Form 10-Q
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, 2010
Commission file number: 0-31164
Preformed Line Products Company
(Exact Name of Registrant as Specified in Its Charter)
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Ohio
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34-0676895 |
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
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660 Beta Drive |
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Mayfield Village, Ohio
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44143 |
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(Address of Principal Executive Office)
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(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 þ No o
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 (S232.405 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 o No o
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 definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange act.
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of common shares outstanding as of November 1, 2010: 5,221,030.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PREFORMED LINE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
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September 30 |
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December 31 |
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Thousands of dollars, except share and per share data |
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2010 |
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2009 |
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ASSETS |
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Cash and cash equivalents |
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$ |
22,337 |
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$ |
24,097 |
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Accounts receivable, less allowances of $1,280 ($995 in 2009) |
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63,437 |
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49,245 |
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Inventories net |
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67,869 |
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56,036 |
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Deferred income taxes |
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3,557 |
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3,256 |
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Prepaids |
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3,477 |
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3,214 |
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Prepaid taxes |
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3,927 |
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1,049 |
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Other current assets |
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1,490 |
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2,062 |
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TOTAL CURRENT ASSETS |
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166,094 |
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138,959 |
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Property and equipment net |
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73,228 |
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67,766 |
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Patents and other intangibles net |
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12,848 |
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8,087 |
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Goodwill |
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12,056 |
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6,925 |
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Deferred income taxes |
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5,661 |
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4,358 |
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Other assets |
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9,118 |
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9,277 |
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TOTAL ASSETS |
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$ |
279,005 |
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$ |
235,372 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Notes payable to banks |
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$ |
831 |
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$ |
3,181 |
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Current portion of long-term debt |
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1,253 |
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1,330 |
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Trade accounts payable |
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24,684 |
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18,764 |
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Accrued compensation and amounts withheld from employees |
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12,910 |
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8,345 |
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Accrued expenses and other liabilities |
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10,275 |
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8,375 |
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Accrued profit-sharing and other benefits |
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3,947 |
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3,890 |
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Dividends payable |
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1,085 |
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1,076 |
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Income taxes payable and deferred income taxes |
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3,949 |
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1,379 |
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TOTAL CURRENT LIABILITIES |
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58,934 |
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46,340 |
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Long-term debt, less current portion |
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14,456 |
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3,099 |
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Unfunded pension obligation |
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9,464 |
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8,678 |
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Income taxes payable, noncurrent |
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1,672 |
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1,898 |
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Deferred income taxes |
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2,748 |
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1,515 |
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Other noncurrent liabilities |
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3,061 |
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3,021 |
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SHAREHOLDERS EQUITY |
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PLPC Shareholders equity: |
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Common stock $2 par value per share, 15,000,000
shares authorized, 5,220,847 and 5,248,298
issued and outstanding, net of 587,286 and 551,059 treasury shares at par, respectively |
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10,442 |
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10,497 |
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Paid in capital |
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7,774 |
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5,885 |
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Retained earnings |
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179,140 |
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165,953 |
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Accumulated other comprehensive loss |
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(8,051 |
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(11,369 |
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TOTAL PLPC SHAREHOLDERS EQUITY |
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189,305 |
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170,966 |
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Noncontrolling interest |
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(635 |
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(145 |
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TOTAL SHAREHOLDERS EQUITY |
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188,670 |
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170,821 |
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
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$ |
279,005 |
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$ |
235,372 |
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See notes to consolidated financial statements (unaudited).
3
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
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Three month periods ended September 30 |
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Nine month periods ended September 30
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2010 |
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2009 |
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2010 |
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2009 |
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(Thousands, except per share data) |
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Net sales |
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$ |
93,942 |
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$ |
69,132 |
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$ |
244,987 |
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$ |
187,394 |
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Cost of products sold |
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62,271 |
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44,518 |
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165,836 |
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124,352 |
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GROSS PROFIT |
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31,671 |
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24,614 |
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79,151 |
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63,042 |
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Costs and expenses |
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Selling |
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7,678 |
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5,750 |
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21,218 |
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16,640 |
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General and administrative |
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9,856 |
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8,609 |
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29,000 |
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23,032 |
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Research and engineering |
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2,915 |
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2,411 |
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8,474 |
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6,631 |
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Other operating expense (income) |
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(1,735 |
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(337 |
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(745 |
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(359 |
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18,714 |
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16,433 |
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57,947 |
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45,944 |
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OPERATING INCOME |
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12,957 |
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8,181 |
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21,204 |
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17,098 |
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Other income (expense) |
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Interest income |
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84 |
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95 |
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261 |
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307 |
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Interest expense |
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(162 |
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(153 |
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(458 |
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(369 |
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Other income |
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1,005 |
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326 |
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1,765 |
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983 |
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927 |
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268 |
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1,568 |
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921 |
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INCOME BEFORE INCOME TAXES |
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13,884 |
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8,449 |
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22,772 |
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18,019 |
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Income taxes |
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4,002 |
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2,190 |
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5,760 |
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5,501 |
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NET INCOME |
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9,882 |
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6,259 |
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17,012 |
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12,518 |
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Net income (loss) attributable to noncontrolling interest, net of tax |
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3 |
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(61 |
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(95 |
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(108 |
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NET INCOME ATTRIBUTABLE TO PLPC |
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$ |
9,879 |
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$ |
6,320 |
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$ |
17,107 |
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$ |
12,626 |
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BASIC EARNINGS PER SHARE |
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Net income attributable to PLPC common shareholders |
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$ |
1.89 |
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$ |
1.21 |
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$ |
3.26 |
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$ |
2.41 |
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DILUTED EARNINGS PER SHARE |
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Net income attributable to PLPC common shareholders |
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$ |
1.83 |
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$ |
1.19 |
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$ |
3.17 |
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$ |
2.38 |
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Cash dividends declared per share |
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$ |
0.20 |
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$ |
0.20 |
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$ |
0.60 |
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$ |
0.60 |
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Weighted-average number of shares outstanding basic |
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5,238 |
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5,235 |
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5,248 |
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5,231 |
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Weighted-average number of shares outstanding diluted |
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5,390 |
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5,316 |
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5,396 |
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5,309 |
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See notes to consolidated financial statements (unaudited).
4
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
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Nine month periods ended September 30 |
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2010 |
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2009 |
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(Thousands of dollars) |
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OPERATING ACTIVITIES |
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Net income |
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$ |
17,012 |
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$ |
12,518 |
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Adjustments to reconcile net income to net cash provided by operations: |
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Depreciation and amortization |
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6,483 |
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5,162 |
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Provision for accounts receivable allowances |
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568 |
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|
410 |
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Provision for inventory reserves |
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905 |
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1,316 |
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Deferred income taxes |
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(66 |
) |
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1,683 |
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Share-based compensation expense |
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2,161 |
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1,425 |
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Excess tax benefits from share-based awards |
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(75 |
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Net investment in life insurance |
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(38 |
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(361 |
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Other net |
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(410 |
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15 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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(12,305 |
) |
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(7,171 |
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Inventories |
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(5,333 |
) |
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4,268 |
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Trade accounts payables and accrued liabilities |
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10,000 |
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3,629 |
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Income taxes payable |
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(171 |
) |
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(140 |
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Other net |
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(1,271 |
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(618 |
) |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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17,535 |
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22,061 |
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INVESTING ACTIVITIES |
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Capital expenditures |
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(9,088 |
) |
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(6,699 |
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Business acquisitions, net of cash acquired |
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(14,343 |
) |
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(433 |
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Proceeds from the sale of discontinued operations |
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|
750 |
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Proceeds from the sale of property and equipment |
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661 |
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|
168 |
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NET CASH USED IN INVESTING ACTIVITIES |
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(22,770 |
) |
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(6,214 |
) |
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FINANCING ACTIVITIES |
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Increase in notes payable to banks |
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10,200 |
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|
140 |
|
Proceeds from the issuance of long-term debt |
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|
172 |
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|
1,174 |
|
Payments of long-term debt |
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|
(2,324 |
) |
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|
(375 |
) |
Dividends paid |
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|
(3,259 |
) |
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|
(3,198 |
) |
Excess tax benefits from share-based awards |
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|
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|
75 |
|
Proceeds from issuance of common shares |
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|
89 |
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|
191 |
|
Purchase of common shares for treasury |
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(1,081 |
) |
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(165 |
) |
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
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3,797 |
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(2,158 |
) |
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Effects of exchange rate changes on cash and cash equivalents |
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(322 |
) |
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|
1,962 |
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Net increase (decrease) in cash and cash equivalents |
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(1,760 |
) |
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|
15,651 |
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Cash and cash equivalents at beginning of year |
|
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24,097 |
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19,869 |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
22,337 |
|
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$ |
35,520 |
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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, 2010 are not necessarily indicative of the results to be expected for the year ending
December 31, 2010.
The consolidated balance sheet at December 31, 2009 has been derived from the audited consolidated
financial statements, but does not include all of the information and notes required by U.S.
generally accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and notes to consolidated financial
statements included in the Companys 2009 Annual Report on Form 10-K filed on March 15, 2010 with
the Securities and Exchange Commission.
NOTE B OTHER FINANCIAL STATEMENT INFORMATION
Inventories net
Inventories
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Finished products |
|
$ |
34,626 |
|
|
$ |
26,161 |
|
Work-in-process |
|
|
4,810 |
|
|
|
3,473 |
|
Raw materials |
|
|
37,418 |
|
|
|
34,788 |
|
|
|
|
|
|
|
|
|
|
|
76,854 |
|
|
|
64,422 |
|
Excess of current cost over LIFO cost |
|
|
(5,330 |
) |
|
|
(4,463 |
) |
Noncurrent portion of inventory |
|
|
(3,655 |
) |
|
|
(3,923 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
67,869 |
|
|
$ |
56,036 |
|
|
|
|
|
|
|
|
Noncurrent inventory is included in other assets on the consolidated balance sheets and is
principally comprised of raw materials.
6
Property and equipment net
Major classes of property and equipment are stated at cost and were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Land and improvements |
|
$ |
7,387 |
|
|
$ |
7,188 |
|
Buildings and improvements |
|
|
53,949 |
|
|
|
51,297 |
|
Machinery and equipment |
|
|
114,413 |
|
|
|
104,179 |
|
Construction in progress |
|
|
4,649 |
|
|
|
6,068 |
|
|
|
|
|
|
|
|
|
|
|
180,398 |
|
|
|
168,732 |
|
Less accumulated depreciation |
|
|
107,170 |
|
|
|
100,966 |
|
|
|
|
|
|
|
|
|
|
$ |
73,228 |
|
|
$ |
67,766 |
|
|
|
|
|
|
|
|
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 |
|
|
Three month period |
|
|
Three month period |
|
|
|
ended September 30 |
|
|
ended September 30 |
|
|
ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
9,879 |
|
|
$ |
6,320 |
|
|
$ |
3 |
|
|
$ |
(61 |
) |
|
$ |
9,882 |
|
|
$ |
6,259 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
7,496 |
|
|
|
4,773 |
|
|
|
(77 |
) |
|
|
(2 |
) |
|
|
7,419 |
|
|
|
4,771 |
|
Recognized net actuarial loss, net of tax |
|
|
44 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
|
7,540 |
|
|
|
4,872 |
|
|
|
(77 |
) |
|
|
(2 |
) |
|
|
7,463 |
|
|
|
4,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
17,419 |
|
|
$ |
11,192 |
|
|
$ |
(74 |
) |
|
$ |
(63 |
) |
|
$ |
17,345 |
|
|
$ |
11,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLPC |
|
|
Noncontrolling interest |
|
|
Total |
|
|
|
Nine month period |
|
|
Nine month period |
|
|
Nine month period |
|
|
|
ended September 30 |
|
|
ended September 30 |
|
|
ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
17,107 |
|
|
$ |
12,626 |
|
|
$ |
(95 |
) |
|
$ |
(108 |
) |
|
$ |
17,012 |
|
|
$ |
12,518 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
3,186 |
|
|
|
10,696 |
|
|
|
(52 |
) |
|
|
4 |
|
|
|
3,134 |
|
|
|
10,700 |
|
Recognized net actuarial loss, net of tax |
|
|
132 |
|
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
132 |
|
|
|
266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income |
|
|
3,318 |
|
|
|
10,962 |
|
|
|
(52 |
) |
|
|
4 |
|
|
|
3,266 |
|
|
|
10,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
20,425 |
|
|
$ |
23,588 |
|
|
$ |
(147 |
) |
|
$ |
(104 |
) |
|
$ |
20,278 |
|
|
$ |
23,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
7
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 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Service cost |
|
$ |
203 |
|
|
$ |
250 |
|
|
$ |
610 |
|
|
$ |
681 |
|
Interest cost |
|
|
298 |
|
|
|
312 |
|
|
|
896 |
|
|
|
896 |
|
Expected return on plan assets |
|
|
(240 |
) |
|
|
(203 |
) |
|
|
(720 |
) |
|
|
(569 |
) |
Recognized net actuarial loss |
|
|
70 |
|
|
|
158 |
|
|
|
210 |
|
|
|
422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
331 |
|
|
$ |
517 |
|
|
$ |
996 |
|
|
$ |
1,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine month period ended September 30, 2010, no contributions have been made to the plan.
The Company presently anticipates making no contributions to fund the plan in 2010.
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, 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three month period ended September 30 |
|
|
For the nine month period ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount attributable to PLPC shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to PLPC |
|
$ |
9,879 |
|
|
$ |
6,320 |
|
|
$ |
17,107 |
|
|
$ |
12,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Determination of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
5,238 |
|
|
|
5,235 |
|
|
|
5,248 |
|
|
|
5,231 |
|
Dilutive effect share-based awards |
|
|
152 |
|
|
|
81 |
|
|
|
148 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
5,390 |
|
|
|
5,316 |
|
|
|
5,396 |
|
|
|
5,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share attributable to PLPC shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.89 |
|
|
$ |
1.21 |
|
|
$ |
3.26 |
|
|
$ |
2.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.83 |
|
|
$ |
1.19 |
|
|
$ |
3.17 |
|
|
$ |
2.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and nine month periods ended September 30, 2010, 41,500 and 32,500 stock options were
excluded from the calculation of diluted earnings per share due to the average market price being
lower than the exercise price, and as such the stock options are anti-dilutive. For the three and
nine month periods ended September 30, 2009, 13,000 stock options were excluded from the
calculation of diluted earnings per share due to the average market price being lower than the
exercise price, and as such the stock options are anti-dilutive.
8
NOTE E GOODWILL AND OTHER INTANGIBLES
The Companys finite and indefinite-lived intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
|
$ |
4,828 |
|
|
$ |
(3,447 |
) |
|
$ |
4,827 |
|
|
$ |
(3,213 |
) |
Land use rights |
|
|
1,363 |
|
|
|
(73 |
) |
|
|
1,365 |
|
|
|
(55 |
) |
Tradename |
|
|
937 |
|
|
|
(107 |
) |
|
|
311 |
|
|
|
|
|
Customer backlog |
|
|
480 |
|
|
|
(251 |
) |
|
|
|
|
|
|
|
|
Technology |
|
|
1,712 |
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
Customer relationships |
|
|
8,309 |
|
|
|
(888 |
) |
|
|
5,372 |
|
|
|
(520 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,629 |
|
|
$ |
(4,781 |
) |
|
$ |
11,875 |
|
|
$ |
(3,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
12,056 |
|
|
|
|
|
|
$ |
6,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 performed its annual impairment test for goodwill as of January 1, 2010, and determined
that no adjustment to the carrying value was required. The additions of tradename, customer
backlog, technology and customer relationships were related to the acquisition of Electropar
Limited (Electropar) (see Note L Business Combinations for further details). 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. The aggregate amortization
expense for other intangibles with finite lives for the three and nine month periods ended
September 30, 2009 was $.1 million and $.4 million, respectively. Amortization expense is
estimated to be $1.4 million for 2010, $1.2 million for 2011, $1.1 million for 2012 and 2013 and $1
million for 2014. The weighted average remaining amortization period
is approximately 19.4 years.
The Companys only intangible asset with an indefinite life is goodwill. The addition to goodwill
is related to the acquisition of Electropar (see Note L Business Combinations for further
details). The changes in the carrying amount of goodwill, by segment, for the nine month period
ended September 30, 2010, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
South Africa |
|
|
Poland |
|
|
All Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2010 |
|
$ |
2,243 |
|
|
$ |
52 |
|
|
$ |
1,161 |
|
|
$ |
3,469 |
|
|
$ |
6,925 |
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,843 |
|
|
|
4,843 |
|
Currency translation |
|
|
193 |
|
|
|
3 |
|
|
|
(14 |
) |
|
|
106 |
|
|
|
288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010 |
|
$ |
2,436 |
|
|
$ |
55 |
|
|
$ |
1,147 |
|
|
$ |
8,418 |
|
|
$ |
12,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE F SHARE-BASED COMPENSATION
The 1999 Stock Option Plan
The 1999 Stock Option Plan (the Plan) permits the grant of 300,000 options to buy common shares of
the Company to certain employees at not less than fair market value of the shares on the date of
grant. At September 30, 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.
9
There were no options granted during the nine month periods ended September 30, 2010 and 2009.
Activity in the Plan for the nine month period ended September 30, 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|
|
Number |
|
|
Exercise Price |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
of Shares |
|
|
per Share |
|
|
Term (Years) |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2010 |
|
|
85,502 |
|
|
$ |
33.29 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(4,696 |
) |
|
$ |
15.13 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding (vested and expected
to vest) at September 30, 2010 |
|
|
80,806 |
|
|
$ |
34.34 |
|
|
|
5.5 |
|
|
$ |
402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2010 |
|
|
69,056 |
|
|
$ |
32.94 |
|
|
|
4.9 |
|
|
$ |
402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total intrinsic value of stock options exercised during the nine month periods ended September
30, 2010 and 2009 was $.1 million and $.4 million. Cash received for the exercise of stock options
during 2010 was $.1 million. There were no excess tax benefits from stock based awards for the
nine month period ended September 30, 2010.
For the three and nine month periods ended September 30, 2010 and 2009, 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 all periods. The total compensation cost related to
nonvested awards not yet recognized at September 30, 2010 is expected to be a combined total of $.1
million over a weighted average period of 1.7 years.
Long Term Incentive Plan of 2008
Under the Preformed Line Products Company Long Term Incentive Plan of 2008 (the LTIP Plan),
certain employees, officers, and directors will be eligible to receive awards of options and
restricted shares. The purpose of this LTIP Plan 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. The total number of Company common shares
reserved for awards under the LTIP Plan is 400,000. Of the 400,000 common shares, 300,000 common
shares have been reserved for restricted share awards and 100,000 common shares have been reserved
for share options. The LTIP Plan 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 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
a restricted share award is based on the market price of a common share on the grant date. The
Company currently estimates that no awards will be forfeited. Dividends declared in 2009 and
thereafter will be accrued in cash dividends. In 2008, dividends were reinvested in additional
restricted shares, and held subject to the same vesting requirements as the underlying restricted
shares.
10
A summary of the restricted share awards for the nine month period ended September 30, 2010 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Share Awards |
|
|
|
Performance |
|
|
|
|
|
|
Total |
|
|
Weighted Average |
|
|
|
and Service |
|
|
Service |
|
|
Restricted |
|
|
Grant-Date |
|
|
|
Required |
|
|
Required |
|
|
Awards |
|
|
Fair Value |
|
Nonvested as of January 1, 2010 |
|
|
115,346 |
|
|
|
12,475 |
|
|
|
127,821 |
|
|
$ |
38.28 |
|
Granted |
|
|
66,973 |
|
|
|
7,303 |
|
|
|
74,276 |
|
|
|
35.75 |
|
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested as of September 30, 2010 |
|
|
182,319 |
|
|
|
19,778 |
|
|
|
202,097 |
|
|
$ |
37.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 month periods ended September 30, 2010 and 2009 was $.1
million and less than $.1 million, respectively. Compensation expense related to the time-based
restricted shares for the nine month periods ended September 30, 2010 and 2009 was $.2 million and
$.1 million, respectively. As of September 30, 2010, 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 1.25 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
over a requisite performance period. Depending on the extent to which the performance criterions
are satisfied under the LTIP Plan, the participants are eligible to earn common shares over the
vesting period. Performance-based compensation expense for the three month periods ended September
30, 2010 and 2009 was $.6 million and $.7 million, respectively. Performance-based compensation
expense for the nine month periods ended September 30, 2010 and 2009 was $1.8 million and $1.1
million, respectively. As of September 30, 2010, the remaining performance-based restricted share
awards compensation expense of $3.1 million is expected to be recognized over a period of
approximately .8 years.
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 granted awards will also be issued from the
Companys authorized but unissued shares. Under the LTIP Plan, there are 97,903 common shares
currently available for additional restricted share grants.
Share Option Awards
The LTIP plan permits the grant of 100,000 share 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, 2010 there were 89,000 shares remaining available for issuance as options under the
LTIP 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 options granted for the nine month periods ended September 30, 2010 and 2009.
Outstanding shares at January 1, 2010 and September 30, 2010 were 11,000 with a weighted average
exercise price per share of $38.76. As of September 30, 2010 the weighted average remaining
contractual term was 9.3 years and aggregate intrinsic value was zero. There were no exercisable
shares at September 30, 2010.
11
There were no share options exercised under the LTIP Plan during the nine month period ended
September 30, 2010. There were no excess tax benefits from stock based awards for the nine month
period ended September 30, 2010.
For the three month periods ended September 30, 2010 and 2009, the Company recorded compensation
expense related to the share options currently vesting, reducing income before taxes and net income
by less than $.1 million and zero, respectively. For the nine month periods ended September 30,
2010 and 2009, the Company recorded compensation expense related to the share options currently
vesting, reducing income before taxes and net income by less than $.1 million and zero,
respectively. The total compensation cost related to nonvested awards not yet recognized at
September 30, 2010 is expected to be $.1 million over a weighted average period of approximately
2.1 years.
NOTE G FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
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, 2010, 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 nine month period ended September 30, 2010. Based on the analysis performed, the
fair value and the carrying value of the Companys long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010 |
|
|
December 31, 2009 |
|
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and related current maturities |
|
$ |
15,329 |
|
|
$ |
15,709 |
|
|
$ |
4,617 |
|
|
$ |
4,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 carry these instruments at fair value. The Company does not enter into any trading or
speculative positions with regard to derivative instruments.
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 31, 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 $1.5 million US dollar based on
Electropar achieving a financial performance target (Earnings Before Interest, Taxes, Depreciation
and Amortization) over the next 12 months commencing after the acquisition date. 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 has 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 sheet, and as part of the purchase price. Since the acquisition date, the
range of outcomes and the assumptions used to develop the estimates of the accrual have not
changed, and the amount accrued in the consolidated balance sheet has immaterially increased due to
an increase in the net present value of the liability due to the passage of time.
12
NOTE H RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB updated guidance included in FASB ASC 810-10, related to the consolidation
of variable interest entities. This guidance will require ongoing reassessments of whether an
enterprise is the primary beneficiary of a variable interest entity. In addition, this updated
guidance amends the quantitative approach for determining the primary beneficiary of a variable
interest entity. ASC 810-10 amends certain guidance for determining whether an entity is a
variable interest entity and adds additional reconsideration events for determining whether an
entity is a variable interest entity. Further, this guidance requires enhanced disclosures that
will provide users of financial statements with more transparent information about an enterprises
involvement in a variable interest entity. This updated guidance is effective as of the beginning
of the first annual reporting period and interim reporting periods that begin after November 15,
2009. The adoption of this guidance did not have an impact on the Companys financial statements
or disclosures.
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820).
This Update provides amendments to Subtopic 820-10 and related guidance within U.S. GAAP to require
disclosure of the transfers in and out of Levels 1 and 2 and a schedule for Level 3 that separately
identifies purchases, sales, issuances and settlements and requires more detailed disclosures
regarding valuation techniques and inputs. The Company adopted this new standard effective
January 1, 2010 and it had no impact on the Companys 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 Financial Accounting Standards Board (FASB) in the form of accounting standards
updates (ASUs) to the FASBs Accounting Standards Codification.
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 October 2009, the FASB issued Accounting Standards Update 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 in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. The Company is currently evaluating the
effect the adoption of ASU 2009-13 will have on our financial position, results of operations, cash
flows, and related disclosures; however no effect is expected.
13
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, 2010 and 2009. Financial results for the PLP-USA segment include
the elimination of all segments intercompany profit in inventory.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month period ended September 30 |
|
|
Nine month period ended September 30 |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
31,656 |
|
|
$ |
27,007 |
|
|
$ |
88,803 |
|
|
$ |
81,706 |
|
Australia |
|
|
13,659 |
|
|
|
7,207 |
|
|
|
37,837 |
|
|
|
19,149 |
|
Brazil |
|
|
10,942 |
|
|
|
9,132 |
|
|
|
27,206 |
|
|
|
20,014 |
|
South Africa |
|
|
3,107 |
|
|
|
3,284 |
|
|
|
8,887 |
|
|
|
7,431 |
|
Canada |
|
|
3,282 |
|
|
|
2,885 |
|
|
|
8,896 |
|
|
|
8,440 |
|
Poland |
|
|
3,975 |
|
|
|
3,053 |
|
|
|
11,378 |
|
|
|
8,748 |
|
All Other |
|
|
27,321 |
|
|
|
16,564 |
|
|
|
61,980 |
|
|
|
41,906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
93,942 |
|
|
$ |
69,132 |
|
|
$ |
244,987 |
|
|
$ |
187,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
2,605 |
|
|
$ |
1,504 |
|
|
$ |
5,932 |
|
|
$ |
4,579 |
|
Australia |
|
|
49 |
|
|
|
19 |
|
|
|
257 |
|
|
|
53 |
|
Brazil |
|
|
508 |
|
|
|
804 |
|
|
|
1,590 |
|
|
|
1,774 |
|
South Africa |
|
|
43 |
|
|
|
191 |
|
|
|
273 |
|
|
|
395 |
|
Canada |
|
|
187 |
|
|
|
97 |
|
|
|
581 |
|
|
|
213 |
|
Poland |
|
|
160 |
|
|
|
182 |
|
|
|
471 |
|
|
|
926 |
|
All Other |
|
|
6,749 |
|
|
|
2,824 |
|
|
|
17,858 |
|
|
|
8,054 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intersegment sales |
|
$ |
10,301 |
|
|
$ |
5,621 |
|
|
$ |
26,962 |
|
|
$ |
15,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
1,800 |
|
|
$ |
589 |
|
|
$ |
1,332 |
|
|
$ |
2,728 |
|
Australia |
|
|
334 |
|
|
|
56 |
|
|
|
931 |
|
|
|
105 |
|
Brazil |
|
|
383 |
|
|
|
477 |
|
|
|
308 |
|
|
|
566 |
|
South Africa |
|
|
302 |
|
|
|
215 |
|
|
|
740 |
|
|
|
451 |
|
Canada |
|
|
299 |
|
|
|
238 |
|
|
|
669 |
|
|
|
660 |
|
Poland |
|
|
51 |
|
|
|
62 |
|
|
|
200 |
|
|
|
200 |
|
All Other |
|
|
833 |
|
|
|
553 |
|
|
|
1,580 |
|
|
|
791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes |
|
$ |
4,002 |
|
|
$ |
2,190 |
|
|
$ |
5,760 |
|
|
$ |
5,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
2,961 |
|
|
$ |
2,557 |
|
|
$ |
3,766 |
|
|
$ |
4,807 |
|
Australia |
|
|
933 |
|
|
|
136 |
|
|
|
1,951 |
|
|
|
248 |
|
Brazil |
|
|
662 |
|
|
|
764 |
|
|
|
1,829 |
|
|
|
909 |
|
South Africa |
|
|
399 |
|
|
|
153 |
|
|
|
1,524 |
|
|
|
764 |
|
Canada |
|
|
672 |
|
|
|
526 |
|
|
|
1,497 |
|
|
|
1,464 |
|
Poland |
|
|
173 |
|
|
|
183 |
|
|
|
729 |
|
|
|
731 |
|
All Other |
|
|
4,082 |
|
|
|
1,940 |
|
|
|
5,716 |
|
|
|
3,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net income |
|
|
9,882 |
|
|
|
6,259 |
|
|
|
17,012 |
|
|
|
12,518 |
|
Income (loss) attributable to noncontrolling interest, net of tax |
|
|
3 |
|
|
|
(61 |
) |
|
|
(95 |
) |
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to PLPC |
|
$ |
9,879 |
|
|
$ |
6,320 |
|
|
$ |
17,107 |
|
|
$ |
12,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
|
December 31 |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
70,153 |
|
|
$ |
65,266 |
|
Australia |
|
|
40,398 |
|
|
|
31,269 |
|
Brazil |
|
|
28,601 |
|
|
|
25,194 |
|
South Africa |
|
|
9,023 |
|
|
|
7,081 |
|
Canada |
|
|
10,390 |
|
|
|
9,006 |
|
Poland |
|
|
14,819 |
|
|
|
14,777 |
|
All Other |
|
|
105,247 |
|
|
|
82,330 |
|
|
|
|
|
|
|
|
|
|
|
278,631 |
|
|
|
234,923 |
|
Corporate assets |
|
|
374 |
|
|
|
449 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
279,005 |
|
|
$ |
235,372 |
|
|
|
|
|
|
|
|
14
NOTE K INCOME TAXES
The Companys effective tax rate was 29% and 26% for the three month periods ended September 30,
2010 and 2009, respectively, and 25% and 31% for the nine month periods ended September 30, 2010
and 2009, respectively. The lower effective tax rate for the three month period ended September
30, 2010 compared to the statutory tax rate of 34% is primarily due to the favorable benefit from
foreign earnings in jurisdictions with lower tax rates than the U.S. statutory tax rate and the
recognition of previously unrecognized tax benefits resulting from expiration of statutes of
limitations. The effective tax rate for the nine month period ended September 30, 2010 is lower
than the statutory federal rate of 34% primarily due to the favorable benefit from foreign earnings
in jurisdictions with lower tax rates than the U.S. statutory tax rate, a favorable foreign tax
incentive for technological innovation, and the decrease of unrecognized tax benefits primarily due
to settlements with tax authorities.
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. The Company
reversed $.4 million of valuation allowance related to foreign tax credit carryforwards as it is
expected to be more likely than not that they will be realized.
As of September 30, 2010, the Company had gross unrecognized tax benefits of approximately $1.1
million. Under the provisions of ASC 740 Income Taxes, the Company recognized previously
unrecognized tax benefits of $.1 million primarily due to the expiration of statutes of
limitations. The Company recognized less than $.1 million of additional unrecognized tax benefit
for the three month period ended September 30, 2010.
NOTE L BUSINESS ACQUISITION
On May 15, 2010, the Company purchased Electropar Limited, a New Zealand corporation. Electropar
designs, manufactures and markets pole line and substation hardware for the global electrical
utility industry. Electropar is based in New Zealand with a subsidiary operation in Australia. The
Company believes the acquisition of Electropar will strengthen its position in the power
distribution, transmission and substation hardware markets and will expand its presence in the
Asia-Pacific region.
The acquisition of Electropar closed on July 31, 2010. Pursuant to the Purchase Agreement, the
Company acquired all of
the outstanding equity of Electropar for NZ$20.3 million or $14.8 million U.S. dollars, net of a
customary post-closing working capital adjustment of $.2 million. In addition, the Company may be
required to make an additional earn-out consideration payment up to NZ$2 million or $1.5 million
U.S. dollars based on Electropar achieving a financial performance target (Earnings Before
Interest, Taxes, Depreciation and Amortization) over the next 12 months commencing after the
acquisition date. The fair value of the contingent consideration arrangement is determined by
estimating the expected (probability-weighted) earn-out payment discounted to present value. Based
upon the initial evaluation of the range of outcomes for this contingent consideration, the Company
has 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 sheet, and as
part of the purchase price. Since the acquisition date, the range of outcomes and the assumptions
used to develop the estimates of the accrual have not changed, and the amount accrued in the
consolidated balance sheet has immaterially increased due to an increase in the net present value
of the liability due to the passage of time. In addition, the Purchase Agreement includes
customary representations, warranties, covenants and indemnification provisions.
15
The acquisition was accounted for as a business purchase pursuant to ASC 805, Business Combinations
(ASC 805). As required by ASC 805-20, the Company allocated the purchase price to assets and
liabilities based on their estimated value at the acquisition date. The following table summarizes
the fair values of the assets acquired and liabilities assumed on July 31, 2010 related to the
acquisition of Electropar:
|
|
|
|
|
|
|
July 31, 2010 |
|
Cash and cash equivalents |
|
$ |
431 |
|
Tangible and other assets |
|
|
8,764 |
|
Amortizable intangible assets: |
|
|
|
|
Customer relationships |
|
|
2,617 |
|
Trade name |
|
|
602 |
|
Technology |
|
|
1,682 |
|
Backlog |
|
|
471 |
|
Goodwill |
|
|
4,843 |
|
|
|
|
|
Total assets acquired |
|
|
19,410 |
|
|
|
|
|
|
|
|
|
|
Liabilities assumed |
|
|
(4,659 |
) |
|
|
|
|
Total |
|
$ |
14,751 |
|
|
|
|
|
The amortizable intangible assets include customer relationships, trade names and technology having
useful lives of 15 years, 10 years, and 20 years, respectively and will be amortized over the
straight-line method. The customer backlog has a useful life of nine months and will be amortized
based on its contribution to earnings. The aggregate amortization expense for these intangible
assets since the acquisition date was $.3 million.
Approximately $4.8 million has been allocated to goodwill, representing the excess of the purchase
price over the fair value of the net tangible and intangible assets acquired and liabilities
assumed. Goodwill for Electropar, which is not deductible for tax purposes, resulted primarily
from the expected synergies, and the Companys expectations that it will expand many of its
products into the New Zealand market.
Operating results of the acquired business have been included in the Companys statements of
consolidated income from the acquisition date forward. From the acquisition date through September
30, 2010, operating results were net sales of $3.1 million and net loss of $.1 million. The net
loss is primarily attributable to writing up finished goods at the acquisition date to fair market
value and thus recognizing minimal profit upon sale.
Acquisition related costs related to Electropar were $.4 million for the nine month period ended
September 30, 2010. These costs were for legal, accounting, valuation, other professional
services, and travel related costs. These costs were included in General and administrative costs
in the Companys statement of consolidated income.
Electropar will be reported as part of the Companys All Other segment.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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.
The reportable segments are PLP-USA, Australia, Brazil, South Africa, Canada, Poland, and All
Other. Our PLP-USA segment is comprised of our U.S. operations primarily supporting our domestic
energy and telecommunications products. The Australia segment is comprised of all of our operations
in Australia supporting energy, telecommunications, data communications and solar products. Our
Brazil segment is comprised of the manufacturing and sales operation from that location which met
at least one of the criteria of a reportable segment. Our final three segments are South Africa,
Poland and Canada, which are comprised of a manufacturing and sales operation, and have been
included as segments to comply with reporting segments for 75% of consolidated sales. Our remaining
operations, Mexico, Great Britain, Spain, China, Asia, DPW, Netherlands, and New Zealand are
included in the All Other segment as none of these operations meet, or the future estimated results
are not expected to meet the criteria for a reportable segment.
16
RECENT DEVELOPMENTS / ACQUISITIONS
On May 15, 2010, we purchased Electropar Limited, a New Zealand corporation.
Electropar Limited (Electropar) designs, manufactures and markets pole line and substation hardware
for the global electrical utility industry. Electropar is based in New Zealand with a subsidiary
operation in Australia. We believe that the acquisition of Electropar will strengthen our position
in the power distribution, transmission and substation hardware markets and will expand our
presence in the Asia-Pacific region.
The acquisition of Electropar closed on July 31, 2010. Pursuant to the Purchase Agreement, PLPC
acquired all of the outstanding equity of Electropar for NZ$20.3 million or $14.8 million U.S.
dollars$, net of a customary post-closing working capital adjustment of $.2 million. The Purchase
Agreement includes customary representations, warranties, covenants and indemnification provisions.
In addition, we may be required to make an additional earn-out consideration payment up to NZ$2
million or $1.5 million U.S. dollars$ based on Electropar achieving a financial performance target
(Earnings Before Interest, Taxes, Depreciation and Amortization) over the next 12 months commencing
after the acquisition date. The fair value of the contingent consideration arrangement is
determined by estimating the expected (probability-weighted) earn-out payment discounted to present
value. Based upon our initial evaluation of the range of outcomes for this contingent
consideration, we have accrued $.4 million for the additional earn-out consideration payment as of
the acquisition date, and as part of the purchase price.
On December 18, 2009, PLPC and Tyco Electronics Group S.A. (Tyco Electronics) completed a Stock and
Asset Purchase Agreement, pursuant to which, we acquired from Tyco Electronics its Dulmison
business for $16 million and the assumption of certain liabilities. The acquisition of Dulmison
strengthened our position in the power distribution and transmission hardware market and expanded
our presence in the Asia-Pacific region. As a result of the acquisition, we added operations in
Indonesia and Malaysia and strengthened our existing positions in Australia, Thailand, Mexico and
the United States.
We apply the purchase method of accounting to our acquisitions pursuant to ASC 805, Business
Combinations. Under this method, we allocate the cost of business acquisitions to the assets
acquired and liabilities assumed based on their estimated fair values at the date of acquisition,
commonly referred to as the purchase price allocation. As part of the purchase price
allocations for our business acquisitions, identifiable intangible assets are recognized as assets
apart from goodwill if they arise from contractual or other legal rights, or if they are capable of
being separated or divided from the acquired business and sold, transferred, licensed, rented, or
exchanged. The purchase price is allocated to the underlying tangible and intangible assets
acquired and liabilities assumed based on their respective fair market values, with any excess
recorded as goodwill. We determine the fair values of such assets and liabilities, generally in
consultation with third-party valuation advisors. Such fair value assessments require significant
judgments and estimates such as projected cash flows, discount rates, royalty rates and remaining
useful lives that can differ materially from actual results.
The current accounting standards require us to record inventories at their respective fair values
as of the acquisition date. To estimate the fair values of inventories acquired, we estimated the
approximate selling price of these inventories and then subtracted the necessary expenses to sell
and support the sale of these inventories. Specifically, the estimated selling price of the
inventory was estimated by grossing up the inventories book values by an expected gross profit
margin. We then only subtract certain operating expenses that would be incurred to dispose of the
inventory items.
The current accounting standards, as previously noted, requires us to report the fair values of
acquired tangible and intangible assets at the acquisition date fair value. In relation to our two
most recent acquisition previously noted, inventories were written up $1.6 million and the acquired
intangible assets (consisting of customer relationships, trade names, technology, and customer
backlog) were initially valued at $10 million. As of the nine months ended September 30, 2010, our
operating income of $21.2 million was decreased by $1 million for the sales of inventories that
have been marked-up to fair value coupled with $.6 million of intangible amortization expense. The
fourth quarter 2010s operating results will be impacted by an estimated $.6 million related to
sales of inventories that have been marked up to fair value and intangible amortization expense.
Also, our 2011 operating results will be impacted by more than $1 million as the result of writing
off the fair value mark-up of inventories and intangible amortization expense.
17
Operating results were also impacted by acquisition related costs of $.4 million for the nine month
period ended September 30, 2010. These costs were for legal, accounting, valuation, other
professional services and travel related costs. These costs were included in general and
administrative costs in our statement of consolidated income.
Preface
Our net sales for the three month period ended September 30, 2010 increased $24.8 million, or 36%,
and gross profit increased $7.1 million, or 29%, compared to the three month period ended September
30, 2009. Our net sales increase was caused by a 44% increase in foreign net sales in addition to
a 26% increase in U.S. net sales. Our financial results are subject to fluctuation results in the
exchange rates of foreign currencies in relation to the U.S. dollar. Of the 36% increase in net
sales, 3% was from the favorable effect on the change in the translation rate of local currencies
as a result of the strengthening of the U.S. dollar to certain foreign currencies compared to 2009.
Excluding the effect of currency translation, costs and expenses increased $2.2 million, or 13%,
as foreign costs and expenses contributed 8% of the increase and U.S. costs and expenses
contributed the other 5%. As a result of the preceding, excluding the effect of currency
translation, net income increased $3.3 million compared to 2009.
Our net sales for the nine month period ended September 30, 2010 increased $57.6 million, or 31%,
and gross profit increased $16.1 million, or 26%, compared to the nine month period ended September
30, 2009. Our net sales increase was caused by a 45% increase in total foreign net sales coupled
with a 15% increase in U.S. net sales. Our financial results are subject to fluctuations in the
exchange rates of foreign currencies in relation to the U.S. dollar. Of the 31% increase in net
sales, 7% was from the favorable effect on the change in the translation rate of local currencies
as a result of the strengthening of the U.S. dollar to certain foreign currencies compared to 2009.
Excluding the effect of currency translation, gross profit increased 19% compared to 2009.
Excluding the effect of currency translation, cost and expenses increased $9.6 million, or 21%, as
U.S. and foreign costs and expenses increased 10% and 11%, respectively. As a result of the
preceding, excluding the effect of currency translation, net income increased $3.7 million compared
to 2009.
Despite the depressed global economic environment, we are seeing an improvement in our global
marketplace and our financial condition continues to remain strong. We continue to generate cash
flows from operations, have proactively managed working capital and have controlled capital
spending. We currently have a debt to equity ratio of 9% and can borrow needed funds at an
attractive interest rate under our credit facility. While current worldwide conditions necessitate
that we concentrate our efforts on maintaining our financial strength, we believe there are many
available opportunities for
growth. We will pursue these opportunities as appropriate in the current environment in order to
improve our competitive position in the future.
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 (primarily the impact of foreign currency) to provide additional information concerning
our financial results and provide information that is useful to the assessment of our performance
and operating trends.
18
THREE MONTH PERIOD ENDED SEPTEMBER 30, 2010 COMPARED TO THREE MONTH PERIOD ENDED SEPTEMBER 30, 2009
The following table sets forth a summary of the Companys consolidated income statements for the
three month period ended September 30, 2010 and September 30, 2009. The Companys past operating
results are not necessarily indicative of future operating results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month period ended September 30, |
|
Thousands of dollars |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
% Change |
|
Net sales |
|
$ |
93,942 |
|
|
$ |
69,132 |
|
|
$ |
24,810 |
|
|
|
36 |
% |
Cost of products sold |
|
|
62,271 |
|
|
|
44,518 |
|
|
|
17,753 |
|
|
|
40 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
31,671 |
|
|
|
24,614 |
|
|
|
7,057 |
|
|
|
29 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as percentage of net sales |
|
|
34 |
% |
|
|
36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
18,714 |
|
|
|
16,433 |
|
|
|
2,281 |
|
|
|
14 |
% |
Costs and expenses as percentage of net sales |
|
|
20 |
% |
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
12,957 |
|
|
|
8,181 |
|
|
|
4,776 |
|
|
|
58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
927 |
|
|
|
268 |
|
|
|
659 |
|
|
|
246 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
13,884 |
|
|
|
8,449 |
|
|
|
5,435 |
|
|
|
64 |
% |
Income before income taxes as percentage of net sales |
|
|
15 |
% |
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
4,002 |
|
|
|
2,190 |
|
|
|
1,812 |
|
|
|
83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,882 |
|
|
$ |
6,259 |
|
|
$ |
3,623 |
|
|
|
58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales. For the three month period ended September 30, 2010, net sales were $93.9 million, an
increase of $24.8 million, or 36%, from the three month period ended September 30, 2009. Excluding
the effect of currency translation, net sales increased 33% as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month period ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
currency |
|
|
% |
|
thousands of dollars |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
translation |
|
|
tranlation |
|
|
change |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
31,656 |
|
|
$ |
27,007 |
|
|
$ |
4,649 |
|
|
$ |
|
|
|
$ |
4,649 |
|
|
|
17 |
% |
Australia |
|
|
13,659 |
|
|
|
7,207 |
|
|
|
6,452 |
|
|
|
1,060 |
|
|
|
5,392 |
|
|
|
75 |
|
Brazil |
|
|
10,942 |
|
|
|
9,132 |
|
|
|
1,810 |
|
|
|
778 |
|
|
|
1,032 |
|
|
|
11 |
|
South Africa |
|
|
3,107 |
|
|
|
3,284 |
|
|
|
(177 |
) |
|
|
184 |
|
|
|
(361 |
) |
|
|
(11 |
) |
Canada |
|
|
3,282 |
|
|
|
2,885 |
|
|
|
397 |
|
|
|
172 |
|
|
|
225 |
|
|
|
8 |
|
Poland |
|
|
3,975 |
|
|
|
3,053 |
|
|
|
922 |
|
|
|
(236 |
) |
|
|
1,158 |
|
|
|
38 |
|
All Other |
|
|
27,321 |
|
|
|
16,564 |
|
|
|
10,757 |
|
|
|
(279 |
) |
|
|
11,036 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
93,942 |
|
|
$ |
69,132 |
|
|
$ |
24,810 |
|
|
$ |
1,679 |
|
|
$ |
23,131 |
|
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in PLP-USA net sales of $4.6 million, or 17%, was primarily due to sales volume
increases of $2.6 million and sales mix increases of $2.1 million. International net sales for the
three month period ended September 30, 2010, were favorably affected by $1.7 million when converted
to U.S. dollars, as a result of the U.S. dollar compared to certain stronger foreign currencies.
The following discussions of international net sales exclude the effect of currency translation.
Australia net sales increased $5.4 million, or 75%, as a result of higher sales volume of $3.6
million primarily related to the Dulmison acquisition in December 2009 coupled with a $1 million
increase in sales related to BlueSky and higher energy sales volume. Brazil net sales increased $1
million, or 11%, primarily as a result of higher sales volume. South Africa net sales decreased
$.4 million, or 11%, as a result of a large contract realized in the third quarter 2009 coupled
with lower energy sales due to South Africas third quarter 2009 net sales at close to a record
high. Canada net sales increased $.2 million, or 8%, primarily due to higher sales in their
domestic markets. Poland net sales increased $1.2 million, or 38%, due primarily to an increase in
sales volume as a result of an improvement in Polands overall economy. All Other net sales
increased $11 million, or 67%, due to an overall increase in sales volume coupled with an estimated
$7 million in net sales realized through the Dulmison acquisition in December 2009 and our latest
acquisition of Electropar reported in All Other.
19
Gross profit. Gross profit of $31.7 million for the three month period ended September 30, 2010
increased $7.1 million, or 29%, compared to the three month period ended September 30, 2009.
Excluding the effect of currency translation, gross profit increased 26% as summarized in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month period ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
currency |
|
|
% |
|
thousands of dollars |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
translation |
|
|
translation |
|
|
change |
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
11,500 |
|
|
$ |
10,241 |
|
|
$ |
1,259 |
|
|
$ |
|
|
|
$ |
1,259 |
|
|
|
12 |
% |
Australia |
|
|
4,041 |
|
|
|
2,236 |
|
|
|
1,805 |
|
|
|
320 |
|
|
|
1,485 |
|
|
|
66 |
|
Brazil |
|
|
3,136 |
|
|
|
2,940 |
|
|
|
196 |
|
|
|
232 |
|
|
|
(36 |
) |
|
|
(1 |
) |
South Africa |
|
|
1,309 |
|
|
|
951 |
|
|
|
358 |
|
|
|
77 |
|
|
|
281 |
|
|
|
30 |
|
Canada |
|
|
1,569 |
|
|
|
1,293 |
|
|
|
276 |
|
|
|
83 |
|
|
|
193 |
|
|
|
15 |
|
Poland |
|
|
1,015 |
|
|
|
901 |
|
|
|
114 |
|
|
|
(60 |
) |
|
|
174 |
|
|
|
19 |
|
All Other |
|
|
9,101 |
|
|
|
6,052 |
|
|
|
3,049 |
|
|
|
(58 |
) |
|
|
3,107 |
|
|
|
51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
31,671 |
|
|
$ |
24,614 |
|
|
$ |
7,057 |
|
|
$ |
594 |
|
|
$ |
6,463 |
|
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA gross profit of $11.5 million increased $1.3 million compared to 2009. PLP-USA gross
profit increased $1.8 million due to higher sales partially offset by an increase in material
costs. International gross profit for the three month period ended September 30, 2010 was
favorably impacted by $.6 million when local currencies were translated to U.S. dollars compared to
2009. The following discussion of international gross profit excludes the effect of currency
translation. The Australia gross profit increase of $1.5 million was the result of $1.7 million
from higher net sales and a $.6 million improvement in manufacturing efficiencies partially offset
by higher material costs. Brazils gross profit remained relatively unchanged primarily due to an
increase in sales volume of $.3 million offset by lower product margins. The South Africa gross
profit increase of $.3 million was a result of an increase in overall product margins of $.4
million due primarily to better product mix compared to 2009, partially offset by $.1 million from
lower net sales. Canadas gross profit increase of $.2 million was the result of an improvement in
product margins primarily due to a one-time project in
2009 carried a lower product margin than Canadas traditional product line. Polands gross profit
increase of $.2 million was the result of $.6 million from higher sales volume coupled with an
improvement in manufacturing efficiencies of $.6 million partially offset by an increase in
material costs of $1 million. The increase in All Other gross profit of $3.1 million was the
result of our legacy subsidiaries located in our All Other reportable segment contributing 36% of
the gross profit increase while our new locations acquired as part of the Dulmison acquisition in
December 2009 and the Electropar acquisition contributed the other 64% of the improvement in gross
profit. The $1.1 million improvement in gross profit related to our legacy subsidiaries located in
All Other increased $1.4 million due to higher net sales partially offset by a decrease in overall
product margins.
20
Costs and expenses. Costs and expenses for the three month period ended September 30, 2010
increased $2.3 million, or 14%, compared to the three month period ended September 30, 2009.
Excluding the effect of currency translation, costs and expenses increased 13% as summarized in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month period ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
currency |
|
|
% |
|
thousands of dollars |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
translation |
|
|
translation |
|
|
change |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
9,256 |
|
|
$ |
8,668 |
|
|
$ |
588 |
|
|
$ |
|
|
|
$ |
588 |
|
|
|
7 |
% |
Australia |
|
|
2,088 |
|
|
|
1,743 |
|
|
|
345 |
|
|
|
21 |
|
|
|
324 |
|
|
|
19 |
|
Brazil |
|
|
1,980 |
|
|
|
1,594 |
|
|
|
386 |
|
|
|
131 |
|
|
|
255 |
|
|
|
16 |
|
South Africa |
|
|
513 |
|
|
|
481 |
|
|
|
32 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
Canada |
|
|
439 |
|
|
|
390 |
|
|
|
49 |
|
|
|
22 |
|
|
|
27 |
|
|
|
7 |
|
Poland |
|
|
784 |
|
|
|
658 |
|
|
|
126 |
|
|
|
(46 |
) |
|
|
172 |
|
|
|
26 |
|
All Other |
|
|
3,654 |
|
|
|
2,899 |
|
|
|
755 |
|
|
|
(53 |
) |
|
|
808 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
18,714 |
|
|
$ |
16,433 |
|
|
$ |
2,281 |
|
|
$ |
107 |
|
|
$ |
2,174 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA costs and expenses increased $.6 million due primarily to an increase in commissions of $.3
million on increased sales, an increase in employee related costs of $.3 million, consulting
expenses of $.2 million, travel expenses of $.2 million, and a favorable change in the cash
surrender value of life insurance policies of $.3 million in 2009, partially offset by a decrease
in acquisition related costs of $.2 million and a decrease of $.5 million due to higher repairs and
maintenance in 2009. International costs and expenses for the three month period ended September
30, 2010 were unfavorably impacted by $.1 million when local currencies were translated to U.S.
dollars compared to 2009. The following discussions of international costs and expenses exclude
the effect of currency translation. Australia costs and expenses increased $.3 million primarily
due to an increase in personnel related costs and the addition of new employees related to the
Dulmison acquisition in December 2009 coupled with higher consulting and travel expenses. Brazils
costs and expenses increase of $.3 million related to an increase in personnel related costs due to
the addition of new employees and a new labor contract coupled with an increase in sales
commissions, and lower bad debt expense in 2009 due to the collection on customer accounts
previously considered uncollectible. South Africa costs and expenses remained relatively unchanged
compared to 2009. Canada and Poland costs and expenses both increased primarily due to an increase
in personnel related costs. All Other costs and expenses of $3.7 million increased $.8 million
primarily due to $1.4 million of additional costs and expenses related to the Dulmison acquisition
in December 2009 and Electropar acquisition in July 2010. Additionally, our legacy locations
located in All Other increased $.8 million primarily due to employee related costs coupled with an
increase in higher commissions, professional services, and travel. The increases in All Other
costs and expense were partially offset by a $1.4 million gain on currency translation when
converting balances from foreign currencies into U.S. dollars.
Other income. Other income for the three month period ended September 30, 2010 of $.9 million was
$.7 million higher compared to 2009. Other income increased $.8 million primarily due to a gain
recognized as a result of revaluing our forward foreign exchange contract to fair value on 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 31, 2010.
Income taxes. Income taxes for the three month period ended September 30, 2010 of $4 million was
$1.8 million higher than in 2009. The effective tax rate for the three month period ended
September 30, 2010 was 29% compared to 26% in 2009. The effective tax rate for the three month
period ended September 30, 2010 is lower than the statutory federal rate of 34% primarily due to
increased foreign earnings in jurisdictions with lower tax rates than the U.S. statutory tax rate
and the recognition of previously unrecognized tax benefits resulting from the expiration of
statutes of limitations.
21
Net income. As a result of the preceding items, net income for the three month period ended
September 30, 2010 was $9.9 million, compared to $6.3 million for the three month period ended
September 30, 2009. Excluding the effect of currency translation, net income increased $3.3
million as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month period ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
currency |
|
|
% |
|
thousands of dollars |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
translation |
|
|
translation |
|
|
change |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
2,961 |
|
|
$ |
2,557 |
|
|
$ |
404 |
|
|
$ |
|
|
|
$ |
404 |
|
|
|
16 |
% |
Australia |
|
|
933 |
|
|
|
136 |
|
|
|
797 |
|
|
|
214 |
|
|
|
583 |
|
|
|
429 |
|
Brazil |
|
|
662 |
|
|
|
764 |
|
|
|
(102 |
) |
|
|
68 |
|
|
|
(170 |
) |
|
|
(22 |
) |
South Africa |
|
|
399 |
|
|
|
153 |
|
|
|
246 |
|
|
|
23 |
|
|
|
223 |
|
|
|
146 |
|
Canada |
|
|
672 |
|
|
|
526 |
|
|
|
146 |
|
|
|
35 |
|
|
|
111 |
|
|
|
21 |
|
Poland |
|
|
173 |
|
|
|
183 |
|
|
|
(10 |
) |
|
|
(11 |
) |
|
|
1 |
|
|
|
1 |
|
All Other |
|
|
4,082 |
|
|
|
1,940 |
|
|
|
2,142 |
|
|
|
22 |
|
|
|
2,120 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
9,882 |
|
|
$ |
6,259 |
|
|
$ |
3,623 |
|
|
$ |
351 |
|
|
$ |
3,272 |
|
|
|
52 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA net income increased $.4 million as a result of an increase in operating income of $.9
million coupled with an increase in other income of $.7 million partially offset by an increase in
income taxes of $1.2 million. The following discussion of international net income excludes the
effect of currency translation. Australia net income increased $.6 million due primarily to the
increase in operating income of $.8 million partially offset by an increase in income taxes.
Brazil net income decreased $.2 million primarily as a result of a decrease in operating income of
$.3 million partially offset by a decrease in income taxes. South Africa net income increased $.2
million primarily as a result of the increase in operating income of $.3 million partially offset
by an increase in income taxes. Canada net income increased $.1 million primarily as a result of
the increase in operating income of $.2 million partially offset by an increase in income taxes.
Poland net income remained relatively unchanged compared to 2009. All Other net income increased
$2.1 million primarily as a result of the $.9 million increase in operating income coupled with a
gain on currency translation when converting balances from foreign currencies into U.S. dollars
partially offset by an increase in income taxes.
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2010 COMPARED TO NINE MONTH PERIOD ENDED SEPTEMBER 30, 2009
The following table sets forth a summary of the Companys consolidated income statements for the
nine month period ended September 30, 2010 and September 30, 2009. The Companys past operating
results are not necessarily indicative of future operating results.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine month period ended September 30, |
|
Thousands of dollars |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
% Change |
|
Net sales |
|
$ |
244,987 |
|
|
$ |
187,394 |
|
|
$ |
57,593 |
|
|
|
31 |
% |
Cost of products sold |
|
|
165,836 |
|
|
|
124,352 |
|
|
|
41,484 |
|
|
|
33 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
79,151 |
|
|
|
63,042 |
|
|
|
16,109 |
|
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as percentage of net sales |
|
|
32 |
% |
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
57,947 |
|
|
|
45,944 |
|
|
|
12,003 |
|
|
|
26 |
% |
Costs and expenses as percentage of net sales |
|
|
24 |
% |
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
21,204 |
|
|
|
17,098 |
|
|
|
4,106 |
|
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
1,568 |
|
|
|
921 |
|
|
|
647 |
|
|
|
70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
22,772 |
|
|
|
18,019 |
|
|
|
4,753 |
|
|
|
26 |
% |
Income before income taxes as percentage of net sales |
|
|
9 |
% |
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
5,760 |
|
|
|
5,501 |
|
|
|
259 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
17,012 |
|
|
$ |
12,518 |
|
|
$ |
4,494 |
|
|
|
36 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
22
Net Sales. For the nine month period ended September 30, 2010, net sales were $245 million, an
increase of $57.6 million, or 31%, compared to the nine month period ended September 30, 2009.
Excluding the effect of currency translation, net sales increased 24% as summarized in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine month period ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
currency |
|
|
% |
|
thousands of dollars |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
translation |
|
|
tranlation |
|
|
change |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
88,803 |
|
|
$ |
81,706 |
|
|
$ |
7,097 |
|
|
$ |
|
|
|
$ |
7,097 |
|
|
|
9 |
% |
Australia |
|
|
37,837 |
|
|
|
19,149 |
|
|
|
18,688 |
|
|
|
5,894 |
|
|
|
12,794 |
|
|
|
67 |
|
Brazil |
|
|
27,206 |
|
|
|
20,014 |
|
|
|
7,192 |
|
|
|
3,736 |
|
|
|
3,456 |
|
|
|
17 |
|
South Africa |
|
|
8,887 |
|
|
|
7,431 |
|
|
|
1,456 |
|
|
|
1,196 |
|
|
|
260 |
|
|
|
3 |
|
Canada |
|
|
8,896 |
|
|
|
8,440 |
|
|
|
456 |
|
|
|
957 |
|
|
|
(501 |
) |
|
|
(6 |
) |
Poland |
|
|
11,378 |
|
|
|
8,748 |
|
|
|
2,630 |
|
|
|
516 |
|
|
|
2,114 |
|
|
|
24 |
|
All Other |
|
|
61,980 |
|
|
|
41,906 |
|
|
|
20,074 |
|
|
|
4 |
|
|
|
20,070 |
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
244,987 |
|
|
$ |
187,394 |
|
|
$ |
57,593 |
|
|
$ |
12,303 |
|
|
$ |
45,290 |
|
|
|
24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in PLP-USA net sales of $7.1 million, or 9%, was primarily due to sales volume
increases of $4.1 million and sales mix increases of $5.1 million partially offset by lower average
sales prices when compared to 2009. International net sales for the nine month period ended
September 30, 2010 were favorably affected by $12.3 million when converted to U.S. dollars, as a
result of the U.S. dollar compared to certain stronger foreign currencies. The following
discussions of international net sales exclude the effect of currency translation. Australia net
sales increased $12.8 million, or 67%, as a result of higher sales volume of which $9.9 million
related to the acquisition entered into in December 2009, $1.6 million increase in net sales
related to BlueSky Energy Ltd, and an overall increase in sales volume in their markets. Brazil net
sales increased $3.5 million, or 17%, as a result of higher energy sales volume in their markets.
South Africa net sales increased $.3 million, or 3%, primarily as a result of increased volume in
energy sales. Canada net sales decreased $.5 million, or 6%, due to slightly lower sales volume in
their markets coupled with a one-time sales project which was recognized in the second quarter
2009. Poland net sales increased $2.1 million, or 24%, due primarily to an increase in sales
volume in their domestic markets due to the strengthening of Polands economy. All Other net sales
increased $20.1 million, or 48%, due to an increase in sales volume in several of our markets
included in All Other coupled with an estimated $8.6 million in net sales realized through the
acquisition entered into in December 2009 reported in All Other and $3.1 million in net sales
realized through our latest acquisition of Electropar in July 2010.
Gross profit. Gross profit of $79.2 million for the nine month period ended September 30, 2010
increased $16.1 million, or
26%, compared to the nine month period ended September 30, 2009. Excluding the effect of currency
translation, gross profit increased 19% as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine month period ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
currency |
|
|
% |
|
thousands of dollars |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
translation |
|
|
translation |
|
|
change |
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
27,821 |
|
|
$ |
28,369 |
|
|
$ |
(548 |
) |
|
$ |
|
|
|
$ |
(548 |
) |
|
|
(2 |
)% |
Australia |
|
|
12,134 |
|
|
|
5,483 |
|
|
|
6,651 |
|
|
|
1,961 |
|
|
|
4,690 |
|
|
|
86 |
|
Brazil |
|
|
7,589 |
|
|
|
5,679 |
|
|
|
1,910 |
|
|
|
1,021 |
|
|
|
889 |
|
|
|
16 |
|
South Africa |
|
|
4,054 |
|
|
|
2,595 |
|
|
|
1,459 |
|
|
|
546 |
|
|
|
913 |
|
|
|
35 |
|
Canada |
|
|
4,010 |
|
|
|
3,695 |
|
|
|
315 |
|
|
|
423 |
|
|
|
(108 |
) |
|
|
(3 |
) |
Poland |
|
|
3,229 |
|
|
|
2,642 |
|
|
|
587 |
|
|
|
151 |
|
|
|
436 |
|
|
|
17 |
|
All Other |
|
|
20,314 |
|
|
|
14,579 |
|
|
|
5,735 |
|
|
|
69 |
|
|
|
5,666 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
79,151 |
|
|
$ |
63,042 |
|
|
$ |
16,109 |
|
|
$ |
4,171 |
|
|
$ |
11,938 |
|
|
|
19 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
PLP-USA gross profit of $27.8 million decreased $.5 million compared to 2009. PLP-USA gross profit
decreased primarily due to higher material costs. International gross profit for the nine month
period ended September 30, 2010 was favorably impacted by $4.2 million when local currencies were
translated to U.S. dollars. The following discussion of international gross profit excludes the
effect of currency translation. The Australia gross profit increase of $4.7 million was the result
of $3.6 million from higher net sales coupled with lower manufacturing costs of $2.1 million,
partially offset by an increase in material costs. Brazils gross profit increase of $.9 million
was primarily the result of $.9 million from higher net sales with overall product margins
remaining constant compared to 2009. The South Africa gross profit increase of $.9 million was the
result of $.8 million from an improvement in product margins coupled with $.1 million from higher
sales volume. Canadas gross profit decrease of $.1 million was due to a decrease in sales volume.
Polands gross profit increase of $.4 million was a result of $.6 million from higher sales volume
coupled with an improvement in manufacturing efficiencies partially offset by a $.6 million
increase in material costs. All Other gross profit improved $5.7 million compared to 2009.
Approximately half of the improvement in gross profit related to our new locations acquired in the
December 2009 acquisition. Another 40% of the improvement related to our PLP Legacy locations
located in All Other. The increase in PLPs legacy locations in our All Other segment was the
result of $2.5 million from higher net sales partially offset by lower product margins. The
remaining 10% of the improvement in gross profit was realized through our acquisition of Electropar
in July 2010.
The Dulmison acquisition which closed in December 2009 and the recent Electropar acquisition were
accounted for pursuant to the current business combination standards. In accordance with the
standard, we recorded, as of their respective acquisition dates, the acquired inventories at their
respective fair values. Through September 2010, we have sold and therefore recognized $1 million
of the inventories fair market value adjustment in Cost of products sold.
Costs and expenses. Cost and expenses for the nine month period ended September 30, 2010 increased
$12 million, or 26%, compared to the nine month period ended September 30, 2009. Excluding the
effect of currency translation, costs and expenses increased 21% as summarized in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine month period ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
currency |
|
|
% |
|
thousands of dollars |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
translation |
|
|
translation |
|
|
change |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
29,024 |
|
|
$ |
25,053 |
|
|
$ |
3,971 |
|
|
$ |
|
|
|
$ |
3,971 |
|
|
|
16 |
% |
Australia |
|
|
6,963 |
|
|
|
4,269 |
|
|
|
2,694 |
|
|
|
1,145 |
|
|
|
1,549 |
|
|
|
36 |
|
Brazil |
|
|
5,208 |
|
|
|
4,047 |
|
|
|
1,161 |
|
|
|
741 |
|
|
|
420 |
|
|
|
10 |
|
South Africa |
|
|
1,510 |
|
|
|
1,172 |
|
|
|
338 |
|
|
|
181 |
|
|
|
157 |
|
|
|
13 |
|
Canada |
|
|
1,416 |
|
|
|
1,171 |
|
|
|
245 |
|
|
|
159 |
|
|
|
86 |
|
|
|
7 |
|
Poland |
|
|
2,254 |
|
|
|
1,719 |
|
|
|
535 |
|
|
|
98 |
|
|
|
437 |
|
|
|
25 |
|
All Other |
|
|
11,569 |
|
|
|
8,513 |
|
|
|
3,056 |
|
|
|
97 |
|
|
|
2,959 |
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
57,944 |
|
|
$ |
45,944 |
|
|
$ |
12,000 |
|
|
$ |
2,421 |
|
|
$ |
9,579 |
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA costs and expenses increased $4 million primarily due to an increase in commissions of $.4
million, an increase in employee related costs of $1.4 million, consulting expenses of $.5 million,
travel expenses of $.3 million, higher business acquisition/integration costs of $.5 million, a
favorable change in the cash surrender value of life insurance policies of $.3 million in 2009,
lower contract testing income of $.1 million and lower gains on foreign currency translations of
$.4 million. International costs and expenses for the nine month period ended September 30, 2010
were unfavorably impacted by $2.4 million when local currencies were translated to U.S. dollars
compared to 2009. The following discussions of international costs and expenses exclude the effect
of currency translation. Australia costs and expenses increased $1.5 million primarily due to an
increase in personnel related costs, the addition of new employees related to the acquisition
entered into in December 2009 and higher IT and consulting expenses. Brazil cost and expenses
increased $.4 million primarily due to higher personnel related costs related to additional
employees and a new labor contract. South Africa cost and expenses increased $.2 million primarily
due to higher personnel related costs, higher administrative expenses due to an increase in bad
debt expense, and higher building maintenance costs. Canada cost and expenses increased less than
$.1 million due to higher personnel related costs coupled with an increase in depreciation expense.
Poland cost and expenses increase of $.4 million increased more than $.2 million due to higher
personnel related costs coupled with higher commission expense. All Other costs and expenses
increased $3 million primarily due to $2.8 million from the Dulmison acquisition in late December
2009 and the Electropar acquisition in July 2010. Also contributing $1.1 million to the costs and
expenses increase was our legacy locations located in our All Other reportable segment. The
increase in our legacy locations costs and expenses was primarily due to personnel related costs
coupled with higher depreciation expense, research and engineering costs, and higher commission
expense. These increases in costs and expenses were partially offset by a $.9 million gain on
currency translation when converting balances from foreign currencies into U.S. dollars.
24
Overall, costs and expenses for the nine month period ended September 30, 2010 were $.6 million
higher due to the aggregate amortization expense of intangible assets acquired in our Dulmison and
Electropar business combinations.
Other income. Other income for the nine month period ended September 30, 2010 of $1.6 million
increased $.6 million compared to 2009. Other income increased primarily due to a $1.2 million
gain recognized as a result of revaluing our forward foreign exchange contract to fair value. 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 31,
2010. The increase in Other income was partially offset by an increase in interest expense at
several of our foreign and domestic locations coupled with a $.3 million increase in
non-operational expenses related to our foreign jurisdictions.
Income taxes. Income taxes for the nine month period ended September 30, 2010 of $5.8 million was
$.3 million higher than the same period in 2009. The effective tax rate for the nine month periods
ended September 30, 2010 and 2009 was 25% and 31%, respectively. The effective tax rate for the
nine month period ended September 30, 2010 is lower than the statutory federal rate of 34%
primarily due to the favorable benefit from foreign earnings in jurisdictions with lower tax rates
than the U.S. statutory tax rate, a favorable foreign tax incentive for technological innovation,
and the decrease of unrecognized tax benefits primarily due to settlements with tax authorities.
Net income. As a result of the preceding items, net income for the nine month period ended
September 30, 2010 was $17 million, compared to net income of $12.5 million for the nine month
period ended September 30, 2009. Excluding the effect of currency translation, net income
increased $3.7 million as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine month period ended September 30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
excluding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
currency |
|
|
% |
|
thousands of dollars |
|
2010 |
|
|
2009 |
|
|
Change |
|
|
translation |
|
|
translation |
|
|
change |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
3,766 |
|
|
$ |
4,807 |
|
|
$ |
(1,041 |
) |
|
$ |
|
|
|
$ |
(1,041 |
) |
|
|
(22 |
)% |
Australia |
|
|
1,951 |
|
|
|
248 |
|
|
|
1,703 |
|
|
|
322 |
|
|
|
1,381 |
|
|
|
557 |
|
Brazil |
|
|
1,829 |
|
|
|
909 |
|
|
|
920 |
|
|
|
194 |
|
|
|
726 |
|
|
|
80 |
|
South Africa |
|
|
1,524 |
|
|
|
764 |
|
|
|
760 |
|
|
|
205 |
|
|
|
555 |
|
|
|
73 |
|
Canada |
|
|
1,497 |
|
|
|
1,464 |
|
|
|
33 |
|
|
|
150 |
|
|
|
(117 |
) |
|
|
(8 |
) |
Poland |
|
|
729 |
|
|
|
731 |
|
|
|
(2 |
) |
|
|
39 |
|
|
|
(41 |
) |
|
|
(6 |
) |
All Other |
|
|
5,716 |
|
|
|
3,595 |
|
|
|
2,121 |
|
|
|
(115 |
) |
|
|
2,236 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
17,012 |
|
|
$ |
12,518 |
|
|
$ |
4,494 |
|
|
$ |
795 |
|
|
$ |
3,699 |
|
|
|
30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA net income decreased $1 million as a result of a $3.5 million decrease in operating income
partially offset by a decrease in income taxes of $1.4 million and an increase in other income.
The following discussion of international net income excludes the effect of currency translation.
Australia net income increased $1.4 million due primarily to the increase in operating income of
$2.3 million partially offset by increases in income taxes of $.7 million and an increase in other
expenses. Brazil net income increased $.7 million primarily as a result of the increase in
operating income of $.4 million coupled with a decrease in income taxes of $.3 million due to
certain technological tax incentives received. South Africa net income increased $.6 million
primarily as a result of the increase in operating income of $.8 million partially offset by an
increase in income taxes. Canada net income decreased $.1 million primarily as a result of the
decrease in operating income of $.2 million partially offset by a decrease in income taxes. Poland
net income remained relatively unchanged compared to 2009. All Other net income increased $2.2
million primarily as a result of the $3.1 million increase in operating income partially offset by
an increase in income taxes of $.8 million and an increase in other expenses.
25
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, 2009 and are, therefore, not presented herein.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
Cash decreased $1.8 million for the nine month period ended September 30, 2010. Net cash provided
by operating activities was $17.5 million primarily because of net income, non-cash adjustments,
and an increase in trade payables partially offset by an increase in accounts receivables,
inventories and all other current assets/liabilities. The major investing and financing uses of
cash were $14.3 million in business acquisitions, $9.1 million in capital expenditures, $3.3
million in dividend payments, $1.1 million to repurchase common shares and payment of long term
debt of $2.3 million offset by cash proceeds of $.7 million related to the sale of property, plant
and equipment, and proceeds from debt borrowings of $10.3 million. Additionally, changes in cash
due to exchange rate changes reduced cash by $.3 million.
Net cash used in investing activities of $22.8 million represents an increase of $16.6 million when
compared to the cash used by investing activities in the nine month period ended September 30,
2009. During 2009, we received the remaining $.8 million from escrow related to the May 30, 2008
sale of the SMP operations and paid an earnout of $.4 million to the sellers of Direct Power and
Water Company, originally purchased in March 2007. On July 31, 2010, the Company acquired all of
the outstanding equity of Electropar for $14.3 million, net of cash received and working capital
adjustments. Capital expenditures increased $2.4 million in the nine month period ended September
30, 2010 when compared to 2009 due mostly to our facilities expansion in Mexico, investment in
solar panels at our Canadian operation and a software system implementation at our Spanish
operation.
Cash provided by financing activities for the nine month period ended September 30, 2010 was $3.8
million when compared to the cash used by financing activities in the nine month period ended
September 30, 2009 of $2.2 million. This change was primarily a result of $8 million in net debt
borrowings in 2010 partially offset by cash used to repurchase shares of $1.1 million compared to
$.9 million in net debt borrowings in 2009.
Our current ratio was 2.8 to 1 at September 30, 2010 and 3 to 1 at December 31, 2009. At September
30, 2010, our unused balance under our main credit facility was $16.7 million and our bank debt to
equity percentage was 9%. Our main revolving credit agreement contains, among other provisions,
requirements for maintaining levels of working capital, net worth, and profitability. At September
30, 2010, we were in compliance with these covenants. We believe existing cash of $22.3 million
together with 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 existing cash of $22.3 million, together with our untapped borrowing capacity, provides
substantial financial resources. If we were to incur significant additional indebtedness, we
expect to be able to meet liquidity needs under our credit facilities. 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.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2009, the FASB updated guidance included in FASB ASC 810-10, related to the consolidation
of variable interest entities. This guidance will require ongoing reassessments of whether an
enterprise is the primary beneficiary of a variable interest entity. In addition, this updated
guidance amends the quantitative approach for determining the primary beneficiary of a variable
interest entity. ASC 810-10 amends certain guidance for determining whether an entity is a
variable interest entity and adds additional reconsideration events for determining whether an
entity is a variable interest entity. Further, this guidance requires enhanced disclosures that
will provide users of financial statements with more transparent information about an enterprises
involvement in a variable interest entity. This updated guidance is effective as of the beginning
of the first annual reporting period and interim reporting periods that begin after November 15,
2009. The adoption of this guidance did not have an impact on our consolidated financial
statements or disclosures.
26
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820).
This Update provides amendments to Subtopic 820-10 and related guidance within U.S. GAAP to require
disclosure of the transfers in and out of Levels 1 and 2 and a schedule for Level 3 that separately
identifies purchases, sales, issuances and settlements and requires more detailed disclosures
regarding valuation techniques and inputs. We adopted this new standard effective January 1, 2010
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 Financial Accounting Standards Board (FASB) in the form of accounting standards
updates (ASUs) to the FASBs Accounting Standards Codification.
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 October 2009, the FASB issued Accounting Standards Update 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 in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. We are currently evaluating the effect the adoption of ASU 2009-13 will
have on our financial position, results of operations, cash flows, and related disclosures; however
no effect is expected.
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, 2010, 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 $16.5 million at September 30, 2010. 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, 2010.
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 million and on income before tax of $1.1 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
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, 2010.
27
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, 2010 that
materially affected or are reasonably likely to materially affect the Companys internal control
over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that arise in the ordinary course of
business. In the opinion of management, the amount of any ultimate liability with respect to these
actions will not materially affect our financial condition, 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, 2009 filed with the Securities and Exchange
Commission on March 15, 2010.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 15, 2007, the Board of Directors authorized a plan to repurchase up to 200,000 shares
of Preformed Line Products Company. 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,
in addition to the 11,252 common shares authorized for repurchase under the 2007 plan. The
repurchase plans do not have expiration dates. The following table includes repurchases for the
three month period ended September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Plan |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Shares Purchased as |
|
|
Maximum Number of |
|
|
|
Number of |
|
|
Average |
|
|
Part of Publicly |
|
|
Shares that may yet be |
|
|
|
Shares |
|
|
Price Paid |
|
|
Announced Plans or |
|
|
Purchased under the |
|
Period (2010) |
|
Purchased |
|
|
per Share |
|
|
Programs |
|
|
Plans or Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July |
|
|
|
|
|
|
|
|
|
|
188,748 |
|
|
|
11,252 |
|
August |
|
|
11,252 |
|
|
$ |
32.43 |
|
|
|
200,000 |
|
|
|
|
|
September |
|
|
|
|
|
|
|
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
11,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Plan |
|
|
|
Company Purchases of Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Shares Purchased as |
|
|
Maximum Number of |
|
|
|
Number of |
|
|
Average |
|
|
Part of Publicly |
|
|
Shares that may yet be |
|
|
|
Shares |
|
|
Price Paid |
|
|
Announced Plans |
|
|
Purchased under the |
|
Period (2010) |
|
Purchased |
|
|
per Share |
|
|
or Programs |
|
|
Plans or Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000 |
|
August |
|
|
21,435 |
|
|
$ |
32.43 |
|
|
|
21,435 |
|
|
|
228,565 |
|
September |
|
|
|
|
|
|
|
|
|
|
21,435 |
|
|
|
228,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
21,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
28
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. (Removed and Reserved)
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
|
|
|
|
|
|
2.1 |
|
|
Agreement for sale and purchase of shares in Electropar Limited, dated May 15, 2010, by and
among the Company and Tony Lachlan Wallace, Grant Lachlan Wallace and Helen Amelia Wallace;
Grant Lachlan Wallace, Tony Lachlan Wallace and Alison Kay Wallace; and Cameron Lachlan
Wallace, Grant Lachlan Wallace and Tony Lachlan Wallace (the agreement does not include the
schedules and other attachments. Copies will be provided to the SEC upon request), filed
herewith. |
|
|
|
|
|
|
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 Financial Officer, Eric R. Graef, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith. |
|
|
|
|
|
|
32.1 |
|
|
Certification of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, furnished. |
|
|
|
|
|
|
32.2 |
|
|
Certification of the Principal Accounting Officer, Eric R. Graef, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished. |
29
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; |
|
|
|
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 to meet or exceed
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
into new areas; |
|
|
|
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; |
30
|
|
|
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 depressed housing market on the Companys ongoing
profitability and future growth opportunities; |
|
|
|
The continued support by Federal, State, Local and Foreign Governments in incentive
programs for 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, 2009 filed on March 15, 2010. |
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
November 5, 2010 |
/s/ Robert G. Ruhlman
|
|
|
Robert G. Ruhlman |
|
|
Chairman, President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
November 5, 2010 |
/s/ Eric R. Graef
|
|
|
Eric R. Graef |
|
|
Chief Financial Officer and Vice President Finance
(Principal Accounting Officer) |
|
32
EXHIBIT INDEX
|
|
|
|
|
|
2.1 |
|
|
Agreement for sale and purchase of shares in Electropar Limited, dated May 15, 2010, by and
among the Company and Tony Lachlan Wallace, Grant Lachlan Wallace and Helen Amelia Wallace;
Grant Lachlan Wallace, Tony Lachlan Wallace and Alison Kay Wallace; and Cameron Lachlan
Wallace, Grant Lachlan Wallace and Tony Lachlan Wallace (the agreement does not include the
schedules and other attachments. Copies will be provided to the SEC upon request), filed
herewith. |
|
|
|
|
|
|
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 Financial Officer, Eric R. Graef, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith. |
|
|
|
|
|
|
32.1 |
|
|
Certification of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, furnished. |
|
|
|
|
|
|
32.2 |
|
|
Certification of the Principal Accounting Officer, Eric R. Graef, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished. |
33