Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
PREFORMED LINE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
June 30, 2021
December 31, 2020
(Thousands of dollars, except share and per share data)
(Unaudited)
ASSETS
Cash and cash equivalents
$
33,454
$
45,175
Accounts receivable, less allowances of $ 3,605 ($ 3,464 in 2020)
104,674
92,686
Inventories - net
105,428
97,537
Prepaids
10,169
15,289
Prepaid taxes
1,728
2,371
Other current assets
3,149
3,256
TOTAL CURRENT ASSETS
258,602
256,314
Property, plant and equipment - net
148,511
125,965
Operating lease, right-of-use assets
13,414
13,139
Intangibles - net
13,655
14,443
Goodwill
29,316
29,508
Deferred income taxes
9,191
10,863
Other assets
10,720
10,855
TOTAL ASSETS
$
483,409
$
461,087
LIABILITIES AND SHAREHOLDERS’ EQUITY
Trade accounts payable
$
38,737
$
31,646
Notes payable to banks
14,661
17,428
Operating lease liabilities, current
2,108
2,240
Current portion of long-term debt
6,717
5,216
Accrued compensation and amounts withheld from employees
19,950
14,736
Accrued expenses and other liabilities
18,412
17,508
Accrued profit-sharing and other benefits
5,022
8,252
Dividends payable
1,222
1,292
Income taxes payable
617
5,456
TOTAL CURRENT LIABILITIES
107,446
103,774
Long-term debt, less current portion
42,066
33,333
Unfunded pension obligation
5,218
5,826
Operating lease liabilities, non-current
9,202
8,743
Deferred income taxes
2,817
2,921
Other noncurrent liabilities
13,017
14,421
SHAREHOLDERS’ EQUITY
Shareholders’ equity:
Common shares - $ 2 par value per share, 15,000,000 shares authorized, 4,906,559 and
4,902,233 issued and outstanding, at June 30, 2021 and December 31, 2020,
respectively
13,170
13,028
Common shares issued to rabbi trust, 262,181 and 265,508 shares at June 30, 2021
and December 31, 2020, respectively
( 10,850
)
( 10,940
)
Deferred compensation liability
10,850
10,940
Paid-in capital
45,564
43,134
Retained earnings
393,032
379,035
Treasury shares, at cost, 1,678,317 and 1,611,927 shares at June 30, 2021 and
December 31, 2020, respectively
( 93,292
)
( 88,568
)
Accumulated other comprehensive loss
( 54,842
)
( 54,551
)
TOTAL PREFORMED LINE PRODUCTS, COMPANY SHAREHOLDERS’ EQUITY
303,632
292,078
Noncontrolling interest
11
( 9
)
TOTAL SHAREHOLDERS’ EQUITY
303,643
292,069
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
483,409
$
461,087
See notes to consolidated financial statements (unaudited).
3
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
Three Months Ended June 30
Six Months Ended June 30
2021
2020
2021
2020
(Amounts in thousands of dollars, except earnings per share data)
Net sales
$
133,038
$
117,629
$
250,591
$
220,481
Cost of products sold
89,999
78,063
167,360
148,005
GROSS PROFIT
43,039
39,566
83,231
72,476
Costs and expenses
Selling
10,099
8,439
19,701
17,344
General and administrative
13,770
12,432
28,164
25,865
Research and engineering
4,763
4,113
9,374
8,408
Other operating expense - net
1,669
( 225
)
2,486
1,408
30,301
24,759
59,725
53,025
OPERATING INCOME
12,738
14,807
23,506
19,451
Other income (expense)
Interest income
26
79
47
190
Interest expense
( 457
)
( 719
)
( 920
)
( 1,428
)
Other income (expense) - net
270
( 282
)
498
776
( 161
)
( 922
)
( 375
)
( 462
)
INCOME BEFORE INCOME TAXES
12,577
13,885
23,131
18,989
Income tax expense
3,686
3,397
7,063
4,848
NET INCOME
$
8,891
$
10,488
$
16,068
$
14,141
Net loss attributable to noncontrolling interests
( 22
)
( 7
)
( 20
)
38
NET INCOME ATTRIBUTABLE TO PREFORMED
LINE PRODUCTS COMPANY SHAREHOLDERS
$
8,869
$
10,481
$
16,048
$
14,179
AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING:
Basic
4,912
4,966
4,914
4,987
Diluted
4,930
4,973
4,935
4,994
EARNINGS PER SHARE OF COMMON STOCK
ATTRIBUTABLE TO PREFORMED LINE PRODUCTS
COMPANY SHAREHOLDERS:
Basic
$
1.81
$
2.11
$
3.27
$
2.84
Diluted
$
1.80
$
2.11
$
3.25
$
2.84
See notes to consolidated financial statements (unaudited).
4
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three Months Ended June 30
Six Months Ended June 30
2021
2020
2021
2020
(Thousands of dollars)
Net income
$
8,891
$
10,488
$
16,068
$
14,141
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment
4,311
5,472
( 518
)
( 11,409
)
Recognized net actuarial gain (net of tax provision of $ 35 and $ 39 for the three months ended June 30, 2021 and 2020, respectively). Recognized net actuarial gain (net of tax provision of $ 70 for both six-month periods ended June 30, 2021 and 2020).
113
91
227
189
Other comprehensive gain (loss), net of tax
4,424
5,563
( 291
)
( 11,220
)
Comprehensive (loss) gain attributable to noncontrolling interests
( 22
)
( 7
)
( 20
)
38
Comprehensive income attributable to Preformed Line Products Company shareholders
$
13,293
$
16,044
$
15,757
$
2,959
See notes to consolidated financial statements (unaudited).
5
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
Six Months Ended June 30
2021
2020
(Thousands of dollars)
OPERATING ACTIVITIES
Net income
$
16,068
$
14,141
Adjustments to reconcile net income to net cash provided by (used in) operations:
Depreciation and amortization
6,832
6,661
Provision for accounts receivable allowances
1,046
678
Provision for inventory reserves
1,033
1,001
Deferred income taxes
1,575
677
Share-based compensation expense
1,927
1,588
Gain on sale of property and equipment
( 30
)
0
Other - net
318
( 330
)
Changes in operating assets and liabilities
Accounts receivable
( 13,446
)
( 15,713
)
Inventories
( 9,470
)
( 4,780
)
Prepaid expenses
5,758
( 121
)
Trade accounts payable and accrued liabilities
9,040
4,710
Income taxes - net
( 4,815
)
95
Other - net
( 1,775
)
577
NET CASH PROVIDED BY OPERATING ACTIVITIES
14,061
9,184
INVESTING ACTIVITIES (1)
Capital expenditures
( 7,338
)
( 11,820
)
Proceeds from the sale of property and equipment
23
0
NET CASH USED IN INVESTING ACTIVITIES
( 7,315
)
( 11,820
)
FINANCING ACTIVITIES (1)
(Decrease) increase in notes payable to banks
( 2,183
)
5,148
Proceeds from long-term debt
42,954
41,163
Payments of long-term debt
( 53,029
)
( 36,717
)
Dividends paid
( 2,114
)
( 2,173
)
Proceeds from issuance of common shares
364
266
Purchase of common shares for treasury
( 176
)
( 4,613
)
Purchase of common shares for treasury from related parties
( 4,548
)
( 2,378
)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
( 18,732
)
696
Effects of exchange rate changes on cash and cash equivalents
265
( 817
)
Net decrease in cash, cash equivalents and restricted cash
( 11,721
)
( 2,757
)
Cash, cash equivalents and restricted cash at beginning of year
45,175
39,263
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF
PERIOD
$
33,454
$
36,506
(1) Non-cash investing and financing activities: The Company purchased a new corporate aircraft during six-month period ended June 30, 2021 with a term loan in the principal amount of $ 20.5 million. For further information regarding this transaction, refer to Note P, “Debt Arrangements. ”
See notes to consolidated financial statements (unaudited).
6
PREFORMED LINE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(In thousands, except share and per share data, unless specifically noted)
NOTE A – BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Preformed Line Products Company and subsidiaries (the “Company” or “PLPC”) have been prepared in accordance with United States of America (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from these estimates. In the opinion of management, these consolidated financial statements contain all estimates and adjustments, consisting of normal recurring accruals, required to fairly present the financial position, results of operations, and cash flows for the interim periods. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full-year ending December 31, 2021.
Noncontrolling interests are presented in the Company’s consolidated financial statements as if parent company investors (controlling interests) and other minority investors (noncontrolling interests) in partially-owned subsidiaries have similar economic interests in a single entity. As a result, investments in noncontrolling interests are reported as equity in the Company’s consolidated financial statements. Additionally, the Company’s consolidated financial statements include 100 % of a controlled subsidiary’s earnings, rather than only its share. Transactions between the parent company and noncontrolling interests are reported in equity as transactions between stockholders, provided that these transactions do not create a change in control.
The Consolidated Balance Sheet at December 31, 2020 has been derived from the audited consolidated financial statements but does not include all of the information and notes required by U.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes to consolidated financial statements included in the Company’s 2020 Annual Report on Form 10-K filed on March 5, 2021 with the Securities and Exchange Commission.
NOTE B – REVENUE
Revenue recognition
Net sales include products and shipping and handling charges, net of estimates for product returns. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. All revenue is recognized when the Company satisfies the performance obligations under the contract and control of the product is transferred to the customer, primarily based on shipping terms. Revenue for shipping and handling charges are recognized at the time the products are shipped to, delivered to or picked up by the customer. The Company estimates product returns based on historical return rates.
Disaggregated revenue
The Company’s revenues by segment and product type are as follows:
Three Months Ended June 30, 2021
Product Type
PLP-USA
The Americas
EMEA
Asia-Pacific
Consolidated
Energy
61
%
65
%
51
%
65
%
60
%
Communications
35
31
44
3
30
Special Industries
4
4
5
32
10
Total
100
%
100
%
100
%
100
%
100
%
Three Months Ended June 30, 2020
Product Type
PLP-USA
The Americas
EMEA
Asia-Pacific
Consolidated
Energy
65
%
78
%
60
%
74
%
68
%
Communications
30
18
33
4
23
Special Industries
5
4
7
22
9
Total
100
%
100
%
100
%
100
%
100
%
7
Six Months Ended June 30, 2021
Product Type
PLP-USA
The Americas
EMEA
Asia-Pacific
Consolidated
Energy
59
%
70
%
55
%
67
%
61
%
Communications
36
26
39
5
30
Special Industries
5
4
6
28
9
Total
100
%
100
%
100
%
100
%
100
%
Six Months Ended June 30, 2020
Product Type
PLP-USA
The Americas
EMEA
Asia-Pacific
Consolidated
Energy
64
%
76
%
57
%
74
%
67
%
Communications
30
18
35
4
24
Special Industries
6
6
8
22
9
Total
100
%
100
%
100
%
100
%
100
%
NOTE C – OTHER FINANCIAL STATEMENT INFORMATION
Inventories – net
June 30,
2021
December 31,
2020
Raw materials
$
60,987
$
53,947
Work-in-process
10,654
9,272
Finished Goods
40,065
38,801
111,706
102,020
Excess of current cost over LIFO cost
( 6,278
)
( 4,483
)
Net Inventory
$
105,428
$
97,537
Cost of inventories for certain material is determined using the last-in-first-out (LIFO) method and totaled approximately $ 32.4 million at June 30, 2021 and $ 32.0 million at December 31, 2020. An actual valuation of inventories under the LIFO method can be made only at the end of the year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations are based on management’s estimates of expected year-end inventory levels and costs. Because these estimates are subject to change and may be different than the actual inventory levels and costs at the end of the year, interim results are subject to the final year-end LIFO inventory valuation. During the three and six-month periods ended June 30, 2021, the net change in LIFO inventories resulted in expense of $ 1.3 million and $ 1.8 million, respectively, to Income before income taxes. During the three and six-month periods ended June 30, 2020, the net change in LIFO inventories resulted in expense of less than $ .1 million and $ .2 million, respectively, to Income before income taxes.
Property, plant and equipment—net
Major classes of Property, plant and equipment are stated at cost and were as follows:
June 30,
2021
December 31,
2020
Land and improvements
$
21,875
$
22,132
Buildings and improvements
100,377
97,909
Machinery, equipment and aircraft
199,447
176,377
Construction in progress
12,577
9,563
334,276
305,981
Less accumulated depreciation
( 185,765
)
( 180,016
)
$
148,511
$
125,965
8
Legal proceedings
The Company can be party to a variety of pending legal proceedings and claims arising in the normal course of business, including, but not limited to, litigation relating to employment, workers’ compensation, product liability, environmental and intellectual property. The Company has liability insurance to cover many of these claims.
Although the outcomes of these matters are not predictable with certainty, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In the event the Company determines that a loss is not probable, but is reasonably possible, and the likelihood to develop what the Company believes to be a reasonable range of potential loss exists, the Company will include disclosure related to such matters. To the extent that there is a reasonable possibility the losses could exceed amounts already accrued, the Company will adjust the accrual in the period in which the determination is made, disclose an estimate of the additional loss or range of loss and if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made. As of June 30, 2021 and December 31, 2020, the Company has accrued approximately $ 2.2 million, representing its best estimate for losses to be incurred on a variety of global legal matters.
The Company and its subsidiaries Helix Uniformed Ltd. (“Helix”) and Preformed Line Products (Canada) Limited (“PLPC Canada”), were each named, jointly and severally, with each of SNC-Lavalin ATP, Inc. (“SNC ATP”), HD Supply Canada Inc., by its trade names HD Supply Power Solutions and HD Supply Utilities (“HD Supply”), and Anixter Power Solutions Canada Inc. (the corporate successor to HD Supply), “Anixter” and, together with the Company, PLPC Canada, Helix, SNC ATP and HD Supply, the (“Defendants”) in a complaint filed by Altalink, L.P. (the “Plaintiff”) in the Court of Queen’s Bench of Alberta in Alberta, Canada in November 2016 (the “Complaint”).
The Complaint states that Plaintiff engaged SNC ATP to design, engineer, procure and construct numerous power distribution and transmission facilities in Alberta (the “Projects”) and that through SNC ATP and HD Supply (now Anixter), spacer dampers manufactured by Helix were procured and installed in the Projects. The Complaint alleges that the spacer dampers have and may continue to become loose, open and detach from the conductors, resulting in damage and potential injury and a failure to perform the intended function of providing spacing and damping to the Project. The Plaintiffs are seeking an estimated $ 56.0 million Canadian dollars in damages jointly and severally from the Defendants, representing the costs of monitoring and replacing the spacer dampers and remediating property damage, due to alleged defects in the design and construction of, and supply of materials for, the Projects by SNC ATP and HD Supply/Anixter and in the design of the spacer dampers by Helix.
The Company believes the claims against it are without merit and intends to vigorously defend against such claims. The Company is unable to predict the outcome of this case, however, it has recorded a reserve for the low end of the range for potential loss associated with this matter. If this matter is concluded in a manner adverse to the Company, it could have a material effect on the Company’s financial results.
The Company is not a party to any other pending legal proceedings that the Company believes would, individually or in the aggregate, have a material adverse effect on its financial condition, results of operations or cash flows.
9
NOTE D – SHAREHOLDERS EQUITY
The following table reflects the changes in shareholders equity for the six months ended June 30, 2021 and 2020:
Accumulated Other
Comprehensive Income
(Loss)
Common
Shares
Common
Shares
Issued to
Rabbi Trust
Deferred
Compensation Liability
Paid in
Capital
Retained
Earnings
Treasury
Shares
Cumulative
Translation
Adjustment
Unrecognized
Pension
Benefit Cost
Total
Preformed
Line
Products
Company
Equity
Noncontrolling
Interests
Total
Equity
(In thousands, except share and per share data)
Balance at December 31, 2020
$
13,028
$
( 10,940
)
$
10,940
$
43,134
$
379,035
$
( 88,568
)
$
( 47,847
)
$
( 6,704
)
$
292,078
$
( 9
)
$
292,069
Net income (loss)
7,179
7,179
( 2
)
7,177
Foreign currency translation adjustment
( 4,829
)
( 4,829
)
( 4,829
)
Recognized net actuarial gain, net of tax provision of $ 35
114
114
114
Total comprehensive income
2,464
( 2
)
2,462
Share-based compensation
1,034
( 40
)
994
994
Purchase of 52,590 common shares
( 3,678
)
( 3,678
)
( 3,678
)
Issuance of 63,316 common shares
127
270
397
397
Common shares distributed from rabbi trust of 3,727 , net
120
( 120
)
0
0
Cash dividends declared - $ .20 per share
( 116
)
( 990
)
( 1,106
)
( 1,106
)
Balance at March 31, 2021
$
13,155
$
( 10,820
)
$
10,820
$
44,322
$
385,184
$
( 92,246
)
$
( 52,676
)
$
( 6,590
)
$
291,149
$
( 11
)
$
291,138
Net income (loss)
8,869
8,869
22
8,891
Foreign currency translation adjustment
4,311
4,311
4,311
Recognized net actuarial gain, net of tax provision of $ 35
113
113
113
Total comprehensive income
13,293
22
13,315
Share-based compensation
893
( 40
)
853
853
Purchase of 13,800 common shares
( 1,046
)
( 1,046
)
( 1,046
)
Issuance of 7,400 common shares
15
349
364
364
Common shares issued to rabbi trust of 400 , net
( 30
)
30
0
0
Cash dividends declared - $ .20 per share
( 981
)
( 981
)
( 981
)
Balance at June 30, 2021
$
13,170
$
( 10,850
)
$
10,850
$
45,564
$
393,032
$
( 93,292
)
$
( 48,365
)
$
( 6,477
)
$
303,632
$
11
$
303,643
Accumulated Other
Comprehensive Income
(Loss)
Common
Shares
Common
Shares
Issued to
Rabbi Trust
Deferred
Compensation
Liability
Paid in
Capital
Retained
Earnings
Treasury
Shares
Cumulative
Translation
Adjustment
Unrecognized
Pension
Benefit Cost
Total
Preformed
Line
Products
Company
Equity
Noncontrolling
Interests
Total
Equity
(In thousands, except share and per share data)
Balance at December 31, 2019
$
12,848
$
( 10,981
)
$
10,981
$
38,854
$
353,292
$
( 79,106
)
$
( 51,682
)
$
( 5,671
)
$
268,535
$
33
$
268,568
Net income (loss)
3,698
3,698
( 45
)
3,653
Foreign currency translation adjustment
( 16,881
)
( 16,881
)
( 16,881
)
Recognized net actuarial gain, net of tax provision of $ 31
98
98
98
Total comprehensive income
( 13,085
)
( 45
)
( 13,130
)
Share-based compensation
976
( 43
)
933
933
Purchase of 75,246 common shares
( 3,980
)
( 3,980
)
( 3,980
)
Issuance of 77,381 common shares
155
155
155
Common shares distributed from rabbi trust of 3,358 , net
101
( 101
)
0
0
Cash dividends declared - $ .20 per share
( 83
)
( 963
)
( 1,046
)
( 1,046
)
Balance at March 31, 2020
$
13,003
$
( 10,880
)
$
10,880
$
39,747
$
355,984
$
( 83,086
)
$
( 68,563
)
$
( 5,573
)
$
251,512
$
( 12
)
$
251,500
Net income
10,481
10,481
7
10,488
Foreign currency translation adjustment
5,472
5,472
5,472
Recognized net actuarial gain, net of tax provision of $ 31
91
91
91
Total comprehensive income
16,044
7
16,051
Share-based compensation
612
( 26
)
586
586
Purchase of 29,724 common shares
( 3,011
)
( 3,011
)
( 3,011
)
Issuance of 525 common shares
26
26
26
Common shares distributed from rabbi trust of 525 , net
( 30
)
30
0
0
Cash dividends declared - $ .20 per share
( 996
)
( 996
)
( 996
)
Balance at June 30, 2020
$
13,003
$
( 10,910
)
$
10,910
$
40,385
$
365,443
$
( 86,097
)
$
( 63,091
)
$
( 5,482
)
$
264,161
$
( 5
)
$
264,156
10
NOTE E – PENSION PLANS
The Company uses a December 31 measurement date for the Preformed Line Products Company Employees’ Retirement Plan (the “Plan”). Net periodic pension cost for this plan included the following components:
Three Months Ended June 30
Six Months Ended June 30
2021
2020
2021
2020
Service cost
$
0
$
90
$
0
$
181
Interest cost
282
326
564
653
Expected return on plan assets
( 586
)
( 556
)
( 1,172
)
( 1,113
)
Recognized net actuarial loss
149
130
298
259
Net periodic pension cost (benefit)
$
( 155
)
$
( 10
)
$
( 310
)
$
( 20
)
There were no contributions to the Plan during the six months ended June 30, 2021. The Company does no t plan to contribute additional funds to the Plan during the remainder of 2021.
NOTE F – ACCUMULATED OTHER COMPREHENSIVE INCOME (“AOCI”)
The following tables set forth the total changes in AOCI by component, net of tax:
Three Months Ended June 30, 2021
Three Months Ended June 30, 2020
Unrecognized
pension
benefit cost
Currency
Translation
Adjustment
Total
Unrecognized
pension
benefit cost
Currency
Translation
Adjustment
Total
Balance at April 1
$
( 6,590
)
$
( 52,676
)
$
( 59,266
)
$
( 5,573
)
$
( 68,563
)
$
( 74,136
)
Other comprehensive income before
reclassifications:
Gain on foreign currency
translation adjustment
0
4,311
4,311
0
5,472
5,472
Amounts reclassified from AOCI:
Amortization of defined benefit
pension actuarial gain (a)
113
0
113
91
0
91
Net current period other
comprehensive income
113
4,311
4,424
91
5,472
5,563
Balance at June 30
$
( 6,477
)
$
( 48,365
)
$
( 54,842
)
$
( 5,482
)
$
( 63,091
)
$
( 68,573
)
Six Months Ended June 30, 2021
Six Months Ended June 30, 2020
Defined benefit
pension plan
activity
Currency
Translation
Adjustment
Total
Defined benefit
pension plan
activity
Currency
Translation
Adjustment
Total
Balance at January 1
$
( 6,704
)
$
( 47,847
)
$
( 54,551
)
$
( 5,671
)
$
( 51,682
)
$
( 57,353
)
Other comprehensive loss before
reclassifications:
Loss on foreign currency
translation adjustment
0
( 518
)
( 518
)
0
( 11,409
)
( 11,409
)
Amounts reclassified from AOCI:
Amortization of defined benefit
pension actuarial gain (a)
227
0
227
189
0
189
Net current period other
comprehensive income (loss)
227
( 518
)
( 291
)
189
( 11,409
)
( 11,220
)
Balance at June 30
$
( 6,477
)
$
( 48,365
)
$
( 54,842
)
$
( 5,482
)
$
( 63,091
)
$
( 68,573
)
(a)
This AOCI component is included in the computation of net periodic pension costs.
11
NOTE G – COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share were computed by dividing Net income by the weighted-average number of common shares outstanding for each respective period. Diluted earnings per share were calculated by dividing Net income by the weighted-average of all potentially dilutive common stock that was outstanding during the periods presented.
The calculation of basic and diluted earnings per share for the three and six-month periods ended June 30, 2021 and 2020 was as follows:
Three Months Ended June 30
Six Months Ended June 30
2021
2020
2021
2020
Numerator
Net income
$
8,869
$
10,481
$
16,048
$
14,179
Denominator
Determination of shares
Weighted-average common shares outstanding
4,912
4,966
4,914
4,987
Dilutive effect - share-based awards
18
7
21
7
Diluted weighted-average common shares outstanding
4,930
4,973
4,935
4,994
Earnings per common share
Basic
$
1.81
$
2.11
$
3.27
$
2.84
Diluted
$
1.80
$
2.11
$
3.25
$
2.84
For the three and six-month periods ended June 30, 2021, 0 and 10,000 stock options, respectively, were excluded from the calculation of diluted earnings per share as the effect would have been anti-dilutive. For the three and six-month periods ended June 30, 2020, 40,313 and 30,157 stock options, respectively, were excluded from the calculation of diluted earnings per share as the effect would have been anti-dilutive.
NOTE H – GOODWILL AND OTHER INTANGIBLES
The Company’s finite and indefinite-lived intangible assets consist of the following:
June 30, 2021
December 31, 2020
Gross Carrying
Amount
Accumulated
Amortization
Gross Carrying
Amount
Accumulated
Amortization
Finite-lived intangible assets
Patents
$
4,813
$
( 4,806
)
$
4,806
$
( 4,806
)
Land use rights
1,346
( 442
)
1,286
( 396
)
Trademarks
1,872
( 1,509
)
1,756
( 1,474
)
Technology
7,593
( 2,657
)
7,673
( 2,402
)
Customer relationships
16,399
( 8,954
)
16,441
( 8,441
)
$
32,023
$
( 18,368
)
$
31,962
$
( 17,519
)
Indefinite-lived intangible assets
Goodwill
$
29,316
$
29,508
The aggregate amortization expense for other intangibles with finite lives for the three and six-month periods ended June 30, 2021 was $ .5 million and $ .9 million, respectively. The aggregate amortization expense for other intangibles with finite lives for the three and six-month periods ended June 30, 2020 was $ .4 million and $ .9 million, respectively. Amortization expense is estimated to be $ .8 million for the remainder of 2021, $ 1.7 million for 2022 and 2023, $ 1.6 million for 2024 and $ 1.4 million for 2025. The combined weighted-average remaining amortization period is approximately 12.1 years. The weighted-average remaining amortization period by intangible asset class is as follows: patents, 0 years; land use rights, 55.0 years; trademarks, 6.4 years; technology, 9.6 years; and customer relationships, 9.1 years.
12
The Company’s measurement date for its annual impairment test for goodwill is October 1st of each year. The Company performs its annual impairment test for goodwill utilizing a discounted cash flow methodology, market comparables, and an overall market capitalization reasonableness test in computing fair value by reporting unit. The Company then compares the fair value of the reporting unit to its carrying value to assess if goodwill has been impaired. Based on the assumptions as to growth, discount rates and the weighting used for each respective valuation methodology, results of the valuations could be significantly different. However, the Company believes that the methodologies and weightings used are reasonable and result in appropriate fair values of the reporting units. The Company’s valuation method uses Level 3 inputs under the fair value hierarchy.
As of the Company’s most recent annual impairment assessment date, the Asia-Pacific reporting unit’s fair value exceeded carrying value by approximately 15 %. Accordingly, the reporting unit is potentially at risk of impairment in the future if there is a continued negative impact on the long-term outlook resulting from the continued effects of the COVID-19 pandemic or other factors such as a postponement of government capital spending. Total goodwill associated with this reporting unit was $ 7.6 million at June 30, 2021.
The Company’s only intangible asset with an indefinite life is goodwill. The changes in the carrying amount of goodwill, by segment, for the six months ended June 30, 2021 are as follows:
USA
The Americas
EMEA
Asia-Pacific
Total
Balance at January 1, 2021
$
3,078
$
4,251
$
14,449
$
7,730
$
29,508
Currency translation
0
159
( 227
)
( 124
)
( 192
)
Balance at June 30, 2021
$
3,078
$
4,410
$
14,222
$
7,606
$
29,316
NOTE I – SHARE-BASED COMPENSATION
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 which 900,000 common shares have been reserved for restricted share awards and 100,000 common shares have been reserved for share options. 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 set 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 set-year period.
The RSUs are offered at no cost to the employees. The fair value of RSUs is based on the market price of a common share on the grant date and the shares underlying the awards are not issued until they vest. Dividends declared are accrued in cash.
13
A summary of the RSUs outstanding under the LTIP for the six months ended June 30, 2021 is as follows:
Restricted Share Units
Performance
and Service
Required (1)
Service
Required
Total
Restricted
Share
Units
Weighted-Average
Grant-Date
Fair Value
Nonvested as of January 1, 2021
183,777
15,786
199,563
$
60.33
Granted
51,308
12,285
63,593
71.84
Vested
( 56,973
)
0
( 56,973
)
73.86
Forfeited
0
0
0
0.00
Nonvested as of June 30, 2021
178,112
28,071
206,183
$
60.49
(1)
Nonvested, performance-based RSUs are reflected above at the maximum performance achievement level with the exception of the 2021 grant, which is currently recorded at its target rate.
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 three and six-month periods ended June 30, 2021 was $ .1 million and $ .3 million, respectively. Compensation expense related to the time-based RSUs for both three and six-month periods ended June 30, 2020 was $ .1 million and $ .2 million, respectively. As of June 30, 2021, there was $ 1.1 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 2.1 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 either operating or 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 and the Incentive Plan, the participants are eligible to earn common shares over the vesting period. Performance-based compensation expense for the three and six-month periods ended June 30, 2021 was $ .8 million and $ 1.5 million, respectively. Performance-based compensation expense for the three and six-month periods ended June 30, 2020 was $ .5 million and $ 1.3 million, respectively. As of June 30, 2021, the remaining compensation expense of $ 4.0 million for outstanding performance-based RSUs is expected to be recognized over the weighted-average period of approximately 1.8 years.
In the event of a Change in Control (as defined in the LTIP and the Incentive Plan), vesting of the RSUs will be accelerated and all restrictions will lapse. Unvested performance-based awards will vest on a target potential payout.
To satisfy the vesting of its RSU awards, the Company has reserved new shares from its authorized but unissued shares. Any additional awards granted will also be issued from the Company’s authorized but unissued shares.
Share Option Awards
The LTIP permitted and now the Incentive 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. Options issued to date under the LTIP and the Incentive 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.
There were no options granted during the six-month period ended June 30, 2021 and 25,500 granted during the six-month period ended June 30, 2020.
14
Stock option activity under the Company’s LTIP for six months ended June 30, 2021 was as follows:
Number of
Shares
Weighted
Average
Exercise Price
per Share
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value (000's)
Outstanding at January 1, 2021
50,950
$
54.81
Granted
0
Exercised
( 7,000
)
$
47.66
Forfeited
0
Outstanding (vested and expected to vest) at June 30, 2021
43,950
$
55.95
6.7
$
802
Exercisable at June 30, 2021
27,450
$
58.91
5.5
$
420
There were 7,000 stock option exercises during the six-month period ended June 30, 2021 and no stock option shares were exercised during the six-month period ended June 30, 2020.
For the three and six-month periods ended June 30, 2021, the Company recorded compensation expense related to the stock options currently vested of less than $ .1 million and $ .1 million, respectively. For the each of three and six-month periods ended June 30, 2020, the Company recorded compensation expense related to the stock options currently vested of less than $ .1 million. The total compensation cost related to nonvested awards not yet recognized at June 30, 2021 is expected to be $ .2 million over a weighted-average period of approximately 1.7 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 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 common shares 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, 2021, 262,181 shares have been deferred and are being held in the rabbi trust.
NOTE J – FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The Company measures and records certain assets and liabilities at fair value. A fair value hierarchy is used for those assets and liabilities measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of the following three levels:
Level 1
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2
Inputs other than Level 1 inputs that are either directly or indirectly observable, which may include:
o
Quoted prices for similar assets in active markets;
o
Quoted prices for identical or similar assets or liabilities in inactive markets;
o
Inputs other than quoted prices that are observable for the asset or liability; and
o
Inputs that are derived principally from or corroborated by observable market data by correlation or other means.
Level 3
Inputs to the valuation methodology are unobservable and developed using estimates and assumptions developed by the Company which reflect those that a market participant would use.
15
The following table summarizes the Company’s assets and liabilities, recorded and measured at fair value, on the Company’s Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020:
Description
Balance as of
June 30, 2021
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Foreign currency forward contracts
$
295
$
0
$
295
$
0
Total Assets
$
295
$
0
$
295
$
0
Liabilities:
Supplemental profit sharing plan
$
7,330
$
0
$
7,330
$
0
Foreign currency forward contracts
155
0
155
0
Total Liabilities
$
7,485
$
0
$
7,485
$
0
Description
Balance as of
December 31, 2020
Quoted Prices in
Active Markets for
Identical Assets or
Liabilities
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Foreign currency forward contracts
$
359
$
0
$
359
$
0
Total Assets
$
359
$
0
$
359
$
0
Liabilities:
Supplemental profit sharing plan
$
7,143
$
0
$
7,143
$
0
Foreign currency forward contracts
56
0
56
0
Total Liabilities
$
7,199
$
0
$
7,199
$
0
The Company operates internationally and enters into intercompany transactions denominated in foreign currencies. Consequently, the Company is subject to market risk arising from exchange rate movements between the dates when foreign currency transactions occur and the dates they are settled. The Company currently uses foreign currency forward contracts to reduce the risk related to some of these transactions. These contracts usually have maturities of 90 days or less and generally require an exchange of foreign currencies for U.S. dollars at maturity at rates stated in the contracts. These contracts are not designated as hedging instruments under U.S. GAAP. Accordingly, the changes in the fair value of the foreign currency forward contracts are recognized in each accounting period in “Other operating expense - net” on the Consolidated Statements of Income together with the transaction gain or loss from the related balance sheet position. For the three and six-month periods ended June 30, 2021, the Company recognized net losses of $ 1.3 million and $ .9 million, respectively, on foreign currency forward contracts. For the three and six-month periods ended June 30, 2020, the Company recognized a net loss of $ .3 million and a net gain of $ .9 million, respectively, on foreign currency forward contracts.
16
T he Company has a non-qualified Supplemental Profit Sharing Plan for its executives and directors . The liability for this unfunded Supplemental Profit Sharing Plan was $ 7.3 million and $ 7.1 million at June 30 , 202 1 and December 31, 20 20 , respectively . These amounts are recorded within Other noncurrent liabilities on the Company’s C onsolidated B alance S heets. The Supplemental Profit Sharing Plan allows participants the ability to hypothetically invest their proportionate award into various investment options, which primarily include mutual funds. The Company credits earnings, gains and losses to the participants’ deferred compensation account balances based on the investments selected by the participants. The Company measures the fair value of the Supplemental Profit Sharing Plan liability using the market values of the participants’ underlying investment accounts.
NOTE K – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In March 2020, the FASB issued Accounting Standards Update ("ASU" No. 2020-04), Reference Rate Reform (“Topic 848”). Certain amendments were provided for in ASU No. 2021-01, Reference Rate Reform (Topic 848) Scope, which was issued in January 2021. ASU 2020-04 provides temporary optional guidance to ease the financial reporting burden associated with the expected market transition from the London Inter-Bank Offer Rate ("LIBOR") to alternative reference rates. This guidance is available immediately and may be implemented in any period prior to the guidance expiration on December 31, 2022. The Company is currently assessing which of its various contracts will require an update for a new reference rate and will determine the timing for implementation of this guidance after completing that analysis.
On January 1, 2021 , the Company adopted Account Standards Update (ASU) 2019-12, Income Taxes (ASC 740) – Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The adoption of ASU 2019-12 did not result in any material adjustments
NOTE L – NEW ACCOUNTING STANDARDS TO BE ADOPTED
The Company considers the applicability and impact of all ASUs. Recently issued ASUs that are not considered were assessed and determined to be not applicable in the current reporting period.
NOTE M – SEGMENT INFORMATION
The following tables present a summary of the Company’s reportable segments for the three and six months ended June 30, 2021 and 2020. Financial results for the PLP-USA segment include the elimination of all segments’ intercompany profit in inventory.
Three Months Ended June 30
Six Months Ended June 30
2021
2020
2021
2020
Net sales
PLP-USA
$
62,087
$
53,966
$
118,316
$
100,567
The Americas
18,625
17,486
36,146
34,727
EMEA
27,352
21,048
50,834
41,408
Asia-Pacific
24,974
25,129
45,295
43,779
Total net sales
$
133,038
$
117,629
$
250,591
$
220,481
Intersegment sales
PLP-USA
$
3,779
$
2,129
$
6,164
$
5,001
The Americas
2,556
2,813
4,622
4,677
EMEA
1,421
1,156
1,932
1,622
Asia-Pacific
4,812
3,910
8,465
6,004
Total intersegment sales
$
12,568
$
10,008
$
21,183
$
17,304
Income taxes
PLP-USA
$
2,481
$
2,025
$
4,859
$
2,871
The Americas
659
812
1,268
1,445
EMEA
409
445
854
531
Asia-Pacific
137
115
82
1
Total income taxes
$
3,686
$
3,397
$
7,063
$
4,848
Net income attributable to Preformed Line Products Company shareholders
PLP-USA
$
6,319
$
6,135
$
11,895
$
9,686
The Americas
1,962
1,695
3,153
2,690
EMEA
1,043
2,247
2,239
2,583
Asia-Pacific
( 455
)
404
( 1,239
)
( 780
)
Total net income attributable to Preformed Line Products Company shareholders
$
8,869
$
10,481
$
16,048
$
14,179
17
June 30, 2021
December 31, 2020
Assets
PLP-USA
$
163,557
$
137,689
The Americas
77,422
75,438
EMEA
106,629
106,922
Asia-Pacific
135,801
141,038
Total identifiable assets
$
483,409
$
461,087
NOTE N – INCOME TAXES
The Company’s effective tax rate was 29 % and 24 % for the three-month periods ended June 30, 2021 and 2020, respectively, and 31 % and 26 % for the six months ended June 30, 2021 and 2020, respectively. The higher effective tax rate for the three and six months ended June 30, 2021 and 2020 compared to the U.S. federal statutory rate of 21 % was primarily due to an increase in U.S. permanent items primarily related to limitations on the deductibility of executive compensation, plus adjustments due to foreign income and an increase in earnings in jurisdictions with higher tax rates than the U.S. federal statutory rate where such earnings are permanently reinvested. The effective tax rate increase for the second quarter of 2021 compared to the second quarter of 2020 is primarily due to a greater increase in pre-tax earnings along with the permanent items having a less significant change in the second quarter of 2021 compared to the second quarter of 2020.
The Company provides valuation allowances against deferred tax assets when it is more likely than not that some portion or all of its deferred tax assets will not be realized. No significant changes to the valuation allowances were reflected for the periods ended June 30, 2021 or December 31, 2020.
There were no significant changes to any of the balances of unrecognized tax benefits on for the six months ended June 30, 2021 or the year ended December 31, 2020.
NOTE O – PRODUCT WARRANTY RESERVE
The Company records an accrual for estimated warranty costs to Costs of products sold in the Statements of Consolidated Income. These amounts are recorded in Accrued expenses and other liabilities on the Company’s Consolidated Balance Sheets. The Company records and accounts for its warranty reserve based on specific claim incidents. Should the Company become aware of a specific potential warranty claim for which liability is probable and reasonably estimable, a specific charge is recorded and accounted for accordingly. Adjustments are made quarterly to the accruals as claim information changes.
The following is a rollforward of the product warranty reserve:
Six Months Ended June 30
2021
2020
Beginning of period balance
$
1,282
$
1,309
Additions charged to income
1,325
48
Warranty usage
( 244
)
( 28
)
Currency translation
0
( 87
)
End of period balance
$
2,363
$
1,242
NOTE P – DEBT ARRANGEMENTS
On January 19, 2021, the Company received funding for a term loan from PNC Equipment Finance, LLC in the principal amount of $ 20.5 million to fund the purchase of a corporate aircraft. In September 2020, the Company made a deposit of $ 6.8 million toward the purchase of the aircraft which was subsequently refunded in January 2021 and the full amount of the $ 20.5 million purchase price was drawn on the loan. The aircraft replaces the Company’s previously owned aircraft, which was sold in December 2020. The proceeds of the sale were used to pay off the debt associated with the previously-owned aircraft. The term of the new loan is 120 months at a fixed interest rate of 2.744 %. The loan is payable in 119 equal monthly installments , which commenced on March 1, 2021 with a final payment of any outstanding principal and accrued interest due and payable on the final monthly payment date. Of the $ 19.8 million outstanding on this debt facility at June 30, 2021, $ 2.1 million was classified as current. The loan is secured by the aircraft.
On April 17, 2020, the Company extended the term on its $ 65 million credit facility from June 30, 2021 to June 30, 2024 and added its Austrian subsidiary as a borrower on the facility. All other terms remain the same, including the interest rate at LIBOR plus 1.125 % unless the Company’s funded debt to Earnings before Interest, Taxes and Depreciation ratio exceeds 2.25 to 1, at which point the LIBOR spread becomes 1.500 %. At June 30, 2021, the U.S. borrowed $ 5.9 million on the facility with a term expiring June 30, 2024 .
18
. At June 30 , 202 1 , the Company’s Polish subsidiary had borrowed $ 6.6 million U.S. dollars at a rate of 1.125 % plus the Warsaw Interbank Offer Rate with a term expiring June 30, 202 4 . At June 30 , 202 1 , the Company’s Australian subsidiary had borrowed $ 3.7 million U.S. dollars, also with a term expiring June 30, 202 4 . At June 30 , 2021, the Company’s Austrian subsidiary had borrowed $ .6 million U.S. dollars with a term expiring June 30, 2024 . At June 30 , 202 1 , the interest rates on the U.S., Polish , Australian and Austrian line of credit agreement were 1.236 %, 1.305 % , 1.150 % and 1.216 % , respectively. Under the credit facility, at June 30 , 202 1 , the Company had utilized $ 16.8 million with $ 45.2 million available under the line of credit, net of long-term outstanding letters of credit of $ .1 million . The line of credit agreement contains, among other provisions, requirements for maintaining levels of net worth and profitability. At June 30 , 202 1 , the Company was in compliance with these covenants.
On April 25, 2019, the Company borrowed $ 8.0 million U.S. dollars on behalf of its Indonesian subsidiary at a rate of 3.501 % with a term expiring on April 30, 2024 . At June 30, 2021, $ 6.3 million was outstanding on this debt facility, of which $ .8 million is classified as current.
On August 14, 2019, the Company’s New Zealand subsidiary borrowed $ 5.3 million U.S. dollars at a rate of 3.900 % with a term expiring on August 26, 2021 . At June 30, 2021, $ 3.8 million was outstanding on this facility, all of which is classified as current and has an interest rate of 3.150 %. This loan is secured by the Company’s New Zealand subsidiary’s land and building.
For the periods ended June 30, 2021 and December 31, 2020, the Company’s Asia-Pacific segment had $ .3 million and $ .6 million, respectively, in restricted cash used to secure bank debt. The restricted cash is shown on the Company’s Consolidated Balance Sheets in Cash and cash equivalents.
NOTE Q – LEASES
The Company regularly enters into leases in the normal course of business. As of June 30, 2021, the leases in effect were related to land, buildings, vehicles, office equipment and other production equipment under operating leases with lease terms of up to 99 years. The Company often has the option to renew lease terms for buildings and other assets. The exercise of lease renewal options are generally at the Company’s sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at the Company’s discretion. The Company evaluates renewal and termination options at the lease commencement date to determine if the Company is reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for the Company’s operating and financing leases as of June 30, 2021 was 17.9 and 3.0 years, respectively.
Lease expense is recognized for these leases on a straight-line basis over the lease term with variable lease payments recognized in the period those payments are incurred. The components of operating and finance lease costs are recognized in Costs and expenses and Interest expense, respectively, on the Company’s Consolidated Statements of Income. The Company’s operating and finance lease costs for the six months ended June 30, 2021 and 2020 were as follows:
Six Months Ended
June 30, 2021
June 30, 2020
Components of lease expense
Operating lease cost
$
1,483
$
1,442
Finance lease cost
Amortization of right-of-use assets
205
32
Interest on lease liabilities
16
5
Total lease cost
$
1,704
$
1,479
The discount rate implicit within each lease is often not determinable and, therefore, the Company establishes the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the Company’s leases is determined based on lease term and currency in which lease payments are made, adjusted for impacts of collateral. The weighted average discount rate used to measure the Company’s operating and finance lease liabilities as of June 30, 2021 was 4.92 % and 4.14 %, respectively.
19
Future maturities of the Company’s lease liabilities as of June 30, 2021 are as follows:
Operating Leases
Finance Leases
2021
$
1,241
$
202
2022
2,342
231
2023
1,688
130
2024
988
81
2025 and thereafter
11,098
88
Total lease payments
17,357
732
Less amount of lease payment representing interest
6,047
45
Total present value of lease payments
$
11,310
$
687
The total minimum sublease rentals under noncancelable subleases to be received through 2023 is $ 2.1 million.
Supplemental cash flow information related to leases for the six-month period ended June 30, 2021 was as follows:
June 30, 2021
June 30, 2020
Supplemental cash flow information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
1,440
$
1,341
Operating cash flows from finance leases
16
5
Financing cash flows from finance leases
209
57
NOTE R – RELATED PARTY TRANSACTIONS
On January 4, 2021, the Company purchased 1,160 shares of the Company from a retired Officer at a price per share of $ 66.01 , which was calculated from a 30 -day average market price in connection with the vesting of equity awards. The Audit Committee of the Board of Directors approved this transaction.
On February 3, 2021, the Company purchased 29,676 shares of the Company from current and retired Officers at a price per share of $ 69.19 , which was calculated from a 30 -day average market price in connection with the vesting of equity awards. The Audit Committee of the Board of Directors approved this transaction.
On March 10, 2021, the Company purchased 19,497 shares of the Company from current Officers at a price per share of $ 71.10 , which was calculated from a 30 -day average market price in connection with the vesting of equity awards. The Audit Committee of the Board of Directors approved this transaction.
On March 15, 2021, the Company purchased 2,257 shares of the Company from a current employee at a price per share of $ 71.91 , which was calculated from a 30 -day average market price in connection with the vesting of equity awards. The Audit Committee of the Board of Directors approved this transaction.
On June 9, 2021, the Company purchased 1,500 shares of the Company from a current employee at a price per share of $ 74.09 , which was calculated from a 30 -day average market price in connection with the vesting of equity awards. The Audit Committee of the Board of Directors approved this transaction.
On June 15, 2021, the Company purchased 10,000 shares of the Company from a current Officer at a price per share of $ 75.87 , which was calculated from a 30 -day average market price in connection with the vesting of equity awards. The Audit Committee of the Board of Directors approved this transaction.
20
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