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Earnings Per Share and Stock Plans

12 Months Ended

Mar. 31, 2020

Earnings per Share and Stock Plans

Earnings per Share

The Company calculates earnings per share in accordance with ASC Topic 260, “Earnings per Share.” Basic earnings per share exclude any dilutive effects of options, warrants, and convertible securities. Diluted earnings per share include any dilutive effects of stock options, unvested restricted stock units, unvested performance shares, and unvested restricted stock. Stock options and performance shares with respect to 196,000 and 128,000 common shares were not included in the computation of diluted earnings per share for fiscal 2020 and 2019, respectively, because they were antidilutive. For the years ended March 31, 2020 and 2019, an additional 40,000 and 153,000, respectively, in contingently issuable shares were not included in the computation of diluted earnings per share because a performance condition had not yet been met.

The following table sets forth the computation of basic and diluted earnings per share (share data presented in thousands):



	Year Ended March 31,
Numerator for basic and diluted earnings per share:	2020		2019		2018
Net income	$	59,672	$	42,577	$	22,065

Denominators:
Weighted-average common stock outstanding— denominator for basic EPS	23,619		23,276		22,841
Effect of dilutive employee stock options, RSU's and performance shares	236		384		494

Adjusted weighted-average common stock outstanding and assumed conversions— denominator for diluted EPS	23,855		23,660		23,335

The weighted-average common stock outstanding shown above is net of unallocated ESOP shares (see Note 14).

During fiscal 2018, the Company adopted ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" (ASU No. 2016-09). Among other modifications to accounting for stock based compensation, this ASU requires that assumed proceeds from excess tax benefits and deficiencies are no longer included in the calculation of weighted-average diluted common stock outstanding and are recorded as income tax expense or benefit in the statement of operations. Refer to Note 17 for the impact the adoption had on the Company's financial statements.

Stock Plans

The Company records stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock Compensation,” applying the modified prospective method. This Statement requires all equity-based payments to employees, including grants of employee stock options, to be recognized in the statement of earnings based on the grant date fair value of the award. Under the modified prospective method, the Company is required to record equity-based compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards outstanding as of the date of adoption.

The Company grants share based compensation to eligible participants under the 2016 Long Term Incentive Plan, as Amended and Restated in June 2019 ("2016 LTIP"). The total number of shares of common stock with respect to which awards may be granted under the 2016 LTIP were increased by 2,500,000 as a result of the June 2019 amendment. Shares not previously

authorized for issuance under any of the prior stock plans and any shares not issued or subject to outstanding awards under the prior stock plans are still available for issuance. Details of the shares granted under these plans are discussed below.

Prior to the adoption of the 2016 LTIP, the Company granted stock awards under the 2010 Long Term Incentive Plan and the 2006 Long Term Incentive Plan, collectively referred to as the “Prior Stock Plans.”

Stock based compensation expense was $4,507,000, $6,198,000, and $5,586,000 for fiscal 2020, 2019, and 2018, respectively. The decrease in stock based compensation expense in fiscal 2020 is primarily related to shares that were forfeited when the Company's Chief Executive Officer (CEO) resigned on January 10, 2020. The forfeiture resulted in the reversal of $1,981,000 in stock compensation expense during fiscal 2020 recorded as a reduction to General and administrative expenses.

Stock compensation expense is included in cost of products sold, selling, general and administrative, and research and development expenses depending on the nature of the service of the employee receiving the award. The Company recognizes expense for all share–based awards over the service period, which is the shorter of the period until the employees’ retirement eligibility dates or the service period for the award, for awards expected to vest. Accordingly, expense is generally reduced for estimated forfeitures. ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The Company recognized compensation expense for stock option awards and unvested restricted share awards that vest based on time or market parameters straight-line over the requisite service period for vesting of the award.

Long Term Incentive Plan

Under the 2016 LTIP, the total number of shares of common stock with respect to which awards may be granted under the plan is 2,500,000 in addition to shares not previously authorized for issuance under any of the prior stock plans and any shares not issued or subject to outstanding awards under the prior stock plans. As of March 31, 2020, 3,033,000 shares remain for future grants. The 2016 LTIP was designed as an omnibus plan and awards may consist of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, or stock bonuses.

Under the 2016 LTIP, the granting of awards to employees may take the form of options, restricted shares, and performance shares. The Compensation Committee of our Board of Directors determines the number of shares, the term, the frequency and date, the type, the exercise periods, any performance criteria pursuant to which awards may be granted, and the restriction and other terms and conditions of each grant in accordance with terms of the Plan.

In connection with the acquisition of Magnetek, the Company agreed to continue the 2014 Stock Incentive Plan of Magnetek, Inc. (the "Magnetek Stock Plan"). In doing so, the Company has available under the Magnetek Stock Plan 164,461 of the Company's shares which can be granted to certain employees as stock-based compensation.

Stock Option Plans

Options outstanding under the 2016 LTIP generally become exercisable over a four-year period at a rate of 25% per year commencing one year from the date of grant and have an exercise price of not less than 100% of the fair market value of the common stock on the date of grant.

A summary of option transactions during each of the three fiscal years in the period ended March 31, 2020 is as follows:



	Shares		Weighted- average Exercise Price per share		Weighted- average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at April 1, 2017	1,063,894		19.10		6.98	$	6,477
Granted	227,783		24.33
Exercised	(363,091	)	17.43
Cancelled	(6,136	)	19.83
Outstanding at March 31, 2018	922,450		21.04		7.56	$	13,654
Granted	133,743		38.70
Exercised	(187,907	)	22.09
Cancelled	(33,509	)	23.94
Outstanding at March 31, 2019	834,777		23.52		7.04	$	9,602
Granted	171,515		35.16
Exercised	(296,027	)	20.26
Cancelled	(183,471	)	31.01
Outstanding at March 31, 2020	526,794		26.53		6.93	$	1,518
Exercisable at March 31, 2020	225,337		$	22.67	5.74	$	858

The Company calculated intrinsic value for those options that had an exercise price lower than the market price of our common shares as of March 31, 2020. The aggregate intrinsic value of outstanding options as of March 31, 2020 is calculated as the difference between the exercise price of the underlying options and the market price of our common shares for the 302,505 options that were in-the-money at that date. The aggregate intrinsic value of exercisable options as of March 31, 2020 is calculated as the difference between the exercise price of the underlying options and the market price of our common shares for the 177,251 exercisable options that were in-the-money at that date. The Company's closing stock price was $25.00 as of March 31, 2020. The total intrinsic value of stock options exercised was $5,438,000, $3,577,000, and $5,851,000 during fiscal 2020, 2019, and 2018, respectively.

The grant date fair value of options that vested was $7.43, $7.36, and $7.42 during fiscal 2020, 2019, and 2018, respectively.

As of March 31, 2020, $1,961,000 of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average period of approximately 2.6 years.

Exercise prices for options outstanding as of March 31, 2020, ranged from $13.43 to $38.70. The following table provides certain information with respect to stock options outstanding at March 31, 2020:



	Stock Options Outstanding	Weighted-average Exercise Price		Weighted-average Remaining Contractual Life
Range of Exercise Prices
$10.01 to 20.00	152,666	$	15.56	5.64
$20.01 to 30.00	177,705	$	24.89	6.20
$30.01 to $40.00	196,423	$36.59		8.61
	526,794	$	26.53	6.93

The following table provides certain information with respect to stock options exercisable at March 31, 2020:



Range of Exercise Prices	Stock Options Exercisable	Weighted- average Exercise Price per share
$10.01 to $20.00	89,764	$	15.85
$20.01 to $30.00	115,353	25.19
$30.01 to $40.00	20,220	38.58
	225,337	$	22.67

The fair value of stock options granted was estimated on the date of grant using a Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The weighted-average grant date fair value of the options was $12.39, $13.56, and $7.66 for options granted during fiscal 2020, 2019, and 2018, respectively. The following table provides the weighted-average assumptions used to value stock options granted during fiscal 2020, 2019, and 2018:



	Year Ended March 31, 2020		Year Ended March 31, 2019		Year Ended March 31, 2018
Assumptions:
Risk-free interest rate	2.23	%	2.64	%	1.42	%
Dividend yield	0.68	%	0.52	%	0.66	%
Volatility factor	0.372		0.352		0.343
Expected life	5.5 years		5.5 years		5.5 years

To determine expected volatility, the Company uses historical volatility based on daily closing prices of its Common Stock over periods that correlate with the expected terms of the options granted. The risk-free rate is based on the United States Treasury yield curve at the time of grant for the appropriate term of the options granted. Expected dividends are based on the Company's history and expectation of dividend payouts. The expected term of stock options is based on vesting schedules, expected exercise patterns and contractual terms.

Restricted Stock Units

The Company granted restricted stock units under the 2016 LTIP during fiscal 2020, 2019, and 2018 to employees as well as to the Company’s non-executive directors as part of their annual compensation. Restricted stock units for employees vest ratably based on service one-quarter after each of years one, two, three, and four.

A summary of the restricted stock unit awards granted under the Company’s LTIP plan as of March 31, 2020 is as follows:



	Shares		Weighted-average Grant Date Fair Value per share
Unvested at April 1, 2017	370,256		$	19.32
Granted	136,935		29.38
Vested	(157,448	)	20.39
Forfeited	(12,954	)	17.99
Unvested at March 31, 2018	336,789		$	22.62
Granted	116,942		37.90
Vested	(211,932	)	22.66
Forfeited	(11,602	)	25.18
Unvested at March 31, 2019	230,197		$	30.22
Granted	151,351		38.40
Vested	(106,792	)	31.09
Forfeited	(62,035	)	31.61
Unvested at March 31, 2020	212,721		$	35.20

Total unrecognized compensation cost related to unvested restricted stock units as of March 31, 2020 is $4,954,000 and is expected to be recognized over a weighted average period of 2.4 years. The fair value of restricted stock units that vested during the year ended March 31, 2020 and 2019 was $3,320,000 and $4,802,000, respectively.

Performance Shares

The Company granted performance shares under the 2016 LTIP during fiscal 2020, 2019, and 2018. Performance based shares are recognized as compensation expense based upon their grant date fair value and to the extent it is probable that the performance conditions will be met. This expense is recognized ratably over the three year period that these shares are restricted. Fiscal 2017 performance shares granted vest pursuant to a performance condition based upon the Company’s Consolidated Net Sales. During fiscal 2019, the Company determined that the fiscal year 2017 performance shares would not vest due to the performance condition not being met. Fiscal 2018 performance shares granted vest pursuant to a performance condition based upon the Company’s Consolidated Net Sales. During fiscal 2019, the Company determined that the fiscal year 2018 performance shares were earned based on the performance condition being met. Fiscal 2019 performance shares granted vest pursuant to a performance condition based upon the Company’s Consolidated EBITDA margin for the twelve months ended March 31, 2020. During fiscal 2020, the Company determined that the fiscal year 2019 performance shares were earned based on the performance condition being met. Fiscal 2020 performance shares granted vest pursuant to a performance condition based upon the Company’s Consolidated EBITDA margin for the twelve months ended March 31, 2021. At this time we believe it is probable that the March 31, 2021 performance condition will be met.

A summary of the performance shares transactions during each of the three fiscal years in the period ended March 31, 2020 is as follows:



	Shares		Weighted-average Grant Date Fair Value per share
Unvested at April 1, 2017	118,853		$	18.92
Granted	49,221		25.28
Forfeited	(41,504	)	24.94
Unvested at March 31, 2018	126,570		$	19.42
Granted	34,695		36.43
Forfeited	(7,879	)	22.40
Unvested at March 31, 2019	153,386		$	23.11
Granted	38,585		37.67
Forfeited	(125,251	)	22.67
Unvested at March 31, 2020	66,720		$	32.36

The Company had $1,335,000 in unrecognized compensation costs related to the unvested performance share awards as of March 31, 2020.

Directors Stock

During fiscal 2020, 2019, and 2018, a total of 11,768, 10,031, and 16,667 shares of stock, respectively, were granted under the 2016 LTIP to the Company’s non-executive directors as part of their annual compensation. The weighted average fair value grant price of those shares was $39.09, $41.88, and $25.80 for fiscal 2020, 2019, and 2018, respectively. The expense related to the shares for fiscal 2020 was $460,000 and $430,000 for fiscal years 2018 and 2019.

Shareholder Rights Plan

On March 29, 2018 the Company announced that its Board of Directors had amended the Company's Shareholder Rights Plan, which accelerated the expiration of the Company's preferred share purchase rights to March 31, 2018. Prior to its expiration, preferred share purchase right holders could exercise their rights if a person or group acquired 20% or more of the Company’s common shares or announced a tender offer for 20% or more of the common shares.

Dividends

On March 24, 2020 the Company's Board of Directors approved payment of a quarterly dividend of $0.06 per common share, representing an annual dividend rate of $0.24 per share. The dividend was paid on May 14, 2020 to shareholders of record on May 4, 2020 and totaled approximately $1,430,000.

Stock Repurchase Plan

On March 26, 2019, the Board of Directors approved a new stock repurchase program authorizing the repurchase of up to $20 million of the Company's common stock. No repurchases were made during the fiscal years ended March 31, 2020 or 2019.