Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.20.1
Stock-Based Compensation
12 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
The Company’s stock-based compensation plans are broad-based, long-term retention programs intended to attract and retain talented employees and align stockholder and employee interests.
The major components of stock-based compensation expense are as follows (amounts in thousands):
 
 
Fiscal year ended March 31, 2020
 
Fiscal year ended March 31, 2019
 
Fiscal year ended March 31, 2018
 
 
RSUs
 
LTIPs
 
RSUs
 
LTIPs
 
RSUs
 
LTIPs
Cost of sales
 
$
2,185

 
$
1,658

 
$
1,502

 
$
1,254

 
$
865

 
$
654

Selling, general and administrative expenses
 
4,831

 
2,972

 
7,338

 
2,413

 
4,195

 
1,695

Research and development
 
146

 
292

 
88

 
271

 
46

 
202

 
 
$
7,162

 
$
4,922

 
$
8,928

 
$
3,938

 
$
5,106

 
$
2,551


As of March 31, 2020, the KEMET Corporation Omnibus Incentive Plan (the “Incentive Plan”), which amended and restated the KEMET Corporation 2014 Amendment and Restatement of the KEMET Corporation 2011 Omnibus Equity Incentive Plan, approved by the Company’s stockholders on August 2, 2017, is the only plan the Company has to issue equity-based awards to executives and key employees. Upon adoption of the Incentive Plan, no further awards were permitted to be granted under the Company’s prior plans, including the 1992 Key Employee Stock Option Plan, the 1995 Executive Stock Option Plan, and the 2004 Long-Term Equity Incentive Plan (collectively, the “Prior Plans”).
The Incentive Plan has authorized, in the aggregate, the grant of up to 12.2 million shares of the Company’s Common Stock, comprised of 11.4 million shares under the Incentive Plan and 0.8 million shares remaining from the Prior Plans and authorizes the Company to provide equity-based compensation in the form of:
stock options, including incentive stock options, entitling the optionee to favorable tax treatment under Section 422 of the Code;
stock appreciation rights;
restricted stock and restricted stock units ("RSUs");
other share-based awards; and
performance awards.
Options issued under these plans vest within one to three years and expire ten years from the grant date. There have been no new option grants since fiscal year 2014, and all options were fully vested as of March 31, 2017.
If available, the Company issues shares of Common Stock from treasury stock upon exercise of stock options and vesting of restricted stock units. The Company has no plans to purchase additional shares in conjunction with its employee stock option plans in the near future.
Employee stock option activity for fiscal year 2020 is as follows:
 
 
Options (in thousands)
 
Weighted-
Average
Exercise
Price
Outstanding at April 1, 2019
 
155

 
$
6.37

Exercised
 
(59
)
 
5.46

Expired
 
(4
)
 
4.47

Outstanding and exercisable at March 31, 2020
 
92

 
7.04

 
 
 
 
 
Remaining weighted average contractual life of options outstanding and exercisable (years)
 
 

 
2.28

Amounts included in the following table are in thousands, except weighted average fair value and weighted average exercise price:
 
 
Fiscal Years Ended
March 31,
 
 
2020
 
2019
 
2018
Intrinsic value
 
 
 
 
 
 
Stock options exercised
 
963

 
1,296

 
6,914

Options outstanding and currently exercisable
 
1,574

 
1,644

 
2,713


All option plans provide that options to purchase shares be supported by the Company’s authorized but unissued common stock or treasury stock. All restricted stock and performance awards are also supported by the Company’s authorized but unissued common stock or treasury stock. The prices of the options granted pursuant to these plans are not less than 100% of the value of the shares on the date of the grant.
Restricted Stock Units (“RSU’s”) and Long-term Incentive Plans (“LTIP”)
The Company grants RSUs to members of the Board of Directors (“Board”), the Chief Executive Officer and a limited group of executives. In fiscal year 2020, RSUs granted to the Board vested immediately and time-based RSUs granted to certain officers under the key manager stock program vest over 3 years. Once vested and settled, RSUs are converted into stock. For members of the Board and key members of management, such stock cannot be sold until 90 days after termination of service with the Company, or until the individual achieves the targeted ownership under the Company’s stock ownership guidelines, and then only to the extent that such ownership exceeds the target. As of March 31, 2020, and 2019, unrecognized compensation costs related to the non-vested restricted stock share-based compensation arrangements granted were $7.3 million and $8.0 million, respectively. The expense is being recognized over the respective vesting periods.
Historically the Board of the Company has approved annual LTIPs which cover two-year periods and are primarily based upon the achievement of an adjusted EBITDA range for the two-year period. At the time of the award, the individual
plans entitle the participants to receive cash or RSUs, or a combination of both as determined by the Company's Board. The Company assesses the likelihood of meeting the Adjusted EBITDA financial metric on a quarterly basis and adjusts compensation expense to match expectations. The 2017/2018 LTIP, 2018/2019 LTIP, 2019/2020 LTIP and 2020/2021 LTIP also awarded time-based RSUs which vest over the course of three years from the grant date and are not subject to a performance metric. Any related liability (for the cash portion of the LTIP) is reflected in the line item “Accrued expenses” on the Consolidated Balance Sheets and any RSU commitment is reflected in the line item “Additional paid-in capital” on the Consolidated Balance Sheets. As of March 31, 2020, and 2019, unrecognized compensation costs related to the cash portion of LTIP arrangements granted were $1.9 million and $2.4 million, respectively. As of March 31, 2020, and 2019, unrecognized compensation costs related to the stock portion of LTIP arrangements granted were $3.9 million and $4.1 million, respectively. The expense is being recognized over the respective vesting periods.
The following is the performance-based vesting schedule of RSUs under each respective LTIP, subject to the respective participant’s continued employment with KEMET (shares in thousands):
 
 
2020/2021 (1)
 
2019/2020 (1)
 
2018/2019 (2)
 
2017/2018 (2)
Performance-based award vesting fiscal year 2021
 

 
99

 

 

Potential performance-based award vesting fiscal year 2022
 
49

 
98

 

 

Potential performance-based award vesting fiscal year 2023
 
49

 

 

 

______________________________________________________________________________
(1) Estimated shares to vest based upon current performance expectations. The final number of shares depends on the achievement of performance metrics.
(2) The performance portion of the 2018/2019 and 2017/2018 LTIP are payable in cash.
The following is the time-based vesting schedule of RSUs under each respective LTIP, subject to the respective participant’s continued employment with KEMET (shares in thousands):
 
 
2020/2021
 
2019/2020
 
2018/2019
 
2017/2018
Time-based award vested fiscal year 2020
 

 
53

 
58

 
156

Time-based award vesting fiscal year 2021
 
63

 
50

 
55

 

Time-based award vesting fiscal year 2022
 
63

 
51

 

 

Time-based award vesting fiscal year 2023
 
65

 

 

 


RSU activity, including performance-based and time-based LTIP activity, for fiscal year 2020 is as follows (amounts in thousands except fair value):
 
 
Shares
 
Weighted-
average
Fair Value on
Grant Date
Non-vested RSUs at April 1, 2019
 
1,415

 
$
15.19

Granted
 
626

 
21.89

Vested (1)
 
(640
)
 
12.08

Forfeited
 
(59
)
 
18.49

Non-vested RSUs at March 31, 2020
 
1,342

 
$
19.66

______________________________________________________________________________
(1) 37,377 in RSUs were settled for $0.4 million in cash.
In the Operating activities section of the Consolidated Statements of Cash Flows, stock-based compensation expense is treated as an adjustment to net income for fiscal years 2020, 2019 and 2018.