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Stock-Based Compensation Expense
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6 Months Ended |
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Sep. 30, 2012
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| Stock-Based Compensation Expense |
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 Plan (“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.
At September 30, 2012, there were 1,581,273 options outstanding. Stock compensation expense was $336, $57, $394 and $6,399 during the three and six months ended September 30, 2012 and 2011, respectively. Thermon Group Holdings completed its IPO on May 5, 2011. As a result, we recorded stock compensation expense of $6,310 during the six months ended September 30, 2011 which represented all unamortized stock compensation under the 2010 Plan.
During the three months ended September 30, 2012, we issued various stock compensation awards to employees and directors of the company. On August 2, 2012, 56,532 options and 71,923 restricted stock units were granted to certain employees. Also on August 2, 2012, 12,546 restricted stock awards were issued to our directors and a target amount of 44,146 performance stock units were granted to our named executive officers. The closing price of our stock on the date of these grants was $21.52.
The stock options were valued by using a Black Scholes option pricing model. We arrived at a total fair value for the option awards of $501 by applying a volatility assumption of 40.5%, a risk free rate of 0.63%, expected term of 6.66 years and no expected dividend. The fair value of these options will be expensed on a straight line basis over five years.
The restricted stock units that were issued to our employees have a total fair value of $1,548 as determined by the closing price of our stock on August 2, 2012 which will be expensed on a straight-line basis over three years. At each anniversary of the restricted stock units, one-third of the shares will become vested for the employees and the shares of stock will become issued and outstanding.
The restricted stock awards issued to our directors have a total fair value of $270 as determined by the price of our stock at closing on August 2, 2012 which will be expensed on a straight line basis over one year. The stock associated with the director's awards has already been issued and is included in our shares outstanding with voting rights. On the anniversary of the grant date, the restrictions will be removed.
The performance stock units issued to our four named executive officers had a total fair value at grant date of $960. The performance indicator for these stock awards is based on the market performance of our stock price as compared to a pre-determined peer group of companies with similar business characteristics as ours. Since the performance indicator is market based, we prepared a Monte Carlo valuation model to calculate the probable outcome of the performance measure to arrive at the fair value. We will expense the fair value over three years ending at each of our fiscal year ends during the performance period, whether or not the market condition is met. At the end of each fiscal year, one-third of the performance units will be evaluated. It will then be determined how many shares of stock will be issued. In each year, the possible number of shares that will be issued ranges from zero to 29,430 in the aggregate. Shares that are not awarded in a given year will be forfeited.
The right to purchase shares under the options vests over a five to ten-year period, beginning on the date of grant. Stock options must be exercised within ten years from date of grant. Stock options were issued with an exercise price which was equal to the market price of our common stock at the grant date. We estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods. During the three and six month periods ended September 30, 2012, we did not make any changes in accounting principles or methods of estimates relating to stock-based compensation expense.
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Thermon Holding Corp.
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| Stock-Based Compensation Expense |
Stock-Based Compensation Expense
We record stock-based compensation expense related to stock-based awards that are made by TGH, our parent entity, to our employees, directors or non-employee contractors. Stock compensation expense was $336, $57, $394 and $6,399 during the three and six months ended September 30, 2012 and 2011, respectively. Thermon Group Holdings completed its IPO on May 5, 2011. As a result, we recorded stock compensation expense of $6,310 during the six months ended September 30, 2011 which represented all unamortized stock compensation then outstanding.
During the three months ended September 30, 2012, we issued various stock compensation awards to employees and directors of the company. On August 2, 2012, 56,532 options and 71,923 restricted stock units were granted to certain employees. Also on August 2, 2012, 12,546 restricted stock awards were issued to our directors and a target amount of 44,146 performance stock units were granted to our named executive officers. The closing price of our stock on the date of these grants was $21.52
The stock options were valued by using a Black Scholes option pricing model. We arrived at a total fair value for the option awards of $501 by applying a volatility assumption of 40.5%, a risk free rate of 0.6%, expected term of 6.66 years and no expected dividend. The fair value of these options will be expensed on a straight line basis over five years.
The restricted stock units that were issued to our employees have a total fair value of $1,548 as determined by the closing price of our stock on August 2, 2012 which will be expensed on a straight-line basis over three years. At each anniversary of the restricted stock units, one-third of the shares will become vested for the employees and the unrestricted shares of stock will become issued and outstanding.
The restricted stock awards issued to our directors have a total fair value of $270 as determined by the price of our stock at closing on August 2, 2012 which will be expensed on a straight line basis over one year. The director's restricted stock has already been issued and is included in our shares outstanding with no voting rights. On the anniversary of the grant date, the restrictions will be removed.
The performance stock units issued to our four named executive officers had a total fair value at grant date of $960. The performance indicator for these stock awards is based on the market performance of our stock price as compared to a pre-determined peer group of companies with similar business characteristics as ours. Since the performance indicator is market based, we prepared a Monte Carlo valuation model to calculate the probable outcome of the performance measure to arrive at the fair value. We will expense the fair value over three years ending at each of our fiscal year ends during the performance period, whether or not the market conditions are met. At the end of each fiscal year, one-third of the performance units will be evaluated. It will then be determined how many shares of stock will be issued. In each year, the possible number of shares that will be issued ranges from zero to 29,430 in the aggregate. Shares that are not awarded in a given year will be forfeited.
The right to purchase shares under the options vests over a five to ten-year period, beginning on the date of grant. Stock options must be exercised within ten years from date of grant. Stock options were issued with an exercise price which was equal to the market price of our common stock at the grant date. We estimate potential forfeitures of stock grants and adjust compensation cost recorded accordingly. The estimate of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods. During the six month period ended September 30, 2012, we did not make any changes in accounting principles or methods of estimates relating to stock based compensation expense.
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