Significant Accounting Policies (Policies)

12 Months Ended

Mar. 31, 2017

Significant Accounting Policies [Abstract]

Basis of presentation

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

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 11 for additional information.

Discontinued operations

Discontinued operations: During fiscal 2009, the Company sold its Electronics Cooling business.  The buyer financed a portion of the selling price by issuing promissory notes payable to Modine.  During fiscal 2015, the Company received $1.5 million from the buyer, which represented the final payment on the promissory notes.  The Company had previously recorded a reserve against a portion of the promissory notes due to collectability concerns.  As a result, the Company recorded a gain of $0.9 million ($0.6 million after income taxes) during fiscal 2015.

Assets held for sale

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 million and $8.5 million at March 31, 2017 and 2016, respectively.

Revenue recognition

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.

Tooling costs

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

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

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

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

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

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

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

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

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

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.

Deferred compensation trusts

Deferred compensation trusts:  The Company maintains deferred compensation trusts to fund future obligations under its non-qualified deferred compensation plan.  The trust’s investments in third-party debt and equity securities are presented within other noncurrent assets in the consolidated balance sheets.

Trade accounts receivable

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

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

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

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

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

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

Self-insurance reserves:  The Company retains a portion of the financial risk for various insurance coverage, including property, general liability, workers compensation, and employee healthcare, and therefore maintains reserves that estimate the impact of unreported and under-reported claims that fall below various stop-loss limits and deductibles under its insurance policies.  The Company maintains reserves for the estimated settlement cost of known claims, as well as estimates of incurred but not reported claims.  The Company charges costs of claims, including the impact of changes in reserves due to claim experience and severity, to operations.  The Company reviews and updates the amount of its insurance-related reserves on a quarterly basis

Stock-based compensation

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 4 for additional information.

New Accounting Guidance

New Accounting Guidance:

Pension costs

In March 2017, the Financial Accounting Standards Board (“FASB”) issued new guidance related to the income statement presentation 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 the Company plans to adopt this guidance for the first quarter of fiscal 2018.  The Company will recast prior periods to conform to the new income statement presentation.  As a result, the Company expects 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 the income tax effects of 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.  The Company does not expect the adoption of this new guidance will have a material impact on its consolidated financial statements

Leases

In February 2016, the FASB issued new comprehensive lease accounting guidance that supersedes existing lease accounting guidance.  Upon adoption of this new guidance, the Company will be required to recognize most leases on its balance sheet.  This guidance is effective for the Company’s first quarter of fiscal 2020.  The Company is currently evaluating the impact this guidance will have on its consolidated financial statements.

Revenue recognition

In May 2014, the FASB issued new guidance that outlines a comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the new guidance is that companies are to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The 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 new guidance is effective for the Company’s first quarter of fiscal 2019 and allows for either a full-retrospective or a modified-retrospective transition method.

The Company is currently in the process of assessing customer contracts and evaluating contractual provisions that may result in a change in the timing of revenue recognized in comparison with current guidance.  Under current guidance, the Company generally recognizes revenue when products are shipped and risk of loss has transferred to the customer.  The Company is evaluating whether contractual provisions may 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, the Company is evaluating pricing provisions contained in certain of its customer contracts to determine the appropriate timing of revenue recognition based upon the new guidance.  The Company continues to evaluate the impact this new guidance will have on its consolidated financial statements.

Supplemental cash flow information:

	Years ended March 31,
	2017		2016		2015
Interest paid	$	15.4	$	10.7	$	10.3
Income taxes paid		12.7		10.1		15.9