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SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

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June 23, 2015

 

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1500 DeKoven Avenue

Racine, Wisconsin  53403-2552

 

Notice of Annual Meeting of Shareholders

 

Matters to vote on:

1.	Election of the Company-nominated slate of three directors for terms expiring in 2018;

2.	Advisory vote to approve the Company’s named executive officer compensation;

3.	Ratification of the appointment of the Company’s independent registered public accounting firm;

4.	Consideration of any other matters properly brought before the shareholders at the meeting.

June 23, 2015

 

Your vote at the annual meeting is important to us.  Please vote your shares of common stock by using the information contained in your proxy materials to call the toll-free telephone number or log onto the stated Internet address, or by completing the enclosed proxy card and returning it in the enclosed envelope.  This proxy statement is solicited on behalf of the Board of Directors for use at the 2015 Annual Meeting of Shareholders.  This proxy statement and accompanying proxy card are first being sent to shareholders on or about June 23, 2015.

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Shareholders to be held on July 23, 2015 – the Notice and Proxy Statement and 2015 Annual Report on Form 10-K are available at www.proxyvote.com and www.modine.com.

 

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TABLE OF CONTENTS

 

 

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ITEM 1 – ELECTION OF DIRECTORS

The Board of Directors (the “Board of Directors” or the “Board”) of Modine Manufacturing Company (the “Company” or “Modine”) nominated three current members of the Board, Dr. Suresh V. Garimella, Christopher W. Patterson, and Christine Y. Yan, to stand for election at the 2015 Annual Meeting of Shareholders.  If elected, each director would serve until the 2018 Annual Meeting of Shareholders and the election of his or her successor.  The persons appointed as proxies will vote “FOR” the election of these nominees, unless instructions to the contrary are given to them.  The nominees have indicated that they are able and willing to serve as directors.  While it is not anticipated that any of the nominees will be unable to take office, if that happens, the proxies will vote “FOR” the substitute nominee(s) designated by the Board of Directors.

The Company’s Bylaws provide that each director shall retire at the close of the term in which he or she attains the age of 70 years, except that the provision shall not apply to any director who has been exempted from it by a resolution passed by a two-third’s vote of the Board of Directors.

The Company’s Amended and Restated Articles of Incorporation provide that the Board of Directors shall be divided into three classes, as nearly equal in number as possible, serving staggered three-year terms.  The Board of Directors currently consists of nine members with three classes of three directors each.

In accordance with the Company’s Bylaws, a director shall hold office until the end of such director’s term and until the director’s successor shall have been elected, there is a decrease in the number of directors, or until his or her death, resignation or removal.  Vacancies may be filled by the shareholders or the remaining directors. See Selection of Nominees to the Board of Directors below.

Qualifications of Modine’s Board of Directors

Modine’s Board consists of proven business and technology leaders from various industries, disciplines and end markets, who have the knowledge and experience necessary for a deep understanding of Modine, its products and its businesses.  That knowledge and experience has been gained or enhanced in a wide variety of ways, including through years of service on Modine’s Board, employment with industry leaders that have business models and strategies similar to the Company’s or product markets important to the Company, and leadership positions in technologically innovative institutions.  The Board benefits from the interplay among a group of directors who have diverse and distinguished backgrounds, which are described in further detail in this section.  Modine’s directors are dedicated individuals with high integrity and discipline who have a strong desire to use their skills to govern Modine in a responsible manner.

The Board of Directors’ Corporate Governance and Nominating Committee (the “Nominating Committee”), a committee consisting of all of the independent directors of the Company, has determined that the Board needs certain specialized expertise as well as broad leadership experience to direct the Company to achieve its strategic goals.  The Nominating Committee considers the following qualities and experiences to be necessary for the proper functioning of a Board of a responsible, global, technology-driven company:

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Business operations leadership;

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Relevant industry experience;

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Global business experience;

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Financial expertise;

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Technological expertise;

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Corporate governance expertise;

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Financial markets experience; and

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Strategic planning and execution expertise, including mergers and acquisitions experience.

 

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In addition, from time to time, the Nominating Committee considers additional attributes that are more specific to the Company’s strategic and business emphasis at any given point.

A description of the qualities provided by each Board member who will continue in service after the 2015 Annual Meeting of Shareholders is included below with the description of the individual’s experience and public company directorships, all as of June 5, 2015.

The chart below summarizes the specific qualifications, attributes, and skills for each director.  An “X” in the chart below indicates that the item is a specific reason that the director was nominated to serve on the Board.  The lack of an “X” does not mean that the director does not possess that qualification or skill.  Rather, an “X” indicates a specific area of focus or expertise of a director on which the Board currently relies.

 

2015 Nominees for Director

 

The Nominating Committee nominated Dr. Suresh V. Garimella, Mr. Christopher W. Patterson and Ms. Christine Y. Yan for election as directors.  Dr. Garimella, Mr. Patterson and Ms. Yan are considered independent under the New York Stock Exchange (“NYSE”) corporate governance rules.

 

The Board of Directors recommends a vote “FOR” Dr. Suresh V. Garimella, Mr. Christopher W. Patterson and Ms. Christine Y. Yan.

 

Vote Required for Approval

 

Directors in an uncontested election are elected by a majority of the votes cast by holders of shares of the Company’s common stock entitled to vote in the election at a shareholder meeting at which a quorum is present.  Because abstentions and broker non-votes are not considered votes cast, they will not have an effect on the vote.

 

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Directors Continuing in Service for Terms Expiring in 2016:

 

 

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CORPORATE GOVERNANCE

The Company’s business is managed under the direction of its Board of Directors, pursuant to its Amended and Restated Articles of Incorporation, its Bylaws and the laws of the State of Wisconsin.  Members of the Board of Directors are kept informed of the Company’s operations through discussions with the CEO and key members of management, by reviewing materials provided to them and by participating in meetings of the Board of Directors and its committees.

The Company reviews and evaluates its corporate governance policies and practices, particularly in light of the rules of the Securities and Exchange Commission (“SEC”) and the NYSE, and believes that its current policies and practices meet these requirements.  The Company’s corporate governance policies, including its Guidelines on Corporate Governance and charters for committees of the Board, are available on its website, www.modine.com, and are also available in print to any shareholder or other interested person upon request.

Code of Ethics

The Company’s Code of Ethics and Business Conduct (the “Code of Ethics”) summarizes the compliance and ethical standards and expectations the Company has for all of its employees (including the principal executive officer, principal financial officer and principal accounting officer) and directors with respect to their conduct in furtherance of Company business.  It contains procedures for reporting suspected violations of the Code of Ethics, including procedures for the reporting of questionable accounting or auditing matters or other concerns regarding accounting, internal accounting controls or auditing matters.  The Company has established a Business Ethics Program that includes an Internet and phone Helpline through which employees and others may report concerns regarding such matters in confidence and, if desired, anonymously.  A copy of the Code of Ethics, as well as further information regarding the Business Ethics Program, is available on the Company’s website, www.modine.com.  These materials are also available in print to any shareholder or other interested person upon request.  If we make any substantive amendment to the Code of Ethics, we will disclose the nature of such amendment on our website or in a current report on Form 8-K.  In addition, if a waiver of the Code of Ethics is granted to an executive officer or director, we will disclose the nature of such waiver on our website, in a press release or in a current report on Form 8-K.

Director Independence

The Company’s Guidelines on Corporate Governance require that a majority of the Board’s members be independent.  The Company also believes it is in its best interest to have the President and CEO of the Company serve as a director.  At a minimum, to qualify as “independent,” a director must meet the independence standards of the NYSE.  The Nominating Committee assesses independence on a regular basis, and each director is responsible for bringing any changes to his or her status that may affect independence to the attention of the Nominating Committee.  In addition, on an annual basis the directors complete a questionnaire prepared by the Company that is designed to elicit information that the Board uses to assess director independence.  At least annually, the Board reviews the relationships that each director has with the Company.  Only those directors that the Board affirmatively determines have no material relationship with the Company, and who do not have any of the relationships that prevent independence under the standards of the NYSE, are considered to be independent directors.

The Board has determined that all of the current directors and all other individuals who served as directors during any portion of fiscal 2015, other than Mr. Burke, are independent, or were independent at the time they served as a director, within the meaning of the listing standards of the NYSE.  The Board concluded that none of these directors has or had any of the relationships with the Company set forth in the NYSE listing standards or any other business or other relationships with the Company that would preclude a determination of his or her independence.  Mr. Burke is not independent due to his position as President and CEO of the Company.

Certain Relationships and Related Party Transactions

The Code of Ethics requires that all officers, employees and directors of the Company avoid any situation that conflicts with the proper discharge of his or her responsibility to the Company or that impairs his or her ability to exercise independence of judgment with respect to the transactions in which he or she is involved for the Company.  Significant transactions with the Company’s officers, employees or directors, their relatives, or enterprises in which they have material interests, are not permitted unless such transactions are fully disclosed and approved by the Board of Directors or the Audit Committee as being in the best interest of the Company.

Modine is a large global organization that engages in thousands of purchases, sales and other transactions annually.  Modine may enter into purchase and sale transactions with other companies, universities and entities in which members of the Board of Directors are employed or are members of the Board of Directors for such entities.  Modine enters into these arrangements in the ordinary course of business and at competitive prices and terms.  The Company anticipates that similar transactions may occur in the fiscal year ending March 31, 2016.

 

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At the end of each fiscal year, each director and officer must respond to a questionnaire that requires him or her to identify any transaction or relationship that occurred during the year or any proposed transaction that involves Modine (or any subsidiary or affiliate of Modine) and that individual, his or her immediate family, or any entity with which he, she or such immediate family member is associated.  All responses to the questionnaires are reviewed by the Company’s Legal Department and shared with the President and CEO, as appropriate.  Based upon such review, there were no related party transactions with respect to persons who were officers or directors during fiscal 2015.

Lead Director

Marsha C. Williams assumed the position of Lead Director in July 2013.  As Lead Director, Ms. Williams presides over meetings of the shareholders, the Board of Directors, and executive sessions of the Board of Directors, and carries out such other duties as directed by the Board of Directors and as listed in the Company’s Guidelines on Corporate Governance.  The Company believes this leadership structure is in the best interest of the Company’s shareholders at present because it allows the Company to benefit from the unique leadership ability that Ms. Williams possesses and from her business and corporate governance experience.  The Board does not intend to nominate a Chairman at this time.

Risk Oversight

The Board of Directors has overall responsibility for risk oversight for the Company.  Management provides the Board with information on a regular basis to keep the members of the Board of Directors apprised of identified risks.  These risks, including financial, organizational, reputational and strategic risks, are reviewed and discussed with the Board as part of the business and operating review conducted at each of the Board’s regular meetings.  As described below under Committees of the Board of Directors, the Board of Directors has delegated certain responsibilities to its committees.  The committees have oversight of risks that fall within their areas of responsibility.  The Audit Committee has primary oversight of the Company’s financial reporting, internal control and compliance risks.  The Officer Nomination and Compensation Committee evaluates the risks arising from the Company’s compensation policies and programs.  Management is responsible for managing risk and the Company’s enterprise risk management program.

Selection of Nominees to the Board of Directors

The Nominating Committee considers prospective candidates for Board membership who are recommended by its members, as well as those recommended by management, shareholders and independent consultants hired by the Nominating Committee.  The Nominating Committee may also decide to engage a professional search firm to assist in identifying qualified candidates.  When such a search firm is engaged, the Nominating Committee sets its fees and scope of engagement.

Once the Nominating Committee identifies a prospective nominee, it initially determines whether to conduct a full evaluation of the candidate.  The Nominating Committee makes its initial determination based on the information provided to it with the recommendation of the prospective candidate, as well as the Nominating Committee’s own knowledge of the prospective candidate, which may be supplemented by inquiries to the person making the recommendation or others.

The Nominating Committee evaluates the prospective nominee, considering factors it deems appropriate, including the current composition of the Board and the evaluations of other prospective nominees.  In assessing candidates, the Board considers the required areas of expertise set forth above in Item 1 (business operations leadership; relevant industry experience; global business experience; financial expertise; technological expertise; corporate governance expertise; financial markets experience; and strategic planning, including mergers and acquisitions), additional attributes that are more specific to the Company’s strategic direction and business emphasis at any given point, and such additional factors as the individual’s education, contribution to diversity of the Board, and others frequently encountered by a global business.

In choosing a candidate for Board membership, every effort is made to complement and supplement skills within the existing Board and to strengthen any identified areas.  Further criteria include a candidate’s personal and professional ethics, integrity and values, as well as his or her willingness and ability to devote sufficient time to attend meetings and participate effectively on the Board.

In connection with this evaluation, the Board determines whether to interview the prospective nominee.  If an interview is warranted, one or more members of the Board of Directors, and others as appropriate, will interview prospective nominees.  After completing the evaluation and interview, the Nominating Committee makes a recommendation to the Board regarding the nomination of a candidate and the Board acts on that recommendation.

The Nominating Committee followed the process described in this section in connection with the recent appointments of Christine Y. Yan and David G. Bills.

 

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Shareholder Nominations and Recommendations of Director Candidates

The Bylaws of the Company provide that any shareholder who is entitled to vote for the election of directors at a meeting called for such purpose may nominate persons for election to the Board of Directors.  Shareholders who desire to nominate a person or persons for election to the Board must comply with the notice requirements in the Bylaws, a copy of which is available from the Company’s Secretary.  For consideration at the 2016 Annual Meeting of Shareholders, nominations must be received by the Secretary no earlier than April 14, 2016 and no later than May 9, 2016.  Shareholders who want to submit a recommendation for a director candidate for the Board may submit the recommendation to the Board using the procedure described below under Shareholder and Other Interested Persons’ Communication with the Board.  The Nominating Committee intends to evaluate candidates recommended by shareholders in the same manner that it evaluates other candidates. The Nominating Committee requests that it receive any such recommendations by October 7, 2015 for the 2016 Annual Meeting of Shareholders.

Shareholder and Other Interested Persons’ Communication with the Board

Shareholders and other interested persons wishing to communicate with the Board of Directors or with a Board member (including the Lead Director) should address communications to the Board or to the particular Board member, c/o Secretary, Modine Manufacturing Company, 1500 DeKoven Avenue, Racine, Wisconsin 53403-2552.  In accordance with a process approved by the Board of Directors, the Secretary reviews all such correspondence.  The Secretary forwards to the Board a summary of all such correspondence and copies of all correspondence that, in the opinion of the Secretary, deal with the functions of the Board or committees thereof or that she otherwise determines requires their attention.  Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Company’s Business Ethics Committee and handled in accordance with procedures established by the Audit Committee with respect to such matters.  From time to time, the Board may change the process by which shareholders and other interested persons may communicate with the Board of Directors or its members.  Please refer to the Company’s website, www.modine.com, for any changes to this process.

Committees of the Board of Directors

Audit Committee

The Audit Committee is a separately designated standing committee of the Board of Directors, established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The charter of the Audit Committee is available on the Company’s website, www.modine.com.

The Audit Committee is responsible for, among other things, appointing and overseeing the work of the Company’s independent registered public accounting firm for the purpose of preparing and issuing an audit report and performing related work, and for discussing with the independent registered public accounting firm appropriate staffing and compensation.  The Audit Committee also oversees management’s implementation of systems of internal controls; monitors the preparation of quarterly and annual financial reports by management; determines whether the independent registered public accounting firm is independent; and reviews management’s programs to monitor and address matters associated with compliance with the Company’s Code of Ethics.  The functions of the Audit Committee are more fully described below in the Report of the Audit Committee in this proxy statement.

The Board of Directors has determined that each member of the Audit Committee is independent as defined in the corporate governance listing standards of the NYSE relating to audit committees.  The Board of Directors has also determined that each Audit Committee member satisfies the financial literacy and experience requirements of the NYSE, and that Mr. Cooley (the Chair of the Committee) and Mr. Anderson qualify as audit committee financial experts within the meaning of the SEC rules.

Officer Nomination and Compensation Committee

The Officer Nomination and Compensation Committee of the Board of Directors (the “ONC Committee”) is composed exclusively of non-employee, independent directors with no business relationship with the Company, other than in their capacity as directors, and no interlocking relationships with the Company that are subject to disclosure under the rules of the SEC related to proxy statements.  The charter of the ONC Committee is available on the Company’s website, www.modine.com.

The ONC Committee oversees and provides strategic direction to management regarding the Company’s executive compensation practices.  The ONC Committee reviews the performance of the executive officers, other than the CEO, and works in conjunction with the Nominating Committee to review the performance of the CEO; reviews candidates for positions as officers; makes recommendations to the Board on certain officer candidates; makes recommendations to the Board on compensation of the CEO; determines, with the CEO’s recommendations, the compensation of non-CEO executive officers and other officers of the Company; considers recommendations made by its independent compensation consultant relating to director compensation and presents those recommendations to the Board; administers the incentive compensation plans in which executive officers and directors participate; and reviews the Company’s benefit programs made available to some or all salaried employees of the Company.

 

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Mr. Burke, as President and CEO, recommends to the ONC Committee any compensation changes affecting the Company’s officers, including the other NEOs, other than himself.  Mr. Burke presents to the ONC Committee the performance and leadership behavior goals and expectations of each such officer and the level of achievement of those goals as well as the Company’s performance during the fiscal year.  The ONC Committee reviews Mr. Burke’s recommendations and either approves or does not approve any compensation matters affecting such officers of the Company.  Mr. Burke has no role in setting his own compensation.

In fiscal 2015, the ONC Committee retained Farient Advisors LLC (“Farient”) as its independent executive compensation consultant.  Farient reports directly to the ONC Committee and provides no services to the Company.  The ONC Committee has determined that Farient is independent under the NYSE Listing Standards.  A representative of Farient attends meetings of the ONC Committee upon invitation by the Chair of the ONC Committee, either by phone or in person, and communicates with the Chair between meetings.  Farient conducted a comprehensive benchmarking analysis of the Company’s pay levels for the CEO, non-CEO executive officers and other officers of the Company, by pay component, using proxy data of the peer companies and compensation survey data. In addition, Farient benchmarked the Company’s executive pay programs and practices, including severance and change-in-control arrangements, as well as its goals and performance.  The ONC Committee considered Farient’s analyses in making its decisions; however, the ONC Committee made all decisions regarding the compensation of Modine’s officers, including its named executive officers (except for the CEO, whose compensation is set by the full Board).  Additionally, Farient regularly updated the ONC Committee on regulatory and market trends and assisted with the benchmarking of Board of Director compensation practices and levels.

Compensation Committee Interlocks and Insider Participation

The Company had no Compensation Committee Interlocks, as defined by the SEC, during fiscal 2015.

Corporate Governance and Nominating Committee

The Nominating Committee develops and implements policies and practices relating to corporate governance matters, including reviewing and monitoring implementation of the Company’s Guidelines on Corporate Governance and the Code of Ethics; develops and reviews background information on prospective nominees to the Board and makes recommendations to the Board regarding such persons; supervises the Board’s annual self-evaluation; and works with the ONC Committee, as appropriate, to review and monitor succession plans relating to the CEO and to evaluate the performance of the CEO.  The Nominating Committee is composed exclusively of independent directors with no business relationship with the Company, other than in their capacity as directors, and no interlocking relationships with the Company that are subject to disclosure under the rules of the SEC related to proxy statements.  The charter of the Nominating Committee is available on the Company’s website, www.modine.com.

Technology Committee

The Technology Committee reviews and makes recommendations, as appropriate, to the entire Board of Directors on major strategies and other subjects related to the Company’s approach, emphasis, and direction with regard to technical innovation and opportunities; the technology acquisition process to assure ongoing business growth; and development and implementation of measurement and tracking systems important to successful innovation.

Board Meetings and Committees

The Board of Directors held five meetings during the fiscal year ended March 31, 2015 and had the following four standing committees: Audit; Officer Nomination and Compensation; Corporate Governance and Nominating; and Technology.

In July of each year, the Board selects the members of each of the committees.  All incumbent directors attended at least 75 percent of the aggregate of the Board meetings and meetings of committees on which he or she served during fiscal 2015, with the exception of David Bills, who joined Modine’s Board in February 2015 and became a member of the Nominating Committee at that time.

 

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The following table lists the members of each of the standing committees as of June 5, 2015 and the number of meetings held by each committee during fiscal 2015.

Attendance at the Annual Meeting.  Although the Company does not have a formal policy that its directors attend the Annual Meeting of Shareholders, it expects them to do so and the Company’s directors historically have attended these meetings.  All of the directors attended the 2014 Annual Meeting of Shareholders.  The Board of Directors conducts a meeting immediately after the Annual Meeting of Shareholders.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following table sets forth information regarding the beneficial ownership of shares of the Company’s common stock by persons known by the Company to beneficially own more than five percent of the outstanding shares:

 

(1)

The number of shares is as of the date the shareholder reported the holdings in filings under the Exchange Act, unless more recent information was provided.  The above beneficial ownership information is based on information furnished by the specified persons and is determined in accordance with Exchange Act Rule 13d-3, and other facts known to the Company.

(2)

Based on Amendment No. 1 to Schedule 13G filed under the Exchange Act on February 13, 2015, Frontier Capital Management Co., LLC has the sole power to vote or direct the vote of 1,641,360 shares and the sole power to dispose or direct the disposition of the reported shares.

 

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(3)

Based on Amendment No. 36 to Schedule 13D filed under the Exchange Act on April 12, 2013, each reporting person included in the Schedule 13D, including Gabelli Funds, LLC; GAMCO Asset Management Inc. (“GAMCO”); Teton Advisors, Inc.; GGCP, Inc.; GAMCO Investors, Inc.; and Mario J. Gabelli, has the independent power to vote or direct the vote and the independent power to dispose or direct the disposition of the reported shares, except that (i) GAMCO does not have authority to vote 97,300 of the reported shares, and (ii) in certain circumstances, proxy voting committees may have voting power over the reported shares.

 

(4)

Based on Schedule 13G filed under the Exchange Act on February 12, 2015, Victory Capital Management Inc. has the sole power to vote or direct the vote of 3,123,993 shares and sole power to dispose or direct the disposition of the reported shares.

 

(5)

Based on Amendment No. 1 to Schedule 13G filed under the Exchange Act on February 11, 2015, The Vanguard Group has the sole power to vote 66,905 shares, the sole power to dispose or direct the disposition of 2,773,337 shares, and shared power to dispose or direct the disposition of 64,505 shares.

 

(6)

Based on Amendment No. 2 to Schedule 13G filed under the Exchange Act on February 2, 2015, BlackRock, Inc. has the sole power to vote or direct the vote of 2,683,407 shares and the sole power to dispose or direct the disposition of the reported shares.

 

The following table sets forth information regarding the beneficial ownership of shares of the Company’s common stock as of May 31, 2015 by:

 

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Each director, director-nominee and “named executive officer” (as described below under Compensation Discussion and Analysis); and

 

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all directors and executive officers of the Company as a group.

 

 

* Represents less than one percent of the class.

(7)

Includes shares of common stock that are issuable upon the exercise of stock options exercisable within 60 days of May 31, 2015.  Such information is not necessarily to be construed as an admission of beneficial ownership.

 

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COMPENSATION OF DIRECTORS

Employees of Modine do not receive any compensation for serving on the Board.  For the 2015 fiscal year, non-employee directors, including the Lead Director of the Board, were entitled to receive the following: an annual retainer of $75,000, payable quarterly; an annual retainer of $10,000 for acting as Chair of the ONC Committee, an annual retainer of $7,500 for acting as either Chair of the Technology Committee or the Nominating Committee, and an annual retainer of $12,500 for acting as Chair of the Audit Committee; reimbursement for travel, lodging, and related expenses incurred in attending Board and/or committee meetings; and travel-accident and director and officer liability insurance.  Ms. Williams declined to be compensated for her service as the Chair of the Nominating Committee.

The Amended and Restated 2008 Incentive Compensation Plan (the “Incentive Plan”) gives discretion to the Board, or a committee of the Board, to grant stock options and stock awards to non-employee directors.  The Board or the ONC Committee, as applicable, has broad discretionary authority to set the terms of awards under the Incentive Plan.  It is the current practice of the Board of Directors to evaluate compensation and make grants of unrestricted stock awards to each non-employee director on an annual basis.  For the 2015 fiscal year, non-employee directors, including the Lead Director of the Board, were entitled to receive equity awards with a value of $85,000.  The Lead Director was also entitled to additional equity compensation with a value of $85,000.  Consistent with this, the Company granted each non-employee director of the Company (other than the Lead Director) 5,731 unrestricted shares of stock in July 2014.  The Company granted Ms. Williams, the Lead Director, 11,462 shares of stock at the same time.  The Company granted Ms. Williams the greater number of shares to compensate her for her service as Lead Director.  As Lead Director, Ms. Williams, among other duties, generally attends all meetings of the Board’s committees but does not receive any attendance fee for those meetings.

2015 Director Compensation Table

The following table sets forth compensation paid to non-employee members of the Company’s Board of Directors in fiscal 2015:

(8)

In July 2014, all of the independent directors, other than Mr. Bills, who joined the Board in February 2015, and Ms. Williams, were granted 5,731 shares of unrestricted stock under the Incentive Plan.  As explained above, the Company granted 11,462 shares of unrestricted stock to Ms. Williams at the same time.  None of the directors included in the table above held any unvested stock awards as of the end of fiscal 2015.

(9)

Represents the aggregate grant date fair value of stock grants computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718.  The assumptions used to determine the value of the awards are discussed in Note 5 of the Notes to Consolidated Financial Statements contained in the Company’s Form 10-K for the fiscal year ended March 31, 2015.

(10)

Represents the change in pension value between the end of fiscal 2014 and the end of fiscal 2015 under the Modine Manufacturing Company Director Emeritus Retirement Plan.  The change in pension value is solely a result of the change in the interest rate used to calculate the present value of the pension benefit under the Director Emeritus Retirement Plan because no benefits otherwise continue to accrue under that plan.  The Company used interest rates of 4.02 percent and 4.74 percent, respectively, to calculate the present value of the pension benefit at March 31, 2015 and March 31, 2014.

 

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The Board of Directors adopted the Director Emeritus Retirement Plan pursuant to which any person, other than an employee of the Company, who was or became a director of Modine on or after April 1, 1992 and who retired from the Board would be paid a retirement benefit equal to the annualized sum directors were paid for their service to the Company as directors (including Board meeting attendance fees but excluding any applicable committee attendance fees) in effect at the time such director ceased his or her service as a director.  The retirement benefit continues for the period of time equal in length to the duration of the director’s Board service.  If a director dies before retirement or after retirement during such period, his or her spouse or other beneficiary would receive the benefit.  In the event of a change in control (as defined in the Director Emeritus Retirement Plan) of Modine, each eligible director, or his or her spouse or other beneficiary entitled to receive a retirement benefit through him or her, would be entitled to receive a lump-sum payment equal to the present value of the total of all benefit payments that would otherwise be payable under the Director Emeritus Retirement Plan.  The retirement benefit is not payable if the director, directly or indirectly, competes with the Company or if the director is convicted of fraud or a felony and such fraud or felony is determined by disinterested members of the Board of Directors to have damaged Modine.  Effective July 1, 2000, the Director Emeritus Retirement Plan was frozen with no further benefits accruing under it.  Ms. Williams accrued pension benefits under the Director Emeritus Retirement Plan until it was frozen on July 1, 2000.

(11)

Mr. Bills joined the Board in February 2015.

Share Ownership Guidelines - Directors

Effective January 16, 2008, the Board adopted share ownership guidelines for incumbent members of the Board of Directors.  The Board believes that in order to further align the interests of members of the Board and shareholders, members of the Board should have a meaningful personal investment in the Company.  Only shares of stock, either restricted or unrestricted, count toward the guideline figures.  The guidelines generally provide that within five years of joining the Board, directors are expected to hold shares of Company stock with a value of at least three times the value of the director’s annual cash retainer at the start of the five-year period.  All directors are currently in compliance with these guidelines.  The share ownership guidelines for officers of the Company are described below in the Compensation Discussion and Analysis – Share Ownership Guidelines - Officers.

Compensation-Related Risk Assessment

In fiscal 2015, the ONC Committee assessed each element of compensation – base salary, and short-and long-term incentives – as well as other plans covering employees in international locations to determine whether any of such elements or plans promotes excessive or unreasonable risk-taking.  The ONC Committee determined that the Company’s compensation policies and practices encourage behaviors that drive the performance of the Company as a whole and balance short-term results with longer-term results in the interests of shareholders.  The ONC Committee determined that any risks arising from the Company’s compensation policies and practices are not reasonably likely to have a material adverse effect on the Company.

 

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COMPENSATION DISCUSSION AND ANALYSIS

Introduction

This Compensation Discussion and Analysis describes the material components of compensation paid to Modine’s named executive officers (“NEOs”), as described in the 2015 Summary Compensation Table on page 25.  The Company’s NEOs are:

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Thomas A. Burke, President and CEO;

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Michael B. Lucareli, Vice President, Finance and CFO;

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Thomas F. Marry, Executive Vice President and COO;

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Holger Schwab, Regional Vice President – Europe; and

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Scott L. Bowser, Regional Vice President – Asia.

Other than the Principal Executive Officer and Principal Financial Officer, Messrs. Marry, Schwab and Bowser were the three most highly compensated executive officers as of March 31, 2015.  The compensation for these individuals is listed in the tables on pages 29 through 35 of this Proxy Statement.

In this Compensation Discussion and Analysis, we will also explain the objectives of our compensation programs, why we pay the compensation we do and how that fits with the Company’s commitment to provide value to our shareholders.

Executive Summary

The ONC Committee seeks to pay our NEOs fairly and to align executive compensation with the Company’s performance.  The ONC Committee believes this approach will enhance shareholder return over the long term.

The ONC Committee seeks to help the Company achieve its short- and long-term financial goals and encourage its executive officers to act as owners of the Company.  The ONC Committee believes these goals can be accomplished through a compensation program that provides a balanced mix of cash and equity-based compensation.  Base salary is designed to attract and retain executives by compensating them for their day-to-day activities, level of responsibility and sustained individual performance.  The annual cash incentive is intended to reward for the achievement of annual operating goals that are critical to the Company’s short-term business objectives.  The equity portion of the compensation package provides incentives that are intended to focus executives on the Company’s long-term success, align the executives’ returns with those of shareholders, encourage long-term retention, and reward the executives for the Company’s superior long-term performance.

The ONC Committee believes the structure of its executive compensation program is aligned with the Company’s overall performance in fiscal 2015.  In fiscal 2015, the Company, among other things:

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Achieved adjusted operating income of $65.2 million for a 6% increase over fiscal 2014, and generated $16 million in free cash flow, all despite challenges in many of the Company’s end markets and significant unfavorable currency fluctuations;

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Increased revenues for the Building HVAC segment by $39.8 million, or 27%, with improved revenue contributions from recent acquisitions Barkell and Geofinity, and a return by Airedale to its pre-fire sales levels;

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Generated positive operating income in the Asia segment for the first time and at a lower-than-estimated breakeven point;

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Continued restructuring activities in Europe and North America with a focus on developing scale manufacturing facilities, and commenced restructuring activities in Brazil to increase operating efficiencies and remain competitive and flexible in the face of the continued market challenges in that region;

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Maintained a strong balance sheet in order to position itself for active pursuit of near-future growth opportunities; and

 

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Increased, in measurable ways, the improvement capability of employees across the globe, utilizing the Modine Operating System’s principles of accountable mentoring.

For a reconciliation of adjusted operating income and free cash flow, which are non-GAAP financial measures, to the most directly comparable GAAP financial measures, please see the financial tables included in Exhibit 99.1 to the Current Report on Form 8-K furnished to the SEC by Modine on May 28, 2015.

The ONC Committee’s actions in fiscal 2015 include the following:

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Set CEO and CFO compensation at or near the median of Modine’s peer group of companies and compensation for the other NEOs at or near the median of a broad survey of manufacturing companies in order to meet its objective of offering competitive compensation.

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Approved Return on Average Capital Employed (“ROACE”) and free cash flow as the equally weighted performance metrics in the Management Incentive Plan (the “MIP”) (the short-term cash bonus plan) for fiscal 2015.  The ROACE metric was chosen to reward management based on the Company’s performance, and is designed to incentivize an increase in shareholder value by permitting management an incremental share of improvements in operating income.  The free cash flow metric was chosen to incentivize management to focus on cash generation, given its importance to the Company’s short-term objectives.

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Approved ROACE and Average Annual Revenue Growth as the performance metrics for the Long-Term Incentive Plan (the “LTIP”) for fiscal 2015 to incentivize meeting and exceeding the Company’s operating performance goals over the three-year performance cycle.  The two metrics are designed to focus management on key metrics and provide a compelling equity-based incentive plan with carefully selected standards, mitigating risk by avoiding short-term gains at the expense of the long-term health of the Company.  The long-term pay orientation of the Company’s compensation system (compensation mix and time horizon of the LTIP) appropriately reflects the capital intensive nature, the investment time horizon and customer planning time horizon (i.e., long-term orders and partnering for end-product production) of the business.

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Reviewed the composition of the Company’s Peer Group used for CEO and CFO compensation and company performance comparisons.

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Conducted a risk assessment of the Company’s compensation practices and found no evidence of unreasonable risk taking in the Company’s compensation plans and arrangements.

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Reviewed the Company’s succession plan for each executive officer and other key employees of the Company.

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Established compensation for the Board of Directors, utilizing analysis provided by Farient.

 

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Reviewed the Company’s guidelines regarding stock ownership requirements for Company officers and members of the Board of Directors and confirmed compliance therewith.

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Reviewed regulatory, shareholder and market changes, including governance best practices as applicable to the Company.

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Reviewed status of equity spend under the Incentive Compensation Plan.

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Reviewed CEO pay-for-performance alignment, utilizing analysis provided by Farient.

Shareholder Advisory Vote on Executive Compensation

A nonbinding advisory vote on the compensation of the Company’s NEOs received the affirmative vote of 92.4% of the shares represented at the 2014 Annual Meeting of Shareholders, demonstrating very strong support for the Company’s executive compensation program. Nonetheless, the Company and ONC Committee are mindful of the results of the shareholder advisory vote and take the vote into consideration when determining and evaluating the Company’s executive compensation philosophy, program and disclosure.  For example, the Company has continued its ongoing efforts to be fully transparent about the link between pay and performance in its Pay for Performance discussion immediately below.  In addition, during one-on-one conversations, sponsored road shows and other regular communications with shareholders, the Company routinely discusses its performance in the context of underlying incentive compensation metrics and emphasizes management’s active use of those same metrics in the Company’s daily operations.

 

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Pay for Performance

The ONC Committee believes that the Company’s compensation program should encourage management to create long-term, sustained value for shareholders and to act like owners of the Company. To achieve this objective, the compensation program is designed to balance short- and long-term considerations while rewarding management in a way that reflects the Company’s performance over time. The ONC Committee further supports this objective with a strong pay for performance philosophy.

The key elements of the Company’s executive compensation program that support the pay for performance philosophy include:

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A median compensation positioning strategy that targets total pay as well as each element of compensation at the median of the market, and allows actual compensation to vary from the median based on higher or lower performance, i.e., above median for above-market performance and below median for below-market performance;

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A significant portion of compensation tied to performance, including short-term and long-term incentives tied to strong financial/operational performance;

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Use of measures of performance for incentives that balance strong growth and returns and provide a direct link to shareholder value over time;

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A significant weighting on equity-based long-term incentives, particularly performance stock; and

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Share ownership guidelines (described on page 27), requiring that executives be meaningfully invested in the Company’s stock, and therefore be personally invested in the Company’s performance.

 

In fiscal 2015, the ONC Committee requested that Farient, the ONC Committee’s independent compensation consultant, assess the relationship between our executive compensation and performance over time, with particular focus on the CEO.

To conduct this analysis, Farient used its alignment methodology to test whether the Company’s Performance-Adjusted Compensation^TM (PAC^TM) is: (1) reasonable for the Company’s revenue size, peer group and total shareholder return (TSR) performance; and (2) sensitive to the Company’s TSR over time, given that TSR is an objective, transparent measure that shareholders generally rely upon when conducting a long-term pay for performance evaluation. PAC measures compensation outcomes after performance has occurred, rather than target compensation, which represents “expected” compensation before performance has occurred. Farient compared the CEO’s PAC (including actual salary, actual short-term incentive awards, and performance-adjusted long-term incentive values) over rolling 3-year periods to TSR for the same rolling 3-year periods, and tested the results against those same variables for companies in the industry groups that are most relevant to Modine, namely Capital Goods and Automobiles and Components. The Company’s PAC was then compared to a range of values, as indicated by the upper and lower boundaries on the chart below. This range reflects reasonable compensation outcomes, as determined by the companies in the relevant industries, for the performance achieved. All PAC values on the chart, current and historical, for both the Company as well as for the companies in the relevant industry groups, are adjusted to reflect the Company’s current size of approximately $1.5 billion in revenue.

Farient’s analysis of the Company’s pay for performance indicates that the CEO’s compensation historically has been and continues to be strongly aligned with the Company’s performance and shareholder interests in that it is both reasonable and closely correlated to Company performance over time. Farient reached this conclusion, with which the ONC Committee agreed, because the data points for the Company’s CEOs have historically been below the upper boundary, which indicates reasonable compensation, and because the PAC generally moves up as performance rises, and generally moves down as performance falls. Specifically, for the three-year period from 2013 through 2015, the CEO’s PAC was closely aligned with performance, reflecting: (1) an annual incentive payout of 82% of Target due to the Company’s performance versus its predetermined objectives for the 2015 annual Management Incentive Plan; and (2) no award payouts for the 2013-2015 performance stock awards cycle, since the Company did not meet its objectives for this plan cycle.

 

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Market Benchmarking of Executive Pay

The ONC Committee targets total pay, as well as each element of compensation, at the median of a peer group of companies for the CEO and CFO and at the median of a broad survey of manufacturing companies for the other NEOs.  The ONC Committee believes that targeting the median is an objective way of ensuring that the Company’s executive compensation practices are competitive and reasonable relative to the broader market.  Actual pay may vary from the median based on differences in individual performance, job responsibilities, tenure and experience for the individuals being compared, as well as based on actual performance of the Company.

During fiscal 2015, the ONC Committee reviewed the composition of the Company’s peer group.  As a group, the peers have characteristics and markets similar to those of the Company.  These characteristics and markets are as follows:

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U.S. headquartered companies traded on major U.S. exchanges involved in these industries:  industrial machinery; construction and farm machinery and heavy trucks; auto parts and equipment; electrical components and equipment; and building products (HVAC-related);

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Companies with revenue between $600 million and $4 billion (approximately ½ to 2 ½  times Modine’s budgeted revenue); and

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Technology-intensive companies with a strong focus on OEM suppliers, distributed product expertise and global industrial customers in the vehicular and industrial/commercial (e.g., HVAC) arena.

Based on its review, the ONC Committee elected not to change the size or composition of the peer group.

The following is the Company’s current peer group:

 

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The ONC Committee uses the publically available peer group data to assist in the evaluation of the:

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Compensation levels of the Company’s CEO and CFO;

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Company’s compensation practices; and

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Company’s relative performance and relative pay for performance for specified periods of time.

The ONC Committee used the 2014 Mercer U.S. Executive Benchmark Database, which compiles data of manufacturing companies with revenues between approximately $800 million and $3.2 billion to evaluate competitive pay levels of corporate officers and other key employees in addition to those of the CEO and CFO, and with revenues between $200 million and $1.2 billion to evaluate competitive pay levels of officers and other key employees who are heads of business units.  Mercer did not identify, and the ONC Committee was not aware of, the identities of the companies whose information is reflected in the Database.  The ONC Committee recognizes that the Company attracts employees from a broad range of companies and its comparison data reflects that fact.  The ONC Committee does not use the survey data in a formulaic manner.  If the compensation of a particular NEO is substantially greater or less than the median in the survey for the same position, the ONC Committee takes the survey information into account when setting base salary, cash incentive targets and long-term incentive target value, but also exercises its discretion, taking into consideration the individual’s performance, tenure, experience and changes in job responsibilities.

 

Description of Executive Compensation Program

The ONC Committee sets the compensation philosophy at Modine in a manner intended to promote the Company’s achievement of its short- and long-term financial goals and encourage its executive officers to act as owners of the Company.  In addition, the ONC Committee focuses on attracting and retaining employees who are qualified, motivated and committed to excellence.  The ONC Committee believes these goals can be accomplished through a compensation program that provides a balanced mix of cash and equity-based compensation.  Base salary is designed to attract and retain executives by compensating them for their day-to-day activities, level of responsibility and sustained individual performance.  The annual cash incentive is intended to reward the achievement of annual operating goals that are critical to the Company’s short-term business objectives.  The equity portion of the compensation package provides incentives that are intended to align the executives’ returns with those of shareholders, encourages long-term retention, and rewards the executive for the Company’s superior long-term performance.

The ONC Committee’s actions are guided by the following beliefs:

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Compensation is a primary factor in attracting and retaining employees, and the Company can only achieve its goals if it attracts and retains qualified and highly skilled people;

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All elements of executive compensation, including base salary, targeted annual incentives (cash-based), and targeted long-term incentives (stock-based), are set to levels that the ONC Committee believes ensure that executives are fairly, but not excessively, compensated;

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Strong financial and operational performance is expected and shareholder value must be preserved and enhanced over time;

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Compensation must be linked to the interests of shareholders and the most effective means of ensuring this linkage is by granting equity incentives such as stock awards, stock options and performance stock awards;

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Operating units of the Company are interdependent, and the Company, as a whole, benefits from cooperation and close collaboration among individual units, so it is important in the Company’s incentive plans to reward overall corporate results and focus on priorities that impact the total Company; and

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The executive compensation program should reflect the economic condition of the Company, as well as Company performance relative to peers, so that in a year in which the Company underperforms, the compensation of the executive officers should be lower than in years when the Company is achieving or exceeding its objectives.

As reflected in this Compensation Discussion and Analysis, the ONC Committee believes the compensation program is aligned with these principles.

 

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The CEO participates in the same programs and receives compensation generally based upon the same factors as the other NEOs.  However, the level of the CEO’s compensation is even more heavily dependent upon the Company’s performance than the compensation of other NEOs.  Mr. Burke’s overall compensation reflects a greater degree of policy- and decision-making authority and a higher level of responsibility for the strategic direction and financial and operational results of the Company.  Given his key role in policy- and decision-making, the ONC Committee believes that the CEO’s compensation should be weighted more heavily toward equity awards so his compensation more directly correlates with the Company’s performance.

Elements of Executive Compensation for Fiscal 2015

The following is a summary of the elements of the Company’s executive compensation program:

 

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Base Salary

Base salary is designed to attract and retain executives by compensating them for their day-to-day activities, level of responsibility and sustained individual performance.  Individual performance, based upon achievement of annual performance objectives and demonstration of leadership behaviors as reflected in each employee’s performance management plan, is a key component in determining base salary and any adjustments to base salary, and is a subjective determination made by the ONC Committee and, for the NEOs other than the CEO, the CEO.  The determination of base salary affects every other element of executive compensation because all of the other components, including short-term, performance-based awards, long-term incentive compensation payouts, retirement benefits and severance, are based on the amount of the individual’s base salary.  The ONC Committee annually reviews base salaries of the NEOs to ensure that the compensation levels are aligned with the ONC Committee’s principles, based on individual responsibility, performance and job scope.

The ONC Committee increased each NEO’s base salary in fiscal 2015.  The percentage increase for each NEO was based upon both subjective and objective criteria, including the individual performance of each NEO, the length of tenure in their current positions, and their respective compensation relative to the market midpoint for their functions.

The table below illustrates the base salary for each NEO in fiscal 2015, with increases effective in July 2014.

The Nominating Committee, working with the ONC Committee, evaluates the individual performance of the Company’s CEO by evaluating Mr. Burke’s achievement of his performance management plan goals.  Following discussion with the CEO, the ONC Committee recommends the CEO’s base salary to the Board of Directors based upon this evaluation.  For fiscal 2015, the Board recommended a larger than usual increase in Mr. Burke’s base salary in order to bring his salary more into alignment with the market median and to recognize his past performance.

Short-Term, Performance-Based Cash Award

The Management Incentive Plan (the “MIP”) is Modine’s broadly applicable short-term, performance cash award plan designed to motivate and reward the Company’s leaders.  All NEOs participate in the MIP.  The ONC Committee’s objectives for the MIP are to encourage continuous (short-term) operational improvements with metrics that also drive total shareholder return.  The ONC Committee believes the MIP metrics should be challenging but achievable and well-defined so they are understood by the MIP participants and, accordingly, actively drive results.

The ONC Committee approved the use of two independent and equally-weighted performance goals for the fiscal 2015 MIP.  As in fiscal 2014, the MIP continued to use the ROACE and free cash flow performance metrics.  For purposes of the MIP, ROACE equals Net Operating Profit After Taxes (“NOPAT”) divided by average capital employed.  A description of the NOPAT and average capital employed calculations under the MIP is provided below.  Free cash flow is based upon a formula and is equal to the Company’s operating cash flow, less capital expenditures, plus cash restructuring costs, plus asset sales.  The ONC Committee has negative discretion to reduce the amounts otherwise payable under the MIP.

The ONC Committee chose to use the ROACE metric, based on adjusted operating income, to incentivize management by rewarding underlying financial performance and to prevent potential distorted incentives that could result from the uncertain nature of the European restructuring charges and any other unusual or non-recurring events.  Use of the ROACE metric is expected to reward long-term growth and the creation of shareholder value through the profitable deployment of additional capital.  The ONC Committee chose to use the free cash flow metric to incentivize an increased focus on cash generation, which supports the Company’s objectives to efficiently deploy assets, reduce debt, and create growth for shareholders.  The ONC Committee considered the Company’s business plan as well as more than 20 years of historical performance results for vehicle and capital goods manufacturing peers and Modine when setting the ROACE and free cash flow goals.  As a result, for the fiscal 2015 MIP, the ONC Committee decreased the Target goal for ROACE to 9 percent (compared to 10 percent for fiscal 2014), while maintaining the Maximum goal for ROACE at 15 percent and the Threshold goal for ROACE at 5 percent.  The 1% decline for the Target goal is intended to better account for industry dynamics, cyclicality and the long-term impact on ROACE of the reversal of tax valuation allowances.  With respect to free cash flow, the ONC Committee raised the Threshold, Target and Maximum levels by $5,000,000 each, to $10,000,000, $25,000,000, and $40,000,000, respectively.  The ONC Committee did not adjust payout percentages at any level with respect to either the ROACE or free cash flow metrics.

 

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The specific levels for the MIP metrics for fiscal 2015 were as follows:

 

 

Assuming achievement of the Target level for each metric, the NEOs would receive the following percentages of base salary: Mr. Burke – 100 percent; Mr. Lucareli – 70 percent (increased from 60 percent in fiscal 2014); Mr. Marry – 80 percent (increased from 70 percent in fiscal 2014); Mr. Bowser – 50 percent; and Mr. Schwab – 50 percent.    For fiscal 2015, the Board recommended increases in MIP target percentages for Mr. Lucareli and Mr. Marry in order to bring these compensation components more into alignment with the market median and to recognize their respective past performance. Assuming Threshold achievement for each metric, each of the NEOs would receive 10 percent of the Target amount.  Assuming Maximum level achievement for each metric, each of the NEOs would receive 200 percent of the Target amount.  The Company pays amounts between the Threshold and Target and/or between Target and Maximum levels on a linear basis for achievement above Threshold and below Maximum.

For purposes of calculating ROACE under the MIP, NOPAT equals Adjusted Operating Income multiplied by .7 (assuming a 30 percent income tax rate), and further adjusted to exclude earnings (losses) attributable to minority shareholders.  Adjusted Operating Income equals operating income plus or minus certain Permitted Adjustments, which include restructuring charges, acquisition and integration charges, and other approved unusual, non-recurring or extraordinary cash and non-cash charges or income.  Average capital employed equals total debt plus shareholders’ equity measured on each of the following quarter ends: March 31, 2014; June 30, 2014; September 30, 2014; December 31, 2014 and March 31, 2015; divided by five.  As discussed above, free cash flow is based upon a formula and is equal to the Company’s operating cash flow, less capital expenditures, plus cash restructuring costs, plus asset sales.

For purposes of the MIP metrics, the Company’s ROACE for fiscal year 2015 was 7.82 percent, and free cash flow was $23.6 million.  As a result, the Committee approved a payment for the MIP participants at the following levels:  74 percent of Target for the ROACE metric and 91 percent of Target for the free cash flow metric.  Both metrics were weighted equally, for a total combined approved MIP payment at 82 percent of Target.

Equity Incentives – Long-Term Incentive Compensation

The long-term incentive element of the Company’s executive compensation program is intended to attract, retain and motivate key employees who directly impact the performance of the Company over a timeframe greater than a year.  Long-term compensation is stock-based so that the interests of the Company’s executive officers are directly aligned with the interests of shareholders.  The equity portion of the compensation package provides an incentive that rewards superior long-term performance and provides financial consequences for underperformance.

The performance period for Performance Stock under the long-term incentive compensation plan initiated in June 2012 terminated in calendar 2015.  The amount of the potential award varied based upon the achievement of Threshold, Target or Maximum performance levels.  The Company used three measures to determine payouts— three-year average ROACE, European ROACE and Cumulative Revenue.  The Company’s three-year average ROACE, which was set to be equal to NOPAT divided by Capital Employed (averaged for fiscal 2013 – fiscal 2015), needed to be 8 percent for awards to be earned at the Threshold level.  The Company’s European ROACE metric, which was equal to ROACE calculated solely based upon performance in the European segment, adjusted to exclude certain intercompany charges and averaged over only two periods (the last days of fiscal years 2014 and 2015), needed to be 15 percent for awards to be earned at the Target level (no Threshold or Maximum levels were established with respect to European ROACE).  The Company’s Cumulative Revenue metric, which was equal to the Company’s total revenue over the performance period, as reported on the Company’s audited financial statements, needed to be $5.2 billion for awards to be earned at the Threshold level.  The Company’s ROACE for the three-year performance period was 7.6 percent, European ROACE for the performance period was 10 percent, and the Company’s Cumulative Revenue for the performance period was $4.35 billion.   As a result, no award was earned under any of the three metrics.

As it did in fiscal 2014, in fiscal 2015 the ONC Committee approved equity grants as a percentage of base salary and included the use of performance stock awards as part of the Company’s long-term incentive compensation plan.  For fiscal 2015, the Company’s long-term incentive plan included:

 

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Performance Stock Awards (40 percent of long-term incentive dollars at Target).  Shares of performance stock are earned by achieving corporate financial goals over a three-year period (ending March 31, 2017) and become vested after the end of that three-year period.  Payout levels vary based upon the achievement of Threshold, Target or Maximum goals in each of the ROACE and Average Revenue Growth metrics, as described below.  Once earned, the performance stock awards are not subject to any restriction.  Determinations of the achievement of performance goals for the performance stock awards are not made until the Company’s audited financial statements covering the last year in the performance period are completed and the results for the fiscal year are announced publicly.

Stock Options (20 percent of long-term incentive dollars at Target).  The ONC Committee believes that stock options focus executives on driving long-term performance.  Stock options have an exercise price equal to the fair market value of the common stock on the effective date of the grant so recipients recognize a value only if and to the extent that the value of the common stock increases.  The stock options granted in fiscal 2015 vest in four equal annual installments commencing on the first anniversary of the effective date of the grant.  The stock options expire ten years from the date of grant.

Retention Restricted Stock Awards (40 percent of long-term incentive dollars at Target).  Retention stock awards reward employees for their continued commitment to the Company.  The Company grants the employees shares of restricted stock and the restrictions lapse on a schedule of one-quarter of the shares each year over a period of four years.

In fiscal 2015, the ONC Committee established two metrics for the award of performance stock awards – ROACE and Average Revenue Growth over the three-year performance period.  Each metric for performance stock awards is weighted at 50 percent and is calculated independently of the other metric.  These two metrics are intended to incentivize improvements in operating income and to emphasize the importance of revenue for the Company.  The Threshold performance goal is the minimum performance goal that must be achieved by the Company for the NEO to earn shares of common stock.

For purposes of the LTIP, ROACE means NOPAT divided by Capital Employed.  The calculation of ROACE is based on a three-year average ROACE for fiscal 2015 through fiscal 2017 with annual ROACE averaged over five points (i.e., each fiscal year quarter and fiscal year end).  Annual Revenue Growth is the simple three-year average of the Company’s annual change in revenue over the performance period, as reported on the Company’s audited financial statements.  A description of the NOPAT and Capital Employed calculations under the LTIP is provided below.

For the fiscal 2015 through fiscal 2017 LTIP, the ONC Committee considered the Company’s business plan as well as more than 15 years of historical performance results for peers and other manufacturing companies and the Company when setting the ROACE and Revenue Growth goals. For the ROACE goal, the ONC Committee reduced the Target goal to 9 percent (compared to a Target goal of 10 percent for fiscal 2014 through fiscal 2016), and made no changes to the Threshold or Maximum goals, or the payout percentages associated with Threshold, Target or Maximum goals.   For the Revenue Growth goals, the ONC Committee made no adjustments to the Threshold, Target or Maximum levels, or the payout percentages, compared to fiscal 2014 through fiscal 2016.  The goals at the Threshold, Target, and Maximum levels are intended to incentivize participants to achieve the Threshold level and strive for greater performance beyond the Threshold level.

The specific performance goals for the LTIP metrics for performance stock awards granted in fiscal 2015 are as follows:

The specific levels of performance stock award metrics are set forth below:

 

If actual ROACE or Annual Revenue Growth for the performance period is between Threshold and Target and/or between Target and Maximum, the number of shares of common stock earned will be determined on a linear basis.  In the event that the Company’s actual ROACE or Annual Revenue Growth does not meet the Threshold for the performance period, no common stock will be earned under this performance stock award metric.  In the event that the Company’s actual ROACE or Annual Revenue Growth exceeds the Maximum for the performance period, only the Maximum percentage of the Target number of shares of common stock will be earned.  Notwithstanding the foregoing, the ONC Committee retains the discretion to decrease the number of shares of common stock earned under the LTIP.

 

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The Company measures its profitability using ROACE (a measure indicative of the efficiency and profitability of its capital investments), so the ONC Committee used the ROACE metric to incentivize management to continue to improve the Company’s profitability.  Similarly, because Annual Revenue Growth is a key measure of growth that is easy to understand and communicate, the ONC Committee used the Annual Revenue Growth metric to incentivize management to create additional shareholder value through the continued growth of the Company.  For both metrics, the ONC Committee set the Threshold level at what it believed to be an acceptable return and set the Maximum level at what it believed to be exceptional performance with each corresponding to an appropriate competitive pay-out level.  Achievement and payout for each measure is calculated and paid out independently of the other measures.

As mentioned in the discussion above regarding the calculations of ROACE under the MIP, NOPAT equals Adjusted Operating Income multiplied by .7 (assuming a 30 percent income tax rate), and further adjusted to exclude earnings (losses) attributable to minority shareholders.  Adjusted Operating Income equals operating income plus or minus certain Permitted Adjustments, which include restructuring charges, acquisition and integration charges, and other approved unusual, non-recurring or extraordinary cash and non-cash charges or income.   Capital Employed means the Company’s total debt plus shareholders’ equity, as reported on the Company’s audited financial statements.  The NOPAT and Capital Employed calculations will exclude the cumulative effect of changes in generally accepted accounting principles.

As mentioned above, the ONC Committee approves the equity grants for each NEO under the long-term incentive plan as a percentage of base salary.  Assuming achievement of the Target level for each metric under the performance stock awards, the NEOs would receive the following percentages of base salary in equity grants under the long-term incentive plan approved in fiscal 2015: Mr. Burke – 250 percent; Mr. Lucareli – 150 percent; Mr. Marry – 175 percent (compared to 150 percent for fiscal 2014); Mr. Bowser – 100 percent; Mr. Schwab – 70 percent.  For fiscal 2015, the Board recommended an increase in LTIP target percentage for Mr. Marry in order to bring this compensation component more into alignment with the market median and to recognize his past performance.  The percentages for Messrs. Burke, Lucareli, Bowser and Schwab were unchanged from those for fiscal 2014.  The table below sets forth the number of shares subject to stock options and the number of shares of stock issued to each NEO in fiscal 2015 as well as the number of performance stock awards that would be earned upon achievement of each of the long-term incentive plan metrics on March 31, 2017:

Executive Compensation in Fiscal 2016

For the fiscal 2016 MIP, the ONC Committee approved two metrics, ROACE and Adjusted Operating Income, as the performance measures under the plan.  ROACE will be determined in a similar manner as for fiscal 2015.  Adjusted Operating Income will be determined by calculating the percentage increase in Adjusted Operating Income from fiscal 2015 to fiscal 2016.  Each metric is independent of the other, the metrics are equally weighted, and each metric will be adjusted to account for certain approved items.

The ONC Committee also approved the Company’s long-term incentive plan for fiscal 2016-2018 to include: retention restricted stock awards (40 percent of long-term incentive dollars at Target); stock options (20 percent of long-term incentive dollars at Target); and performance stock awards (40 percent of long-term incentive dollars at Target).  The vesting schedules for retention restricted stock awards and stock options are the same, namely one quarter each year over a period of four years.  Performance stock awards have a three-year performance period, which is the same as fiscal 2015, and the ONC Committee approved two performance metrics – ROACE and Average Annual Revenue Growth, unchanged versus fiscal 2014.  Each metric is independent of the other and the metrics are weighted equally at 50 percent each.

Employment and Post-Employment Benefits

The NEOs receive the same basic employee benefits that are offered by the Company to all salaried employees within the region where the individual resides.  These benefits include medical and dental coverage, disability insurance and life insurance.  The cost of these benefits is partially borne by the employee, including each NEO.

 

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Except in connection with expatriate assignments (described below) and for benefits provided to Mr. Schwab under his employment agreement, the Company does not generally provide perquisites to any of the NEOs.  Under his employment agreement, Mr. Schwab receives a company car, accident insurance, and a retirement supplement.  The Company provides these benefits as they are customary in Germany.

Mr. Bowser is provided certain benefits in connection with his current assignment to Asia. Specifically, he is provided housing, a hardship allowance, a cost of living adjustment, tax preparation costs, moving and return visit expenses, tax equalization and tax gross-up payments, and an expatriate allowance immediately prior to the assignment and upon his return to the United States. Mr. Bowser’s expatriation assignment was effective August 1, 2012, with an initial expected 36-month duration; but the Company now plans to extend his assignment beyond August 1, 2015. These benefits are provided to Mr. Bowser to compensate him for any disruption the relocation causes him and his family and to eliminate any tax disadvantages caused by the relocation.

The Company offers retirement benefits to its employees through tax-qualified plans, including an employee- and employer-funded Modine 401(k) Retirement Plan for U.S. Salaried Employees (the “401(k) Retirement Plan”).  Under the 401(k) Retirement Plan, the Company contributes 50 percent of the amount contributed to the plan by the employee, subject to a maximum Company contribution of 2.5 percent of the employee’s pay, up to the maximum allowed by law.  While the benefit is available to all of the Company’s full-time employees in the U.S., each individual participant’s 401(k) Retirement Plan balance may vary due to a combination of differing annual amounts contributed by the employee, the investment choices of the participant (the same investment choices are available to all participants in the plan) and the number of years the person has participated in the plan.

The Company has historically also made an annual contribution to the 401(k) Retirement Plan equal to a certain percentage of base salary and bonus for each full-time U.S. salaried employee, including the NEOs.  This contribution was initiated after the Company froze the accumulation of credited service in its defined benefit pension plan.  In June 2015, the Company contributed an amount equal to 3.0 percent of calendar 2014 salary for each full-time, U.S. employee on the payroll as of December 31, 2014.  The percentage contributed was determined based upon the assessment of business financial performance balanced against the need to offer competitive benefits.

The Company’s defined benefit pension plan, which is frozen, is more fully described in the Pension Benefits Table for Fiscal 2015 below.  Messrs. Lucareli, Marry and Bowser participate in the Company’s defined benefit pension plan.  Mr. Burke joined the Company after the defined benefit pension plan was closed to new participants.  Mr. Schwab does not participate in the U.S. Company-sponsored pension plan because he is a citizen of Germany, but as Mr. Schwab’s employer, Modine Holding GmbH provides a cash benefit of 10 percent of his base salary to fund a retirement benefit.

In addition to the employee benefits applicable to U.S. employees in general, certain highly compensated employees of the Company, including the NEOs, may participate in the following plans:

Deferred Compensation Plan. The Deferred Compensation Plan is a nonqualified plan that allows a highly compensated employee to defer up to 10 percent of base salary.  Salary deferred pursuant to the Deferred Compensation Plan is an asset of the Company.  The sums deferred do not earn a preferential rate of return and the investment alternatives are generally the same as the 401(k) Retirement Plan.  Payments out of the Deferred Compensation Plan are not made until termination of service or retirement.  As part of the Company’s objective of restoring in this plan amounts that exceeded the allowable Company match and Company contributions to the 401(k) Retirement Plan because of statutory limits, the Company contributes an amount equal to the amount of the employer match and employer contribution that was not allowed to be contributed to the 401(k) Retirement Plan for such individuals due to statutory limits.

Executive Supplemental Retirement Plan (“SERP”).  The SERP is a nonqualified pension plan.  The SERP, like the defined benefit pension plan, is frozen and intended to be an extension of the Company’s qualified pension plan.  Under the SERP, salary and bonus that are in excess of statutory limits are taken into account in determining nonqualified benefits payable to an employee.

 

---

In fiscal 2012, the ONC Committee approved a severance policy for members of the Executive Council as recommended to the Committee by the Company’s CEO, to ensure consistent treatment of individuals in such positions in the event of an involuntary termination of employment without cause.  The policy provides that such individuals would be paid their annual base salary at the time of termination in installment payments over the course of the year following termination, and would be eligible to elect Company-paid COBRA continuation coverage for one year following termination.  In order to receive these benefits, participants are required to release the Company from any and all liability.  All NEOs other than Mr. Burke and Mr. Schwab (who have separate employment agreements) are covered under the severance policy.  While the policy also provides for separate benefits upon an involuntary termination at the time of a change in control, none of the NEOs are currently covered under the change in control provisions under the severance policy.

Share Ownership Guidelines - Officers

Effective January 16, 2008, the Board adopted share ownership guidelines for directors and officers of the Company, including the NEOs.  The ONC Committee amended the guidelines in May 2010 because the relatively low stock price at that time had made compliance with the guidelines significantly more difficult than was intended by the Board.  The Board continues to believe that directors and officers should have a meaningful personal investment in the Company.  Only shares of stock, either restricted or unrestricted, count toward compliance with the guidelines.

The guidelines continue to provide that by the fifth anniversary of appointment to the position the President and CEO is expected to hold shares of Company stock with a value of at least four times his annual base salary at the commencement of the five-year period.  As amended, the guidelines now do not distinguish between NEOs and other officers and provide that all officers, other than the President and CEO, are expected to hold shares of Company stock with a value of at least two times their annual base salary at the commencement of the five-year period by the end of that period.  The above five-year periods then re-set upon their conclusion.  The stock value is determined by using the higher of the stock price at the time of measurement or the average stock price over the previous three years.  The chair of the Nominating Committee evaluates whether an exception should be made for any officer, who, due to his or her unique financial circumstances or other extenuating circumstances, would incur a hardship by complying with the applicable guideline and, in such an event, may make an exception to the guidelines for such individual.  Additionally, the guidelines may be temporarily waived for an officer who has an unusual personal circumstance or is approaching retirement and has a need to diversify his/her stock holdings.  Each of the NEOs who has been an officer of the Company for at least five years is currently in compliance with the stock ownership guidelines.

Related Policies Applicable to Executive Officers

Under the Company’s Insider Trading Policy, executive officers, including the NEOs, are prohibited from holding shares of Company stock in a margin account unless specifically authorized by the policy’s reviewing officer (the Company’s General Counsel), and all directors and employees of the Company are prohibited from engaging in hedging or monetizing transactions involving Company stock.   The ONC Committee has also implemented an incentive compensation recoupment (or “clawback”) policy.  Effective beginning with awards granted in fiscal 2013, the clawback policy requires forfeiture or repayment of any awards granted under the Incentive Plan (i.e., the MIP (cash bonus) or any long-term equity awards) if the ONC Committee determines that a participant committed an act of misconduct that is adverse, or reasonably expected to be adverse, to the best interests of the Company or its shareholders.

Employment Agreements

The Company has an employment agreement with Mr. Burke, which was not amended during fiscal 2015.  Modine Holding GmbH, a German subsidiary, has an employment agreement with Mr. Schwab, as is customary in Germany.  Mr. Schwab first entered into an employment agreement with Modine Holding GmbH in August 2012, and it was scheduled to expire in August 2015.  In July 2014, Mr. Schwab executed a new employment agreement that is identical in substance to his original employment agreement.  Modine filed an 8-K containing Mr. Schwab’s new employment agreement on July 3, 2014.  The Company also has change in control agreements with all of the other NEOs and certain other key employees.  The purpose of these agreements is to ensure continuity and, in the case of a change in control, the continued dedication of key employees during any period of uncertainty due to a proposed or pending change in control of the Company.  See Potential Post-Employment Payments below for additional information about these agreements.

Tax Implications for NEOs

The ONC Committee generally seeks to structure compensation amounts and arrangements so that they do not result in penalties for the NEOs under the Internal Revenue Code of 1986, as amended (the “Code”).  For example, Section 409A of the Code imposes substantial penalties and results in the loss of any tax deferral for nonqualified deferred compensation that does not meet the requirements of that section.  The ONC Committee has generally structured the elements of the Company’s compensation program so that they are either not characterized as nonqualified deferred compensation under Section 409A or meet the distribution, timing and other requirements of Section 409A.  Without these steps, certain elements of compensation could result in substantial tax liability for the NEOs.  Section 280G and related provisions of the Code impose substantial excise taxes on so-called “excess parachute payments” payable to certain executives upon a change in control and results in the loss of the compensation deductions for such payments by the executive’s employer.  When the Company entered into the employment agreement with Mr. Burke and the change in control agreements with all of the other NEOs (other than Mr. Schwab), all of which were entered into prior to 2009, the ONC Committee structured the change in control payment under the employment and change in control agreements with the NEOs (other than Mr. Schwab) to include a gross up for excise taxes imposed under Section 280G in order to preserve the after-tax value of those payments for those executives.  The severance policy approved by the ONC Committee in fiscal 2012, which is applicable to those joining the Company’s senior management on or after adoption of the policy, does not provide excise tax gross ups in the event of a change in control.

 

---

Compliance with IRC Section 162(m)

Section 162(m) of the Code generally disallows a tax deduction to public companies for compensation over $1,000,000 paid to a company’s CEO and the other NEOs who are covered by Section 162(m).  Qualifying performance-based compensation will not be subject to the deduction limit if certain requirements are met.

The ONC Committee believes that it is generally in the Company’s best interest to attempt to structure compensation amounts and plans in a manner that satisfies the requirements of Section 162(m).  However, the ONC Committee also recognizes the need to retain flexibility to approve compensation amounts and plans that may not meet Section 162(m) standards in order to enable the Company to meet its overall objectives.  Accordingly, the Board and the ONC Committee have expressly reserved the authority to award non-deductible compensation in appropriate circumstances.  Further, because of uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, no assurance can be given that compensation intended by the Company to satisfy the requirements for deductibility under Section 162(m) will do so.

 

COMPENSATION COMMITTEE REPORT

 

The ONC Committee of the Board of Directors has reviewed and discussed the Compensation Discussion and Analysis with management; and, based on that review and discussion, the ONC Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement and the Company’s annual report on Form 10-K for the fiscal year ended March 31, 2015.

 

THE OFFICER NOMINATION AND COMPENSATION COMMITTEE

 

Christopher W. Patterson, Chair

Charles P. Cooley

Suresh V. Garimella

Larry O. Moore

 

---

2015 Summary Compensation Table

The following table sets forth compensation awarded to, earned by, or paid to the Company’s Principal Executive Officer, Principal Financial Officer, and the three most highly compensated executive officers, other than the Principal Executive Officer and Principal Financial Officer, serving as executive officers as of March 31, 2015, for services rendered to the Company and its subsidiaries during the fiscal years ended March 31, 2015, 2014 and 2013.

 

Name and Principal Position		Fiscal Year		Salary ($)(1)				Bonus ($)				Stock Awards ($)(2)				Option Awards ($)(3)				Non-Equity Incentive Plan Compensation ($)(4)				Change in Pension Value ($)(5)				All Other Compensation  ($)(6)				Total ($)
Thomas A. Burke		2015			819,981				-				1,560,005				386,265				673,425			NA					78,372				3,518,048
President and CEO		2014			769,231				-				1,480,003				370,074				1,078,000			NA					60,196				3,757,504
		2013			740,000				-				1,184,006				296,347				-			NA					52,694				2,273,047
Michael B. Lucareli		2015			378,358				-				439,206				108,747				217,403				29,035				26,690				1,199,439
VP, Finance and CFO		2014			360,615				-				415,210				103,821				303,240				0				24,212				1,207,098
		2013			339,538				-				257,600				64,475				-				19,386				18,912				699,911
Thomas F. Marry		2015			469,538				-				637,012				157,724				308,320				47,995				37,035				1,657,624
Executive VP and COO		2014			449,615				-				521,997				130,523				441,000				0				34,767				1,577,902
		2013			425,577				-				479,998				120,141				-				33,307				26,049				1,085,072
Scott L. Bowser -		2015			324,177				-				251,201				62,199				133,045				33,975				490,688				1,295,285
Regional VP – Asia		2014			310,769				-				241,592				60,412				217,700				0				431,064				1,261,537
		2013			299,685				-				337,627				58,750				-				23,250				266,049				985,361
Holger Schwab		2015		€	336,028/				-			€	237,537/			€	58,816/			€	136,893/			NA				€	49,047/			€	818,321/
Regional VP – Europe (7)				$	360,700				-			$	254,996			$	63,139			$	146,944							$	52,648			$	878,427
		2014		€	327,200/				-			€	170,645/			€	42,672/			€	227,360/			NA				€	48,188/			€	816,065/
				$	450,565				-			$	234,978			$	58,759			$	313,082							$	66,356			$	1,123,740
		2013		€	240,000/			€	285,000/				-				-				-			NA				€	43,420/			€	568,420/
				$	307,653			$	365,338																			$	55,660			$	728,651

 

(1)	The salary amounts include amounts deferred at the NEO’s option through contributions to the Modine 401(k) Retirement Plan and the Modine Deferred Compensation Plan.

 

(2)

Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for retention restricted stock awards and performance stock awards.  For fiscal 2015, the Maximum grant date fair value for the performance stock awards are as follows for the NEOs – Mr. Burke $1,560,005; Mr. Lucareli $439,206; Mr. Marry $637,012; Mr. Bowser $251,201; and Mr. Schwab $254,996.  See Grants of Plan-Based Awards for Fiscal 2015, Compensation Discussion and Analysis – Equity Incentives – Long-Term Incentive Compensation and the Outstanding Equity Awards at Fiscal Year End table for further discussion regarding the retention restricted stock awards and the performance stock awards.  The assumptions used to determine the value of the awards are discussed in Note 5 of the Notes to Consolidated Financial Statements contained in the Company’s Form 10-K for the fiscal year ended March 31, 2015.

 

(3)

Represents the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for grants of stock options.  The assumptions used to determine the value of the options are discussed in Note 5 of the Notes to Consolidated Financial Statements contained in the Company’s Form 10-K for the fiscal year ended March 31, 2015.  The actual value, if any, that an optionee will realize upon the exercise of an option will depend on the excess of the market value of the Company’s common stock over the exercise price on the date the option is exercised, which cannot be determined until the option is exercised.

 

---

(4)	The amounts in the “Non-Equity Incentive Plan Compensation” column include payments under the MIP.

 

(5)

Represents the change in pension value between the end of fiscal 2014 and the end of fiscal 2015 for the NEOs who participate in the Modine Manufacturing Company Pension Plan and the Executive Supplemental Retirement Plan.  For purposes of calculating the change in benefit values from year to year, the discount rates used to determine the present value of the benefit were 4.02 percent as of March 31, 2015, 4.74 percent as of March 31, 2014, and 4.35 percent as of March 31, 2013.

 

(6)	The amounts set forth in this column for fiscal 2015 include:

 

●

Company matching contributions to participant accounts in the 401(k) Retirement Plan (“401(k) Company Match”) equal to 50 percent of the amount contributed to the plan by the employee, subject to a maximum contribution of the lesser of 2.5 percent of compensation or the maximum contribution limit to the plan ($17,500 in calendar year 2014);

●

Company contributions to 401(k) Retirement Plan (“Company Contribution to 401(k) Retirement Plan”) equal to 3.0 percent of compensation up to a maximum salary of $260,000;

●

Company contributions to the Deferred Compensation Plan equal to (a) the amount of the Company match on salary that could not be contributed to the 401(k) Retirement Plan and (b) the amount of the Company contribution that could not be contributed to 401(k) Retirement Plan because of statutory limits (“Company Excess Match/Contribution Overflow to Deferred Compensation Plan”);

Company payment of long-term disability insurance premiums (“Long-Term Disability Insurance Premiums”);

●

Company payment of life insurance premiums (“Life Insurance Premiums”); and

●

Perquisites and other personal benefits.  The perquisites for Mr. Bowser include $100,517 as a housing allowance; $30,524 as an auto allowance; $25,521 as a cost of living adjustment; and other amounts provided to Mr. Bowser in connection with his assignment to Asia, including a hardship allowance, home leave, tax preparation fees, language lessons, and property management.  In addition, as part of his assignment Mr. Bowser received tax gross-ups of $82,227 related to cost of living adjustments, housing and transportation costs.   Certain amounts for Mr. Bowser were converted from Chinese Yuan to U.S. Dollars at exchange rates determined on a quarterly basis.  The perquisites for Mr. Schwab include the lease and maintenance of a car amounting to €14,871 ($15,963 at the March 31, 2015 exchange rate) and a retirement supplement amounting to €33,817 ($36,300 at the March 31, 2015 exchange rate) because he does not participate in the benefit plans available to U.S. residents.

(7)

The salary, bonus, non-equity incentive plan compensation, and other annual compensation for Mr. Schwab, who works and lives in Germany, were paid to him in euros.  The amounts shown in U.S. dollars in the table above for fiscal 2015 were converted from euros at the following exchange rate in effect at March 31, 2015:  $1 = €0.9316.  The converted U.S. dollar amounts shown for fiscal years 2013 and 2014 for Mr. Schwab were converted from euros at the applicable exchange rate in effect at the close of those fiscal years.

 

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		Shares Vesting for Thomas Burke (#)				Shares Vesting for  Michael Lucareli (#)				Shares  Vesting for  Thomas Marry (#)				Shares  Vesting for Scott Bowser (#)				Shares Vesting for Holger  Schwab (#)
June 2, 2015			13,052				3,674				5,329				2,101				2,133
June 3, 2015			17,788				4,990				6,274				2,903				2,824
June 5, 2015			25,739				5,600				10,434				5,102				-
July 1, 2015			-				-				-				14,850				-
July 21, 2015			4,836				844				1,368				859				-
January 26, 2016			-				-				25,000				-				-
June 2, 2016			13,052				3,674				5,329				2,101				2,133
June 3, 2016			17,788				4,990				6,274				2,903				2,824
June 5, 2016			25,740				5,600				10,437				5,104				-
January 26, 2017			-				-				25,000				-				-
June 2, 2017			13,052				3,674				5,329				2,101				2,133
June 3, 2017			17,790				4,992				6,274				2,906				2,825
June 2, 2018			13,053				3,677				5,332				2,104				2,135

		Option Awards								Stock Awards
Name		Number of Shares  Acquired on Exercise (#)				Value Realized on  Exercise ($)				Number of Shares Acquired on Vesting (#)				Value Realized on  Vesting ($)
Thomas A. Burke			-				-				17,788				257,926	(3)
											25,739				382,739	(4)
											6,780				102,446	(5)
											4,836				71,911	(6)
Michael B. Lucareli			11,352				104,779	(1)			4,990				72,355	(3)
			3,188				31,784	(2)			5,600				83,272	(4)
											617				9,323	(5)
											844				12,550	(6)
Thomas F. Marry			-				-				6,274				90,973	(3)
											10,434				155,154	(4)
											1,568				23,692	(5)
											1,366				20,312	(6)
Scott L. Bowser			-				-				2,903				42,094	(3)
											5,102				75,867	(4)
											1,215				18,359	(5)
											859				12,773	(6)
Holger Schwab			-				-				2,824				40,948	(3)

(6)

Shares vested on July 21, 2014 at $14.87 per share, the closing price applicable to such date.

Name		Executive  Contributions in Last FY ($)(1)				Registrant Contributions in Last FY ($)(2)				Aggregate Earnings in Last FY ($)				Aggregate Withdrawals/ Distributions ($)				Aggregate Balance at Last FYE ($)(3)
Thomas A. Burke			16,400				62,441				40,760				-				628,400
Michael B. Lucareli			-				12,530				14,129				-				173,936
Thomas F. Marry			46,954				21,311				102,716				-				1,229,067
Scott L. Bowser			-				8,359				3,693				-				46,809
Holger Schwab		NA				NA				NA				NA				NA

Name of Fund		Return for 12 Months Ended March 31, 2015
Wells Fargo Stable Return N15			0.37	%
Vanguard Inflation-Protected Sec (Adm)			1.27	%
Vanguard Interm Term Bond Index (Signal)			2.45	%
Wells Fargo Advantage Core Bond R6			1.75	%
T. Rowe Price Retirement Balanced			1.47	%
T. Rowe Price Retirement 2005			1.62	%
T. Rowe Price Retirement 2010			1.75	%
T. Rowe Price Retirement 2015			2.07	%
T. Rowe Price Retirement 2020			2.51	%
T. Rowe Price Retirement 2025			2.86	%
T. Rowe Price Retirement 2030			3.08	%
T. Rowe Price Retirement 2035			3.36	%
T. Rowe Price Retirement 2040			3.47	%
T. Rowe Price Retirement 2045			3.50	%
T. Rowe Price Retirement 2050			3.43	%
T. Rowe Price Retirement 2055			3.46	%
Dodge & Cox Stock			-1.19	%
Goldman Sachs Midcap Value (I)			1.92	%
JP Morgan Large Cap Growth R5			4.44	%
Victory Munder Mid-Cap Core Growth (Y)			6.06	%
Vanguard Institutional Index			0.94	%
Vanguard Mid-Cap Index (Admiral)			4.28	%
Vanguard Small-Cap Index (Admiral)			4.81	%
Brown Advisory Small-Cap Fdmtl Val Instl			2.20	%
Baron Emerging Markets Institutional			-0.33	%
WCM Focused International Growth Inst			5.13	%
Fidelity Diversified International			6.36	%
MFS International New Discovery R4			2.98	%
Vanguard Developed Markets Index Admiral			5.56	%

Name		Cash Payment ($)				Accelerated Vesting of Equity ($)(1)				Retirement Plan Benefits: Pension Plan (Qualified & SERP) ($)				Perquisites and Continued Benefits ($)				Total ($)
Thomas A. Burke
Death			0			$	2,424,725			NA				NA				$	2,424,725
Disability		$	3,138,535			$	2,424,725			NA					(2	)		$	5,563,260
Involuntary Termination		$	4,359,056				0			NA				$	171,826	(3)		$	4,530,882
Termination if Change in Control		$	5,790,000	(4)		$	4,684,937			NA				$	4,759,594	(5)		$	15,234,530
Change in Control (no termination)		NA				NA				NA				NA				NA
Michael B. Lucareli
Death			0			$	621,913			$	68,570			NA				$	690,483
Disability			(2	)		$	621,913			$	143,519				(2	)		$	765,432
Involuntary Termination		$	385,000				0			$	143,519			$	19,892	(6)		$	548,411
Termination if Change in Control		$	1,565,375	(7)		$	1,168,899			$	143,519			$	1,353,475	(8)		$	4,231,268
Change in Control (no termination)		NA				NA				NA				NA				NA
Thomas F. Marry
Death			0			$	1,606,905			$	145,907			NA				$	1,752,812
Disability			(2	)		$	1,606,905			$	305,389				(2	)		$	1,912,294
Involuntary Termination		$	475,000				0			$	305,389				20,175	(6)		$	800,564
Termination if Change in Control		$	2,078,000	(7)		$	2,490,214			$	305,389			$	2,073,525	(9)		$	6,947,128
Change in Control (no termination)		NA				NA				NA				NA				NA
Scott L. Bowser
Death			0			$	624,205			$	92,391			NA				$	716,596
Disability			(2	)		$	624,205			$	193,377				(2	)		$	817,582
Involuntary Termination		$	328,000				0			$	193,377			$	20,175	(6)		$	541,552
Termination if Change in Control		$	1,142,750	(7)		$	1,041,177			$	193,377			$	904,992	(10)		$	3,282,296
Change in Control (no termination)		NA				NA				NA				NA				NA
Holger Schwab
Death			0				0				0			NA					0
Disability		$	403,199				0				0				0			$	403,199
Involuntary Termination		$	1,523,199	(11)		$	966,410	(12)			0			$	51,803	(13)		$	2,541,412
Termination if Change in Control		$	1,523,199	(11)		$	966,410	(12)			0			$	51,803	(13)		$	2,541,412
Change in Control (no termination)		NA				NA				NA				NA				NA

(In thousands)		Fiscal 2015				Fiscal 2014
Audit Fees: (a)		$	2,179.9			$	2,158.7
Audit-Related Fees:		$	0.0			$	0.0
Tax Fees: (b)		$	433.6			$	583.5
All Other Fees: (c)		$	0.0			$	4.5
Total		$	2,613.5			$	2,746.7

Plan Category		Number of shares to be issued upon exercise of outstanding options, warrants or rights				Weighted-average exercise price of outstanding options, warrants and rights				Number of shares remaining available for future issuance (excluding securities reflected in 1st column)
Equity Compensation Plans approved by security holders			1,499,996				11.99				3,986,658
Equity Compensation Plans not approved by security holders			-				-				-
Total			1,499,996				11.99				3,986,658

	Margaret C. Kelsey,
	Vice President, Legal and Corporate Communications General Counsel and Secretary

2015

Annual Meeting of Shareholders