Shareholders’ Equity

Plan to Repurchase Common Stock

In September 2015, the Board of Directors authorized the repurchase of up to $100.0 million of the Company's outstanding common stock through September 1, 2017. The Company purchased and retired no shares of outstanding common stock in fiscal 2018, 280,168 shares of outstanding common stock for $9.8 million in fiscal 2017 and 1,997,298 shares for $62.3 million in fiscal 2016, for a total under the repurchase plan of 2,277,466 shares for $71.9 million. The program expired on September 1, 2017.

Dividends

We paid dividends totaling $14.7 million, $13.7 million and $13.5 million during fiscal 2018, 2017 and 2016, respectively.

2014 Incentive Plan

On July 15, 2014, our Board of Directors, on the recommendation of our Compensation Committee, adopted the Methode Electronics, Inc. 2014 Omnibus Incentive Plan (the “2014 Incentive Plan”). The stockholders approved the 2014 Incentive Plan in September 2014. The 2014 Incentive Plan provides for discretionary grants of stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units and performance units to key employees and directors.

The 2014 Incentive Plan is intended to align the interests of our eligible directors and employees with the interests of our shareholders, recognize the contributions made by our directors and employees, provide additional incentives to our directors and employees to promote the success of our businesses, and improve our ability to attract and retain qualified employees and directors.

The number of shares of our common stock that may be issued under the 2014 Incentive Plan is 3,000,000, less one share for every one share of common stock issued or issuable pursuant to awards made after May 3, 2014 under the 2007 Stock Plan or 2010 Stock Plan. Awards that may be settled only in cash will not reduce the number of shares available for issuance under the 2014 Incentive Plan.

Shares issuable under the 2014 Incentive Plan may be authorized but unissued shares or treasury shares. If any award granted under the 2014 Incentive Plan (or, after May 3, 2014, an award under the 2007 Stock Plan or 2010 Stock Plan) expires, terminates, is forfeited or canceled, is settled in cash in lieu of shares of common stock, or is exchanged for a non-stock award under certain circumstances, the shares subject to the award will again be available for issuance under the 2014 Incentive Plan. As of April 28, 2018, there were 1,186,034 shares available for award under the 2014 Incentive Plan.

Restricted Stock Awards ("RSAs")

In fiscal 2016, the Compensation Committee of the Board of Directors authorized a new long-term incentive program (the “LTIP”) for key employees consisting of performance-based RSAs and time-based restricted stock units (“RSUs”). Additionally, in fiscal 2018, the Compensation Committee awarded a maximum of 128,738 RSAs to additional key members of management under the LTIP.

In the aggregate, the number of RSAs earned will vary based on performance relative to established goals for fiscal 2020 EBITDA, with 50% of the target shares earned for threshold performance (representing 390,413 shares), 100% of the target shares earned for target performance (representing 780,825 shares) and 150% of the target shares earned for maximum performance (representing 1,171,238 shares). Prior to the third quarter of fiscal 2018, the Company had been recording the RSA compensation expense based on target performance.

Per ASC 718 accounting guidance, management is required in each reporting period to determine the fiscal 2020 EBITDA level that is "probable" (70% confidence) for which a performance condition will be achieved. During the third quarter of fiscal 2018, management determined that, mainly due to lower projections for our Dabir business, it is currently not probable that the Company will meet the fiscal 2020 target consolidated EBITDA performance level of $221.0 million. The adverse timing of revenue is a result of hospital adoption patterns (initial care setting penetration and expansion) being slower and more gradual than originally planned for our Dabir Surfaces business. In the third quarter of fiscal 2018, the Company began recording the RSA compensation expense based on the threshold EBITDA performance level of $198.9 million. As a result, the Company recorded a $6.0 million compensation expense reversal in the third quarter of fiscal 2018 related to prior periods for these performance-based RSAs. This reversal of compensation expense had the effect of increasing basic and diluted earnings per share for fiscal 2018 by $0.12.

At the threshold level of performance, the expected expense for the RSAs is $12.2 million through fiscal 2020. In the fiscal year ended April 28, 2018, the Company recorded a net reversal of expense of $2.0 million related to the RSAs based on threshold levels. These amounts are inclusive of the $6.0 million compensation expense reversal discussed above. During the fiscal year ended April 29, 2017, the Company recorded $5.7 million in compensation expense related to the RSAs, based on target levels. During the fiscal year ended April 30, 2016, the Company recorded $2.8 million in compensation expense related to the RSAs, based on target levels.

In future reporting periods, if management makes a determination that exceeding the threshold level is probable for fiscal 2020, an appropriate adjustment to compensation expense will be recorded in that period. In addition, if management makes a determination that it is not probable the Company will meet the threshold level for fiscal 2020, a reversal of compensation expense will be recorded in that period. The adjustments could be material to the financial statements.

Restricted Stock Units

In fiscal 2018, the Compensation Committee awarded 30,925 RSUs to Methode management. In the aggregate, the Company has granted 638,925 RSUs to key employees, of which 382,372 are still outstanding. The RSUs are subject to a vesting period, with 30% which vested on April 28, 2018, 30% vesting on April 27, 2019 and 40% vesting on May 2, 2020. The total expense for the RSUs is expected to be $18.4 million through fiscal 2020. During the fiscal years ended April 28, 2018, April 29, 2017 and April 30, 2016, the Company recorded $5.0 million, $5.5 million and $2.8 million, respectively, of compensation expense related to the RSUs.

Director Awards

During fiscal 2018, the Company issued 24,000 shares of common stock to our independent directors, all of which vested immediately upon grant. We recorded $1.0 million of compensation expense related to these shares during the fiscal year ended April 28, 2018.

The following table summarizes the RSA and RSU activity for fiscal 2016, fiscal 2017 and fiscal 2018 under the 2014 Incentive Plan:



	RSA Shares		RSU Shares
Unvested and Unissued at May 2, 2015	—		—
Awarded	1,185,000		576,000
Vested	(24,000	)	—
Forfeited and Canceled	—		—
Unvested and Unissued at April 30, 2016	1,161,000		576,000
Awarded	99,000		32,000
Vested	(27,000	)	(11,333	)
Forfeited and Canceled	(64,500	)	(28,667	)
Unvested and Unissued at April 29, 2017	1,168,500		568,000
Awarded	152,738		30,925
Vested	(24,000	)	(160,553	)
Forfeited and Canceled	(126,000	)	(56,000	)
Unvested and Unissued at April 28, 2018	1,171,238		382,372



Grant Fiscal Year	Number of Shares Unvested		Vesting Period	Weighted Average Value		Probable Unearned Compensation Expense at April 28, 2018		Target Unearned Compensation Expense at April 28, 2018
2016, 2017 and 2018	363,413	⁽¹⁾	Five-year RSA cliff, performance-based	$	34.11	$	5.5	$	11.0
2016, 2017 and 2018	382,372		Five-year RSU, 30% in fiscal 2018, 30% in fiscal 2019 and 40% in fiscal 2020	$	35.85	$	5.1	$	5.1

⁽¹⁾RSA shares based on fiscal 2020 EBITDA threshold levels

2010 Stock Plan

The 2010 Stock Plan permits a total of 2,000,000 shares of our common stock to be awarded to participants in the form of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, and performance share units. The 2010 Stock Plan is designed to allow for "performance-based compensation" under Section 162(m) of the Internal Revenue Code of 1986, as amended. As such, qualified awards payable pursuant to the 2010 Stock Plan should be deductible for federal income tax purposes under most circumstances. In the event of a change in control, the vesting of all outstanding option awards will be accelerated. With the approval of the 2014 Incentive Plan, no further awards shall be granted under the 2010 Stock Plan.

Stock Options Awarded Under the 2010 Stock Plan

There were no options awarded in fiscal 2016, fiscal 2017 or fiscal 2018 under the 2010 Stock Plan. The previously awarded stock options have a ten-year term and vested 33.3% each year over a three-year period. The exercise price is the closing price on the date granted.

The following tables summarize the stock option activity and related information for fiscal 2018, 2017 and 2016 for the stock options granted under the 2010 Stock Plan:



	Summary of Option Activity
	Shares		Wtd. Avg. Exercise Price
Outstanding at May 2, 2015	242,667		$	24.50
Awarded	—		—
Exercised	(18,668	)	12.96
Canceled	(26,667	)	32.07
Outstanding at April 30, 2016	197,332		24.55
Awarded	—		—
Exercised	(125,332	)	17.40
Canceled	—		—
Outstanding at April 29, 2017	72,000		37.01
Awarded	—		—
Exercised	—		—
Canceled	—		—
Outstanding at April 28, 2018	72,000		$	37.01



Options Outstanding at April 28, 2018
Shares	Exercise Price		Avg. Remaining Life (Years)
72,000	$	37.01	6.3



Options Exercisable at April 28, 2018
Shares	Exercise Price		Avg. Remaining Life (Years)
72,000	$	37.01	6.3

The options outstanding had an intrinsic value of $0.3 million at April 28, 2018. The intrinsic value represents the total pre-tax intrinsic value (the difference between the Company's closing stock price on the last trading day of fiscal 2018 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on April 28, 2018.

We estimated the fair value of these stock options on the date of grant using the Black-Scholes option-pricing model with the following assumptions:



	2010 Stock Plan
	Fiscal 2015 Awards
Average Expected Volatility	51.00		%
Average Risk-free Interest Rate	1.00		%
Dividend Yield	1.66		%
Expected Life of Options (in years)	4.12
Weighted-average Grant-date Fair Value	$	14.99

Expected volatility was based on the monthly changes in our historical common stock prices over the expected life of the award. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant corresponding to the expected life of the options. Our dividend yield is based on the average dividend yield for the previous two years from the date of grant. The expected life of options is based on historical stock option exercise patterns and the terms of the options.

Restricted Stock and Restricted Stock Units Awarded Under the 2010 Stock Plan

During fiscal 2012, our Compensation Committee awarded 100,000 shares of common stock subject to performance-based restricted stock awards ("RSAs") to certain non-executive members of management. The performance measure was the Company's internal enterprise value at the end of fiscal 2015. The internal enterprise value was equal to the product of (i) fiscal 2015 EBITDA and (ii) 7.5 (the historic multiple of EBITDA), subject to an adjustment for cash, short-term investments, debt, preferred stock, certain equity issuances, certain acquisitions and the changes in the dividend rate. The restricted stock awards vested one-third as of the end of fiscal 2015, one-third as of the end of fiscal 2016 and the final one-third as of the end of fiscal 2017, based on the enterprise value as of the end of fiscal 2015, to the extent the performance goals have been achieved and provided the employee remained employed. The Company exceeded the targeted internal enterprise value measure for fiscal 2015.

During fiscal 2011, our Compensation Committee awarded 320,000 shares of common stock subject to time-based restricted stock units to certain executive officers. The restricted stock units vested 20% each year on the last day of our fiscal year and were fully vested on the last day of fiscal 2015, provided the executive remained employed. The shares of common stock underlying the vested RSUs will not be delivered to the employee until after the employee terminates employment from the Company. As of April 28, 2018, 210,000 shares of common stock have not yet been delivered to the employees, due to their continued employment with the Company.

The following table summarizes the RSA activity for fiscal years 2018, 2017 and 2016 under the 2010 Stock Plan:



	RSA Shares
Unvested and Unissued at May 2, 2015	66,667
Awarded	—
Vested	(33,333	)
Forfeited and Canceled	—
Unvested and Unissued at April 30, 2016	33,334
Awarded	—
Vested	(33,334	)
Forfeited and Canceled	—
Unvested and Unissued at April 29, 2017	—
Awarded	—
Vested	—
Forfeited and Canceled	—
Unvested and Unissued at April 28, 2018	—

2007 Stock Plan

The 2007 Stock Plan permitted a total of 1,250,000 shares of our common stock to be awarded to participants. Shares issued under the Stock Plan may be either authorized but unissued shares, or treasury shares. With the approval of the 2014 Incentive Plan, no further awards shall be granted under the 2007 Stock Plan.

Stock Options Awarded Under the 2007 Stock Plan

There were no shares awarded for the 2007 Stock Plan in fiscal 2018, fiscal 2017 or fiscal 2016. The stock options awarded under the 2007 Stock Plan have a ten-year term. The exercise price is the closing price on the date granted.

The following tables summarize the stock option activity and related information for the stock options granted under the 2007 Stock Plan for fiscal year 2018, 2017 and 2016:



	Summary of Option Activity
	Shares		Wtd. Avg. Exercise Price
Outstanding at May 2, 2015	108,000		$	24.21
Awarded	—		—
Exercised	(28,334	)	10.99
Canceled	—		—
Outstanding at April 30, 2016	79,666		28.91
Awarded	—		—
Exercised	(22,497	)	21.52
Canceled	—		—
Outstanding at April 29, 2017	57,169		31.82
Awarded	—		—
Exercised	(13,333	)	24.67
Canceled	(1,668	)	37.01
Outstanding at April 28, 2018	42,168		$	33.87



Options Outstanding at April 28, 2018
Shares	Exercise Price		Avg. Remaining Life (Years)
5,000	$	10.55	2.2
37,168	$	37.01	6.3
42,168	$	33.87



Options Exercisable at April 28, 2018
Shares	Exercise Price		Avg. Remaining Life (Years)
5,000	$	10.55	2.2
37,168	$	37.01	6.3
42,168	$	33.87

We estimated the fair value of these stock options on the date of grant using the Black-Scholes option-pricing model with the following assumptions:



	Fiscal 2015 Awards
Average Expected Volatility	51.00		%
Average Risk-free Interest Rate	1.00		%
Dividend Yield	1.66		%
Expected Life of Options (in years)	4.12
Weighted-average Grant-date Fair Value	$	14.99

The options outstanding had an intrinsic value of $0.3 million at April 28, 2018.

Restricted Stock Awards Awarded Under the 2007 Stock Plan

In April 2007, 225,000 shares of common stock subject to performance-based RSAs granted to our CEO in fiscal 2006 and 2007 were converted to RSUs. The RSUs were subject to the same vesting schedule and other major provisions of the RSAs they replaced, except the shares of stock underlying the RSUs will not be issued and delivered until the earlier of: (1) thirty days after the CEO’s date of termination of employment with the Company and all of its subsidiaries and affiliates; or (2) the last day of our fiscal year in which the payment of common stock in satisfaction of the RSUs becomes deductible to the Company under Section 162(m) of the Code. The RSUs are not entitled to voting rights or dividends, however a bonus in lieu of dividends is paid. The RSU’s were fully vested as of April 28, 2018. As of April 28, 2018, 29,945 shares have been delivered in connection with the RSUs with a remaining balance to be delivered of 195,055 shares.

Stock-based Compensation

We recognize pre-tax compensation expense for stock options, RSA's and RSU's under our 2014 Incentive Plan and our 2010 and 2007 Stock Plans in the selling and administrative section of our Consolidated Statements of Income. Our awards subject to graded vesting are recognized using the accelerated recognition method. As of April 28, 2018, we had 10.6 million of unrecognized equity-based compensation cost that we expect to recognize over a weighted average period of 2.0 years.

The table below summarizes the expense related to the equity awards for fiscal 2018, 2017 and 2016.



	Compensation Expense
	Fiscal 2018			Fiscal 2017		Fiscal 2016
2014 Incentive Plan:
RSAs	$	(1.0	)	$	6.6	$	3.6
RSUs	5.0			5.5		2.8
Total 2014 Incentive Plan	4.0			12.1		6.4

2010 Stock Plan:
RSUs	—			0.1		0.1
Stock Options	—			0.1		0.3
Total 2010 Stock Plan	—			0.2		0.4

2007 Stock Plan:
Stock Options	—			0.1		0.6
Total 2007 Stock Plan	—			0.1		0.6

Total Compensation Expense	$	4.0		$	12.4	$	7.4