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 September 30, 2011
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 Incorporation or Organization) |
(I.R.S. Employer Identification No.) | |
660 Beta Drive Mayfield Village, Ohio |
44143 | |
(Address of Principal Executive Office) | (Zip Code) | |
(440) 461-5200 | ||
(Registrants telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | x | |||||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of common shares outstanding as of October 31, 2011: 5,248,396.
Page | ||||||
Part I - Financial Information | ||||||
Item 1. |
Financial Statements | 3 | ||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 28 | ||||
Item 4. |
Controls and Procedures | 28 | ||||
Part II - Other Information | ||||||
Item 1. |
Legal Proceedings | 29 | ||||
Item 1A. |
Risk Factors | 29 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 29 | ||||
Item 3. |
Defaults Upon Senior Securities | 29 | ||||
Item 4. |
(Removed and Reserved) | 29 | ||||
Item 5. |
Other Information | 29 | ||||
Item 6. |
Exhibits | 29 | ||||
SIGNATURES | 31 |
2
PART I FINANCIAL INFORMATION
ITEM 1. | FINANCIAL STATEMENTS |
PREFORMED LINE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30 | December 31 | |||||||
Thousands of dollars, except share and per share data | 2011 | 2010 | ||||||
ASSETS |
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Cash and cash equivalents |
$ | 23,751 | $ | 22,655 | ||||
Accounts receivable, less allowances of $1,816 ($1,213 in 2010) |
68,959 | 56,102 | ||||||
Inventories - net |
85,014 | 73,121 | ||||||
Deferred income taxes |
6,262 | 4,784 | ||||||
Prepaids |
7,938 | 6,923 | ||||||
Prepaid taxes |
1,901 | 2,146 | ||||||
Other current assets |
2,262 | 1,611 | ||||||
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TOTAL CURRENT ASSETS |
196,087 | 167,342 | ||||||
Property and equipment - net |
78,855 | 76,266 | ||||||
Patents and other intangibles - net |
11,654 | 12,735 | ||||||
Goodwill |
12,222 | 12,346 | ||||||
Deferred income taxes |
4,032 | 3,615 | ||||||
Other assets |
9,385 | 8,675 | ||||||
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TOTAL ASSETS |
$ | 312,235 | $ | 280,979 | ||||
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Notes payable to banks |
$ | 2,686 | $ | 1,246 | ||||
Current portion of long-term debt |
605 | 1,276 | ||||||
Trade accounts payable |
27,317 | 27,001 | ||||||
Accrued compensation and amounts withheld from employees |
16,078 | 9,848 | ||||||
Accrued expenses and other liabilities |
13,027 | 9,088 | ||||||
Accrued profit-sharing and other benefits |
4,558 | 4,464 | ||||||
Dividends payable |
1,095 | 1,087 | ||||||
Income taxes payable and deferred income taxes |
5,430 | 2,548 | ||||||
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TOTAL CURRENT LIABILITIES |
70,796 | 56,558 | ||||||
Long-term debt, less current portion |
13,381 | 9,374 | ||||||
Unfunded pension obligation |
9,574 | 9,473 | ||||||
Income taxes payable, noncurrent |
1,819 | 1,768 | ||||||
Deferred income taxes |
3,362 | 3,606 | ||||||
Other noncurrent liabilities |
3,494 | 3,535 | ||||||
SHAREHOLDERS EQUITY |
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PLPC Shareholders equity: |
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Common stock - $2 par value per share, 15,000,000 shares authorized, 5,248,396 and 5,270,977 issued and outstanding, net of 639,138 and 586,746 treasury shares at par, respectively |
10,497 | 10,542 | ||||||
Common shares issued to rabbi trust |
(1,280 | ) | (1,200 | ) | ||||
Deferred compensation liability |
1,280 | 1,200 | ||||||
Paid in capital |
12,092 | 8,748 | ||||||
Retained earnings |
198,668 | 184,060 | ||||||
Accumulated other comprehensive loss |
(11,448 | ) | (6,010 | ) | ||||
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TOTAL PLPC SHAREHOLDERS EQUITY |
209,809 | 197,340 | ||||||
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Noncontrolling interest |
| (675 | ) | |||||
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TOTAL SHAREHOLDERS EQUITY |
209,809 | 196,665 | ||||||
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
$ | 312,235 | $ | 280,979 | ||||
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See notes to consolidated financial statements (unaudited).
3
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
Three month periods ended September 30 | Nine month periods ended September 30 | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(Thousands, except per share data) | ||||||||||||||||
Net sales |
$ | 108,690 | $ | 93,942 | $ | 318,308 | $ | 244,987 | ||||||||
Cost of products sold |
71,130 | 62,271 | 211,651 | 165,836 | ||||||||||||
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GROSS PROFIT |
37,560 | 31,671 | 106,657 | 79,151 | ||||||||||||
Costs and expenses |
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Selling |
9,485 | 7,678 | 26,793 | 21,218 | ||||||||||||
General and administrative |
12,297 | 9,856 | 35,039 | 29,000 | ||||||||||||
Research and engineering |
3,239 | 2,915 | 9,816 | 8,474 | ||||||||||||
Other operating (income) expense |
2,459 | (1,735 | ) | 1,671 | (745 | ) | ||||||||||
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27,480 | 18,714 | 73,319 | 57,947 | |||||||||||||
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OPERATING INCOME |
10,080 | 12,957 | 33,338 | 21,204 | ||||||||||||
Other income (expense) |
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Interest income |
131 | 84 | 422 | 261 | ||||||||||||
Interest expense |
(177 | ) | (162 | ) | (654 | ) | (458 | ) | ||||||||
Other income |
194 | 1,005 | 421 | 1,765 | ||||||||||||
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148 | 927 | 189 | 1,568 | |||||||||||||
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INCOME BEFORE INCOME TAXES |
10,228 | 13,884 | 33,527 | 22,772 | ||||||||||||
Income taxes |
3,568 | 4,002 | 11,483 | 5,760 | ||||||||||||
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NET INCOME |
6,660 | 9,882 | 22,044 | 17,012 | ||||||||||||
Net income (loss) attributable to noncontrolling interest, net of tax |
| 3 | | (95 | ) | |||||||||||
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NET INCOME ATTRIBUTABLE TO PLPC |
$ | 6,660 | $ | 9,879 | $ | 22,044 | $ | 17,107 | ||||||||
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BASIC EARNINGS PER SHARE |
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Net income attributable to PLPC common shareholders |
$ | 1.27 | $ | 1.89 | $ | 4.19 | $ | 3.26 | ||||||||
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DILUTED EARNINGS PER SHARE |
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Net income attributable to PLPC common shareholders |
$ | 1.24 | $ | 1.83 | $ | 4.09 | $ | 3.17 | ||||||||
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Cash dividends declared per share |
$ | 0.20 | $ | 0.20 | $ | 0.60 | $ | 0.60 | ||||||||
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Weighted-average number of shares outstanding - basic |
5,253 | 5,238 | 5,263 | 5,248 | ||||||||||||
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Weighted-average number of shares outstanding - diluted |
5,381 | 5,390 | 5,386 | 5,396 | ||||||||||||
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See notes to consolidated financial statements (unaudited).
4
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
Nine month periods ended September 30 | ||||||||
2011 | 2010 | |||||||
(Thousands of dollars) | ||||||||
OPERATING ACTIVITIES |
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Net income |
$ | 22,044 | $ | 17,012 | ||||
Adjustments to reconcile net income to net cash provided by operations: |
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Depreciation and amortization |
7,664 | 6,483 | ||||||
Provision for accounts receivable allowances |
1,090 | 568 | ||||||
Provision for inventory reserves |
1,131 | 905 | ||||||
Deferred income taxes |
(2,157 | ) | (66 | ) | ||||
Share-based compensation expense |
2,178 | 2,161 | ||||||
Excess tax benefits from share-based awards |
(203 | ) | | |||||
Net investment in life insurance |
(28 | ) | (38 | ) | ||||
Unrealized foreign currency gain on hedge contract |
| (410 | ) | |||||
Other - net |
72 | | ||||||
Changes in operating assets and liabilities: |
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Accounts receivable |
(15,676 | ) | (12,305 | ) | ||||
Inventories |
(16,004 | ) | (5,333 | ) | ||||
Trade accounts payables and accrued liabilities |
13,088 | 10,000 | ||||||
Income taxes payable |
4,864 | (171 | ) | |||||
Other - net |
(3,218 | ) | (1,271 | ) | ||||
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
14,845 | 17,535 | ||||||
INVESTING ACTIVITIES |
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Capital expenditures |
(12,503 | ) | (9,088 | ) | ||||
Business acquisitions, net of cash acquired |
| (14,343 | ) | |||||
Proceeds from the sale of property and equipment |
228 | 661 | ||||||
Restricted cash |
(330 | ) | | |||||
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NET CASH USED IN INVESTING ACTIVITIES |
(12,605 | ) | (22,770 | ) | ||||
FINANCING ACTIVITIES |
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Increase in notes payable to banks |
6,280 | 10,200 | ||||||
Proceeds from the issuance of long-term debt |
| 172 | ||||||
Payments of long-term debt |
(1,131 | ) | (2,324 | ) | ||||
Dividends paid |
(3,286 | ) | (3,259 | ) | ||||
Excess tax benefits from share-based awards |
203 | | ||||||
Proceeds from issuance of common shares |
1,023 | 89 | ||||||
Purchase of common shares for treasury |
(3,522 | ) | (1,081 | ) | ||||
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
(433 | ) | 3,797 | |||||
Effects of exchange rate changes on cash and cash equivalents |
(711 | ) | (322 | ) | ||||
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Net increase (decrease) in cash and cash equivalents |
1,096 | (1,760 | ) | |||||
Cash and cash equivalents at beginning of year |
22,655 | 24,097 | ||||||
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | 23,751 | $ | 22,337 | ||||
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See notes to consolidated financial statements (unaudited).
5
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 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.
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, 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 nine month periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011.
The consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements, but does not include all of the information and notes required by United States of America (U.S.) generally accepted accounting principles (GAAP) for complete financial statements. For further information, refer to the consolidated financial statements and notes to consolidated financial statements included in the Companys 2010 Annual Report on Form 10-K filed on March 11, 2011 with the Securities and Exchange Commission.
Reclassifications
Certain prior period amounts have been reclassified to conform to current year presentation.
NOTE B OTHER FINANCIAL STATEMENT INFORMATION
Inventories net
September 30 | December 31 | |||||||
2011 | 2010 | |||||||
Finished products |
$ | 40,536 | $ | 34,580 | ||||
Work-in-process |
9,266 | 5,830 | ||||||
Raw materials |
44,544 | 40,667 | ||||||
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94,346 | 81,077 | |||||||
Excess of current cost over LIFO cost |
(5,722 | ) | (4,801 | ) | ||||
Noncurrent portion of inventory |
(3,610 | ) | (3,155 | ) | ||||
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$ | 85,014 | $ | 73,121 | |||||
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Cost of inventories for certain material are determined using the last-in-first-out (LIFO) method and totaled approximately $25.8 million at September 30, 2011 and $21.7 million at December 31, 2010. 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 must be based on managements 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 nine month periods ended September 30, 2011, the net increase in LIFO inventories resulted in a $.4 million and $.9 million charge to income before income taxes. During the three and nine month periods ended September 30, 2010, the net increase in LIFO inventories resulted in a $.2 million and $.9 million
6
charge to income before income taxes.
Noncurrent inventory is included in other assets on the consolidated balance sheets and is principally comprised of raw materials.
Property and equipment - net
Major classes of property and equipment are stated at cost and were as follows:
September 30 | December 31 | |||||||
2011 | 2010 | |||||||
Land and improvements | $ | 8,451 | $ | 7,467 | ||||
Buildings and improvements | 56,045 | 55,766 | ||||||
Machinery and equipment | 121,724 | 117,758 | ||||||
Construction in progress | 6,657 | 4,949 | ||||||
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192,877 | 185,940 | |||||||
Less accumulated depreciation | 114,022 | 109,674 | ||||||
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$ | 78,855 | $ | 76,266 | |||||
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Comprehensive income (loss)
The components of comprehensive income (loss) for the three and nine month periods ended September 30 are as follows:
PLPC | Noncontrolling interest | Total | ||||||||||||||||||||||
Three month period ended September 30 |
Three month period ended September 30 |
Three month period ended September 30 |
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2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Net income |
$ | 6,660 | $ | 9,879 | $ | | $ | 3 | $ | 6,660 | $ | 9,882 | ||||||||||||
Other comprehensive income (loss): |
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Foreign currency translation adjustments |
(11,269 | ) | 7,496 | | (77 | ) | (11,269 | ) | 7,419 | |||||||||||||||
Recognized net actuarial loss, net of tax |
65 | 44 | | | 65 | 44 | ||||||||||||||||||
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Total other comprehensive income (loss) |
(11,204 | ) | 7,540 | | (77 | ) | (11,204 | ) | 7,463 | |||||||||||||||
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Comprehensive income (loss) |
$ | (4,544 | ) | $ | 17,419 | $ | | $ | (74 | ) | $ | (4,544 | ) | $ | 17,345 | |||||||||
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PLPC | Noncontrolling interest | Total | ||||||||||||||||||||||
Nine month period ended September 30 |
Nine month period ended September 30 |
Nine month period ended September 30 |
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2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Net income (loss) |
$ | 22,044 | $ | 17,107 | $ | | $ | (95 | ) | $ | 22,044 | $ | 17,012 | |||||||||||
Other comprehensive income (loss): |
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Foreign currency translation adjustments |
(5,631 | ) | 3,186 | (50 | ) | (52 | ) | (5,681 | ) | 3,134 | ||||||||||||||
Recognized net actuarial loss, net of tax |
193 | 132 | | | 193 | 132 | ||||||||||||||||||
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Total other comprehensive income (loss) |
(5,438 | ) | 3,318 | (50 | ) | (52 | ) | (5,488 | ) | 3,266 | ||||||||||||||
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Comprehensive income (loss) |
$ | 16,606 | $ | 20,425 | $ | (50 | ) | $ | (147 | ) | $ | 16,556 | $ | 20,278 | ||||||||||
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7
Legal proceedings
From time to time, the Company may be subject to litigation incidental to its business. The Company is not a party to any 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.
NOTE C PENSION PLANS
PLP-USA hourly employees of the Company who meet specific requirements as to age and service are covered by a defined benefit pension plan. The Company uses a December 31 measurement date for this plan. Net periodic benefit cost for this plan included the following components:
Three month period ended September 30 | Nine month period ended September 30 | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Service cost |
$ | 251 | $ | 203 | $ | 753 | $ | 610 | ||||||||
Interest cost |
343 | 298 | 1,029 | 896 | ||||||||||||
Expected return on plan assets |
(273 | ) | (240 | ) | (817 | ) | (720 | ) | ||||||||
Recognized net actuarial loss |
103 | 70 | 309 | 210 | ||||||||||||
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Net periodic benefit cost |
$ | 424 | $ | 331 | $ | 1,274 | $ | 996 | ||||||||
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During the three month period ended September 30, 2011, $.3 million of contributions were made to the plan. The Company presently anticipates contributing an additional $.3 million to fund the plan in 2011.
NOTE D COMPUTATION OF EARNINGS PER SHARE
Basic earnings per share were computed by dividing net income attributable to PLPC common shareholders by the weighted-average number of common shares outstanding for each respective period. Diluted earnings per share were calculated by dividing net income attributable to PLPC common shareholders by the weighted-average of all potentially dilutive common shares that were outstanding during the periods presented.
The calculation of basic and diluted earnings per share for the three and nine month periods ended September 30, 2011 and 2010 were as follows:
For the three month period ended September 30 | For the nine month period ended September 30 | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator |
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Amount attributable to PLPC shareholders |
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Net income attributable to PLPC |
$ | 6,660 | $ | 9,879 | $ | 22,044 | $ | 17,107 | ||||||||
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Denominator |
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Determination of shares |
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Weighted-average common shares outstanding |
5,253 | 5,238 | 5,263 | 5,248 | ||||||||||||
Dilutive effect - share-based awards |
128 | 152 | 123 | 148 | ||||||||||||
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Diluted weighted-average common shares outstanding |
5,381 | 5,390 | 5,386 | 5,396 | ||||||||||||
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Earnings per common share attributable to PLPC shareholders |
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Basic |
$ | 1.27 | $ | 1.89 | $ | 4.19 | $ | 3.26 | ||||||||
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Diluted |
$ | 1.24 | $ | 1.83 | $ | 4.09 | $ | 3.17 | ||||||||
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Common shares issuable upon the exercise of employee stock options or vesting of restricted share awards are excluded from the calculation of diluted earnings per share when the calculation of option equivalent shares is anti-dilutive. For the three and nine month periods ended September 30, 2011, 9,500 and 14,700, respectively, stock options were excluded from the calculation of diluted earnings per shares because their effect would have been anti-dilutive. For the three and nine month periods ended September 30, 2010, 41,500 and 32,500, respectively, stock options were excluded from the calculation of diluted earnings per shares because their effect would have been anti-dilutive. For the three and nine month periods ended September 30, 2011 and 2010, no restricted shares were excluded from the calculation of diluted earnings per share.
8
NOTE E GOODWILL AND OTHER INTANGIBLES
The Companys finite and indefinite-lived intangible assets consist of the following:
September 30, 2011 | December 31, 2010 | |||||||||||||||
Gross Carrying Amount |
Accumulated
Amortization |
Gross Carrying Amount |
Accumulated Amortization |
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Finite-lived intangible assets |
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Patents |
$ | 4,818 | $ | (3,758 | ) | $ | 4,829 | $ | (3,524 | ) | ||||||
Land use rights |
1,296 | (94 | ) | 1,346 | (77 | ) | ||||||||||
Tradename |
969 | (283 | ) | 967 | (156 | ) | ||||||||||
Customer backlog |
504 | (504 | ) | 499 | (363 | ) | ||||||||||
Technology |
1,801 | (105 | ) | 1,783 | (37 | ) | ||||||||||
Customer relationships |
8,431 | (1,421 | ) | 8,519 | (1,051 | ) | ||||||||||
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$ | 17,819 | $ | (6,165 | ) | $ | 17,943 | $ | (5,208 | ) | |||||||
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Indefinite-lived intangible assets |
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Goodwill |
$ | 12,222 | $ | 12,346 | ||||||||||||
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The aggregate amortization expense for other intangibles with finite lives for the three and nine month periods ended September 30, 2011 was $.3 million and $1 million, respectively. The aggregate amortization expense for other intangibles with finite lives for the three and nine month periods ended September 30, 2010 was $.5 million and $1 million, respectively. Amortization expense is estimated to be $1.2 million for 2011, $1.1 million for 2012 and 2013, $1 million for 2014 and $.7 million for 2015. The weighted-average remaining amortization period by intangible asset class is as follows: patents, 3.7 years: land use rights, 65.2 years; trademark, 7.7 years; technology, 18.8 years: and customer relationships, 15 years.
The Company performed its annual impairment test for goodwill as of January 1, 2011, and determined that no adjustment to the carrying value was required. 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 with 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 changed. However, the Company believes that the methodologies and weightings used are reasonable and result in appropriate fair values of the reporting units.
The Companys only intangible asset with an indefinite life is goodwill. The change to goodwill is related to foreign currency translation. The changes in the carrying amount of goodwill, by segment, for the nine month period ended September 30, 2011, are as follows:
The Americas | EMEA | Asia-Pacific | Total | |||||||||||||
Balance at January 1, 2011 |
$ | 3,078 | $ | 1,177 | $ | 8,091 | $ | 12,346 | ||||||||
Currency translation |
| (96 | ) | (28 | ) | (124 | ) | |||||||||
|
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|
|
|
|
|
|
|||||||||
Balance at September 30, 2011 |
$ | 3,078 | $ | 1,081 | $ | 8,063 | $ | 12,222 | ||||||||
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NOTE F SHARE-BASED COMPENSATION
The 1999 Stock Option Plan
The 1999 Stock Option Plan (the Plan) permitted the grant of 300,000 options to buy common shares of the Company to certain employees at not less than fair market value of the shares on the date of grant. At December 31,
9
2010 there were no shares remaining to be issued under the plan. Options issued to date under the Plan vest 50% after one year following the date of the grant, 75% after two years, and 100% after three years and expire from five to ten years from the date of grant. Shares issued as a result of stock option exercises will be funded with the issuance of new shares.
The Company has elected to use the simplified method of calculating the expected term of the stock options and historical volatility to compute fair value under the Black-Scholes option-pricing model. The risk-free rate for periods within the contractual life of the option is based on the U.S. zero coupon Treasury yield in effect at the time of grant. Forfeitures have been estimated to be zero.
There were no shares granted for the three month periods ended September 30, 2011 and 2010.
Activity in the Companys Plan for the nine month period ended September 30, 2011 was as follows:
Number of
Shares |
Weighted Average Exercise Price per Share |
Weighted Average Remaining Contractual Term (Years) |
Aggregate Intrinsic Value |
|||||||||||||
Outstanding at January 1, 2011 |
72,057 | $ | 35.89 | |||||||||||||
Granted |
| | ||||||||||||||
Exercised |
(20,975 | ) | $ | 39.44 | ||||||||||||
Forfeited |
(125 | ) | $ | 15.00 | ||||||||||||
|
|
|||||||||||||||
Outstanding (vested and expected to vest) at September 30, 2011 |
50,957 | $ | 34.48 | 4.7 | $ | 623 | ||||||||||
|
|
|||||||||||||||
Exercisable at September 30, 2011 |
46,707 | $ | 34.06 | 4.4 | $ | 595 | ||||||||||
|
|
The total intrinsic value of stock options exercised during the nine month periods ended September 30, 2011 and 2010 was $.1 million for both periods. Cash received for the exercise of stock options during the nine month periods ended September 30, 2011 and 2010 was $.8 million and $.1 million. Excess tax benefits from share-based awards for the nine month periods ended September 30, 2011 and 2010 were $.1 million and $0, respectively.
For the three and nine month periods ended September 30, 2011, the Company recorded compensation expense related to the stock options currently vesting, reducing income before taxes and net income by less than $.1 million and $.1 million, respectively. For the three and nine month periods ended September 30, 2010, the Company recorded compensation expense related to the stock options currently vesting, reducing income before taxes and net income by less than $.1 million and $.1 million, respectively. The total compensation cost related to nonvested awards not yet recognized at September 30, 2011 is expected to be less than $.1 million over a weighted-average period of 1.3 years.
Long Term Incentive Plan of 2008
Under the Amended and Restated Preformed Line Products Company Long Term Incentive Plan of 2008 (the LTIP), certain employees, officers, and directors are eligible to receive awards of options and restricted shares. The purpose of this LTIP is to give the Company and its subsidiaries 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 Companys performance. As of September 30, 2011, the total number of common shares reserved for awards under the LTIP is 900,000. Of the 900,000 common shares, 800,000 common shares have been reserved for restricted share awards and 100,000 common shares have been reserved for share options. The LTIP expires on April 17, 2018.
Restricted Share Awards
For all of the participants except the CEO, a portion of the restricted share award is subject to time-based cliff vesting
10
and a portion is subject to vesting based upon the Companys performance over a three year period. All of the CEOs restricted shares are subject to vesting based upon the Companys performance over a three year period.
The restricted shares are offered at no cost to the employees; however, the participant must remain employed with the Company until the restrictions on the restricted shares lapse. The fair value of restricted share awards is based on the market price of a common share on the grant date. The Company currently estimates that no awards will be forfeited. Dividends declared in 2009 and thereafter will be accrued in cash dividends. Dividends related to the 2008 grant of restricted shares were reinvested in additional restricted shares, and held subject to the same vesting requirements as the underlying restricted shares.
A summary of the restricted share awards for the nine month period ended September 30, 2011 is as follows:
Restricted Share Awards | ||||||||||||||||
Performance and Service Required |
Service Required |
Total Restricted Awards |
Weighted-Average Grant-Date Fair Value |
|||||||||||||
Nonvested as of January 1, 2011 |
142,955 | 19,778 | 162,733 | $ | 33.14 | |||||||||||
Granted |
61,594 | 6,775 | 68,369 | 39.92 | ||||||||||||
Vested |
| (4,273 | ) | (4,273 | ) | 54.74 | ||||||||||
Forfeited |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Nonvested as of September 30, 2011 |
204,549 | 22,280 | 226,829 | $ | 34.91 | |||||||||||
|
|
|
|
|
|
|
|
For time-based restricted shares, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award in General and administrative expense in the accompanying statement of consolidated income. Compensation expense related to the time-based restricted shares for the three and nine month periods ended September 30, 2011 was $.1 million and $.2 million, respectively. Compensation expense related to the time-based restricted shares for the three and nine month periods ended September 30, 2010 was $.1 million and $.2 million, respectively. As of September 30, 2011, there was $.4 million of total unrecognized compensation cost related to time-based restricted share awards that is expected to be recognized over the weighted-average remaining period of approximately 1.8 years.
For the performance-based awards, the number of restricted shares in which the participants will vest depends on the Companys level of performance measured by growth in pretax income and sales growth over a requisite performance period. Depending on the extent to which the performance criterions are satisfied under the LTIP, the participants are eligible to earn common shares over the vesting period. Performance-based compensation expense for the three and nine month periods ended September 30, 2011 was $.6 million and $1.7 million, respectively. Performance-based compensation expense for the three and nine month periods ended September 30, 2010 was $.6 million and $1.8 million, respectively. As of September 30, 2011, the remaining performance-based restricted share awards compensation expense of $3.2 million is expected to be recognized over a period of approximately 1.8 years.
The excess tax benefits from restricted share awards for the nine month periods ended September 30, 2011 and 2010 was $.1 million and $0, as reported on the consolidated statements of cash flows in financing activities, and represents the reduction in income taxes otherwise payable during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits for restricted shares vested in the current period.
In the event of a Change in Control, vesting of the restricted shares will be accelerated and all restrictions will lapse. Unvested performance-based awards are based on a maximum potential payout. Actual shares awarded at the end of the performance period may be less than the maximum potential payout level depending on achievement of performance-based award objectives.
To satisfy the vesting of its restricted share awards, the Company has reserved new shares from its authorized but unissued shares. Any additional awards granted will also be issued from the Companys authorized but unissued shares. As of September 30, 2011, under the LTIP there were 529,534 common shares available for additional restricted share grants.
11
Deferred Compensation Plan
The Company maintains a trust, commonly referred to as a rabbi trust, in connection with the Companys 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 either in cash currently or in shares of common stock of the Company at a later date. Assets of the rabbi trust are consolidated, and the value of the Companys stock held in the rabbi trust is classified in Shareholders equity and generally accounted for in a manner similar to treasury stock. The Company recognizes the original amount of the deferred compensation (fair value of the deferred stock award at the date of grant) as the basis for recognition in common shares issued to the rabbi trust. Changes in the fair value of amounts owed to certain employees or Directors are not recognized as the Companys deferred compensation plan does not permit diversification and must be settled by the delivery of a fixed number of the Companys common shares. Second, this plan allows certain Company employees to defer LTIP restricted shares for future distribution in the form of common shares. As of September 30, 2011, 24,633 LTIP shares have been deferred and are being held by the rabbi trust.
Share Option Awards
The LTIP permits the grant of 100,000 options to buy common shares of the Company to certain employees at not less than fair market value of the shares on the date of grant. At September 30, 2011 there were 79,500 shares remaining available for issuance under the LTIP. Options issued through September 30, 2011 under the LTIP vest 50% after one year following the date of the grant, 75% after two years, and 100% after three years and expire from five to ten years from the date of grant. Shares issued as a result of stock option exercises will be funded with the issuance of new shares.
The Company has elected to use the simplified method of calculating the expected term of the stock options and historical volatility to compute fair value under the Black-Scholes option-pricing model. The risk-free rate for periods within the contractual life of the option is based on the U.S. zero coupon Treasury yield in effect at the time of grant. Forfeitures have been estimated to be zero.
There were no options granted for the nine month periods ended September 30, 2011 and 2010.
Activity in the Companys LTIP for the nine month period ended September 30, 2011 was as follows:
Number of Shares |
Weighted Average Exercise Price per Share |
Weighted Average Remaining Contractual Term (Years) |
Aggregate Intrinsic Value |
|||||||||||||
Outstanding at January 1, 2011 |
20,500 | $ | 44.94 | |||||||||||||
Granted |
| $ | 0.00 | |||||||||||||
Exercised |
(3,000 | ) | $ | 38.76 | ||||||||||||
Forfeited |
| $ | 0.00 | |||||||||||||
|
|
|||||||||||||||
Outstanding (vested and expected to vest) at September 30, 2011 |
17,500 | $ | 46.00 | 8.7 | $ | 56 | ||||||||||
|
|
|||||||||||||||
Exercisable at September 30, 2011 |
2,500 | $ | 38.76 | 8.3 | $ | 18 | ||||||||||
|
|
The total intrinsic value of stock options exercised during the nine month periods ended September 30, 2011 and 2010 was $.1 million and $0, respectively. Cash received for the exercise of stock options during the nine month periods ended September 30, 2011 and 2010 was $.1 million and $0, respectively. Excess tax benefits from share-based awards for the nine month periods ended September 30, 2011 and 2010 were less than $.1 million and $0, respectively.
For the three and nine month periods ended September 30, 2011, the Company recorded compensation expense related to the stock options currently vesting, reducing income before taxes and net income by $.1 million and $.1 million, respectively. For the three and nine month periods ended September 30, 2010, the Company recorded compensation
12
expense related to the stock options currently vesting, reducing income before taxes and net income by less than $.1 million for both periods. The total compensation cost related to nonvested awards not yet recognized at September 30, 2011 is expected to be a combined total of $.2 million over a weighted-average period of approximately 1.9 years.
NOTE G FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. U.S. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas, unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
| Level 1 Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. |
| Level 2 Valuations based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. |
| Level 3 Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
The carrying value of the Companys current financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, notes payable, and short-term debt, approximates its fair value because of the short-term maturity of these instruments. At September 30, 2011, the fair value of the Companys long-term debt was estimated using discounted cash flows analysis, based on the Companys current incremental borrowing rates for similar types of borrowing arrangements which are considered to be level two inputs. There have been no transfers in or out of level two for the three month period ended September 30, 2011. Based on the analysis performed, the fair value and the carrying value of the Companys long-term debt are as follows:
September 30, 2011 | December 31, 2010 | |||||||||||||||
Fair Value | Carrying Value | Fair Value | Carrying Value | |||||||||||||
Long-term debt and related current maturities |
$ | 14,056 | $ | 13,986 | $ | 10,738 | $ | 10,650 | ||||||||
|
|
|
|
|
|
|
|
As a result of being a global company, the Companys earnings, cash flows and financial position are exposed to foreign currency risk. The Companys primary objective for holding derivative financial instruments is to manage foreign currency risks. The Company accounts for derivative instruments and hedging activities as either assets or liabilities in the consolidated balance sheet and carries these instruments at fair value. The Company does not enter into any trading or speculative positions with regard to derivative instruments. At September 30, 2011, the Company had two de minimus derivatives outstanding.
Foreign currency derivative instruments outstanding are not designated as hedges for accounting purposes. The gains and losses related to mark-to-market adjustments are recognized as other operating (income) expense on the statement of consolidated income during the period in which the derivative instruments were outstanding.
During June 2010, the Company entered into a forward foreign exchange contract to reduce its exposure to foreign currency rate changes related to the purchase price of Electropar, which closed on July 30, 2010. The forward foreign currency contract had an exercise value of $12.9 million which matured on July 28, 2010. The realized gain recognized at maturity was $1.2 million, which the Company has recorded in the other income (expense) line on the statement of consolidated income.
13
As part of the Purchase Agreement to acquire Electropar, the Company may be required to make an additional earn-out consideration payment up to NZ$2 million or US$1.5 million based on Electropar achieving a financial performance target (Earnings Before Interest, Taxes, Depreciation and Amortization) over the 12 months ended July 31, 2011. The fair value of the contingent consideration arrangement is determined by estimating the expected (probability-weighted) earn-out payment discounted to present value and is considered a level three input. Based upon the initial evaluation of the range of outcomes for this contingent consideration, the Company accrued $.4 million for the additional earn-out consideration payment as of the acquisition date in the Accrued expenses and other liabilities line on the consolidated balance sheets, and as part of the purchase price. The amount accrued in the consolidated balance sheet of $1.3 million has increased $.9 million due primarily to a $.8 million adjustment for actual results and a $.1 million increase in the net present value of the liability due to the passage of time. The adjustment of $.8 million was recorded in Costs and expenses in the consolidated statements of income.
NOTE H RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In October 2009, the Financial Accounting Standards Board (FASB) issued accounting standards updates (ASU) No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 addresses the accounting for sales arrangements that include multiple products or services by revising the criteria for when deliverables may be accounted for separately rather than as a combined unit. Specifically, this guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is necessary to separately account for each product or service. This hierarchy provides more options for establishing selling price than existing guidance. ASU 2009-13 is required to be applied prospectively to new or materially modified revenue arrangements beginning on or after January 1, 2011. The adoption of ASU 2009-13 did not have a material impact on the Companys consolidated financial position or results of operations.
In December 2010, the FASB issued ASU No. 2010-29, which updates the guidance in FASB Accounting Standards Codification (ASC) Topic 805, Business Combinations. The objective of ASU 2010-29 is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments affect any public entity as defined by FASB ASC 805 that enters into business combinations that are material on an individual or aggregate basis. The amendments in ASU 2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of this guidance did not have an impact on the Companys consolidated financial position or results of operations.
In December 2010, the FASB issued ASU No. 2010-28, which updates the guidance in FASB ASC Topic 350, IntangiblesGoodwill & Other. The amendments in ASU 2010-28 affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in ASU 2010-28 modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company adopted ASU 2010-28 effective January 1, 2011 and it had no impact on the Companys consolidated financial statements or disclosures.
NOTE I RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the FASB in the form of ASUs to the FASBs ASC.
14
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or have minimal impact on our consolidated financial position and results of operations.
In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, an entity can choose to early adopt even if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements. The adoption of this ASU is not expected to significantly impact the Companys consolidated financial statements.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and International Financial Reporting Standards (IFRSs) to provide a consistent definition of fair value and ensure that fair value measurements and disclosure requirements are similar between US GAAP and IFRS. This guidance changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2011 and are applied prospectively. Early application by public entities is not permitted. The Company does not expect adoption of ASU 2011-04 will have a material impact on the Companys financial position, results of operations, cash flows or disclosures.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. On October 21, 2011, the FASB deferred the effective date of ASU 2011-05. The Company does not expect the adoption of ASU 2011-05 to have a material effect on the Companys operating results or financial position.
NOTE J SEGMENT INFORMATION
The following tables present a summary of the Companys reportable segments for the three and nine month periods ended September 30, 2011 and 2010. Financial results for the PLP-USA segment include the elimination of all segments intercompany profit in inventory.
15
Three month period ended September 30 | Nine month period ended September 30 | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales |
||||||||||||||||
PLP-USA |
$ | 38,896 | $ | 31,656 | $ | 109,308 | $ | 88,803 | ||||||||
The Americas |
26,601 | 23,050 | 76,448 | 55,023 | ||||||||||||
EMEA |
15,274 | 13,140 | 45,593 | 38,197 | ||||||||||||
Asia-Pacific |
27,919 | 26,096 | 86,959 | 62,964 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net sales |
$ | 108,690 | $ | 93,942 | $ | 318,308 | $ | 244,987 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Intersegment sales |
||||||||||||||||
PLP-USA |
$ | 2,160 | $ | 2,605 | $ | 7,085 | $ | 5,932 | ||||||||
The Americas |
1,339 | 1,552 | 5,134 | 4,980 | ||||||||||||
EMEA |
627 | 395 | 1,473 | 1,298 | ||||||||||||
Asia-Pacific |
3,297 | 2,432 | 9,460 | 6,349 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total intersegment sales |
$ | 7,423 | $ | 6,984 | $ | 23,152 | $ | 18,559 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Income taxes |
||||||||||||||||
PLP-USA |
$ | 1,543 | $ | 1,800 | $ | 5,000 | $ | 1,332 | ||||||||
The Americas |
831 | 1,234 | 3,065 | 1,730 | ||||||||||||
EMEA |
730 | 497 | 1,231 | 1,332 | ||||||||||||
Asia-Pacific |
464 | 471 | 2,187 | 1,366 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total income taxes |
$ | 3,568 | $ | 4,002 | $ | 11,483 | $ | 5,760 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
||||||||||||||||
PLP-USA |
$ | 2,389 | $ | 2,961 | $ | 7,437 | $ | 3,766 | ||||||||
The Americas |
1,806 | 2,178 | 6,246 | 4,725 | ||||||||||||
EMEA |
893 | 2,406 | 2,953 | 4,465 | ||||||||||||
Asia-Pacific |
1,572 | 2,337 | 5,408 | 4,056 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total net income |
6,660 | 9,882 | 22,044 | 17,012 | ||||||||||||
Income (loss) attributable to noncontrolling interest, net of tax |
| 3 | | (95 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income attributable to PLPC |
$ | 6,660 | $ | 9,879 | $ | 22,044 | $ | 17,107 | ||||||||
|
|
|
|
|
|
|
|
September 30 | December 31 | |||||||
2011 | 2010 | |||||||
Assets |
||||||||
PLP-USA |
$ | 80,506 | $ | 67,268 | ||||
The Americas |
65,580 | 61,358 | ||||||
EMEA |
47,334 | 44,526 | ||||||
Asia-Pacific |
118,479 | 107,481 | ||||||
|
|
|
|
|||||
311,899 | 280,633 | |||||||
Corporate assets |
336 | 346 | ||||||
|
|
|
|
|||||
Total assets |
$ | 312,235 | $ | 280,979 | ||||
|
|
|
|
NOTE K INCOME TAXES
The Companys effective tax rate was 34% and 29% for the three month periods ended September 30, 2011 and 2010, respectively, and 34% and 25% for the nine month periods ended September 30, 2011 and 2010, respectively. The lower effective tax rate for the periods ended September 30, 2011 compared to the U.S. federal statutory tax rate of 35% is primarily due to increased earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate in jurisdictions where such earnings are permanently reinvested. The higher effective tax rate for the periods ended September 30, 2011 compared with the same periods for 2010 was primarily due to favorable discrete items recognized in 2010, primarily related to a favorable foreign tax incentive for technological innovation and a decrease of unrecognized tax benefits effectively settled through audits.
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 allowance were made for the period ended September 30, 2011.
As of September 30, 2011, the Company had gross unrecognized tax benefits of approximately $1 million and there were no significant changes during the period ended September 30, 2011.
16
NOTE L PRODUCT WARRANTY RESERVE
The Company records an accrual for estimated warranty costs to costs of products sold in the consolidated statements of income. These amounts are recorded in accrued expenses and other liabilities in the 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. During the second quarter of 2011, the Company accepted certified product from a supplier which later failed in the field. The Company has taken responsibility to expedite correcting the situation and as such, the Company had increased the warranty reserve by $1.8 million. As of September 30, 2011, $1.3 million has been paid related to this warranty claim.
The following is a rollforward of the product warranty reserve:
September 30, 2011 | December 31, 2010 | |||||||
Balance at the beginning of period |
$ | 536 | $ | 209 | ||||
Additions charged to income |
1,923 | 403 | ||||||
Warranty usage |
(1,532 | ) | (108 | ) | ||||
Currency translation |
(192 | ) | 32 | |||||
|
|
|
|
|||||
End of period balance |
$ | 735 | $ | 536 | ||||
|
|
|
|
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help investors better understand our results of operations, financial condition and present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The MD&A is organized as follows:
| Overview |
| Recent Developments |
| Preface |
| Results of Operations |
| Application of Critical Accounting Policies and Estimates |
| Working Capital, Liquidity and Capital Resources |
| Recently Adopted Accounting Pronouncements |
| Recently Issued Accounting Pronouncements |
OVERVIEW
Preformed Line Products Company (the Company, PLPC, we, us, or our) was incorporated in Ohio in 1947. We are an international designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, information (data communication), and other similar industries. Our primary products support, protect, connect, terminate, and secure cables and wires. We also provide solar hardware systems and mounting hardware for a variety of solar power applications. Our goal is to continue to achieve profitable growth as a leader in the innovation, development, manufacture, and marketing of technically advanced products and services related to energy, communications, and cable systems and to take advantage of this leadership position to sell additional quality products in familiar markets. We have 17 sales and manufacturing operations in 14 different countries.
RECENT DEVELOPMENTS
As a result of several global acquisitions since 2007 and corresponding significant changes in our internal structure, we realigned our business units as of the fourth quarter of 2010 into four operating segments to better capitalize on business development opportunities, improve ongoing services, enhance the utilization of our worldwide resources and global sourcing initiatives and manage the Company better.
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We report our segments in four geographic regions: PLP-USA, The Americas (includes operations in North and South America without PLP-USA), EMEA (Europe, Middle East & Africa) and Asia-Pacific in accordance with accounting standards codified in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 280, Segment Reporting. Each segment distributes a full range of our primary products. Our PLP-USA segment is comprised of our U.S. operations manufacturing our traditional products primarily supporting our domestic energy and telecommunications products. Our other three segments, The Americas, EMEA and Asia-Pacific, support our energy, telecommunications, data communication and solar products in each respective geographical region.
The segment managers responsible for each region report directly to the Companys Chief Executive Officer, who is the chief operating decision maker, and are accountable for the financial results and performance of their entire segment for which they are responsible. The business components within each segment are managed to maximize the results of the entire company rather than the results of any individual business component of the segment.
We evaluate segment performance and allocate resources based on several factors primarily based on sales and net income. The segment information for the prior period has been recast to conform to the current segment presentation.
Preface
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S. (GAAP). Our discussions of the financial results include non-GAAP measures (e.g., foreign currency impact) to provide additional information concerning our financial results and provide information that is useful to the assessment of our performance and operating trends.
Highlights:
| Net sales increased 30% to $318.3 million, compared to $245 million in 2010. |
| Year to date operating income increased $12 million to $33.3 million from $21.2 million in 2010. |
| Net income was $22 million for the nine month period ended September 30, 2011 compared to $17 million for the nine month period ended September 30, 2010. |
| Diluted earnings per share were $4.09 per share in 2011 compared to $3.17 per share in 2010. |
| Bank debt to equity ratio is 8%. |
Our financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. As foreign currencies strengthen against the U.S. dollar, our revenues and costs increase as the foreign currency-denominated financial statements translate into more dollars. The fluctuations of foreign currencies during the three and nine month periods ended September 30, 2011 had a positive impact on net sales of $4.7 million and $15 million as compared to 2010, respectively. Excluding the effect of currency translation, for the nine month period ended September 2011 net sales increased by double digits in all four of our reportable segments compared to 2010. The net sales increases for the three and nine month periods ended September 30, 2011 were primarily attributable to global business combinations, new business, higher demand levels, and favorable foreign currency exchange rates.
For the three month period ended September 30, 2011, net sales of $108.7 million increased $14.7 million, or 16%, compared to 2010. As a percentage of net sales, gross profit was 34.6% and 33.7% of net sales for the three month periods ended September 30, 2011 and 2010, respectively. Excluding the effect of currency translation, gross profit increased $4.3 million, or 13%, compared to 2010. Excluding the effect of currency translation, costs and expenses increased $7.6 million, or 41%, compared to 2010. Of the $7.6 million increase to costs and expenses, $4.2 million was related to changes in foreign currency exchange. In the three month period ended September 30, 2010, we had foreign currency exchange gains of $2.1 million compared to foreign currency exchange losses of $2.1 million in the three month period ended September 30, 2011. These foreign currency exchange gains and losses were related to exchange rate changes on transactions denominated in a currency other than the functional currency and primarily related to intercompany payables, loans and royalties. Excluding these changes in foreign currency exchange, costs and expenses increased 18%. Excluding the effect of currency translation and as a result of the preceding factors, operating income for the three month period ended September 30, 2011 of $10.1 million decreased $3.3 million compared to 2010. Net income for the three month period ended September 30, 2011 of $6.7 million decreased $3.2 million compared to 2010.
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For the nine month period ended September 30, 2011, net sales of $318.3 million increased $73.3 million, or 30%, compared to 2010. As a percentage of net sales, gross profit improved from 32.3% for the nine month period ended September 30, 2010 to 33.5% for the nine month period ended September 30, 2011. Excluding the effect of currency translation, gross profit increased $22.7 million, or 29%, compared to 2010. Excluding the effect of currency translation, costs and expenses increased $12.3 million, or 21% compared to 2010. The primary reasons costs and expenses increased compared to 2010 were due to continued investment in personnel, research and engineering costs, and higher commission expense. Also, net foreign currency exchange gains in 2010 of $1.4 million compared to foreign currency exchange losses of $1.1 million in 2011 accounted for $2.5 million of the increase in costs and expenses. Excluding the effect of currency translation and as a result of the preceding factors, operating income for the nine month period ended September 30, 2011 of $33.3 million increased $10.8 million compared to 2010. Net income for the nine month period ended September 30, 2011 of $22 million increased $5 million.
Despite the global economic conditions, we are seeing an improvement in our global marketplace and our financial condition continues to remain strong. We have proactively managed working capital and have controlled capital spending. We currently have a bank debt to equity ratio of 8% and can borrow needed funds at an attractive interest rate under our credit facility.
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2011 COMPARED TO THREE MONTH PERIOD ENDED SEPTEMBER 30, 2010
The following table sets forth a summary of the Companys consolidated income statements and the percentage of net sales for the three month periods ended September 30, 2011 and 2010. The Companys past operating results are not necessarily indicative of future operating results.
Three month period ended September 30 | ||||||||||||||||||||
thousands of dollars | 2011 | 2010 | Change | |||||||||||||||||
Net sales |
$ | 108,690 | 100 | % | $ | 93,942 | 100 | % | $ | 14,748 | ||||||||||
Cost of products sold |
71,130 | 65 | % | 62,271 | 66 | % | 8,859 | |||||||||||||
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GROSS PROFIT |
37,560 | 35 | % | 31,671 | 34 | % | 5,889 | |||||||||||||
Costs and expenses |
27,480 | 25 | % | 18,714 | 20 | % | 8,766 | |||||||||||||
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OPERATING INCOME |
10,080 | 9 | % | 12,957 | 14 | % | (2,877 | ) | ||||||||||||
Other income (expense) |
148 | 0 | % | 927 | 1 | % | (779 | ) | ||||||||||||
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INCOME BEFORE INCOME TAXES |
10,228 | 9 | % | 13,884 | 15 | % | (3,656 | ) | ||||||||||||
Income taxes |
3,568 | 3 | % | 4,002 | 4 | % | (434 | ) | ||||||||||||
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NET INCOME |
$ | 6,660 | 6 | % | $ | 9,882 | 11 | % | $ | (3,222 | ) | |||||||||
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Net sales. For the three month period ended September 30, 2011, net sales were $108.7 million, an increase of $14.7 million, or 16%, from the three month period ended September 30, 2010. Excluding the effect of currency translation, net sales increased 11% as summarized in the following table:
Three month period ended September 30 | ||||||||||||||||||||||||
thousands of dollars | 2011 | 2010 | Change | Change due to currency translation |
Change excluding currency tranlation |
% change |
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Net sales |
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PLP-USA |
$ | 38,896 | $ | 31,656 | $ | 7,240 | $ | | $ | 7,240 | 23 | % | ||||||||||||
The Americas |
26,601 | 23,050 | 3,551 | 1,330 | 2,221 | 10 | ||||||||||||||||||
EMEA |
15,274 | 13,140 | 2,134 | 722 | 1,412 | 11 | ||||||||||||||||||
Asia-Pacific |
27,919 | 26,096 | 1,823 | 2,652 | (829 | ) | (3 | ) | ||||||||||||||||
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Consolidated |
$ | 108,690 | $ | 93,942 | $ | 14,748 | $ | 4,704 | $ | 10,044 | 11 | % | ||||||||||||
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The increase in PLP-USA net sales of $7.2 million, or 23%, was primarily due to sale price/mix increases of $1.9 million and sales volume increases of $5.3 million. International net sales for the three month period ended September 30, 2011 were favorably affected by $4.7 million when local currencies were converted to U.S. dollars. The following discussions of net sales exclude the effect of currency translation. The Americas net sales of $26.6 million increased $2.2 million, or 10%, primarily related to a stronger overall market demand in the region related to energy sales partially offset by a decrease in solar sales of $.6 million. EMEA net sales increased $1.4 million, or 11%, due to an increase in sales volume, primarily in South Africa and Great Britain. In Asia-Pacific, net sales decreased $.8 million, or 3%, compared to 2010. The decrease in net sales was due to an overall decrease in sales volume in the region partially offset by an increase of $1.1 million in sales realized through the Electropar acquisition in July 2010.
Gross profit. Gross profit of $37.6 million for the three month period ended September 30, 2011 increased $5.9 million, or 19%, compared to the three month period ended September 30, 2010. Excluding the effect of currency translation, gross profit increased 13% as summarized in the following table:
Three month period ended September 30 | ||||||||||||||||||||||||
thousands of dollars | 2011 | 2010 | Change | Change due to currency translation |
Change excluding currency translation |
% change |
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Gross profit |
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PLP-USA |
$ | 14,594 | $ | 11,500 | $ | 3,094 | $ | | $ | 3,094 | 27 | % | ||||||||||||
The Americas |
8,034 | 7,155 | 879 | 581 | 298 | 4 | ||||||||||||||||||
EMEA |
5,351 | 4,413 | 938 | 182 | 756 | 17 | ||||||||||||||||||
Asia-Pacific |
9,581 | 8,603 | 978 | 873 | 105 | 1 | ||||||||||||||||||
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Consolidated |
$ | 37,560 | $ | 31,671 | $ | 5,889 | $ | 1,636 | $ | 4,253 | 13 | % | ||||||||||||
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PLP-USA gross profit of $14.6 million increased $3.1 million compared to 2010. PLP-USA gross profit increased $2.9 million due to higher net sales coupled with an improvement in production margins. International gross profit for the three month period ended September 30, 2011 was favorably impacted by $1.6 million when local currencies were translated to U.S. dollars. The following discussion of gross profit excludes the effect of currency translation. The Americas gross profit increase of $.3 million was primarily the result of $.8 million from higher net sales partially offset by $.3 million from higher material costs and lower production margins. The EMEA gross profit increase of $.8M was the result of $.6 million from higher net sales coupled with better production margins in the region. Asia-Pacific gross profit of $9.6 million increased $.1 million compared to 2010. Of the $.1 million increase in gross profit, $.9 million was the result of sales realized through the acquisition of Electropar in July 2010. The rest of the Asia-Pacific regions gross profit decreased $.8 million as a result of $1 million from lower net sales volume partially offset by better production margins.
Costs and expenses. Costs and expenses of $27.5 million for the three month period ended September 30, 2011 increased $8.8 million, or 47%, compared to 2010. Excluding the effect of currency translation, costs and expenses increased 41% as summarized in the following table:
Three month period ended September 30 | ||||||||||||||||||||||||
thousands of dollars | 2011 | 2010 | Change | Change due to currency translation |
Change excluding currency translation |
% change |
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Costs and expenses |
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PLP-USA |
$ | 12,578 | $ | 9,256 | $ | 3,322 | $ | | $ | 3,322 | 36 | % | ||||||||||||
The Americas |
4,959 | 3,400 | 1,559 | 337 | 1,222 | 36 | ||||||||||||||||||
EMEA |
3,401 | 1,255 | 2,146 | 146 | 2,000 | 159 | ||||||||||||||||||
Asia-Pacific |
6,542 | 4,803 | 1,739 | 587 | 1,152 | 24 | ||||||||||||||||||
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Consolidated |
$ | 27,480 | $ | 18,714 | $ | 8,766 | $ | 1,070 | $ | 7,696 | 41 | % | ||||||||||||
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PLP-USA costs and expenses increased $3.3 million primarily due to an increase in employee related costs of $.5 million, commissions of $.4 million, consulting fees of $.4 million, changes in net foreign currency exchange of $1.1 million and acquisition related costs of $.8 million. International costs and expenses for the three month period ended September 30, 2011 were unfavorably impacted by $1.1 million when local currencies were translated to U.S. dollar. The following discussions of costs and expenses exclude the effect of currency translation. The Americas costs and expenses increased $1.2 million primarily due to an increase in personnel related costs in the region, coupled with $.4 million related to net foreign currency translation losses and $.2 million related to higher sales commissions. EMEA costs and expenses increased $2 million. EMEAs costs and expense increase was primarily due to currency translation gains of $1.2 million in 2010 compared to a currency translation loss of $.9 million in 2011 coupled with an increase in commissions of $.1 million. Partially offsetting these increases were a decrease in personnel related costs. Asia-Pacific costs and expenses increased $1.2 million compared to 2010. The Electropar acquisition in July 2010 added $.6 million to costs and expenses compared to 2010. Asia-Pacifics costs and expenses also increased due to changes in net foreign currency exchange of $.6 million. Overall, costs and expenses for the three month periods ended September 30, 2011 and 2010 included $.2 million and $.3 million, respectively, related to aggregate amortization expense of intangible assets acquired in our Dulmison and Electropar business combinations.
Other income (expense). Other income (expense) for the three month period ended September 30, 2011 of $.1 million decreased $.8 million compared to 2010. Other income (expense) decreased primarily due to a $.8 million realized gain recognized as a result of revaluing our forward foreign exchange contract to fair value at July 28, 2010. This forward foreign exchange contract was entered into on June 7, 2010 to reduce our exposure to foreign currency rate changes related to the purchase price of Electropar which closed on July 30, 2010.
Income taxes. Income taxes for the three month period ended September 30, 2011 of $3.6 million was $.4 million lower than in 2010. The effective tax rate for the three month period ended September 30, 2011 was 34% compared to 29% in 2010. The effective tax rate for three month period ended September 30, 2011 is lower than the U.S. federal statutory rate of 35% primarily due to increased earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate in jurisdictions where such earnings are permanently reinvested. The higher effective tax rate for the three month period ended September 30, 2011 compared with 2010 was primarily due to favorable discrete items recognized in 2010, primarily related to a favorable foreign tax incentive for technological innovation and a decrease of unrecognized tax benefits effectively settled through audits.
Net income. As a result of the preceding items, net income for the three month period ended September 30, 2011 was $6.7 million, compared to $9.9 million for the three month period ended September 30, 2010. Excluding the effect of currency translation, net income decreased $3.6 million as summarized in the following table:
Three month period ended September 30 | ||||||||||||||||||||||||
thousands of dollars | 2011 | 2010 | Change | Change due to currency translation |
Change excluding currency translation |
% change |
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Net income |
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PLP-USA |
$ | 2,389 | $ | 2,961 | $ | (572 | ) | $ | | $ | (572 | ) | (19 | )% | ||||||||||
The Americas |
1,806 | 2,178 | (372 | ) | 110 | (482 | ) | (22 | ) | |||||||||||||||
EMEA |
893 | 2,406 | (1,513 | ) | 71 | (1,584 | ) | (66 | ) | |||||||||||||||
Asia-Pacific |
1,572 | 2,337 | (765 | ) | 170 | (935 | ) | (40 | ) | |||||||||||||||
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Consolidated |
$ | 6,660 | $ | 9,882 | $ | (3,222 | ) | $ | 351 | $ | (3,573 | ) | (36 | )% | ||||||||||
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PLP-USA net income decreased $.6 million due to a decrease in other income of $.9 million partially offset by an increase in operating income of $.1 million and a decrease in income taxes. International net income for the three month period ended September 30, 2011 was unfavorably affected by $.4 million when local currencies were converted to U.S. dollars. The following discussion of net income excludes the effect of currency translation. The Americas net income decreased $.5 million as a result of a decrease in operating income of $1 million partially offset by a decrease in income taxes of $.5 million and a decrease in other income. EMEA net income decreased $1.6 million primarily as a result of a decrease in operating income of $1.3 million coupled with an increase in income taxes of $.2 million and a decrease in other income of $.1 million. Asia-Pacific net income decreased $.9 million
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primarily as a result of the decrease in operating income of $1.1 million partially offset by an increase in other income of $.1 million and a decrease in income taxes of $.1 million.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2011 COMPARED TO NINE MONTH PERIOD ENDED SEPTEMBER 30, 2010
The following table sets forth a summary of the Companys consolidated income statements and the percentage of net sales for the nine month periods ended September 30, 2011 and 2010. The Companys past operating results are not necessarily indicative of future operating results.
Nine month period ended September 30 | ||||||||||||||||||||
Thousands of dollars | 2011 | 2010 | Change | |||||||||||||||||
Net sales |
$ | 318,308 | 100 | % | $ | 244,987 | 100 | % | $ | 73,321 | ||||||||||
Cost of products sold |
211,651 | 66 | % | 165,836 | 68 | % | 45,815 | |||||||||||||
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GROSS PROFIT |
106,657 | 34 | % | 79,151 | 32 | % | 27,506 | |||||||||||||
Costs and expenses |
73,319 | 23 | % | 57,947 | 24 | % | 15,372 | |||||||||||||
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OPERATING INCOME |
33,338 | 10 | % | 21,204 | 9 | % | 12,134 | |||||||||||||
Other income (expense) |
189 | 0 | % | 1,568 | 1 | % | (1,379 | ) | ||||||||||||
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INCOME BEFORE INCOME TAXES |
33,527 | 11 | % | 22,772 | 9 | % | 10,755 | |||||||||||||
Income taxes |
11,483 | 4 | % | 5,760 | 2 | % | 5,723 | |||||||||||||
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NET INCOME |
$ | 22,044 | 7 | % | $ | 17,012 | 7 | % | $ | 5,032 | ||||||||||
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Net sales. For the nine month period ended September 30, 2011, net sales were $318.3 million, an increase of $73.3 million, or 30%, from the nine month period ended September 30, 2010. Excluding the effect of currency translation, net sales increased 24% as summarized in the following table:
Nine month period ended September 30 | ||||||||||||||||||||||||
thousands of dollars | 2011 | 2010 | Change | Change due to currency translation |
Change excluding currency tranlation |
% change |
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Net sales |
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PLP-USA |
$ | 109,308 | $ | 88,803 | $ | 20,505 | $ | | $ | 20,505 | 23 | % | ||||||||||||
The Americas |
76,448 | 55,023 | 21,425 | 4,563 | 16,862 | 31 | ||||||||||||||||||
EMEA |
45,593 | 38,197 | 7,396 | 2,590 | 4,806 | 13 | ||||||||||||||||||
Asia-Pacific |
86,959 | 62,964 | 23,995 | 7,811 | 16,184 | 26 | ||||||||||||||||||
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Consolidated |
$ | 318,308 | $ | 244,987 | $ | 73,321 | $ | 14,964 | $ | 58,357 | 24 | % | ||||||||||||
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The increase in PLP-USA net sales of $20.5 million, or 23%, was primarily due to sales price/mix increases of $9.4 million and sales volume increases of $11.1 million. International net sales for the nine month period ended September 30, 2011 were favorably affected by $15 million when local currencies were converted to U.S. dollars. The following discussions of net sales exclude the effect of currency translation. The Americas net sales of $76.4 million increased $16.9 million, or 31%, primarily related to a stronger overall market demand in the region related to energy and solar sales. The Americas net sales increase of $16.9 million was approximately 77% due to higher sales volume in our traditional markets and 23% due to volume in solar sales. EMEA net sales increased $4.8 million, or 13%, due to stronger market conditions in the region compared to 2010 leading to an increase in overall sales volume. In Asia-Pacific, net sales increased $16.2 million, or 26%, compared to 2010. Of the $16.2 million increase in net sales, $13 million related to the net sales realized through the Electropar acquisition in July 2010. The remainder of the net sales increase was due primarily to a sales volume increase in the region.
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Gross profit. Gross profit of $106.7 million for the nine month period ended September 30, 2011 increased $27.5 million, or 35%, compared to the nine month period ended September 30, 2010. Excluding the effect of currency translation, gross profit increased 29% as summarized in the following table:
Nine month period ended September 30 | ||||||||||||||||||||||||
thousands of dollars | 2011 | 2010 | Change | Change due to currency translation |
Change excluding currency translation |
% change |
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Gross profit |
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PLP-USA |
$ | 40,044 | $ | 27,821 | $ | 12,223 | $ | | $ | 12,223 | 44 | % | ||||||||||||
The Americas |
23,589 | 16,664 | 6,925 | 1,672 | 5,253 | 32 | ||||||||||||||||||
EMEA |
13,807 | 13,190 | 617 | 604 | 13 | | ||||||||||||||||||
Asia-Pacific |
29,217 | 21,476 | 7,741 | 2,558 | 5,183 | 24 | ||||||||||||||||||
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Consolidated |
$ | 106,657 | $ | 79,151 | $ | 27,506 | $ | 4,834 | $ | 22,672 | 29 | % | ||||||||||||
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PLP-USA gross profit of $40 million increased $12.2 compared to 2010. PLP-USA gross profit increased $9.2 million due to higher net sales and a $2.8 million increase related to price increases coupled with improvements in production margins. International gross profit for the nine month period ended September 30, 2011 was favorably impacted by $4.8 million when local currencies were translated to U.S. dollars. The following discussion of gross profit excludes the effect of currency translation. The Americas gross profit increase of $5.3 million was primarily the result of $5.1 million from higher net sales volume coupled with $.2 million due to favorable production margins. The EMEA gross profit of $13.8 million remained unchanged compared to 2010. This was primarily a result of $2 million from higher net sales offset by $1.8 million of product warranty expense coupled with lower production margins. During the second quarter of 2011, we accepted certified product from a supplier which later failed in the field. We have taken responsibility to expedite correcting the situation and as such, we increased the warranty reserve by $1.8 million, of which $1.3 million has been paid. Asia-Pacific gross profit of $29.2 million increased $5.2 million compared to 2010. Of the $5.2 million increase in gross profit, $4.3 million was related to the sales realized through the acquisition of Electropar in July 2010. The remainder of the increase in gross profit was the result of $.7 million from higher net sales coupled with $.2 million due to better production margins in the region.
The Dulmison acquisition was accounted for pursuant to the current business combination standards. In accordance with the standards, we recorded, as of the acquisition date, the acquired inventories at their respective fair values. For the nine month period ended September 30, 2010, we sold and therefore recognized $1 million of the acquired finished goods inventories fair value adjustment in Cost of products sold. For the nine month period ended September 30, 2011, we sold and therefore recognized a net $(.1) million of the acquired inventories fair value adjustment in Cost of products sold.
Costs and expenses. Costs and expenses of $73.3 million for the nine month period ended September 30, 2011 increased $15.4 million, or 27%, compared to 2010. Excluding the effect of currency translation, costs and expenses increased 21% as summarized in the following table:
Nine month period ended September 30 | ||||||||||||||||||||||||
thousands of dollars | 2011 | 2010 | Change | Change due to currency translation |
Change excluding currency translation |
% change |
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Costs and expenses |
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PLP-USA |
$ | 33,253 | $ | 29,024 | $ | 4,229 | $ | | $ | 4,229 | 15 | % | ||||||||||||
The Americas |
12,896 | 9,338 | 3,558 | 879 | 2,679 | 29 | ||||||||||||||||||
EMEA |
8,561 | 6,622 | 1,939 | 499 | 1,440 | 22 | ||||||||||||||||||
Asia-Pacific |
18,609 | 12,963 | 5,646 | 1,624 | 4,022 | 31 | ||||||||||||||||||
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Consolidated |
$ | 73,319 | $ | 57,947 | $ | 15,372 | $ | 3,002 | $ | 12,370 | 21 | % | ||||||||||||
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PLP-USA costs and expenses increased $4.2 million primarily due to an increase in employee related costs of $2 million, consulting fees of $.9 million, commissions of $1.1 million, and changes in net foreign currency exchange of $.5 million, partially offset by a decrease in acquisition-related costs of $.1 million and repairs and maintenance. International costs and expenses for the nine month period ended September 30, 2011 were unfavorably impacted by $3 million when local currencies were translated to U.S. dollar. The following discussions of costs and expenses exclude the effect of currency translation. The Americas costs and expenses increased $2.7 million primarily due to an increase in employee headcount in the region, mainly attributable to our investment in research and engineering to support our future growth, coupled with higher personnel related costs of $1.7 million, $.2 million due to net foreign currency exchange losses, $.7 million related to higher sales commissions and $.1 million due to higher consulting expenses. EMEA costs and expenses increased $1.4 million. EMEAs costs and expenses increase was primarily due to net foreign currency translation gain in 2010 of $.9 million compared to net foreign currency losses of $.4 million in 2011 partially offset by slightly lower employee related costs in the region. Asia-Pacific costs and expenses increased $4 million compared to 2010. The Electropar acquisition in July 2010 added $2.8 million to costs and expenses compared to 2010. The remaining $1.2 million increase in costs and expenses was primarily due to an increase in personnel related costs from other subsidiaries located in the Asia-Pacific reportable segment coupled with $.4 million related to net foreign currency exchange gains in 2010. The overall increase in costs and expenses was partially offset by a $.2 million decrease in commissions compared to 2010. Overall, costs and expenses for the nine month periods ended September 30, 2011 and 2010 included $.6 million and $.6 million, respectively, related to aggregate amortization expense of intangible assets acquired in our Dulmison and Electropar business combinations.
Other income (expense). Other income (expense) for the nine month period ended September 30, 2011 of $.2 million decreased $1.4 million compared to 2010. Other income (expense) decreased primarily due to a $.6 million decrease in income related to our natural gas well located at PLPs corporate headquarters coupled with a $1.2 million decrease due to a realized gain recognized as a result of revaluing our forward foreign exchange contract to fair value at July 28, 2010. As previously noted, this forward foreign exchange contract was entered into on June 7, 2010 to reduce our exposure to foreign currency rate changes related to the purchase price of Electropar, which closed on July 30, 2010. Also, interest expense increased $.2 million compared to 2010. The decrease in other income (expense) was partially offset by $.3 million higher non-operational expenses related to our foreign jurisdictions in 2010 coupled with an increase in interest income of $.1 million compared to 2010.
Income taxes. Income taxes for the nine month period ended September 30, 2011 of $11.4 million was $5.7 million higher than in 2010. The effective tax rate for the nine month period ended September 30 was 34% in 2011 compared to 25% in 2010. The effective tax rate for nine month period ended September 30, 2011 is lower than the U.S. federal statutory rate of 35% primarily due to increased earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate in jurisdictions where such earnings are permanently reinvested. The higher effective tax rate for the nine month period ended September 30, 2011 compared to 2010 was primarily due to favorable discrete items recognized in 2010, primarily related to a favorable foreign tax incentive for technological innovation and a decrease of unrecognized tax benefits effectively settled through audits.
Net income. As a result of the preceding items, net income for the nine month period ended September 30, 2011 was $22 million, compared to $17 million for the nine month period ended September 30, 2010. Excluding the effect of currency translation, net income increased $4.1 million as summarized in the following table:
Nine month period ended September 30 | ||||||||||||||||||||||||
thousands of dollars | 2011 | 2010 | Change | Change due to currency translation |
Change excluding currency translation |
% change |
||||||||||||||||||
Net income |
||||||||||||||||||||||||
PLP-USA |
$ | 7,437 | $ | 3,766 | $ | 3,671 | $ | | $ | 3,671 | 97 | % | ||||||||||||
The Americas |
6,246 | 4,725 | 1,521 | 454 | 1,067 | 23 | ||||||||||||||||||
EMEA |
2,953 | 4,465 | (1,512 | ) | 32 | (1,544 | ) | (35 | ) | |||||||||||||||
Asia-Pacific |
5,408 | 4,056 | 1,352 | 450 | 902 | 22 | ||||||||||||||||||
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Consolidated |
$ | 22,044 | $ | 17,012 | $ | 5,032 | $ | 936 | $ | 4,096 | 24 | % | ||||||||||||
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PLP-USA net income increased $3.7 million as a result of an increase in operating income of $9.2 million partially offset by a decrease in other income of $1.8 million and an increase in income taxes of $3.7 million. International net income for the nine month period ended September 30, 2011 was favorably affected by $.9 million when local currencies were converted to U.S. dollars. The following discussion of net income excludes the effect of currency translation. The Americas net income increased $1.1 million due primarily to the $2.2 million increase in operating income partially offset by an increase in income taxes of $1.1 million and a decrease in other income of $.1 million. EMEA net income decreased $1.5 million primarily as a result of a decrease in operating income of $1.7 million partially offset by a decrease in income taxes of $.2 million. Asia-Pacific net income increased $.9 million primarily as a result of the increase in operating income of $1 million and an increase in other income of $.5 million partially offset by an increase in income taxes of $.6 million.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies are consistent with the information set forth in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the year ended December 31, 2010 and are, therefore, not presented herein.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
Cash increased $1.1 million for the nine month period ended September 30, 2011. Net cash provided by operating activities was $14.8 million. The major investing and financing uses of cash were capital expenditures of $12.5 million, dividends of $3.3 million and repurchase of common shares of $3.5 million offset by net borrowings of $5.1 million.
Net cash provided by operating activities for the nine month period ended September 30, 2011 decreased $2.7 million compared to the nine month period ended September 30, 2010 primarily as a result of an increase in operating assets (net of operating liabilities) of $7.9 million offset by an increase in net income of $5 million.
Net cash used in investing activities for the nine month period ended September 30, 2011 of $12.6 million represents a decrease of $10.2 million when compared to cash used in investing activities in the nine month period ended September 30, 2010. The decrease was primarily related to decreased business acquisitions payments of $14.3 million partially offset by capital expenditure increases of $3.4 million in the nine month period ended September 30, 2011 when compared to the same period in 2010. During July 2010, we acquired all of the outstanding equity of Electropar for $14.3 million, net of cash received and working capital adjustments. Capital expenditures increased due mostly to purchase of land and building and an information technology system implementation at our Asia-Pacific segment, building renovation and information technology network upgrade at our EMEA segment and information technology system implementation at our PLP-USA segment. In addition proceeds from the sale of property decreased $.4 million and restricted cash increased $.3 million related to our Thailand operations.
Cash used in financing activities for the nine month period ended September 30, 2011 was $.4 million compared to cash provided by financing activities of $3.8 million for the nine month period ended September 30, 2010. The decrease of $4.2 million was primarily a result of lower debt borrowings in 2011 compared to 2010, repurchase of common shares outstanding partially offset by higher proceeds from issuance of common shares.
Our financial position remains strong and our current ratio at September 30, 2011 and December 31, 2010 was 2.8 to 1 and 3.0 to 1. At September 30, 2011, our unused availability under our main credit facility was $22.1 million and our bank debt to equity percentage was 8%. The revolving credit agreement contains, among other provisions, requirements for maintaining levels of working capital, net worth and profitability. At September 30, 2011, we were in compliance with these covenants.
We expect that our major sources of funding for 2011 and beyond will be our operating cash flows and our existing cash and cash equivalents. We believe our future operating cash flows will be more than sufficient to cover debt repayments, other contractual obligations, capital expenditures and dividends. In addition, we believe our borrowing capacity provides substantial financial resources. We do not believe we would increase our debt to a level that would have a material adverse impact upon results of operations or financial condition.
25
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In October 2009, the Financial Accounting Standards Board (FASB) issued accounting standards updates (ASU) No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 addresses the accounting for sales arrangements that include multiple products or services by revising the criteria for when deliverables may be accounted for separately rather than as a combined unit. Specifically, this guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is necessary to separately account for each product or service. This hierarchy provides more options for establishing selling price than existing guidance. ASU 2009-13 is required to be applied prospectively to new or materially modified revenue arrangements beginning on or after January 1, 2011. The adoption of ASU 2009-13 did not have a material impact on our consolidated financial position or results of operations.
In December 2010, the FASB issued ASU No. 2010-29, which updates the guidance in FASB Accounting Standards Codification (ASC) Topic 805, Business Combinations. The objective of ASU 2010-29 is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments affect any public entity as defined by FASB ASC 805 that enters into business combinations that are material on an individual or aggregate basis. The amendments in ASU 2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of this guidance did not have an impact on our consolidated financial position or results of operations.
In December 2010, the FASB issued ASU No. 2010-28, which updates the guidance in FASB ASC Topic 350, IntangiblesGoodwill & Other. The amendments in ASU 2010-28 affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in ASU 2010-28 modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We adopted ASU 2010-28 effective January 1, 2011 and it had no impact on our consolidated financial statements or disclosures.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the FASB in the form of ASUs to the FASBs ASC.
We consider the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or have minimal impact on our consolidated financial position and results of operations.
In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, an entity can choose to early adopt even if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements. The adoption of this ASU is not expected to significantly impact our consolidated financial statements.
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In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and International Financial Reporting Standards (IFRSs) to provide a consistent definition of fair value and ensure that fair value measurements and disclosure requirements are similar between US GAAP and IFRS. This guidance changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2011 and are applied prospectively. Early application by public entities is not permitted. We do not expect adoption of ASU 2011-04 will have a material impact on our financial position, results of operations, cash flows or disclosures.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. On October 21, 2011, the FASB deferred the effective date of ASU 2011-05. We do not expect the adoption of ASU 2011-05 to have a material effect on our operating results or financial position.
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 we file with the Securities and Exchange Commission (SEC) contain forward-looking statements regarding the Companys and managements 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 Companys operations and business environment, all of which are difficult to predict and many of which are beyond the Companys control. Such uncertainties and factors could cause the Companys 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 Companys future performance and cause the Companys 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 (U.S.), Canada, and Western Europe and may not grow as expected in developing regions; |
| The ability of our customers to raise funds needed to build the facilities their customers require; |
| Technological developments that affect longer-term trends for communication lines such as wireless communication; |
| The decreasing demands for product supporting copper-based infrastructure due to the introduction of products using new technologies or adoption of new industry standards; |
| The Companys success at continuing to develop proprietary technology and maintaining high quality products and customer service to meet or exceed existing or new industry performance standards and individual customer expectations; |
| The Companys success in strengthening and retaining relationships with the Companys customers, growing sales at targeted accounts and expanding geographically; |
| The extent to which the Company is successful in expanding the Companys product line or production facilities into new areas; |
27
| The Companys ability to identify, complete and integrate acquisitions for profitable growth; |
| The potential impact of consolidation, deregulation and bankruptcy among the Companys suppliers, competitors and customers; |
| The relative degree of competitive and customer price pressure on the Companys 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 Companys 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 compliances; |
| The telecommunication markets continued deployment of Fiber-to-the-Premises; |
| The Companys ability to obtain funding for future acquisitions; |
| The potential impact of the global economic condition and the depressed U.S. housing market on the Companys ongoing profitability and future growth opportunities in our core markets in the U.S. and other foreign countries where the financial situation is expected to be similar going forward; |
| The continued support by Federal, State, Local and Foreign Governments in incentive programs for upgrading electric transmission lines and promoting renewable energy deployment; |
| Those factors described under the heading Risk Factors on page 13 of the Companys Annual Report on Form 10-K for the year ended December 31, 2010 filed on March 11, 2011. |
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 Companys 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 Companys international operations are mitigated due to the stability of the countries in which the Companys largest international operations are located.
As of September 30, 2011, the Company had two immaterial foreign currency forward exchange contracts outstanding. 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 and term notes, which consisted of borrowings of $16.7 million at September 30, 2011. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $.1 million for the nine month period ended September 30, 2011.
The Companys primary currency rate exposures are related to foreign denominated debt, intercompany debt, forward exchange contracts, foreign denominated receivables and cash and short-term investments. A hypothetical 10% change in currency rates would have a favorable/unfavorable impact on fair values on such instruments of $4.5 million and on income before tax of $.1 million.
ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
28
The Companys Principal Executive Officer and Principal Financial Officer have concluded that the Companys disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended, were effective as of September 30, 2011.
Changes in Internal Control over Financial Reporting
There have not been any changes in the Companys internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)) during the quarter ended September 30, 2011 that materially affected or are reasonably likely to materially affect the Companys internal control over financial reporting.
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, results of operations or cash flows.
ITEM 1A. | RISK FACTORS |
There were no material changes from the risk factors previously disclosed in the Companys Annual Report on Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on March 11, 2011.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
On August 4, 2010, the Company announced the Board of Directors authorized a plan to repurchase up to 250,000 of Preformed Line Products common shares. The repurchase plan does not have an expiration date. The following table includes repurchases for the three month period ended September 30, 2011.
Period (2011) |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that may yet be Purchased under the Plans or Programs |
||||||||||||
July |
| | 57,827 | 192,173 | ||||||||||||
August |
16,000 | $ | 62.74 | 73,827 | 176,173 | |||||||||||
September |
| | 73,827 | 176,173 | ||||||||||||
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Total |
36,392 |
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None.
ITEM 4. | (Removed and Reserved) |
None.
ITEM 5. | OTHER INFORMATION |
None.
ITEM 6. | EXHIBITS |
31.1 | Certifications of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 302 of the |
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Sarbanes-Oxley Act of 2002, filed herewith. | ||
31.2 | Certifications of the Principal Executive Officer, Eric R. Graef, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
32.1 | Certifications of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished. | |
32.2 | Certifications of the Principal Executive Officer, Eric R. Graef, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished. | |
101.INS | XBRL Instance Document.* | |
101.SCH | XBRL Taxonomy Extension Schema Document.* | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.* | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document.* | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.* |
* | In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing. |
30
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.
November 7, 2011 | /s/ Robert G. Ruhlman | |||||
Robert G. Ruhlman | ||||||
Chairman, President and Chief Executive Officer | ||||||
(Principal Executive Officer) | ||||||
November 7, 2011 | /s/ Eric R. Graef | |||||
Eric R. Graef | ||||||
Chief Financial Officer and Vice President - Finance | ||||||
(Principal Accounting Officer) |
31
EXHIBIT INDEX
31.1 | Certifications of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
31.2 | Certifications of the Principal Executive Officer, Eric R. Graef, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
32.1 | Certifications of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished. | |
32.2 | Certifications of the Principal Executive Officer, Eric R. Graef, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished. | |
101.INS | XBRL Instance Document.* | |
101.SCH | XBRL Taxonomy Extension Schema Document.* | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.* | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document.* | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document.* |
* | In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as shall be expressly set forth by specific reference in such filing. |
32
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert G. Ruhlman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Preformed Line Products Company;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 7, 2011
/s/ Robert G. Ruhlman |
Robert G. Ruhlman |
Chairman, President and Chief Executive Officer |
(Principal Executive Officer) |
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Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Eric R. Graef, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Preformed Line Products Company;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this 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 report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: November 7, 2011
/s/ Eric R. Graef |
Eric R. Graef |
Chief Financial Officer and Vice President - Finance |
(Principal Accounting Officer) |
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Exhibit 32.1
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert G. Ruhlman, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) | The Quarterly Report on Form 10-Q of Preformed Line Products Company for the period ended September 30, 2011 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 Preformed Line Products Company. |
November 7, 2011 | /s/ Robert G. Ruhlman | |||||
Robert G. Ruhlman | ||||||
Chairman, 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.
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Exhibit 32.2
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Eric R. Graef, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1) | The Quarterly Report on Form 10-Q of Preformed Line Products Company for the period ended September 30, 2011 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 Preformed Line Products Company. |
November 7, 2011 | /s/ Eric R. Graef | |||||
Eric R. Graef | ||||||
Chief Financial Officer and | ||||||
Vice President - Finance | ||||||
(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.
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Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data | Sep. 30, 2011 | Dec. 31, 2010 |
---|---|---|
ASSETS | ||
Accounts receivable, less allowances | $ 1,816 | $ 1,213 |
PLPC Shareholders' equity: | ||
Common stock, par value | $ 2 | $ 2 |
Common stock. shares authorized | 15,000,000 | 15,000,000 |
Common stock, shares issued | 5,248,396 | 5,270,977 |
Common stock, shares outstanding | 5,248,396 | 5,270,977 |
Treasury shares, at par | 639,138 | 586,746 |
Document and Entity Information (USD $) | 9 Months Ended | ||
---|---|---|---|
Sep. 30, 2011 | Oct. 31, 2011 | Jun. 30, 2010 | |
Document and Entity Information [Abstract] | |||
Entity Registrant Name | PREFORMED LINE PRODUCTS CO | ||
Entity Central Index Key | 0000080035 | ||
Document Type | 10-Q | ||
Document Period End Date | Sep. 30, 2011 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2011 | ||
Document Fiscal Period Focus | Q3 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Accelerated Filer | ||
Entity Public Float | $ 61,224,698 | ||
Entity Common Stock, Shares Outstanding | 5,248,396 |
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Fair Value of Financial Assets and Liabilities | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Assets and Liabilities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES |
NOTE G – FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Under U.S. GAAP, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. U.S. GAAP also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are obtained from independent sources and can be validated by a third party, whereas, unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
The carrying value of the Company’s current financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, notes payable, and short-term debt, approximates its fair value because of the short-term maturity of these instruments. At September 30, 2011, the fair value of the Company’s long-term debt was estimated using discounted cash flows analysis, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements which are considered to be level two inputs. There have been no transfers in or out of level two for the three month period ended September 30, 2011. Based on the analysis performed, the fair value and the carrying value of the Company’s long-term debt are as follows:
As a result of being a global company, the Company’s earnings, cash flows and financial position are exposed to foreign currency risk. The Company’s primary objective for holding derivative financial instruments is to manage foreign currency risks. The Company accounts for derivative instruments and hedging activities as either assets or liabilities in the consolidated balance sheet and carries these instruments at fair value. The Company does not enter into any trading or speculative positions with regard to derivative instruments. At September 30, 2011, the Company had two de minimus derivatives outstanding. Foreign currency derivative instruments outstanding are not designated as hedges for accounting purposes. The gains and losses related to mark-to-market adjustments are recognized as other operating (income) expense on the statement of consolidated income during the period in which the derivative instruments were outstanding. During June 2010, the Company entered into a forward foreign exchange contract to reduce its exposure to foreign currency rate changes related to the purchase price of Electropar, which closed on July 30, 2010. The forward foreign currency contract had an exercise value of $12.9 million which matured on July 28, 2010. The realized gain recognized at maturity was $1.2 million, which the Company has recorded in the other income (expense) line on the statement of consolidated income.
As part of the Purchase Agreement to acquire Electropar, the Company may be required to make an additional earn-out consideration payment up to NZ$2 million or US$1.5 million based on Electropar achieving a financial performance target (Earnings Before Interest, Taxes, Depreciation and Amortization) over the 12 months ended July 31, 2011. The fair value of the contingent consideration arrangement is determined by estimating the expected (probability-weighted) earn-out payment discounted to present value and is considered a level three input. Based upon the initial evaluation of the range of outcomes for this contingent consideration, the Company accrued $.4 million for the additional earn-out consideration payment as of the acquisition date in the Accrued expenses and other liabilities line on the consolidated balance sheets, and as part of the purchase price. The amount accrued in the consolidated balance sheet of $1.3 million has increased $.9 million due primarily to a $.8 million adjustment for actual results and a $.1 million increase in the net present value of the liability due to the passage of time. The adjustment of $.8 million was recorded in Costs and expenses in the consolidated statements of income. |
Product Warranty Reserve | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Product Warranty Reserve [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRODUCT WARRANTY RESERVE |
NOTE L – PRODUCT WARRANTY RESERVE The Company records an accrual for estimated warranty costs to costs of products sold in the consolidated statements of income. These amounts are recorded in accrued expenses and other liabilities in the 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. During the second quarter of 2011, the Company accepted certified product from a supplier which later failed in the field. The Company has taken responsibility to expedite correcting the situation and as such, the Company had increased the warranty reserve by $1.8 million. As of September 30, 2011, $1.3 million has been paid related to this warranty claim. The following is a rollforward of the product warranty reserve:
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Pension Plans | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Pension Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PENSION PLANS |
NOTE C – PENSION PLANS PLP-USA hourly employees of the Company who meet specific requirements as to age and service are covered by a defined benefit pension plan. The Company uses a December 31 measurement date for this plan. Net periodic benefit cost for this plan included the following components:
During the three month period ended September 30, 2011, $.3 million of contributions were made to the plan. The Company presently anticipates contributing an additional $.3 million to fund the plan in 2011. |
Recently Issued Accounting Pronouncements | 9 Months Ended |
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Sep. 30, 2011 | |
Recently Issued Accounting Pronouncements [Abstract] | |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS |
NOTE I – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the FASB in the form of ASU’s to the FASB’s ASC.
The Company considers the applicability and impact of all ASU’s. ASU’s not listed below were assessed and determined to be either not applicable or have minimal impact on our consolidated financial position and results of operations. In September 2011, the FASB issued ASU 2011-08 which provides an entity the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step test for goodwill impairment. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. However, an entity can choose to early adopt even if its annual test date is before the issuance of the final standard, provided that the entity has not yet performed its 2011 annual impairment test or issued its financial statements. The adoption of this ASU is not expected to significantly impact the Company’s consolidated financial statements. In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in US GAAP and International Financial Reporting Standards (IFRSs) to provide a consistent definition of fair value and ensure that fair value measurements and disclosure requirements are similar between US GAAP and IFRS. This guidance changes certain fair value measurement principles and enhances the disclosure requirements for fair value measurements. The amendments in this ASU are effective for interim and annual periods beginning after December 15, 2011 and are applied prospectively. Early application by public entities is not permitted. The Company does not expect adoption of ASU 2011-04 will have a material impact on the Company’s financial position, results of operations, cash flows or disclosures. In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income, or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of equity. On October 21, 2011, the FASB deferred the effective date of ASU 2011-05. The Company does not expect the adoption of ASU 2011-05 to have a material effect on the Company’s operating results or financial position. |
Segment Information | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION |
NOTE J – SEGMENT INFORMATION The following tables present a summary of the Company’s reportable segments for the three and nine month periods ended September 30, 2011 and 2010. Financial results for the PLP-USA segment include the elimination of all segments’ intercompany profit in inventory.
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Recently Adopted Accounting Pronouncements | 9 Months Ended |
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Sep. 30, 2011 | |
Recently Adopted Accounting Pronouncements [Abstract] | |
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS |
NOTE H – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS In October 2009, the Financial Accounting Standards Board (FASB) issued accounting standards updates (ASU) No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements - a consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 addresses the accounting for sales arrangements that include multiple products or services by revising the criteria for when deliverables may be accounted for separately rather than as a combined unit. Specifically, this guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is necessary to separately account for each product or service. This hierarchy provides more options for establishing selling price than existing guidance. ASU 2009-13 is required to be applied prospectively to new or materially modified revenue arrangements beginning on or after January 1, 2011. The adoption of ASU 2009-13 did not have a material impact on the Company’s consolidated financial position or results of operations. In December 2010, the FASB issued ASU No. 2010-29, which updates the guidance in FASB Accounting Standards Codification (ASC) Topic 805, Business Combinations. The objective of ASU 2010-29 is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments affect any public entity as defined by FASB ASC 805 that enters into business combinations that are material on an individual or aggregate basis. The amendments in ASU 2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of this guidance did not have an impact on the Company’s consolidated financial position or results of operations. In December 2010, the FASB issued ASU No. 2010-28, which updates the guidance in FASB ASC Topic 350, Intangibles—Goodwill & Other. The amendments in ASU 2010-28 affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in ASU 2010-28 modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company adopted ASU 2010-28 effective January 1, 2011 and it had no impact on the Company’s consolidated financial statements or disclosures. |
Basis of Presentation | 9 Months Ended |
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Sep. 30, 2011 | |
Basis of Presentation [Abstract] | |
BASIS OF PRESENTATION |
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 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. 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, 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 nine month periods ended September 30, 2011 are not necessarily indicative of the results to be expected for the full year ending December 31, 2011. The consolidated balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements, but does not include all of the information and notes required by United States of America (U.S.) generally accepted accounting principles (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 2010 Annual Report on Form 10-K filed on March 11, 2011 with the Securities and Exchange Commission. Reclassifications Certain prior period amounts have been reclassified to conform to current year presentation. |
Computation of Earnings Per Share | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Computation of Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMPUTATION OF EARNINGS PER SHARE |
NOTE D – COMPUTATION OF EARNINGS PER SHARE Basic earnings per share were computed by dividing net income attributable to PLPC common shareholders by the weighted-average number of common shares outstanding for each respective period. Diluted earnings per share were calculated by dividing net income attributable to PLPC common shareholders by the weighted-average of all potentially dilutive common shares that were outstanding during the periods presented. The calculation of basic and diluted earnings per share for the three and nine month periods ended September 30, 2011 and 2010 were as follows:
Common shares issuable upon the exercise of employee stock options or vesting of restricted share awards are excluded from the calculation of diluted earnings per share when the calculation of option equivalent shares is anti-dilutive. For the three and nine month periods ended September 30, 2011, 9,500 and 14,700, respectively, stock options were excluded from the calculation of diluted earnings per shares because their effect would have been anti-dilutive. For the three and nine month periods ended September 30, 2010, 41,500 and 32,500, respectively, stock options were excluded from the calculation of diluted earnings per shares because their effect would have been anti-dilutive. For the three and nine month periods ended September 30, 2011 and 2010, no restricted shares were excluded from the calculation of diluted earnings per share.
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Goodwill and Other Intangibles | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Goodwill and Other Intangibles [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND OTHER INTANGIBLES |
NOTE E – GOODWILL AND OTHER INTANGIBLES The Company’s finite and indefinite-lived intangible assets consist of the following:
The aggregate amortization expense for other intangibles with finite lives for the three and nine month periods ended September 30, 2011 was $.3 million and $1 million, respectively. The aggregate amortization expense for other intangibles with finite lives for the three and nine month periods ended September 30, 2010 was $.5 million and $1 million, respectively. Amortization expense is estimated to be $1.2 million for 2011, $1.1 million for 2012 and 2013, $1 million for 2014 and $.7 million for 2015. The weighted-average remaining amortization period by intangible asset class is as follows: patents, 3.7 years: land use rights, 65.2 years; trademark, 7.7 years; technology, 18.8 years: and customer relationships, 15 years. The Company performed its annual impairment test for goodwill as of January 1, 2011, and determined that no adjustment to the carrying value was required. 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 with 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 changed. 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 only intangible asset with an indefinite life is goodwill. The change to goodwill is related to foreign currency translation. The changes in the carrying amount of goodwill, by segment, for the nine month period ended September 30, 2011, are as follows:
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Share-Based Compensation | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Share-Based Compensation [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHARE-BASED COMPENSATION |
NOTE F – SHARE-BASED COMPENSATION The 1999 Stock Option Plan The 1999 Stock Option Plan (the “Plan”) permitted the grant of 300,000 options to buy common shares of the Company to certain employees at not less than fair market value of the shares on the date of grant. At December 31, 2010 there were no shares remaining to be issued under the plan. Options issued to date under the Plan vest 50% after one year following the date of the grant, 75% after two years, and 100% after three years and expire from five to ten years from the date of grant. Shares issued as a result of stock option exercises will be funded with the issuance of new shares. The Company has elected to use the simplified method of calculating the expected term of the stock options and historical volatility to compute fair value under the Black-Scholes option-pricing model. The risk-free rate for periods within the contractual life of the option is based on the U.S. zero coupon Treasury yield in effect at the time of grant. Forfeitures have been estimated to be zero. There were no shares granted for the three month periods ended September 30, 2011 and 2010. Activity in the Company’s Plan for the nine month period ended September 30, 2011 was as follows:
The total intrinsic value of stock options exercised during the nine month periods ended September 30, 2011 and 2010 was $.1 million for both periods. Cash received for the exercise of stock options during the nine month periods ended September 30, 2011 and 2010 was $.8 million and $.1 million. Excess tax benefits from share-based awards for the nine month periods ended September 30, 2011 and 2010 were $.1 million and $0, respectively. For the three and nine month periods ended September 30, 2011, the Company recorded compensation expense related to the stock options currently vesting, reducing income before taxes and net income by less than $.1 million and $.1 million, respectively. For the three and nine month periods ended September 30, 2010, the Company recorded compensation expense related to the stock options currently vesting, reducing income before taxes and net income by less than $.1 million and $.1 million, respectively. The total compensation cost related to nonvested awards not yet recognized at September 30, 2011 is expected to be less than $.1 million over a weighted-average period of 1.3 years. Long Term Incentive Plan of 2008 Under the Amended and Restated Preformed Line Products Company Long Term Incentive Plan of 2008 (the “LTIP”), certain employees, officers, and directors are eligible to receive awards of options and restricted shares. The purpose of this LTIP is to give the Company and its subsidiaries 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. As of September 30, 2011, the total number of common shares reserved for awards under the LTIP is 900,000. Of the 900,000 common shares, 800,000 common shares have been reserved for restricted share awards and 100,000 common shares have been reserved for share options. The LTIP expires on April 17, 2018. Restricted Share Awards For all of the participants except the CEO, a portion of the restricted share award is subject to time-based cliff vesting and a portion is subject to vesting based upon the Company’s performance over a three year period. All of the CEO’s restricted shares are subject to vesting based upon the Company’s performance over a three year period. The restricted shares are offered at no cost to the employees; however, the participant must remain employed with the Company until the restrictions on the restricted shares lapse. The fair value of restricted share awards is based on the market price of a common share on the grant date. The Company currently estimates that no awards will be forfeited. Dividends declared in 2009 and thereafter will be accrued in cash dividends. Dividends related to the 2008 grant of restricted shares were reinvested in additional restricted shares, and held subject to the same vesting requirements as the underlying restricted shares. A summary of the restricted share awards for the nine month period ended September 30, 2011 is as follows:
For time-based restricted shares, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award in General and administrative expense in the accompanying statement of consolidated income. Compensation expense related to the time-based restricted shares for the three and nine month periods ended September 30, 2011 was $.1 million and $.2 million, respectively. Compensation expense related to the time-based restricted shares for the three and nine month periods ended September 30, 2010 was $.1 million and $.2 million, respectively. As of September 30, 2011, there was $.4 million of total unrecognized compensation cost related to time-based restricted share awards that is expected to be recognized over the weighted-average remaining period of approximately 1.8 years. For the performance-based awards, the number of restricted shares in which the participants will vest depends on the Company’s level of performance measured by growth in pretax income and sales growth over a requisite performance period. Depending on the extent to which the performance criterions are satisfied under the LTIP, the participants are eligible to earn common shares over the vesting period. Performance-based compensation expense for the three and nine month periods ended September 30, 2011 was $.6 million and $1.7 million, respectively. Performance-based compensation expense for the three and nine month periods ended September 30, 2010 was $.6 million and $1.8 million, respectively. As of September 30, 2011, the remaining performance-based restricted share awards compensation expense of $3.2 million is expected to be recognized over a period of approximately 1.8 years. The excess tax benefits from restricted share awards for the nine month periods ended September 30, 2011 and 2010 was $.1 million and $0, as reported on the consolidated statements of cash flows in financing activities, and represents the reduction in income taxes otherwise payable during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits for restricted shares vested in the current period. In the event of a Change in Control, vesting of the restricted shares will be accelerated and all restrictions will lapse. Unvested performance-based awards are based on a maximum potential payout. Actual shares awarded at the end of the performance period may be less than the maximum potential payout level depending on achievement of performance-based award objectives. To satisfy the vesting of its restricted share awards, the Company has reserved new shares from its authorized but unissued shares. Any additional awards granted will also be issued from the Company’s authorized but unissued shares. As of September 30, 2011, under the LTIP there were 529,534 common shares available for additional restricted share grants.
Deferred Compensation Plan The Company maintains a trust, commonly referred to as a rabbi trust, in connection with the Company’s deferred compensation plan. This plan allows for two deferrals. First, Directors make elective deferrals of Director fees payable and held in the rabbi trust. The deferred compensation plan allows the Directors to elect to receive Director fees either in cash currently or in shares of common stock of the Company at a later date. Assets of the rabbi trust are consolidated, and the value of the Company’s stock held in the rabbi trust is classified in Shareholders’ equity and generally accounted for in a manner similar to treasury stock. The Company recognizes the original amount of the deferred compensation (fair value of the deferred stock award at the date of grant) as the basis for recognition in common shares issued to the rabbi trust. Changes in the fair value of amounts owed to certain employees or Directors are not recognized as the Company’s deferred compensation plan does not permit diversification and must be settled by the delivery of a fixed number of the Company’s common shares. Second, this plan allows certain Company employees to defer LTIP restricted shares for future distribution in the form of common shares. As of September 30, 2011, 24,633 LTIP shares have been deferred and are being held by the rabbi trust. Share Option Awards The LTIP permits the grant of 100,000 options to buy common shares of the Company to certain employees at not less than fair market value of the shares on the date of grant. At September 30, 2011 there were 79,500 shares remaining available for issuance under the LTIP. Options issued through September 30, 2011 under the LTIP vest 50% after one year following the date of the grant, 75% after two years, and 100% after three years and expire from five to ten years from the date of grant. Shares issued as a result of stock option exercises will be funded with the issuance of new shares. The Company has elected to use the simplified method of calculating the expected term of the stock options and historical volatility to compute fair value under the Black-Scholes option-pricing model. The risk-free rate for periods within the contractual life of the option is based on the U.S. zero coupon Treasury yield in effect at the time of grant. Forfeitures have been estimated to be zero. There were no options granted for the nine month periods ended September 30, 2011 and 2010. Activity in the Company’s LTIP for the nine month period ended September 30, 2011 was as follows:
The total intrinsic value of stock options exercised during the nine month periods ended September 30, 2011 and 2010 was $.1 million and $0, respectively. Cash received for the exercise of stock options during the nine month periods ended September 30, 2011 and 2010 was $.1 million and $0, respectively. Excess tax benefits from share-based awards for the nine month periods ended September 30, 2011 and 2010 were less than $.1 million and $0, respectively. For the three and nine month periods ended September 30, 2011, the Company recorded compensation expense related to the stock options currently vesting, reducing income before taxes and net income by $.1 million and $.1 million, respectively. For the three and nine month periods ended September 30, 2010, the Company recorded compensation expense related to the stock options currently vesting, reducing income before taxes and net income by less than $.1 million for both periods. The total compensation cost related to nonvested awards not yet recognized at September 30, 2011 is expected to be a combined total of $.2 million over a weighted-average period of approximately 1.9 years. |
Other Financial Statement Information | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Other Financial Statement Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
OTHER FINANCIAL STATEMENT INFORMATION |
NOTE B – OTHER FINANCIAL STATEMENT INFORMATION Inventories – net
Cost of inventories for certain material are determined using the last-in-first-out (LIFO) method and totaled approximately $25.8 million at September 30, 2011 and $21.7 million at December 31, 2010. 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 must be 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 nine month periods ended September 30, 2011, the net increase in LIFO inventories resulted in a $.4 million and $.9 million charge to income before income taxes. During the three and nine month periods ended September 30, 2010, the net increase in LIFO inventories resulted in a $.2 million and $.9 million charge to income before income taxes. Noncurrent inventory is included in other assets on the consolidated balance sheets and is principally comprised of raw materials. Property and equipment - net Major classes of property and equipment are stated at cost and were as follows:
Comprehensive income (loss) The components of comprehensive income (loss) for the three and nine month periods ended September 30 are as follows:
Legal proceedings From time to time, the Company may be subject to litigation incidental to its business. The Company is not a party to any 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. |
Income Taxes | 9 Months Ended |
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Sep. 30, 2011 | |
Income Taxes [Abstract] | |
INCOME TAXES |
NOTE K – INCOME TAXES The Company’s effective tax rate was 34% and 29% for the three month periods ended September 30, 2011 and 2010, respectively, and 34% and 25% for the nine month periods ended September 30, 2011 and 2010, respectively. The lower effective tax rate for the periods ended September 30, 2011 compared to the U.S. federal statutory tax rate of 35% is primarily due to increased earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate in jurisdictions where such earnings are permanently reinvested. The higher effective tax rate for the periods ended September 30, 2011 compared with the same periods for 2010 was primarily due to favorable discrete items recognized in 2010, primarily related to a favorable foreign tax incentive for technological innovation and a decrease of unrecognized tax benefits effectively settled through audits. 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 allowance were made for the period ended September 30, 2011. As of September 30, 2011, the Company had gross unrecognized tax benefits of approximately $1 million and there were no significant changes during the period ended September 30, 2011.
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