Preformed Line Products Company 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
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For the quarterly period ended September 30, 2007
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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 |
(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 Mayfield Village, Ohio |
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44143 |
(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 o No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
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 January 4, 2008: 5,381,456.
Table of Contents
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Page |
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Part I Financial Information |
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Item 1. |
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Financial Statements and Supplementary Data |
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3 |
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Item 2. |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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14 |
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Item 3. |
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Quantitative and Qualitative Disclosures About Market Risk |
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21 |
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Item 4. |
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Controls and Procedures |
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22 |
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Part II Other Information |
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Item 1. |
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Legal Proceedings |
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22 |
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Item 1A. |
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Risk Factors |
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23 |
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Item 2. |
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Unregistered Sales of Equity Securities and Use of Proceeds |
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23 |
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Item 3. |
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Defaults Upon Senior Securities |
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23 |
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Item 4. |
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Submission of Matters to a Vote of Security Holders |
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23 |
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Item 5. |
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Other Information |
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23 |
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Item 6. |
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Exhibits |
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23 |
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SIGNATURES |
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26 |
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2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 data |
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2007 |
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2006 |
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ASSETS |
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Cash and cash equivalents |
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$ |
20,574 |
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$ |
29,949 |
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Accounts receivable, less allowances of $1,853 ($1,209 in 2006) |
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43,768 |
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30,029 |
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Inventories net |
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53,435 |
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40,415 |
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Deferred income taxes |
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3,885 |
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2,528 |
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Prepaids and other |
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4,677 |
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2,504 |
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TOTAL CURRENT ASSETS |
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126,339 |
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105,425 |
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Property and equipment net |
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60,451 |
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52,810 |
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Deferred income taxes |
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3,795 |
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5,145 |
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Goodwill net |
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6,128 |
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2,166 |
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Patents and other intangibles net |
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2,716 |
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2,546 |
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Other assets |
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2,837 |
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2,760 |
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TOTAL ASSETS |
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$ |
202,266 |
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$ |
170,852 |
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LIABILITIES AND SHAREHOLDERS EQUITY |
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Notes payable to banks |
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$ |
4,322 |
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$ |
3,738 |
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Current portion of long-term debt |
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1,434 |
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2,157 |
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Trade accounts payable |
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17,073 |
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11,606 |
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Accrued compensation and amounts withheld from employees |
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7,992 |
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5,556 |
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Accrued expenses and other liabilities |
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6,093 |
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4,225 |
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Accrued profit-sharing and other benefits |
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3,779 |
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3,596 |
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Dividends payable |
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1,076 |
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1,072 |
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Income taxes |
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1,724 |
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1,129 |
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TOTAL CURRENT LIABILITIES |
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43,493 |
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33,079 |
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Long-term debt, less current portion |
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3,523 |
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2,204 |
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Deferred income taxes |
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566 |
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439 |
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Unfunded pension liabilities |
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4,465 |
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3,982 |
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Unrecognized tax benefits |
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1,896 |
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Other non-current liabilities |
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1,026 |
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Minority interest |
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961 |
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SHAREHOLDERS EQUITY |
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Common shares $2 par value, 15,000,000 shares authorized,
5,378,456 and 5,360,259 issued and outstanding, net of
373,333 and 365,311 treasury shares at par, respectively |
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10,757 |
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10,721 |
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Paid in capital |
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2,429 |
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1,562 |
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Retained earnings |
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140,716 |
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131,949 |
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Accumulated other comprehensive loss |
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(7,566 |
) |
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(13,084 |
) |
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TOTAL SHAREHOLDERS EQUITY |
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146,336 |
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131,148 |
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TOTAL LIABILITIES AND
SHAREHOLDERS EQUITY |
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$ |
202,266 |
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$ |
170,852 |
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See notes to consolidated financial statements.
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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In thousands, except per share data |
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2007 |
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2006 |
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2007 |
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2006 |
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Net sales |
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$ |
66,099 |
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$ |
56,439 |
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$ |
186,383 |
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$ |
165,172 |
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Cost of products sold |
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43,316 |
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37,677 |
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123,631 |
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111,493 |
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GROSS PROFIT |
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22,783 |
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18,762 |
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62,752 |
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53,679 |
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Costs and expenses |
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Selling |
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6,208 |
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5,475 |
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18,789 |
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16,872 |
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General and administrative |
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6,736 |
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5,680 |
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19,101 |
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17,347 |
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Research and engineering |
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2,026 |
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1,928 |
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6,029 |
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5,807 |
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Other operating expenses (income) net |
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(169 |
) |
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|
136 |
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|
121 |
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318 |
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14,801 |
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13,219 |
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44,040 |
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40,344 |
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Royalty income net |
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345 |
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|
287 |
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1,487 |
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1,004 |
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OPERATING INCOME |
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8,327 |
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5,830 |
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20,199 |
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14,339 |
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Other income (expense) |
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Interest income |
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|
279 |
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389 |
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|
853 |
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1,144 |
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Interest expense |
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(140 |
) |
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(164 |
) |
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(437 |
) |
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(399 |
) |
Other expense net |
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(9 |
) |
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(19 |
) |
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(22 |
) |
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(53 |
) |
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|
130 |
|
|
|
206 |
|
|
|
394 |
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|
|
692 |
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INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST |
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|
8,457 |
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6,036 |
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20,593 |
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|
15,031 |
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Income taxes |
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|
2,769 |
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|
|
2,027 |
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|
7,371 |
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4,972 |
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INCOME BEFORE MINORITY INTEREST |
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|
5,688 |
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|
4,009 |
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|
13,222 |
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|
10,059 |
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Minority interest |
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24 |
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24 |
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NET INCOME |
|
$ |
5,664 |
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|
$ |
4,009 |
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$ |
13,198 |
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$ |
10,059 |
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Net income per share basic |
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$ |
1.05 |
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$ |
0.71 |
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$ |
2.46 |
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$ |
1.77 |
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Net income per share diluted |
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$ |
1.04 |
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$ |
0.70 |
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$ |
2.44 |
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$ |
1.75 |
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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 |
|
|
5,379 |
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|
|
5,638 |
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|
|
5,369 |
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|
|
5,696 |
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|
|
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Weighted average number of shares outstanding diluted |
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|
5,437 |
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|
|
5,688 |
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|
|
5,418 |
|
|
|
5,746 |
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|
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See notes to consolidated financial statements.
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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Thousands of dollars |
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
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|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,198 |
|
|
$ |
10,059 |
|
Adjustments to reconcile net income to net cash provided by operations: |
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Depreciation and amortization |
|
|
5,642 |
|
|
|
5,162 |
|
Deferred income taxes |
|
|
231 |
|
|
|
(656 |
) |
Stock based compensation expense |
|
|
188 |
|
|
|
193 |
|
Net investment in life insurance |
|
|
71 |
|
|
|
72 |
|
Other net |
|
|
88 |
|
|
|
(93 |
) |
Changes in operating assets and liabilities, net of acquisitions: |
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|
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|
|
Accounts receivable |
|
|
(9,998 |
) |
|
|
(9,765 |
) |
Inventories |
|
|
(7,275 |
) |
|
|
(1,158 |
) |
Trade accounts payables and accrued liabilities |
|
|
5,149 |
|
|
|
1,975 |
|
Income taxes |
|
|
1,412 |
|
|
|
2,860 |
|
Other net |
|
|
(635 |
) |
|
|
(765 |
) |
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
8,071 |
|
|
|
7,884 |
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(6,958 |
) |
|
|
(8,463 |
) |
Business acquisitions, net of cash received |
|
|
(8,443 |
) |
|
|
|
|
Proceeds from the sale of property and equipment |
|
|
152 |
|
|
|
378 |
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(15,249 |
) |
|
|
(8,085 |
) |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Increase (decrease) in notes payable to banks |
|
|
(111 |
) |
|
|
1,388 |
|
Proceeds from the issuance of long-term debt |
|
|
1,311 |
|
|
|
3,038 |
|
Payments of long-term debt |
|
|
(1,309 |
) |
|
|
(2,875 |
) |
Dividends paid |
|
|
(3,219 |
) |
|
|
(3,435 |
) |
Excess tax benefits from stock based awards |
|
|
193 |
|
|
|
|
|
Issuance of common shares |
|
|
487 |
|
|
|
102 |
|
Purchase of common shares for treasury |
|
|
(328 |
) |
|
|
(12,141 |
) |
|
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES |
|
|
(2,976 |
) |
|
|
(13,923 |
) |
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents |
|
|
779 |
|
|
|
558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(9,375 |
) |
|
|
(13,566 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
29,949 |
|
|
|
39,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF
PERIOD |
|
$ |
20,574 |
|
|
$ |
26,026 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
5
PREFORMED LINE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Tables in thousands, except per share data
NOTE A BASIS OF PRESENTATION
The accompanying unaudited financial statements of Preformed Line Products Company (the Company)
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. These consolidated financial statements do not include all of the information
and notes required by accounting principles generally accepted in the United States of America for
complete financial statements. Certain amounts in the prior year financial statements have been
adjusted for the retrospective application of Financial Accounting Standards Board (FASB) Staff
Position AUG AIR 1, Accounting for Planned Major Maintenance Activities, and the beginning of
the year retained earnings has been reduced for the cumulative effect of adopting FASB
Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (see Note H). The
preparation of these consolidated financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from these estimates. However, in the opinion of management,
these consolidated financial statements contain all estimates and adjustments required to fairly
present the financial position, results of operations, and cash flows for the interim periods.
Operating results for the nine month period ended September 30, 2007 are not necessarily indicative
of the results to be expected for the year ending December 31, 2007.
The consolidated balance sheet at December 31, 2006 has been derived from the audited consolidated
financial statements, but does not include all of the information and notes required by accounting
principles generally accepted in the United States of America for complete financial statements.
For further information, refer to the consolidated financial statements and notes to consolidated
financial statements included in the Companys Form 10-K/A for
2006 filed on January 4, 2008 with
the Securities and Exchange Commission.
NOTE B OTHER FINANCIAL STATEMENT INFORMATION
Inventories
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Finished goods |
|
$ |
22,395 |
|
|
$ |
17,044 |
|
Work-in-process |
|
|
3,270 |
|
|
|
1,844 |
|
Raw material |
|
|
31,570 |
|
|
|
25,431 |
|
|
|
|
|
|
|
|
|
|
|
57,235 |
|
|
|
44,319 |
|
Excess of current cost over LIFO cost |
|
|
(3,800 |
) |
|
|
(3,904 |
) |
|
|
|
|
|
|
|
|
|
$ |
53,435 |
|
|
$ |
40,415 |
|
|
|
|
|
|
|
|
During 2007, managements comprehensive review of the components of the
Companys Brazil operations excess and obsolescence reserve calculation discovered that the
details of the reserve account included an inappropriate reserve of
$.6 million at December 31,
2006. Based on the timing of the completion of certain aspects of this
review, the Company recorded a $.4 million adjustment in the first
quarter of 2007 and a $.2 million adjustment in the second quarter of
2007 related to the excess and obsolete reserve at December 31,
2006. Management determined that the total year-to-date adjustments
related to Brazils excess and obsolete reserve of $.6 million
were not material, quantitatively or qualitatively, to
prior periods and are not expected to be material to the annual 2007 results of operations.
6
Property and equipment
Major classes of property, plant and equipment are stated at cost and were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
Land and improvements |
|
$ |
9,377 |
|
|
$ |
8,422 |
|
Buildings and improvements |
|
|
46,167 |
|
|
|
41,941 |
|
Machinery and equipment |
|
|
111,839 |
|
|
|
101,339 |
|
Construction in progress |
|
|
6,888 |
|
|
|
2,629 |
|
|
|
|
|
|
|
|
|
|
|
174,271 |
|
|
|
154,331 |
|
Less accumulated depreciation |
|
|
113,820 |
|
|
|
101,521 |
|
|
|
|
|
|
|
|
|
|
$ |
60,451 |
|
|
$ |
52,810 |
|
|
|
|
|
|
|
|
Comprehensive Income
The components of comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended September 30, |
|
|
Nine month periods ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,664 |
|
|
$ |
4,009 |
|
|
$ |
13,198 |
|
|
$ |
10,059 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustments |
|
|
2,521 |
|
|
|
683 |
|
|
|
5,596 |
|
|
|
1,824 |
|
Net actuarial loss |
|
|
(78 |
) |
|
|
|
|
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
8,107 |
|
|
$ |
4,692 |
|
|
$ |
18,716 |
|
|
$ |
11,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantees
|
|
|
|
|
|
|
|
|
|
Product warranty balance at January 1, 2007 |
|
$ |
82 |
|
Additions charged to Cost of products sold |
|
|
145 |
|
Deductions |
|
|
(35 |
) |
|
|
|
|
Product warranty balance at September 30, 2007 |
|
$ |
192 |
|
|
|
|
|
Legal Proceedings
From time to time, the Company may be subject to litigation incidental to its business. The
Company is not a party to any pending legal proceedings that the Company believes would,
individually or in the aggregate, have a material adverse effect on its financial condition,
results of operations or cash flows.
NOTE C PENSION PLANS
Net periodic benefit cost for the Companys domestic plan included the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended September 30, |
|
|
Nine month periods ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
177 |
|
|
$ |
209 |
|
|
$ |
531 |
|
|
$ |
595 |
|
Interest cost |
|
|
235 |
|
|
|
222 |
|
|
|
704 |
|
|
|
676 |
|
Expected return on plan assets |
|
|
(235 |
) |
|
|
(217 |
) |
|
|
(704 |
) |
|
|
(654 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
177 |
|
|
$ |
214 |
|
|
$ |
531 |
|
|
$ |
617 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2007, $.1 million of contributions have been made. The Company presently
anticipates contributing an additional $.2 million to fund its pension plan in 2007 for a total of
$.3 million.
7
NOTE D COMPUTATION OF EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended September 30, |
|
|
Nine month periods ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,664 |
|
|
$ |
4,009 |
|
|
$ |
13,198 |
|
|
$ |
10,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Determination of shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares
outstanding |
|
|
5,379 |
|
|
|
5,638 |
|
|
|
5,369 |
|
|
|
5,696 |
|
Dilutive effect employee stock options |
|
|
58 |
|
|
|
50 |
|
|
|
49 |
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares
outstanding |
|
|
5,437 |
|
|
|
5,688 |
|
|
|
5,418 |
|
|
|
5,746 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.05 |
|
|
$ |
0.71 |
|
|
$ |
2.46 |
|
|
$ |
1.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
1.04 |
|
|
$ |
0.70 |
|
|
$ |
2.44 |
|
|
$ |
1.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE E GOODWILL AND OTHER INTANGIBLES
The Company had performed its impairment test for goodwill pursuant to SFAS No. 142, Goodwill and
Intangible Assets, as of January 2007 and had determined that no adjustment to the carrying value
of goodwill was required. The aggregate amortization expense for other intangibles with finite
lives for each of the three months ended September 30, 2007 and 2006 was $.1 million, and for each
of the nine months ended September 30, 2007 and 2006 was $.2 million. Amortization expense is
estimated to be $.3 million annually for 2007 through 2011.
The following table sets forth the carrying value and accumulated amortization of intangibles,
including the effect of foreign currency translation, as of the periods ended:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2007 |
|
|
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
Intangible assets primarily patents |
|
$ |
5,442 |
|
|
$ |
5,026 |
|
Accumulated amortization |
|
|
(2,726 |
) |
|
|
(2,480 |
) |
|
|
|
|
|
|
|
Total amoritized intangible assets |
|
$ |
2,716 |
|
|
$ |
2,546 |
|
|
|
|
|
|
|
|
The Companys only intangible asset with an indefinite life is goodwill. The Companys additions of
$3.7 million to goodwill are related to the acquisition of Direct Power and Water Corporation (DPW)
in the amount of $2.6 million and the acquisition of Belos SA of $1.2 million (see Note J
Business Combinations for further details).The changes in the carrying amount of goodwill for the
nine month period ended September 30, 2007, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
South Africa |
|
|
All Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007 |
|
$ |
257 |
|
|
$ |
55 |
|
|
$ |
1,854 |
|
|
$ |
2,166 |
|
Additions |
|
|
|
|
|
|
|
|
|
|
3,740 |
|
|
|
3,740 |
|
Curency translation |
|
|
|
|
|
|
1 |
|
|
|
221 |
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007 |
|
$ |
257 |
|
|
$ |
56 |
|
|
$ |
5,815 |
|
|
$ |
6,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE F STOCK OPTIONS
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, 2007 there were 22,000 shares remaining available for issuance 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.
8
There were 20,000 options granted during the nine months ended September 30, 2007. There were no
options granted during the nine months ended September 30, 2006. The fair value for the stock
options granted in 2007 was estimated at the date of grant using the Black-Scholes option-pricing
model with the following weighted average assumptions:
|
|
|
|
|
|
|
2007 |
Risk-free interest rate |
|
|
4.3 |
% |
Dividend yield |
|
|
2.9 |
% |
Expected life (years) |
|
|
6 |
|
Expected volatility |
|
|
37.9 |
% |
Activity in the Companys stock option plan for the nine months ended September 30, 2007 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Weighted |
|
Remaining |
|
|
|
|
|
|
|
|
Average |
|
Contractual |
|
Aggregate |
|
|
Number of |
|
Exercise Price |
|
Term |
|
Intrinsic |
|
|
Shares |
|
per Share |
|
(Years) |
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2007 |
|
|
130,811 |
|
|
$ |
23.43 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
20,000 |
|
|
$ |
37.44 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(27,369 |
) |
|
$ |
21.55 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding (vested and expected to
vest) at September 30, 2007 |
|
|
123,442 |
|
|
$ |
26.11 |
|
|
|
6.7 |
|
|
$ |
3,198 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2007 |
|
|
90,692 |
|
|
$ |
21.98 |
|
|
|
5.3 |
|
|
$ |
2,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weightedaverage grant-date fair value of options granted during 2007 was $11.93. The total
intrinsic value of stock options exercised during the nine months ended September 30, 2007 and 2006
was $.7 million and $.2 million, respectively. Cash received for the exercise of stock options
during 2007 was $.5 million. The total fair value of stock options that vested during the nine
months ended September 30, 2007 and 2006 was $.1 million and $.3 million, respectively.
For the nine months ended September 30, 2007 and 2006, the Company recorded compensation expense
related to the stock options recognized over the requisite service period, reducing income before
taxes and net income by $.2 million. For the nine months ended September 30, 2007 and 2006, the
impact on earnings per share was a reduction of $.03 per share, basic and diluted. The total
compensation cost related to nonvested awards not yet recognized at September 30, 2007 is expected
to be a combined total of $.3 million over a weighted-average period of 2 years.
The excess tax benefits from stock based awards for the nine months ended September 30, 2007 of $.2
million, as reported on the consolidated statements of cash flows in financing activities,
represents the reduction in income taxes otherwise payable during the period, attributable to the
actual gross tax benefits in excess of the expected tax benefits for options exercised in the
current period.
Activity for nonvested stock options for the nine months ended September 30, 2007 was as follows:
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
average |
|
|
|
|
|
|
grant-date |
|
|
Number of |
|
fair value |
|
|
Shares |
|
per share |
|
|
|
|
|
|
|
|
|
Nonvested at January 1, 2007 |
|
|
28,000 |
|
|
$ |
10.61 |
|
Granted |
|
|
20,000 |
|
|
$ |
11.93 |
|
Vested |
|
|
(15,250 |
) |
|
$ |
9.32 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at September 30, 2007 |
|
|
32,750 |
|
|
$ |
11.91 |
|
|
|
|
|
|
|
|
|
|
NOTE G RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement of Financial Account Standards (SFAS) No. 157, Fair
Value Measurements. This standard defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about fair value
measurements. This standard does not require new fair value measurements; however the application
of this standard may change current practice for an entity. This standard is effective for
financial statements issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal periods. The Company is evaluating the impact this standard will have on its
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment to FASB No. 115. This standard permits entities to
measure certain financial assets and liabilities at fair value. The fair value option established
by this standard permits all entities to choose to measure eligible items at fair value at
specified election dates. A business entity shall report unrealized gains and losses on items for
which the fair values option has been elected at each subsequent reporting period. The fair value
option election is irrevocable, unless a new election date occurs. SFAS No. 159 establishes
presentation and disclosure requirements to help financial statement users understand the effect of
the entitys election on earnings, but does not eliminate disclosure requirements of other
accounting standards. Assets and liabilities that are measured at fair value must be displayed on
the face of the balance sheet. This standard is effective as of the beginning of the first fiscal
year that begins after November 15, 2007. The Company is evaluating the impact this standard will
have on its consolidated financial statements.
NOTE H NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
taxes an interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN 48). This
interpretation prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. Under FIN 48, the impact of an uncertain income tax position on the income tax return must
be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the
relevant taxing authority. An uncertain tax position will not be recognized if it has less than a
50% likelihood of being sustained. This interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
This interpretation is effective for the Company starting January 1, 2007.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation
of FIN 48, the Company recognized a $.8 million increase in the liability for unrecognized tax
benefits which was accounted for as a reduction in retained earnings. The total amount of
unrecognized tax benefits including the accrual for interest and penalties, as of the date of
adoption was $1.8 million, all of which would affect the effective tax rate if recognized.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in
income taxes. The Company had $.1 million accrued for the payment of interest and penalties at
December 31, 2006. Upon adoption of FIN 48 on January 1, 2007, the Company increased its accrual
for interest and penalties to $.2 million.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With
few exceptions, the Company is no longer subject to U.S. federal, state, local, or foreign
examinations by tax authorities for years before 2004.
10
The Company does not expect that the unrecognized tax benefit will change significantly within the
next twelve months.
In September 2006, the FASB issued FASB Staff Position AUG AIR-1, Accounting for Planned Major
Maintenance Activities. This staff position amends certain provisions in the AICPA Industry Audit
Guide, Audits of Airlines (Airline Guide), and APB No. 28, Interim Financial Reporting. This staff
position prohibits the use of the accrue-in-advance method of accounting for planned major
maintenance activities in annual and interim financial reporting periods. The Company adopted the
direct expense method effective January 1, 2007, and has retrospectively applied this new
accounting principle to prior periods.
The cumulative effect of the retrospective application of the new accounting principle to the
carrying value of assets and liabilities and the offsetting adjustment to opening January 1, 2006
retained earnings was a decrease in deferred tax assets of $.1 million, a decrease in accrued
liabilities of $.3 million and an increase in beginning retained earnings of $.2 million. The
effect on the results of operations for the nine months ended September 30, 2006 was an increase to
net income of $31 thousand in the PLP-USA segment.
NOTE I SEGMENT INFORMATION
The following table presents a summary of the Companys reportable segments for the three month
periods and nine month periods ended September 30, 2007 and 2006. Prior year amounts have been
restated to reflect the current seven reportable segments. Financial results for the PLP-USA
segment include the elimination of all segments intercompany profits in inventory.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended September 30, |
|
|
Nine month periods ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
24,995 |
|
|
$ |
23,805 |
|
|
$ |
79,001 |
|
|
$ |
69,804 |
|
SMP |
|
|
5,686 |
|
|
|
5,363 |
|
|
|
15,919 |
|
|
|
15,919 |
|
Australia |
|
|
4,800 |
|
|
|
5,492 |
|
|
|
12,995 |
|
|
|
11,326 |
|
Brazil |
|
|
7,396 |
|
|
|
4,396 |
|
|
|
18,738 |
|
|
|
16,079 |
|
South Africa |
|
|
2,562 |
|
|
|
2,140 |
|
|
|
5,832 |
|
|
|
6,654 |
|
Canada |
|
|
2,782 |
|
|
|
2,536 |
|
|
|
7,721 |
|
|
|
7,034 |
|
All Other |
|
|
17,878 |
|
|
|
12,707 |
|
|
|
46,177 |
|
|
|
38,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
66,099 |
|
|
$ |
56,439 |
|
|
$ |
186,383 |
|
|
$ |
165,172 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
1,472 |
|
|
$ |
1,333 |
|
|
$ |
4,536 |
|
|
$ |
4,119 |
|
SMP |
|
|
47 |
|
|
|
103 |
|
|
|
157 |
|
|
|
400 |
|
Australia |
|
|
15 |
|
|
|
53 |
|
|
|
98 |
|
|
|
209 |
|
Brazil |
|
|
335 |
|
|
|
245 |
|
|
|
1,262 |
|
|
|
834 |
|
South Africa |
|
|
205 |
|
|
|
192 |
|
|
|
637 |
|
|
|
303 |
|
Canada |
|
|
21 |
|
|
|
43 |
|
|
|
60 |
|
|
|
338 |
|
All Other |
|
|
2,423 |
|
|
|
1,362 |
|
|
|
7,091 |
|
|
|
4,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intersegment sales |
|
$ |
4,518 |
|
|
$ |
3,331 |
|
|
$ |
13,841 |
|
|
$ |
10,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended September 30, |
|
|
Nine month periods ended September 30, |
|
|
|
2007 |
|
|
2006 |
|
|
2007 |
|
|
2006 |
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
125 |
|
|
$ |
245 |
|
|
$ |
443 |
|
|
$ |
725 |
|
SMP |
|
|
15 |
|
|
|
15 |
|
|
|
48 |
|
|
|
24 |
|
Australia |
|
|
|
|
|
|
3 |
|
|
|
8 |
|
|
|
11 |
|
Brazil |
|
|
58 |
|
|
|
39 |
|
|
|
98 |
|
|
|
174 |
|
South Africa |
|
|
19 |
|
|
|
13 |
|
|
|
59 |
|
|
|
26 |
|
Canada |
|
|
21 |
|
|
|
48 |
|
|
|
67 |
|
|
|
117 |
|
All Other |
|
|
41 |
|
|
|
26 |
|
|
|
130 |
|
|
|
67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
279 |
|
|
$ |
389 |
|
|
$ |
853 |
|
|
$ |
1,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
(15 |
) |
|
$ |
(6 |
) |
|
$ |
(30 |
) |
|
$ |
(23 |
) |
SMP |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
(22 |
) |
|
|
(30 |
) |
|
|
(58 |
) |
|
|
(89 |
) |
Brazil |
|
|
(1 |
) |
|
|
|
|
|
|
(19 |
) |
|
|
(2 |
) |
South Africa |
|
|
|
|
|
|
(2 |
) |
|
|
|
|
|
|
(2 |
) |
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
(102 |
) |
|
|
(126 |
) |
|
|
(330 |
) |
|
|
(283 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
(140 |
) |
|
$ |
(164 |
) |
|
$ |
(437 |
) |
|
$ |
(399 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
1,255 |
|
|
$ |
899 |
|
|
$ |
3,790 |
|
|
$ |
1,852 |
|
SMP |
|
|
64 |
|
|
|
57 |
|
|
|
131 |
|
|
|
182 |
|
Australia |
|
|
122 |
|
|
|
207 |
|
|
|
194 |
|
|
|
241 |
|
Brazil |
|
|
304 |
|
|
|
50 |
|
|
|
765 |
|
|
|
494 |
|
South Africa |
|
|
205 |
|
|
|
164 |
|
|
|
460 |
|
|
|
539 |
|
Canada |
|
|
259 |
|
|
|
261 |
|
|
|
653 |
|
|
|
671 |
|
All Other |
|
|
560 |
|
|
|
389 |
|
|
|
1,378 |
|
|
|
993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income taxes |
|
$ |
2,769 |
|
|
$ |
2,027 |
|
|
$ |
7,371 |
|
|
$ |
4,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
2,272 |
|
|
$ |
1,535 |
|
|
$ |
5,651 |
|
|
$ |
3,419 |
|
SMP |
|
|
96 |
|
|
|
85 |
|
|
|
143 |
|
|
|
281 |
|
Australia |
|
|
246 |
|
|
|
460 |
|
|
|
412 |
|
|
|
537 |
|
Brazil |
|
|
762 |
|
|
|
163 |
|
|
|
1,607 |
|
|
|
1,090 |
|
South Africa |
|
|
369 |
|
|
|
383 |
|
|
|
992 |
|
|
|
1,258 |
|
Canada |
|
|
448 |
|
|
|
452 |
|
|
|
1,128 |
|
|
|
1,160 |
|
All Other |
|
|
1,471 |
|
|
|
931 |
|
|
|
3,265 |
|
|
|
2,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net income |
|
$ |
5,664 |
|
|
$ |
4,009 |
|
|
$ |
13,198 |
|
|
$ |
10,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Identifiable assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
|
|
|
|
|
|
|
|
$ |
72,668 |
|
|
$ |
73,005 |
|
SMP |
|
|
|
|
|
|
|
|
|
|
13,257 |
|
|
|
12,809 |
|
Brazil |
|
|
|
|
|
|
|
|
|
|
18,118 |
|
|
|
12,161 |
|
South Africa |
|
|
|
|
|
|
|
|
|
|
5,268 |
|
|
|
4,103 |
|
Canada |
|
|
|
|
|
|
|
|
|
|
7,925 |
|
|
|
6,637 |
|
All Other |
|
|
|
|
|
|
|
|
|
|
85,030 |
|
|
|
62,137 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
$ |
202,266 |
|
|
$ |
170,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
The identifiable assets for the Companys Australia segment as of September 30, 2007 and December
31, 2006 have been included in All Other because the information is not separately maintained.
NOTE J BUSINESS COMBINATIONS
On March 22, 2007, the Company entered into and closed a Stock Purchase Agreement (Agreement) for
$3 million, subject to a holdback of $.4 million, acquiring all of the issued and outstanding
shares of Direct Power and Water Corporation (DPW), a New Mexico company that designs and installs
solar systems and manufactures mounting hardware, battery, and equipment enclosures. The hold back
of $.4 million is to be held as security for any liability of the sellers pursuant to the indemnity
obligations set forth in the Agreement. Depending on the post-closing performance of DPW, certain
earn out consideration may be paid for the three years following the closing.
The Companys consolidated balance sheet as of September 30, 2007 reflects the acquisition of DPW
under the purchase method of accounting. The Company recorded various assets acquired and
liabilities assumed, primarily the working capital accounts of DPW. The allocation of the purchase
price has not yet been finalized as the valuation of inventories, long lived assets and intangibles
is not yet completed. The purchase price allocation remains subject to revision.
The preliminary value of assets acquired and liabilities assumed in connection with the DPW
acquisition as of September 30, 2007 is as follows:
|
|
|
|
|
|
|
Preliminary Value |
|
|
|
of Net Assets |
|
|
|
Acquired |
|
|
|
|
|
|
Cash |
|
$ |
75 |
|
Accounts receivable |
|
|
475 |
|
Inventories |
|
|
693 |
|
Prepaids and other |
|
|
5 |
|
Property and equipment |
|
|
223 |
|
Goodwill |
|
|
2,569 |
|
|
|
|
|
Total assets |
|
|
4,040 |
|
|
|
|
|
|
Notes payable to banks |
|
|
244 |
|
Trade accounts payable |
|
|
492 |
|
Accrued compensation and amounts withheld from employees |
|
|
31 |
|
Accrued expenses and other liabilities |
|
|
20 |
|
Deferred income taxes |
|
|
132 |
|
Income taxes payable |
|
|
121 |
|
|
|
|
|
Total liabilities |
|
|
1,040 |
|
|
|
|
|
Increase in net assets from acquisition |
|
$ |
3,000 |
|
|
|
|
|
Annualized unaudited 2006 net revenues of DPW were approximately $7.1 million. The consolidated
financial statements for the three month and nine month periods ended September 30, 2007 only
include results of DPW from the acquisition date. The reported results of operations are not
materially different from the proforma amounts that would include the impact of the acquisition
from the beginning of the periods presented. DPW is included in the All Other category for segment
disclosures.
On April 22, 2007, the Company entered into a Stock Purchase Agreement for $6 million to acquire
approximately 83.74% of the issued and outstanding shares of Belos SA, a Polish company that
manufacturers and supplies fittings for low, medium and high voltage power networks in its domestic
and export markets. The agreement was closed September 6, 2007.
13
The Companys consolidated balance sheet as of September 30, 2007 reflects the acquisition of Belos
SA under the purchase method of accounting. The Company recorded various assets acquired and
liabilities assumed of Belos SA. The allocation of the purchase price has not yet been finalized
as the valuation of inventories, long lived assets and intangibles is not yet completed. The
purchase price allocation remains subject to revision but it is most likely that the value of
inventory, property and equipment will increase and goodwill as presently recorded will decrease.
The preliminary value of assets acquired and liabilities assumed in connection with the Belos SA
acquisition as of September 30, 2007 is as follows:
|
|
|
|
|
|
|
Preliminary Value |
|
|
|
of Net Assets |
|
|
|
Acquired |
|
Cash |
|
$ |
103 |
|
Accounts receivable |
|
|
2,975 |
|
Inventories |
|
|
2,811 |
|
Prepaids and other |
|
|
149 |
|
Property and equipment |
|
|
3,050 |
|
Other long term assets |
|
|
83 |
|
Goodwill |
|
|
1,171 |
|
|
|
|
|
Total assets |
|
|
10,342 |
|
|
|
|
|
|
Notes payable to bank |
|
|
150 |
|
Trade accounts payable |
|
|
1,863 |
|
Accrued compensation and amounts withheld
from employees |
|
|
396 |
|
Accrued expenses and other liabilities |
|
|
293 |
|
Other long term liabilities |
|
|
622 |
|
Deferred income taxes |
|
|
35 |
|
Income taxes payable |
|
|
45 |
|
Minority interest |
|
|
938 |
|
|
|
|
|
Total liabilities |
|
|
4,342 |
|
|
|
|
|
Increase in net assets from acquisition |
|
$ |
6,000 |
|
|
|
|
|
Annualized unaudited 2006 net revenues of Belos SA were approximately $14 million. The
consolidated financial statements for the three month and nine month periods ended September 30,
2007 only include results of Belos SA from the acquisition date. The reported results of
operations are not materially different from the proforma amounts that would include the impact of
the acquisition from the beginning of the periods presented. Belos SA is included in the All Other
category for segment disclosures.
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
OVERVIEW
Our consolidated financial results for the quarter ended September 30, 2007 incorporated the
financial results of our solar energy operation (Direct Power and Water Corporation) acquired on
March 22, 2007 as well as the results of Belos SA acquired on September 6, 2007. The results of
both these operations are included in our All Other segment.
Our sales for the quarter ended September 30, 2007 increased 17% and gross profit increased 21%
compared to the same period in 2006. Net sales increased in all of our segments with the exception
of Australia. Net sales increased primarily as a result of incorporating the sales from our newly
acquired solar energy operation and Belos SA, the favorable impact of the conversion of local
currencies to the U.S. dollar and improved sales into PLP-USA energy and telecommunications
markets. The 21% increase in gross profit was partially offset by a 12% increase in costs and
expenses resulting in an increase in net income of 41%, or $.35 per diluted share, when compared to
the quarter ended
14
September 30, 2006.
For the nine months ended September 30, 2007, our net sales increased 13% and gross profit
increased 17% compared to the same period in 2006. The increase in gross profit was partially
offset by a 9% increase in costs and expenses resulting in an increase in net income of 31%, or
$.69 per diluted share, when compared to the same period in 2006.
THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2006
For the three months ended September 30, 2007, net sales were $66.1 million, an increase of $9.7
million, or 17%, from the same period in 2006 as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended September 30, |
|
thousands of dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
24,995 |
|
|
$ |
23,805 |
|
|
$ |
1,190 |
|
|
|
|
|
|
$ |
1,190 |
|
|
|
5 |
% |
SMP |
|
|
5,686 |
|
|
|
5,363 |
|
|
|
323 |
|
|
|
|
|
|
|
323 |
|
|
|
6 |
|
Australia |
|
|
4,800 |
|
|
|
5,492 |
|
|
|
(692 |
) |
|
|
502 |
|
|
|
(1,194 |
) |
|
|
(22 |
) |
Brazil |
|
|
7,396 |
|
|
|
4,396 |
|
|
|
3,000 |
|
|
|
857 |
|
|
|
2,143 |
|
|
|
49 |
|
South Africa |
|
|
2,562 |
|
|
|
2,140 |
|
|
|
422 |
|
|
|
16 |
|
|
|
406 |
|
|
|
19 |
|
Canada |
|
|
2,782 |
|
|
|
2,536 |
|
|
|
246 |
|
|
|
179 |
|
|
|
67 |
|
|
|
3 |
|
All Other |
|
|
17,878 |
|
|
|
12,707 |
|
|
|
5,171 |
|
|
|
1,028 |
|
|
|
4,143 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
66,099 |
|
|
$ |
56,439 |
|
|
$ |
9,660 |
|
|
$ |
2,582 |
|
|
$ |
7,078 |
|
|
|
13 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in PLP-USA net sales of $1.2 million, or 5%, was primarily due to increases in
price and mix in our energy markets and telecommunications markets. We are beginning to see sales
slowing in the distribution sector of the domestic energy market as it relates to new home
construction. In the domestic telecommunications markets, we believe many of the large carriers are
placing greater emphasis on building out fiber networks rather than maintaining the existing copper
based infrastructure. Our SMP net sales increased $.3 million, or 6%, due to increased sales
volume. Foreign net sales were favorably impacted by $2.6 million when local currency was
converted to U.S. dollars as a result of the weaker U.S. dollar compared to certain currencies when
compared to the third quarter 2006 conversion rates. Beginning in 2006 we experienced an increase
in demand in many of our foreign energy markets and anticipate the strong level of demand to
continue for the remainder of 2007 and into 2008. We continue to confront aggressive pricing
pressures from our competition in our foreign energy markets. Excluding the effect of currency
conversion, Australia net sales decreased $1.2 million, or 22%, primarily due to a volume decrease
in energy sales. Brazil net sales increased $2.1 million, or 49%, and South Africa net sales
increased $.4 million, or 19%, primarily as a result of increased sales volume. Excluding the
effect of currency conversion, Canada net sales increased $.1 million compared to the same period
in 2006. All Other net sales of $17.9 million increased $5.2 million, or 41%, compared to 2006
primarily as a result of including the $3.8 million of net sales from the acquisition of our solar
energy operation on March 22, 2007 and our acquisition of Belos SA on September 6, 2007 and a $1
million favorable impact when certain local currencies were converted to U.S. dollars when compared
to the third quarter 2006 conversion rates.
Gross profit of $22.8 million for the three months ended September 30, 2007 increased $4 million,
or 21%, compared to the same period in 2006. PLP-USA gross profit of $9.3 million increased $1.6
million, or 21%, compared to 2006. PLP-USA gross profit increased $.4 million due to higher net
sales and $1.2 million due to lower per unit manufacturing cost as a result of higher production
volumes. SMP gross profit of $1.2 million decreased $.1 million due primarily to higher material
costs. Foreign gross profit was favorably impacted by $.9 million when local currency was
converted to U.S. dollars when compared to the third quarter 2006 conversion rates. Australia
gross profit of $1.5 million decreased $.3 million primarily as a result of a $.4 million decrease
in gross profit due to lower sales partially offset by the favorable effect of currency conversion.
Brazil gross profit increased $1 million primarily as a result of a $.7 million increase in gross
profit on increased sales and a $.3 million favorable effect of currency conversion rates
15
when compared to the same period in 2006. South Africa gross profit of $1 million increased $.1
million primarily due to an increase in gross profit on increased sales. Canada gross profit of
$1.3 million increased $.1 million primarily due to the increase in gross profit on higher net
sales. All Other gross profit of $6.1 million increased $1.6 million primarily as a result of a
$.4 million favorable impact of converting certain foreign currency into U.S. dollars conversion
rates compared to the same period in 2006 and a $1.4 million increase in gross profit on increased
net sales. We continue to believe the costs of some raw material are beginning to stabilize and we
anticipate a slower overall rate of cost increase for raw materials during the remainder of 2007.
Costs and expenses of $14.8 million for the three months ended September 30, 2007 increased $1.6
million, or 12%, compared to the previous year as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
thousands of dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
7,032 |
|
|
$ |
6,551 |
|
|
$ |
481 |
|
|
|
|
|
|
$ |
481 |
|
|
|
7 |
% |
SMP |
|
|
1,430 |
|
|
|
1,545 |
|
|
|
(115 |
) |
|
|
|
|
|
|
(115 |
) |
|
|
(7 |
) |
Australia |
|
|
925 |
|
|
|
888 |
|
|
|
37 |
|
|
|
98 |
|
|
|
(61 |
) |
|
|
(7 |
) |
Brazil |
|
|
1,284 |
|
|
|
1,145 |
|
|
|
139 |
|
|
|
142 |
|
|
|
(3 |
) |
|
|
|
|
South Africa |
|
|
373 |
|
|
|
307 |
|
|
|
66 |
|
|
|
2 |
|
|
|
64 |
|
|
|
21 |
|
Canada |
|
|
441 |
|
|
|
342 |
|
|
|
99 |
|
|
|
28 |
|
|
|
71 |
|
|
|
21 |
|
All Other |
|
|
3,315 |
|
|
|
2,441 |
|
|
|
874 |
|
|
|
213 |
|
|
|
661 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
14,800 |
|
|
$ |
13,219 |
|
|
$ |
1,581 |
|
|
$ |
483 |
|
|
$ |
1,098 |
|
|
|
8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in PLP-USA costs and expenses was primarily due to a $.2 million increase in
commission expense on increased sales, a $.4 million increase in personnel related expenses and a
$.4 million increase in bad debt expenses as a result of recoveries made in 2006 which had
previously been written off. These increases were partially offset by a $.2 million decrease in
third party product testing, a $.1 million decrease in sales promotion and advertising expense and
a $.2 million decrease in other operating expenses related to the write-down of certain assets in
2006 associated with certain products being removed from the market. SMP costs and expenses
decreased $.1 million primarily due to a reduction in personnel expense. The change in costs and
expenses at Australia, Brazil, South Africa and Canada excluding the impact of the currency
conversion rate were less than $.1 million. All Other costs and expenses increased $.7 million net
of the unfavorable impact of the currency conversion rate change primarily due to a $.4 million
increase from the inclusion of our solar energy operations and Belos SA in our consolidated
financial statements and a $.2 million increase in personnel expenses at all other operations.
Royalty income net for the quarter ended September 30, 2007 of $.3 million increased $.1 million
compared to the same period in 2006 due to increased data-communication royalty income for SMP.
Operating income of $8.3 million for the quarter ended September 30, 2007 increased $2.5 million,
or 43%, compared to the same period in 2006. This increase was a result of the increase in gross
profit of $4 million partially offset by the increase in costs and expenses of $1.5 million.
PLP-USA operating income of $3.4 million increased $1.2 million due to the increase in gross profit
of $1.6 million and a $.1 million increase in intercompany royalty income partially offset by the
$.5 million increase in costs and expenses. SMP operating income remained relatively flat compared
to the same period in 2006 as the decrease in costs and expenses and the increase in royalty income
offset the decrease in gross profit. Australia operating profit decreased $.3 million as a result
of a decrease in gross profit. Brazil operating income increased $.8 million as a result of the $1
million increase in gross profit partially offset by a $.2 million increase in costs and expenses
and intercompany royalty expense. South Africa and Canada operating income remained relatively
flat compared to the same period in 2006. All Other operating income increased $.7 million
primarily as a result of the $1.6 million increase in gross profit partially offset by a $.9
million increase in costs and expenses and intercompany royalty expense.
16
Other income of $.1 million for the three months ended September 30, 2007 decreased $.1 million as
a result of a decrease in interest income net of interest expense.
Income taxes for the three months ended September 30, 2007 of $2.8 million were $.8 million higher
than the same period in 2006 as a result of $2.4 million of additional income before tax. The
effective tax rate for the three months ended September 30, 2007 was 33% compared to 34% in 2006.
The effective tax rate for three months ended September 30, 2007 is lower than the statutory
federal rate of 34% primarily due to the additional tax benefits related to the reversal of
uncertain tax positions as a result of the expiration of certain statutes of limitations.
As a result of the preceding items, net income for the three month period September 30, 2007 was
$5.7 million, or $1.04 per diluted share, compared to net income of $4 million, or $.70 per diluted
share for the same period in 2006. PLP-USA net income of $2.3 million increased $.7 million
compared to the same period in 2006 as a result of a $1.2 million increase in operating income
partially offset by a $.1 million decrease in interest income and a $.4 million increase in income
taxes. SMP net income of $.1 million, South Africa net income of $.4 million and Canada net income
of $.4 million remained relative flat compared to same period in 2006. Australia net income of $.2
million decreased $.2 million compared to the same period in 2006 primarily due to a $.3 million
decrease in operating income partially offset by a $.1 million decrease in income taxes. Brazil
net income of $.8 million increased $.6 million compared to the same period in 2006 as a result of
a $.8 million increase in operating income partially offset by an increase in income taxes. All
Other net income of $1.5 million increased $.5 million compared to the same period in 2006 as a
result of a $.7 million increase in operating income partially offset by a increase in income
taxes.
NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2006
For the nine months ended September 30, 2007, net sales were $186.4 million, an increase of $21.2
million, or 13%, from the same period in 2006 as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine month periods ended September 30, |
|
thousands of dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
79,001 |
|
|
$ |
69,804 |
|
|
$ |
9,197 |
|
|
|
|
|
|
$ |
9,197 |
|
|
|
13 |
% |
SMP |
|
|
15,919 |
|
|
|
15,919 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
12,995 |
|
|
|
11,326 |
|
|
|
1,669 |
|
|
|
1,155 |
|
|
|
514 |
|
|
|
5 |
|
Brazil |
|
|
18,738 |
|
|
|
16,079 |
|
|
|
2,659 |
|
|
|
1,619 |
|
|
|
1,040 |
|
|
|
6 |
|
South Africa |
|
|
5,832 |
|
|
|
6,654 |
|
|
|
(822 |
) |
|
|
(439 |
) |
|
|
(383 |
) |
|
|
(6 |
) |
Canada |
|
|
7,721 |
|
|
|
7,034 |
|
|
|
687 |
|
|
|
202 |
|
|
|
485 |
|
|
|
7 |
|
All Other |
|
|
46,177 |
|
|
|
38,356 |
|
|
|
7,821 |
|
|
|
2,935 |
|
|
|
4,886 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
186,383 |
|
|
$ |
165,172 |
|
|
$ |
21,211 |
|
|
$ |
5,472 |
|
|
$ |
15,739 |
|
|
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA net sales of $79 million increased $9.2 million, or 13%. The increase in PLP-USA sales for
the nine month period ended September 30, 2007 is mostly due to increased volume compared to 2006.
Sales in our energy markets increased 24% and sales in our telecommunications markets increased 8%.
SMP net sales of $15.9 million were relatively flat compared to 2006. Foreign net sales were
favorably impacted by $5.5 million when local currency was converted to U.S. dollars as a result of
the weaker U.S. dollar compared to certain currencies when compared to the 2006 conversion rates
for the same period. Australia net sales of $13 million increased $.5 million on increased sales
volume and were favorably impacted by $1.2 million due to the change in conversion rates compared
to the same period in 2006. Brazil net sales of $18.7 million increased $2.7 million primarily
due to a $1.1 million increase in sales volume and $1.6 million favorable impact due to the change
in conversion rates compared to the same period in 2006. South Africa net sales of $5.8 million
declined $.8 million as a result of a $.4 million decrease in sales volume and a $.4 million
unfavorable impact due to the change in conversion rates compared to the same period in 2006.
17
Canada net sales of $7.7 million increased $.7 million compared to the same period in 2006 on
increased volume of $.5 million and a $.2 million favorable impact due to the change in conversion
rates compared to the same period in 2006. All Other net sales increased $7.8 primarily as a result
of a $2.9 million favorable impact due to the change in conversion rates compared to the same
period in 2006 when certain currencies were converted to U.S. dollars. Excluding the effect of
currency conversion, All Other net sales increased $4.9 million compared to the same period in 2006
due to the inclusion of the $5.3 million in sales from our solar energy operation and from Belos
S.A. partially offset by $.4 million lower volume in our energy markets at all other operating
locations.
Gross profit of $62.8 million for the nine months ended September 30, 2007 was an increase of $9.1
million, or 17%, compared to last year. PLP-USA gross profit increased $6 million, or 27%,
compared to the same period in 2006. PLP-USA gross profit increased $2.9 million due to higher net
sales and $3.1 million due to lower per unit manufacturing cost as a result of higher production
volumes. SMP gross profit decreased $1.1 million, or 27%, primarily due to sales mix and increased
material costs. Australia gross profit increased $.1 million primarily as a result of a $.2
million increase in gross profit on increased sales and a $.3 million favorable impact due to the
change in the currency conversion rate compared to the same period in 2006 partially offset by a
$.4 million increase in material cost and manufacturing expenses. Brazil gross profit increased
$1.1 million primarily as a result of a $.3 million increase in gross profit on increased sales, a
$.5 million favorable impact due to the currency conversion rate compared to the same period in
2006 and a $.6 million total year-to-date 2007 inventory adjustment partially offset by increased manufacturing
expenses. During 2007, managements comprehensive review of the components of the Companys Brazil
operations excess and obsolescence reserve calculation discovered that the details of the reserve
account included an inappropriate reserve of $.6 million at December 31, 2006.
Based on the timing of the completion of certain aspects of the review, the company recorded a $.4 million
adjustment in the first quarter of 2007 and an additional adjustment of $.2 million in the second quarter of 2007 related to the excess and obsolete reserve.
Management determined that the
total year-to-date adjustments related to Brazils excess and obsolete reserve of $.6 million were not material,
quantitatively or qualitatively, to prior periods
and are not
expected to be material to the annual 2007 results of operations. South Africa gross profit
decreased $.5 million primarily as a result of a $.2 million decrease in gross profit on lower net
sales, a $.2 million unfavorable impact due to the change in the currency conversion rate compared
to the same period in 2006 and a $.1 million increase in manufacturing expenses. Canada gross
profit increased $.2 million primarily due to the increase in net sales. All Other gross profit
increased $3.1 million primarily as a result of a $1 million favorable impact due to the change in
conversion rates compared to the same period in 2006 when certain currencies were converted to U.S.
dollars, a $1.7 million increase due to increased sales and $.4 million improvement in margin due
to product mix and increased production volumes.
Costs and expenses of $44 million for the nine months ended September 30, 2007 increased $3.7
million, or 9%, compared to the previous year as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
thousands of dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
|
2007 |
|
|
2006 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
22,179 |
|
|
$ |
20,435 |
|
|
$ |
1,744 |
|
|
|
|
|
|
$ |
1,744 |
|
|
|
9 |
% |
SMP |
|
|
4,219 |
|
|
|
4,587 |
|
|
|
(368 |
) |
|
|
|
|
|
|
(368 |
) |
|
|
(8 |
) |
Australia |
|
|
2,698 |
|
|
|
2,431 |
|
|
|
267 |
|
|
|
244 |
|
|
|
23 |
|
|
|
1 |
|
Brazil |
|
|
3,293 |
|
|
|
3,101 |
|
|
|
192 |
|
|
|
273 |
|
|
|
(81 |
) |
|
|
(3 |
) |
South Africa |
|
|
931 |
|
|
|
966 |
|
|
|
(35 |
) |
|
|
(75 |
) |
|
|
40 |
|
|
|
4 |
|
Canada |
|
|
1,244 |
|
|
|
1,044 |
|
|
|
200 |
|
|
|
31 |
|
|
|
169 |
|
|
|
16 |
|
All Other |
|
|
9,476 |
|
|
|
7,780 |
|
|
|
1,696 |
|
|
|
620 |
|
|
|
1,076 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
44,040 |
|
|
$ |
40,344 |
|
|
$ |
3,696 |
|
|
$ |
1,093 |
|
|
$ |
2,603 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in PLP-USA costs and expenses was primarily due to a $.6 million increase in
commission expense on increased sales, a $.8 million increase in personnel related expenses, a $.2
million increase in consulting and professional fees, $.2 million as a result of a gain on the sale
of property in the second quarter of 2006 and a $.1 million increase in bad debt expense partially
offset by a $.2 million reduction in other operating expense related to the a write-down of certain
assets in 2006. SMP costs and expenses of $4.2 million for the nine months ended September
18
30, 2007, decreased $.4 million, or 8%, compared to the same period in 2006 primarily due to a $.1
million decrease in commissions and a $.3 million decrease in personnel related expenses. Canada
costs and expenses of $1.2 million for the nine months ended September 30, 2007, increased $.2
million, or 19%, compared to the same period in 2006 primarily due an increase in marketing related
expenses. Costs and expenses were unfavorably impacted by $1.1 million when local currency was
converted to U.S. dollars as a result of the weaker U.S. dollar compared to certain currencies when
compared to the 2006 conversion rates for the same period. Excluding the effects of the change in
the currency exchange rate compared to 2006, the change in Australia, Brazil and South Africa costs
and expenses was insignificant. All Other costs and expenses for the nine months ended September
30, 2007 increased $1.7 million from the same period in 2006 primarily due to the $.7 million
increase in costs and expenses related to our solar energy operation and to Belos SA, the $.6
million unfavorable impact due to the change in conversion rates compared to the same period in
2006 when certain currencies were converted to U.S. dollars and a $.4 million increase in personnel
related costs at all other operations.
Royalty income net for the nine month period ended September 30, 2007 of $1.5 million increased
$.5 million compared to 2006 due to a one-time $.4 million settlement with a data communication
licensee in the second quarter of 2007 and a $.1 million increase in data communication royalties
in the third quarter.
Operating income of $20.2 million for the nine months ended September 30, 2007 increased $5.9
million, or 41%, compared to the same period in 2006. This increase was primarily a result of an
increase in PLP-USA operating income of $4.4 million, a $1.4 million increase in All Other
operating income, and a $.9 million increase in operating income at Brazil partially offset by a
$.4 million decrease in operating income at South Africa and a $.2 million decrease in operating
income from SMP and Australia.
Other income of $.4 million for the nine months ended September 30, 2007 decreased $.3 million as a
result of a $.3 million decrease in interest income.
Income taxes for the nine months ended September 30, 2007 of $7.4 million were $2.4 million higher
than the same period in 2006 primarily due to $5.6 million of additional income before tax. The
effective tax rate for the nine months ended September 30, 2007 was 36% compared to 33% in 2006.
The effective tax rate for 2007 is higher than the statutory rate of 34% primarily due to an
increase in income taxed at higher statutory rates.
As a result of the preceding items, net income for the nine months ended September 30, 2007 was
$13.2 million, or $2.44 per diluted share, compared to net income of $10.1 million, or $1.75 per
diluted share, for the same period in 2006. PLP-USA net income of $5.7 million increased $2.2
million compared to the same period in 2006 due to a $4.4 million increase in operating income
partially offset by a $.3 million decrease in interest income and a $1.9 million increase in income
taxes. SMP net income of $.2 million decreased $.1 million compared to the same period in 2006 as
a result of a $.2 million decrease in operating income partially offset by lower income taxes.
Australia net income of $.4 million decreased $.1 million when compared to the same period in 2006
due to a $.2 million decrease in operating income partially offset by lower taxes. Brazil net
income of $1.6 million increased $.5 million when compared to the same period in 2006 as a result
of a$.9 million increase in operating income partially offset by a $.1 million decrease in interest
income and a $.3 million increase in income taxes. South Africa net income of $1 million decreased
$.3 million compared to the same period in 2006 as a result of a $.4 million decrease in operating
income partially offset by lower income taxes. Canada net income of $1.1 million remained
relatively flat compared to the same period in 2006. All Other income of $3.3 million increased $1
million compared to the same period in 2006 due to a $1.3 million increase in operating income
partially offset by a $.4 million increase in income taxes.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $8.1 million for the nine months ended September 30,
2007 due primarily to $13.2 million of net income and $6.2 million in non cash items including
depreciation partially offset by an $11.3 million increase in operating assets (net of operating
liabilities) to support the increase in sales. The major investing and financing uses of cash were
capital expenditures of $7 million, a cash outlay of $8.4 million for two business acquisitions and
$3.2 million in dividend payments. Consequently cash decreased $9.4 million for the nine months
ended September 30, 2007.
Net cash used for investing activities of $15.2 million represents an increase of $7.2 million when
compared to the cash
19
used for investing activities in 2006. In March 2007, we acquired all of the issued and
outstanding shares of Direct Power and Water Corporation for an initial cash payment of $2.6
million. In September 2007, we acquired 83.74% of the issued and outstanding shares of Belos SA
for an initial cash payment of $6 million. Capital expenditures decreased $1.5 million in the nine
months ended September 30, 2007 when compared to the same period in 2006.
Cash used in financing activities was $3 million compared to $13.9 million in the previous year.
Cash used for financing was used primarily to pay dividends of $3.2 million. During 2006 we had
repurchased common shares in the amount of $12 million.
Our current ratio was 2.9 to 1 at September 30, 2007 compared to 3.2 to 1 at December 31, 2006.
Our current ratio decreased primarily due to the cash used during the year for working capital to
support higher sales and acquisitions. At September 30, 2007, our unused balance under our main
credit facility was $20 million and our bank debt to equity percentage was 6%. Our main revolving
credit agreement contains, among other provisions, requirements for maintaining levels of working
capital, net worth and profitability. At September 30, 2007, we were in compliance with these
covenants. We believe our future operating cash flows will be more than sufficient to cover debt
repayments, other contractual obligations, capital expenditures and dividends. In addition, we
believe our existing cash position, together with our available borrowing capacity, provides
substantial financial resources. If we were to incur significant indebtedness, we expect to be
able to continue to meet liquidity needs under the credit facilities. We would not increase our
debt to a level that we believe would have a material adverse impact upon the results of operations
or financial condition.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement of Financial Account Standards (SFAS) No. 157, Fair
Value Measurements. This standard defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about fair value
measurements. This standard does not require new fair value measurements; however the application
of this standard may change current practice for an entity. This standard is effective for
financial statements issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal periods. The Company is evaluating the impact this standard will have on its
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment to FASB No. 115. This standard permits entities to
measure certain financial assets and liabilities at fair value. The fair value option established
by this standard permits all entities to choose to measure eligible items at fair value at
specified election dates. A business entity shall report unrealized gains and losses on items for
which the fair values option has been elected at each subsequent reporting period. The fair value
option election is irrevocable, unless a new election date occurs. SFAS No. 159 establishes
presentation and disclosure requirements to help financial statement users understand the effect of
the entitys election on earnings, but does not eliminate disclosure requirements of other
accounting standards. Assets and liabilities that are measured at fair value must be displayed on
the face of the balance sheet. This standard is effective as of the beginning of the first fiscal
year that begins after November 15, 2007. The Company is evaluating the impact this standard will
have on its consolidated financial statements.
NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
taxes an interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN 48). This
interpretation prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. Under FIN 48, the impact of an uncertain income tax position on the income tax return must
be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the
relevant taxing authority. An uncertain tax position will not be recognized if it has less than a
50% likelihood of being sustained. This interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
This interpretation is effective for the Company starting January 1, 2007.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation
of FIN 48, the Company recognized a $.8 million increase in the liability for unrecognized tax
benefits which was accounted for as a
20
reduction in retained earnings. The total amount of unrecognized tax benefits, including the
accrual for interest and penalties, as of the date of adoption was $1.8 million, all of which would
affect the effective tax rate if recognized.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in
income taxes. The Company had $.1 million accrued for the payment of interest and penalties at
December 31, 2006. Upon adoption of FIN 48 on January 1, 2007, the Company increased its accrual
for interest and penalties to $.2 million.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With
few exceptions, the Company is no longer subject to U.S. federal, state, local, or foreign
examinations by tax authorities for years before 2004.
The Company does not expect that the unrecognized tax benefit will change significantly within the
next twelve months.
In September 2006, the FASB issued FASB Staff Position AUG AIR-1, Accounting for Planned Major
Maintenance Activities. This staff position amends certain provisions in the AICPA Industry Audit
Guide, Audits of Airlines (Airline Guide), and APB No. 28, Interim Financial Reporting. This staff
position prohibits the use of the accrue-in-advance method of accounting for planned major
maintenance activities in annual and interim financial reporting periods. The Company adopted the
direct expense method effective January 1, 2007, and has retrospectively applied this new
accounting principle to prior periods.
The cumulative effect of the retrospective application of the new accounting principle to the
carrying value of assets and liabilities and the offsetting adjustment to opening January 1, 2006
retained earnings was a decrease in deferred tax assets of $.1 million, a decrease in accrued
liabilities of $.3 million and an increase in beginning retained earnings of $.2 million. The
effect on the results of operations for the nine months ended September 30, 2006 was an increase to
net income of $31 thousand in our PLP-USA segment.
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 foreign operations are mitigated due to the stability of the countries in which the
Companys largest foreign operations are located.
The Company has no foreign currency forward exchange contracts outstanding at September 30, 2007.
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 $9.3 million at September 30, 2007. A 100 basis point increase in the
interest rate would have resulted in an increase in interest expense of less than $.1 million for
the nine month period ended September 30, 2007.
The Companys primary currency rate exposures are related to foreign denominated debt, intercompany
debt, foreign 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 of $1.8 million and on income before income taxes of less than $.1 million.
21
ITEM 4. CONTROLS AND PROCEDURES
Background of Restatement
Subsequent to the quarterly period ended September 30, 2007 and in response to a comment raised by
the Staff of the SEC, the Company determined that its previously issued financial statements should
be restated to expand the Companys segment disclosures. On
January 4, 2008, the Company
restated its consolidated financial statements included in its Form 10-K/A for the year ended
December 31, 2006 and its condensed consolidated financial statements included in its Form 10-Q/A
for the quarter ended March 31, 2007. In this Form 10-Q, the Company has restated interim
financial information for each of the three and nine month periods ended September 30, 2006 to
reflect the current seven reportable segments. For a more detailed discussion of the restatement,
please see Note J Segment Information contained in the Notes To Consolidated Financial
Statements included in our 2006 Annual Report on Form 10-K/A filed on January 4, 2008.
Evaluation of Disclosure Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Companys
management, including the Chief Executive Officer and Vice President of Finance and Treasurer, of
the effectiveness of the Companys disclosure controls and procedures (as defined in Securities and
Exchange Act Rules 13a-15(e) and 15-d-15(e)) as of September 30, 2007. Based on that evaluation,
the Companys management including the Chief Executive Officer and Vice President of Finance and
Treasurer, concluded that the Companys disclosure controls and procedures were not effective as of
September 30, 2007 due to the following material weakness identified in internal control over
financial reporting. The Company recognized upon its reassessment of SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information that it did not perform an adequate
analysis and evaluation of the disclosure requirements. This material weakness resulted in the
restatement of the Companys previously issued consolidated financial statements to expand the
number of reportable segments from two reportable segments to seven reportable segments as more
fully described in Note J Segment Information contained in the Notes To Consolidated Financial
Statements included in our 2006 Annual Report on Form 10-K/A filed on January 4, 2008.
Changes in Internal Control Over Financial Reporting
There has not been any change in the Companys internal control over financial reporting as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, identified in connection with the
evaluation of the Companys internal control performed during the quarter ended September 30, 2007
that materially affected, or is reasonably likely to materially affect, the Companys internal
control over financial reporting.
Subsequent to September 30, 2007, the Companys management is taking the following steps to remedy
the material weakness in internal control over financial reporting identified above:
|
|
|
Key personnel involved in the financial reporting process are enhancing the controls by
which the SFAS No. 131 authoritative guidance is analyzed, monitored and applied on a
regular basis. |
|
|
|
|
The Company will now require the Companys Disclosure Committee to review its segment
reporting on a quarterly basis. |
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that arise in the ordinary course of
business. In the opinion of management, the amount of any ultimate liability with respect to these
actions will not materially affect our financial condition or results of operations.
22
ITEM 1A. RISK FACTORS
There were no material changes from the risk factors previously disclosed in the Companys 10-K/A
for the fiscal year ended December 31, 2006 filed on January 4, 2008.
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, superseding any previously authorized plan, including the
December 2004 plan. The repurchase plan does not have an expiration date. There were no
repurchases for the three-month period ending September 30, 2007. The following table includes
repurchases for the three-month period ending September 30, 2007.
Company Purchases of Equity Securities
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|
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|
|
|
Total Number of |
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Maximum Number of |
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|
|
|
|
|
|
|
|
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Shares Purchased as |
|
Shares that may yet |
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|
|
|
|
|
|
|
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Part of Publicly |
|
be Purchased under |
|
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Total Number of |
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Average Price |
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Announced Plans or |
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the Plans or |
Period |
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Shares Purchased |
|
Paid per Share |
|
Programs |
|
Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July |
|
|
|
|
|
|
|
|
|
|
8,022 |
|
|
|
191,978 |
|
August |
|
|
|
|
|
|
|
|
|
|
8,022 |
|
|
|
191,978 |
|
September |
|
|
|
|
|
|
|
|
|
|
8,022 |
|
|
|
191,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total |
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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. |
23
FORWARD LOOKING STATEMENTS
Cautionary Statement for Safe Harbor Purposes Under The Private Securities Litigation Reform Act
of 1995
This Form 10-Q and other documents the Company files with the Securities and Exchange Commission
contain forward-looking statements regarding the 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, Canada, and Western Europe; |
|
|
|
|
The effect on the Companys business resulting from economic uncertainty within Latin
American regions; |
|
|
|
|
Technology 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; |
|
|
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|
The rate of progress in continuing to modify the Companys cost structure to maintain
and enhance the Companys competitiveness; |
|
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The Companys success in strengthening and retaining relationships with the Companys
customers, growing sales at targeted accounts and expanding geographically; |
|
|
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|
The extent to which the Company is successful in expanding the Companys product line
into new areas; |
|
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|
The Companys ability to identify, complete and integrate acquisitions for profitable
growth; |
|
|
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|
The potential impact of consolidation, deregulation and bankruptcy among the Companys
suppliers, competitors and customers; |
|
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|
The relative degree of competitive and customer price pressure on the Companys
products; |
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|
The cost, availability and quality of raw materials required for the manufacture of
products; |
|
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|
|
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; |
|
|
|
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Changes in significant government regulations affecting environmental compliances; |
|
|
|
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The Companys ability to compete in the domestic data communication market; |
24
|
|
|
The telecommunication markets continued deployment of Fiber-to-the-Premises; |
|
|
|
|
Those factors described under the heading Risk Factors on page 12 of the Companys
Form 10-K/A for the fiscal year ended December 31, 2006 filed on January 4, 2008. |
25
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.
|
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January 4, 2008 |
/s/ Robert G. Ruhlman |
|
|
Robert G. Ruhlman |
|
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Chairman, President and Chief Executive Officer
(Principal Executive Officer) |
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|
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January 4, 2008 |
/s/ Eric R. Graef |
|
|
Eric R. Graef |
|
|
Vice President Finance and Treasurer
(Principal Accounting Officer) |
|
|
26
EXHIBIT INDEX
31.1 |
|
Certifications of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith. |
|
31.2 |
|
Certifications of the Principal 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. |
27