Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation Expense

v2.4.0.6
Stock-Based Compensation Expense
 12 Months Ended
Mar. 31, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
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 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.”

At the completion of the IPO on May 5, 2011, 2,757,524 options that were then unvested became vested and exercisable. Accordingly, 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.
Unvested options outstanding are scheduled to vest over five years with 20% vesting on the anniversary date of the grant each year. 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 fiscal 2013, we did not make any changes in accounting principles or methods of estimates relating to stock-based compensation expense.

A summary of activity under our Stock Plans for fiscal 2013, fiscal 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 13, "Members' Equity (Predecessor)"):
 
 
 
Options Outstanding
 
 
 
Number of Shares
 
Weighted Average Exercise Price
Balance at March 31, 2010
 
—

 
$
—

 
Granted
 
—

 
—

 
Exercised
 
—

 
—

 
Forfeited
 
—

 
—

Balance at April 30, 2010
 
—

 
$
—

 
Granted
 
2,757,524

 
5.38

 
Exercised
 
—

 
—

 
Forfeited
 
—

 
—

Balance at March 31, 2011
 
2,757,524

 
$
5.38

 
Granted
 
117,600

 
12.00

 
Exercised
 
(683,443
)
 
5.38

 
Forfeited
 
(12,056
)
 
6.46

Balance at March 31, 2012
 
2,179,625

 
$
5.74

 
Granted
 
56,532

 
21.52

 
Exercised
 
(1,086,486
)
 
5.31

 
Forfeited
 
(16,891
)
 
7.98

Balance at March 31, 2013
 
1,132,780

 
$
6.98


For fiscal 2013 and fiscal 2012, the intrinsic value of stock option exercises was $18,387, and $8,860 respectively.

 
 
 
Unvested Options
 
 
 
Number of Shares
 
Weighted Average Grant Date Fair Value
Balance at March 31, 2010
 
—

 
—

 
Granted
 
—

 
—

 
Vested
 
—

 
—

 
Forfeited
 
—

 
—

Balance at April 30, 2010
 
—

 
—

 
Granted
 
2,757,524

 
2.97

 
Vested
 
—

 
—

 
Forfeited
 
—

 
—

Balance at March 31, 2011
 
2,757,524

 
2.97

 
Granted
 
117,600

 
5.99

 
Vested
 
(2,757,524
)
 
2.97

 
Forfeited
 
—

 
—

Balance at March 31, 2012
 
117,600

 
5.99

 
Granted
 
56,532

 
12.26

 
Vested
 
(23,520
)
 
5.99

 
Forfeited
 
(4,386
)
 
8.32

Balance at March 31, 2013
 
146,226

 
8.34



For fiscal 2013, fiscal 2012, we recorded stock based compensation of $1,341 and $6,514, respectively, and from the period from May 1, 2010 to March 31, 2011, we recorded expense of $1,939. No options were issued for the period from April 1, 2010 to April 30, 2010. Total unrecognized expense related to non-vested stock option awards was approximately $1,053 as of March 31, 2013. We anticipate this expense will be recognized over a weighted average period of approximately 3.51 years.

The following table summarizes information about stock options outstanding as of March 31, 2013:

 
 
Options Outstanding
 
Options Vested and Exercisable
Exercise Prices
 
Number Outstanding
 
Weighted Average Contractual Life (Years)
 
Weighted Average Exercise Price
 
Aggregate Intrinsic Value at March 31, 2013
 
Number Vested and Exercisable
 
Weighted Average Contractual Life (Years)
 
Weighted Average Exercise Price
 
Aggregate Intrinsic Value at March 31, 2013
$5.20
 
883,904

 
7.55
 
$
5.20

 
$
15,035,207

 
883,904

 
 
 
$
5.20

 
 
$9.82
 
89,740

 
7.91
 
$
9.82

 
1,111,879

 
89,740

 
 
 
$
9.82

 
 
$12.00
 
104,230

 
8.12
 
$
12.00

 
1,064,188

 
10,150

 
 
 
$
12.00

 
 
$21.52
 
54,906

 
9.34
 
$
21.52

 
37,885

 
—

 
 
 

 
 
$5.20-$21.52
 
1,132,780

 
7.71
 
$
6.98

 
$
17,249,159

 
983,794

 
7.66
 
$
5.71

 
$
16,250,718


The aggregate intrinsic value in the preceding table represents the total intrinsic value based on our closing price of $22.21 as of March 31, 2013, which would have been received by the option holders had all option holders exercised as of that date.
Stock options are valued by using a Black-Scholes-Merton option pricing model. 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. The expected life was determined using the simplified method for estimating expected option life, which qualify as “plain-vanilla” options. Due to the fact that the common stock underlying the options was not publicly traded for an equivalent period of the expected term of the options, the expected volatility was based on a comparable group of companies in conjunction with the historical volatility from traded shares of our stock. 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.
The following table reflects the assumptions used for the past two fiscal years and in the period from May 1, 2010 to March 31, 2011. No options were granted in the period from April 1, 2010 to April 30, 2010.
 
 
 
Year Ended March 31, 2013
 
Year Ended March 31, 2012
 
Period from May 1, 2010 to March 31, 2011
 
Expected life
 
6.5

 
6.66

 
6.66

 
Expected volatility
 
59.9
%
 
45.0
%
 
45.0
%
 
Risk free interest rate
 
0.98
%
 
3.25
%
 
2.02
%
 
Dividend expense yield
 
—

 
—

 
—



Restricted Stock Awards and Units

Restricted stock awards have been issued to members of our board of directors and restricted stock units have been issued to certain employees. For restricted stock awards, the actual common shares have been issued with voting rights and are included as part of our total common shares outstanding. The common shares may not be sold or exchanged until the vesting period is completed. For restricted stock units, no common shares are issued until the vesting period is completed. For both restricted stock awards and units, fair value is determined by the market value of our common stock on the date of the grant

The following table summarizes the activity with regard to unvested restricted stock awards during fiscal 2013 and fiscal 2012. (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 13, "Members' Equity (Predecessor)")

 
Restricted Stock Awards
 
Number of Shares
 
Weighted Average Grant Price
Balance at March 31, 2011
 
—

 
$
—

 
Granted
 
16,136

 
12.42

 
Exercised
 
—

 
—

 
Forfeited
 
—

 
—

Balance of unvested awards at March 31, 2012
 
16,136

 
12.42

 
Granted
 
13,012

 
21.52

 
Exercised
 
(8,068
)
 
12.42

 
Forfeited
 
—

 
—

Balance of unvested awards at March 31, 2013
 
21,080

 
$
18.09



Based on our closing stock price of $22.21, the aggregate intrinsic value of the unvested restricted stock awards at March 31, 2013 was $468. Total unrecognized expense related to unvested restricted stock awards was approximately $130 as of March 31, 2013. We anticipate this expense to be recognized over a weighted average period of approximately 0.3 years.

The following table summarizes the activity with regard to unvested restricted stock units during fiscal 2013 and fiscal 2012. (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 13, "Members' Equity (Predecessor)")

 
Restricted Stock Units
 
Number of Shares
 
Weighted Average Grant Fair Value
Balance at March 31, 2011
 
—

 
—

 
Granted
 
—

 
—

 
Exercised
 
—

 
—

 
Forfeited
 
—

 
—

Balance of unvested units at March 31, 2012
 
—

 
—

 
Granted
 
71,923

 
21.52

 
Exercised
 
—

 
—

 
Forfeited
 
(814
)
 
—

Balance of unvested units at March 31, 2013
 
71,109

 
21.52




Based on our closing stock price of $22.21, the aggregate intrinsic value of the unvested restricted stock units at March 31, 2013 was $1,579. Total unrecognized expense related to unvested restricted stock awards was approximately $1,204 as of March 31, 2013. We anticipate this expense to be recognized over a weighted average period of approximately 1.41 years.

Performance Stock Units
During fiscal 2013, performance stock unit awards were 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. The fair value of the performance units will be expensed over three years, 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. At March 31, 2013, there was $438 in stock compensation that remained to be expensed.