Note 23: Stock purchase, option and award plans

The Company's long-term stock-based incentive plans for employees consist of the following: (1) a discretionary stock option program for top managers and other key employees, and (2) a long-term incentive compensation program for officers and key executives that consists of a stock option component, restricted stock component granted for retention and performance and discretionary unrestricted stock. In fiscal 2010, there was no performance component of the long-term incentive compensation program. The performance component of the long-term incentive compensation program initiated in fiscal 2011 is based on a target compound annual growth rate in adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) over a three year period (weighted at 60 percent) and a target return on average capital employed (ROACE) at the end of the three-year period (weighted at 40 percent). Adjusted EBITDA is defined as earnings (loss) from continuing operations before interest expense and provision for income taxes, adjusted to exclude unusual, non-recurring or extraordinary non-cash charges and cash restructuring and repositioning charges and further adjusted to add back depreciation and amortization expense. ROACE is defined as net earnings adding back after tax interest expense and adjusted to exclude unusual, non-recurring or extraordinary non-cash charges and cash restructuring and repositioning charges; divided by the average total debt, less cash, plus shareholders' equity. The performance component of the long-term incentive compensation program initiated in fiscal 2012 is based on a three-year average ROACE and a target improvement in economic profit at the end of the three-year performance period, with each weighted at 50 percent. For purposes of the fiscal 2012 performance shares, ROACE is adjusted to exclude unusual, non-recurring or extraordinary non-cash charges and cash restructuring and repositioning charges in excess of $4,000; divided by the average total debt plus shareholders' equity. Economic profit is defined as ROACE minus a fixed weighted average cost of capital, multiplied by total debt plus shareholders' equity.

In addition to the long-term stock-based incentive plans for employees, stock options and stock awards may be granted to non-employee directors. The Board and the Officer Nomination and Compensation Committee, as applicable, have broad discretionary authority to set the terms of the awards of stock under the Company's 2008 Incentive Compensation Plan. Stock options expire no later than 10 years after the grant date and have an exercise price equal to the fair market value of the common stock on the date of the grant. Unrestricted stock awards granted vest immediately.

The fulfillment of equity-based grants is currently being accomplished through the issuance of new common shares. Under the Company's 2008 Incentive Compensation Plan, 3,696 shares are available for the granting of additional options and awards at March 31, 2012.

Accounting guidance for stock-based compensation requires the cash flow resulting from the tax deductions in excess of the compensation cost recognized for stock-based incentive plans (excess tax benefits) to be classified as financing cash flows. As of March 31, 2012, $810 of carryforwards related to windfall tax benefits are available to be recorded in additional paid-in capital when realized.

Stock Options: The fair value of the option awards is estimated on the date of grant using the Black-Scholes option valuation model with the following assumptions for stock options granted in fiscal 2012, 2011 and 2010:

	2012			2011			2010
Weighted average fair value of options	$	10.45		$	6.43		$	3.34
Risk-free interest rate		1.93	%		2.36	%		3.19	%
Expected volatility of the Company's stock		79.56	%		77.99	%		72.95	%
Expected dividend yield on the Company's stock		0.00	%		0.00	%		0.00	%
Expected life of options - years		6.3			6.3			6.1

Stock options granted have an exercise price equal to the fair market value of the common stock on the date of grant. The risk-free interest rate was based on yields of U.S. zero-coupon issues with a term equal to the expected life of the option for the week the options were granted. The expected volatility assumption was derived by referring to changes in the Company's historical common stock prices over the same time frame as the expected life of the awards. The expected dividend yield is 0% as the Company does not anticipate paying dividends over the expected life of the options. The Company anticipates reinvesting its cash flows into the operations of the business over the expected life of the options. The expected lives of the awards are based on historical patterns and the terms of the options. All options granted vest 25% at grant date and 25% annually thereafter for the next three years. A pre-vesting forfeiture rate of 2.5% was used for these periods as an estimate of expected forfeitures prior to completing the required service period.

Compensation expense recorded in fiscal 2012, 2011 and 2010 related to stock options was $1,335, $1,564 and $1,052 respectively. The total fair value of stock options vesting during the year ended March 31, 2012 was $1,213. As of March 31, 2012, the total compensation expense not yet recognized related to non-vested stock options was $1,328 and the weighted average period in which the remaining expense is expected to be recognized is approximately 1.9 years.

A summary of the stock option activity for the years ended March 31, 2012, 2011 and 2010 is as follows:

Years ended March 31	2012					2011					2010
				Weighted					Weighted					Weighted
				average					average					average
				exercise					exercise					exercise
	Shares			price		Shares			price		Shares			price

Outstanding, April 1		2,298		$	17.84		2,657		$	20.05		2,472		$	24.51
Granted		140			14.90		304			8.58		666			5.01
Exercised		(82	)		5.60		(144	)		10.22		(48	)		5.18
Forfeited or expired		(540	)		23.87		(519	)		25.92		(433	)		24.04
Outstanding, March 31		1,816		$	16.37		2,298		$	17.84		2,657		$	20.05

Exercisable, March 31		1,503		$	17.82		1,887		$	20.32		2,237		$	22.84

The accompanying table summarizes information about stock options outstanding at March 31, 2012:

	Options Outstanding								Options Exercisable
Range of exercise prices	Shares		Weighted average remaining contractual life (years)		Weighted average exercise price		Aggregate intrinsic value		Shares		Weighted average exercise price		Aggregate intrinsic value
$5.01 - $14.43		949		6.9	$	8.25	$	1,731		736	$	8.68	$	1,251
$14.44 - $21.17		327		4.2		18.01		-		227		19.36		-
$21.18 - $27.89		143		4.1		27.22		-		143		27.22		-
$27.90 - $32.61		397		2.4		30.48		-		397		30.48		-
$5.01 - $32.61		1,816		5.2	$	16.37	$	1,731		1,503	$	17.82	$	1,251

The aggregate intrinsic value in the preceding table represents the pre-tax difference between the closing price of Modine common shares on the last trading day of fiscal 2012 over the exercise price of the stock option, multiplied by the number of options outstanding or exercisable. The aggregate value shown is not recorded for financial statement purposes and the value will change based upon daily changes in the fair value of Modine's common shares.

Additional information related to stock options exercised during the years ended March 31, 2012, 2011 and 2010 were as follows:

Years ended March 31	2012		2011		2010

Intrinsic value of stock options exercised	$	243	$	703	$	297
Proceeds from stock options exercised	$	457	$	1,467	$	250

Restricted Stock: A summary of the restricted stock activity for the fiscal years ended March 31, 2012, 2011 and 2010 is as follows:

Years ended March 31	2012					2011					2010
	Weighted		Shares			Weighted		Shares			Weighted		Shares
	average		subject to			average		subject to			average		subject to
	price		restrictions			price		restrictions			price		restrictions
Non-vested balance, April 1	$	7.56		202		$	8.03		163		$	20.98		91
Granted		13.97		182			8.97		159			5.45		208
Vested		14.65		(132	)		10.14		(118	)		13.09		(105	)
Forfeited		8.28		(13	)		5.01		(2	)		11.12		(31	)
Non-vested balance, March 31	$	8.49		239		$	7.56		202		$	8.03		163

At March 31, 2012, Modine had approximately $1,847 of total unrecognized compensation cost related to non-vested restricted stock. The cost is expected to be recognized over a weighted average period of 3.1 years. The amounts charged to operations using straight-line amortization in fiscal 2012, 2011 and 2010 were $1,136, $1,017, and $1,399, respectively. Under the Company's restricted award provisions, employees of foreign subsidiaries can immediately sell their shares once the shares vest. There were no sales of restricted stock by employees of foreign subsidiaries in fiscal 2012, 2011 or 2010.

Retention restricted stock awards are granted at fair market value and vest annually over a period of four years. Management has made an estimate (based upon historical rates) of expected forfeitures and is recognizing compensation costs for those restricted shares expected to vest.

Restricted Stock - Performance-Based Shares: Shares are earned under the performance portion of the restricted stock award program based on the attainment of corporate financial goals over a three-year period and are paid at the end of that three-year performance period if the performance targets have been achieved. A new performance period may begin each fiscal year so multiple performance periods, with separate goals, operate simultaneously.

There was no performance component of the long-term incentive compensation program in fiscal 2010. For the program initiated in fiscal 2011, the performance award was based on a target compound annual growth rate in adjusted EBITDA over a three-year period and a target ROACE at the end of the three-year period. The Company currently considers the attainment of one of these performance targets to be probable. For the program initiated in fiscal 2012, the performance award was based on a target three-year average ROACE (as adjusted) and a target improvement in economic profit at the end of the three-year performance period. The Company currently does not consider the attainment of these performance targets to be probable.

For the years ended March 31, 2012, 2011, and 2010, Modine recorded compensation income of $839 and compensation expense of $1,411 and $274, respectively, related to the performance awards. At March 31, 2012, Modine had approximately $1,268 of total unrecognized compensation cost related to unvested performance-based restricted stock. That cost is expected to be recognized over a weighted average period of 1.0 year.