-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JsIVBakh4uv7fC2BUquFqpExssx5o/Pccn85xNN6SN0BohsA5Q3KxXKgmch98m7P h5fV4iujcKHw4FVVRBN+jA== 0000950152-03-005359.txt : 20030513 0000950152-03-005359.hdr.sgml : 20030513 20030513111624 ACCESSION NUMBER: 0000950152-03-005359 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREFORMED LINE PRODUCTS CO CENTRAL INDEX KEY: 0000080035 STANDARD INDUSTRIAL CLASSIFICATION: WATER, SEWER, PIPELINE, COMM AND POWER LINE CONSTRUCTION [1623] IRS NUMBER: 340676895 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31164 FILM NUMBER: 03694348 BUSINESS ADDRESS: STREET 1: P.O. BOX 91129 CITY: CLEVELAND STATE: OH ZIP: 44101 10-Q 1 l00422ae10vq.txt PREFORMED LINE PRODUCTS COMPANY 10-Q/3-31-2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2003 Commission file number 0-31164 PREFORMED LINE PRODUCTS COMPANY (Exact Name of Registrant as Specified in Its Charter) Ohio 34-0676895 - ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 660 Beta Drive Mayfield Village, Ohio 44143 - ------------------------------- ------------------------------------ (Address of Principal (Zip Code) Executive Office) (440) 461-5200 - ---------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] The number of common shares, without par value, outstanding as of May 13, 2003: 5,784,494. PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PREFORMED LINE PRODUCTS COMPANY INDEX TO FINANCIAL STATEMENTS PREFORMED LINE PRODUCTS COMPANY: Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002......................................... 3 Statements of Consolidated Income for the Three Months Ended March 31, 2003 and 2002 (unaudited)..................... 4 Statements of Consolidated Cash Flows for the Three Months Ended March 31, 2003 and 2002 (unaudited)..................... 5 Notes to Consolidated Financial Statements.................................. 6
PREFORMED LINE PRODUCTS COMPANY CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2003 AND DECEMBER 31, 2002
March 31, December 31, Thousands of dollars, except share data 2003 2002 ----------- ------------ (Unaudited) ASSETS Cash and cash equivalents $ 13,325 $ 11,629 Accounts receivable, less allowance of $3,504 ($3,770 in 2002) 25,747 24,763 Inventories - net 33,806 33,750 Deferred income taxes - short-term 4,739 5,276 Prepaids and other 4,439 3,104 ---------- ---------- TOTAL CURRENT ASSETS 82,056 78,522 Property and equipment - net 48,401 48,569 Investments in foreign joint ventures 8,286 8,087 Deferred income taxes - long-term 868 863 Goodwill, patents and other intangibles - net 5,565 5,596 Other 3,107 3,147 ---------- ---------- TOTAL ASSETS $ 148,283 $ 144,784 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable to banks $ 997 $ 1,246 Trade accounts payable 7,918 7,844 Accrued compensation and amounts withheld from employees 3,487 3,269 Accrued expenses and other liabilities 4,922 4,251 Accrued profit-sharing and pension contributions 4,815 4,176 Dividends payable 1,155 1,155 Income taxes 1,704 337 Current portion of long-term debt 1,563 1,676 ---------- ---------- TOTAL CURRENT LIABILITIES 26,561 23,954 Long-term debt, less current portion 5,529 5,847 Deferred income taxes - long-term 199 161 Mininum pension liability and other 854 726 SHAREHOLDERS' EQUITY Common shares - $2 par value, 15,000,000 shares authorized, 5,772,710 and 5,772,710 issued and outstanding, net of 389,188 and 389,188 treasury shares at par 11,545 11,545 Paid in capital 82 82 Retained earnings 123,054 123,124 Other comprehensive loss (19,541) (20,655) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 115,140 114,096 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 148,283 $ 144,784 ========== ==========
See notes to consolidated financial statements. 3 PREFORMED LINE PRODUCTS COMPANY STATEMENTS OF CONSOLIDATED INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
Thousands of dollars, except per share data Three months ended March 31, ---------------------------- 2003 2002 -------- -------- (Unaudited) Net sales $ 35,209 $ 44,008 Cost of products sold 23,542 29,466 -------- -------- GROSS PROFIT 11,667 14,542 Costs and expenses Selling 3,915 5,282 General and administrative 5,071 5,063 Research and engineering 1,373 1,616 Other operating expenses 116 86 -------- -------- 10,475 12,047 Royalty income - net 348 513 -------- -------- OPERATING INCOME 1,540 3,008 Other income (expense) Equity in net income of foreign joint ventures 199 75 Interest income 75 58 Interest expense (108) (188) Other expense (40) (50) -------- -------- 126 (105) -------- -------- INCOME BEFORE INCOME TAXES 1,666 2,903 Income taxes 582 902 -------- -------- NET INCOME $ 1,084 $ 2,001 ======== ======== Net income per share - basic and diluted $ 0.19 $ 0.35 ======== ======== Cash dividends declared per share $ 0.20 $ 0.20 ======== ======== Average number of shares outstanding - basic 5,773 5,757 ======== ======== Average number of shares outstanding - diluted 5,780 5,781 ======== ========
See notes to consolidated financial statements. 4 PREFORMED LINE PRODUCTS COMPANY STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
THREE MONTHS ENDED MARCH 31, ---------------------------- 2003 2002 --------- --------- Thousands of dollars (Unaudited) OPERATING ACTIVITIES Net income $ 1,084 $ 2,001 Adjustments to reconcile net income to net cash provided by operations Depreciation and amortization 2,244 2,193 Deferred income taxes 570 (289) Cash surrender value of life insurance 141 - Cumulative translation adjustment (64) - Earnings of joint ventures (199) (75) Changes in operating assets and liabilities Receivables (601) (3,248) Inventories 392 219 Trade payables and accruals 1,508 2,809 Income taxes 146 627 Other - net (198) 246 --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,023 4,483 INVESTING ACTIVITIES Capital expenditures (1,372) (911) Business acquisitions (34) - Proceeds from the sale of property and equipment - 27 --------- --------- NET CASH USED IN INVESTING ACTIVITIES (1,406) (884) FINANCING ACTIVITIES Increase (decrease) in notes payable to banks (250) 1,526 Proceeds from the issuance of debt 3,616 4,154 Payments of debt (4,224) (7,621) Dividends paid (1,155) (1,151) --------- --------- NET CASH USED IN FINANCING ACTIVITIES (2,013) (3,092) Effects of exchange rate changes on cash and cash equivalents 92 48 --------- --------- Increase in cash and cash equivalents 1,696 555 Cash and cash equivalents at beginning of year 11,629 8,409 --------- --------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,325 $ 8,964 ========= =========
See notes to consolidated financial statements. 5 PREFORMED LINE PRODUCTS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results could differ from these estimates. However, in the opinion of management, these consolidated financial statements contain all estimates and adjustments required to fairly present the financial position, results of operations, and changes in cash flows for the interim periods. Operating results for the three-month period ended March 31, 2003 are not necessarily indicative of the results to be expected for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and footnotes included in the Company's 10-K for 2002 filed with the Securities and Exchange Commission. The consolidated balance sheet at December 31, 2002 has been derived from the audited consolidated financial statements, but does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. Certain amounts in the financial statements have been reclassified to conform to the presentation of 2003. NOTE B - SUPPLEMENTAL INFORMATION (Dollars in thousands) Inventories
March 31, December 31, 2003 2002 --------- ------------ Finished goods $ 15,640 $ 14,933 Work-in-process 1,347 1,249 Raw material 16,819 17,568 --------- -------- $ 33,806 $ 33,750 ========= ========
Comprehensive income The components of comprehensive income are as follows:
Three months ended March 31, ---------------------------- 2003 2002 -------- -------- Net income $ 1,084 $ 2,001 Other comprehensive income: Foreign currency adjustment 1,114 108 -------- -------- Comprehensive income $ 2,198 $ 2,109 ======== ========
6 Guarantees Balance at December 31, 2002 $ 142 Additions charged to Cost of products sold - Deductions - ---------- Balance at March 31, 2003 $ 142 ==========
The Company has certain indemnification clauses in its credit facility agreements, which are considered to be guarantees under the provisions of FIN 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others. The Company has not recorded any amounts related to such guarantees, as the fair values are immaterial. The maximum exposure under these guarantees cannot be determined by the Company. Stock Options As permitted under SFAS No. 123, Accounting for Stock-Based Compensation, the Company applies the intrinsic value based method prescribed in APB Opinion No. 25, Accounting for Stock Issued to Employees, to account for stock options granted to employees to purchase common shares. Under this method, compensation expense is measured as the excess, if any, of the market price at the date of grant over the exercise price of the options. No compensation expense has been recorded. SFAS 123 requires pro forma disclosure of the effect on net income and earnings per share when applying the fair value method of valuing stock-based compensation. If the fair value method to measure compensation cost for the Company's stock compensation plan had been used, the Company's net income would have been reduced by $.07 million in the first quarter of 2003 ($.01 per share) and $.07 million in the first quarter of 2002 ($.01 basic pro forma per share and $.02 diluted pro forma per share). For purposes of this pro forma disclosure, the estimated fair value of the options is amortized ratably over the vesting period.
(In thousands) Three months ended March 31, ---------------------------- 2003 2002 -------- -------- Net income, as reported $ 1,084 $ 2,001 Deduct: Total stock -based employee compensation expense determined under fair value based method for all awards net of related taxes 68 72 -------- -------- Pro forma net income $ 1,016 $ 1,929 ======== ======== Earnings per share: Basic - as reported $ 0.19 $ 0.35 ======== ======== Basic - pro forma $ 0.18 $ 0.34 ======== ======== Diluted - as reported $ 0.19 $ 0.35 ======== ======== Diluted - pro forma $ 0.18 $ 0.33 ======== ========
7 NOTE C - COMPUTATION OF EARNINGS PER SHARE
Three months ended March 31, ---------------------------- Dollars and shares in thousands, except per share data 2003 2002 -------- -------- Numerator Net income $ 1,084 $ 2,001 ======== ======== Denominator Determination of shares Weighted average common shares outstanding 5,773 5,757 Dilutive effect - employee stock options 7 24 -------- -------- Diluted weighted average common shares outstanding 5,780 5,781 ======== ======== Earnings per common share Basic $ 0.19 $ 0.35 Diluted $ 0.19 $ 0.35
NOTE D - GOODWILL AND OTHER INTANGIBLES During the first quarter of 2003, the Company performed its annual impairment test for goodwill pursuant to SFAS No. 142, Goodwill and Intangible Assets, and has determined that no adjustment to the carrying value of goodwill is required. Under this Statement goodwill will continue to be tested annually for impairment or if events or circumstances indicate that the goodwill of a reporting unit might be impaired. The Company's only intangible asset with an indefinite life is goodwill. The aggregate amortization expense for other intangibles with definite lives for the three months ended March 31, 2003 and 2002 was $.1 million and $.02 million, respectively. Amortization expense is estimated to be $.4 million annually for 2003, 2004 and 2005 and $.3 million for 2006 and 2007. The following table sets forth the carrying value and accumulated amortization of goodwill and intangibles by segment at March 31, 2003. The second table includes the changes of net goodwill by segment for the three months ended March 31, 2003.
As of March 31, 2003 ------------------------------------ Domestic Foreign Total -------- ------- -------- Amortized intangible assets, including effect of foreign currency translation Gross carrying amount - patents and other intangibles $ 4,947 $ 69 $ 5,016 Accumulated amortization - patents and other intangibles (1,095) (19) (1,114) -------- ------- -------- Total 3,852 50 3,902 -------- ------- -------- Unamortized intangible assets, including effect of foreign currency translation Gross carrying amount - goodwill $ 1,152 $ 919 $ 2,071 Accumulated amortization - goodwill (504) 96 (408) -------- ------- -------- Total 648 1,015 1,663 -------- ------- -------- Total amortized and unamortized intangible assets $ 4,500 $ 1,065 $ 5,565 ======== ======= ========
Goodwill ---------------------------------------------------------------- December 31, 2002 Activity and Earnouts March 31, 2003 Domestic $ 648 - $ 648 Foreign 953 62 1,015 ----------------- --------------------- -------------- Total $ 1,601 $ 62 $ 1,663 ================= ===================== ==============
8 NOTE E - NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, effective for fiscal years beginning after June 15, 2002. The Statement requires the current accrual of a legal obligation resulting from a contractual obligation, government mandate, or implied reliance on performance by a third party, for costs relating to retirements of long-lived assets that result from the acquisition, construction, development and /or normal operation of the asset. The Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred, if it can be reasonably estimated, and a corresponding amount be included as a capitalized cost of the related asset. The capitalized amount will be depreciated over the assets' useful life. The Statement also notes that long-lived assets with an undetermined future life would not require the recognition of a liability until sufficient information is available. The adoption of this statement did not have a material impact on the financial statements. In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, effective for exit or disposal activities initiated after December 31, 2002. This Statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue No. 94-3, a liability for exit costs was recognized at the date of the entity's commitment to an exit plan. This Statement also establishes that fair value is the objective for initial measurement of the liability. The adoption of this Statement did not have a material impact on the Company. During November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires certain guarantees to be recorded at fair value. The initial recognition and measurement provisions of FIN 45 are applicable, on a prospective basis, to guarantees issued or modified after December 31, 2002. The Company has adopted the provisions of FIN 45 and its adoption had no significant effect on the financial statements. During January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities an interpretation of ARB No. 51, Consolidated Financial Statements (FIN 46). FIN 46 clarifies the accounting for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company has adopted the applicable disclosure provisions of FIN 46 in the financial statements. At March 31, 2003, the Company is evaluating the classification of certain investments under FIN 46. However, the Company believes any exposure will be negligible. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (FAS 149). This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. FAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively. The Company does not expect the adoption of this Statement to have a material impact on its financial statements and results of operations. 9 NOTE F - BUSINESS SEGMENTS
Three months ended March 31, ---------------------------- Dollars in thousands 2003 2002 --------- --------- Net sales Domestic $ 21,293 $ 26,326 Foreign 13,916 17,682 --------- --------- Total net sales $ 35,209 $ 44,008 ========= ========= Intersegment sales Domestic $ 21 $ 615 Foreign 32 50 --------- --------- Total intersegment sales $ 53 $ 665 ========= ========= Operating income (loss) Domestic $ (3,848) $ 2,078 Foreign 5,388 930 --------- --------- 1,540 3,008 Equity in net income of joint ventures 199 75 Interest income Domestic - - Foreign 75 58 --------- --------- 75 58 Interest expense Domestic 30 79 Foreign 78 109 --------- --------- 108 188 Other (expense) (40) (50) --------- --------- Income (loss) before income taxes $ 1,666 $ 2,903 ========= =========
March 31, December 31, 2003 2002 --------- ------------ Identifiable assets Domestic $ 76,399 $ 74,388 Foreign 63,598 62,309 --------- ------------ 139,997 136,697 Corporate 8,286 8,087 --------- ------------ Total assets $ 148,283 $ 144,784 ========= ============
The domestic business segment operating loss for the quarter ended March 31, 2003 includes forgiveness of intercompany receivables in the amount of $4.5 million from the foreign business segment, which also reflects this transaction. NOTE G - INCOME TAXES In accordance with the applicable tax laws in China, the Company is entitled to a preferential tax rate of 0% for the first two profit making years after utilization of any tax loss carryforwards, which may be carried forward for five years; and a 50% tax reduction for the succeeding three years beginning in 2003. The favorable aggregate tax and per share effect was $33,000, or $.01 per share, for the three-month period ended March 2003 and $91,000, or $.02 per share for the three-month period ended March 2002. 10 NOTE H - BUSINESS ABANDONMENT CHARGES Business Abandonment Charges During the third quarter of 2002, the Company recorded a charge to write-off certain assets and to record severance payments related to closing its data communications operations in Europe. This entails winding down a manufacturing operation, closing five sales offices, terminating leases and reducing personnel by approximately 130. This action was taken as a result of the continuing decline in the global telecommunication and data communication markets and after failing to reach agreement on an acceptable selling price on product supplied to a significant foreign customer. The Company incurred a pre-tax charge of $4.7 million for these activities. Approximately $3.3 million of the charge is related to asset write-downs, of which $2.1 million of inventory write-offs were recorded in Cost of products sold and $1.2 million of write-offs related to receivables was included in Costs and expenses on the Statements of Consolidated Operations. The remaining $1.4 million of the charge, included in Cost of products sold and Costs and expenses, relates to cash outlays for employee severance cost, cost of exiting leased facilities, the termination of other contractual obligations and transitional costs. Approximately $.6 million of the latter category of expenses was expended as of March 31, 2003, and the remaining cash outlays are now anticipated to be completed by December 31, 2003. An analysis of the abandonment charges recorded in the Statements of Consolidated Income as of March 31, 2003 and the amount accrued in the Consolidated Balance Sheet at March 31, 2003 are as follows:
December 31 ,2002 Adjustments March 31, 2003 (Dollars in thousands) Accrual Cash and Accrual Balance Payments Write-offs Balance ------------------------------------------------------------------ Write-off of inventories, net of currency translation effect, included in Cost of products sold $ 2,254 $ (343,627) $ (341,373) Write-off of receivables, net of currency translation effect, included in Costs and expenses 1,241 (150,310) $ (149,069) Severance and other related expenses included in Cost of products sold and cost and expenses 997 (143) (11) 843 Impaired asset 5 (5) - -------- ------- ---------- ----------- Pre-tax charge $ 4,497 $ (143) $ (493,953) $ (489,599) ======== ======= ========== ===========
11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the Company's results of operations for the three-month period ended March 31, 2003 and 2002:
Three months ended March 31, ---------------------------- Dollars in thousands, except per share data 2003 2002 NET SALES AND INCOME Net sales $ 35,209 $ 44,008 Operating income 1,540 3,008 Income before income taxes 1,666 2,903 Net income 1,084 2,001 PER SHARE AMOUNTS Net income - basic and diluted $ 0.19 $ 0.35 Dividends declared $ 0.20 $ 0.20
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THREE MONTHS ENDED MARCH 31, 2002 For the three months ended March 31, 2003 consolidated net sales were $35.2 million, a decrease of $8.8 million, or 20% from the same period in 2002. Domestic net sales decreased $5.0 million, or 19%, and foreign sales decreased $3.8 million or 21%. The reduction in domestic net sales was due to volume decreases in the telecommunications and energy markets. The Company does not anticipate a significant favorable change from the present conditions in its domestic markets in the near term. Foreign net sales decreased primarily as a result of the abandonment of the European data communication operations during the third quarter of 2002. Net sales related to the abandoned operations were $.3 million for the quarter ending March 31, 2003, compared to $4.3 million for the quarter ended March 31, 2002. Sales in the European, African, and Asia Pacific markets increased $2.3 million partially offset by a decrease in net sales in the North and South American markets of $2 million. As a result of the abandonment of the European data communication operations the Company anticipates lower foreign net sales for the remainder of 2003 when compared to 2002. Gross profit of $11.7 million for the three months ended March 31, 2003 was a decrease of $2.9 million, or 20%, compared to the prior year. The decrease in gross profit is a result of the lower net sales. Consolidated costs and expenses of $10.5 million for the three months ended March 31, 2003 were $1.6 million, or 13%, lower than the previous year. Selling expenses of $3.9 million decreased $1.4 million, or 26%. Commission expense (included in selling expense) decreased $.4 million as a result of lower net sales. In addition, selling expenses decreased by $1.0 million, $.6 million of which was a result of the abandonment of the Company's European data communications operations (see Note H in the Notes to Consolidated Financial Statements for further details), and $.4 million related to a reduction in domestic selling expense due to lower employment levels. General and administrative expenses of $5.1 million remained unchanged from last year. Research and engineering expenses of $1.4 million decreased $.2 million from the same period last year as a result of a reduction in domestic employment levels. The Company's other operating expenses of $.1 million remained relatively unchanged compared to the same period in 2002. Royalty income for the quarter ended March 31, 2003 of $.3 million decreased $.2 million, or 32%, compared to 2002 as a result of lower domestic royalties due to lower sales levels by licensees. Operating income of $1.5 million for the quarter ended March 31, 2003 decreased $1.5 million, or 49%, compared to $3.0 million in the previous year. This decrease was a result of the $2.9 million decrease in gross profit, the decrease in cost and expenses of $1.6 million and the $.2 million decrease in royalty income. Other income of $.1 million for the three months ended March 31, 2003 increased $.2 million compared to the $.1 million expense for the same period in 2002. This improvement is due primarily to an increase in equity earnings from joint 12 ventures and a reduction in interest expense due to lower borrowings. Income before income taxes for the quarter ended March 31, 2003 of $1.7 million was $1.2 million lower than 2002. This is due to the reduction in operating income of $1.5 million partially offset by the increase in other income (expense) of $.2 million. Income taxes for the three months ended March 31, 2003 of $.6 million decreased $.3 million, or 35%, compared to the previous year. The effective tax rate in 2003 was 34.9% compared to 31.1% in 2002 as a result of a higher effective tax rate in the Company's Chinese operations. In accordance with the applicable tax laws in China, the Company is entitled to a preferential tax rate of 0% for the first two profit making years after utilization of any tax loss carryforwards and a 50% tax reduction for the succeeding three years beginning in 2003. The favorable aggregate tax and per share effect was $33,000, or $.01 per share, for the three-month period ended March 2003 and $91,000, or $.02 per share for the three-month period ended March 2002. As a result of the preceeding, net income for the three month period ended March 31, 2003 was $1.1 million which represents a decrease of $.9 million, or 46%, compared to 2002. WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $5.0 million for the first three months of 2003, an increase of $.5 million when compared to 2002. This increase was primarily the result of a decrease in working capital of $1.2 million in 2003 compared to a decrease of $.7 million in 2002. The negative impact on cash of the $.9 million decrease in net income was offset by $.9 million more of non-cash expenses in 2003 compared to 2002. Net cash used in investing activities of $1.4 million represents an increase of $.5 million when compared to 2002. This increase is a result of higher capital expenditures in 2003 when compared to 2002. The Company is continually analyzing potential acquisition candidates and business alternatives but has no commitments that would materially impact the operations of the business. Cash used in financing activities for 2003 was $1.1 million less than cash used in financing activities in the previous year. This was primarily a result of lower repayments of debt in 2003 compared to 2002. The Company's financial position remains strong with a current ratio of 3.1:1 at March 31, 2003 compared to 3.3:1 at December 31, 2002. Working capital of $55.5 million remains consistent with December 31, 2002. At March 31, 2003, the Company's unused balance under its credit facility was $15.9 million and its debt to equity percentage was 6%. Although the Company believes its existing credit facilities, internally generated funds and ability to obtain additional financing will be sufficient to meet the Company's growth and operating needs for the next 12 months there are inherent risks related to each of these sources. Funds generated from continuing operations are contingent upon the general economy remaining flat or improving and the recovery of the energy and telecommunication market sectors in particular. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations, effective for fiscal years beginning after June 15, 2002. The Statement requires the current accrual of a legal obligation resulting from a contractual obligation, government mandate, or implied reliance on performance by a third party, for costs relating to retirements of long-lived assets that result from the acquisition, construction, development and /or normal operation of the asset. The Statement requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred, if it can be reasonably estimated, and a corresponding amount be included as a capitalized cost of the related asset. The capitalized amount will be depreciated over the assets' useful life. The Statement also notes that long-lived assets with an undetermined future life would not require the recognition of a liability until sufficient information is available. The adoption of this statement did not have a material impact on the financial statements. In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, effective for exit or disposal activities initiated after December 31, 2002. This Statement nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an 13 Activity (including Certain Costs Incurred in a Restructuring)." This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue No. 94-3, a liability for exit costs was recognized at the date of the entity's commitment to an exit plan. This Statement also establishes that fair value is the objective for initial measurement of the liability. The adoption of this Statement did not have a material impact on the Company. During November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others (FIN 45). FIN 45 requires certain guarantees to be recorded at fair value. The initial recognition and measurement provisions of FIN 45 are applicable, on a prospective basis, to guarantees issued or modified after December 31, 2002. The Company has adopted the provisions of FIN 45 and its adoption had no significant effect on the financial statements. During January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities an interpretation of ARB No. 51, Consolidated Financial Statements (FIN 46). FIN 46 clarifies the accounting for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company has adopted the applicable disclosure provisions of FIN 46 in the financial statements. At March 31, 2003, the Company is evaluating the classification of certain investments under FIN 46. However, the Company believes any exposure will be negligible. In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities (FAS 149). This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. FAS 149 is generally effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The guidance is to be applied prospectively. The Company does not expect the adoption of this Statement to have a material impact on its financial statements and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company operates manufacturing facilities and offices around the world and uses fixed and floating rate debt to finance the Company's global operations. As a result, the Company is subject to business risks inherent in non-U.S. activities, including political and economic uncertainty, import and export limitations and market risk related to changes in interest rates and foreign currency exchange rates. The Company believes the political and economic risks related to the Company's foreign operations are mitigated due to the stability of the countries in which the Company's largest foreign operations are located. Although the Company does not regularly enter into derivative financial instrument, it has four foreign currency forward exchange contracts outstanding at March 31, 2003 whose fair value and carrying value are immaterial. The Company does not hold derivatives for trading purposes. The Company is exposed to market risk, including changes in interest rates. The Company is subject to interest rate risk on its variable rate revolving credit facilities, which consisted of borrowings of $8.1 million at March 31, 2003. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $.1 million for the three months ended March 31, 2003. The Company's primary currency rate exposures are related to foreign denominated debt, intercompany debt and cash and short-term investments. A hypothetical 10% change in currency exchange rates would have a favorable/unfavorable impact on fair values of $2.1 million and on income before tax of $.1 million. ITEM 4. CONTROLS AND PROCEDURES An evaluation was performed within the last 90 days under the supervision and with the participation of the Company's management, including the CEO and CFO, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Securities and Exchange Act Rules 13a-14(c) and 15d-14(c)). Based on the evaluation, the Company's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of March 31, 2003. There have been no significant changes in the Company's internal 14 controls or in other factors that could significantly affect internal controls subsequent to the date of management's evaluation. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect our financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Exhibits 10.10 Amendment to the Revolving Credit Agreement between National City Bank and Preformed Line Products Company, dated March 26, 2003, filed herewith. 99.1 Certification of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. 99.2 Certification of the Principal Accounting Officer, Eric R. Graef, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. (b) Reports on Form 8-K None. 15 FORWARD LOOKING STATEMENTS Cautionary Statement for "Safe Harbor" Purposes Under The Private Securities Litigation Reform Act of 1995 This Form 10-Q and other documents the Company files with the Securities and Exchange Commission contain forward-looking statements regarding the Company's and management's beliefs and expectations. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance (as opposed to historical items) and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the Company's control. Such uncertainties and factors could cause the Company's actual results to differ materially from those matters expressed in or implied by such forward-looking statements. The following factors, among others, could affect the Company's future performance and cause the Company's actual results to differ materially from those expressed or implied by forward-looking statements made in this report: - The overall demand for cable anchoring and control hardware for electrical transmission and distribution lines on a worldwide basis, which has a slow growth rate in mature markets such as the United States, Canada, Japan and Western Europe; - The effect on the Company's business resulting from economic uncertainty within Latin American regions; - Technology developments that affect longer-term trends for communication lines such as wireless communication; - The Company's success at continuing to develop proprietary technology to meet or exceed new industry performance standards and individual customer expectations; - The rate of progress in continuing to reduce costs and in modifying the Company's cost structure to maintain and enhance the Company's competitiveness; - The Company's success in strengthening and retaining relationships with the Company's customers, growing sales at targeted accounts and expanding geographically; - The extent to which the Company is successful in expanding the Company's product line into new areas for inside plant; - The Company's ability to identify, complete and integrate acquisitions for profitable growth; - The potential impact of consolidation and deregulation among the Company's suppliers, competitors and customers; - The relative degree of competitive and customer price pressure on the Company's products; - The cost, availability and quality of raw materials required for the manufacture of products; - The effects of fluctuation in currency exchange rates upon the Company's reported results from international operations, together with non-currency risks of investing in and conducting significant operations in foreign countries, including those relating to political, social, economic and regulatory factors; - Changes in significant government regulations affecting environmental compliance; - The Company's ability to continue to compete with larger companies who have acquired a substantial number of the Company's former competitors; 16 - The Company's ability to compete in the domestic data communications market; - The Company's ability to recover sales in the telecommunication markets; - The Company's ability to have continued success in emerging markets such as China; - The Company's ability to internally develop new products; - The effect on the Company's business resulting from global health risks including but not limited to Severe Acute Respiratory Syndrome (SARS); and - Other factors disclosed previously and from time to time in the Company's filings with the Securities and Exchange Commission. These filings can be found on the Securities and Exchange Commission's website at www.sec.gov. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. May 13, 2003 /s/ Robert G. Ruhlman --------------------- Robert G. Ruhlman President and Chief Executive Officer (Principal Executive Officer) May 13, 2003 /s/ Eric R. Graef ----------------- Eric R. Graef Vice President - Finance and Treasurer (Principal Accounting Officer) 18 CERTIFICATIONS I, Robert G. Ruhlman, President and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Preformed Line Products Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Robert G. Ruhlman --------------------- Robert G. Ruhlman President and Chief Executive Officer (Principal Executive Officer) 19 I, Eric R. Graef, Vice President-Finance and Treasurer, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Preformed Line Products Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 13, 2003 /s/ Eric R. Graef ----------------- Eric R. Graef Vice President - Finance and Treasurer (Principal Accounting Officer) 20 EXHIBIT INDEX 10.10 Amendment to the Revolving Credit Agreement between National City Bank and Preformed Line Products Company, dated March 26, 2003, filed herewith. 99.1 Certification of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. 99.2 Certification of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith. 21 EX-10.10 3 l00422aexv10w10.txt EXHIBIT 10.10 EXHIBIT 10.10 CONSOLIDATED AMENDMENT NO. 2 TO CREDIT AGREEMENT This Consolidated Amendment No. 2 to Credit Agreement (this "Amendment"), dated as of March 26, 2003, is entered into by and between PREFORMED LINE PRODUCTS COMPANY ("Borrower") and NATIONAL CITY BANK ("Bank"). WITNESSETH: WHEREAS, the parties have entered into a Credit Agreement dated December 30, 1994, as amended by First Amendment to Credit Agreement dated as of November 30, 1997, Second Amendment to Credit Agreement dated as of July 6, 2000, and Consolidated Amendment No. 1 to Credit Agreement dated as of October 31, 2002 (as amended, the "Credit Agreement"; all terms used in the Credit Agreement being used herein with the same meaning); and WHEREAS, the parties desire to further amend certain provisions of the Credit Agreement to amend certain covenants; and WHEREAS, Borrower has requested that Bank waive certain requirements of the Credit Agreement which have not been met and Bank is willing to honor Borrower's request subject to the terms and conditions of this Amendment; and WHEREAS, in light of the fact that certain terms set forth in previous amendments have been affected by later amendments and/or will be affected by this Amendment and for ease of reference, the parties also desire to restate and consolidate in this Amendment all amendments to the Credit Agreement that are effective on and as of the date hereof; NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: SECTION I - AMENDMENTS TO CREDIT AGREEMENT A. Subsections 2A.01 through 2A.05 of the Credit Agreement are hereby amended in their entirety to read as follows: 2A.01 AMOUNT -- The amount of the subject commitment is twenty million and 00/100ths dollars ($20,000,000.00), but that amount may be reduced from time to time pursuant to subsection 2A.03 and the subject commitment may be terminated pursuant to section 5B. 2A.02 TERM -- The subject commitment shall commence as of the date of this Agreement and shall remain in effect on a revolving basis through January 1, 2006 (the expiration date) EXCEPT that a later expiration date may be established from time to time pursuant to subsection 2A.05 and EXCEPT that the subject commitment shall end in any event upon any earlier reduction thereof to zero pursuant to subsection 2A.03 or any earlier termination pursuant to section 5B. 2A.03 OPTIONAL REDUCTIONS -- Borrower shall have the right, at all times and without the payment of any premium, to permanently reduce the amount of the subject commitment by giving Bank one banking day's prior written notice of the amount of each such reduction and the effective date thereof subject, however, to the following: (a) No such reduction shall reduce the subject commitment to a lesser aggregate amount than the sum of the aggregate unpaid principal balance of the fixed-rate loans then outstanding plus the aggregate undrawn face amounts of the outstanding subject LCs plus the aggregate unpaid principal balance of any fixed- rate loans and aggregate face amounts of any subject LCs to be obtained pursuant to any unfulfilled credit request under subsection 2B.02. (b) Concurrently with each reduction Borrower shall prepay such part, if any, of the principal of the subject loans then outstanding as may be in excess of the amount of the subject commitment as so reduced. Subsection 2B.13 and section 6C shall apply to each such prepayment. 2A.04 COMMITMENT FEE -- Borrower agrees to pay Bank a commitment fee (a) based on the average daily difference between the amount of the subject commitment from time to time in effect and the aggregate of the unpaid principal balance of all subject loans then outstanding plus the undrawn face amount of all outstanding subject LCs, (b) computed (on the basis of a 360-day year and the actual number of days elapsed) at a rate of one-fifth of one percent (1/5%) per annum so long as the subject commitment remains in effect and (c) payable in arrears on October 1, 2002 and on the first day of each January, April, July and October thereafter and at the end of the subject commitment. 2A.05 EXTENSION OF SUBJECT COMMITMENT -- Whenever Borrower furnishes its audited financial statements to Bank pursuant to clause (b) of subsection 3A.01, commencing with Borrower's audited financial statements for its fiscal year ending December 31, 2002, Borrower may request that the subject commitment be extended one year to the December 31 next following the expiration date then in effect. Bank agrees to give consideration to each such request; but in no event shall Bank be committed to extend the subject commitment, nor shall the subject commitment be so extended, unless and until both Borrower and Bank shall have executed and delivered an extension agreement substantially in the form of Exhibit C with the blanks appropriately filled. - 2 - B. Clauses (a) and (b) of subsection 2B.11 are hereby amended in their entirety to read as follows: (a) Prior to maturity each MM loan shall bear interest at a rate equal to the money market rate in effect at the start of the applicable contract period plus one percent (1%) per annum. (b) Prior to maturity each LIBOR loan shall bear interest at a rate equal to the LIBO pre-margin rate in effect at the start of the applicable contract period plus one percent (1%) per annum. C. Subsection 3B.01 of the Credit Agreement is hereby amended in its entirety to read as follows: 3B.01 NET WORTH -- Borrower will not suffer or permit the consolidated net worth (exclusive of the cumulative foreign currency translation adjustment component thereof as reflected in Borrower's financial statements) of the companies at any time to be less than the required minimum amount in effect at the time in question. The required minimum amount shall be one hundred twenty million dollars ($120,000,000) EXCEPT that that amount shall be permanently increased as of the end of each fiscal quarter of Borrower by an amount equal to fifty percent (50%) of Borrower's consolidated net income, if any, after taxes, for the quarter then ending. The determination of Borrower's net worth shall exclude the amount, if any, of Borrower's after-tax loss on the sale of Superior Modular Products up to $10,000,000. D. Subsection 3B.04 of the Credit Agreement is hereby amended in its entirety to read as follows: 3B.04 PRETAX INTEREST COVERAGE -- Borrower will not suffer or permit the aggregate, determined as of the last day each fiscal quarter (commencing with the present fiscal quarter), of (a) the net income of the companies for the previous four (4) quarters plus (b) the aggregate interest expense of the companies for the previous four (4) quarters plus (c) the aggregate federal, state and local income taxes of the companies for the previous four (4) quarters plus (d) the following amounts for the following periods: For the four (4) quarters ending 3/31/03 $7,588,000 For the four (4) quarters ending 6/30/03 $7,588,000
- 3 - For the four (4) quarters ending 9/30/03 $2,900,000 For the four (4) quarters ending 12/31/03 and each measurement period thereafter $ 0
plus (e) any noncash goodwill impairment charges incurred by Borrower during the previous four (4) quarters (but not earlier than December 31, 2002) to be less than an amount equal to three hundred percent (300%) of the aggregate interest expense of the companies for the previous four quarters, all as determined on a consolidated basis. E. Subsection 3D.01 of the Credit Agreement is hereby amended in its entirety to read as follows: 3D.01 EQUITY TRANSACTIONS -- No Company will (a) be a party to any merger or consolidation, PROVIDED, that if no default under this Agreement shall then exist and if none would thereupon begin to exist, this clause (a) shall not apply to any merger or consolidation involving only subsidiaries, any merger of Borrower with one or more subsidiaries in which Borrower is the surviving corporation, or any dissolution and liquidation of a subsidiary, (b) lease as lessor, sell, sell-leaseback or otherwise transfer (whether in one transaction or a series of transactions) all or any substantial part of its fixed assets EXCEPT chattels that shall have become obsolete or no longer useful in its present business, (c) except for the merger transactions permitted under clause (a) of this subsection, purchase or otherwise acquire all or substantially all of the capital stock or the assets and business of any corporation or other business enterprise if the aggregate amount of all such purchases and acquisitions would exceed $20,000,000 for any one transaction or $30,000,000 in the aggregate, or (d) make any investment in the stock or other equity securities of its subsidiaries if the aggregate amount of such investments would exceed ten million dollars ($10,000,000), EXCEPT that this clause (d) shall not apply to acquisitions permitted under clause (c) of this subsection or to Borrower's existing investments in the stocks and other equity securities of subsidiaries or any other investments fully disclosed in Borrower's most recent 4A.02 financial statements. F. The following new section 2C is hereby added to the Credit Agreement: - 4 - 2C. LETTERS OF CREDIT -- Bank agrees that so long as the subject commitment remains in effect Bank will issue such letters of credit (each, a subject LC) for Borrower's account as Borrower may from time to time request subject, however, to the conditions of this Agreement. 2C.01 MAXIMUM -- Bank shall not issue any subject LC if, after giving effect thereto, (a) the aggregate undrawn balance of all then outstanding subject LCs would exceed five hundred thousand dollars ($500,000) or (b) the sum of the aggregate outstanding subject loans plus the aggregate undrawn balance of all then outstanding subject LCs would exceed the subject commitment as then in effect. 2C.02 TERM -- No subject LC shall permit any draft to be drawn thereunder on a date (the "last draw date") that is more than one (1) year after the date of its issue, nor shall any subject LC permit the last draw date to be later than the third (3rd) banking day next preceding the expiration date. 2C.03 FORM -- Each subject LC shall (a) be issued in such form as Bank may reasonably require, (b) be either a commercial letter of credit used solely for the importation of goods in the ordinary course of Borrower's business or a standby letter of credit, and (c) be denominated in United States dollars. 2C.04 COMMISSION -- Borrower shall pay Bank at the issuance of each subject LC a non-refundable commission equal to (a) Bank's standard percentage fee of the face amount of each commercial import letter of credit, or (b) one percent (1%) of the face amount of each standby letter of credit plus any other standard fees for issuance, amendment, registration or draws or any similar act generally charged by Bank in respect of letters of credit issued by it. 2C.05 REIMBURSEMENT -- Borrower agrees to reimburse Bank for each draft or other item paid by Bank pursuant to or otherwise in respect of any subject LC. - 5 - 2C.06 SUBJECT LOAN BACK-UP -- In the event of a draw under any subject LC, Bank is irrevocably authorized to prepare, to sign Borrower's name to, and to deliver on Borrower's behalf an appropriate credit request requesting a RR loan in an amount equal to the reimbursement amount plus any interest thereon. Bank will make the requested RR loan even if any default under this agreement shall then exist under the Agreement and even if Borrower for any other reason would then not be entitled to obtain any subject loan. Bank shall disburse all such loan proceeds directly to Bank to satisfy Borrower's reimbursement liability. 2C.07 UNCONDITIONAL OBLIGATION -- The obligation of Bank to make, and of Borrower to pay, the RR loans made pursuant to the preceding section shall be absolute and unconditional and shall be performed under all circumstances, including (without limitation) (a) any lack of validity or enforceability of the subject LC in question, (b) the existence of any claim, offset, defense or other right that Borrower may have against the beneficiary of such subject LC or any of its successors in interest, (c) the existence of any claim, offset, defense or other right that Bank may have against Borrower or any of its affiliates or against the beneficiary of such subject LC or any of their successors in interest, (d) the existence of any fraud or misrepresentation in the presentment of any draft or other item drawn and paid under such subject LC or (e) any payment of any draft or other item by Bank which does not strictly comply with the terms of such subject LC provided such payment shall not have constituted gross negligence or willful misconduct. G. The following new subsection 5B.04 is hereby added to the Credit Agreement: 5B.04 SUBJECT LCs -- If the maturity of the subject indebtedness shall be accelerated pursuant to subsection 5B.01 or 5B.02, Borrower shall immediately deposit with Bank, as security for Borrower's obligation to reimburse Bank for any then outstanding subject LCs, cash or acceptable marketable securities having a fair cash value equal to the sum of the aggregate undrawn balance of any then outstanding subject LCs. For this purpose, acceptable marketable securities include only those referred to in clause (v) of subsection 3D.02. H. Section 6H of the Credit Agreement is hereby renumbered section 6I and the following new subsection 6H is hereby added to the Credit Agreement: - 6 - 6H. INDEMNITY: MISCELLANEOUS COSTS/SUBJECT LCs -- Borrower agrees to defend and indemnify Bank against, and to hold Bank harmless from, any loss, liability, damage, claim, cost, or expense relating to Bank's issuance or maintenance of any subject LC or to Bank's payment of any draft drawn thereunder, excluding any such loss, liability, damage, claim, cost, or expense resulting from Bank's gross negligence or willful misconduct. I. Section 6I is hereby amended in its entirety to read as follows: 6I. CERTIFICATE FOR INDEMNIFICATION -- Each demand by Bank for payment pursuant to section 6A, 6B, 6C, 6D, 6E, 6F, 6G or 6H shall be accompanied by a certificate setting forth the reason for the payment, the amount to be paid, and the computations and assumptions in determining the amount, which certificate shall be presumed to be correct in the absence of manifest error. In determining the amount of any such payment, Bank may use reasonable averaging and attribution methods. SECTION II - WAIVER Bank hereby waives all violations of subsection 3B.04 of the Credit Agreement which occurred prior to the date hereof. The execution, delivery and effectiveness of this Amendment and the specific waiver set forth herein shall not operate as a waiver of any other right, power or remedy of Bank under the Credit Agreement or constitute a continuing waiver of any kind. SECTION III - CONDITIONS PRECEDENT It is a condition precedent to the effectiveness of this Amendment that, prior to or on the date hereof, the following items shall have been delivered to Bank (in form and substance acceptable to Bank): (A) an Amended and Restated Promissory Note ("Amended Note") in favor of Bank, in the form of Exhibit A to this Amendment, with all blanks appropriately completed, duly executed by Borrower; (B) a list of the names and addresses of Borrower's subsidiaries and Borrower's ownership percentage of each dated September 12, 2002 to be attached hereto as Schedule A; (C) a list of all of Borrower's loans to others, including but not limited to subsidiaries, as of June 30, 2002 to be attached hereto as Schedule B; (D) a list of all security interests, mortgages or other voluntary or involuntary liens on any of Borrower's real or personal property as of October 31, 2002, to be attached hereto as Schedule C; and - 7 - (E) such other documents as Bank may request to implement this Amendment and the transactions contemplated hereby. Bank acknowledges that items (A) through (D) have been delivered to Bank. If Bank shall consummate the transaction contemplated hereby prior to the fulfillment of any of the conditions precedent set forth above, the consummation of such transaction shall constitute only an extension of time for the fulfillment of such conditions and not a waiver thereof. Upon receipt of the properly completed and executed Amended Note, Bank agrees to return to Borrower the previously executed note respecting the subject loans and the same shall be marked "Replaced" or "Substituted" or with words of like meaning. SECTION IV - REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Bank that: (A) none of the representations and warranties made in subsections 4B.01 through 4B.09 of the Credit Agreement has ceased to be true and complete in any material respect as of the date hereof; and (B) as of the date hereof no "default under this Agreement" has occurred that is continuing. SECTION V - ACKNOWLEDGMENTS CONCERNING OUTSTANDING LOANS Borrower acknowledges and agrees that, as of the date hereof, all of Borrower's outstanding loan obligations to Bank are owed without any offset, defense, claim or counterclaim of any nature whatsoever. Borrower authorizes Bank to share all credit and financial information relating to Borrower with Bank's parent company and with any subsidiary or affiliate company of Bank or of Bank's parent company. SECTION VI - REFERENCES On and after the effective date of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", or words of like import referring to the Credit Agreement, and each reference in the subject notes or other related writings to the "Credit Agreement", "thereof", or words of like import referring to the Credit Agreement shall mean and refer to the Credit Agreement as amended hereby. The Credit Agreement, as amended by this Amendment, is and shall continue to be in full force and effect and is hereby ratified and confirmed in all respects. To the extent any amendment set forth in any previous amendment is omitted from this Amendment, the same shall be deemed eliminated as between Borrower and Bank as of the date hereof. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Bank under the Credit Agreement or constitute a waiver of any provision of the Credit Agreement except as specifically set forth herein. From and after the date of this Amendment references in the Credit Agreement to - 8 - Exhibit B shall be deemed to be references to the form of the Amended Note attached hereto as Exhibit A. SECTION VII - GOVERNING LAW This Amendment, and the respective rights and obligations of the parties hereto, shall be construed in accordance with and governed by Ohio law. IN WITNESS WHEREOF, the Borrower and the Bank have caused this Amendment to be executed by their authorized officers as of the date and year first above written. NATIONAL CITY BANK PREFORMED LINE PRODUCTS COMPANY By: /Patrick M. Pastore/ By: /Eric R. Graef/ Printed Name: Patrick M. Pastore Printed Name: Eric R. Graef Title: Senior Vice President Title: Vice President - Finance -9- AMENDED AND RESTATED PROMISSORY NOTE $20,000,000.00 _____________, Ohio _____________, 2002 FOR VALUE RECEIVED, the undersigned, PREFORMED LINE PRODUCTS COMPANY, an Ohio corporation, ("Borrower"), promises to pay to the order of NATIONAL CITY BANK ("Bank"), at the address specified on the bills received by Borrower from Bank (or at such other place as Bank may from time to time designate by written notice), the principal sum of TWENTY MILLION AND 00/100THS DOLLARS (or, if less, the aggregate unpaid principal balance from time to time shown on the reverse side hereof or as may be entered in a loan account on Bank's books and records, or both), together with interest computed in the manner provided in the Credit Agreement referred to below, which principal and interest is payable in accordance with provisions in the Credit Agreement. This note is issued pursuant to a Credit Agreement dated as of December 30, 1994, as amended from time to time (as amended, the "Credit Agreement") by and between Borrower and Bank. This note is issued in substitution for that certain $20,000,000.00 Tranche A Promissory Note and that certain $20,000,000.00 Tranche B Promissory Note, both dated as of November 30, 1997 (collectively, the "Old Note"). This Note is not intended as a novation of the obligations of Borrower under the Old Note but rather is merely a restatement of the obligations thereunder after giving effect to the most recent amendment to the Credit Agreement. Reference is made to the Credit Agreement for the definitions of certain terms, for provisions governing the making of subject loans, the acceleration of the maturity thereof, rights of prepayment, and for other provisions to which this note is subject. Any endorsement by the payee on the reverse side of this note (or any allonge thereto) shall be presumptive evidence of the data so endorsed. Address: PREFORMED LINE PRODUCTS COMPANY 660 Beta Drive Mayfield Village, Ohio 44143 By: EXHIBIT--DO NOT SIGN --------------------------------- Printed Name:_______________________ Title:______________________________ EXHIBIT A EX-99.1 4 l00422aexv99w1.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Robert G. Ruhlman, President and Chief Executive Officer, of Preformed Line Products (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2003 which this certification accompanies fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934: and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 13, 2003 /s/ Robert G. Ruhlman --------------------- Robert G. Ruhlman President and Chief Executive Officer (Principal Executive Officer) A signed original of this written statement required by Section 906 has been provided to Preformed Line Products Company and will be retained by Preformed Line Products Company and furnished to the Securities and Exchange Commission or its staff upon request. EX-99.2 5 l00422aexv99w2.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Eric R. Graef, Vice President-Finance and Treasurer, of Preformed Line Products (the "Company"), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1) The Quarterly Report on Form 10-Q of the Company for the period ended March 31, 2003 which this certification accompanies fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934: and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. May 13, 2003 /s/ Eric R. Graef ------------------ Eric R. Graef Vice President - Finance and Treasurer (Principal Accounting Officer) A signed original of this written statement required by Section 906 has been provided to Preformed Line Products Company and will be retained by Preformed Line Products Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----