in other income and expense.  See Note 1113 for additional information.

Discontinued operations: Revenue recognition:  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 customers, which may be at a point in time or over time.  The majority of the Company’s revenue is recognized at a point in 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 3 for additional information.

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 records an allowance for doubtful accounts for estimated uncollectible receivables based upon historical experience or specific customer economic data.  The Company recorded an allowance for doubtful accounts of $1.6 million and $2.3 million at March 31, 2019 and 2018, 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 fiscal 2009,2019, 2018, and 2017, the Company sold its Electronics Cooling business.  The buyer financed a portion$85.1 million, $65.8 million, and $55.4 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,2019, 2018, and 2017, the Company recorded a gainloss on the sale of $0.9accounts receivable of $0.6 million, ($0.6$0.4 million, after income taxes) during fiscal 2015.and $0.3 million, respectively, in the consolidated statements of operations.

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 16 for additional information.

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

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, 2019 and 2018, Company-owned tooling totaled $24.2 million and $22.4 million, respectively.  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.  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, 2019 and 2018, cost reimbursement receivables related to customer-owned tooling totaled $11.6 million and $10.7 million, respectively.

Stock-based compensation:  The Company recognizes stock-based compensation using the fair value method.  Accordingly, compensation expense for stock options, restricted stock and performance-based stock awards is calculated based upon the fair value of the instruments at the time of grant, and is recognized as expense over the respective vesting periods.  See Note 5 for additional information.

Research and development:  The Company expenses research and development costs as incurred within selling, general and administrative (“SG&A”) expenses.  During fiscal 2019, 2018, and 2017, research and development costs charged to operations totaled $69.8 million, $65.8 million, and $64.4 million, respectively.

Translation of foreign currencies:  The Company translates assets and liabilities of foreign subsidiaries and equity investments into U.S. dollars at the period-end exchange rates, and translates income and expense items at the monthly average exchange rate for the period in which the transactions occur.  The Company reports resulting translation adjustments within accumulated other comprehensive income (loss) within shareholders’ equity.  The Company includes foreign currency transaction gains or losses in the statement of operations within other income and expense.

Derivative instruments:  The Company enters into derivative financial instruments from time to time to manage certain financial risks.  The Company enters into forward 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 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 19 for additional information.

Income taxes:  The Company determines deferred tax assets and liabilities based upon the difference between the amounts reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse.  The Company establishes a valuation allowance if it is more likely than not that a deferred tax asset, or portion thereof, will not be realized.  See Note 8 for additional information.

Earnings per share:  The Company calculates basic earnings per share based upon the weighted-average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.  The calculation of diluted earnings per share excludes potential common shares if their inclusion would have an anti-dilutive effect.  Certain outstanding restricted stock awards provide recipients with a non-forfeitable right to receive dividends declared by the Company.  Therefore, these restricted stock awards are included in computing earnings per share pursuant to the two-class method.  See Note 9 for additional information.

Cash and cash equivalents: The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment.  To the extent checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the Company reports the amount of those checks within accounts payable in the consolidated balance sheets.

Short-term investments:  The Company invests in time deposits with original maturities of more than three months but no more than one year.  The Company records these short-term investments at cost, which approximates fair value, within other current assets in the consolidated balance sheets.  As of March 31, 2019 and 2018, the Company’s short-term investments totaled $4.3 million and $5.7 million, respectively.

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.

Property, plant and equipment:  The Company records property, plant and equipment at cost.  For financial reporting purposes, the Company computes depreciation using the straight-line method over the expected useful lives of the assets.  The Company charges maintenance and repair costs to operations as incurred.  The Company capitalizes costs of improvements.  Upon the sale or other disposition of an asset, the Company removes the cost and related accumulated depreciation from the accounts and includes the gain or loss in the consolidated statements of operations.  Capital expenditures of $17.9 million, $15.8 million, and $12.5 million were accrued within accounts payable at March 31, 2019, 2018, and 2017, respectively.

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, 2019, which did not result in an impairment charge.  See Note 15 for additional information.

Impairment of long-lived assets:  The Company reviews long-lived assets, including property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.  In these instances, the Company compares the undiscounted future cash flows expected to be generated from the asset with its carrying value.  If the asset’s carrying value exceeds expected future cash flows, the Company measures and records an impairment loss, if any, as the amount by which the carrying value of the asset exceeds its fair value.  The Company estimates fair value using a variety of valuation techniques, including discounted cash flows, market values and comparison values for similar assets.

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, within other noncurrent assets.  The Company ceases to record depreciation expense at the time of designation as held for sale.  The carrying value of assets held for sale totaled $5.0$1.1 million and $8.5$1.7 million at March 31, 20172019 and 2016,2018, respectively.

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 upon 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
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, 2017 and 2016, Company-owned tooling totaled $20.8 million and $18.8 million, respectively.  In certain instances, the Company makes upfront payments for customer-owned tooling costs, and subsequently receives reimbursement from customers for the upfront payments.  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 its consolidated statements of operations.  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, 2017 and 2016, cost reimbursement receivables related to customer-owned tooling totaled $7.8 million and $8.5 million, respectively.

Warranty:  The Company provides product warranties for specific product lines and accrues for estimated future warranty costs in the period in which the sale is recorded.  The Company records warranty expense, 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 14 for additional information.

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.

Research and development:  The Company expenses research and development costs as incurred within selling, general and administrative (“SG&A”) expenses.  For the years ended March 31, 2017, 2016, and 2015, research and development costs charged to operations totaled $64.4 million, $61.1 million, and $62.0 million, respectively.

Translation of foreign currencies:  The Company translates assets and liabilities of foreign subsidiaries and equity investments into U.S. dollars at the period-end exchange rates, and translates income and expense items at the monthly average exchange rate for the period in which the transactions occur.  The Company reports resulting translation adjustments within accumulated other comprehensive income (loss) within shareholders' equity.  The Company includes foreign currency transaction gains or losses in the statement of operations within other income and expense.

Derivative instruments:  The Company enters into derivative financial instruments from time to time to manage certain financial risks.  The Company enters into futures contracts to reduce exposure to changing future purchase prices for aluminum and copper and into foreign currency exchange contracts to hedge specific foreign currency-denominated assets and liabilities.  These instruments are used to manage financial risks and are not speculative.  See Note 17 for additional information.

Income taxes:  The Company determines deferred tax assets and liabilities based upon the difference between the amounts reported in the financial statements and the tax basis of assets and liabilities, using enacted tax rates in effect in the years in which the differences are expected to reverse.  The Company establishes a valuation allowance if it is more likely than not that a deferred tax asset, or portion thereof, will not be realized.  See Note 7 for additional information.

Earnings per share:  The Company calculates basic earnings per share based upon the weighted-average number of common shares outstanding during the period, while the calculation of diluted earnings per share includes the dilutive effect of potential common shares outstanding during the period.  The calculation of diluted earnings per share excludes all potential common shares if their inclusion would have an anti-dilutive effect.  Restricted stock award recipients have a non-forfeitable right to receive dividends declared by the Company.  Therefore, these restricted stock awards are included in computing earnings per share pursuant to the two-class method.  See Note 8 for additional information.

Cash and cash equivalents: The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents.  Under the Company’s cash management system, cash balances at certain banks are funded when checks are presented for payment.  To the extent checks issued, but not yet presented for payment, exceed the balance on hand at the specific bank against which they were written, the Company reports the amount of those un-presented checks within accounts payable in the consolidated balance sheets.

Short-term investments:  The Company invests in time deposits with original maturities of more than three months but no more than one year.  The Company records these short-term investments at cost, which approximates fair value, within other current assets in the consolidated balance sheets.  As of March 31, 2017 and 2016, the Company’s short-term investments totaled $4.7 million and $3.3 million, respectively.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Deferred compensation trusts:  The Company maintains deferred compensation trusts to fund future obligations under its non-qualified deferred compensation plan.plans.  The trust’strusts’ investments in third-party debt and equity securities are presented within other noncurrent assets in the consolidated balance sheets.

Trade accounts receivable:  The Company records trade receivables at the invoiced amount.  Trade receivables do not bear interest if paid according to the original terms.  The Company recorded an allowance for doubtful accounts of $1.4 million and $0.5 million at March 31, 2017 and 2016, 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, 2017, 2016, and 2015, the Company sold $55.4 million, $71.3 million, and $87.0 million, respectively, of accounts receivable to accelerate cash receipts.  During each of the years ended March 31, 2017, 2016, and 2015, the Company recorded a loss on the sale of accounts receivables of $0.3 million in the consolidated statements of operations.

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

Property, plant and equipment:  The Company records property, plant and equipment at cost.  For financial reporting purposes, the Company computes depreciation using the straight-line method over the expected useful lives of the assets.  The Company charges maintenance and repair costs to operations as incurred.  The Company capitalizes costs of improvements.  Upon the sale or other disposition of an asset, the Company removes the cost and related accumulated depreciation from the accounts and includes the gain or loss in the consolidated statements of operations.

Goodwill:  The Company does not amortize goodwill; rather, it tests for impairment annually unless conditions exist that would require a more frequent evaluation.  The Company performs an assessment of the fair value of its reporting units for goodwill impairment testing based upon, among other things, the present value of expected future cash flows.  The Company performed its goodwill impairment test as of March 31, 2017, which did not result in an impairment charge.  See Note 13 for additional information.

Impairment of long-lived assets:  The Company reviews long-lived assets, including property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be fully recoverable.  In these instances, the Company compares the undiscounted future cash flows expected to be generated from the asset with its carrying value.  If the asset’s carrying value exceeds expected future cash flows, the Company measures and records an impairment loss, if any, as the amount by which the carrying value of the asset exceeds its fair value.  The Company estimates fair value using a variety of valuation techniques, including discounted cash flows, market values and comparison values for similar assets.

Environmental liabilities:  The Company records liabilities for environmental assessments and remediation efforts in the period in which its responsibility is probable and the costs can be reasonably estimated.  The Company records environmental indemnification assets from third parties, including prior owners, when recovery is probable.  To the extent that the required remediation procedures change, or additional contamination is identified, the Company’s estimated environmental liabilities may also change.  See Note 18 for additional information.

Self-insurance 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 420 for additional information.

Supplemental cash flow information:

  Years ended March 31, 
  2019  2018  2017 
Interest paid $22.3  $23.4  $15.4 
Income taxes paid  22.2   20.1   12.7 

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

New Accounting Guidance:

Pension costsStock-based Compensation
In March 2017,2016, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the income statement presentationsimplify several aspects of net periodic pension costs and net periodic postretirement benefit costs.  This guidance requires companies to continue to present the service cost component of net benefit cost within the same financial statement line item as other employee compensation costs; however, other components of net benefit costs are required to be presented outside of results from operations.  This will not impact consolidated net earnings.  Early adoption is permitted, and theaccounting for stock-based payment transactions.  The Company plans to adoptadopted this guidance for thebeginning in its first quarter of fiscal 2018.  The Company will recast prior periodselected to conformaccount for forfeitures in the period in which they occur and recorded a cumulative-effect adjustment to the new income statement presentation.  As a result,equity.  In addition, the Company expectsprospectively adopted the guidance requiring all excess tax benefits or deficiencies to reclassify net benefit costs related to its pension plans totaling approximately $3.0 million in fiscal 2017 ($1.0 million from cost of sales and $2.0 million from SG&A expenses) and $45.0 million in fiscal 2016 ($10.0 million from cost of sales and $35.0 million from SG&A expenses) to other income and expense.  The fiscal 2016 net benefit costs included $42.1 million of pension settlement losses related to a completed voluntary lump-sum payout program; see Note 16 for additional information.  In fiscal 2018, the Company expects to record approximately $3.0 to $4.0 million of net benefit costs within other income and expense.

Share-based compensation
In March 2016, the FASB issued new guidance to simplify several aspects of accounting for share-based payment transactions, including thebe recognized as income tax effects ofexpense or benefit when share-based payments, recognition of forfeitures, and presentation requirements in the statement of cash flows.  This guidance is effective for the Company’s first quarter of fiscal 2018.awards are settled.  The Company does not expect the adoptionprovisions of this new guidance willdid not have a material impact on itsthe Company’s consolidated financial statements

Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance.  Upon adoptionstatements.  As a result of adopting this new guidance, the Company will be requiredrecorded a $0.4 million increase to recognize most leases on its balance sheet.  This guidance is effective for the Company’s first quarterboth deferred tax assets and equity as of fiscal 2020.  The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.April 1, 2017.

Revenue recognitionRecognition
In May 2014, the FASB issued new guidance that outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the new guidance is that companies are to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of disclosure requirements intended to provide users of financial statements with comprehensive information about revenue arising from contracts with customers.  The Company adopted this new guidance is effective for the Company’s first quarter of fiscal 2019 and allows for either a full-retrospective or ausing the modified-retrospective transition method.

The Company is currently in the process of assessingassessed customer contracts and evaluatingevaluated contractual provisions that may result in a change inlight of the timing of revenue recognized in comparison with currentnew guidance. Under current guidance,Through its evaluation process, the Company generally recognizes revenue when products are shipped and riskidentified a limited number of loss has transferred to the customer.  The Company is evaluating whether contractual provisions maycustomer contracts that provide an enforceable right to payment for its customized products, which may require revenue recognition prior to the product being shipped to the customer. In addition,As a result of its adoption of the new guidance, the Company is evaluating pricing provisions contained in certainrecorded an increase of its customer contracts$0.7 million to determine the appropriate timingretained earnings as of revenue recognition based uponApril 1, 2018, along with related balance sheet reclassifications.  The increase to retained earnings represented $3.0 million of net sales that, had the new guidance.guidance been in effect, the Company would have recognized as of March 31, 2018. See Note 3 for additional information regarding revenue recognition.

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 continues to evaluate the impactadopted 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.

Statement of Cash Flows: Restricted Cash
In November 2016, the FASB issued new guidance that requires restricted cash to be included with cash and cash equivalents when reconciling the beginning and ending balances presented within the statement of cash flows.  The Company adopted this new guidance for fiscal 2019 using the retrospective transition method.  As a result, all prior period information has been recast to be comparable to the new presentation requirements.  See Note 10 for information regarding the Company’s restricted cash.

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 is effective for the Company as of April 1, 2019 and provides the option to reclassify stranded income tax effects to retained earnings.  The Company has determined it will have onnot reclassify stranded income tax effects upon adoption, and therefore, this guidance will not impact its consolidated financial statements.

Supplemental cash flow information:Leases
In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance and requires balance sheet recognition for most leases.  The Company will adopt this guidance effective April 1, 2019 using a modified-retrospective transition method, under which it expects to elect not to adjust comparative periods.  The Company intends to elect the package of practical expedients permitted under the new guidance, and, as a result, the Company has not reassessed the classification of existing leases or initial direct costs thereof, or whether existing contracts contain leases.  In addition, the Company plans to elect accounting policies to not record short-term leases on the balance sheet and to not separate lease and non-lease components.  The Company does not intend to elect the hindsight practical expedient.

  Years ended March 31, 
  2017  2016  2015 
Interest paid $15.4  $10.7  $10.3 
Income taxes paid  12.7   10.1   15.9 
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Note 2:  AcquisitionsThe Company has completed its assessment of its global lease portfolio and is in the process of finalizing the testing of its new lease accounting software solution and implementing new processes and controls to account for leases in accordance with the new guidance.  The Company’s most significant leases represent leases of real estate, such as manufacturing facilities, warehouses, and office buildings.  In addition, the Company leases certain manufacturing and IT equipment and vehicles.  Upon adoption of this new guidance, the Company expects to recognize $60.0 to $70.0 million of right-of-use assets and corresponding lease liabilities on its consolidated balance sheet.  The Company does not expect the adoption will have a material impact on its consolidated statements of operations or consolidated statements of cash flows.

The cumulative effects on the Company’s consolidated balance sheet, as of April 1, 2018, resulting from the adoption of new accounting guidance were as follows:

     
Adjustments Due to
New Accounting Guidance
    
  
Balance as of
March 31, 2018
  
Revenue
Recognition
  
Intra-entity Transfers
of Assets
  
Balance as of
April 1, 2018
 
ASSETS
            
Inventories $191.3  $(2.0) $-  $189.3 
Other current assets  70.1   3.0   (8.3)  64.8 
Deferred income taxes  96.9   (0.2)  -   96.7 
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Deferred income taxes $9.9  $0.1  $-  $10.0 
Retained earnings  394.9   0.7   (8.3)  387.3 

Note 2:Acquisition

Luvata HTS

On November 30, 2016, the Company completed its acquisition of a 100%100 percent ownership interest in the Luvata HTS business for consideration totaling $415.6 million ($388.2 million, net of cash acquired).  The purchase price included 2.2 million Modine common shares.  The Company estimated the fair value of the common shares, to bevalued at $24.3 million atas of November 30, 2016, which reflects restrictions on the sale of the shares for a minimum of one year.  Now operating2016.  Operating as Modine’s Commercial and Industrial Solutions (“CIS”) segment, this business is a leading global supplier of coils, coolers and coatings to the heating, ventilation, air conditioning, and refrigeration (“HVAC&R”) industry.  CIS’s products coverSee Note 22 for a broad range of heat exchanger coils, commercial refrigeration and industrial coolers, and anti-corrosion coating solutions.  The Company’s acquisition of Luvata HTS addressed, in particular, both the “Diversify” and “Grow” commitments of its transformational Strengthen, Diversify and Grow strategy launched in fiscal 2016.  This acquisition provided Modine with an expanded industrial business portfolio, broader customer base, and reduced cyclical exposure.  For the year ended March 31, 2017, the Company included $177.7 millionsummary of net sales and operating income of $7.5 million within its consolidated statement of operations attributable to four months ofreported by the CIS operations.  During the year ended March 31,segment.  In fiscal 2018 and 2017, the Company recorded $4.3 million and $14.8 million, respectively, of costs incurred directly related to the acquisition and integration of Luvata HTS as SG&A expenses within the consolidated statementstatements of operations.  TheseThe fiscal 2018 costs principallyprimarily consisted of fees for i) transaction advisors, ii)incremental costs associated with integration activities, including legal accounting, and otheraccounting professional services and iii)severance expenses.  The fiscal 2017 costs primarily consisted of transaction advisory and due diligence costs and incremental costs directly associated with integration activities.

To fund a significant portion of the Luvata HTS purchase price,  In addition, during fiscal 2017, the Company entered into new credit agreements in November 2016.  See Note 15 for additional information.charged $4.3 million to cost of sales related to inventory that it wrote-up to fair value upon acquisition.

The Company completed its accounting for the acquisition of Luvata HTS during fiscal 2018 and allocated the total purchase price of Luvata HTS$415.6 million to the identifiable tangible and intangible assets acquired and the liabilities assumed based upon their estimated fair values as of the acquisition date.  The Company based the estimated fair values primarily upon third-party valuations using assumptions developed by management and other information compiled by management, including, but not limited to, future expected cash flows.  The Company allocated the excess of the purchase price over the net assets recognized to goodwill in the amount of $150.6$151.9 million, none of which the Company expects to beis deductible for income tax purposes.  Goodwill represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.  Specifically, the goodwill recorded as part of the acquisition includes Luvata HTS’s workforce and anticipated future cost and revenue synergies.

At the time the March 31, 2017 financial statements were finalized, the Company was awaiting additional information to determine the fair value of certain assets acquired and liabilities assumed and therefore, the allocation of purchase price is considered preliminary.  The Company expects to complete its evaluation of these matters in the first or second quarter of fiscal 2018.  These matters primarily relate to income tax reserves and contingent liabilities, including reserves for environmental, legal, product warranty, and trade compliance matters.

The Company’s preliminary allocation of the purchase price for its acquisition of Luvata HTS is as follows:

Cash and cash equivalents $27.4 
Trade accounts receivable  86.3 
Inventories  55.7 
Property, plant and equipment  120.6 
Intangible assets  130.2 
Goodwill  150.6 
Other assets  38.6 
Accounts payable  (73.7)
Accrued compensation and employee benefits  (24.3)
Deferred income taxes  (39.3)
Pensions  (14.3)
Other liabilities  (42.2)
Purchase price $415.6 

Below is a summary of the methodologies and significant assumptions used in estimating the fair value of certain classes of acquired assets.  The fair values were primarily based upon significant inputs that are not observable in the market and thus represent Level 3 measurements.  See Note 3 for information regarding Level 3 fair value measurements.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Inventories:  The Company determined the fair value of acquired inventory by estimating the selling priceCompany’s allocation of the respective finished goods, less an estimatepurchase price for its acquisition of costs to be incurred to sell the inventory and to complete the work-in-process inventory, if applicable.  For raw materials acquired, the Company estimated the cost of replacement.  As a result, the Company wrote-up acquired inventory by $4.3 million and subsequently charged this write-up to cost of salesLuvata HTS was as the underlying inventory was sold in the third and fourth quarters of fiscal 2017.

Property, plant and equipment:  The Company valued property, plant and equipment primarily utilizing the cost approach and also utilized the market approach in valuing acquired land and buildings.  The cost approach considers the amount required to replace an asset by constructing or purchasing a new asset with similar utility and adjusting the value in consideration of depreciation as of the acquisition date.  The cost approach relies on assumptions regarding replacement costs and the age and estimated remaining useful lives of the assets.  The fair value of property, plant and equipment will be recognized as depreciation expense in our results of operations over the expected remaining useful lives of the individual assets.follows:

Intangible assets: The Company determined the fair value of acquired intangible assets by using variations of the income approach.  These methods generally forecast expected future net cash flows discretely associated with each of the identified intangible assets and adjust the forecasts to present value by applying a discount rate intended to reflect risk factors associated with the cash flows and the time value of money.  Acquired intangible assets were as follows:

  
Gross
Carrying
Value
 
Weighted-
Average
Useful Life
Customer relationships $58.4 17 years
Trade names  50.1 20 years
Acquired technology  21.7 12 years
Total intangible assets acquired $130.2  

Customer relationships, for valuation purposes, represent the estimated fair value of Luvata HTS’s business relationship with existing customers, and were calculated by projecting the future after-tax cash flows from these customers, including the right to deploy and market additional products to them.  The Company forecasted anticipated earnings from existing customers using recent years’ sales levels and considering a customer attrition rate based upon historical customer revenue information.

The Company determined the value of acquired trade names using the relief-from-royalty method, a variation of the income approach, which applies an assumed royalty rate to revenue expected to be derived under the acquired trade names.  The fair value was estimated to be the present value of the royalties saved because the Company owns the trade names.

The Company also used the relief-from royalty method for its valuation of acquired technology, which largely relates to the design of mechanical and electrical components.  The Company considered factors including the estimated contribution of the technology to the overall profitability of the products and the awareness level of the technology and its position in the market.
Cash and cash equivalents $27.4 
Trade accounts receivable  86.1 
Inventories  55.0 
Property, plant and equipment  120.4 
Intangible assets  130.2 
Goodwill  151.9 
Other assets  39.1 
Accounts payable  (73.7)
Accrued compensation and employee benefits  (24.3)
Deferred income taxes  (39.5)
Pensions  (14.3)
Other liabilities  (42.7)
Purchase price $415.6 

The following unaudited supplemental pro forma information presents the Company’s consolidated results of operations as though the acquisition of Luvata HTS had occurred at the beginning of fiscal 2016.  This pro forma financial information is presented for illustrative purposes only and is not considered to be indicative of the operating results that would have been achieved had the acquisition been completed as of the date indicated or the operating results that may be obtained in the future.indicated.

  Years ended March 31, 
  2017  2016 
Net sales $1,881.6  $1,871.9 
Net earnings attributable to Modine  35.8   1.5 
Net earnings per share attributable to Modine shareholders:        
Basic $0.72  $0.03 
Diluted  0.71   0.03 
  Year ended March 31, 2017 
Net sales $1,881.6 
Net earnings attributable to Modine  35.8 
Net earnings per share attributable to Modine shareholders:    
Basic $0.72 
Diluted  0.71 

The supplemental pro forma financial information includes adjustments for: (i) annual amortization and depreciation expense totaling approximately $13.0 million for acquired tangible and intangible assets, (ii) estimated annual interest expense of approximately $14.0 million resulting from acquisition-related borrowings, and (iii) the estimated income tax impacts related to the pro forma adjustments, considering the statutory tax rates within the applicable jurisdictions.  In addition, the pro forma financial information assumes that both $8.6 million of acquisition-related transaction costs, not including costs for integration-related activities, and $4.3 million of inventory purchase accounting adjustments were incurred during fiscal 2016.  The pro forma financial information does not reflect achieved or expected cost or revenue synergies.

Note 3:Revenue Recognition

Effective April 1, 2018, the Company adopted new revenue recognition accounting guidance using the modified-retrospective transition method and, as a result, recorded a cumulative-effect adjustment to increase retained earnings by $0.7 million.  The Company’s consolidated financial statements for the fiscal year ended March 31, 2019 reflect the adoption of this new guidance; however, the comparable prior-year periods have not been recast.  See Note 1 for additional information regarding the adjustments to the Company’s consolidated balance sheet as of April 1, 2018.

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 customers, which may be at a point in time or over time.  The majority of the Company’s revenue is recognized at a point in time, based upon shipment terms.  The Company records an allowance for doubtful accounts for estimated uncollectible receivables 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.

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

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

Vehicular Thermal Solutions (“VTS”)
The VTS segment principally generates revenue from providing engineered heat transfer systems and components for use in on- and off-highway original equipment.  This segment provides 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 automotive, commercial vehicle, and off-highway markets in the Americas, Europe, and Asia regions.  In addition, the VTS segment designs customer-owned tooling for OEMs and also serves Brazil’s automotive and commercial vehicle aftermarkets.

While the VTS segment provides 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 VTS 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, the VTS segment recognizes revenue primarily at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment.

In regard to VTS 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 VTS 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.

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.

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 related applications 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 generally 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 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.

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.

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

  Year ended March 31, 2019 
  VTS  CIS  BHVAC  
Segment
Total
 
Primary end market:            
Automotive $542.8  $-  $-  $542.8 
Commercial vehicle  387.6   -   -   387.6 
Off-highway  314.1   -   -   314.1 
Commercial HVAC&R  -   506.3   167.7   674.0 
Data center cooling  -   145.7   41.3   187.0 
Industrial cooling  -   47.8   -   47.8 
Other  107.2   7.8   3.4   118.4 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 
                 
Geographic location:                
Americas $613.7  $413.6  $124.9  $1,152.2 
Europe  538.2   244.8   87.5   870.5 
Asia  199.8   49.2   -   249.0 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 
                 
Timing of revenue recognition:                
Products transferred at a point in time $1,308.5  $571.1  $212.4  $2,092.0 
Products transferred over time  43.2   136.5   -   179.7 
Net sales $1,351.7  $707.6  $212.4  $2,271.7 

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

  March 31, 2019  March 31, 2018 
Contract assets $22.6  $13.5 
Contract liabilities  4.0   6.8 

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 $9.1 million increase in contract assets during fiscal 2019 was primarily related to contract assets totaling $7.4 million as of March 31, 2019 for revenue recognized over time, which were recorded as a result of the Company’s adoption of the new revenue recognition accounting guidance, and customer-owned tooling contracts, under which more costs were capitalized than reimbursed.

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. The $2.8 million decrease in contract liabilities during fiscal 2019 was primarily due to the Company’s satisfaction of performance obligations under customer contracts for which payment had been received in advance.

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Modine Puxin Thermal Systems (Jiangsu) Co. Ltd

On January 29, 2016,
Impacts of Adopting New Accounting Guidance
The impacts from the Company formed a joint venture, Modine Puxin Thermal Systems (Jiangsu) Co. Ltd. of Yangzhou, China, of which it owns 67 percent, and the joint venture partner, Jiangsu Puxin Heat Exchange System Co., Ltd, owns 33 percent.  This joint venture, which is reported in the Asia segment, expedited the Company’s introduction of stainless steel heat exchangers for the light-, medium-, and heavy-duty commercial vehicle markets in China.  In fiscal 2016, the Company contributed $1.4 million of cash and equipment and other assets totaling $2.3 million.  In fiscal 2017, the Company contributed $0.3 million of additional cash consideration after certain seller indemnification obligations under the agreement were satisfied.  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 activitiesadoption of the joint venture, and, therefore, the financial results of the joint venture are included innew revenue recognition guidance to the Company’s consolidated financial statements.  The Company did not present pro forma financial information for this acquisition as the effect is not material to its resultsstatement of operations or financial position.for the year ended March 31, 2019 and its consolidated balance sheet as of March 31, 2019 were as follows:

  Year ended March 31, 2019 
  As Reported  Impact of New
Accounting Guidance		  
Results Without
Impact of New Accounting
Guidance
 
Net sales $2,212.7  $(4.4) $2,208.3 
Net earnings attributable to Modine  84.8   (2.0)  82.8 
             
Net earnings per share attributable to Modine shareholders:            
Basic $1.67  $(0.04) $1.63 
Diluted  1.65   (0.04)  1.61 

  March 31, 2019 
  As Reported  
Impact of New
Accounting Guidance
  
Balances Without
Impact of New Accounting
Guidance
 
ASSETS
         
Inventories $200.7  $3.8  $204.5 
Other current assets  65.8   (7.4)  58.4 
Deferred income taxes  97.1   0.6   97.7 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY
            
Deferred income taxes $8.2  $(0.3) $7.9 
Retained earnings  472.1   (2.7)  469.4 

Note 3: 
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 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 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.
Level 3 – Model-derived valuations in which one or more significant inputs are not observable.

When available, the Company uses quoted market prices to determine fair value and classifies such measurements as Level 1.  In some cases, where market prices are not available, the Company uses observable market-based inputs to calculate fair value, in which case the measurements are classified as Level 2.  If quoted or observable market prices are not available, the Company determines fair value 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.  The Company holds trading securities in deferred compensation trusts to fund obligations under certain non-qualified deferred compensation plans.  The securities’ fair values, which are recorded as other noncurrent assets, are determined based upon quoted prices from active markets and classified within Level 1 of the valuation hierarchy.  The Company’s deferred compensation obligations, which are recorded as other noncurrent liabilities, are recorded at the fair values of the investments held by the trust.  The fair values of the Company’s trading securities and deferred compensation obligations each totaled $5.0$6.0 million and $3.2$5.8 million atas of March 31, 20172019 and 2016,2018, respectively.  The year-over-year increase primarily relates to a deferred compensation plan in the recently-acquired CIS segment.  The fair value of the Company’s long-term debt is disclosed in Note 15.17.

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

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

  March 31, 2017 
  Level 1  Level 2  Total 
          
Money market investments $-  $5.6  $5.6 
Common stocks  17.8   2.0   19.8 
Corporate bonds  -   9.3   9.3 
Pooled equity funds  56.8   -   56.8 
Pooled fixed-income funds  26.5   -   26.5 
U.S. government and agency securities  -   18.7   18.7 
Other  1.4   1.4   2.8 
Fair value excluding investment measured at net asset value  102.5   37.0   139.5 
Investment measured at net asset value (a)          8.7 
Total Fair Value         $148.2 
             
  March 31, 2016 
  Level 1  Level 2  Total 
             
Money market investments $-  $5.8  $5.8 
Common stocks  23.7   1.3   25.0 
Corporate bonds  -   8.4   8.4 
Pooled equity funds  48.7   -   48.7 
Pooled fixed-income funds  26.3   -   26.3 
U.S. government and agency securities  -   18.4   18.4 
Other  0.4   1.2   1.6 
Fair value excluding investment measured at net asset value  99.1   35.1   134.2 
Investment measured at net asset value (a)          7.3 
Total Fair Value         $141.5 
  March 31, 2019 
  Level 1  Level 2  Total 
          
Money market investments $-  $3.9  $3.9 
Corporate bonds  -   9.4   9.4 
Pooled equity funds  27.7   -   27.7 
U.S. government and agency securities  -   12.3   12.3 
Other  0.1   0.9   1.0 
Fair value excluding investments measured at net asset value  27.8   26.5   54.3 
Investments measured at net asset value          100.8 
Total fair value         $155.1 

(a)As a practical expedient, the Company valued a collective trust fund using its net asset value per unit, and therefore, has not classified this investment within the fair value hierarchy.
  March 31, 2018 
  Level 1  Level 2  Total 
          
Money market investments $-  $11.4  $11.4 
Common stocks  9.4   2.6   12.0 
Corporate bonds  -   9.7   9.7 
Pooled equity funds  64.4   -   64.4 
Pooled fixed-income funds  27.3   -   27.3 
U.S. government and agency securities  -   16.2   16.2 
Other  0.2   1.7   1.9 
Fair value excluding investment measured at net asset value  101.3   41.6   142.9 
Investment measured at net asset value          14.8 
Total fair value         $157.7 

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 upon quoted prices from active markets and classified them within Level 1 of the valuation hierarchy.  The Company determined the fair value of certain common stocks, corporate bonds pooled equity funds and U.S. government and agency securities based upon recent bid prices or the average of recent bid and asking prices when available and, if not available, the Company valued them through matrix pricing models developed by sources considered by management to be reliable.  The Company classified these assets within Level 2 of the valuation hierarchy.  As of March 31, 20172019 and 2016,2018, the Company held no Level 3 assets within its pension plans.

As a practical expedient, the Company valued certain investments, including pooled equity, fixed-income and real estate funds, using their net asset value (NAV) per unit, and therefore, has not classified these investments within the fair value hierarchy.  The increase in investments valued at NAV in fiscal 2019 was associated with the Company’s revised target asset allocations for its U.S. pension plan; see Note 18 for additional information.  The terms and conditions for redemptions vary for the investments valued at NAV.  The real estate investment fund may be redeemed at any time with a 90-day notice period.  Other investments valued at NAV do not have restrictive redemption frequency or notice period requirements.  The Company does not intend to sell or otherwise dispose of these investments at prices different than the NAV per unit.

Note 4: 
Note 5:Stock-Based Compensation

The Company’s stock-based incentive programs consist of the following: (1) a long-term incentive compensation program for officers and 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 key employees, and (3) stock awards for non-employee directors.  The Company’s Board of Directors and the Officer Nomination and Compensation Committee, as applicable, have discretionary authority to set the terms of the awards of stockstock-based awards.  Grants to employees during fiscal 2019 were issued under the Company’s Amended and Restated 20082017 Incentive Compensation Plan (“Plan”).Plan.  At present, the Company accomplishes the fulfillment of equity-based grants through the issuance of new common shares.  As of March 31, 2017,2019, approximately 1.62.7 million shares authorized under the 2017 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 $7.4$7.9 million, $4.9$9.5 million, and $4.0$7.4 million in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.

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

Stock Options:  The Company recorded $1.1$1.2 million, $0.9$1.2 million, and $0.9$1.1 million of compensation expense related to stock options in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  The fair value of stock options that vested during fiscal 2019, 2018, and 2017 2016, and 2015 was $1.0$1.2 million, $0.9$1.2 million, and $0.9$1.0 million, respectively.  As of March 31, 2017,2019, the total compensation expense not yet recognized related to non-vested stock options was $2.1$2.2 million and the weighted-average period in which the remaining expense is expected to be recognized was 2.52.6 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:

  Years ended March 31, 
  2017  2016  2015 
Weighted-average fair value of options $4.60  $7.11  $10.21 
Expected life of awards in years  6.4   6.3   6.3 
Risk-free interest rate  1.4%  1.9%  2.1%
Expected volatility of the Company's stock  45.5%  66.9%  76.1%
Expected dividend yield on the Company's stock  0.0%  0.0%  0.0%
  Years ended March 31, 
  2019  2018  2017 
Fair value of options $7.81  $7.30  $4.60 
Expected life of awards in years  6.3   6.4   6.4 
Risk-free interest rate  2.8%  1.9%  1.4%
Expected volatility of the Company’s stock  39.7%  44.3%  45.5%
Expected dividend yield on the Company’s stock  0.0%  0.0%  0.0%

Stock options expire no later than 10 years after the grant date and have an exercise price equal to the fair market value of Modine’s common stock on the date of grant.  The risk-free interest rate was based upon 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 upon changes in the Company’s historical common stock prices over the same time frame as the expected life of the awards.  The expected dividend yield is zero, as the Company currently does not anticipate paying dividends over the expected life of the options.  The expected lives of the awards are based upon historical patterns and the terms of the options.  Outstanding options granted vest 25 percent annually for four years.  The Company used a pre-vesting forfeiture rate of 2.5 percent as an estimate of expected forfeitures prior to completing the required service period.

A summary of stock option activity for fiscal 20172019 was as follows:

  Shares  
Weighted-average
exercise price
  
Weighted-average
remaining contractual
term (years)
  
Aggregate
intrinsic value
 
Outstanding, beginning  1.5  $10.82       
Granted  0.3   10.00       
Exercised  (0.1)  9.23       
Forfeited or expired  (0.2)  21.76       
Outstanding, ending  1.5  $9.83   5.5  $4.4 
                 
Exercisable, March 31, 2017  1.0  $9.27   4.0  $3.6 
  Shares  Weighted-average
exercise price		  
Weighted-average
remaining contractual
term (years)
  
Aggregate
intrinsic value
 
Outstanding, beginning  1.2  $11.16       
Granted  0.2   17.90       
Exercised  (0.1)  9.93       
Forfeited or expired  (0.1)  14.51       
Outstanding, ending  1.2  $12.24   5.5  $3.3 
                 
Exercisable, March 31, 2019  0.8  $10.59   4.0  $2.9 

The aggregate intrinsic value represents the difference between the closing price of Modine’s common shares on the last trading day of fiscal 20172019 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 is as follows:

  Years ended March 31, 
  2019  2018  2017 
Intrinsic value of stock options exercised $0.7  $4.9  $0.5 
Proceeds from stock options exercised  1.1   4.3   0.9 
  Years ended March 31, 
  2017  2016  2015 
Intrinsic value of stock options exercised $0.5  $0.4  $0.4 
Proceeds from stock options exercised $0.9  $0.5  $0.6 

MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Restricted Stock:  The Company recorded $3.8$4.3 million, $3.5$3.9 million, and $2.8$3.8 million of compensation expense related to restricted stock in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  The fair value of restricted stock awards that vested during fiscal 2019, 2018, and 2017 2016, and 2015 was $4.0$4.3 million, $3.4$3.9 million, and $2.3$4.0 million, respectively.  At March 31, 2017,2019, the Company had $4.8$5.3 million of unrecognized compensation expense related to non-vested restricted stock, which it expects to recognize over a weighted-average period of 2.42.5 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 vest 25 percent annually for four years, with the exception of awards to non-employee directors, which fully vest upon grant.

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

A summary of restricted stock activity for fiscal 20172019 was as follows:

  Shares  
Weighted-
average
price
 
Non-vested balance, beginning  0.6  $11.29 
Granted  0.4   9.98 
Vested  (0.4)  10.05 
Non-vested balance, ending  0.6  $11.21 
  Shares  
Weighted-average
price
 
Non-vested balance, beginning  0.6  $12.24 
Granted  0.3   17.72 
Vested  (0.3)  13.75 
Forfeited  (0.1)  15.03 
Non-vested balance, ending  0.5  $14.95 

Restricted Stock – Performance-Based Shares:  The Company recorded $2.5$2.4 million, $0.5$4.4 million, and $0.3$2.5 million of compensation expense related to performance-based stock awards in fiscal 2017, 2016,2019, 2018, and 2015,2017, respectively.  At March 31, 2017,2019, the Company had $3.2$2.4 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 1.81.5 years.  The Company values performance-based stock awards using the closing market valueprice of its common shares on the date of grant.

Shares are earned under the performance portion of the restricted stock award program based upon the attainment of certain financial goals over a three-year period and are awarded after the end of that three-year performance period, if the performance targets have been achieved.  The performance components of the programsprogram initiated in fiscal 2017, 2016, and 2015 were2019 is 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.  The performance components of the programs initiated in fiscal 2018 and 2017 were based upon both a target three-year average consolidated return on capital employed and a target three-year average annual revenue growth at the end of a three-year performance period.

Note 5: 
Note 6:Restructuring Activities

During fiscal 2019, restructuring and repositioning expenses primarily resulted from targeted headcount reductions in Europe and the Americas within the VTS segment.  These headcount reductions support the Company’s objective to reduce operational and SG&A cost structures at certain locations.  In addition, the Company is in process of transferring product lines associated with the merger of its North American coils business into the CIS segment, in order to accelerate operational improvements and organizational efficiencies.

During fiscal 2018, the Company ceased production at its Gailtal, Austria manufacturing facility, primarily to reduce excess capacity and lower manufacturing costs in Europe.  As a result of this facility closure, the Company recorded $8.3 million of restructuring expenses within the CIS segment.  These restructuring expenses primarily related to employee severance and related benefits.  Fiscal 2018 restructuring activities also included plant consolidation activities, targeted headcount reductions, and certain product line transfers in Europe within the VTS segment.  In addition, the Company recorded restructuring expenses associated with the discontinuance of its geothermal product line within the BHVAC segment.

During fiscal 2017, the Company completed a voluntary retirement program for certain U.S. salaried employees and implemented targeted headcount reductions at several locations.  The Company engaged in these restructuring activities as part of its Strengthen, Diversify and Grow strategic initiative, particularlylocations, both in support of its objective to reduce operational and SG&A cost structures.

During fiscal 2016, the Company announced a plan to close its Washington, Iowa manufacturing facility and recorded severance costs as a result.  The Company completed the transfer of production from Washington to other Americas segment manufacturing facilities in fiscal 2017.  Also during fiscal 2016,2017, the Company completed the transfer of production from its McHenry, IllinoisWashington, Iowa manufacturing facility, which was closed and sold, to other AmericasVTS segment manufacturing facilities.  These restructuring activities reflect the Company’s focus on operating scale manufacturing facilities to improve overall competitiveness and profitability.in North America.

During fiscal 2015, the Company initiated a headcount reduction plan for the Brazil manufacturing facility within its Americas segment.  The headcount reductions were in response to the economic slowdown in Brazil and were aimed at maintaining profitability in this business despite lower sales volume.

In addition, the Company has engaged in 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

Restructuring and repositioning expenses were as follows:

  Years ended March 31, 
  2017  2016  2015 
Employee severance and related benefits $5.3  $12.8  $1.2 
Other restructuring and repositioning expenses  5.6   3.8   3.5 
Total $10.9  $16.6  $4.7 
  Years ended March 31, 
  2019  2018  2017 
Employee severance and related benefits $8.7  $13.0  $5.3 
Other restructuring and repositioning expenses  0.9   3.0   5.6 
Total $9.6  $16.0  $10.9 

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, 
  2019  2018 
Beginning balance $11.0  $6.5 
Additions  8.7   13.0 
Payments  (9.1)  (9.4)
Effect of exchange rate changes  (0.6)  0.9 
Ending balance $10.0  $11.0 
  Years ended March 31, 
  2017  2016 
Beginning balance $14.7  $9.9 
Additions  5.3   12.8 
Payments  (12.9)  (8.5)
Effect of exchange rate changes  (0.6)  0.5 
Ending balance $6.5  $14.7 

During fiscal 2018, the Company recorded a $1.3 million asset impairment charge as a result of the closure of the CIS Austrian facility.  During fiscal 2019, the Company recorded an additional $0.4 million asset impairment charge related to this closed facility to reduce its carrying value to its current estimated fair value, less costs to sell.

During fiscal 2017, the Company sold twothree previously-closed manufacturing facilities within its Americas segment and a facility within its EuropeVTS segment for cash proceeds totaling $5.4 million.  As a result of the facility sales, the Company recorded net gains totaling $2.0 million.

During fiscal 2015, the Company sold a wind tunnel within its Europe segment for cash proceeds of $5.8 million and recognized a gain of $3.2 million as a result.

During fiscal 2016, the Company recorded an asset impairment charge of $9.9 million within its Europe segment to write down long-lived assets at a manufacturing facility in Germany to fair value.

Note 6: 
Note 7:Other Income and Expense

Other income and expense consisted of the following:

  Years ended March 31, 
  2019  2018  2017 
Equity in earnings of non-consolidated affiliate $0.7  $0.2  $0.1 
Interest income  0.4   0.4   0.4 
Foreign currency transactions (a)  (2.3)  (0.6)  (1.9)
Net periodic benefit cost (b)  (2.9)  (3.3)  (2.9)
Total other expense - net $(4.1) $(3.3) $(4.3)
  Years ended March 31, 
  2017  2016  2015 
Equity in earnings of non-consolidated affiliate $0.1  $0.1  $0.6 
Interest income  0.4   0.4   0.5 
Foreign currency transactions (a)  (1.9)  (1.3)  (0.9)
Gain from insurance recovery (b)  -   9.5   - 
Total other (expense) income - net $(1.4) $8.7  $0.2 

(a)Foreign currency transactions primarily consist of foreign currency transaction gains and losses on the re-measurement or settlement of foreign currency-denominated assets and liabilities, including intercompany loans and transactions denominated in a foreign currency, along with gains and losses on foreign currency exchange contracts.
(b)During fiscal 2016,Represents net periodic benefit cost, exclusive of service cost, for the Company settled an insurance claim related to machineryCompany’s pension and equipment destroyed in a fire at its Airedale facility and recorded a gain of $9.5 million.  See Note 1 for additional information.postretirement plans.

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

Note 7: 
Note 8:Income Taxes

The U.S. and foreign components of earnings from continuing operations before income taxes and the provisionbenefit or benefitprovision for income taxes consisted of the following:

  Years ended March 31, 
  2019  2018  2017 
Components of earnings (loss) before income taxes:         
United States $22.4  $2.5  $(8.6)
Foreign  58.4   60.8   29.4 
Total earnings before income taxes $80.8  $63.3  $20.8 
             
Income tax (benefit) provision:            
Federal:            
Current $(20.4) $11.6  $0.1 
Deferred  (4.2)  23.3   (3.8)
State:            
Current  0.7   (0.3)  0.3 
Deferred  1.9   2.0   (0.2)
Foreign:            
Current  19.0   16.1   10.1 
Deferred  (2.1)  (13.2)  (0.6)
Total income tax (benefit) provision $(5.1) $39.5  $5.9 
  Years ended March 31, 
  2017  2016  2015 
Components of earnings (loss) from continuing operations before income taxes:         
United States $(8.6) $(15.4) $31.1 
Foreign  29.4   5.5   10.1 
Total earnings (loss) from continuing operations before income taxes $20.8  $(9.9) $41.2 
             
Income tax expense (benefit):            
Federal:            
Current $0.1  $0.1  $0.4 
Deferred  (3.8)  (13.0)  7.1 
State:            
Current  0.3   0.2   - 
Deferred  (0.2)  (2.5)  1.1 
Foreign:            
Current  10.1   9.6   12.7 
Deferred  (0.6)  (3.3)  (2.3)
Total income tax expense (benefit) $5.9  $(8.9) $19.0 

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Act.  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.  To the extent a company’s accounting for certain income tax effects of the Tax Act was incomplete, the company could determine a reasonable estimate for those effects and record a provisional estimate in its financial statements.  If a company could not determine a provisional estimate to be included in the financial statements, it was to continue applying the provisions of the tax laws that were in effect immediately prior to the Tax Act being enacted.

During fiscal 2018, the Company recorded provisional discrete tax charges totaling $38.0 million related to the Tax Act.  The Company adjusted its U.S. deferred tax assets by $19.0 million due to the reduction in the U.S. federal corporate tax rate.  This net reduction in deferred tax assets also included the estimated impact on the Company’s net state deferred tax assets.  In addition, the Company recorded a $19.0 million charge for the transition tax required under 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 determined it will utilize 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.

The Tax Act included a new provision designed to tax global intangible low taxed income (“GILTI”) starting in fiscal 2019.  The Company allocateselected to record the tax effects of the GILTI provision as a period expense in the applicable tax year.

The Company’s accounting policy is to allocate the 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 from
56
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

The 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, 
  2019  2018  2017 
Statutory federal tax  21.0%  31.5%  35.0%
State taxes, net of federal benefit  3.6   2.9   (3.3)
Taxes on non-U.S. earnings and losses  3.9   (3.8)  (3.5)
Valuation allowances  4.0   (5.6)  1.2 
Tax credits  (26.1)  (17.3)  (9.0)
Compensation  (0.1)  (0.8)  2.9 
Tax rate or law changes  (12.0)  60.1   (2.5)
Uncertain tax positions, net of settlements  0.4   (0.8)  5.6 
Notional interest deductions  (2.5)  (3.2)  (8.8)
Dividend repatriation  1.6   0.2   7.1 
Other  (0.1)  (0.8)  3.7 
Effective tax rate  (6.3%)  62.4%  28.4%

During fiscal 2019, the Company recorded income tax ratebenefits totaling $7.7 million related to the Tax Act, as discussed above; recorded income tax benefits totaling $14.5 million as a result of amending previous-year tax returns to recognize foreign tax credits that are 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 following:United States.  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 related to other tax jurisdictions 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.

  Years ended March 31, 
  2017  2016  2015 
Statutory federal tax  35.0%  35.0%  35.0%
State taxes, net of federal benefit  (3.3)  11.5   2.4 
Taxes on non-U.S. earnings and losses  (3.5)  26.4   (4.9)
Valuation allowance  1.2   (20.9)  8.3 
Tax credits  (9.0)  20.5   (6.1)
Compensation  2.9   (3.7)  1.0 
Tax rate or law changes  (2.5)  1.3   1.2 
Uncertain tax positions, net of settlements  5.6   (4.3)  2.2 
Notional interest deductions  (8.8)  -   - 
Dividend repatriation  7.1   16.0   2.4 
Other  3.7   8.1   4.6 
Effective tax rate  28.4%  89.9%  46.1%
During fiscal 2018, the Company recorded provisional charges totaling $38.0 million related to the Tax Act, as discussed above, and recognized a $9.0 million Hungarian development tax credit.  Also in fiscal 2018, the Company reversed a portion of the valuation allowance on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not these assets would be realized, and, as a result, recorded an income tax benefit of $2.8 million.  In addition, the Company recorded a $1.8 million income tax benefit in fiscal 2018 associated with the reduction in unrecognized tax benefits resulting from a lapse in statutes of limitations.

During fiscal 2017, the Company recorded a valuation allowance of $2.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would not be realized.  Also during fiscal 2017, the Company recorded a net reduction of deferred tax asset valuation allowances totaling $1.8 million in other tax jurisdictions.  During fiscal 2016, the Company reversed a valuation allowance of $3.0 million on certain deferred tax assets in a foreign jurisdiction after determining it was more likely than not the deferred tax assets would be realized.   In fiscal 2016 and 2015, the Company recorded a net increase in deferred tax asset valuation allowances totaling $5.0 million and $2.6 million, respectively, in other tax jurisdictions. 

The Company will continue to provide valuation allowances against its net deferred tax assets in each applicable tax jurisdiction until the need for a valuation allowance is eliminated.  The need for a valuation allowance is eliminated when the Company determines it is more likely than not the deferred tax assets will be realized.

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, 
  2017  2016 
Deferred tax assets:      
Accounts receivable $0.4  $0.1 
Inventories  5.0   3.6 
Plant and equipment  3.7   4.3 
Pension and employee benefits  51.8   52.6 
Net operating loss, capital loss, and credit carry-forwards  147.5   109.4 
Other, principally accrued liabilities  10.9   7.5 
Total gross deferred tax assets  219.3   177.5 
Less: valuation allowances  (49.6)  (50.8)
Net deferred tax assets  169.7   126.7 
         
Deferred tax liabilities:        
Plant and equipment  21.2   5.5 
Goodwill  4.7   0.6 
Intangible assets  43.3   1.5 
Other  1.8   0.2 
Total gross deferred tax liabilities  71.0   7.8 
Net deferred tax asset $98.7  $118.9 
  March 31, 
  2019  2018 
Deferred tax assets:      
Accounts receivable $0.2  $0.3 
Inventories  3.4   4.1 
Plant and equipment  1.8   2.3 
Pension and employee benefits  32.7   36.0 
Net operating and capital losses  73.5   102.5 
Credit carryforwards  60.3   36.7 
Other, principally accrued liabilities  10.0   9.9 
Total gross deferred tax assets  181.9   191.8 
Less: valuation allowances  (43.4)  (48.9)
Net deferred tax assets  138.5   142.9 
         
Deferred tax liabilities:        
Plant and equipment  15.1   17.6 
Goodwill  4.8   5.2 
Intangible assets  28.8   32.4 
Other  0.9   0.7 
Total  gross deferred tax liabilities  49.6   55.9 
Net deferred tax assets $88.9  $87.0 

Unrecognized tax benefits were as follows:

  Years ended March 31, 
  2019  2018 
Beginning balance $13.6  $14.2 
Gross increases - tax positions in prior period  1.6   0.8 
Gross decreases - tax positions in prior period (a)  (0.2)  (1.2)
Gross increases - due to acquisition  -   1.4 
Gross increases - tax positions in current period  1.1   0.5 
Settlements  (0.1)  (0.3)
Lapse of statute of limitations  (2.2)  (1.8)
Ending balance $13.8  $13.6 
  Years ended March 31, 
  2017  2016 
Beginning balance $5.9  $5.6 
Gross increases - tax positions in prior period  0.3   - 
Gross decreases - tax positions in prior period  (0.2)  (0.1)
Gross increases - due to acquisition  7.3   - 
Gross increases - tax positions in current period  0.9   0.4 
Ending balance $14.2  $5.9 

(a)Fiscal 2018 includes $1.0 million related to the reduction of the U.S. federal corporate tax rate as a result of the Tax Act.

The Company’s liability for unrecognized tax benefits as of March 31, 20172019 was $14.2$13.8 million, and if recognized, $11.9$12.2 million would have an effective tax rate impact.  The Company estimates that reductions toa $0.2 million decrease in unrecognized tax benefits induring fiscal 20182020 due to lapses in statutes of limitations and audit settlements will total $2.4 million, which, ifsettlements.  If recognized, these reductions would not have a $1.6 millionsignificant 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 20172019 and 2016,2018, interest and penalties included within income tax expense in the consolidated statements of operations were not significant.  At March 31, 2017, $0.8 million of2019 and 2018, accrued interest and penalties were included in the consolidated balance sheet.  At March 31, 2016, accrued interesttotaled $1.1 million and penalties were not significant.$1.0 million, respectively.

The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world.  At March 31, 2017,2019, the Company was under income tax examination in a number of foreign jurisdictions.  The following tax years remain subject to examination for the Company’s major tax jurisdictions:

GermanyFiscal 2011 - Fiscal 20162018
ItalyCalendar 20112014 - Fiscal 20162018
United StatesFiscal 20142016 - Fiscal 20162018

At March 31, 2017, the Company had federal and state tax credits of $27.4 million that, if not utilized against U.S. taxes, will expire between fiscal 2018 and 2037.  The Company also had state and local tax loss carry-forwards of $212.7 million that, if not utilized against state apportioned taxable income, will expire at various times during fiscal 2018 and 2037.  In addition, the Company had tax loss and foreign attribute carry-forwards of $485.0 million in various tax jurisdictions throughout the world.  Certain of the carry-forwards in the U.S. and many in foreign jurisdictions are offset by a valuation allowance.  If not utilized against taxable income, $167.0 million of these carry-forwards will expire at various times during fiscal 2018 through 2037, and $318.0 million, mainly related to Germany, Italy, and India, will not expire due to an unlimited carry-forward period.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

At March 31, 2017,2019, the Company provided $0.3had federal and state tax credits of $60.0 million that, if not utilized against U.S. taxes, will expire between fiscal 2020 and 2039.  The Company also had state and local tax loss carryforwards totaling $129.5 million that, if not utilized against state apportioned taxable income, will expire between fiscal 2020 and 2039.  In addition, the Company had tax loss and foreign attribute carryforwards totaling $351.6 million in various tax jurisdictions throughout the world.  Certain of the carryforwards in the U.S. and in foreign jurisdictions are offset by valuation allowances.  If not utilized against taxable income, $9.7 million of tax on undistributedthese carryforwards will expire between fiscal 2020 and 2034, and $341.9 million, mainly related to Germany and Italy, will not expire due to an unlimited carryforward period.

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 has not recorded foreign withholding taxes or deferred income taxes for certain subsidiaries not considered permanently reinvested.  Undistributed earnings totaling $505.0 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 $7.0 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 8: 
Note 9:Earnings Per Share

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

  Years ended March 31, 
  2017  2016  2015 
Basic:         
Earnings (loss) from continuing operations $14.9  $(1.0) $22.2 
Less: Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Less: Undistributed earnings attributable to unvested shares  (0.2)  -   (0.2)
Earnings (loss) from continuing operations available to Modine shareholders  14.0   (1.6)  21.0 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss) available to Modine shareholders $14.0  $(1.6) $21.6 
             
Weighted-average shares outstanding - basic  47.8   47.3   47.2 
             
Basic Earnings Per Share:            
Earnings (loss) per share - continuing operations $0.29  $(0.03) $0.45 
Earnings per share - discontinued operations  -   -   0.01 
Net earnings (loss) per share - basic $0.29  $(0.03) $0.46 
             
Diluted:            
Earnings (loss) from continuing operations $14.9  $(1.0) $22.2 
Less: Net earnings attributable to noncontrolling interest  (0.7)  (0.6)  (1.0)
Less: Undistributed earnings attributable to unvested shares  (0.1)  -   (0.2)
Earnings (loss) from continuing operations available to Modine shareholders  14.1   (1.6)  21.0 
Earnings from discontinued operations, net of income taxes  -   -   0.6 
Net earnings (loss) available to Modine shareholders $14.1  $(1.6) $21.6 
             
Weighted-average shares outstanding - basic  47.8   47.3   47.2 
Effect of dilutive securities  0.5   -   0.6 
Weighted-average shares outstanding - diluted  48.3   47.3   47.8 
             
Diluted Earnings Per Share:            
Earnings (loss) per share - continuing operations $0.29  $(0.03) $0.44 
Earnings per share - discontinued operations  -   -   0.01 
Net earnings (loss) per share - diluted $0.29  $(0.03) $0.45 
  Years ended March 31, 
  2019  2018  2017 
Basic Earnings Per Share:         
Net earnings attributable to Modine $84.8  $22.2  $14.2 
Less: Undistributed earnings attributable to unvested shares  (0.4)  (0.2)  (0.2)
Net earnings available to Modine shareholders $84.4  $22.0  $14.0 
             
Weighted-average shares outstanding - basic  50.5   49.9   47.8 
             
Net earnings per share - basic $1.67  $0.44  $0.29 
             
Diluted Earnings Per Share:            
Net earnings attributable to Modine $84.8  $22.2  $14.2 
Less: Undistributed earnings attributable to unvested shares  (0.2)  (0.1)  (0.1)
Net earnings available to Modine shareholders $84.6  $22.1  $14.1 
             
Weighted-average shares outstanding - basic  50.5   49.9   47.8 
Effect of dilutive securities  0.8   1.0   0.5 
Weighted-average shares outstanding - diluted  51.3   50.9   48.3 
             
Net earnings per share - diluted $1.65  $0.43  $0.29 

For the years ended March 31,fiscal 2019, 2018 and 2017, 2016, and 2015, the calculation of diluted earnings per share excluded 0.80.4 million, 0.80.2 million, and 0.60.8 million stock options, respectively, because they were anti-dilutive.  For

Note 10:Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash consisted of the year ended March 31, 2016,following:

  March 31, 
  2019  2018 
Cash and cash equivalents $41.7  $39.3 
Restricted cash  0.5   1.0 
Total cash, cash equivalents and restricted cash $42.2  $40.3 

Restricted cash, which is reported within other noncurrent assets on the total numberconsolidated balance sheets, consists primarily of potentially-dilutive securities was 0.4 million.  However, these securities were not included in the computation of diluted net loss per share since to do so would have decreased the loss per share.deposits for contractual guarantees or commitments required for rents, import and export duties, and commercial agreements.

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

Note 9: 
Note 11:Inventories

Inventories consisted of the following:

  March 31, 
  2017  2016 
Raw materials and work in process $127.7  $79.5 
Finished goods  40.8   31.5 
Total inventories $168.5  $111.0 
  March 31, 
  2019  2018 
Raw materials $122.8  $114.4 
Work in process  32.2   34.8 
Finished goods  45.7   42.1 
Total inventories $200.7  $191.3 

Note 10: 
Note 12:Property, Plant and Equipment

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

  March 31, 
  2017  2016 
Land $18.9  $7.2 
Buildings and improvements (10-40 years)  255.6   221.3 
Machinery and equipment (3-12 years)  755.5   694.3 
Office equipment (3-10 years)  92.5   84.1 
Construction in progress  55.1   36.7 
   1,177.6   1,043.6 
Less: accumulated depreciation  (718.6)  (705.0)
Net property, plant and equipment $459.0  $338.6 
  March 31, 
  2019  2018 
Land $20.7  $22.6 
Buildings and improvements (10-40 years)  285.9   295.6 
Machinery and equipment (3-15 years)  848.7   840.8 
Office equipment (3-10 years)  92.0   93.0 
Construction in progress  57.4   50.2 
   1,304.7   1,302.2 
Less: accumulated depreciation  (820.0)  (797.9)
Net property, plant and equipment $484.7  $504.3 

Depreciation expense totaled $67.9 million, $67.0 million, and $54.2 million $48.6 million,for fiscal 2019, 2018, and $50.0 million for the years ended March 31, 2017, 2016, and 2015, respectively.  Gains and losses related to the disposal of property, plant and equipment are recorded inwithin SG&A expenses.  For the years ended March 31,fiscal 2019, 2018, and 2017, 2016, and 2015, total losses related to the disposal of property, plant and equipment were $0.4totaled $0.9 million, $0.4$0.7 million, and $1.1$0.4 million, respectively.

Note 11: 
Note 13:Investment in Affiliate

The Company owns 50 percent of Nikkei Heat Exchanger Company, Ltd. (“NEX”).  The Company accounts for its investment in this non-consolidated affiliate using the equity method.  At March 31, 20172019 and 2016,2018, the Company included its investment in NEX of $3.3$3.8 million and $3.2$3.6 million, respectively, within other noncurrent assets on the consolidated balance sheets.  At March 31, 2017,2019, the investment in NEX is equal to the Company'sCompany’s investment in the underlying net assets.

The Company reports its equity in earnings from NEX within other income and expense in the consolidated statements of operations, using a one-month reporting delay.  The Company’s share of NEX’s earnings for the years ended March 31,fiscal 2019, 2018, and 2017 2016,was $0.7 million, $0.2 million, and 2015 was $0.1 million, $0.1 million, and $0.6 million, respectively.

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

Note 12: 
Note 14:Intangible Assets

Intangible assets consisted of the following:

  March 31, 2017  March 31, 2016 
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
 
Customer relationships $60.5  $(1.7) $58.8  $2.0  $(0.4) $1.6 
Trade names  58.4   (7.2)  51.2   8.9   (6.3)  2.6 
Acquired technology  27.0   (2.9)  24.1   5.5   (1.5)  4.0 
Total intangible assets $145.9  $(11.8) $134.1  $16.4  $(8.2) $8.2 
Intangible assets as of March 31, 2017 include intangible assets related to the Company’s acquisition of Luvata HTS.  See Note 2 for additional information.
  March 31, 2019  March 31, 2018 
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
  
Gross
Carrying
Value
  
Accumulated
Amortization
  
Net
Intangible
Assets
 
Customer relationships $61.5  $(9.1) $52.4  $64.2  $(5.7) $58.5 
Trade names  58.9   (13.5)  45.4   60.6   (10.8)  49.8 
Acquired technology  23.9   (5.5)  18.4   25.2   (3.6)  21.6 
Total intangible assets $144.3  $(28.1) $116.2  $150.0  $(20.1) $129.9 

The Company recorded $4.1$9.0 million, $1.6$9.7 million, and $1.6$4.1 million of amortization expense during fiscal 2019, 2018, and 2017, 2016, and 2015, respectively.  Estimated futureThe Company estimates that it will record $9.0 million of amortization expense is as follows:in fiscal 2020 and approximately $8.0 million of annual amortization expense in fiscal 2021 through 2024.

Fiscal Year 
Estimated
Amortization
Expense
 
2018 $9.4 
2019  9.2 
2020  9.1 
2021  8.5 
2022  7.4 
2023 & Beyond  90.5 
During fiscal 2018, the BHVAC segment discontinued its geothermal product line and, as a result, recorded a $1.2 million impairment for acquired technology intangible assets it will no longer use.  Annual revenue for this discontinued product line was less than $1.0 million.

Note 13: 
Note 15:Goodwill

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

  Asia  BHVAC  CIS  Total 
Balance, March 31, 2015 $0.5  $15.7  $-  $16.2 
Effect of exchange rate changes  -   (0.4)  -   (0.4)
Balance, March 31, 2016  0.5   15.3   -   15.8 
Acquired Goodwill  -   -   150.6   150.6 
Effect of exchange rate changes  -   (1.6)  0.3   (1.3)
Balance, March 31, 2017 $0.5  $13.7  $150.9  $165.1 
  VTS  CIS  BHVAC  Total 
Balance, March 31, 2017 $0.5  $150.9  $13.7  $165.1 
Acquired goodwill (a)  -   1.3   -   1.3 
Effect of exchange rate changes  -   6.1   1.3   7.4 
Balance, March 31, 2018  0.5   158.3   15.0   173.8 
Effect of exchange rate changes  -   (4.4)  (0.9)  (5.3)
Balance, March 31, 2019 $0.5  $153.9  $14.1  $168.5 

As a result of its acquisition of Luvata HTS, the Company recorded $150.6 million of goodwill.  See Note 2 for additional information.
(a)Represents measurement-period adjustments related to the Company’s acquisition of Luvata HTS.  See Note 2 for additional information about this acquisition.

The Company assesses goodwill for impairment annually, or more frequently if events or circumstances change that would, more likely than not, reduce the fair value of a reporting unit below its carrying value.  The Company conducted its annual assessment for goodwill impairment during the fourth quarter of fiscal 20172019 for the reporting units within its BHVACVTS, CIS, and AsiaBHVAC segments, by applying a fair value-based test, and determined that the fair value of its reporting units exceeded their respective book values.  The Company will perform goodwill impairment testing for its recently-acquired CIS segment beginning in fiscal 2018.

At both March 31, 20172019 and 2016,2018, accumulated goodwill impairment losses totaled $31.6 million and $8.7$40.3 million within the Americas and Europe segments, respectively.VTS segment.

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

Note 14: 
Note 16:Product Warranties, Operating Leases, and Other Commitments

Product warranties: Most of the Company’s products are covered under a warranty period ranging from one to five years.  The Company records a liability for product warranty obligations at the time of sale to a customer based upon historical warranty experience.  In addition, the Company adjusts its warranty accruals if it becomes probable that expected claims will differ from initial estimates.

Changes in accrued warranty costs were as follows:

  Years ended March 31, 
  2017  2016 
Beginning balance $8.3  $10.4 
Warranties recorded at time of sale  5.2   5.7 
Adjustments to pre-existing warranties  0.3   (1.1)
Additions due to acquisition  4.1   - 
Settlements  (7.6)  (6.7)
Effect of exchange rate changes  (0.3)  - 
Ending balance $10.0  $8.3 
  Years ended March 31, 
  2019  2018 
Beginning balance $9.3  $10.0 
Warranties recorded at time of sale  5.5   6.7 
Adjustments to pre-existing warranties  2.2   (0.8)
Adjustments due to acquisition (a)  -   (1.0)
Settlements  (7.3)  (6.2)
Effect of exchange rate changes  (0.5)  0.6 
Ending balance $9.2  $9.3 

(a)During fiscal 2018, the Company decreased its liability for product warranties by $1.0 million as a result of measurement-period adjustments made in connection with purchase accounting for the acquisition of Luvata HTS.  See Note 2 for additional information about this acquisition.

Operating leases: The Company leases various facilities and equipment under operating leases.  Rental expense for these leases totaled $12.8$19.3 million, $11.9$18.5 million, and $11.5$12.8 million in fiscal 2019, 2018, and 2017, 2016, and 2015, respectively.

Future minimum rental commitments at March 31, 20172019 under non-cancelable operating leases were as follows:

Fiscal Year   
2018 $12.2 
2019  10.1 
2020  9.1 
2021  7.8 
2022  5.4 
2023 and beyond  24.7 
Total $69.3 
Fiscal Year   
2020 $14.2 
2021  12.4 
2022  9.1 
2023  7.1 
2024  4.7 
2025 and beyond  22.9 
Total $70.4 

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, 20172019 was not material.

Commitments: At March 31, 2017,2019, the Company had capital expenditure commitments of $18.1$23.6 million.  Significant commitments include tooling and equipment expenditures for new and renewal programs with customers in the Americas, Asia, and Europe segments.VTS segment.  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.

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

Note 15: 
Note 17:Indebtedness

In November 2016,Long-term debt consisted of the Company entered into new credit agreements to fund a significant portion of its acquisition of Luvata HTS (see Note 2 for additional information).  following:

  
Fiscal year
of maturity
  March 31, 2019  March 31, 2018 
          
Term loans 2022  $238.4  $267.8 
6.8% Senior Notes 2021   85.0   101.0 
5.8% Senior Notes 2027   50.0   50.0 
Other (a) -   14.3   12.8 
       387.7   431.6 
Less: current portion      (48.6)  (39.9)
Less: unamortized debt issuance costs   (4.0)  (5.4)
Total long-term debt     $335.1  $386.3 

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

Long-term debt matures as follows:

Fiscal Year   
2020 $48.6 
2021  101.3 
2022  187.4 
2023  8.8 
2024  8.8 
2025 & beyond  32.8 
Total $387.7 

The Company executed an amended and restatedmaintains a credit agreement with a syndicate of banks that provides for both U.S. dollar- and euro-denominated term loan facilities and a multi-currency $175.0 million revolving credit facility expiring in November 2021, which replaced the Company’s then-existing revolver that would have expired in August 2018.2021.  Based upon the terms of the credit agreement and currency denomination, borrowings under both the term loans and revolving credit facility bear interest at a variable rate, primarily either the London Interbank Offered Rate (“LIBOR”) or Euro Interbank Offered Rate (“EURIBOR”), plus 137.5 to 250 basis points (3.0 percent weighted-average at March 31, 2017) depending on the Company’s leverage ratio, as described below.  At March 31, 2017,2019, the Company’sweighted-average interest rates for the outstanding term loanloans and the revolving credit facility borrowings totaled $268.9 million, with repayments scheduled through fiscal 2022.  Also in November 2016, the Company issued $50.0 million of 5.8were 3.3 percent Senior Notes with repayments ending in fiscal 2027.and 3.7 percent, respectively.

Long-term debt consisted of the following:

 
Fiscal year
of maturity
  March 31, 2017  March 31, 2016 
           
Term Loans  2022  $268.9  $- 
6.8% Senior Notes  2021   117.0   125.0 
5.8% Senior Notes  2027   50.0   - 
Other (a)  2032   8.3   9.0 
       444.2   134.0 
Less: current portion      (31.8)  (8.5)
Less: unamortized debt issuance costs      (6.7)  - 
Total long-term debt     $405.7  $125.5 
(a)Other long-term debt includes capital lease obligations and other financing-type obligations.
Long-term debt matures as follows:

Fiscal Year   
2018 $31.8 
2019  38.6 
2020  43.8 
2021  98.3 
2022  184.1 
2023 & beyond  47.6 
Total $444.2 

At March 31, 2017,2019 and 2018, the Company reported its revolving credit facility borrowings of $40.4$47.1 million and $21.3 million, respectively, as short-term debt on the consolidated balance sheet.sheets.  At March 31, 2017,2019, domestic letters of credit totaled $2.0$4.3 million, resulting in available borrowings under the Company’s revolving credit facility of $132.6$123.6 million.  The Company also maintains credit agreements for its foreign subsidiaries, with outstanding short-term borrowings at March 31, 20172019 and 20162018 of $33.0$18.9 million and $28.6$31.9 million, respectively.  At March 31, 2017, the Company’s foreign unused lines of credit totaled $20.0 million.  In aggregate, the Company had total available lines of credit of $152.6 million at March 31, 2017.

Provisions in the Company’s amended and restated credit 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 debt agreements in the U.S., the Company has provided liens on substantially all domestic assets.  In addition, the term loans require prepayments, as definedspecified in the credit agreement, the term loans may require prepayments in the event the Company’s annual excess cash flow exceeds defined levels, depending upon the Company’s leverage ratio, or in the event of certain asset sales.  The Company is also subject to a leverage ratio covenant,covenants, the most restrictive of which requires the Company to limit its consolidated indebtedness, less a portion of its 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”).  As permitted by the credit agreements and in connection with the Company’s acquisition of Luvata HTS, this leverage ratio covenant limit has been temporarily raised to no more than three and three-quarters times Adjusted EBITDA through the second quarter of fiscal 2018, and thereafter to no more than three and one-half times Adjusted EBITDA through the first quarter of fiscal 2019.  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.  The Company was in compliance with its debt covenants as of March 31, 2017.2019.

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

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, 20172019 and 2016,2018, the carrying value of Modine’sthe Company’s long-term debt approximated fair value, with the exception of the Senior Notes, which had an aggregate fair value of approximately $170.0$137.2 million and $139.0$153.1 million, respectively.  The fair value of the Senior Notes areCompany’s long-term debt is categorized as Level 2 within the fair value hierarchy.  Refer to Note 34 for the definition of a Level 2 fair value measurement.

Note 16: 
Note 18:Pension and Employee Benefit Plans

Defined Contribution Employee Benefit 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 employeetheir compensation during fiscal 2017, 2016, and 2015 related to its primary domestic 401(k) plans.  The Company also makes annual employer contributions into eligible active employee accounts based upon a percentage of employee compensation.  Employees can choose among various investment alternatives, including (subject to restrictions) Modine stock.  The Company’s matching contributions and annual employer contributions are discretionary.for participants.  The Company’s expense for defined contribution employee benefit plans during fiscal 2019, 2018, and 2017 2016, and 2015 was $4.7$6.4 million, $4.6$5.2 million, and $5.9$4.7 million, respectively.

In addition, the Company maintains non-qualified deferred compensation plans for eligible employees, and various non-U.S. subsidiaries have government-required defined contribution plans in place, under which they contribute a percentage of employee earnings into accounts, consistent with local laws.

Statutory Termination Plans:

Certain non-U.S. subsidiaries have statutory termination indemnity plans covering eligible employees.  The benefits under these plans are based upon years of service and final average compensation levels or a monthly retirement benefit amount.  These programs are all substantially unfunded in accordance with local laws, but are often covered by national obligatory umbrella insurance programs that protect employees from losses in the event that an employer defaults on its obligations.laws.

Defined Benefit Employee Benefit Plans:

Pension plans: As a result of its acquisition of Luvata HTS, the Company acquired defined benefit pension plans in Italy, Austria, and the U.S. with liabilities totaling $14.3 million, representing the aggregate funded status of these acquired plans.  These acquired plans are closed to new participants.

In addition, theThe 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 upon years of service and average compensation for salaried and some hourly employees.  Benefits for other hourly employees are based upon a monthly retirement benefit amount.  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.

The Company contributed $8.1$8.0 million, $6.7$13.4 million, and $5.9$8.1 million to its U.S. pension plans during fiscal 2019, 2018, and 2017, 2016,respectively.  In addition, the Company contributed $5.9 million, $2.6 million, and 2015,$1.4 million to its non-U.S. pension plans during fiscal 2019, 2018, and 2017, 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 offered a voluntary lump-sum payout program to certain eligible former employees.  Approximately 2,000 participants accepted the lump-sum settlement offer and a total of $65.3 million was paid from pension plan assets during fiscal 2016, which reduced the Company’s pension obligation by the same amount.  In connection with these lump-sum payouts, the Company recorded $42.1 million of non-cash settlement losses related to the accelerated recognition of unamortized actuarial losses previously recorded on the consolidated balance sheets within accumulated other comprehensive loss.  During fiscal 2016, the Company recorded $33.3 million and $8.8 million of settlement losses as SG&A expenses and cost of sales, respectively, within the consolidated statements of operations.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Postretirement plans: The Company provides selected healthcare and life insurance benefits for eligible retired domestic employees.  The Company periodically amends these unfunded plans to change the contribution rate of retirees and the amounts and forms of coverage.  An annual limit on the Company’s cost is defined for the majority of these plans.  The Company’s net periodic income for its postretirement plans during fiscal 2017, 2016,2019, 2018, and 20152017 was $0.3 million, $0.2 million, and $0.3 million, and $0.1 million, respectively.

Measurement Date:date:  The Company uses March 31 as the measurement date for its pension and postretirement plans.

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, 2017 and 2016 were as follows:

  2017  2016 
Change in benefit obligation:      
Benefit obligation at beginning of year $261.0  $328.2 
Service cost  0.6   0.6 
Interest cost  9.8   11.2 
Actuarial gain  (0.5)  (2.8)
Benefits paid (a)  (19.8)  (78.1)
Acquired obligations (b)  20.3   - 
Effect of exchange rate changes  (1.6)  1.9 
Benefit obligation at end of year $269.8  $261.0 
         
Change in plan assets:        
Fair value of plan assets at beginning of year $141.5  $217.0 
Actual return on plan assets  11.0   (5.3)
Benefits paid (a)  (19.8)  (78.1)
Employer contributions  9.5   7.9 
Acquired plan assets (b)  6.0   - 
Fair value of plan assets at end of year $148.2  $141.5 
Funded status at end of year $(121.6) $(119.5)
         
Amounts recognized in the consolidated balance sheets:        
Current liability $(2.2) $(0.9)
Noncurrent liability  (119.4)  (118.6)
  $(121.6) $(119.5)
  Years ended March 31, 
  2019  2018 
Change in benefit obligation:      
Benefit obligation at beginning of year $273.6  $269.8 
Service cost  0.5   0.5 
Interest cost  9.6   9.9 
Actuarial loss  1.7   4.4 
Benefits paid  (22.8)  (16.9)
Curtailment gain (a)  -   (0.3)
Effect of exchange rate changes  (3.8)  6.2 
Benefit obligation at end of year $258.8  $273.6 
         
Change in plan assets:        
Fair value of plan assets at beginning of year $157.7  $148.2 
Actual return on plan assets  6.3   10.4 
Benefits paid  (22.8)  (16.9)
Employer contributions  13.9   16.0 
Fair value of plan assets at end of year $155.1  $157.7 
Funded status at end of year $(103.7) $(115.9)
         
Amounts recognized in the consolidated balance sheets:        
Current liability $(2.0) $(6.3)
Noncurrent liability  (101.7)  (109.6)
  $(103.7) $(115.9)

 (a)InDuring fiscal 2016, $65.3 million was paid from plan assets2018, the Company recorded a pension curtailment gain associated with the closure of a manufacturing facility in connection with lump-sum payouts.Austria (CIS segment).  See Note 6 for additional information regarding the closure of this facility.
(b)As a result of its acquisition of Luvata HTS, the Company acquired pension plans in Italy, Austria and the U.S.  See Note 2 for additional information.

As of March 31, 2019, 2018, and 2017, the benefit obligation associated with the Company’s non-U.S. pension plans totaled $36.5 million, $43.4 million, and $39.3 million respectively.  In fiscal 2019, the $6.9 million decrease primarily resulted from employer contributions of $5.9 million for benefits paid to plan participants during the year and the impact of foreign currency exchange rate changes, partially offset by service and interest cost totaling $1.1 million.  In fiscal 2018, the $4.1 million increase primarily resulted from the impact of foreign currency exchange rate changes and service and interest cost totaling $1.3 million, partially offset by $2.6 million of benefits paid to plan participants.

The accumulated benefit obligation for pension plans was $266.8$256.9 million and $257.9$271.8 million as of March 31, 20172019 and 2016,2018, respectively.  The net actuarial loss related to the pension plans recognized in accumulated other comprehensive loss was $156.8$159.1 million and $162.0$157.9 million as of March 31, 20172019 and 2016,2018, respectively.

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 for the fiscal years ended March 31, 2017, 2016, and 2015:components:

  2017  2016  2015 
Components of net periodic benefit cost:         
Service cost $0.6  $0.6  $0.5 
Interest cost  9.8   11.2   13.0 
Expected return on plan assets  (12.3)  (14.9)  (16.7)
Amortization of net actuarial loss  5.6   6.4   5.5 
Settlements (a)  -   42.1   - 
Net periodic benefit cost $3.7  $45.4  $2.3 
             
Other changes in benefit obligation recognized in other comprehensive loss (income):            
Net actuarial loss $1.0  $17.5  $46.4 
Amortization of net actuarial loss (a)  (5.6)  (48.5)  (5.5)
Total recognized in other comprehensive (income) loss $(4.6) $(31.0) $40.9 
  Years ended March 31, 
  2019  2018  2017 
Components of net periodic benefit cost:         
Service cost $0.5  $0.5  $0.6 
Interest cost  9.6   9.9   9.8 
Expected return on plan assets  (12.3)  (11.9)  (12.3)
Amortization of net actuarial loss  5.6   5.6   5.6 
Settlements (a)  0.2   0.3   - 
Curtailment gain (a)  -   (0.3)  - 
Net periodic benefit cost $3.6  $4.1  $3.7 
             
Other changes in benefit obligation recognized in other comprehensive income (loss):
            
Net actuarial loss $(7.7) $(5.8) $(1.0)
Amortization of net actuarial loss  5.8   5.9   5.6 
Total recognized in other comprehensive income (loss) $(1.9) $0.1  $4.6 

(a)During fiscal 2016, in connectionThe settlement charges and curtailment gain resulted from activity associated with lump-sum payouts tothe Company’s non-U.S. pension plan participants, the Company recorded $42.1 million of settlement losses, which were previously recorded in accumulated other comprehensive loss.plans.

The Company amortized $5.6 million of net actuarial loss in fiscal 2019, 2018, and 2017.  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$6.0 million of net actuarial loss for its pension plans will be amortized from accumulated other comprehensive loss into net periodic benefit cost during fiscal 2018.2020.  The fiscal 2020 estimated amortization includes less than $1.0 million related to the Company’s non-U.S. pension plans.

The Company used a discount rate of 4.1%4.0% as of both March 31, 20172019 and 20162018 for determining its benefit obligations under its U.S. pension plans. The Company used a weighted-average discount rate of 1.7%1.4% and 1.8%1.7% as of March 31, 20172019 and 2016,2018, respectively, infor determining its benefit obligations under its non-U.S. pension plans.  The Company used a discount rate of 4.1%4.0%, 4.3%4.1%, and 4.7%4.1% to determine its costs under its U.S. pension plans for the fiscal years ended March 31,2019, 2018, and 2017, 2016, and 2015, respectively.  The Company used a weighted-average discount rate of 1.7%1.9%, 1.3%1.9%, and 3.0%1.7% to determine its costs under its non-U.S. pension plans for the fiscal years ended March 31,2019, 2018, and 2017, 2016, and 2015, 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, 2017 and 2016 were as follows:

  
Target allocation as
of March 31, 2017
  Plan assets 
     2017  2016 
Equity securities  60%  58%  56%
Debt securities  38%  38%  36%
Cash  2%  4%  4%
Alternative assets  -   -   4%
   100%  100%  100%
  March 31, 2019  March 31, 2018 
  Target allocation  Plan assets  Target allocation  Plan assets 
Equity securities  65%  66%  60%  58%
Debt securities  21%  19%  38%  38%
Real estate investments  13%  12%  -   - 
Cash and cash equivalents  1%  3%  2%  4%
   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, 20172019 and 2016,2018, the Company’s pension plans did not directly own shares of Modine common stock.

The Company employs a total return investment approach, whereby a mix of equities and fixed-income investments are used to maximize the long-term 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.

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

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 2017, 2016,2019, 2018, and 20152017 U.S. pension plan expense, the expected rate of return on plan assets was 7.5 percent, 7.5 percent and 8.0 percent.percent, respectively.  For fiscal 20182020 U.S. pension plan expense, the Company has assumed a rate of return on plan assets of 7.5 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 $13.1contribute approximately $3.0 million to these plans during fiscal 2018.2020.

Estimated pension benefit payments for the next ten fiscal years are as follows:

Fiscal Year 
Estimated Pension
Benefit Payments
 
2018 $17.1 
2019  16.4 
2020  17.0 
2021  17.1 
2022  17.6 
2023-2027  90.4 
Fiscal Year
 
Estimated Pension
Benefit Payments
 
2020 $16.0 
2021  16.0 
2022  16.4 
2023  16.4 
2024  16.6 
2025-2029  82.0 

Note 17: 
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.  In fiscal 2019 and 2018, the Company designated certain commodity forward contracts 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 accumulated other comprehensive income (loss) (“AOCI”) within shareholders’ equity and subsequently recognizes the gains and losses within cost of sales as the underlying inventory is sold.  The Company hasdid not designateddesignate commodity contracts entered into in fiscal 2017 2016, and 2015 for hedge accounting.  Accordingly, unrealized gains and losses on thesethose contracts arewere recorded within cost of sales.

Foreign exchange contracts: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.  In fiscal 2019 and 2018, the Company designated 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.

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, 2017  March 31, 2016 
Commodity derivativesOther current assets $0.7  $- 
Commodity derivativesOther current liabilities  -   0.1 
Foreign exchange contractsOther current assets  0.2   0.1 

 Balance Sheet Location March 31, 2019  March 31, 2018 
Derivatives designated as hedges:        
Commodity derivatives Other current assets $0.6  $0.1 
Commodity derivatives Other current liabilities  0.3   - 
Foreign exchange contracts Other current assets  0.2   0.1 
           
Derivatives not designated as hedges:          
Commodity derivatives Other current liabilities $-  $0.2 
Foreign exchange contracts Other current assets  -   0.2 
Foreign exchange contracts Other current liabilities  0.5   0.6 

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

 Statement of Operations Years ended March 31, 
Location 2017  2016  2015 
Commodity derivativesCost of sales $0.5  $(0.7) $(0.2)
Foreign exchange contractsOther income (expense) - net  1.3   0.6   (1.1)
Total gains (losses)  $1.8  $(0.1) $(1.3)
  
Gain (loss) recognized in
other comprehensive income
 
Statement of
Operations
 
Gain (loss) reclassified
from AOCI
 
  2019  2018  2017 Location 2019  2018  2017 
Commodity derivatives $(0.3) $0.2  $- Cost of sales $(0.4) $-  $- 
Foreign exchange contracts  (0.4)  0.1   - Net sales  (0.4)  0.1   - 
Foreign exchange contracts  1.0   -   - Cost of sales  0.6   -   - 
Total gains (losses) $0.3  $0.3  $-   $(0.2) $0.1  $- 

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 2019  2018  2017 
Commodity derivatives Cost of sales $-  $0.4  $0.5 
Foreign exchange contracts Net sales  (0.7)  (0.1)  - 
Foreign exchange contracts Other income (expense) - net  (0.3)  (0.5)  1.3 
Total gains (losses)   $(1.0) $(0.2) $1.8 

67
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 18: 
Note 20:Contingencies and Litigation

Market risk:  Risk
The Company sells a broad range of products that provide thermal solutions to customers operating primarily in the automotive, commercial vehicle, construction, agricultural,off-highway, and commercial, industrial, and building HVAC&R markets.  The Company operates in diversified markets as a strategy for offsetting the risk associated with a downturn in any one or more of the markets it serves.  The Company pursues new market opportunities after careful consideration of the potential associated risks and benefits.  However, the risk associated with market downturns is still 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 2019, 2018, and 2017, 2016 and 2015, two VTS segment customers each accounted for ten percent or more of the Company’s total sales.  Sales to the Company’s top ten customers representedwere 50 percent, 48 percent, and 54 percent of total sales in fiscal 2019, 2018, and 2017, and 63 percent of total sales in both fiscal 2016 and 2015.respectively.  At March 31, 20172019 and 2016, 352018, 38 percent and 4536 percent, respectively, of the Company'sCompany’s trade accounts receivable were due from the Company'sCompany’s top ten customers.  These customers operate primarily in the automotive, truck,commercial vehicle, off-highway, data center cooling and heavy equipmentcommercial air conditioning markets, andwhich are influenced by similar market and general economic factors.  Collateral or advanced payments are generally not required.  The Company has not experienced significant credit losses to customers in the markets served.

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;
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;
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
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.
Insurance – ensuring that insurance providers maintain financial ratings that are acceptable to the Company.

Counterparty risks:  Risk
The Company manages counterparty risksrisk through its focus on the following:

·Customers – performing thorough reviews of customer credit reports and accounts receivable aging reports by internal credit committees;
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
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.
Derivatives – ensuring that counterparties to derivative instruments maintain credit ratings that are acceptable to the Company.

Environmental: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.

As a result of its acquisition of Luvata HTS in fiscal 2017, the Company assumed certain environmental obligations.  The Company has recorded environmental accruals related to these matters, the most significant of which relates to historical soil and groundwater contamination remediation and monitoring for a manufacturing site in the United States.  In addition, the Company has recorded environmental investigation and remediation accruals related to subsurfacesoil and groundwater contamination at manufacturing facilities in the United States, one of which the Company currently owns and operates, and at its former manufacturing facility in the Netherlands, investigative work related to a previously-owned manufacturing facility in the United States, and groundwater contamination at its manufacturing facility in Brazil, along with accruals for lesser environmental matters at certain other facilities in the United States.States and Brazil.  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 $16.8$18.9 million and $5.1$16.7 million at March 31, 20172019 and 2016,2018, respectively.  As additional information becomes available, the Company will re-assess the liabilities related to these matters and revise the estimated accruals, if necessary.  Based upon 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.
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Brazil antitrust investigation:  During fiscal 2015, Brazil’s Administrative Council for Economic Defense (CADE) provided formal notice to the Company’s subsidiary in Brazil (“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, the Company accrued $2.8 million (BRL 10 million) related to this matter.  During fiscal 2017, the Company increased its accrual and reached agreement with CADE to settle the matter for $4.7 million (BRL 15 million).  As a result, the Company recorded a charge of $1.6 million (BRL 5 million) within SG&A expenses during fiscal 2017.  The Company expects to remit payment for the settlement in early fiscal 2018.

Other litigation: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.  In the opinion of management, the liabilities, if any, which may ultimately result from such lawsuits or proceedings are not expected to have a material adverse effect on the Company’s consolidated financial statements.position.

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

Note 19: 
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, 2016 $(36.0) $(138.2) $(174.2)
             
Other comprehensive income (loss) before reclassifications  (10.8)  (0.3)  (11.1)
Reclassifications for amortization of unrecognized net loss (a)  -   5.2   5.2 
Income taxes  -   (1.7)  (1.7)
Total other comprehensive income (loss)  (10.8)  3.2   (7.6)
             
Balance, March 31, 2017 $(46.8) $(135.0) $(181.8)
  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  
Cash Flow
Hedges
  Total 
Balance, March 31, 2018 $(5.5) $(134.9) $0.1  $(140.3)
                 
Other comprehensive income (loss) before reclassifications  (37.9)  (7.1)  0.3   (44.7)
Reclassifications:                
Amortization of unrecognized net loss (a)  -   5.4   -   5.4 
Foreign currency translation losses (b)  0.8   -   -   0.8 
Realized losses - net (c)  -   -   0.2   0.2 
Income taxes  -   0.3   (0.1)  0.2 
Total other comprehensive income (loss)  (37.1)  (1.4)  0.4   (38.1)
                 
Balance, March 31, 2019 $(42.6) $(136.3) $0.5  $(178.4)
                 
  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  
Cash Flow
Hedges
  Total 
Balance, March 31, 2017 $(46.8) $(135.0) $-  $(181.8)
                 
Other comprehensive income (loss) before reclassifications  41.3   (5.7)  0.3   35.9 
Reclassifications:                
Amortization of unrecognized net loss (a)  -   5.6   -   5.6 
Realized gains - net (c)  -   -   (0.1)  (0.1)
Income taxes  -   0.2   (0.1)  0.1 
Total other comprehensive income  41.3   0.1   0.1   41.5 
                 
Balance, March 31, 2018 $(5.5) $(134.9) $0.1  $(140.3)

  
Foreign
Currency
Translation
  
Defined
Benefit Plans
  Total 
Balance, March 31, 2015 $(40.7) $(157.9) $(198.6)
             
Other comprehensive income (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)

(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 1618 for additional information about the Company’s pension plans.
(b)As a result of the sale of a business in South Africa during fiscal 2019, the Company wrote-off $0.8 million of accumulated foreign currency translation losses.  See Note 1 for additional information about this transaction.
(c)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.

69
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
Note 20: 
Note 22:Segment and Geographic Information

The Company’s product lines consist of heat-transfer components and systems.  The Company serves vehicular and commercial, industrial, and building HVAC&R markets.  In November 2016, the Company acquired Luvata HTS and, commencing from the acquisition date, has operated and reported results for the acquired business as its Commercial and Industrial Solutions (“CIS”)CIS segment.  See Note 2 for additional information regarding the Luvata HTS acquisition.

The Company’sEffective April 1, 2018, the Company formed the VTS segment by combining its Americas, Europe, and Asia operations to enable it to operate as a more global, product-based organization.  The Company also merged its Americas coils business into the CIS segment to accelerate operational improvements and organizational efficiencies.  The Company began reporting financial results for its new segments representbeginning in fiscal 2019.  Segment financial information for fiscal 2018 and 2017 has been recast to conform to the fiscal 2019 presentation.

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

The Company’s VTS segment represents its vehicular businessesbusiness and primarily serveserves the automotive, commercial vehicle, and off-highway markets.  In addition, the AmericasVTS segment serves the automotive and commercial vehicle aftermarket in Brazil and provides coils to the commercial HVAC&R market in North America.Brazil.  The Company’s CIS segment provides coils, coolers, and coating solutions to customers throughout the world.  The Company’s BHVAC segment provides heating, ventilating and air conditioning products to customers throughout the world.

Each operating segment is managed by a vice president and has separate financial results reviewed by the Company’s chief operating decision maker.  These results are used by management in evaluating the performance of each segment and in making decisions on the allocation of resources among the Company’s various businesses.

The following is a summary of net sales, gross profit, and operating income by segment:

  Years ended March 31, 
Net sales: 2017  2016  2015 
Americas $534.0  $585.5  $666.9 
Europe  524.3   524.1   578.2 
Asia  111.5   79.0   81.2 
CIS  177.7   -   - 
BHVAC  171.6   181.4   186.3 
Segment total  1,519.1   1,370.0   1,512.6 
Corporate and eliminations  (16.1)  (17.5)  (16.2)
Net sales $1,503.0  $1,352.5  $1,496.4 

  Years ended March 31, 
  2017  2016  2015 
Gross profit: $'s  
% of
sales
  $'s  
% of
sales
  $'s  
% of
sales
 
Americas $86.6   16.2% $100.1   17.1% $109.1   16.3%
Europe  80.9   15.4%  68.1   13.0%  68.7   11.9%
Asia  18.7   16.8%  12.2   15.5%  11.5   14.2%
CIS  26.0   14.6%  -   -   -   - 
BHVAC  47.8   27.8%  54.2   29.9%  55.9   30.0%
Segment total  260.0   17.1%  234.6   17.1%  245.2   16.2%
Corporate and eliminations (a)  (6.7)  -   (11.1)  -   1.3   - 
Gross profit $253.3   16.9% $223.5   16.5% $246.5   16.5%
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)
 Years ended March 31, 
Operating income: 2017  2016  2015 
Americas $26.7  $36.2  $33.4 
Europe  37.1   13.3   25.7 
Asia  7.7   0.8   0.3 
CIS  7.5   -   - 
BHVAC  13.1   13.9   19.1 
Segment total  92.1   64.2   78.5 
Corporate and eliminations (a)  (52.7)  (71.7)  (25.8)
Operating income (loss) $39.4  $(7.5) $52.7 

(a)During fiscal 2017, the Company recorded $14.8 million of costs incurred directly related to the acquisition and integration of Luvata HTS within SG&A expenses at Corporate.  In addition, as a result of purchase accounting for the Luvata HTS acquisition, the Company wrote up acquired inventory to its estimated fair value and charged the write-up to cost of sales as the underlying inventory was sold.  The Company recorded $4.3 million in cost of sales related to this inventory step-up at Corporate, as the impact of this purchase accounting adjustment is excluded from the Company’s measure of segment operating performance.  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 16 for additional information about the Company’s pension plans.
  Year ended March 31, 2019 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:         
VTS $1,298.9  $52.8  $1,351.7 
CIS  704.7   2.9   707.6 
BHVAC  209.1   3.3   212.4 
Segment total  2,212.7   59.0   2,271.7 
Corporate and eliminations  -   (59.0)  (59.0)
Net sales $2,212.7  $-  $2,212.7 
             
  Year ended March 31, 2018 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:            
VTS $1,239.3  $56.4  $1,295.7 
CIS  674.4   1.3   675.7 
BHVAC  189.4   1.8   191.2 
Segment total  2,103.1   59.5   2,162.6 
Corporate and eliminations  -   (59.5)  (59.5)
Net sales $2,103.1  $-  $2,103.1 
             
  Year ended March 31, 2017 
  External Sales  
Inter-segment
Sales
  Total 
Net sales:            
VTS $1,099.9  $52.3  $1,152.2 
CIS  231.5   0.3   231.8 
BHVAC  171.6   -   171.6 
Segment total  1,503.0   52.6   1,555.6 
Corporate and eliminations  -   (52.6)  (52.6)
Net sales $1,503.0  $-  $1,503.0 

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.  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.

The following is a summary of total assets by segment:

  March 31, 
  2017  2016 
Americas $282.9  $267.2 
Europe  269.4   301.9 
Asia  111.3   104.0 
CIS  576.0   - 
BHVAC  85.2   99.0 
Corporate and eliminations  124.7   148.8 
Total assets $1,449.5  $920.9 

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

  Years ended March 31, 
Capital expenditures: 2017  2016  2015 
Americas $26.3  $26.7  $30.2 
Europe  24.7   24.8   21.5 
Asia  8.5   6.2   3.8 
CIS  3.4   -   - 
BHVAC  1.5   5.1   2.8 
Total capital expenditures $64.4  $62.8  $58.3 
MODINE MANUFACTURING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In millions, except per share amounts)

  Years ended March 31, 
Depreciation and amortization expense: 2017  2016  2015 
Americas $22.7  $22.1  $21.3 
Europe  16.5   18.0   19.8 
Asia  7.0   6.5   7.2 
CIS  7.9   -   - 
BHVAC  4.2   3.6   3.3 
Total depreciation and amortization expense $58.3  $50.2  $51.6 
  Years ended March 31, 
  2019  2018  2017 
Gross profit: $’s  
% of
sales
  $’s  
% of
sales
  $’s  % of
sales		 
VTS $186.9   13.8% $201.0   15.5% $182.0   15.8%
CIS  114.9   16.2%  97.8   14.5%  32.2   13.9%
BHVAC  63.4   29.9%  58.0   30.3%  47.8   27.8%
Segment total  365.2   16.1%  356.8   16.5%  262.0   16.8%
Corporate and eliminations (a)  0.3   -   (0.3)  -   (7.6)  - 
Gross profit $365.5   16.5% $356.5   17.0% $254.4   16.9%

  Years ended March 31, 
Operating income: 2019  2018  2017 
VTS $64.8  $84.2  $68.4 
CIS  53.4   28.5   10.9 
BHVAC  26.9   20.3   13.2 
Segment total  145.1   133.0   92.5 
Corporate and eliminations (a)  (35.4)  (40.8)  (50.2)
Operating income $109.7  $92.2  $42.3 

(a)During fiscal 2018 and 2017, the Company recorded $4.3 million and $14.8 million, respectively, of costs incurred directly related to the acquisition and integration of Luvata HTS within SG&A expenses at Corporate.  During fiscal 2017, the Company recorded $4.3 million in cost of sales related to an inventory purchase accounting adjustment at Corporate, as the impact was excluded from the Company’s measure of segment operating performance.  In addition, 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.

The following is a summary of total assets by segment:

  March 31, 
  2019  2018 
VTS $749.9  $754.8 
CIS  604.2   630.2 
BHVAC  89.4   88.1 
Corporate and eliminations  94.5   100.3 
Total assets $1,538.0  $1,573.4 

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

  Years ended March 31, 
Capital expenditures: 2019  2018  2017 
VTS $56.2  $61.4  $59.5 
CIS  16.4   9.0   3.4 
BHVAC  1.3   0.6   1.5 
Total capital expenditures $73.9  $71.0  $64.4 

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

  Years ended March 31, 
Depreciation and amortization expense: 2019  2018  2017 
VTS $49.5  $48.2  $46.2 
CIS  23.9   24.3   7.9 
BHVAC  3.5   4.2   4.2 
Total depreciation and amortization expense $76.9  $76.7  $58.3 

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

  Years ended March 31, 
  2017  2016  2015 
United States $657.8  $627.6  $669.3 
Hungary  145.6   145.9   161.0 
Germany  130.1   155.3   193.8 
Austria  125.2   113.1   118.7 
Italy  94.4   44.1   40.6 
Other  349.9   266.5   313.0 
Net sales $1,503.0  $1,352.5  $1,496.4 
  Years ended March 31, 
  2019  2018  2017 
United States $1,032.3  $911.4  $657.8 
Italy  217.3   211.5   94.4 
China  172.1   156.0   73.7 
Hungary  165.6   153.9   145.6 
Germany  123.1   132.6   130.1 
Austria  116.2   151.7   125.2 
Other  386.1   386.0   276.2 
Net sales $2,212.7  $2,103.1  $1,503.0 

The following is a summary of property, plant and equipment by geographical area:

  March 31, 
  2017  2016 
United States $124.7  $92.5 
Italy  55.8   20.3 
Mexico  47.0   30.9 
Austria  44.3   44.2 
China  40.0   33.6 
Hungary  37.7   31.4 
Germany  28.9   32.1 
Other  80.6   53.6 
Total property, plant and equipment $459.0  $338.6 

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

  Years ended March 31, 
  2017  2016  2015 
Automotive $461.0  $396.8  $401.8 
Commercial vehicle  382.5   459.8   512.5 
Off-highway  202.8   206.2   274.6 
HVAC&R  400.9   232.1   229.6 
Other  55.8   57.6   77.9 
Net sales $1,503.0  $1,352.5  $1,496.4 
  March 31, 
  2019  2018 
United States $117.7  $121.5 
China  57.6   49.6 
Mexico  56.3   49.4 
Hungary  55.3   59.3 
Italy  52.4   62.0 
Austria  36.9   42.8 
Germany  32.8   37.2 
Other  75.7   82.5 
Total property, plant and equipment $484.7  $504.3 

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

Note 21:  The following is a summary of net sales by end market:

  Years ended March 31, 
  2019  2018  2017 
Commercial HVAC&R $674.0  $648.3  $323.8 
Automotive  542.8   526.0   461.0 
Commercial vehicle  387.6   381.7   382.5 
Off-highway  314.1   271.2   202.8 
Data center cooling  187.0   137.6   57.1 
Industrial cooling  47.8   67.6   18.6 
Other  59.4   70.7   57.2 
Net sales $2,212.7  $2,103.1  $1,503.0 

Note 23:Quarterly Financial Data (Unaudited)

QuarterlyThe following is a summary of quarterly financial data is summarized below for the years ended March 31, 2017 and 2016:data:

  Fiscal 2017 quarters ended    
  June  Sept.  Dec.  March  Fiscal 2017 
                
Net sales $347.2  $317.7  $349.8  $488.3  $1,503.0 
Gross profit  62.0   47.7   58.7   84.9   253.3 
Earnings (loss) from continuing operations (a)  8.9   (4.0)  1.9   8.1   14.9 
Net earnings (loss) attributable to Modine (a)  8.6   (4.1)  1.7   8.0   14.2 
Net earnings (loss) per share attributable to Modine shareholders:                    
Basic $0.18  $(0.09) $0.04  $0.16  $0.29 
Diluted  0.18   (0.09)  0.04   0.16   0.29 
  Fiscal 2019 quarters ended    
  June  Sept.  Dec.  March  Fiscal 2019 
                
Net sales $566.1  $548.9  $541.0  $556.7  $2,212.7 
Gross profit  94.3   87.9   91.7   91.6   365.5 
Net earnings (a)  22.5   38.7   18.3   6.4   85.9 
Net earnings attributable to Modine (a)  22.0   38.5   18.0   6.3   84.8 
Net earnings per share attributable to Modine shareholders:                    
Basic $0.43  $0.76  $0.36  $0.12  $1.67 
Diluted  0.43   0.75   0.35   0.12   1.65 
                     
  Fiscal 2018 quarters ended     
  June  Sept.  Dec.  March  Fiscal 2018 
                     
Net sales $515.5  $508.3  $512.7  $566.6  $2,103.1 
Gross profit  88.5   86.1   85.4   96.5   356.5 
Net earnings (loss) (b)  17.4   16.3   (27.9)  18.0   23.8 
Net earnings (loss) attributable to Modine (b)  17.0   15.9   (28.3)  17.6   22.2 
Net earnings (loss) per share attributable to Modine shareholders:                    
Basic $0.34  $0.32  $(0.57) $0.35  $0.44 
Diluted  0.34   0.31   (0.57)  0.34   0.43 
  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 (b)  5.5   (22.5)  8.2   7.8   (1.0)
Net earnings (loss) attributable to Modine (b)  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)

(a)During fiscal 2017,2019, restructuring expenses totaled $2.3$0.2 million, $2.1 million, $1.6$0.5 million, and $4.9$8.9 million for the quarters ended June 30, 2016, September 30, 2016,2018, December 31, 2016,2018, and March 31, 2017,2019, respectively (see Note 5)6).  During the second quarter of fiscal 2019, the Company sold its South African business within the BHVAC segment and, as a result, recorded a loss of $1.7 million (see Note 1).  During the third quarter of fiscal 2019, the Company recorded a $0.4 million impairment charge related to a manufacturing facility in Austria (see Note 6).  The Company’s income tax benefit for fiscal 2019 includes net benefits of $24.4 million and net charges of $2.2 million in the second and third quarters, respectively, related to the Tax Act and the recognition of foreign tax credits (see Note 8).  During fiscal 2017,2019, the Company soldadjusted its valuation allowances on deferred tax assets related to two previously-closed manufacturing facilitiesseparate subsidiaries in its Americas segmentChina and, as a result, recorded a $2.0 million income tax benefit and a facility$1.0 million income tax charge in its Europe segmentthe first and recognized net gains totaling $1.2second quarters, respectively (see Note 8).
(b)During fiscal 2018, restructuring expenses totaled $1.7 million, $0.4 million, $9.4 million, and $0.8 million in the quarters ended September 30, 2016 and March 31, 2017, respectively.  During fiscal 2017, acquisition- and integration-related costs totaled $1.4 million, $3.0 million, $7.2 million, and $3.2$4.5 million for the quarters ended June 30, 2016,2017, September 30, 2016,2017, December 31, 2016,2017, and March 31, 2017,2018, respectively (see Note 2)6).  During the third quarter of fiscal 2018, the Company recorded a $1.3 million asset impairment charge related to a manufacturing facility in Austria (see Note 6).  During the fourth quarter of fiscal 2017,2018, the Company recorded a deferred$1.2 million impairment charge related to intangible assets (see Note 14).  The Company recorded income tax charges totaling $35.7 million and $2.3 million during the third and fourth quarters of fiscal 2018, respectively, related to the Tax Act (see Note 8).  During the fourth quarter of fiscal 2018, the Company reversed a portion of a valuation allowance related to a foreign tax jurisdiction, and, as a result, recorded income tax expense of $2.0 million (see Note 7).
(b)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 5).  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 5).  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 16).  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.  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 related to a foreign tax jurisdiction of $3.0$2.8 million (see Note 7)8).

Report of Independent Registered Public Accounting Firm

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

Opinions on the Financial 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, 2019, 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 listed in the index appearing under Item 15(a)(1)referred to above present fairly, in all material respects, the financial position of Modine Manufacturingthe Company and its subsidiaries atas of March 31, 20172019 and 2016, 2018, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2017 2019 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, 2017,2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the CommitteeCOSO.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for the income tax effects of Sponsoring Organizationsintra-entity transfers of the Treadway Commission (COSO).  assets other than inventory in 2019.

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.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 are a public accounting firm registered with 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 Public Company Accounting Oversight Board (United States).PCAOB.  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidatedfinancial 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 consolidatedfinancial statements included performing procedures to assess the risks of material misstatement of the consolidatedfinancial 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 consolidatedfinancial 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 consolidatedfinancial 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.

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.

As described in Management's Report on Internal Control Over Financial Reporting, management has excluded the Luvata HTS business, operated as the Company's CIS segment, from its assessment of internal control over financial reporting as of March 31, 2017 because it was acquired by the Company in a purchase business combination on November 30, 2016.  We have also excluded Luvata HTS from our audit of internal control over financial reporting.  Luvata HTS total assets and net sales excluded from management’s assessment and our audit of internal control over financial reporting represent $297 million and $178 million, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended March 31, 2017.

/s/PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 25, 201723, 2019

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

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

ITEM 9A.
CONTROLS AND PROCEDURES.

Conclusion Regarding Disclosure Controls and Procedures

As of the end of the period covered by this Annual Report on Form 10-K, management of the Company, at the direction of the General Counsel and under the supervision, and with the participation, of the Company'sCompany’s President and Chief Executive Officer and 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 Vice President, Finance and Chief Financial Officer have concluded that the Company'sCompany’s disclosure controls and procedures were effective, at a reasonable assurance level, as of March 31, 2017.2019.

Management’s Report on Internal Control Over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  The Company’s internal control over financial reporting is a process designed by, or under the supervision of, the Company’s President and Chief Executive Officer and Vice President, Finance and Chief Financial Officer, and effected by the Company'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 Vice President, Finance and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2017.2019.  In making its assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in “Internal Control—Integrated Framework (2013).”  Based upon this assessment, management concluded that, as of March 31, 2017,2019, the Company’s internal control over financial reporting was effective.

Management excluded the Luvata HTS business, operated as the Company’s CIS segment, from its assessment of internal control over financial reporting as of March 31, 2017 because it was acquired by the Company in a purchase business combination on November 30, 2016.  The total assets and net sales of Luvata HTS excluded from management’s assessment represent $297 million and $178 million, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended March 31, 2017.
The effectiveness of the Company’s internal control over financial reporting as of March 31, 20172019 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

As part of its post-closing integration activities for the Luvata HTS acquisition, the Company is engagedThere have been no changes in assessing, refining and harmonizing the internal controls and processes of the acquired business with those of the Company.

This process has resulted in a change in the Company’s internal control over financial reporting during the fourth quarter of fiscal 20172019 that hashave materially affected, or isare reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B.
OTHER INFORMATION.

None.

PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Directors.  The Company incorporates by reference the information appearing in the Company'sCompany’s Proxy Statement for the 20172019 Annual Meeting of Shareholders to be held on July 20, 201725, 2019 (the “2017“2019 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 ActConduct. The Company incorporates by reference the information appearing in the 2017 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 20172019 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.  The Board of Directors has approved charters for its Audit Committee, Officer Nomination and Compensation Committee, Corporate Governance and Nominating Committee and Technology Committee.  These charters are included on the Company’s website, www.modine.com (Investors link).


Audit Committee Financial Expert. The Company incorporates by reference the information appearing in the 20172019 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 20172019 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 20172019 Annual Meeting Proxy Statement under the caption “Shareholder Nominations and Recommendations of Director Candidates.”

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 20172019 Annual Meeting Proxy Statement under the captions “Compensation Discussion and Analysis,” “Compensation of Directors,” “Committees of the Board of Directors – Officer Nomination and Compensation Committee: Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report” is incorporated herein by reference.

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

The Company incorporates by reference the information relating to stock ownership under the caption “Security Ownership of Certain Beneficial Owners and Management,” and under the caption “Equity Compensation Plan Information,” in the 20172019 Annual Meeting Proxy Statement.

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

The Company incorporates by reference the information contained in the 20172019 Annual Meeting Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Director Independence.”

ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.

The Company incorporates by reference the information contained in the 20172019 Annual Meeting Proxy Statement under the caption “Independent Auditors’Auditor’s Fees for Fiscal 20172019 and 2016.2018.”

PART IV

ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)
Documents Filed.  The following documents are filed as part of this Report:

 
Page in Form 10-K
  
1. The consolidated financial statements of Modine Manufacturing Company and its subsidiaries filed under Item 8: 
  
Consolidated Statements of Operations for the years ended March 31, 2017, 20162019, 2018 and 201520174138
Consolidated Statements of Comprehensive Income for the years ended March 31, 2017, 20162019, 2018 and 201520174239
Consolidated Balance Sheets at March 31, 20172019 and 201620184340
Consolidated Statements of Cash Flows for the years ended March 31, 2017, 20162019, 2018 and 201520174441
Consolidated Statements of Shareholders'Shareholders’ Equity for the years ended March 31, 2017, 20162019, 2018 and 201520174542
Notes to Consolidated Financial Statements46-7343-74
Report of Independent Registered Public Accounting Firm7475-76
  
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 Accounts7980
  
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.80-8281-83
  
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.
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 25, 2017Modine 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. BurkeMay 25, 2017 
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Michael B. Lucareli
Michael B. LucareliMay 25, 2017
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Marsha C. Williams
Marsha C. WilliamsMay 25, 2017 
Director
/s/ David J. Anderson
David J. AndersonMay 25, 2017
Director
/s/ Charles P. Cooley
Charles P. Cooley
May 25, 2017
Director
/s/ Suresh V. Garimella
Suresh V. Garimella
May 25, 2017
Director
/s/ Larry O. Moore
Larry O. MooreMay 25, 2017
Director
/s/ Christopher W. Patterson
Christopher W. PattersonMay 25, 2017
Director
/s/ Christine Y. Yan
Christine Y. YanMay 25, 2017
Director
/s/ David G. Bills
David G. BillsMay 25, 2017
Director
MODINE MANUFACTURING COMPANY AND SUBSIDIARIES
(A Wisconsin Corporation)
SCHEDULE II ‑ VALUATION AND QUALIFYING ACCOUNTS
For the years ended March 31, 2017, 2016 and 2015
(In millions)

     Additions     
Description 
Balance at
Beginning of
Period
  
Charged
(Benefit) to
Costs and
Expenses
  
Charged to
Other
Accounts
   
Balance at
End of Period
 
              
2017: Valuation Allowance for Deferred Tax Assets $50.8  $(0.3) $(0.9)(a) $49.6 
                  
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 
                  
Notes:                 
(a)Foreign currency translation, increases due to the acquisition of Luvata HTS and other adjustments
MODINE MANUFACTURING COMPANY AND SUBSIDIARIES
(A Wisconsin Corporation)

SCHEDULE II ‑ VALUATION AND QUALIFYING ACCOUNTS
For the years ended March 31, 2019, 2018 and 2017
(In millions)

     Additions     
Description 
Balance at
Beginning of
Period
  
Charged
(Benefit) to
Costs and
Expenses
  
Charged to
Other Accounts
   
Balance at End
of Period
 
              
2019: Valuation Allowance for Deferred Tax Assets $48.9  $(1.6) $(3.9) (a) $43.4 
                  
2018: Valuation Allowance for Deferred Tax Assets $49.6  $(6.7) $6.0  (a) $48.9 
                  
2017: Valuation Allowance for Deferred Tax Assets $50.8  $(0.3) $(0.9) (a) $49.6 

(a)Foreign currency translation and other adjustments.  The fiscal 2018 and 2017 amounts also included increases associated with the Company’s acquisition of Luvata HTS.

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

EXHIBIT INDEX
TO
20172019 ANNUAL REPORT ON FORM 10-K

Exhibit
No.
Description 
Incorporated Herein By
Referenced To
 
Filed
Herewith
      
2.1
3.1
Share SaleAmended and Purchase Agreement between Luvata Heat Transfer Solutions II AB and Modine Manufacturing Company, datedRestated Articles of Incorporation, as of September 6, 2016.amended. Exhibit 2.13.1 to Registrant’s Current Report on Form 8-K dated September 6, 201610-K for the fiscal year ended March 31, 2018  
      
3.1Amended and Restated Articles of Incorporation, as amended.Exhibit 4.2 to Registrant’s Registration Statement on Form S-3 (333-161030) dated August 4, 2009
3.2
Bylaws, as amended. Exhibit 3.1 to Registrant’s Current Report on Form 8-K dated February 10, 201520, 2019  
      
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**
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 Lenders.Lenders Exhibit 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
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  
      
4.12
Third Amended and Restated Credit Agreement dated as of November 15, 2016, with JPMorgan Chase Bank, N.A. as Administrative Agent and Collateral Agent, Bank of Montreal, U.S. Bank National Association and Wells Fargo Bank, National Association as Syndication Agents, and Bank of America, N.A. and PNC Bank, National Association as Senior Managing Agent.2016. Exhibit 4.1 to Registrant’s Current Report on Form 8-K dated November 15, 2016 (“November 15, 2016 8-K”)  
      
4.13
Amended and Restated Note Purchase and Private Shelf Agreement dated as of November 15, 2016, with PGIM, Inc. and each of the Purchasers described therein relating to the $125,000,000 6.83% Secured Senior Notes, Series A, due August 12, 2020, the $50,000,000 5.75% Secured Senior Notes, Series B and Private Shelf Facility.2016. Exhibit 4.2 to  November 15, 2016 8-K  
      
4.14
Description of Registrant’s securitiesAmendment No 1. to the Company’s Registration Statement on Form 8-A filed on July 17, 2008 
10.1* 
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’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. Exhibit 10(f) to Registrant’s Form 10-K for the 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  
      
10.9*
Form of Fiscal 2019 Modine Performance Stock Award Agreement.Exhibit 10.1 to Registrant’s Form 10-Q for the quarter ended June 30, 2018

10.10*
Form of Fiscal 2019 Modine Incentive Stock Option Award Agreement.Exhibit 10.2 to Registrant’s Form 10-Q for the quarter ended June 30, 2018 
10.10* 
10.11*
Form of Fiscal 2019 Modine Restricted Stock Unit Award Agreement.Exhibit 10.3 to Registrant’s Form 10-Q for the quarter ended June 30, 2018
10.12*
Form of Fiscal 2019 Modine Non-Qualified Stock Option Award Agreement.Exhibit 10.4 to Registrant’s Form 10-Q for the quarter ended June 30, 2018
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. 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  
      
10.12*
10.15*
Form of Fiscal 2017 Modine Performance Stock Award Agreement.Incentive Compensation Plan. Exhibit 10.1 to Registrant’s Current Report on Form  10-Q for the first quarter ended June 30, 2016 ("June 30, 2016 10-Q")8-K dated July 20, 2017  
      
10.13*
10.16*
Form of Fiscal 20172019 Modine IncentiveNon-Employee Director Restricted Stock OptionsUnit Award Agreement. Exhibit 10.210.1 to JuneRegistrant’s Form 10-Q for the quarter ended September 30, 2016 10-Q2018  
      
10.14*Form of Fiscal 2017 Modine Restricted Stock Award Agreement.Exhibit 10.3 to June 30, 2016 10-Q
10.15*Form of Fiscal 2017 Modine Non-Qualified Stock Option Award Agreement.Exhibit 10.4 to June 30, 2016 10-Q
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, President and Chief Executive Officer.   X
      
31.2
Rule 13a-14(a)/15d-14(a) Certification of Michael B. Lucareli, Vice President, Finance and Chief Financial Officer.   X
      
32.1
Section 1350 Certification of Thomas A. Burke, President and Chief Executive Officer.   X
 ��     
32.2
Section 1350 Certification of Michael B. Lucareli, 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

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

**    Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has omitted certain agreements with respect to long-term debt not exceeding 10% of consolidated total assets.  The Registrant agrees to furnish a copy of any such agreements to the Securities and Exchange Commission upon request.

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 23, 2019Modine 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 DirectorMay 23, 2019
(Principal Executive Officer)
/s/ Michael B. Lucareli

Michael B. LucareliMay 23, 2019
Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Marsha C. Williams

Marsha C. WilliamsMay 23, 2019
Director
/s/ David J. Anderson

David J. AndersonMay 23, 2019
Director
/s/ Eric D. Ashleman

Eric D. AshlemanMay 23, 2019
Director
/s/ David G. Bills

David G. BillsMay 23, 2019
Director
/s/ Charles P. Cooley

Charles P. CooleyMay 23, 2019
Director
/s/ Suresh V. Garimella

Suresh V. GarimellaMay 23, 2019
Director
/s/ Larry O. Moore

Larry O. MooreMay 23, 2019
Director
/s/ Christopher W. Patterson

Christopher W. PattersonMay 23, 2019
Director
/s/ Christine Y. Yan

Christine Y. YanMay 23, 2019
Director


84