Note H - Share-Based Compensation

The 1999 Stock Option Plan

Activity in the Company’s 1999 Stock Option Plan for the year ended December 31, 2015 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, 2015		12,000	$	41.44
Exercised		0	$	0.00
Forfeited		0	$	0.00

Outstanding (exercisable and vested) at December 31, 2015		12,000	$	41.44		1.8	$	47

There were 0, 1,000 and 19,150 in stock options exercised during the year ended December 31, 2015, 2014 and 2013, respectively. The total intrinsic value of stock options exercised during the year ended December 31, 2015, 2014 and 2013 was $0, less than $.1 million and $.6 million, respectively. Cash received for the exercise of stock options during 2015 and 2014 was $0 and less than $.1 million, respectively.

The Company recorded compensation expense related to the stock options currently vesting of $0 for each of the years ended December 31, 2015, 2014 and 2013, as all compensation has been recognized as of December 2012.

The excess tax benefits from share-based awards for the year ended December 31, 2015, 2014 and 2013 were $0, $0 and $.2 million, 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 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 share units. 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 units and restricted shares and 100,000 common shares have been reserved for share options. The LTIP expires on April 17, 2018.

Restricted Share Units

For all of the participants except the CEO, a portion of the restricted share units (RSUs) award is subject to time-based cliff vesting and a portion is subject to vesting based upon the Company’s financial performance over a three-year period. All of the CEO’s RSUs are subject to vesting based upon the Company’s financial 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 RSUs will be forfeited related to the time-based awards. Dividends declared are accrued in cash.

A summary of the RSUs for the year ended December 31, 2015 is as follows:


	Restricted Share Awards
	Performance and Service Required			Service Required			Total Restricted Awards			Weighted-Average Grant-Date Fair Value
Nonvested as of January 1, 2015		88,508			10,413			98,921		$	67.36
Granted		50,927			21,073			72,000			45.02
Vested		0			(20,614	)		(20,614	)		49.60
Forfeited		(47,832	)		0			(47,832	)		70.27

Nonvested as of December 31, 2015		91,603			10,872			102,475		$	53.88

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 Statement of Consolidated Income. Compensation expense related to the time-based RSUs for the year ended December 31, 2015, 2014 and 2013 was $.3 million annually for each year. As of December 31, 2015, there was $.3 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 1.6 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 pretax income or operating income and sales 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. For the year ended December 31, 2015 a $1.0 million reduction to performance-based compensation expense was recorded. Performance-based compensation expense for the years ended December 31, 2014 and 2013 was $1.0 million and $2.7 million, respectively. During the year ended December 31, 2015, a $.5 million reduction in performance-based compensation was recorded related to the 2013 performance-based RSU grant, due to lower results for growth in pretax income and sales, resulting in a forfeiture of 47,832 RSUs granted in 2013. During the year ended December 31, 2015, a $.8 million reduction in performance-based compensation expense was recorded related to the 2014 performance-based RSU grant, due to changes in estimates for growth in pretax income and sales. During the year ended December 31, 2014, a $.2 million reduction in performance-based compensation expense was recorded related to the 2012 performance-based RSU grant, due to lower results for growth in pretax income, resulting in a forfeiture of 3,537 RSU’s granted in 2012. During the year ended December 31, 2014, a $1.3 million reduction in performance-based compensation expense was recorded related to the 2013 performance-based RSU grant, due to changes in estimates for growth in pretax income. As of December 31, 2015, the remaining performance-based RSUs compensation expense of $.8 million is expected to be recognized over a period of approximately 2 years.

In November 2015, a special, one-time grant of restricted stock was awarded to the CEO and other officers that fully vested on the issuance date of November 30, 2015, as a shorter-term reward for achievements not tied to the performance metrics. Compensation expense recorded for the restricted stock was $.6 million.

The excess tax benefits from service and performance-based RSUs for the years ended December 31, 2015, 2014 and 2013 was less than $.1 million, $.1 million and $.1 million, 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 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 RSUs, 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 312,398 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 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 December 31, 2015, 296,635 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, 2015, there were 11,000 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 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 10,500, 35,500, and 0 options granted for the year ended December 31, 2015, 2014 and 2013, respectively. The fair values for the stock options granted were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:


	2015			2014
Risk-free interest rate		2.1	%		1.9	%
Dividend yield		1.6	%		1.7	%
Expected life (years)		5			5
Expected volatility		37.9	%		42.9	%

Activity in the Company’s LTIP plan for the year ended December 31, 2015 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, 2015		47,750		$	58.11
Granted		10,500		$	41.92
Exercised		0		$	0.00
Forfeited		(2,000	)	$	52.21

Outstanding (vested and expected to vest) at December 31, 2015		56,250		$	55.30		6.7	$	9

Exercisable at December 31, 2015		29,000		$	57.54		7.5	$	0

The weighted-average grant-date fair value of options granted during 2015 and 2014 was $13.16 and $20.83, respectively. There were 0, 1,250, and 14,250 stock options exercised during the year ended December 31, 2015, 2014 and 2013, respectively. The total intrinsic value of stock options exercised during the year ended December 31, 2015 and 2014 was $0 and less than $.1 million, respectively. Cash received for the exercise of stock options during 2015 and 2014 was $0 and $.1 million, respectively.

For the year ended December 31, 2015, 2014 and 2013, the Company recorded compensation expense related to the stock options currently vesting of $.3 million, $.3 million and $.1 million, respectively. The total compensation cost related to nonvested awards not yet recognized at December 31, 2015 is expected to be a combined total of $.4 million over a weighted-average period of approximately 2 years.

The excess tax benefits from share based awards for the year ended December 31, 2015, 2014 and 2013 was $0, $.1 million and $.1 million, 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 options exercised in the current period.