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 340,000, 282,000, and 114,000 common shares were not included in the computation of diluted earnings per share for fiscal 2017, 2016, and 2015, respectively, because they were antidilutive. For the year ended March 31, 2017 an additional 119,000 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:	2017		2016		2015
Net income (loss)	$	8,984	$	19,579	$	27,190

Denominators:
Weighted-average common stock outstanding— denominator for basic EPS	20,591		20,079		19,939
Effect of dilutive employee stock options, RSU's and performance shares	297		236		285

Adjusted weighted-average common stock outstanding and assumed conversions— denominator for diluted EPS	20,888		20,315		20,224

The weighted-average common stock outstanding shown above is net of unallocated ESOP shares (see Note 13).

During fiscal 2017, the Company entered into an agreement to sell in aggregate 2,273,000 shares of Common Shares to the following purchasers: Adage Capital Management, LP; Heights Capital Management, Inc.; and UBS O'Connor LLC. The sale of the shares closed on January 30, 2017 at a price per Common Share of $22.00, generating gross proceeds of approximately $50,000,000. The purchase agreement for the shares requires the Company to file an initial registration statement registering the common shares issued to the purchasers for resale. The filing of the registration statement was completed and declared effective on April 28, 2017.

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.

Prior to the adoptions of the 2010 Long Term Incentive Plan, the Company maintained several different stock plans, specifically: 1995 Incentive Stock Option Plan, Non-Qualified Stock Option Plan, Restricted Stock Plan and 2006 Long Term Incentive Plan, collectively referred to as the “Prior Stock Plans.” The specifics of each of these plans are discussed below.

Stock based compensation expense was $5,914,000, $4,063,000, and $3,895,000 for fiscal 2017, 2016, and 2015, respectively. Fiscal 2017 expense includes additional expense related to the retirement of the Company's former CEO in February 2017. At the time the former CEO retired, all outstanding stock awards immediately vested resulting in additional stock compensation expense of $1,427,000.

Stock compensation expense is included in cost of goods sold, selling, and general and administrative expenses. 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

On July 18, 2016, the shareholders of the Company approved the 2016 Long Term Incentive Plan (“LTIP” or the "Plan") which replaced the 2010 Long Term Incentive Plan. The Company grants share based compensation to eligible participants under the 2016 LTIP. The total number of shares of common stock with respect to which awards may be granted under the plan is 2,000,000 including 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, 2017, 1,402,194 shares remain for future grants. The 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 Plan, 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

Existing prior to the adoption of the LTIP, the Company maintained two stock option plans, a Non-Qualified Stock Option Plan ("Non-Qualified Plan") and an Incentive Stock Option Plan ("Incentive Plan"). Effective with adoption of the LTIP no new grants can be made from the Non-Qualified Plan or the Incentive Stock Plan. Options outstanding under the Non-Qualified Plan or the Incentive Stock Plan generally become exercisable over a four-year period at a rate of 25% per year commencing one year from the date of grant and exercise price of not less than 100% of the fair market value of the common stock on the date of grant. Options granted under the Non-Qualified Plan or the Incentive Stock Plan are exercisable not earlier than one year and not later than ten years from the date such option was granted.

A summary of option transactions during each of the three fiscal years in the period ended March 31, 2017 is as follows:



	Shares		Weighted- average Exercise Price		Weighted- average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at April 1, 2014	612,506		17.05
Granted	118,060		27.08
Exercised	(87,210	)	18.41
Cancelled	(31,207	)	15.71
Outstanding at March 31, 2015	612,149		18.86
Granted	157,999		24.94
Exercised	(16,033	)	15.07
Cancelled	(35,314	)	21.90
Outstanding at March 31, 2016	718,801		20.13		6.64	$	465
Granted	398,945		17.00
Exercised	(27,848	)	15.76
Cancelled	(26,004	)	19.06
Outstanding at March 31, 2017	1,063,894		19.10		6.98	$	6,477
Exercisable at March 31, 2017	481,883		$	18.48	4.90	$	3,233

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, 2017. The aggregate intrinsic value of outstanding options as of March 31, 2017 is calculated as the difference between the exercise price of the underlying options and the market price of our common shares for the 723,796 options that were in-the-money at that date. The aggregate intrinsic value of exercisable options as of March 31, 2017 is calculated as the difference between the exercise price of the underlying options and the market price of our common shares for the 377,058 exercisable options that were in-the-money at that date. The Company's closing stock price was $24.82 as of March 31, 2017. The total intrinsic value of stock options exercised was $252,000, $81,000, and $839,000 during fiscal 2017, 2016, and 2015, respectively.

The grant date fair value of options that vested was $8.56, $8.85, and $8.52 during fiscal 2017, 2016, and 2015, respectively.

Cash received from option exercises under all share-based payment arrangements during fiscal 2017 and 2016 was approximately $439,000 and $242,000, respectively. Proceeds from the exercise of stock options under stock option plans are credited to common stock at par value and the excess is credited to additional paid-in capital.

As of March 31, 2017, $2,226,671 of unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted-average period of approximately 2.9 years.

Exercise prices for options outstanding as of March 31, 2017, ranged from $13.10 to $28.45. The following table provides certain information with respect to stock options outstanding at March 31, 2017:



	Stock Options Outstanding	Weighted-average Exercise Price		Weighted-average Remaining Contractual Life
Range of Exercise Prices
$10.01 to 20.00	723,796	$	15.87	6.55
$20.01 to 30.00	340,098	25.96		7.87
	1,063,894	$	19.10	6.98

The following table provides certain information with respect to stock options exercisable at March 31, 2017:



Range of Exercise Prices	Stock Options Exercisable	Weighted- average Exercise Price
$10.01 to $20.00	377,058	$	16.25
$20.01 to $30.00	104,825	26.49
	481,883	$	18.48

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 highly 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 $5.59, $8.58, and $10.67 for options granted during fiscal 2017, 2016, and 2015, respectively. The following table provides the weighted-average assumptions used to value stock options granted during fiscal 2017, 2016, and 2015:



	Year Ended March 31, 2017		Year Ended March 31, 2016		Year Ended March 31, 2015
Assumptions:
Risk-free interest rate	1.07	%	0.82	%	0.70	%
Dividend yield	0.98	%	0.60	%	0.60	%
Volatility factor	0.379		0.391		0.453
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 LTIP during fiscal 2017, 2016, and 2015 to employees as well as to the Company’s non-executive directors as part of their annual compensation. Restricted stock units for employees prior to fiscal 2017 vest ratably based on service one-third after each of years three, four, and five. Beginning in fiscal 2017 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, 2017 is as follows:



	Shares		Weighted-average Grant Date Fair Value
Unvested at April 1, 2014	200,594		$	17.53
Granted	85,821		26.38
Vested	(91,439	)	19.03
Forfeited	(13,961	)	17.16
Unvested at March 31, 2015	181,015		$	20.99
Granted	287,585		19.86
Vested	(87,380	)	20.20
Forfeited	(9,718	)	22.65
Unvested at March 31, 2016	371,502		$	20.26
Granted	171,407		18.06
Vested	(162,502	)	19.93
Forfeited	(10,151	)	22.81
Unvested at March 31, 2017	370,256		$	19.32

Total unrecognized compensation cost related to unvested restricted stock units as of March 31, 2017 is $5,578,000 and is expected to be recognized over a weighted average period of 2.6 years. The fair value of restricted stock units that vested during the year ended March 31, 2017 and 2016 was $3,238,000 and $2,049,000, respectively.

Performance Shares

The Company granted performance shares under the LTIP during fiscal 2017, 2016, and 2015. Performance shares granted are based upon the Company’s Consolidated Net Revenue for the two year period ended March 31, 2018, March 31, 2017, and March 31, 2016, respectively. Fiscal year 2017, 2016, and 2015 performance based nonvested shares are recognized as compensation expense based upon their grant date fair value. This expense is recognized ratably over the three year period that these shares are restricted. During fiscal 2017, the Company determined that the fiscal year 2017 and 2016 performance shares would not vest due to the performance condition not being met. The Company reversed $181,000 in stock compensation expense related to these performance shares that was previously recorded in fiscal 2016.

A summary of the performance shares transactions during each of the three fiscal years in the period ended March 31, 2017 is as follows:



	Shares		Weighted-average Grant Date Fair Value
Unvested at April 1, 2014	150,191		$	23.11
Granted	35,001		27.12
Vested	(37,627	)	24.65
Forfeited	(34,118	)	24.74
Unvested at March 31, 2015	113,447		$	23.35
Granted	41,504		24.94
Vested	(53,298	)	19.25
Unvested at March 31, 2016	101,653		$	26.15
Granted	77,349		$	15.69
Vested	(25,148	)	26.79
Forfeited	(35,001	)	27.12
Unvested at March 31, 2017	118,853		$	18.92

The Company had no unrecognized compensation costs related to the unvested performance share awards as of March 31, 2017 as the performance criteria is not expected to be met. The fair value of performance shares that vested during the year ended March 31, 2017 was $674,000.

Directors Stock

During fiscal 2017, 2016, and 2015, a total of 27,960, 19,384, and 17,304 shares of stock, respectively, were granted under the 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 $15.74, $22.70, and $25.43 for fiscal 2017, 2016, and 2015, respectively. The expense related to the shares for fiscal 2017, 2016, and 2015 was $440,000 for each of the three years.

Shareholder Rights Plan

On May 19, 2009 the Company announced that its Board of Directors had adopted a Shareholder Rights Plan, pursuant to which a dividend distribution was declared of one preferred share purchase right to each outstanding common share of the Company. Subject to limited exceptions, the rights will be exercisable if a person or group acquires 20% or more of the Company’s common shares or announces a tender offer for 20% or more of the common shares. Under certain circumstances, each right will entitle shareholders to buy one one-thousandth of a share of the newly created series A junior participating preferred shares of the Company at an exercise price of $80.00 per share.

Dividends

On March 27, 2017 the Company's Board of Directors approved payment of a quarterly dividend of $0.04 per common share, representing an annual dividend rate of $0.16 per share. The dividend was paid on May 15, 2017 to shareholders of record on May 5, 2017 and totaled approximately $903,000.