| Share-Based Compensation | NOTE G – SHARE-BASED COMPENSATION
The 1999 Stock Option Plan
Activity in the Company’s 1999 Stock Option Plan for the six
months ended June 30, 2016 was as follows:
Number of Weighted Weighted Aggregate
Outstanding at January 1, 2016 12,000 $ 41.44
Granted 0 $ 0.00
Exercised 0 $ 0.00
Forfeited 0 $ 0.00
Outstanding (exercisable and vested) at June 30, 2016 12,000 $ 41.44 1.3 $ 33
There were no stock options exercised during the six months ended
June 30, 2016 or 2015.
The Company recorded no compensation expense related to stock
options for the six months ended June 30, 2016 and 2015 as all
options were fully vested.
Long Term Incentive Plan of 2008 and 2016 Incentive Plan
The Company maintains an equity award program to give the Company a
competitive advantage in attracting, retaining, and motivating
officers, employees and directors and to provide an incentive to
those individuals to increase shareholder value through long-term
incentives directly linked to the Company’s performance.
Under the Preformed Line Products Company Long Term Incentive Plan
of 2008 (the “LTIP”), certain employees, officers, and
directors were eligible to receive awards of options, restricted
shares and restricted share units (RSUs). The total number of
Company common shares reserved for awards under the LTIP was
900,000, of which 800,000 common shares were reserved for RSUs and
100,000 common shares have been reserved for share options. The
LTIP was terminated and replaced with the Preformed Line Products
Company 2016 Incentive Plan (the “Incentive Plan”) in
May 2016 upon approval by the Company’s Shareholders at the
2016 Annual Meeting of Shareholders on May 10, 2016. No
further awards will be made under the LTIP and previously granted
awards remain outstanding in accordance with their terms. Under the
Incentive Plan, certain employees, officers, and directors will be
eligible to receive awards of options, restricted shares and RSUs.
The total number of Company common shares reserved for awards under
the Incentive Plan is 1,000,000. Of the 1,000,000 common shares,
900,000 common shares have been reserved for restricted share
awards and 100,000 common shares have been reserved for share
options. As of June 30, 2016, no options or restricted shares
have been granted under the Incentive Plan. The Incentive Plan
expires on May 10, 2026.
Restricted Share Units
For the regular annual grants, a portion of the RSUs is subject to
time-based cliff vesting and a portion is subject to vesting based
upon the Company’s performance over a three-year period for
all participants except the CEO. All of the CEO’s regular
annual RSUs are subject to vesting based upon the Company’s
performance over a three-year period.
The RSUs are offered at no cost to the employees; however, the
participant must remain employed with the Company until the
restrictions on the RSUs lapse. The fair value of RSUs is based on
the market price of a common share on the grant date. The Company
currently estimates that no time-based RSUs will be forfeited.
Dividends declared are accrued in cash.
A summary of the RSUs outstanding under the LTIP for the six months
ended June 30, 2016 is as follows:
Restricted Share Units
Performance Total Weighted-Average
and Service Service Restricted Grant-Date
Required Required Share Units Fair Value
Nonvested as of January 1, 2016 91,603 10,872 102,475 $ 53.88
Granted 79,241 9,901 89,142 33.73
Vested 0 0 0 0.00
Forfeited 0 0 0 0.00
Nonvested as of June 30, 2016 170,844 20,773 191,617 $ 44.51
For time-based RSUs, the Company recognizes stock-based
compensation expense on a straight-line basis over the requisite
service period of the award in General and administrative expense
in the accompanying Statements of Consolidated Income. Compensation
expense related to the time-based RSUs for the three and six months
ended June 30, 2016 was $.1 million and $.2 million,
respectively. Compensation expense related to the time-based RSUs
for the three and six months ended June 30, 2015 was $.1
million and $.2 million, respectively. As of June 30, 2016,
there was $.5 million of total unrecognized compensation cost
related to time-based RSUs that is expected to be recognized over
the weighted-average remaining period of approximately 2 years.
For the performance-based RSUs, the number of RSUs in which the
participants will vest depends on the Company’s level of
performance measured by growth in pre-tax income and sales growth
over a requisite performance period. Depending on the extent to
which the performance criterions are satisfied under the LTIP, the
participants are eligible to earn common shares over the vesting
period. Performance-based compensation expense for the three and
six months ended June 30, 2016 was $.1 million and $.3
million, respectively. During the three and six months ended
June 30, 2016, a $.3 million and $.3 million reduction in
performance-based compensation expense was recorded related to the
2015 performance-based RSU grant, due to changes in estimates for
growth in sales and operating income. Performance-based
compensation expense for the three months ended June 30, 2015
was income of $.2 million. Performance-based compensation expense
for the six months ended June 30, 2015 was expense of $.2
million. During the three and six months ended June 30, 2015,
a $.5 million and $.1 million reduction, respectively, in
performance-based compensation expense was recorded related to the
2013 performance-based RSU grant, due to changes in estimates for
growth in sales. During the three and six months ended
June 30, 2015, a $.4 million and $.6 million reduction,
respectively, in performance-based compensation expense was
recorded related to the 2014 performance-based RSU grant, due to
changes in estimates for growth in sales and pre-tax income. As of
June 30, 2016, the remaining performance-based RSUs
compensation expense of $2.6 million is expected to be recognized
over a period of approximately 2.4 years.
The excess tax benefits from time and performance-based RSUs for
the six months ended June 30, 2016 and 2015, was less than $.1
million for each period, as reported on the Statements of
Consolidated Cash Flows in financing activities, and represents the
reduction in income taxes otherwise payable during the period,
attributable to the actual gross tax benefits in excess of the
expected tax benefits for RSUs vested in the current period.
In the event of a Change in Control (as defined in the LTIP),
vesting of the RSUs will be accelerated and all restrictions will
lapse. Unvested performance-based awards are based on a maximum
potential payout. Actual shares awarded at the end of the
performance period may be less than the maximum potential payout
level depending on achievement of performance-based award
objectives.
To satisfy the vesting of its RSU awards, the Company has reserved
new shares from its authorized but unissued shares. Any additional
granted awards will also be issued from the Company’s
authorized but unissued shares.
Share Option Awards
The LTIP plan permitted the grant of 100,000 options to buy common
shares of the Company to certain employees at not less than fair
market value of the shares on the date of grant. Options issued to
date under the LTIP vest 50% after one year following the date of
the grant, 75% after two years, and 100% after three years, and
expire from five to ten years from the date of grant. Shares issued
as a result of stock option exercises will be funded with the
issuance of new shares.
The Company utilizes the Black-Scholes option pricing model for
estimating fair values of options. The Black-Scholes model requires
assumptions regarding the volatility of the Company’s stock,
the expected life of the stock award and the Company’s
dividend yield. The Company utilizes historical data in determining
these assumptions. The risk-free rate for periods within the
contractual life of the option is based on the U.S. zero coupon
Treasury yield in effect at the time of grant. Forfeitures have
been estimated to be zero.
There were no options granted for the six months ended
June 30, 2016 and 2015, respectively.
Activity in the Company’s LTIP plan for six months ended
June 30, 2016 was as follows:
Number of Weighted Weighted Aggregate
Outstanding at January 1, 2016 56,250 $ 55.30
Granted 0 $ 0.00
Exercised 0 $ 0.00
Forfeited (3,000 ) $ 71.62
Outstanding (vested and expected to vest) at June 30, 2016 53,250 $ 54.38 6.3 $ 5
Exercisable at June 30, 2016 30,500 $ 58.24 7 $ 0
For the three and six months ended June 30, 2016, the Company
recorded compensation expense related to the stock options
currently vesting of less than $.1 million and $.1 million,
respectively. For the three and six months ended June 30,
2015, the Company recorded compensation expense related to the
stock options currently vesting of less than $.1 million and $.1
million, respectively. The total compensation cost related to
nonvested awards not yet recognized at June 30, 2016 is
expected to be $.2 million over a weighted-average period of
approximately 1.6 years.
Deferred Compensation Plan
The Company maintains a trust, commonly referred to as a rabbi
trust, in connection with the Company’s deferred compensation
plan. This plan allows for two deferrals. First, Directors make
elective deferrals of Director fees payable and held in the rabbi
trust. The deferred compensation plan allows the Directors to elect
to receive Director fees in common shares of the Company at a later
date instead of fees paid each quarter in cash. Second, this plan
allows certain Company employees to defer LTIP restricted shares or
RSUs for future distribution in the form of common shares. Assets
of the rabbi trust are consolidated, and the value of the
Company’s stock held in the rabbi trust is classified in
Shareholders’ equity and generally accounted for in a manner
similar to treasury stock. The Company recognizes the original
amount of the deferred compensation (fair value of the deferred
stock award at the date of grant) as the basis for recognition in
common shares issued to the rabbi trust. Changes in the fair value
of amounts owed to certain employees or Directors are not
recognized as the Company’s deferred compensation plan does
not permit diversification and must be settled by the delivery of a
fixed number of the Company’s common shares. As of
June 30, 2016, 296,817 shares have been deferred and are being
held by the rabbi trust. |
