Note 4: Stock-Based Compensation

The Company's stock-based incentive plans for employees consist of the following: (1) a discretionary equity program for management and other key employees, and (2) a long-term incentive compensation program for officers and key executives that consists of a stock option component and restricted stock components granted for retention and performance.

In addition to the stock-based incentive plans for employees, stock options and stock awards may be granted to non-employee directors. The Company's Board of Director's and the Officer Nomination and Compensation Committee, as applicable, have discretionary authority to set the terms of the awards of stock under the Company's 2008 Incentive Compensation Plan.

Stock Options: Compensation expense recorded in fiscal 2013, 2012 and 2011 related to stock options was $1.1 million, $1.3 million and $1.6 million, respectively. The total fair value of stock options vesting during the year ended March 31, 2013 was $1.3 million. As of March 31, 2013, the total compensation expense not yet recognized related to non-vested stock options was $1.0 million and the weighted average period in which the remaining expense is expected to be recognized is 1.7 years.

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 2013, 2012 and 2011:

	2013			2012			2011
Weighted average fair value of options	$	4.26		$	10.45		$	6.43
Expected life of awards in years		6.3			6.3			6.3
Risk-free interest rate		0.9	%		1.9	%		2.4	%
Expected volatility of the Company's stock		87.4	%		79.6	%		78.0	%
Expected dividend yield on the Company's stock		0.0	%		0.0	%		0.0	%

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. 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 zero as the Company currently does not anticipate paying dividends 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 outstanding options granted vest 25 percent at grant date and 25 percent annually thereafter for the next three years. A pre-vesting forfeiture rate of 2.5 percent was used for these periods as an estimate of expected forfeitures prior to completing the required service period.

A summary of stock option activity for fiscal 2013 was as follows:

						Weighted average
				Weighted average		remaining contractual		Aggregate
	Shares			exercise price		term (years)		intrinsic value

Outstanding, April 1, 2012		1.8		$	16.37
Granted		0.2			5.79
Exercised		-			5.01
Forfeited or expired		(0.3	)		21.78
Outstanding, March 31, 2013		1.7		$	14.03		5.6	$	2.6

Exercisable, March 31, 2013		1.5		$	15.15		5.0	$	2.0

The aggregate intrinsic value represents the difference between the closing price of Modine common shares on the last trading day of fiscal 2013 over the exercise price of the stock options, multiplied by the number of options outstanding or exercisable. The aggregate intrinsic 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 fiscal 2013, 2012 and 2011 were as follows:

	2013		2012		2011

Intrinsic value of stock options exercised	$	0.1	$	0.2	$	0.7
Proceeds from stock options exercised	$	0.1	$	0.5	$	1.5

Restricted Stock: A summary of restricted stock activity for fiscal 2013 was as follows:

				Weighted
				average
	Shares			price
Non-vested balance, April 1, 2012		0.2		$	8.49
Granted		0.5			6.07
Vested		(0.2	)		6.77
Non-vested balance, March 31, 2013		0.5		$	6.91

Compensation expense related to restricted stock, using straight-line amortization, in fiscal 2013, 2012 and 2011 was $1.8 million, $1.1 million, and $1.0 million, respectively. At March 31, 2013, Modine had approximately $2.8 million of total unrecognized compensation cost related to non-vested restricted stock, which is expected to be recognized over a weighted average period of 2.8 years.

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 awarded 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.

The performance component of the long-term incentive compensation program in fiscal 2011 was based on a target compound annual growth rate in adjusted earnings before interest, taxes, depreciation and amortization ("EBITDA") over a three year period and a target consolidated return on average capital employed ("ROACE") at the end of the three year period. These performance targets were not achieved as of March 31, 2013. For the program initiated in fiscal 2012, the performance award was based on a target three year average consolidated ROACE 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 program initiated in fiscal 2013, the performance award was based on a target three year average consolidated ROACE, cumulative revenue over the three year performance period and Europe ROACE at the end of the three year performance period. The Company currently considers the attainment of two of these performance targets to be probable.

For fiscal 2013, 2012, and 2011, Modine recorded compensation expense of $0.2 million, compensation income of $0.8 million and compensation expense $1.4 million, respectively, related to performance awards. At March 31, 2013, Modine had approximately $1.0 million of total unrecognized compensation cost related to unvested performance-based restricted stock, which is expected to be recognized over a weighted average period of 2.0 years.

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, 2.5 million shares are available for the granting of additional options and awards at March 31, 2013.