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Acquisitions | 12 Months Ended
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Mar. 31, 2018
Acquisitions [Abstract] |
Acquisitions |
Note 2: | Acquisitions
Luvata HTS On November 30, 2016, the Company completed its acquisition of a 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, valued at $24.3 million as of November 30, 2016. 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 industry. For the year ended March 31, 2018, the Company included $620.0 million of net sales and operating income of $25.8 million within its consolidated statement of operations attributable to CIS operations. For the year ended March 31, 2017, the Company included $177.7 million of net sales and operating income of $7.5 million attributable to four months of CIS operations. 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 statements of operations. The fiscal 2018 costs primarily consisted of incremental costs associated with integration activities, including legal and accounting professional services and severance expenses. The fiscal 2017 costs primarily consisted of transaction advisory and due diligence costs and incremental costs directly associated with integration activities. The Company has completed the purchase price allocation for its acquisition of Luvata HTS. The purchase price of $415.6 million was allocated 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 $151.9 million, none of which is deductible for income tax purposes. During the first and second quarters of fiscal 2018, the Company recorded measurement-period adjustments which resulted in a $1.3 million increase to the $150.6 million of goodwill preliminarily recorded as of March 31, 2017. The increase was primarily due to increases to income tax reserves and changes in liabilities for product warranties. 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. The Company’s allocation of the purchase price for its acquisition of Luvata HTS was as follows:
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 |
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. Inventories: The Company determined the fair value of acquired inventory by estimating the selling price of the respective finished goods, less an estimate 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 sales as the underlying inventory was sold in 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. 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. 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.
|  | 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 |
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. Modine Puxin Thermal Systems (Jiangsu) Co. Ltd On January 29, 2016, the Company formed a joint venture, Modine Puxin Thermal Systems (Jiangsu) Co. Ltd. of Yangzhou, China, of which it owns 67 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 activities of the joint venture, and, therefore, the financial results of the joint venture are included in 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 results of operations or financial position.

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