Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.19.1
Stock-Based Compensation
12 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [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, 2019
 
Fiscal year ended March 31, 2018
 
Fiscal year ended March 31, 2017
 
 
Stock
Options
 
Restricted
Stock
 
LTIPs
 
Stock
Options
 
Restricted
Stock
 
LTIPs
 
Stock
Options
 
Restricted
Stock
 
LTIPs
Cost of sales
 
$

 
$
1,502

 
$
1,254

 
$

 
$
865

 
$
654

 
$
21

 
$
634

 
$
729

Selling, general and administrative expenses
 

 
7,338

 
2,413

 

 
4,195

 
1,695

 
20

 
1,490

 
1,620

Research and development
 

 
88

 
271

 

 
46

 
202

 
1

 
26

 
179

 
 
$

 
$
8,928

 
$
3,938

 
$

 
$
5,106

 
$
2,551

 
$
42

 
$
2,150

 
$
2,528


Employee Stock Options
As of March 31, 2019, 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.
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 2019 is as follows:
 
 
Options (in thousands)
 
Weighted-
Average
Exercise
Price
Outstanding at April 1, 2018
 
230

 
$
6.36

Exercised
 
(74
)
 
6.42

Expired
 
(1
)
 
1.92

Outstanding at March 31, 2019
 
155

 
6.37

Exercisable at March 31, 2019
 
155

 
$
6.37

 
 
 
 
 
Remaining weighted average contractual life of options exercisable (years)
 
 

 
2.84

Remaining weighted average contractual life of options outstanding (years)
 
 

 
2.84

    
Amounts included in the following table are in thousands, except weighted average fair value and weighted average exercise price:
 
 
Fiscal Years Ended
March 31,
 
 
2019
 
2018
 
2017
Weighted average grant-date fair value of non-vested shares
 
$

 
$

 
$
2.72

Weighted average grant-date fair value of shares
 
 
 
 
 
 
Granted
 

 

 

Vested
 

 

 
2.72

Forfeited
 

 

 
2.72

Total estimated fair value of shares vested
 

 

 
223

Intrinsic value
 
 
 
 
 
 
Stock options exercised
 
1,296

 
6,914

 
890

Options outstanding
 
1,644

 
2,713

 

Options currently exercisable
 
1,644

 
2,713

 

Total unrecognized compensation cost, non-vested options
 

 

 

Weighted-average period of recognition for unrecognized compensation cost (in years)
 
N/A

 


 

Weighted average exercise price of stock options expected to vest
 
N/A

 


 


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 2019, RSUs granted to the Board vested immediately and RSUs granted to certain officers under the key manager stock program vest over 3 years. Once vested, RSUs are converted into restricted shares of common stock, except for RSUs granted to members of the Board, who can elect to defer settlement of the RSUs to a later date. Restricted shares cannot be sold until 90 days after the Chief Executive Officer, executive, key manager, or member of the Board, as applicable, resigns from his or her position, or until the KEMET employee achieves the targeted ownership under the Company’s stock ownership guidelines, and only to the extent that such ownership exceeds the target. As of March 31, 2019, and 2018, unrecognized compensation costs related to the non-vested restricted stock share-based compensation arrangements granted were $8.0 million and $8.1 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 2016/2017 LTIP, 2017/2018 LTIP, 2018/2019 LTIP and 2019/2020 LTIP also awarded time-based RSUs which vest over the course of three years from the anniversary of the establishment of the plan 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 restricted stock commitment is reflected in the line item “Additional paid-in capital” on the Consolidated Balance Sheets. As of March 31, 2019 and 2018, unrecognized compensation costs related to the cash portion of LTIP arrangements granted were $2.4 million and $0.1 million, respectively. As of March 31, 2019 and 2018, unrecognized compensation costs related to the stock portion of LTIP arrangements granted were $4.1 million and $1.6 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):
 
 
2019/2020
 
2018/2019 (1)
 
2017/2018 (1)
 
2016/2017
Performance-based award vested fiscal year 2019
 

 

 

 
173

Performance-based award vesting fiscal year 2020
 
104

 

 

 

Potential performance-based award vesting fiscal year 2021 (2)
 
104

 

 

 

___________________________________________
(1) The performance portion of the 2018/2019 and 2017/2018 LTIP are payable in cash.
(2) Estimated shares to vest based upon current performance expectations. The final number of shares depends on the achievement of performance metrics.
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):
 
 
2019/2020
 
2018/2019
 
2017/2018
 
2016/2017
Time-based award vested fiscal year 2019
 
13

 
85

 
224

 
191

Time-based award vesting fiscal year 2020
 
53

 
58

 
156

 

Time-based award vesting fiscal year 2021
 
53

 
60

 

 

Time-based award vesting fiscal year 2022
 
54

 

 

 

RSU activity, including performance-based and time-based LTIP activity, for fiscal year 2019 is as follows (amounts in thousands except fair value):
 
 
Shares
 
Weighted-
average
Fair Value on
Grant Date
Non-vested restricted stock at April 1, 2018 
 
2,452

 
$
7.96

Granted
 
910

 
19.43

Vested (1)
 
(1,789
)
 
7.67

Forfeited (2)
 
(158
)
 
12.68

Non-vested restricted stock at March 31, 2019
 
1,415

 
$
15.19

__________________________________________
(1) 33,292 in RSUs were settled for $0.2 million in cash.
(2) 85,956 in RSUs were forfeited by Per-Olof Loof, the Company's former Chief Executive Officer upon his resignation in December 2018.
Vested shares in the table above include the acceleration of 275,000 shares related to the April 18, 2018 Amended and Restated Employment Agreement for the former Chief Executive Officer, which amended and restated Mr. Loof's prior employment agreement with the Company dated June 29, 2015. Upon the signing of the Amended and Restated Employment Agreement, certain RSUs previously granted to Mr. Loof on June 29, 2015, totaling 175,000 shares, and on September 6, 2017, totaling 100,000 shares, both of which were scheduled to vest over time, became fully vested. Incremental compensation cost resulting from the modification totaled $1.7 million.
Additionally, vested shares in the table above include the acceleration of 44,302 shares related to the March 20, 2019 Employment Agreement for the current Chief Executive Officer William Lowe. Upon the signing of the Employment Agreement, certain RSUs previously granted to Mr. Lowe on May 18, 2016, totaling 20,220 shares, May 18, 2017, totaling 11,237 shares, and May 18, 2018, totaling 12,845 shares, each of which were scheduled to vest over time, became fully vested. Incremental compensation cost resulting from the modification totaled $0.2 million.
In the Operating activities section of the Consolidated Statements of Cash Flows, stock-based compensation expense was treated as an adjustment to net income for fiscal years 2019, 2018 and 2017.