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Share-Based Compensation
 12 Months Ended
Dec. 31, 2012
Share-Based Compensation [Abstract]  
Share-Based Compensation

Note G—Share-Based Compensation

The 1999 Stock Option Plan

The 1999 Stock Option Plan (the Plan) permits the grant of 300,000 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. At December 31, 2012 there were no shares remaining to be issued under the Plan. Options issued to date under the Plan 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 has elected to use the simplified method of calculating the expected term of the stock options and historical volatility to compute fair value under the Black-Scholes option-pricing model. 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 shares granted for the years ended December 31, 2012 and 2011.

 

Activity in the Company’s 1999 Stock Option Plan for the year ended December 31, 2012 was as follows:

 

                                 
    Number of
Shares		     Weighted
Average
Exercise Price
per Share		     Weighted
Average
Remaining
Contractual
Term (Years)		     Aggregate
Intrinsic
Value		  

Outstanding at January 1, 2012

     49,907     $ 34.39                  

Granted

     0     $ 0.00                  

Exercised

     (17,757 )    $ 22.55                  

Forfeited

     0     $ 0.00                  
   

 

 

                          

Outstanding (vested and expected to vest) at December 31, 2012

     32,150     $ 40.93       4.4     $ 595  
   

 

 

                          

Exercisable at December 31, 2012

     32,150     $ 40.93       4.4     $ 595  
   

 

 

                          

There were 17,757 stock options exercised during the year ended December 31, 2012, 22,025 in 2011 and 13,455 stock options exercised during the year ended December 31, 2010. The total intrinsic value of stock options exercised during the years ended December 31, 2012, 2011, and 2010 was $.6 million, $.6 million, and $.4 million, respectively. Cash received for the exercise of stock options during 2012 and 2011 was $.4 million and $.9 million, respectively.

The Company recorded compensation expense related to the stock options currently vesting of less than $.1 million for the year ended December 31, 2012 and $.1 million in each of the years ended December 31, 2011 and 2010. All compensation cost has been recognized as of December 31, 2012.

The excess tax benefits from share based awards for the years ended December 31, 2012, 2011 and 2010 were $.1 million each year, as reported on the Consolidated Statements of 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 options exercised in the current period.

Long Term Incentive Plan of 2008

Under the Preformed Line Products Company Long Term Incentive Plan of 2008 (the “LTIP”), certain employees, officers, and directors are eligible to receive awards of options and restricted shares. The purpose of this LTIP is 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. The total number of Company common shares reserved for awards under the LTIP is 900,000. Of the 900,000 common shares, 800,000 common shares have been reserved for restricted share awards and 100,000 common shares have been reserved for share options. The LTIP expires on April 17, 2018.

Restricted Share Awards

For all of the participants except the CEO, a portion of the restricted share award 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. All of the CEO’s restricted shares are subject to vesting based upon the Company’s performance over a three year period.

The restricted shares are offered at no cost to the employees; however, the participant must remain employed with the Company until the restrictions on the restricted shares lapse. The fair value of restricted share award is based on the market price of a common share on the grant date. The Company currently estimates that no awards will be forfeited. Dividends declared are accrued in cash dividends.

 

A summary of the restricted share awards for the year ended December 31, 2012 is as follows:

 

                                 
    Restricted Share Awards  
    Performance           Total     Weighted-Average  
    and Service     Service     Restricted     Grant-Date  
    Required     Required     Awards     Fair Value  

Nonvested as of January 1, 2012

     128,567       14,078       142,645     $ 37.75  

Granted

     41,627       4,588       46,215       60.77  

Vested

     (66,973 )      (7,303 )      (74,276 )      35.75  

Forfeited

     0       0       0       0.00  
   

 

 

    

 

 

    

 

 

    

 

 

  

Nonvested as of December 31, 2012

     103,221       11,363       114,584     $ 48.33  
   

 

 

    

 

 

    

 

 

    

 

 

  

For time-based restricted shares, 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 Statement of Consolidated Income. Compensation expense related to the time-based restricted shares for the years ended December 31, 2012, 2011 and 2010 was $.3 million, $.3 million and $.2 million, respectively. As of December 31, 2012, there was $.3 million of total unrecognized compensation cost related to time-based restricted share awards that is expected to be recognized over the weighted-average remaining period of approximately 1.7 years.

For the performance-based awards, the number of restricted shares in which the participants will vest depends on the Company’s level of performance measured by growth in pretax income and sales growth over a requisite performance period. Depending on the extent to which the performance criterions are probable of being satisfied under the LTIP, the participants are eligible to earn common shares over the vesting period. Performance-based compensation expense for the years ended December 31, 2012, 2011 and 2010 was $2.5 million, $2.4 million and $2.4 million. As of December 31, 2012, the remaining performance-based restricted share awards compensation expense of $2.7 million is expected to be recognized over a period of approximately 1.7 years.

The excess tax benefits from service and performance-based awards for the years ended December 31, 2012, 2011 and 2010 were $.1 million, $.1 million and $0, respectively, as reported on the Consolidated Statements of 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 restricted shares vested in the current period.

In the event of a Change in Control (as defined in the LTIP), vesting of the restricted shares 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 restricted share 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. Under the LTIP, there are 483,319 common shares currently available for additional restricted share grants.

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 shares of common stock 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 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 December 31, 2012, 184,036 LTIP shares have been deferred and are being held by the rabbi trust.

 

Share Option Awards

The LTIP plan permits 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. At December 31, 2012 there were 57,000 shares remaining available for issuance under the LTIP. Options issued to date under the Plan 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 has elected to use the simplified method of calculating the expected term of the stock options and historical volatility to compute fair value under the Black-Scholes option-pricing model. 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 8,000, 14,500, and 9,500 options granted for the years ended December 31, 2012, 2011 and 2010. The fair values for the stock options granted in 2012, 2011 and 2010 were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

 

                         
    2012     2011     2010  

Risk-free interest rate

     1.3 %      1.4 %      2.9 % 

Dividend yield

     1.9 %      1.9 %      2.0 % 

Expected life (years)

     6       6       6  

Expected volatility

     47.0 %      47.1 %      43.3 % 

Activity in the Company’s LTIP plan for the year ended December 31, 2012 was as follows:

 

                                 
    Number of
Shares		     Weighted
Average
Exercise
Price per
Share		     Weighted
Average
Remaining
Contractual
Term (Years)		     Aggregate
Intrinsic
Value		  

Outstanding at January 1, 2012

     27,000     $ 48.21                  

Granted

     8,000     $ 57.28                  

Exercised

     (1,250 )    $ 52.10                  

Forfeited

     0     $ 0.00                  
   

 

 

                          

Outstanding (vested and expected to vest) at December 31, 2012

     33,750     $ 50.21       8.8     $ 311  
   

 

 

                          

Exercisable at December 31, 2012

     17,375     $ 46.00       8.3     $ 233  
   

 

 

                          

The weighted-average grant-date fair value of options granted during 2012, 2011 and 2010 was $21.76, $19.92 and $19.47, respectively. There were 1,250, 3,000 and 0 stock options exercised during the years ended December 31, 2012, 2011 and 2010. The total intrinsic value of stock options exercised during the years ended December 31, 2012 and 2011 was less than $.1 million and $.1 million. Cash received for the exercise of stock options during 2012 and 2011 was $.1 million each year.

For the years ended December 31, 2012, 2011 and 2010, the Company recorded compensation expense related to the stock options currently vesting of $.3 million, $.1 million and $.1 million. The total compensation cost related to nonvested awards not yet recognized at December 31, 2012 is expected to be a combined total of $.3 million over a weighted-average period of approximately 2 years.

 

The excess tax benefits from share based awards for the years ended December 31, 2012, 2011 and 2010 was $0, less than $.1 million and $0, as reported on the Consolidated Statements of 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 options exercised in the current period.