14. Stock-Based Compensation Expense

Since the completion of the CHS Transactions on April 30, 2010, the board of directors has adopted and the shareholders have approved two stock option award plans.  The 2010 Thermon Group Holdings, Inc. Restricted Stock and Stock Option Plans (“2010 Plan”) was approved on July 28, 2010.  The plan authorized the issuance of 2,767,171 stock options or restricted shares (on a post stock split basis).  On April 8, 2011, the board of directors approved the Thermon Group Holdings, Inc. 2011 Long-Term Incentive Plan (“2011 LTIP”). The 2011 LTIP made available 2,893,341 shares of the Company’s common stock that may be awarded to employees, directors or non-employee contractors compensation in the form of stock options or restricted stock awards. Collectively, the 2010 Plan and the 2011 LTIP are referred to as the “Stock Plans.”

On October 20, 2010, October 27, 2010 and March 1, 2011 our board of directors granted certain employees and directors options to purchase a combined total of 2,757,524 shares of our common stock under the 2010 Plan.  The exercise price for these options was $5.20 per share for the grants issued in October and $9.82 for the grants issued in March.  All options granted have a ten year term. The options are for the purchase of shares of common stock of Thermon Group Holdings, Inc. At the completion of the IPO, all outstanding options that were granted under our 2010 Plan became vested and exercisable.  Although the options were exercisable at the time of the IPO, the sale of the underlying option shares were restricted under the lock-up agreements with the IPO underwriters, which began to expire on October 31, 2011.  At the date of the IPO on May 5, 2011, the Company recorded stock compensation expense of $6,310 which represented all unamortized stock compensation expense related to the outstanding stock options under the 2010 Plan.

Subsequent to the IPO and during fiscal 2012, the board granted certain employees options to purchase 117,600 shares of our common stock under the 2011 LTIP.  The options are scheduled to vest over five years with 20% vesting on the anniversary date of the grant each year.  The board also granted directors and employees 16,136 restricted stock awards.  The restricted stock awards vest over two years with half vesting on each anniversary of the grant date.

Valuation and Expense Information of stock options and restricted stock awards

The Company’s accounting for share-based payments to employees is applied in accordance with ASC 718, Compensation—Stock Compensation, which requires that share-based payments (to the extent they are compensatory) be recognized in our consolidated statements of operations based on their fair values. The weighted-average fair value of stock-based compensation to employees is based on the single option valuation approach. Estimated forfeiture rates are applied separately to option and restricted stock awards and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized using the straight-line method over the vesting period of the options. At each vesting period, we analyze the cumulative stock compensation expense to determine that we have expensed at least the fair value of all vested options.

We calculate the value of our stock option awards when they are granted. Accordingly, we update our valuation assumptions for volatility and the risk free interest rate each quarter that option grants are awarded. Annually, we prepare an analysis of the historical activity within our option plans as well as the demographic characteristics of the grantees of options within our stock option plan to determine the estimated life of the grants and possible ranges of estimated forfeiture. Expected life is estimated based on our analysis of our actual historical option exercises and cancellations. Expected stock price volatility is based on the historical volatility from traded shares of our stock over the expected term. The risk-free interest rate is based on the rate of a zero-coupon U.S. Treasury instrument with a remaining term approximately equal to the expected term. We do not expect to pay dividends in the near term and therefore do not incorporate the dividend yield as part of our assumptions. For the options granted in fiscal 2012, we assumed an estimated life of 6.66 years, a volatility of 45% and a risk free interest rate of 3.25%.  For the options granted in the period from May 1, 2010 to March 31, 2011, we assumed an estimated life of 6.66 years, a volatility of 45% and a risk free interest rate of 2.02%.

A summary of activity under our Stock Plans for the year ended March 31, 2012 and for the period from May 1, 2010 to March 31, 2011 is as follows (no options were issued or outstanding in fiscal 2010 or for the period from April 1 to April 30, 2010, see Note 12 — Member’s Equity (Predecessor):

Total unrecognized expense related to non-vested stock option awards was approximately $575 as of March 31, 2012, related to approximately 117,600 shares with a per share weighted average fair value of $5.99. We anticipate this expense to be recognized over a weighted average period of approximately 4.09 years.

Restricted Stock Awards

The following table summarizes the activity with regard to unvested restricted stock awards during the year ended March 31, 2012. Unvested restricted stock awards are valued at the closing price on the date of the grant. (No restricted stock awards were issued or outstanding in fiscal 2010, for the period from April 1 to April 30, 2010, or for the period from May 1, 2010 to March 31, 2011 see Note 12 — Member’s Equity (Predecessor):

The total fair value of the unvested restricted stock awards at grant date was $200. Based on our closing stock price of $20.45, the aggregate intrinsic value of the unvested restricted stock awards at March 31, 2012 was $329. Total unrecognized expense related to unvested restricted stock awards was approximately $125 as of March 31, 2012, related to all 16,136 shares with a per share weighted average fair value of $12.42. We anticipate this expense to be recognized over a weighted average period of approximately .42 years.

The following table summarizes information about stock options outstanding as of March 31, 2012:

The aggregate intrinsic value in the preceding table represents the total intrinsic value based on our closing stock price of $20.45 as of March 31, 2012, which would have been received by the option holders had all option holders exercised as of that date.

13. Stock-Based Compensation Expense

Since the completion of the CHS Transactions on April 30, 2010, the board of directors has adopted and the shareholders have approved two stock option award plans.  The 2010 Thermon Group Holdings, Inc. Restricted Stock and Stock Option Plans (“2010 Plan”) was approved on July 28, 2010.  The plan authorized the issuance of 2,767,171 stock options or restricted shares (on a post stock split basis).  On April 8, 2011, the board of directors approved the Thermon Group Holdings, Inc. 2011 Long-Term Incentive Plan (“2011 LTIP”). The 2011 LTIP made available 2,893,341 shares of the Company’s common stock that may be awarded to employees, directors or non-employee contractors compensation in the form of stock options or restricted stock awards.  Collectively, the 2010 Plan and the 2011 LTIP are referred to as the “Stock Plans”.

On October 20, 2010, October 27, 2010 and March 1, 2011 our board of directors granted certain employees and directors options to purchase a combined total of 2,757,524 shares of our common stock under the 2010 Plan.  The exercise price for these options was $5.20 per share for the grants issued in October and $9.82 for the grants issued in March.  All options granted have a ten year term. The options are for the purchase of shares of common stock of Thermon Group Holdings, Inc. At the completion of the IPO, all outstanding options that were granted under our 2010 Plan became vested and exercisable.  Although the options were exercisable at the time of the IPO, the sale of the underlying option shares were restricted under the lock-up agreements with the IPO underwriters, which began to expire on October 31, 2011.  At the date of the IPO on May 5, 2011, the Company recorded stock compensation expense of $6,310 which represented all unamortized stock compensation expense related to the outstanding stock options under the 2010 Plan.

Subsequent to the IPO and during fiscal 2012, the board granted certain employees options to purchase 117,600 shares of our common stock under the 2011 LTIP.  The options are scheduled to vest over five years with 20% vesting on the anniversary date of the grant each year.  The board also granted directors and employees 16,136 restricted stock awards.  The restricted stock awards vest over two years with half vesting on each anniversary of the grant date.

Valuation and Expense Information of stock options and restricted stock awards

The Company’s accounting for share-based payments to employees is applied in accordance with ASC 718, Compensation—Stock Compensation, which requires that share-based payments (to the extent they are compensatory) be recognized in our consolidated statements of operations based on their fair values. The weighted-average fair value of stock-based compensation to employees is based on the single option valuation approach. Estimated forfeiture rates are applied separately to option and restricted stock awards and it is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized using the straight-line method over the vesting period of the options. At each vesting period we analyze the cumulative stock compensation expense to determine that we have expensed at least the fair value of all vested options.

We calculate the value of our stock option awards when they are granted. Accordingly, we update our valuation assumptions for volatility and the risk free interest rate each quarter that option grants are awarded. Annually, we prepare an analysis of the historical activity within our option plans as well as the demographic characteristics of the grantees of options within our stock option plan to determine the estimated life of the grants and possible ranges of estimated forfeiture. Expected life is estimated based on our analysis of our actual historical option exercises and cancellations. Expected stock price volatility is based on the historical volatility from traded shares of our stock over the expected term. The risk-free interest rate is based on the rate of a zero-coupon U.S. Treasury instrument with a remaining term approximately equal to the expected term. We do not expect to pay dividends in the near term and therefore do not incorporate the dividend yield as part of our assumptions. For the options granted in fiscal 2012, we assumed an estimated life of 6.66 years, a volatility of 45% and a risk free interest rate of 3.25%.  For the options granted in the period from May 1, 2010 to March 31, 2011, we assumed an estimated life of 6.66 years, a volatility of 45% and a risk free interest rate of 2.02%.

A summary of activity under our Stock Plans for the year ended March 31, 2012 for the period from May 1, 2010 to March 31, 2011 is as follows (no options were issued or outstanding in fiscal 2010 or for the period from April 1 to April 30, 2010, see Note 11 — Member’s Equity (Predecessor):

Total unrecognized expense related to non-vested stock option awards was approximately $575 as of March 31, 2012, related to approximately 117,600 shares with a per share weighted average fair value of $5.99. We anticipate this expense to be recognized over a weighted average period of approximately 4.09 years.

Restricted Stock Awards

The following table summarizes the activity with regard to unvested restricted stock awards during the year ended March 31, 2012. Unvested restricted stock awards are valued at the closing price on the date of the grant. (No restricted stock awards were issued or outstanding in fiscal 2010, for the period from April 1 to April 30, 2010, or for the period from May 1, 2010 to March 31, 2011 see Note 11—Member’s Equity (Predecessor):

The total fair value of the unvested restricted stock awards at grant date was $200. Based on our closing stock price of $20.45, the aggregate intrinsic value of the unvested restricted stock awards at March 31, 2012 was $329. Total unrecognized expense related to non-vested restricted stock awards was approximately $125 as of March 31, 2012, related to all 16,136 shares with a per share weighted average fair value of $12.42. We anticipate this expense to be recognized over a weighted average period of approximately .42 years.

The following table summarizes information about stock options outstanding as of March 31, 2012:

The aggregate intrinsic value in the preceding table represents the total intrinsic value based on our closing stock price of $20.45 as of March 31, 2012, which would have been received by the option holders had all option holders exercised as of that date.