FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2008
Commission file number 0-31164
Preformed Line Products Company
(Exact name of registrant as specified in its charter)
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Ohio
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34-0676895 |
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.) |
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660 Beta Drive
Mayfield Village, Ohio
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44143 |
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(Address of Principal Executive Office)
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(Zip Code) |
(440) 461-5200
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered |
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Common Shares, $2 par value per share
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NASDAQ |
Securities registered pursuant to Section 12(g) of the Act: (None)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act.
Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.
Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o |
Accelerated filer þ |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company 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 aggregate market value of voting and non-voting common shares held by non-affiliates of the
registrant as of June 30, 2008 was $102,913,405, based on the closing price of such common shares,
as reported on the NASDAQ National Market System. As of March 6, 2009 there were 5,225,630 common
shares of the Company ($2 par value) outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Annual Meeting of Shareholders to be held April
27, 2009 are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14.
Forward-Looking Statements
This
Form 10-K and other documents we file with the Securities and
Exchange Commission (SEC) contain
forward-looking statements regarding the Companys and managements beliefs and expectations. As a
general matter, forward-looking statements are those focused upon future plans, objectives or
performance (as opposed to historical items) and include statements of anticipated events or trends
and expectations and beliefs relating to matters not historical in nature. Such forward-looking
statements are subject to uncertainties and factors relating to the Companys operations and
business environment, all of which are difficult to predict and many of which are beyond the
Companys control. Such uncertainties and factors could cause the Companys actual results to
differ materially from those matters expressed in or implied by such forward-looking statements.
The following factors, among others, could affect the Companys future performance and cause
the Companys actual results to differ materially from those expressed or implied by
forward-looking statements made in this report:
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The overall demand for cable anchoring and control hardware for electrical transmission
and distribution lines on a worldwide basis, which has a slow growth rate in mature markets
such as the United States (U.S.), Canada, and Western Europe; |
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The ability of our customers to raise funds needed to build the facilities their
customers require; |
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Technological developments that affect longer-term trends for communication lines such
as wireless communication; |
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The decreasing demands for product supporting copper-based infrastructure due to the
introduction of products using new technologies or adoption of new industry standards; |
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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 Companys success in implementing price increases to offset rising material costs; |
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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 telecommunication markets continued deployment of Fiber-to-the-Premises; |
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The Companys ability to obtain funding for future acquisitions; |
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The potential impact of the depressed housing market on the Companys ongoing
profitability and future growth opportunities; |
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Those factors described under the heading Risk Factors on page 12. |
Part I
Item 1. Business
Background
Preformed Line Products Company and its subsidiaries (the Company) is an international
designer and manufacturer of products and systems employed in the construction and maintenance of
overhead and underground networks for the energy, telecommunication, cable operators, information
(data communication) and other similar industries. The Companys primary products support,
protect, connect, terminate and secure cables and wires. The Company also provides solar hardware
systems and mounting hardware for a variety of solar power applications. The Companys goal is to
continue to achieve profitable growth as a leader in the innovation, development, manufacture and
marketing of technically advanced products and services related to energy, communications and cable
systems and to take advantage of this leadership position to sell additional quality products in
familiar markets.
The Company serves a worldwide market through strategically located domestic and international
manufacturing facilities. Each of the Companys domestic and international manufacturing
facilities have obtained an International Organization of Standardization (ISO) 9001:2000
Certified Management System, with the exception of Direct Power and Water Corporation (DPW), which
was newly acquired during 2007. The ISO 9001:2000 certified management system is a globally
recognized quality standard for manufacturing and assists the Company in marketing its products
throughout the world. The Companys customers include public and private energy utilities and
communication companies, cable operators, financial institutions, governmental agencies,
contractors and subcontractors, distributors and value-added resellers. The Company is not
dependent on a single customer or a few customers. No single customer accounts for more than ten
percent of the Companys consolidated revenues.
The Companys products include:
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Formed Wire and Related Hardware Products |
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Protective Closures |
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Data Communication Cabinets |
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Plastic Products |
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Other Products |
Formed Wire Products and Related Hardware Products are used in the energy, communications,
cable and special industries to support, protect, terminate and secure both power conductor and
communication cables and to control cable dynamics (e.g., vibration). Formed wire products are
based on the principle of forming a variety of stiff wire materials into a helical (spiral) shape.
Advantages of using the Companys helical formed wire products are that they are economical,
dependable and easy to use. The Company introduced formed wire products to the power industry over
60 years ago and such products enjoy an almost universal acceptance in the Companys markets.
Related hardware products include hardware for supporting and protecting transmission conductors,
spacers, spacer-dampers, stockbridge dampers, corona suppression devices and various compression
fittings for dead-end applications. Formed wire and related hardware products are approximately
59% of the Companys revenues in 2008, 60% in 2007 and 59% in 2006.
Protective Closures, including splice cases, are used to protect fixed line communication
networks, such as copper cable or fiber optic cable, from moisture, environmental hazards and other
potential contaminants. Protective closures are approximately 24% of the Companys revenues in
2008, 27% in 2007 and 28% in 2006.
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Data Communication Cabinets are products used in high-speed data systems to hold and protect
electronic equipment. Data communication cabinets are approximately 5% of the Companys revenues
in 2008, 6% in 2007 and 5% in 2006.
Plastic Products, including guy markers, tree guards, fiber optic cable markers and pedestal
markers, are used in energy, communications, cable television and special industries to identify
power conductors, communication cables and guy wires. Plastic products are approximately 3% of the
Companys revenues in 2008, 2% in 2007 and 3% in 2006.
Other Products include hardware assemblies, pole line hardware, resale products, underground
connectors, solar hardware systems and urethane products. They are used by energy, renewable
energy, communications, cable and special industries for various applications and are defined as
products that compliment the Companys core line offerings. Other products are approximately 9% of
the Companys revenues in 2008 and 5% in 2007 and 2006.
Corporate History
The Company was incorporated in Ohio in 1947 to manufacture and sell helically shaped armor
rods, which are sets of stiff helically shaped wires applied on an electrical conductor at the
point where it is suspended or held. Thomas F. Peterson, the Companys founder, developed and
patented a unique method to manufacture and apply these armor rods to protect electrical conductors
on overhead power lines. Over a period of years Mr. Peterson and the Company developed, tested,
patented, manufactured and marketed a variety of helically shaped products for use by the
electrical and telephone industries. Although all of Mr. Petersons patents have now expired,
those patents served as the nucleus for licensing the Companys formed wire products abroad.
The success of the Companys formed wire products in the U.S. led to expansion
abroad. The first international license agreement was established in the mid-1950s in Canada. In
the late 1950s the Companys products were being sold through joint ventures and licensees in
Canada, England, Germany, Spain and Australia. Additionally, the Company began export operations
and promoted products into other selected offshore markets. The Company continued its expansion
program, bought out most of the original licensees, and, by the mid-1990s, had complete ownership
of operations in Australia, Brazil, Canada, Great Britain, South Africa and Spain and held a
minority interest in two joint ventures in Japan. The Companys international subsidiaries have
the necessary infrastructure (i.e. manufacturing, engineering, marketing and general management) to
support local business activities. Each is staffed with local personnel to ensure that the Company
is well versed in local business practices, cultural constraints, technical requirements and the
intricacies of local client relationships.
In 1968, the Company expanded into the underground telecommunications field by its acquisition
of the Smith Company located in California. The Smith Company had a patented line of buried
closures and pressurized splice cases. These closures and splice cases protect copper cable
openings from environmental damage and degradation. The Company continued to build on expertise
acquired through the acquisition of the Smith Company and in 1995 introduced the highly successful
COYOTEâ Closure line of products. Since 1995 fourteen domestic and three international
patents have been granted to the Company on the COYOTE Closure. None of the COYOTE Closure patents
have expired. The earliest COYOTE Closure patent was filed in April 1995 and will not expire until
April 2015.
In 1993, the Company purchased the assets of Superior Modular Products Company. Located in
Asheville, North Carolina, Superior Modular Products is a technical leader in the development and
manufacture of high-speed interconnection devices for voice, data and video applications. This
acquisition was the catalyst to expand the Companys range of communication products to components
for structuring cabling systems used inside a customers premises.
Recognizing the need for a stronger presence in the fast growing Asian market, in 1996 the
Company formed a joint venture in China and, in 2000, became sole owner of this venture.
In 2000, the Company acquired Rack Technologies Pty. Ltd, headquartered in Sydney, Australia.
Rack Technologies is a specialist manufacturer of rack system enclosures for the communications,
electronics and
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securities industries. This acquisition complements and broadens the Companys existing line of
data communication products used inside a customers premises.
In 2002, the Company acquired the remaining 2.6% minority interest in its operations in
Mexico. The 97.4% interest was acquired in 1969.
In 2003, the Company sold its 24% interest in Toshin Denko Kabushiki Kaisha in Osaka, Japan.
The Companys investment in Toshin Denko dates back to 1961 when the joint venture company was
founded.
In 2004, the Company acquired the assets of Union Electric Manufacturing Co. Ltd, located in
Bangkok, Thailand.
In 2004, the Company sold its 49% interest in Japan PLP Co. Ltd., a joint venture in Japan.
In 2007, the Company acquired the shares of DPW, located in New Mexico, U.S. This
acquisition broadens the Companys product lines and manufactures mounting hardware for a variety
of solar power applications and provides designs and installations of solar power systems.
In 2007, the Company acquired 83.74% of Belos SA (Belos), located in Bielsko-Biala, Poland.
Belos is a manufacturer and supplier of fittings for various voltage power networks. This
acquisition complements the Companys existing line of energy products. In 2008, the Company
acquired 8.3% additional shares of Belos.
In 2008, the Company divested its data communication business Superior Modular Products (SMP).
The Companys World headquarters is located at 660 Beta Drive, Mayfield Village, Ohio 44143.
Business
The demand for the Companys products comes primarily from new, maintenance and repair
construction for the energy, telecommunication and data communication industries. The Companys
customers use many of the Companys products, including formed wire products, to revitalize the
aging outside plant infrastructure. Many of the Companys products are used on a proactive basis
by the Companys customers to reduce and prevent lost revenue. A single malfunctioning line could
cause the loss of thousands of dollars per hour for a power or communication customer. A
malfunctioning fiber cable could also result in substantial revenue loss. Repair construction by
the Companys customers generally occurs in the case of emergencies or natural disasters, such as
hurricanes, tornadoes, earthquakes, floods or ice storms. Under these circumstances, the Company
provides 24-hour service to provide the repair products to customers as quickly as possible.
The Company has adapted the formed wire products helical technology for use in a wide variety
of fiber optic cable applications that have special requirements. The Companys formed wire
products are uniquely qualified for these applications due to the gentle gripping over a greater
length of the fiber cable. This is an advantage over traditional pole line hardware clamps that
compress the cable to the point of possible fatigue and optical signal deterioration.
The Companys protective closures and splice cases are used to protect cable from moisture,
environmental hazards and other potential contaminants. The Companys splice cases are easily
re-enterable closures that allow utility maintenance workers access to the cables located inside
the closure to repair or add communications services. Over the years, the Company has made many
significant improvements in the splice case that have greatly increased their versatility and
application in the market place. The Company also designs and markets custom splice cases to
satisfy specific customer requirements. This has allowed the Company to remain a strong partner
with several primary customers and has earned the Company the reputation as a responsive and
reliable supplier.
Fiber optic cable was first deployed in the outside plant environment in the early 1980s.
Through fiber optic technologies, a much greater amount of both voice and data communication can be
transmitted reliably. In addition, this technology solved the cable congestion problem that the
large count copper cable was causing in underground, buried and aerial applications. The Company
developed and adapted copper closures for use in the
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emerging fiber optic world. In the late 1980s, the Company developed a series of splice cases
designed specifically for fiber application. In the mid-1990s, the Company developed its plastic
COYOTE Closure, and has since expanded the product line to address emerging Fiber-to-the-Premise
(FTTP) applications. The COYOTE Closure is an example of the Company developing a new line of
proprietary products to meet the changing needs of its customers.
The Company also designs and manufactures data communication cabinets and enclosures for data
communication networks, offering a comprehensive line of copper and fiber optic cross-connect
systems. The product line enables reliable, high-speed transmission of data over customers local
area networks.
With the acquisition of DPW in 2007, the Company expanded into the fast growing renewable
energy sector. DPW provides a comprehensive line of mounting hardware for a variety of solar power
applications including residential roof mounting, commercial roofing systems, top of pole mounting
and customized solutions. DPW also provides design and installation services for residential and
commercial solar power systems primarily in the western U.S.
Markets
The Company markets its products to the energy, telecommunication, cable, data communication
and special industries. While rapid changes in technology have blurred the distinctions between
telephone, cable, and data communication, the energy industry is clearly distinct. The Companys
role in the energy industry is to supply formed wire products and related hardware used with the
electrical conductors, cables and wires that transfer power from the generating facility to the
ultimate user of that power. Formed wire products are used to support, protect, terminate and
secure both power conductor and communication cables and to control cable dynamics.
Electric Utilities Transmission. The electric transmission grid is the interconnected
network of high voltage aluminum conductors used to transport large blocks of electric power from
generating facilities to distribution networks. Currently, there are three major power grids in
the U.S.: the Eastern Interconnect, the Western Interconnect and the Texas Interconnect.
Virtually all electrical energy utilities are connected with at least one other utility by one of
these major grids. The Company believes that the transmission grid has been neglected throughout
much of the U.S. for more than a decade. Additionally, because of deregulation, some
electric utilities have turned this responsibility over to Independent System Operators (ISOs), who
have also been slow to add transmission lines. With demand for power now exceeding supply in some
areas, the need for the movement of bulk power from the energy-rich states to the energy-deficient
areas means that new transmission lines will likely be built and many existing lines will likely be
refurbished. In addition, passage of the economic stimulus bill in early 2009 that contains
provisions for upgrading the aging transmission infrastructure and connecting renewable energy
sources to the grid should attract new investment to fund new infrastructure projects in the
industry. The Company believes that this will generate growth for the Companys products in this
market over at least the next several years. In addition, increased construction of international
transmission grids is occurring in many regions of the world. However, consolidations in the
markets that the Company services may also have an adverse impact on the Companys revenues.
Electric Utilities Distribution. The distribution market includes those utilities that
distribute power from a substation where voltage is reduced to levels appropriate for the consumer.
Unlike the transmission market, distribution is still handled primarily by local electric
utilities. These utilities are motivated to reduce cost in order to maintain and enhance their
profitability. The Company believes that its growth in the distribution market will be achieved
primarily as a result of incremental gains in market share driven by emphasizing the Companys
quality products and service over price. Internationally, particularly in the developing regions,
there is increasing political pressure to extend the availability of electricity to additional
populations. Through its global network of factories and sales offices, the Company is prepared to
take advantage of this new growth in construction.
Renewable Energy. The renewable energy market includes residential consumers, commercial
businesses, off-grid operators, and utility companies that have an interest in alternative energy
sources. Environmental concerns along with federal, state, and local utility incentives have
fueled demand for renewable energy systems including solar, wind, and biofuel. The passage of the
economic stimulus bill, which contains provisions for investment in clean energy technologies,
should further drive future demand for alternative energy sources like solar. The industry
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continues to grow rapidly as advancements in technology lead to greater efficiencies which
drive down overall system costs. The Company currently provides hardware solutions, system design
and installation services for solar power applications. The Company markets and sells these
products and services to end-users, distributors, installers and integrators.
Communication and Cable. Major developments, including growing competition between the cable
and communications industries and increasing overall demand for high-speed communication services,
have led to a changing regulatory and competitive environment in many markets throughout the world.
The deployment of new access networks and improvements to existing networks for advanced
applications continues to gain momentum.
Cable operators, local communication operators and power utilities are building, rebuilding or
upgrading signal delivery networks in developed countries. These networks are designed to deliver
video and voice transmissions and provide Internet connectivity to individual residences and
businesses. Operators deploy a variety of network technologies and architectures to carry
broadband and narrowband signals. These architectures are constructed of electronic hardware
connected via coaxial cables, copper wires or optical fibers. The Company manufactures closures
that these industries use to securely connect and protect these vital networks.
As critical components of the outdoor infrastructure, closures provide protection against
weather and vandalism, and permit technicians who maintain and manage the system ready access to
the devices. Cable operators and local telephone network operators place great reliance on
manufacturers of protective closures because any material damage to the signal delivery networks is
likely to disrupt communication services. In addition to closures, the Company supplies the
communication and cable industry with its formed wire products to hold, support, protect and
terminate the copper wires and cables and the fiber optic cables used by that industry to transfer
voice, video or data signals.
The industry has developed new technological methods to increase the usage of copper-based
plant through high-speed digital subscriber lines (DSLs). The popularity of these services, the
regulatory environment and the increasingly fierce competition between communications and cable
operators has driven the recent move toward building out the last mile in fiber networks. FTTP is
expected to be the next wave in broadband innovation by carrying fiber optic technology into homes
and businesses. The Company has been actively developing products that address this market.
Data Communication. The data communication market is being driven by the continual demand for
increased bandwidth. Growing Internet Service Providers (ISPs), construction in Wide Area Networks
(WANs) and demand for products in the workplace are all key elements to the increased demand for
the connecting devices made by the Company. This market will increasingly be focused on the
systems that provide the highest speed and highest quality signal, such as fiber optic and copper
networks. The Companys products are sold to a number of categories of customers including, (i)
ISPs, (ii) large companies and organizations which have their own local area network for data
communication, and (iii) distributors of structured cabling systems and components for use in the
above markets.
Special Industries. The Companys formed wire products are also used in other industries
which require a method of securing or terminating cables, including the metal building, tower and
antenna industries, the arborist industry, and various applications within the marine systems
industry. Products other than formed wire products are also marketed to other industries. For
example, the Companys urethane capabilities allow it to market products to the light rail
industry. The Company continues to explore new and innovative uses of its manufacturing
capabilities, however, these markets remain a small portion of overall consolidated sales.
International Operations
The international operations of the Company are essentially the same as its domestic (PLP-USA)
business, except for location. The Company manufactures similar types of products in its
international plants as are sold domestically, sells to similar types of customers and faces
similar types of competition (and in some cases the same competitors). Sources of supply of raw
materials are not significantly different internationally. See Note K in the Notes To Consolidated
Financial Statements for information and financial data relating to the Companys international
operations that represent reportable segments.
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While a number of the Companys international plants are in developed countries, the Company
believes it has strong market opportunities in developing countries where the need for the
transmission and distribution of electrical power is significant. The Company is now serving the
Far East market, other than China and Japan, primarily from Thailand. In addition, as the need
arises, the Company is prepared to establish new manufacturing facilities abroad.
Sales and Marketing
Domestically and internationally, the Company markets its products through a direct sales
force and manufacturing representatives. The direct sales force is employed by the Company and
works with the manufacturers representatives, as well as key direct accounts and distributors who
also buy and resell the Companys products. The manufacturers representatives are independent
organizations that represent the Company as well as other complimentary product lines. These
organizations are paid a commission based on the sales amount.
Research and Development
The Company is committed to providing technical leadership through scientific research and
product development in order to continue to expand the Companys position as a supplier to the
communications and power industries. Research is conducted on a continuous basis using internal
experience in conjunction with outside professional expertise to develop state-of-the-art materials
for several of the Companys products. These products capitalize on cost-efficiency while offering
exacting mechanical performance that meets or exceeds industry standards. The Companys research
and development activities have resulted in numerous patents being issued to the Company (see
Patents and Trademarks below).
Early in its history, the Company recognized the need to understand the performance of its
products and the needs of its customers. To that end, the Company developed its own Research and
Engineering Center in Mayfield Village, Ohio. Using the Research and Engineering Center, engineers
and technicians simulate a wide range of external conditions encountered by the Companys products
to ensure quality, durability and performance. The work performed in the Research and Engineering
Center includes advanced studies and experimentation with various forms of vibration. This work
has contributed significantly to the collective knowledge base of the industries the Company serves
and is the subject matter of many papers and seminars presented to these industries.
The Companys Research and Engineering Center is 29,000-square-foot located at its corporate
headquarters in Mayfield Village, Ohio. The Company believes that this facility is one of the most
sophisticated in the world in its specialized field. The expanded Research and Engineering Center
also has an advanced prototyping technology machine on-site to develop models of new designs where
intricate part details are studied prior to the construction of expensive production tooling.
Today, the Companys reputation for vibration testing, tensile testing, fiber optic cable testing,
environmental testing, field vibration monitoring and third-party contract testing is a competitive
advantage. In addition to testing, the work done at the Companys Research and Development Center
continues to fuel product development efforts. For example, the Company estimates that
approximately 24% of 2008 revenues were attributed to products developed by the Company in the past
five years. In addition, the Companys position in the industry is further reinforced by its
long-standing leadership role in many key international technical organizations which are charged
with the responsibility of establishing industry wide specifications and performance criteria,
including IEEE (Institute of Electrical and Electronics Engineers), CIGRE (Counsiel Internationale
des Grands Reseaux Electriques a Haute Tension), and IEC (International Electromechanical
Commission). Research and development costs are expensed as incurred. Research and development
costs for new products were $2 million in 2008, $1.7 million in 2007 and $2.2 million in 2006.
Patents and Trademarks
The Company applies for patents in the U.S. and other countries, as appropriate, to
protect its significant patentable developments. As of December 31, 2008, the Company had in force
27 U.S. patents and 43 international patents in 11 countries and had pending eight U.S. patent
applications and 11 international applications. While such domestic and international patents
expire from time to time, the Company continues to
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apply for and obtain patent protection on a regular basis. Patents held by the Company in the
aggregate are of material importance in the operation of the Companys business. The Company,
however, does not believe that any single patent, or group of related patents, is essential to the
Companys business as a whole or to any of its businesses. Additionally, the Company owns and uses
a substantial body of proprietary information and numerous trademarks. The Company relies on
nondisclosure agreements to protect trade secrets and other proprietary data and technology. As of
December 31, 2008, the Company had obtained U.S. registration on 27 trademarks and two trademark
applications remained pending. International registrations amounted to 199 registrations in 35
countries, with 16 pending international registrations.
Since June 8, 1995, U.S. patents have been issued for terms of 20 years beginning
with the date of filing of the patent application. Prior to that time, a U.S. patent had a term of
17 years from the date of its issuance. Patents issued by international countries generally expire
20 years after filing. U.S. and international patents are not renewable after expiration of their
initial term. U.S. and international trademarks are generally perpetual, renewable in 10-year
increments upon a showing of continued use. To the knowledge of management, the Company has not
been subject to any significant allegation or charges of infringement of intellectual property
rights by any organization.
In the normal course of business, the Company occasionally makes and receives inquiries with
regard to possible patent and trademark infringement. The extent of such inquiries from third
parties has been limited generally to verbal remarks to Company representatives. The Company
believes that it is unlikely that the outcome of these inquiries will have a material adverse
effect on the Companys financial position.
Competition
All of the markets that the Company serves are highly competitive. In each market, the
principal methods of competition are price, performance, and service. The Company believes,
however, that several factors (described below) provide the Company with a competitive advantage.
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The Company has a strong and stable workforce. This consistent and continuous
knowledge base has afforded the Company the ability to provide superior service to the
Companys customers and representatives. |
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The Companys Research and Engineering Center in Mayfield Village, Ohio and Research
and Engineering departments subsidiary locations maintain a strong technical support
function to develop unique solutions to customer problems. |
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The Company is vertically integrated both in manufacturing and distribution and is
continually upgrading equipment and processes. |
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The Company is sensitive to the marketplace and provides an extra measure of service
in cases of emergency, storm damage and other rush situations. This high level of
customer service and customer responsiveness is a hallmark of the Company. |
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The Companys 14 manufacturing locations ensure close support and proximity to
customers worldwide. |
Domestically, there are several competitors for formed wire products. Although it has other
competitors in many of the countries where it has plants, the Company has leveraged its expertise
and is very strong in the global market. The Company believes that it is the worlds largest
manufacturer of formed wire products for energy and communications markets. However, the Companys
formed wire products compete against other pole line hardware products manufactured by other
companies.
Minnesota Manufacturing and Mining Company (3M) is the primary domestic competitor of the
Company for pressurized copper closures. Based on its experience in the industry, the Company
believes it maintains a strong market share position.
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The fiber optic closure market is one of the most competitive product areas for the Company,
with the Company competing against, among others, Tyco International Ltd., 3M and Corning Cable
Systems. There are a number of primary competitors and several smaller niche competitors that
compete at all levels in the marketplace. The Company believes that it is one of four leading
suppliers of fiber optic closures.
The Companys data communication competitors range from assemblers of low cost, low quality
components, to well-established multinational corporations. The Companys competitive strength is
its technological leadership and manufacturing expertise. Additionally, the Company provides
products to its licensees and other companies on a privately branded basis. Patented technology
developed by the Company is currently licensed to many of its largest competitors. Low-cost Asian
competitors, however, keep pressure on prices and will continue to do so.
Sources and Availability of Raw Materials
The principal raw materials used by the Company are galvanized wire, stainless steel, aluminum
covered steel wire, aluminum re-draw rod, plastic resins, glass-filled plastic compounds, neoprene
rubbers and aluminum castings. The Company also uses certain other materials such as fasteners,
packaging materials and communications cable. The Company believes that it has adequate sources of
supply for the raw materials used in its manufacturing processes and it regularly attempts to
develop and maintain sources of supply in order to extend availability and encourage competitive
pricing of these products.
Most plastic resins are purchased under contracts to stabilize costs and improve delivery
performance and are available from a number of reliable suppliers. Wire and re-draw rod are
purchased in standard stock diameters and coils under contracts from a number of reliable
suppliers. Contracts have firm prices except for fluctuations of base metals and petroleum prices,
which result in surcharges when global demand is greater than the available supply.
The Company also relies on certain other manufacturers to supply products that complement the
Companys product lines, such as aluminum and ferrous castings, fiber optic cable and connectors,
circuit boards and various metal racks and cabinets. The Company believes there are multiple
sources of supply for these products.
The Company relies on sole source manufacturers for certain raw materials used in production.
The current state of economic uncertainty presents a risk that existing suppliers could go out of
business. However, there are multiple sources for these materials available, and the Company could
relocate the tooling and processes to other manufacturers if necessary.
Due to increasing worldwide demand for carbon steel, stainless steel, aluminum and zinc the
costs of raw materials continued to escalate throughout 2008. By the end of 2008, due to the
current recession demand has eased and there is downward pressure on costs on most of the Companys
key raw materials.
Backlog Orders
The Companys backlog was approximately $26.1 million at the end of 2008. The Companys order
backlog generally represents four to six weeks of sales. All customer orders entered are firm at
the time of entry. Substantially all orders are shipped within a two to four week period unless
the customer requests an alternative date.
Seasonality
The Company markets products that are used by utility maintenance and construction crews
worldwide. The products are marketed through distributors and directly to end users, who maintain
stock to ensure adequate supply for their customers or construction crews. As a result, the
Company does not have a wide variation in sales from quarter to quarter.
11
Environmental
The Company is subject to extensive and changing federal, state, and local environmental laws,
including laws and regulations that (i) relate to air and water quality, (ii) impose limitations on
the discharge of pollutants into the environment, (iii) establish standards for the treatment,
storage and disposal of toxic and hazardous waste, and (iv) require proper storage, handling,
packaging, labeling, and transporting of products and components classified as hazardous materials.
Stringent fines and penalties may be imposed for noncompliance with these environmental laws. In
addition, environmental laws could impose liability for costs associated with investigating and
remediating contamination at the Companys facilities or at third-party facilities at which the
Company has arranged for the disposal treatment of hazardous materials.
Although no assurances can be given, the Company believes it is in compliance in all material
respects, with all applicable environmental laws and the Company is not aware of any noncompliance
or obligation to investigate or remediate contamination that could reasonably be expected to result
in a material liability. The Company does not expect to make any material capital expenditure
during 2009 for environmental control facilities. The environmental laws continue to be amended
and revised to impose stricter obligations, and compliance with future additional environmental
requirements could necessitate capital outlays. However, the Company does not believe that these
expenditures should ultimately result in a material adverse effect on its financial position or
results of operations. The Company cannot predict the precise effect such future requirements, if
enacted, would have on the Company. The Company believes that such regulations would be enacted
over time and would affect the industry as a whole.
Employees
At December 31, 2008, the Company had 1,858 employees.
Approximately 37% of the Companys employees are located in the U.S.
Available Information
The Company maintains an Internet site at http://www.preformed.com, on which the Company makes
available, free of charge, the annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after
the Company electronically files such material with, or furnishes it to, the SEC. The Companys
SEC reports can be accessed through the investor relations section of its Internet site. The
information found on the Companys Internet site is not part of this or any other report that is
filed or furnished to the SEC.
The public may read and copy any materials the Company files with or furnishes to the SEC at
the SECs Public Reference Room at 100 F. Street, NE., Washington, DC 20549. Information on the
operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site that contains reports, proxy and information
statements, and other information filed with the SEC by electronic filers. The SECs Internet site
is http://www.sec.gov. The Company also has a link from its Internet site to the SECs Internet
site, this link can be found on the investor relations page of the Companys Internet site.
Item 1A. Risk Factors
Due to the Companys dependency on the energy, telecommunication and renewable energy industries,
the Company is susceptible to negative trends relating to those industries that could adversely
affect the Companys operating results.
The Companys sales to the energy and telecommunication industries represent a substantial
portion of the Companys historical sales. The concentration of revenue in such industries is
expected to continue into the foreseeable future. Demand for products to these industries depends
primarily on capital spending by customers for constructing, rebuilding, maintaining or upgrading
their systems. The amount of capital spending and, therefore, the Companys sales and
profitability are affected by a variety of factors, including general economic conditions, access
by customers to financing, government regulation, demand for energy and cable services, and
technological factors. As a result, some customers may not continue as going concerns, which could
have a material adverse effect on the
12
Companys business, operating results and financial condition. Consolidation and deregulation
present the additional risk to the Company in that combined or deregulated customers will rely on
relationships with a source other than the Company. Consolidation and deregulation may also
increase the pressure on suppliers, such as the Company, to sell product at lower prices.
The Companys business will suffer if the Company fails to develop and successfully introduce new
and enhanced products that meet the changing needs of the Companys customers.
The Companys ability to anticipate changes in technology and industry standards and to
successfully develop and introduce new products on a timely basis will be a significant factor in
the Companys ability to grow and remain competitive. New product development often requires
long-term forecasting of market trends, development and implementation of new designs and processes
and a substantial capital commitment. The trend toward consolidation of the energy,
telecommunication and data communication industries may require the Company to quickly adapt to
rapidly changing market conditions and customer requirements. Any failure by the Company to
anticipate or respond in a cost-effective and timely manner to technological developments or
changes in industry standards or customer requirements, or any significant delays in product
development or introduction or any failure of new products to be widely accepted by the Companys
customers, could have a material adverse effect on the Companys business, operating results and
financial condition as a result of reduced net sales.
The intense competition in the Companys markets, particularly telecommunication, may lead to a
reduction in sales and profits.
The markets in which the Company operates are highly competitive. The level of intensity of
competition may increase in the foreseeable future due to anticipated growth in the
telecommunication and data communication industries. The Companys competitors in the
telecommunication and data communication markets are larger companies with significant influence
over the distribution network. There can be no assurance that the Company will be able to compete
successfully against its competitors, many of which may have access to greater financial resources
than the Company. In addition, the pace of technological development in the telecommunication and
data communication markets is rapid and the Company cannot assure that these advances (i.e.,
wireless, fiber optic network infrastructure, etc.) will not adversely affect the Companys ability
to compete in this market.
The introduction of products embodying new technologies or the emergence of new industry standards
can render existing products or products under development obsolete or unmarketable.
The energy, telecommunication and data communication industries are characterized by rapid
technological change. Satellite, wireless and other communication technologies currently being
deployed may represent a threat to copper, coaxial and fiber optic-based systems by reducing the
need for wire-line networks. There can be no assurance that future advances or further development
of these or other new technologies will not have a material adverse effect on the Companys
business, operating results and financial condition as a result of lost sales.
Price increases of raw materials could result in lower earnings.
The Companys cost of sales may be materially adversely affected by increases in the market
prices of the raw materials used in the Companys manufacturing processes. There can be no
assurance that price increases in raw materials can be passed onto the Companys customers through
increases in product prices. As a result, the Companys operating results could be adversely
affected.
The Companys international operations subject the Company to additional business risks.
International sales account for a substantial portion of the Companys net sales (54%, 53% and
54% in 2008, 2007 and 2006, respectively) and the Company expects these sales will increase as a
percentage of net sales in the future. Due to its international sales, the Company is subject to
the risks of conducting business internationally, including unexpected changes in, or impositions
of, legislative or regulatory requirements, fluctuations in the U.S. dollar which could materially
adversely affect U.S. dollar revenues or operating expenses, tariffs and other barriers and
restrictions, potentially longer payment cycles, greater difficulty in accounts receivable
collection, reduced or limited protection of intellectual property rights, potentially adverse
taxes and the burdens of complying with a
13
variety of international laws and communications standards. The Company is also subject to general
geopolitical risks, such as political and economic instability and changes in diplomatic and trade
relationships, in connection with its international operations. There can be no assurance that
these risks of conducting business internationally will not have a material adverse effect on the
Companys business, operating results and financial condition.
The Company may not be able to successfully integrate businesses that it may acquire in the future.
A portion of the Companys growth in sales and earnings has been generated from acquisitions.
The Company expects to continue a strategy of identifying and acquiring businesses with
complementary products. In connection with this strategy, the Company faces certain risks and
uncertainties relating to acquisitions. The factors affecting this exposure are in addition to the
risks faced in the Companys day-to-day operations. Acquisitions involve a number of special
risks, including the risks pertaining to integrating acquired businesses. In addition, the Company
may incur debt to finance future acquisitions, and the Company may issue securities in connection
with future acquisitions that may dilute the holdings of current and future shareholders. Covenant
restrictions relating to additional indebtedness could restrict the Companys ability to pay
dividends, fund capital expenditures, consummate additional acquisitions and significantly increase
the Companys interest expense. Any failure to successfully complete acquisitions or to
successfully integrate such strategic acquisitions could have a material adverse effect on the
Companys business, operating results and financial condition.
The Company may have interruptions in its businesses due to the uncertainty of the global economy,
specifically the potential impact of bankruptcy among the Companys suppliers and inability of
available funding for the Companys customers.
The Company relies on sole source manufacturers for certain materials that complement the
Companys product lines. The current state of economic uncertainty presents a risk that existing
suppliers could go out of business. While there are multiple sources for these materials available
and the Company could relocate the tooling and processes to other manufacturers if needed, there
could be an adverse effect on the supply and the Companys ability to make products on a timely
basis if multiple key suppliers fail during this time of uncertainty. Additionally, as the
financial markets are experiencing unprecedented volatility, lower levels of liquidity may be
available. Although the Company is not dependent on a single customer or a few customers, the
inability to obtain funding may postpone customer spending and adversely affect the Companys
business, operating results and financial condition.
Item 1B. Unresolved Staff Comments
The Company does not have any unresolved staff comments.
Item 2. Properties
The Company currently owns or leases 16 facilities, which together contain approximately 1.6
million square feet of manufacturing, warehouse, research and development, sales and office space
worldwide. Most of the Companys international facilities contain space for offices, research and
engineering (R&E), warehousing and manufacturing with manufacturing using a majority of the space.
The following table provides information regarding the Companys principal facilities:
14
|
|
|
|
|
|
|
|
|
|
|
Location |
|
Use |
|
Owned/Leased |
|
Square Feet |
|
Reportable Segment |
|
|
|
|
|
|
|
|
|
|
|
1. Mayfield Village, Ohio
|
|
Corporate Headquarters
Research and Engineering (R&E)
Center
|
|
Owned
|
|
|
62,000 |
|
|
PLP-USA |
|
|
|
|
|
|
|
|
|
|
|
2. Rogers, Arkansas
|
|
Manufacturing
Warehouse
Office
|
|
Owned
|
|
|
310,000 |
|
|
PLP-USA |
|
|
|
|
|
|
|
|
|
|
|
3. Albemarle, North Carolina
|
|
Manufacturing
Warehouse
Office
|
|
Owned
|
|
|
261,000 |
|
|
PLP-USA |
|
|
|
|
|
|
|
|
|
|
|
4. Sydney, Australia
|
|
Manufacturing
R&E
Warehouse
Office
|
|
Owned
|
|
|
123,000 |
|
|
Australia |
|
|
|
|
|
|
|
|
|
|
|
5. São Paulo, Brazil
|
|
Manufacturing
R&E
Warehouse
Office
|
|
Owned
|
|
|
148,500 |
|
|
Brazil |
|
|
|
|
|
|
|
|
|
|
|
6. Cambridge, Ontario, Canada
|
|
Manufacturing
Warehouse
Office
|
|
Owned
|
|
|
73,300 |
|
|
Canada |
|
|
|
|
|
|
|
|
|
|
|
7. Andover, Hampshire, England
|
|
Manufacturing
R&E
Warehouse
Office
|
|
Building Owned;
Land Leased
|
|
|
89,400 |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
8. Queretaro, Mexico
|
|
Manufacturing
Warehouse
Office
|
|
Owned
|
|
|
52,900 |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
9. Beijing, China
|
|
Manufacturing
Warehouse
Office
|
|
Building Owned;
Land Leased
|
|
|
123,300 |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
10. Pietermaritzburg, South
Africa
|
|
Manufacturing
R&E
Warehouse
Office
|
|
Owned
|
|
|
73,100 |
|
|
South Africa |
|
|
|
|
|
|
|
|
|
|
|
11. Sevilla, Spain
|
|
Manufacturing
R&E
Warehouse
Office
|
|
Owned
|
|
|
63,300 |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
12. Bangkok, Thailand
|
|
Manufacturing
Warehouse
Office
|
|
Owned
|
|
|
60,000 |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
13. Albuquerque, New Mexico
|
|
Manufacturing
Warehouse
Office
|
|
Leased
|
|
|
25,100 |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
14. Bielsko-Biala, Poland
|
|
Manufacturing
Warehouse
Office
|
|
Buildings Owned;
Land Leased
|
|
|
174,400 |
|
|
Poland |
15
Item 3. 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.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the security holders of the Registrant during the quarter
ended December 31, 2008.
Executive Officers of the Registrant
Each executive officer is elected by the Board of Directors, serves at its pleasure and holds
office until a successor is appointed, or until the earliest of death, resignation or removal.
|
|
|
|
|
|
|
Name |
|
Age |
|
Position |
Robert G. Ruhlman
|
|
|
52 |
|
|
Chairman, President and Chief Executive Officer |
Eric R. Graef
|
|
|
56 |
|
|
Chief Financial Officer and Vice President Finance |
William H. Haag
|
|
|
45 |
|
|
Vice President International Operations |
J. Cecil Curlee Jr.
|
|
|
52 |
|
|
Vice President Human Resources |
Dennis F. McKenna
|
|
|
42 |
|
|
Vice President Marketing and Business Development |
David C. Sunkle
|
|
|
50 |
|
|
Vice President Research and Engineering and Manufacturing |
Caroline S.
Vaccariello
|
|
|
42 |
|
|
General Counsel and Corporate Secretary |
The following sets forth the name and recent business experience for each person who is an
executive officer of the Company at March 1, 2009.
Robert G. Ruhlman was elected Chairman in July 2004. Mr. Ruhlman has served as Chief
Executive Officer since July 2000 and as President since 1995 (positions he continues to hold).
Mr. Ruhlman is the brother of Randall M. Ruhlman and son of Barbara P. Ruhlman, both Directors of
the Company.
Eric R. Graef was elected Vice PresidentFinance in December 1999 and Chief Financial Officer
in December, 2007.
William H. Haag was elected Vice PresidentInternational Operations in April 1999.
J. Cecil Curlee Jr. was hired in 1982 in the position of Personnel Manager at the Albemarle,
North Carolina facility. He was promoted to Director of Employee Relations in September 2002 and
was elected Vice PresidentHuman Resources in January 2003.
Dennis F. McKenna was elected Vice PresidentMarketing and Business Development in April
2004. Mr. McKenna joined the Company in 1993 as a sales engineer and has served in various
international and domestic product management, operations, and general management roles within the
Company.
David C. Sunkle was elected Vice President-Research and Engineering in January 2007. In
addition, Mr. Sunkle has taken on the role of the Vice President Manufacturing since July 2008.
Mr. Sunkle joined the Company in 1978. He has served a variety of positions in Research and
Engineering until 2002 when he became Director of International Operations. In 2006, Mr. Sunkle
rejoined Research and Engineering as the Director of Engineering.
Caroline S. Vaccariello was elected General Counsel and Corporate Secretary in January 2007.
Ms. Vaccariello joined the Company in 2005 as General Counsel and has led the Companys legal
affairs since that time. Prior to that time, Ms. Vaccariello worked as an attorney for The Timken
Company from 2003 to 2005.
16
Part II
Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
The Companys Common Shares are traded on NASDAQ under the trading symbol PLPC. As of March
11, 2009, the Company had approximately 722 shareholders of record. The following table sets forth
for the periods indicated (i) the high and low closing sale prices per share of the
Companys Common Shares as reported by the NASDAQ and (ii) the amount per share of cash dividends
paid by the Company.
While the Company expects to continue to pay dividends of a comparable amount in the near
term, the declaration and payment of future dividends will be made at the discretion of the
Companys Board of Directors in light of then current needs of the Company. Therefore, there can
be no assurance that the Company will continue to make such dividend payments in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
2008 |
|
2007 |
Quarter |
|
High |
|
Low |
|
Dividend |
|
High |
|
Low |
|
Dividend |
|
First |
|
$ |
59.96 |
|
|
$ |
42.95 |
|
|
$ |
0.20 |
|
|
$ |
36.67 |
|
|
$ |
33.40 |
|
|
$ |
0.20 |
|
Second |
|
|
53.88 |
|
|
|
40.31 |
|
|
|
0.20 |
|
|
|
54.32 |
|
|
|
36.11 |
|
|
|
0.20 |
|
Third |
|
|
65.50 |
|
|
|
37.66 |
|
|
|
0.20 |
|
|
|
58.26 |
|
|
|
42.82 |
|
|
|
0.20 |
|
Fourth |
|
|
56.97 |
|
|
|
31.82 |
|
|
|
0.20 |
|
|
|
61.08 |
|
|
|
49.04 |
|
|
|
0.20 |
|
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities |
|
|
|
|
|
|
Weighted-average |
|
remaining available for |
|
|
Number of securities to |
|
exercise price of |
|
future issuance under equity |
|
|
be issued upon exercise |
|
outstanding |
|
compensation plans |
|
|
of outstanding options, |
|
options, warrants |
|
(excluding securities |
Plan Category |
|
warrants and rights (a) |
|
and rights |
|
reflected in column (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders |
|
|
43,637 |
|
|
$ |
54.24 |
|
|
|
356,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans not approved
by security holders |
|
|
107,092 |
|
|
$ |
27.83 |
|
|
|
9,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
150,729 |
|
|
|
|
|
|
|
365,363 |
|
Performance Graph
Set forth below is a line graph comparing the cumulative total return of a hypothetical
investment in the Companys Common Shares with the cumulative total return of hypothetical
investments in the NASDAQ Market Index and the Hemscott Industry Group 627 (Industrial Electrical
Equipment) Index based on the respective market price of each investment at December 31, 2003,
December 31, 2004, December 31, 2005, December 31, 2006, December 31, 2007, and December 31, 2008,
assuming in each case an initial investment of $100 on December 31, 2003, and reinvestment of
dividends.
17
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG PREFORMED LINE PRODUCTS CO.,
NASDAQ MARKET INDEX AND HEMSCOTT GROUP INDEX
ASSUMES
$100 INVESTED ON JAN. 01, 2003
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPANY / INDEX / MARKET |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
PREFORMED LINE
PRODUCTS CO |
|
|
|
100.00 |
|
|
|
|
96.82 |
|
|
|
|
145.90 |
|
|
|
|
123.06 |
|
|
|
|
212.96 |
|
|
|
|
166.33 |
|
|
|
HEMSCOTT GROUP INDEX |
|
|
|
100.00 |
|
|
|
|
111.02 |
|
|
|
|
133.61 |
|
|
|
|
178.83 |
|
|
|
|
247.12 |
|
|
|
|
128.38 |
|
|
|
NASDAQ MARKET INDEX |
|
|
|
100.00 |
|
|
|
|
108.41 |
|
|
|
|
110.79 |
|
|
|
|
122.16 |
|
|
|
|
134.29 |
|
|
|
|
79.25 |
|
|
|
Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum Number of |
|
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
Shares that may yet |
|
|
|
|
|
|
|
|
|
|
Part of Publicly |
|
be Purchased under |
|
|
Total Number of |
|
Average Price Paid |
|
Announced Plans or |
|
the Plans or |
Period (2008) |
|
Shares Purchased |
|
per Share |
|
Programs |
|
Programs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October |
|
|
|
|
|
|
|
|
|
|
185,748 |
|
|
|
14,252 |
|
November |
|
|
|
|
|
|
|
|
|
|
185,748 |
|
|
|
14,252 |
|
December |
|
|
|
|
|
|
|
|
|
|
185,748 |
|
|
|
14,252 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On February 15, 2007, the Board of Directors authorized a plan to repurchase up to 200,000
shares of Preformed Line Products Company Common Shares. There were no repurchases for the
three-month period ended December 31, 2008.
18
Item 6. Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
|
|
|
|
|
(Thousands of dollars, except per share data) |
|
|
|
|
Net Sales and Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
269,742 |
|
|
$ |
233,289 |
|
|
$ |
196,910 |
|
|
$ |
186,232 |
|
|
$ |
165,515 |
|
Operating income |
|
|
23,988 |
|
|
|
21,133 |
|
|
|
16,359 |
|
|
|
16,673 |
|
|
|
15,211 |
|
Income before income taxes, equity in net income
of joint ventures, minority interests and
discontinued operations |
|
|
24,760 |
|
|
|
21,321 |
|
|
|
17,180 |
|
|
|
17,288 |
|
|
|
15,333 |
|
Income from continuing operations |
|
|
16,754 |
|
|
|
13,766 |
|
|
|
11,827 |
|
|
|
11,170 |
|
|
|
14,014 |
|
Net income |
|
|
17,623 |
|
|
|
14,159 |
|
|
|
12,103 |
|
|
|
12,030 |
|
|
|
13,094 |
|
Per Share Amounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations basic |
|
$ |
3.17 |
|
|
$ |
2.57 |
|
|
$ |
2.11 |
|
|
$ |
1.95 |
|
|
$ |
2.44 |
|
Net income basic |
|
|
3.34 |
|
|
|
2.64 |
|
|
|
2.16 |
|
|
|
2.10 |
|
|
|
2.28 |
|
Income from continuing operations diluted |
|
|
3.14 |
|
|
|
2.54 |
|
|
|
2.09 |
|
|
|
1.93 |
|
|
|
2.42 |
|
Net income diluted |
|
|
3.30 |
|
|
|
2.61 |
|
|
|
2.14 |
|
|
|
2.08 |
|
|
|
2.26 |
|
Dividends declared |
|
|
0.80 |
|
|
|
0.80 |
|
|
|
0.80 |
|
|
|
0.80 |
|
|
|
0.80 |
|
Shareholders equity |
|
|
26.08 |
|
|
|
27.82 |
|
|
|
24.47 |
|
|
|
23.32 |
|
|
|
22.51 |
|
Other Financial Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
$ |
112,670 |
|
|
$ |
123,450 |
|
|
$ |
100,374 |
|
|
$ |
110,304 |
|
|
$ |
101,537 |
|
Total assets |
|
|
190,875 |
|
|
|
203,866 |
|
|
|
170,852 |
|
|
|
168,458 |
|
|
|
158,742 |
|
Current liabilities |
|
|
35,248 |
|
|
|
42,349 |
|
|
|
32,372 |
|
|
|
33,900 |
|
|
|
27,251 |
|
Long-term debt (including current portion) |
|
|
3,147 |
|
|
|
4,959 |
|
|
|
4,361 |
|
|
|
4,928 |
|
|
|
3,634 |
|
Capital leases |
|
|
112 |
|
|
|
373 |
|
|
|
478 |
|
|
|
305 |
|
|
|
574 |
|
Shareholders equity |
|
|
136,265 |
|
|
|
149,721 |
|
|
|
131,148 |
|
|
|
133,715 |
|
|
|
128,464 |
|
On May 30, 2008, the Company divested its Superior Modular Products subsidiary. The net
sales and income and per share amounts sections for the years noted above have been restated to
provide comparable information excluding the divestiture of the SMP operations.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the Consolidated
Financial Statements and related Notes To Consolidated Financial Statements included in Item 8 in
this report.
Preformed Line Products Company and its subsidiaries (the Company, PLPC, we, us, or
our) is an international designer and manufacturer of products and systems employed in the
construction and maintenance of overhead and underground networks for the energy,
telecommunication, cable operators, information (data communication), and other similar industries.
Our primary products support, protect, connect, terminate, and secure cables and wires. We also
provide solar hardware systems and mounting hardware for a variety of solar power
applications. Our goal is to continue to achieve profitable growth as a leader in the
innovation, development, manufacture, and marketing of technically advanced products and services
related to energy, communications, and cable systems and to take advantage of this leadership
position to sell additional quality products in familiar markets.
The reportable segments are PLP-USA, Australia, Brazil, South Africa, Canada, Poland and All
Other. Our PLP-USA segment is comprised of our U.S. operations primarily supporting our domestic
energy and telecommunications products. The Australia segment is comprised of all of our
operations in Australia supporting energy, telecommunications, data communications, and solar
products. Our Brazil and South Africa segments are comprised of the manufacturing and sales
operations from those locations which meet at least one of the criteria of a reportable segment.
Our final two segments are Canada and Poland, which are comprised of manufacturing and sales
operations, and have been included as segments to comply with reporting segments for 75% of
consolidated sales. Our remaining operations are included in All Other segment as none of these
operations meet the criteria for a
19
reportable segment and individually represent less than 10% for
each of our combined net sales, consolidated net income, and consolidated assets.
Market overview
Our business continues to be concentrated in the energy and communications markets. During
the past couple of years, industry consolidation continued as distributors and service provider
consolidations took place in all of our major markets. This trend is expected to continue in 2009.
We have a growing concern that the continued global economic deterioration coupled with an already
depressed U.S. housing market could further affect construction projects and negatively impact
growth opportunities in our core markets going forward.
In 2008, we experienced growth in our energy markets. We continued to see the investment in
new transmission grids, new technologies, and upgrading and maintenance of the existing energy
infrastructure. We expect the distribution energy market to slow in 2009 but anticipate continued
growth in demand for transmission and fiber optic products.
Our international business is more concentrated in the energy markets. Historically, our
international sales were primarily to the distribution portion of the energy market. We continued
to increase our energy distribution sales while also experiencing significant sales growth in the
energy transmission market. We have acquired approximately 92% of Belos SA (Belos), located in
Bielsko-Biala, Poland, broadening our transmission product offering for the energy markets. Even
though we expect the distribution portion of the energy market to decrease in 2009 as a whole, we
expect the international energy markets to continue to grow for the foreseeable future as new
construction projects are added in developing markets and there is a need to rebuild and refurbish
the international energy transmission and distribution infrastructure. We believe that we are well
positioned to supply the needs of the worlds diverse energy market requirements as a result of our
strategically located operations and array of product designs and technologies.
In our communications markets, telecommunication companies continued to curtail their
investment in the construction and maintenance of copper networks while diverting some of these
resources into Fiber-to-the-Premise (FTTP) projects. We anticipate the investment in the copper
network will continue to decline. Additionally, the large communications carriers are
rationalizing their vendor base, which results in downward pressure on prices.
In 2008, we saw an improvement in the U.S. investment spending on infrastructure by the
telephone companies, cable television (CATVs) providers and by municipalities. Additionally, many
of our new product offerings which are presently in the approval process and undergoing third party
testing should provide an opportunity to enhance our product offerings to all communication
providers. Many new products were launched in 2008 which should help us gain additional business
from these providers. Even though the communication market is expecting to be flat or even down in
2009, we are optimistic that we will fare better than most due to the new products being offered to
the marketplace. In 2008, we continued to develop our brand and product awareness internationally
as part of a concentrated effort in FTTP. As a result, several international carriers are
conducting field trials of our products to be used on future FTTP projects. In addition, the
passage of an economic stimulus bill that contains provisions for upgrading the aging transmission
infrastructure and connecting renewable energy
sources to the grid should attract new investment into the industry. We believe that this
will generate growth for our products in this market over at least the next several years.
Discontinued Operations
Our consolidated financial statements were impacted by the divestiture of Superior Modular
Products (SMP) on May 30, 2008. We sold our SMP subsidiary for $11.7 million, for a $.8 million
gain, net of tax and expenses incurred related to the divestiture. The
sale includes $1.5 million to be held in escrow for a period of one year. We have not provided any
significant continuing involvement in the operations of SMP after the closing of the sale. For tax
purposes, the sale of SMP generated a capital loss, which was not deductible except for amounts
used to offset capital gains in the current year. A full valuation allowance was provided against
the deferred tax asset on the remaining portion of the capital loss carryover.
20
The operating results of SMP are presented in our consolidated statements of income as
discontinued operations, net of tax, and all periods presented have been reclassified. For the year
ended December 31, 2008, income from discontinued operation, net of tax was $.9 million, or $.16
per diluted share, compared to income of $.4 million, or $.07 per diluted share, for the same
period in 2007.
Preface
Our consolidated financial results for the years ended December 31, 2008, 2007 and 2006
included the financial results of our solar energy operation, Direct Power and Water (DPW),
acquired on March 22, 2007 as well as the results of Belos, in Poland, acquired on September 6,
2007. The results of the DPW operation are included in our All Other segment and the results of
the Belos operations are included as the separate Poland reportable segment.
For the year ended December 31, 2008, we achieved record net sales of $269.7 million, which
increased $36.5 million, or 16%, in 2008 compared to 2007. The net sales increase for the year
ended December 31, 2008 was driven by a 12% increase in the U.S. net sales and an 18% increase in
total foreign net sales. The favorable impact of the change in the conversion rate of local
currencies to U.S. dollars for the year ended December 31, 2008 compared to 2007, contributed $3.5
million to the increase in net sales. Our net sales increased $20.6 million as a result of the
acquisitions of Belos and DPW. The increase in sales was partially offset by an increase in
material cost of sales resulting in a 12% increase in gross profit. Costs and expenses increased
12%, partially offsetting the gross profit improvement, with the result being an increase in
operating income of $2.9 million, or 14%, from 2007. Income from continuing operations of $16.8
million increased $3 million, or 22%, compared to 2007. For the year ended December 31, 2008,
income from continuing operations per diluted share of $3.14 increased $.60 from 2007. Our
financial position remains strong as we generated substantial operating cash flow in 2008 of $2.4
million, an increase of 16%.
2008 Results of Operations compared to 2007
Net Sales. In 2008, net sales were a record $269.7 million, an increase of $36.5 million, or
16%, from 2007 as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
thousands of dollars |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
111,721 |
|
|
$ |
103,173 |
|
|
$ |
8,548 |
|
|
$ |
|
|
|
$ |
8,548 |
|
|
|
8 |
% |
Australia |
|
|
27,244 |
|
|
|
29,855 |
|
|
|
(2,611 |
) |
|
|
878 |
|
|
|
(3,489 |
) |
|
|
(12 |
) |
Brazil |
|
|
30,279 |
|
|
|
26,236 |
|
|
|
4,043 |
|
|
|
2,684 |
|
|
|
1,359 |
|
|
|
5 |
|
South Africa |
|
|
9,535 |
|
|
|
8,049 |
|
|
|
1,486 |
|
|
|
(1,676 |
) |
|
|
3,162 |
|
|
|
39 |
|
Canada |
|
|
9,952 |
|
|
|
10,620 |
|
|
|
(668 |
) |
|
|
153 |
|
|
|
(821 |
) |
|
|
(8 |
) |
Poland |
|
|
20,602 |
|
|
|
5,202 |
|
|
|
15,400 |
|
|
|
|
|
|
|
15,400 |
|
|
NM |
|
All Other |
|
|
60,409 |
|
|
|
50,154 |
|
|
|
10,255 |
|
|
|
1,420 |
|
|
|
8,835 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
269,742 |
|
|
$ |
233,289 |
|
|
$ |
36,453 |
|
|
$ |
3,459 |
|
|
$ |
32,994 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in PLP-USA net sales of $8.5 million, or 8%, was due primarily to sales volume
increases of $2.2 million and price/mix increases of $5.9 million primarily related to our energy
sales. We anticipate a flat to slight increase in sales in 2009, although we believe PLP-USA sales
for the year may be negatively impacted by a continued declining economy and depressed housing
market. International net sales in 2008 were favorably impacted by $3.5 million when converted to
U.S. dollars, as a result of a weaker U.S. dollar to certain foreign currencies. Excluding the
effect of currency conversion, Australia net sales decreased $3.5 million, or 12%, primarily as a
result of lower energy volume sales compared to 2007. Excluding the effect of currency conversion,
Brazil net sales increased $1.4 million, or 5%, primarily as a result of increased volume in energy
and
21
telecommunication sales. Excluding the effect of currency conversion, South Africa net sales
increased $3.2 million, or 39%, due to increased sales volume in the energy market. Excluding the
effect of currency conversion, Canada net sales decreased $.8 million, or 8%, due to lower sales
volume. Poland net sales of $20.6 million increased $15.4 million due to the inclusion of their
results for the entire year ended December 31, 2008, as compared to the inclusion of only four
months in 2007. Excluding the effect of currency conversion, All Other net sales increased $8.8
million, or 18%, compared to 2007, primarily due to an increase in energy volume and the inclusion
of DPWs net sales for the entire year ended December 31, 2008 compared to only nine months in
2007. We continue to see competitive pricing pressures globally as well as a decline in the global
economic markets which will continue to negatively affect sales and profitability in 2009.
Gross Profit. Gross profit of $87.3 million for 2008 increased $9.4 million, or 12%, compared
to 2007 as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
thousands of dollars |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
35,973 |
|
|
$ |
33,680 |
|
|
$ |
2,293 |
|
|
$ |
|
|
|
$ |
2,293 |
|
|
|
7 |
% |
Australia |
|
|
8,534 |
|
|
|
9,911 |
|
|
|
(1,377 |
) |
|
|
207 |
|
|
|
(1,584 |
) |
|
|
(16 |
) |
Brazil |
|
|
8,193 |
|
|
|
8,048 |
|
|
|
145 |
|
|
|
473 |
|
|
|
(328 |
) |
|
|
(4 |
) |
South Africa |
|
|
4,271 |
|
|
|
3,258 |
|
|
|
1,013 |
|
|
|
(668 |
) |
|
|
1,681 |
|
|
|
52 |
|
Canada |
|
|
4,331 |
|
|
|
4,812 |
|
|
|
(481 |
) |
|
|
64 |
|
|
|
(545 |
) |
|
|
(11 |
) |
Poland |
|
|
5,471 |
|
|
|
828 |
|
|
|
4,643 |
|
|
|
|
|
|
|
4,643 |
|
|
NM |
|
All Other |
|
|
20,494 |
|
|
|
17,364 |
|
|
|
3,130 |
|
|
|
327 |
|
|
|
2,803 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
87,267 |
|
|
$ |
77,901 |
|
|
$ |
9,366 |
|
|
$ |
403 |
|
|
$ |
8,963 |
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA gross profit of $36 million for the year ended December 31, 2008 increased $2.3
million, or 7%, compared to 2007. PLP-USA gross profit increased $2.8 million due to higher net
sales, and $2.7 million due to improved manufacturing efficiencies partially offset by higher
material costs of $3.2 million. Excluding the effect of currency conversion, the Australia gross
profit decrease of $1.6 million was a result of $1.2 million lower net sales and $.7 million higher
per unit manufacturing costs. Excluding the effect of currency conversion, the Brazil gross profit
decrease of $.3 million is primarily due to a favorable excess and obsolescence reserve adjustment
of $.6 million included in the year ended December 31, 2007 offset by higher net sales. Excluding
the effect of currency conversion, South Africa gross profit of $4.3 million increased $1.7 million
due primarily to a $1.1 million increase in net sales. Excluding the effect of currency
conversion, Canada gross profit decreased $.5 million, of which $.2 million was related to a
decrease in net sales and $.4 million was related to an increase in material costs offset by
improved manufacturing efficiencies. Our consolidated gross profit increased $4.6 million as a
result of the Poland acquisition in September of 2007. Poland is included for the entire year of
2008 but only for four months in 2007. Excluding the effect of currency conversion, All Other
gross profit increased $2.8 million primarily as a result of increased sales of $8.8 million.
Cost and expenses. Costs and expenses increased $6.5 million, or 12%, compared to 2007 as
summarized in the following table:
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
thousands of dollars |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
33,633 |
|
|
$ |
31,787 |
|
|
$ |
1,846 |
|
|
$ |
|
|
|
$ |
1,846 |
|
|
|
6 |
% |
Australia |
|
|
6,591 |
|
|
|
5,819 |
|
|
|
772 |
|
|
|
125 |
|
|
|
647 |
|
|
|
11 |
|
Brazil |
|
|
5,789 |
|
|
|
4,735 |
|
|
|
1,054 |
|
|
|
339 |
|
|
|
715 |
|
|
|
15 |
|
South Africa |
|
|
1,235 |
|
|
|
1,270 |
|
|
|
(35 |
) |
|
|
(210 |
) |
|
|
175 |
|
|
|
14 |
|
Canada |
|
|
1,659 |
|
|
|
1,586 |
|
|
|
73 |
|
|
|
(12 |
) |
|
|
85 |
|
|
|
5 |
|
Poland |
|
|
2,775 |
|
|
|
854 |
|
|
|
1,921 |
|
|
|
|
|
|
|
1,921 |
|
|
NM |
|
All Other |
|
|
11,597 |
|
|
|
10,717 |
|
|
|
880 |
|
|
|
296 |
|
|
|
584 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
63,279 |
|
|
$ |
56,768 |
|
|
$ |
6,511 |
|
|
$ |
538 |
|
|
$ |
5,973 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA
costs and expenses increased $1.8 million primarily due to increases in personnel
related expenses of $1 million, commissions of $.5 million, product testing expenses of $.3
million, tax compliance expense of $.2 million and an increase in the loss on foreign currency of
$.7 million, partially offset by a $.9 million decrease in sales promotional expense. Excluding
the effect of currency conversion, Australia costs and expenses increased $.6 million due to
increased personnel related costs and consulting fees. Excluding the effect of currency
conversion, Brazil costs and expenses increased $.7 million primarily due to personnel related
expenses. Excluding the effect of currency conversion, South Africa costs and expenses increased
$.2 million primarily due to increased personnel related expenses and travel costs. Poland costs
and expenses increased $1.9 million due to the inclusion of their costs for the entire year ended
December 31, 2008 compared to only four months in 2007. Excluding the effect of currency
conversion, All Other costs and expenses increased $.6 million primarily due to a $.2 million
increase in personnel related expenses and a $.4 million increase related to the inclusion of DPWs
costs and expenses for the entire year ended December 31, 2008 compared to only nine months in
2007.
Operating income. Operating income of $24 million for the year ended December 31, 2008
increased $2.9 million, or 14%, compared to 2007. This increase was primarily a result of the $9.4
million increase in gross profit being partially offset by the $6.5 million increase in costs and
expenses. PLP-USA operating income of $6.9 million increased $.8 million primarily as a result of
the $2.3 million increase in gross profit and a $.4 million increase in intercompany royalty income
offset by an increase in costs and expenses of $1.9 million. Australia operating income of $.7
million decreased $2 million compared to 2007 primarily as a result a decrease in gross profit of
$1.4 million coupled with an increase of $.7 million in costs and expenses, offset by a $.1 million
decrease in intercompany royalty expense. Brazil operating income of $2.1 million decreased $1.2
million primarily as a result of the $.1 million increase in gross profit offset by an increase of
$1.1 million in costs and expenses and a $.2 million in intercompany royalty expense. South Africa
operating income of $2.6 million increased $1 million primarily as a result of a $1 million
improvement in gross profit compared to 2007. Canada operating income of $2.2 million for the year
ended December 31, 2008 decreased $.5 million compared to 2007 due to the decrease in gross profit.
Poland operating income increased $2.7 million due to the inclusion of its results for the entire
year ended December 31, 2008 compared to only four months in 2007. All Other operating income of
$6.7 million increased $2 million compared to 2007 primarily as a result of the $3.1 million
increase in gross profit being partially offset by $.9 million in increased costs and expenses and
$.2 million in intercompany royalty expense.
Other income. Other income for the year ended December 31, 2008 of $.8 million increased $.6
million compared to 2007. The primary reason for the increase in other income related to the
discovery of natural gas at PLP-USA located on our corporate headquarters property in Mayfield
Village, Ohio. Production of the natural gas well commenced in May 2008. The increase related to
the natural gas well was offset against a decrease in interest income compared to 2007.
23
Income taxes. Income taxes from continuing operations for the year ended December 31, 2008 of
$7.7 million were $.2 million higher than 2007. The effective tax rate in 2008 on income taxes
from continuing operations was 31.2% compared to 35.2% in 2007. The 2008 effective tax rate is
lower than the 34% statutory rate primarily due to increased earnings in jurisdictions with lower
tax rates and a decrease in unrecognized tax benefits for uncertain tax positions. The 2007
effective tax rate is higher than the 34% statutory rate primarily due to the increase in the
valuation allowance for foreign net operating losses that may not be utilized.
Income from continuing operations. Income from continuing operations was $16.8 million, or
$3.14 per diluted share, compared to income from continuing operations of $13.8 million, or $2.54
per diluted share for 2007 as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
thousands of dollars |
|
2008 |
|
|
2007 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
4,877 |
|
|
$ |
4,018 |
|
|
$ |
859 |
|
|
$ |
|
|
|
$ |
859 |
|
|
|
21 |
% |
Australia |
|
|
501 |
|
|
|
1,736 |
|
|
|
(1,235 |
) |
|
|
(23 |
) |
|
|
(1,212 |
) |
|
|
(70 |
) |
Brazil |
|
|
1,336 |
|
|
|
2,286 |
|
|
|
(950 |
) |
|
|
63 |
|
|
|
(1,013 |
) |
|
|
(44 |
) |
South Africa |
|
|
1,980 |
|
|
|
1,185 |
|
|
|
795 |
|
|
|
(306 |
) |
|
|
1,101 |
|
|
|
93 |
|
Canada |
|
|
1,537 |
|
|
|
1,811 |
|
|
|
(274 |
) |
|
|
61 |
|
|
|
(335 |
) |
|
|
(18 |
) |
Poland |
|
|
1,726 |
|
|
|
(61 |
) |
|
|
1,787 |
|
|
|
|
|
|
|
1,787 |
|
|
NM |
|
All Other |
|
|
4,797 |
|
|
|
2,791 |
|
|
|
2,006 |
|
|
|
(20 |
) |
|
|
2,026 |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
16,754 |
|
|
$ |
13,766 |
|
|
$ |
2,988 |
|
|
$ |
(225 |
) |
|
$ |
3,213 |
|
|
|
23 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA income from continuing operations of $4.9 million increased $.9 million compared to
2007 primarily as a result of the $.8 million increase in operating income, an increase in other
income of $.3 million, offset by an increase in income tax expense. Australia income from
continuing operations of $.5 million decreased $1.2 million primarily due to the $2 million
decrease in operating income being partially offset by lower other expenses of $.2 million and a
reduction in income taxes of $.6 million. Brazil income from continuing operations of $1.3 million
decreased $1 million as a result of the $1.2 million decrease in operating income being partially
offset by lower income taxes. South Africa income from continuing operations of $2 million
increased $.8 million as a result of the $1 million increase in operating profit being partially
offset by a $.2 million increase in income tax expense. Canada income from continuing operations
of $1.5 million decreased $.3 million as a result of the $.5 million decrease in operating income
partially offset by a reduction in income tax expense. Poland income from continuing operations of
$1.7 million is a result of $2.7 million in operating income being partially offset by other
expense, income taxes, and minority interest. All Other income from continuing operations of $4.8
million increased $2 million primarily as a result of the $2 million increase in operating income
and a $.1 million increase in other income partially offset by a $.1 million increase in income
taxes compared to 2007.
2007 Results of Operations compared to 2006
Net Sales. In 2007, net sales were $233.3 million, an increase of $36.4 million, or 18%, from
2006 as summarized in the following table:
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
thousands of dollars |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
103,173 |
|
|
$ |
91,412 |
|
|
$ |
11,761 |
|
|
$ |
|
|
|
$ |
11,761 |
|
|
|
13 |
% |
Australia |
|
|
29,855 |
|
|
|
25,867 |
|
|
|
3,988 |
|
|
|
3,093 |
|
|
|
895 |
|
|
|
3 |
|
Brazil |
|
|
26,236 |
|
|
|
20,990 |
|
|
|
5,246 |
|
|
|
2,887 |
|
|
|
2,359 |
|
|
|
11 |
|
South Africa |
|
|
8,049 |
|
|
|
8,244 |
|
|
|
(195 |
) |
|
|
(244 |
) |
|
|
49 |
|
|
|
1 |
|
Canada |
|
|
10,620 |
|
|
|
9,824 |
|
|
|
796 |
|
|
|
618 |
|
|
|
178 |
|
|
|
2 |
|
Poland |
|
|
5,202 |
|
|
|
|
|
|
|
5,202 |
|
|
|
|
|
|
|
5,202 |
|
|
|
100 |
|
All Other |
|
|
50,154 |
|
|
|
40,573 |
|
|
|
9,581 |
|
|
|
2,982 |
|
|
|
6,599 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
233,289 |
|
|
$ |
196,910 |
|
|
$ |
36,379 |
|
|
$ |
9,336 |
|
|
$ |
27,043 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA net sales of $103.2 million increased $11.8 million, or 13%, compared to 2006.
Approximately 60% of the increase in net sales was due to an increase in volume. International net
sales in 2007 were favorably impacted by $9.3 million when converted to U.S. dollars, as a result
of a weaker U.S. dollar to certain foreign currencies. Excluding the effect of currency
conversion, Australia net sales increased $.9 million, or 3%, Canada net sales increased $.2
million, or 2%, and South Africa net sales increased less than $.1 million, or 1%, all due
primarily to volume. Brazil net sales increased $2.4 million, or 11%, compared to 2006 due
primarily to increased volume in transmission products. Our Polish operation was acquired in the
third quarter 2007. Poland net sales of $5.2 million were included for only four months in the
year ended December 31, 2007, but not in 2006. Excluding the effects of currency conversion, All
Other net sales increased $6.6 million, or 16%, compared to 2006. The inclusion of DPW net sales
accounted for all the 2007 increase in All Other net sales.
Gross profit. Gross profit of $77.9 million for 2007 increased $13.2 million, or 20%,
compared to 2006 as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
thousands of dollars |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
33,680 |
|
|
$ |
27,914 |
|
|
$ |
5,766 |
|
|
$ |
|
|
|
$ |
5,766 |
|
|
|
21 |
% |
Australia |
|
|
9,911 |
|
|
|
8,349 |
|
|
|
1,562 |
|
|
|
1,031 |
|
|
|
531 |
|
|
|
6 |
|
Brazil |
|
|
8,048 |
|
|
|
6,020 |
|
|
|
2,028 |
|
|
|
856 |
|
|
|
1,172 |
|
|
|
19 |
|
South Africa |
|
|
3,258 |
|
|
|
3,515 |
|
|
|
(257 |
) |
|
|
(140 |
) |
|
|
(117 |
) |
|
|
(3 |
) |
Canada |
|
|
4,812 |
|
|
|
4,330 |
|
|
|
482 |
|
|
|
301 |
|
|
|
181 |
|
|
|
4 |
|
Poland |
|
|
828 |
|
|
|
|
|
|
|
828 |
|
|
|
|
|
|
|
828 |
|
|
|
100 |
|
All Other |
|
|
17,364 |
|
|
|
14,597 |
|
|
|
2,767 |
|
|
|
1,027 |
|
|
|
1,740 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
77,901 |
|
|
$ |
64,725 |
|
|
$ |
13,176 |
|
|
$ |
3,075 |
|
|
$ |
10,101 |
|
|
|
16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA gross profit of $33.7 million increased $5.8 million, or 21%, due primarily to $6
million related to higher net sales partially offset by a $.2 million increase in production and
shipping costs. The conversion of local currency to U.S. dollars favorably impacted gross profit
by $3.1 million. Excluding the impact of currency conversion, Australia gross profit increased $.5
million and Canada gross profit increased $.2 million due primarily to increased sales and improved
product margins. Excluding the effect of currency conversion, Brazil gross profit increased $1.2
million due to an excess and obsolescence reserve adjustment. 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
25
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 at December 31,
2006. Also during the 2007 year-end closing process, managements detailed review of the
calculation of the Companys elimination of intercompany profit in ending inventory identified an
adjustment of $.9 million in additional profit in ending inventory of which $.5 million related to
profit in ending inventory at December 31, 2006. Management has determined that the 2006 amounts,
which were recorded in 2007, were not material quantitatively or qualitatively, either individually
or on a net basis, to 2006 and 2007 results of operations. Excluding the effect of currency
conversion, South Africa gross profit decreased $.1 million primarily as a result of higher product
costs. Our consolidated gross profit increased $.8 million as a result of the inclusion of Poland
gross profit for only four months in the year ended December 31, 2007. All Other gross profit
increased $1.7 million. The inclusion of DPW in 2007 results accounted for 78% of the increase in
All Other gross profit.
Costs and expenses. Costs and expenses increased $8.4 million, or 17%, compared to 2006 as
summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
thousands of dollars |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
31,787 |
|
|
$ |
27,436 |
|
|
$ |
4,311 |
|
|
$ |
|
|
|
$ |
4,351 |
|
|
|
16 |
% |
Australia |
|
|
5,819 |
|
|
|
4,891 |
|
|
|
928 |
|
|
|
605 |
|
|
|
323 |
|
|
|
7 |
|
Brazil |
|
|
4,735 |
|
|
|
4,508 |
|
|
|
227 |
|
|
|
505 |
|
|
|
(278 |
) |
|
|
(6 |
) |
South Africa |
|
|
1,270 |
|
|
|
1,357 |
|
|
|
(87 |
) |
|
|
(44 |
) |
|
|
(43 |
) |
|
|
(3 |
) |
Canada |
|
|
1,586 |
|
|
|
1,428 |
|
|
|
158 |
|
|
|
81 |
|
|
|
77 |
|
|
|
5 |
|
Poland |
|
|
854 |
|
|
|
|
|
|
|
854 |
|
|
|
|
|
|
|
854 |
|
|
|
100 |
|
All Other |
|
|
10,717 |
|
|
|
8,746 |
|
|
|
1,971 |
|
|
|
675 |
|
|
|
1,296 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
56,768 |
|
|
$ |
48,366 |
|
|
$ |
8,362 |
|
|
$ |
1,822 |
|
|
$ |
6,580 |
|
|
|
14 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA
costs and expenses increased $4.4 million primarily as a result of a $.8 million
increase in commission expense, a $2.3 million increase in personnel expenses, a $1 million
increase in auditing fees, one-half of which is nonrecurring, and a $.2 million increase in travel
related expenses compared to 2006. The weaker dollar unfavorably impacted costs and expenses by
$1.8 million when international costs in local currency were translated to U.S. dollars compared to
2006. Excluding the effects of currency exchange rate change compared to 2006, Australia costs and
expenses increased $.3 million due primarily to an increase in personnel related expenses. Brazil
costs and expenses decreased $.3 million net of the effects of currency exchange rate change due
primarily to lower Sarbanes-Oxley consulting and auditing fees. South Africa decreased costs and
expenses of less than $.1 million were primarily a result of lower personnel related expenses and
auditing fees. Excluding the effects of currency exchange rate change, Canada costs and expenses
increased $.1 million primarily as a result of an increase in professional fees. Costs and
expenses increased by $.9 million due to the inclusion of Poland for only four months in the year
ended December 31, 2007. Excluding the effects of the currency exchange rate change compared to
2006, All Other costs and expenses increased $1.3 million. This increase was primarily a result of
including DPW costs and expenses of $1 million in 2007 results and recording a $.2 million goodwill
impairment charge.
Operating income. Operating income of $21.1 million for the year ended December 31, 2007
increased $4.8 million, or 29%, compared to 2006. This increase was primarily the result of the
$13.2 million increase in gross profit being partially offset by the $8.4 million increase in costs
and expenses. PLP-USA operating income increased $1.5 million primarily as a result of the $5.8
million increase in gross profit offset by the $4.3 million increase in costs and expenses.
Australia operating income increased $.4 million as a result of the $1.6 million increase in gross
profit partially offset by the $.9 million increase in costs and expenses and a $.2 million
increase in intercompany royalty expense. Brazil operating income increased $2 million as a result
of the $2 million increase in gross profit and a $.2 million reduction in intercompany royalty
expense partially offset by the $.2 million increase in costs and expenses. South Africa operating
income decreased $.2 million as a result of the $.3 million decrease in
26
gross profit being partially offset by the decrease in costs and expenses. Canada operating
income of $2.7 million increased $.3 million primarily as a result of the $.5 million increase in
gross profit partially offset by the $.2 million increase in costs and expenses. All Other
operating income of $4.6 million increased $.8 million as a result of the $2.8 million increase in
gross profit partially offset by the $2 million increase in cost and expenses.
Other income. Other income for the year ended December 31, 2007 of $.2 million decreased $.6
million compared to 2006 as a result of a $.4 million decrease in interest income net of interest
expense and a $.2 million increase in miscellaneous non-operating expenses.
Income taxes. Income taxes from continuing operations for the year ended December 31, 2007 of
$7.5 million were $2.1 million higher than the previous year. The effective tax rate in 2007 on
income taxes from continuing operations was 35.2% compared to 31.2% in 2006. The 2007 effective
tax rate is higher than the 34% statutory rate primarily as a result of a provision for a valuation
allowance against foreign net operating loss carryforwards. The 2006 effective tax rate is lower
than the 34% statutory rate primarily as a result of a reduction in the valuation related to
foreign tax credit carryfowards.
Income from continuing operations. As a result of the preceding items, income from continuing
operations for the year ended December 31, 2007 was $13.8 million, or $2.54 per diluted share,
compared to income from continuing operations of $11.8 million, or $2.09 per diluted share, for the
same period in 2006 as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
currency |
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversion |
|
|
Net |
|
|
Net |
|
thousands of dollars |
|
2007 |
|
|
2006 |
|
|
Change |
|
|
rate changes |
|
|
change |
|
|
change |
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
4,018 |
|
|
$ |
3,920 |
|
|
$ |
98 |
|
|
$ |
|
|
|
$ |
98 |
|
|
|
3 |
% |
Australia |
|
|
1,736 |
|
|
|
1,389 |
|
|
|
347 |
|
|
|
181 |
|
|
|
166 |
|
|
|
12 |
|
Brazil |
|
|
2,286 |
|
|
|
924 |
|
|
|
1,362 |
|
|
|
243 |
|
|
|
1,119 |
|
|
|
121 |
|
South Africa |
|
|
1,185 |
|
|
|
1,319 |
|
|
|
(134 |
) |
|
|
(64 |
) |
|
|
(70 |
) |
|
|
(5 |
) |
Canada |
|
|
1,811 |
|
|
|
1,693 |
|
|
|
118 |
|
|
|
59 |
|
|
|
59 |
|
|
|
3 |
|
Poland |
|
|
(61 |
) |
|
|
|
|
|
|
(61 |
) |
|
|
|
|
|
|
(61 |
) |
|
|
NM |
|
All Other |
|
|
2,791 |
|
|
|
2,582 |
|
|
|
209 |
|
|
|
76 |
|
|
|
133 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
13,766 |
|
|
$ |
11,827 |
|
|
$ |
1,939 |
|
|
$ |
495 |
|
|
$ |
1,444 |
|
|
|
12 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM not meaningful |
PLP-USA income from continuing operations of $4 million increased $.1 million compared to 2006
as a result of a $1.5 million increase in operating income partially offset by a $.3 million
decrease in interest income, a $.3 million increase in other expense and a $.8 million increase in
income taxes. Australia income from continuing operations of $1.7 million in 2007 increased $.3
million compared to 2006 due primarily to a $.4 million increase in operating income partially
offset by a $.1 million increase in income taxes. Brazil income from continuing operations of $2.3
million increased $1.4 million compared to 2006 due to a $2 million increase in operating income
partially offset by a $.1 million increase in interest expense and a $.5 million increase in income
taxes. South Africa income from continuing operations of $1.2 million decreased $.1 million
compared to 2006 primarily due to a $.2 million decrease in operating income partially offset by a
$.1 million increase in interest income. Canada income from continuing operations of $1.8 million
increased $.1 million from 2006 due primarily to a $.3 million increase in operating income
partially offset by a $.1 million reduction in interest income and a $.1 million increase in income
taxes. All Other income from continuing operations of $2.8 million increased $.2 million compared
to 2006 primarily as a result of a $.8 million increase in operating income partially offset by a
$.6 million increase in income taxes.
27
Working Capital, Liquidity and Capital Resources
Cash decreased $2.7 million for the year ended December 31, 2008. Net cash provided by
operating activities was $17.3 million. The major investing and financing uses of cash were
capital expenditures of $10 million, business acquisitions of $3.8 million, dividends of $4.2
million, repurchases of common shares of $7.5 million, net debt repayments of $1.9 million offset
by cash proceeds of $11.1 million from the sale of SMP, net of transaction expenses.
Net cash provided by operating activities increased $2.4 million compared to 2007 primarily as
a result of a $3 million increase in net income, an increase of non-cash items of $1.8 million
offset by an increase in operating assets (net of operating liabilities) of $2.4 million. Non-cash
items increased primarily due to a $.5 million change in deferred taxes, offset by an increase in
depreciation of $1.1 million and an increase in inventory reserves of $1.2 million.
Net cash used in investing activities of $2.4 million represents a decrease of $14.9 million
when compared to cash used in investing activities in 2007. In May 2008, we sold SMP for $11.7
million, net of transaction expenses, with an after-tax gain of $.8 million and a holdback of $1.5
million held in escrow for a period of one year. Also in May 2008, we formed a joint venture with
BlueSky Energy Pty Ltd for an initial cash payment of $.3 million. Additional payouts for
acquisitions during 2008 consisted of $.8 million related to DPW
and $2.8 million for Belos mostly
due to earn out payments. In March 2007, we acquired all of the issued and outstanding shares of
DPW for an initial payment of $2.6 million. In September 2007, we acquired 83.74% of the issued
and outstanding shares of Belos for an initial payment of $6 million. Capital expenditures
increased $.8 million in the year ended December 31, 2008 when compared to the same period in 2007
due mostly to a solar installation project at our Spain subsidiary, additional machinery investment
at our Brazil and Poland subsidiaries and PLP-USA locations, and a new building added at our China
subsidiary.
Cash used in financing activities was $13.1 million compared to $4.6 million in 2007. This
increase was primarily a result of common shares repurchased of $7.5 million and $1.3 million
higher debt repayments in 2008 compared to 2007.
We have commitments under operating leases primarily for office and manufacturing space,
transportation equipment, office and computer equipment and capital leases primarily for equipment.
One such lease is for our aircraft with a lease commitment through April 2012. Under the terms of
the lease, we maintain the risk to make up a deficiency from market value attributable to damage,
extraordinary wear and tear, excess air hours or exceeding maintenance overhaul schedules required
by the Federal Aviation Administration. At the present time, we believe our risks, if any, to be
immaterial because the estimated market value of the aircraft approximates its residual value.
Our financial position remains strong and our current ratio at December 31, 2008 was 3.2 to 1
compared to 2.9 to 1 at December 31, 2007. Our current ratio increased primarily due to increases
in inventory and decreases in debt, trade payables and accrued expenses related to acquisitions.
At December 31, 2008, our unused balance under our main credit facility was $20 million and our
bank debt to equity percentage was 5%. The revolving credit agreement contains, among other
provisions, requirements for maintaining levels of working capital, net worth and profitability.
At December 31, 2008, 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 of $19.9 million,
together with our untapped borrowing capacity, provides substantial financial resources. If we
were to incur significant additional indebtedness, we expect to be able to meet liquidity needs
under the credit facilities. We do not believe we would increase our debt to a level that would
have a material adverse impact upon results of operations or financial condition.
The global economies are currently undergoing a period of economic uncertainty, and the
related financial markets are experiencing unprecedented volatility. The current financial turmoil
is adversely affecting the banking system and financial markets. The possibility that financial
institutions may consolidate or fail has resulted in a tightening in the credit markets, a low
level of liquidity in many financial markets, and extreme volatility in fixed income, credit,
currency, and equity markets. Uncertainty about current global economic conditions poses a risk as
customers may postpone spending in response to tighter credit, negative financial news and/or
declines in income or asset values, or lower demand for their products or services which could have
a material negative effect on the
28
demand for our products. If the future economic environment continues to be less favorable
than it has been in recent years, we could experience difficulties in our ability to obtain the
required capital to pursue possible acquisitions. In addition, there could be exposure related to
the financial viability of certain third-party suppliers, some of which are our sole source for a
particular supply item, and risk of potential customer bankruptcies and/or slower payments. The
volatility in the financial markets will also affect the valuation of our pension assets and
postretirement liabilities, resulting in potentially higher postretirement costs in future periods.
Also, if the dollar continues to strengthen, there will be a negative impact on sales and income
from continuing operations when the results of our foreign operations are converted to U.S dollars.
Contractual obligations and other commercial commitments are summarized in the following
tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
After 5 |
Contractual Obligations |
|
Total |
|
year |
|
1-3 years |
|
4-5 years |
|
years |
Thousands of dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable to bank (A) |
|
$ |
3,175 |
|
|
$ |
3,175 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Long-term debt (B) |
|
|
3,531 |
|
|
|
632 |
|
|
|
1,969 |
|
|
|
930 |
|
|
|
|
|
Capital leases |
|
|
112 |
|
|
|
64 |
|
|
|
31 |
|
|
|
17 |
|
|
|
|
|
Operating leases |
|
|
12,109 |
|
|
|
1,275 |
|
|
|
1,910 |
|
|
|
449 |
|
|
|
8,475 |
|
Purchase commitments |
|
|
1,964 |
|
|
|
1,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension contribution and other
retirement plans (C) |
|
|
1,300 |
|
|
|
1,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes payable, non-current (D) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration by Period |
|
|
|
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
After 5 |
Other Commercial Commitments |
|
Total |
|
year |
|
1-3 years |
|
4-5 years |
|
years |
Thousands of dollars |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit |
|
$ |
8,972 |
|
|
$ |
8,412 |
|
|
$ |
501 |
|
|
$ |
59 |
|
|
$ |
|
|
Guarantees |
|
|
312 |
|
|
|
257 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
(A) |
|
Interest on short-term debt is included in the table at an interest rate of 5.18% in effect at
December 31, 2008. |
|
(B) |
|
Interest on long-term debt is included in the table at interest rates from 3.0% to 7.11% based
on the variable interest rates in effect at December 31, 2008. |
|
(C) |
|
Amount represents the expected contribution to the Companys defined benefit pension plan in
2009. Future expected amounts have not been disclosed as such amounts are subject to change based
on performance of the assets in the plan as well as the discount rate used to determine the
obligation. At December 31, 2008, the Companys unfunded contractual obligation was $11.3 million.
The Companys Supplemental Profit Sharing Plan accrued liability at December 31, 2008 was $1.3
million. Future expected amounts have not been disclosed as the Company is unable to estimate the
years in which benefit payments may occur. |
|
(D) |
|
As of December 31, 2008, there were $1.2 million of tax liabilities, including interest,
related to unrecognized tax benefits. Because of the high degree of uncertainty regarding the
timing of future cash outflows associated with these liabilities, if any, the Company is unable to
estimate the years in which cash settlement may occur with the respective tax authorities. |
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based
upon the consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the U.S. The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the reported amount of
assets and liabilities, revenues and expenses and related disclosure of contingent assets and
liabilities at the date of the consolidated financial statements. Actual results may differ from
these estimates under different assumptions or conditions.
29
Critical accounting policies are defined as those that are reflective of significant judgment
and uncertainties, and potentially may result in materially different outcomes under different
assumptions and conditions.
Sales Recognition
We record sales when products are shipped and the title and risk of loss has passed to
unaffiliated customers. Revenue related to shipping and handling costs billed-to customers are
included in net sales and the related shipping and handling costs are included in cost of products
sold.
Receivable Allowances
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. We record estimated allowances for
uncollectible accounts receivable based upon the number of days the accounts are past due, the
current business environment, and specific information such as bankruptcy or liquidity issues of
customers. If the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required. During 2008,
we recorded a provision for doubtful accounts of $.1 million. The allowance for doubtful accounts
represents approximately 1% of our trade receivable at December 31, 2008 and 2% of our trade
receivable at December 31, 2007.
Reserve for credit memos
We maintain an allowance for future sales credits related to sales recorded during the year.
Our estimated allowance is based on historical sales credits issued in the subsequent year related
to the prior year and any significant open return good authorizations as of the balance sheet date.
Our allowance is updated on a quarterly basis. The reserve for out of period credits represents
approximately 1% of our trade receivables at December 31, 2008 and 2007.
Excess and Obsolescence Reserves
We provide excess and obsolescence reserves to state inventories at the lower of cost or
estimated market value. We identify inventory items which have had no usage or are in excess of
the usages over the historical 12 to 36 months. A management team with representatives from
marketing, manufacturing, engineering and finance reviews these inventory items, determines the
disposition of the inventory and assesses the estimated market value based on their knowledge of
the product and market conditions. These conditions include, among other things, future demand for
product, product utility, unique customer order patterns or unique raw material purchase patterns,
changes in customer and quality issues. At December 31, 2008 and 2007, the allowance for excess
and obsolete inventory was 5% and 6% of gross inventory. If the impact of market conditions
worsens from those projected by management, additional inventory write-downs may be necessary.
Impairment of Long-Lived Assets
We record impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the discounted cash flows estimated to
be generated by those assets are less than the carrying value of those items. Our cash flows are
based on historical results adjusted to reflect the best estimate of future market and operating
conditions. The net carrying value of assets not recoverable is then reduced to fair value. The
estimates of fair value represent the best estimate based on industry trends and reference to
market rates and transactions.
Goodwill
We perform our annual impairment test for goodwill and intangibles with indefinite lives
utilizing a discounted cash flow methodology, market comparables, and an overall market
capitalization reasonableness test in computing fair value by reporting unit. We then compare the
fair value of the reporting unit with its carrying value to assess if goodwill and other indefinite
life intangibles have been impaired. Based on the assumptions as to
30
growth, discount rates and the weighting used for each respective valuation methodology,
results of the valuations could be significantly changed. However, we believe that the
methodologies and weightings used are reasonable and result in appropriate fair values of the
reporting units.
Our measurement date for our annual impairment test is January 1 of each year. We perform
interim impairment tests if trigger events or changes in circumstances indicate the carrying amount
may be impaired. There were no trigger events during 2008 and as such, only an annual impairment
test was performed. During 2007 losses continued for our Thailand operation which presented an
indicator that the goodwill may be impaired. The goodwill for the Thailand operation in the amount
of $.2 million was impaired and written off as of January 1, 2007.
Deferred Tax Assets
Deferred taxes are recognized at currently enacted tax rates for temporary differences between
the financial reporting and income tax bases of assets and liabilities and operating loss and tax
credit carryforwards. We established a valuation allowance to record our deferred tax assets at an
amount that is more likely than not to be realized. In the event we were to determine that we
would be able to realize our deferred tax assets in the future in excess of their recorded amount,
an adjustment to the valuation allowance would increase income in the period such determination was
made. Likewise, should we determine that we would not be able to realize all or part of our net
deferred tax assets in the future, an adjustment to the valuation allowance would be charged to
expense in the period such determination was made.
Uncertain Tax Positions
We identify tax positions taken on the federal, state, local and foreign income tax returns
filed or to be filed. A tax position can include: a reduction in taxable income reported in a
previously filed tax return or expected to be reported on a future tax return that impacts the
measurement of current or deferred income tax assets or liabilities in the period being reported;
a decision not to file a tax return; an allocation or a shift of income between jurisdictions; the
characterization of income or a decision to exclude reporting taxable income in a tax return; or a
decision to classify a transaction, entity or other position in a tax return as tax exempt. We
determine whether a tax position is an uncertain or a routine business transaction tax position
that is more-likely-than-not to be sustained at the full amount upon examination.
Under FIN 48, tax benefits from uncertain tax positions that reduce our current or future
income tax liability, are reported in our financial statements only to the extent that each benefit
was recognized and measured under a two step approach. The first step requires us to assess
whether each tax position based on its technical merits and facts and circumstances as of the
reporting date, is more-likely-than-not to be sustained upon examination. The second step measures
the amount of tax benefit that we recognize in the financial statements, based on a cumulative
probability approach. A tax position that meets the more-likely-than-not threshold that is not
highly certain is measured based on the largest amount of benefit that is greater than 50% likely
of being realized upon ultimate settlement with the tax authority, assuming that the tax authority
has examined the position and has full knowledge of all relevant information.
FIN 48 requires subjectivity of judgments to identify outcomes and to assign probability in
order to estimate the settlement amount. We provide estimates in order to determine settlement
amounts. During the year ended December 31, 2008, we recognized a benefit of $.4 million of
uncertain tax positions. At December 31, 2008, the total reserve for uncertain tax positions and
related interest is $1.2 million.
Business Combinations
We account for business acquisitions using the purchase method, which requires us to allocate
the cost of an acquired business to the acquired tangible and intangible assets and the liabilities
based on their estimated fair values at acquisition date. We recognize the excess of an acquired
businesss cost over the fair value of acquired assets less liabilities as goodwill. When the
amount assigned to assets acquired and liabilities assumed exceeds the cost of the acquired
business, we recognize an additional cost element for the acquired business related to any
contingent consideration and recognize a liability for the lesser of the maximum amount of the
contingent consideration or the excess. When the amount assigned to assets acquired and
liabilities assumed exceeds the cost
31
of the acquired business including any related contingent consideration, we allocate the
excess as a pro rata reduction of the amounts that otherwise would have been assigned to the
acquired property and equipment and other intangible assets of the acquired business. Generally we
use third-party appraisers to determine the fair values and lives of property and identifiable
intangibles and consult with actuaries to determine the fair value of obligations under retirement
plans assumed and legal counsel to assess obligations associated with legal and environmental
claims, if any.
Pensions
We record plan assets, obligations and expenses related to pension benefit plans based on
actuarial valuations, which include key assumptions on discount rates, expected returns on plan
assets and compensation increases. These actuarial assumptions are reviewed annually and modified
as appropriate. The effect of modifications is generally recorded or amortized over future
periods. The discount rate of 5.75 % at December 31, 2008 reflects an analysis of yield curves as
of the end of the year and the schedule of expected cash needs of the plan. The expected long-term
return on plan assets of 8.0% reflects the plans historical returns and represents our best
estimate of the likely future returns on the plans asset mix. We believe the assumptions used in
recording obligations under the plans are reasonable based on prior experience, market conditions
and the advice of plan actuaries. However, an increase in the discount rate would decrease the
plan obligations and the net periodic benefit cost, while a decrease in the discount rate would
increase the plan obligations and the net periodic benefit cost. In addition, an increase in the
expected long-term return on plan assets would decrease the net periodic pension cost, while a
decrease in expected long-term return on plan assets would increase the net periodic pension cost.
Recently Issued Accounting Pronouncements
In December 2008, the Financial Accounting Standards Board (FASB) issued Financial Staff
Position (FSP) Financial Accounting Standard 132R-1 Employers Disclosures about Postretirement
Benefit Plan Assets (FAS 132R-1), which amends FASB Statement 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. Beginning in fiscal years ending
after December 15, 2009, employers will be required to provide more transparency about the assets
in their postretirement benefit plans, including defined benefit pension plans. FAS 132R-1 was
issued in response to users concerns that employers financial statements do not provide adequate
transparency about the types of assets and associated risks in employers postretirement plans. In
current disclosures of the major categories of plan assets, many employers provide information
about only four asset categories: equity, debt, real estate, and other investments. For many
employers, the other investment category has increased to include a significant percentage of
plan assets. Users indicate that such disclosure is not sufficiently specific to permit evaluation
of the nature and risks of assets held as investments. FAS 132R-1s amended disclosure
requirements about plan assets are principles-based. The objectives of the disclosures are to
provide users with an understanding of the following:
|
|
|
How investment decisions are made, including factors necessary to understanding
investment policies and strategies |
|
|
|
|
The major categories of plan assets |
|
|
|
|
The inputs and valuation techniques used to measure the fair value of plan assets |
|
|
|
|
The effect of fair value measurements using significant unobservable inputs (Level 3
measurements in Statement 157 on changes in plan assets for the period) |
|
|
|
|
Significant concentrations of risk within plan assets |
The Company does not expect the adoption of this standard to have an impact on its financial
position, results of operations, or cash flows.
In May 2008, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 162, The
Hierarchy of Generally Accepted Accounting Principles (SFAS 162). SFAS 162 identifies the sources
of accounting principles and the framework for selecting the principles used in the preparation of
financial statements. SFAS 162 will be effective 60 days following the Securities and Exchange
Commissions approval of the Public Company Accounting Oversight Board amendments to AU Section
411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.
The Company does not expect the adoption of this standard to have an impact on its financial
position, results of operations, or cash flows.
32
In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). The intent
of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset
under SFAS 141R and other U.S. generally accepted accounting principles. FSP 142-3 applies
prospectively to business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning after December 15, 2008.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161). SFAS 161 requires companies with derivative instruments to
disclose information on how derivative instruments and related hedged items are accounted for under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and how derivative
instruments and related hedged items affect a Companys financial position, financial performance
and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. Because the Company does not currently use
derivative instruments and hedging of foreign currencies is minimal, the Company does not expect
this statement to have a material impact on our consolidated financial statements
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51 (SFAS 160). This standard amends ARB No. 51 to
establish accounting and reporting for the noncontrolling interest in a subsidiary and for
deconsolidation of a subsidiary. It also amends certain of ARB No. 51s consolidation procedures
for consistency with the requirements of FASB Statement No. 141 (revised 2007), Business
Combinations. This standard is effective for financial statements issued for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R). SFAS
141R revises the principles and requirements for how the acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling
interest in the acquiree, and the goodwill acquired in a business combination or gain from a
bargain purchase. SFAS 141R also revises the principles and requirements for how the acquirer
determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. This standard is effective for financial
statements issued for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. The adoption of SFAS 141R will have an impact on accounting for business
combinations once adopted, but the effect is dependent upon acquisitions after that time.
SFAS 160 and 141R will be applied prospectively to future business combinations entered into
beginning in 2009. Certain provisions of SFAS 160 relating to presentation of noncontrolling
interests in consolidated balance sheets and statements of consolidated income are required to be
adopted retrospectively.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company operates manufacturing facilities and offices around the world and uses fixed and
floating rate debt to finance the Companys global operations. As a result, the Company is subject
to business risks inherent in non-U.S. activities, including political and economic uncertainty,
import and export limitations and market risk related to changes in interest rates and foreign
currency exchange rates. The Company believes the political and economic risks related to the
Companys international operations are mitigated due to the stability of the countries in which the
Companys largest international operations are located.
The Company had one di minimus derivative instrument at our Poland subsidiary. 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 $6 million at December 31, 2008. A 100 basis point increase in
the interest rate would have resulted in an increase in interest expense of approximately $.1
million for the year ended December 31, 2008.
33
The Companys primary currency rate exposures are related to foreign denominated debt,
intercompany debt, forward exchange contracts, foreign denominated receivables and cash and
short-term investments. A hypothetical 10% change in currency rates would have a
favorable/unfavorable impact on fair values of $2.3 million and on income before tax of less than
$.1 million.
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of Preformed Line Products Company
We have audited the accompanying consolidated balance sheet of Preformed Line Products Company as
of December 31, 2008, and the related statements of consolidated income, cash flows, and
shareholders equity for the year then ended. Our audit also included the financial statement
schedule listed in the Index at Item 15(a). These financial statements and schedule are the
responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Preformed Line Products Company at December 31,
2008, and the consolidated results of its operations and its cash flows for the year then ended in
conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Preformed Line Products Companys internal control over financial reporting
as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
March 10, 2009 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 10, 2009
34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Preformed Line Products Company
We have audited the accompanying consolidated balance sheet of Preformed Line Products Company and
subsidiaries (the Company) as of December 31, 2007, and the related consolidated statements of
income, shareholders equity and cash flows for the years ended December 31, 2007 and 2006. Our
audits also included the consolidated financial statement schedule listed in the Index at Item
15(a). These financial statements and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such 2007 and 2006 consolidated financial statements present fairly, in all
material respects, the financial position of Preformed Line Products Company and subsidiaries as of
December 31, 2007, and the results of their operations and their cash flows for the years ended
December 31, 2007 and 2006, in conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, such 2007 and 2006 consolidated financial statement schedule,
when considered in relation to the basic 2007 and 2006 consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
As discussed in Notes N and K to the consolidated financial statements, the accompanying 2007 and
2006 financial statements and related disclosures have been retrospectively adjusted for
discontinued operations and a change in the composition of reportable segments.
As discussed in Note F to the consolidated financial statements, the Company changed its method of
accounting for uncertain tax positions with the adoption of Financial Accounting Standards Board
Interpretation No. 48, Accounting for Uncertainty in Income Taxes effective January 1, 2007.
Also as discussed in Note C to the consolidated financial statements, the Company changed its
method of accounting for defined benefit pension and other postretirement plans with the adoption
of SFAS No. 158, Employers Accounting For Defined Benefit Pension and Other Postretirement Plans
effective December 31, 2006.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
April 4, 2008
(March 13, 2009 as to Notes N and K)
35
PREFORMED LINE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
(Thousands of dollars, except |
|
|
|
share and per share data) |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
19,869 |
|
|
$ |
23,392 |
|
Accounts receivable, less allowances of $972 ($1,199 in 2007) |
|
|
36,899 |
|
|
|
37,002 |
|
Inventories net |
|
|
48,412 |
|
|
|
43,788 |
|
Deferred income taxes |
|
|
2,786 |
|
|
|
2,982 |
|
Prepaids and other |
|
|
4,704 |
|
|
|
4,098 |
|
Current assets of discontinued operations |
|
|
|
|
|
|
12,188 |
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
|
112,670 |
|
|
|
123,450 |
|
|
|
|
|
|
|
|
|
|
Property and equipment net |
|
|
55,940 |
|
|
|
58,506 |
|
Patents and other intangibles net |
|
|
3,858 |
|
|
|
5,637 |
|
Goodwill |
|
|
5,520 |
|
|
|
3,928 |
|
Deferred income taxes |
|
|
6,943 |
|
|
|
3,744 |
|
Other assets |
|
|
5,944 |
|
|
|
8,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
190,875 |
|
|
$ |
203,866 |
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Notes payable to banks |
|
$ |
3,101 |
|
|
$ |
4,076 |
|
Current portion of long-term debt |
|
|
494 |
|
|
|
1,949 |
|
Trade accounts payable |
|
|
14,632 |
|
|
|
15,178 |
|
Accrued compensation and amounts withheld from employees |
|
|
6,606 |
|
|
|
6,995 |
|
Accrued expenses and other liabilities |
|
|
4,574 |
|
|
|
6,829 |
|
Accrued profit-sharing and other benefits |
|
|
3,687 |
|
|
|
3,577 |
|
Dividends payable |
|
|
1,054 |
|
|
|
1,076 |
|
Income taxes payable |
|
|
1,100 |
|
|
|
772 |
|
Current liabilities of discontinued operations |
|
|
|
|
|
|
1,897 |
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
|
35,248 |
|
|
|
42,349 |
|
Long-term debt, less current portion |
|
|
2,653 |
|
|
|
3,010 |
|
Unfunded pension obligation |
|
|
11,303 |
|
|
|
2,787 |
|
Income taxes payable, noncurrent |
|
|
1,405 |
|
|
|
1,837 |
|
Deferred income taxes |
|
|
725 |
|
|
|
1,486 |
|
Other noncurrent liabilities |
|
|
2,540 |
|
|
|
1,772 |
|
Minority interests |
|
|
736 |
|
|
|
904 |
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common stock $2 par value per share, 15,000,000 shares
authorized,
5,223,830 and 5,380,956 issued and outstanding, net of
551,059
and 378,333 treasury shares at par, respectively |
|
|
10,448 |
|
|
|
10,762 |
|
Paid in capital |
|
|
3,704 |
|
|
|
2,720 |
|
Retained earnings |
|
|
146,624 |
|
|
|
140,339 |
|
Accumulated other comprehensive loss |
|
|
(24,511 |
) |
|
|
(4,100 |
) |
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY |
|
|
136,265 |
|
|
|
149,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
190,875 |
|
|
$ |
203,866 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
36
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(Thousands of dollars, except share and per share data) |
|
Net sales |
|
$ |
269,742 |
|
|
$ |
233,289 |
|
|
$ |
196,910 |
|
Cost of products sold |
|
|
182,475 |
|
|
|
155,388 |
|
|
|
132,185 |
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
87,267 |
|
|
|
77,901 |
|
|
|
64,725 |
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Selling |
|
|
23,555 |
|
|
|
22,623 |
|
|
|
19,134 |
|
General and administrative |
|
|
30,014 |
|
|
|
26,416 |
|
|
|
22,200 |
|
Research and engineering |
|
|
8,870 |
|
|
|
7,192 |
|
|
|
6,646 |
|
Other operating expenses net |
|
|
840 |
|
|
|
338 |
|
|
|
386 |
|
Goodwill impairment |
|
|
|
|
|
|
199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,279 |
|
|
|
56,768 |
|
|
|
48,366 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
23,988 |
|
|
|
21,133 |
|
|
|
16,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
846 |
|
|
|
1,088 |
|
|
|
1,456 |
|
Interest expense |
|
|
(544 |
) |
|
|
(595 |
) |
|
|
(564 |
) |
Other income (expense) |
|
|
470 |
|
|
|
(305 |
) |
|
|
(71 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
772 |
|
|
|
188 |
|
|
|
821 |
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES, MINORITY
INTERESTS AND DISCONTINUED OPERATIONS |
|
|
24,760 |
|
|
|
21,321 |
|
|
|
17,180 |
|
Income taxes |
|
|
7,718 |
|
|
|
7,501 |
|
|
|
5,353 |
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE MINORITY INTERESTS
AND DISCONTINUED OPERATIONS |
|
|
17,042 |
|
|
|
13,820 |
|
|
|
11,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests, net of tax |
|
|
(288 |
) |
|
|
(54 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME FROM CONTINUING
OPERATIONS |
|
|
16,754 |
|
|
|
13,766 |
|
|
|
11,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations, net of tax |
|
|
869 |
|
|
|
393 |
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
17,623 |
|
|
$ |
14,159 |
|
|
$ |
12,103 |
|
|
|
|
|
|
|
|
|
|
|
Income per share from continuing operations basic |
|
$ |
3.17 |
|
|
$ |
2.57 |
|
|
$ |
2.11 |
|
|
|
|
|
|
|
|
|
|
|
Income per share from discontinued operations basic |
|
$ |
0.17 |
|
|
$ |
0.07 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
Total net income per share basic |
|
$ |
3.34 |
|
|
$ |
2.64 |
|
|
$ |
2.16 |
|
|
|
|
|
|
|
|
|
|
|
Income per share from continuing operations diluted |
|
$ |
3.14 |
|
|
$ |
2.54 |
|
|
$ |
2.09 |
|
|
|
|
|
|
|
|
|
|
|
Income per share from discontinued operations diluted |
|
$ |
0.16 |
|
|
$ |
0.07 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
Total net income per share diluted |
|
$ |
3.30 |
|
|
$ |
2.61 |
|
|
$ |
2.14 |
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share |
|
$ |
0.80 |
|
|
$ |
0.80 |
|
|
$ |
0.80 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding basic |
|
|
5,279 |
|
|
|
5,372 |
|
|
|
5,611 |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of shares outstanding diluted |
|
|
5,339 |
|
|
|
5,416 |
|
|
|
5,660 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
37
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
(Thousands of dollars) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
17,623 |
|
|
$ |
14,159 |
|
|
$ |
12,103 |
|
Less: income from discontinued operations |
|
|
869 |
|
|
|
393 |
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
16,754 |
|
|
|
13,766 |
|
|
|
11,827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by operations: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
8,549 |
|
|
|
7,414 |
|
|
|
6,740 |
|
Provision for accounts receivable allowances |
|
|
586 |
|
|
|
938 |
|
|
|
995 |
|
Provision for inventory reserves |
|
|
1,161 |
|
|
|
22 |
|
|
|
1,917 |
|
Deferred income taxes |
|
|
(845 |
) |
|
|
(326 |
) |
|
|
(905 |
) |
Share-based compensation expense |
|
|
507 |
|
|
|
237 |
|
|
|
240 |
|
Excess tax benefits from share-based awards |
|
|
(56 |
) |
|
|
(253 |
) |
|
|
|
|
Goodwill impairment |
|
|
|
|
|
|
199 |
|
|
|
|
|
Net investment in life insurance |
|
|
50 |
|
|
|
(18 |
) |
|
|
(95 |
) |
Minority interest |
|
|
288 |
|
|
|
54 |
|
|
|
|
|
Other net |
|
|
(41 |
) |
|
|
69 |
|
|
|
(121 |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(4,603 |
) |
|
|
(4,871 |
) |
|
|
(3,903 |
) |
Inventories |
|
|
(9,499 |
) |
|
|
(4,972 |
) |
|
|
(3,133 |
) |
Trade accounts payables
and accrued liabilities |
|
|
5,663 |
|
|
|
3,100 |
|
|
|
(414 |
) |
Income taxes payable |
|
|
(2,251 |
) |
|
|
(551 |
) |
|
|
1,161 |
|
Other net |
|
|
1,048 |
|
|
|
114 |
|
|
|
(418 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
17,311 |
|
|
|
14,922 |
|
|
|
13,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(10,011 |
) |
|
|
(9,231 |
) |
|
|
(9,497 |
) |
Business acquisitions, net of cash acquired |
|
|
(3,839 |
) |
|
|
(8,438 |
) |
|
|
|
|
Proceeds from the sale of discontinued operations |
|
|
11,105 |
|
|
|
|
|
|
|
|
|
Proceeds from the sale of property and equipment |
|
|
333 |
|
|
|
548 |
|
|
|
469 |
|
Payments on life insurance |
|
|
|
|
|
|
(149 |
) |
|
|
(149 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(2,412 |
) |
|
|
(17,270 |
) |
|
|
(9,177 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in notes payable to banks |
|
|
(486 |
) |
|
|
(528 |
) |
|
|
2,300 |
|
Proceeds from the issuance of long-term debt |
|
|
6,984 |
|
|
|
1,379 |
|
|
|
3,059 |
|
Payments of long-term debt |
|
|
(8,363 |
) |
|
|
(1,456 |
) |
|
|
(3,986 |
) |
Dividends paid |
|
|
(4,247 |
) |
|
|
(4,295 |
) |
|
|
(4,508 |
) |
Excess tax benefits from share-based awards |
|
|
56 |
|
|
|
253 |
|
|
|
|
|
Proceeds from issuance of common shares |
|
|
452 |
|
|
|
735 |
|
|
|
102 |
|
Purchase of common shares for treasury |
|
|
(7,457 |
) |
|
|
(651 |
) |
|
|
(12,140 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES |
|
|
(13,061 |
) |
|
|
(4,563 |
) |
|
|
(15,173 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents |
|
|
(4,551 |
) |
|
|
1,014 |
|
|
|
651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(2,713 |
) |
|
|
(5,897 |
) |
|
|
(9,808 |
) |
NET CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows |
|
|
958 |
|
|
|
(252 |
) |
|
|
866 |
|
Investing cash flows |
|
|
(1,768 |
) |
|
|
(408 |
) |
|
|
(701 |
) |
|
|
|
|
|
|
|
|
|
|
NET CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS |
|
|
(810 |
) |
|
|
(660 |
) |
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
23,392 |
|
|
|
29,949 |
|
|
|
39,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR |
|
$ |
19,869 |
|
|
$ |
23,392 |
|
|
$ |
29,949 |
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
38
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Cumulative |
|
|
Unrecognized |
|
|
|
|
|
|
|
|
|
|
Paid in |
|
|
Retained |
|
|
Translation |
|
|
Pension Benefit |
|
|
|
|
|
|
Common Shares |
|
|
Capital |
|
|
Earnings |
|
|
Adjustment |
|
|
Cost |
|
|
Total |
|
|
|
(In thousands, except share and per share data) |
|
Balance at January 1, 2006 |
|
$ |
11,470 |
|
|
$ |
1,237 |
|
|
$ |
135,653 |
|
|
$ |
(13,925 |
) |
|
$ |
(720 |
) |
|
$ |
133,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
12,103 |
|
|
|
|
|
|
|
|
|
|
|
12,103 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,167 |
|
|
|
|
|
|
|
3,167 |
|
Minimum pension liability net
of tax benefit of $441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
720 |
|
|
|
720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,990 |
|
Cumulative effect adjustment to initially
apply SFAS 158, net of tax
benefit of $1,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,326 |
) |
|
|
(2,326 |
) |
Share-based compensation |
|
|
|
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
240 |
|
Purchase of 383,202 common shares |
|
|
(766 |
) |
|
|
|
|
|
|
(11,374 |
) |
|
|
|
|
|
|
|
|
|
|
(12,140 |
) |
Issuance of 8,664 common shares |
|
|
17 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102 |
|
Cash dividends declared $.80 per share |
|
|
|
|
|
|
|
|
|
|
(4,433 |
) |
|
|
|
|
|
|
|
|
|
|
(4,433 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006 |
|
|
10,721 |
|
|
|
1,562 |
|
|
|
131,949 |
|
|
|
(10,758 |
) |
|
|
(2,326 |
) |
|
|
131,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
14,159 |
|
|
|
|
|
|
|
|
|
|
|
14,159 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,910 |
|
|
|
|
|
|
|
7,910 |
|
Recognized net actuarial loss net
of tax provision of $39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
|
|
66 |
|
Gain on unfunded pension
obligations net of tax provision of $597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,008 |
|
|
|
1,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,143 |
|
Cumulative effect adjustment to initially
apply FIN 48 |
|
|
|
|
|
|
|
|
|
|
(845 |
) |
|
|
|
|
|
|
|
|
|
|
(845 |
) |
Share-based compensation |
|
|
|
|
|
|
237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237 |
|
Excess tax benefits from stock based awards |
|
|
|
|
|
|
253 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253 |
|
Purchase of 13,022 common shares |
|
|
(26 |
) |
|
|
|
|
|
|
(625 |
) |
|
|
|
|
|
|
|
|
|
|
(651 |
) |
Issuance of 33,719 common shares |
|
|
67 |
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
735 |
|
Cash dividends declared $.80 per share |
|
|
|
|
|
|
|
|
|
|
(4,299 |
) |
|
|
|
|
|
|
|
|
|
|
(4,299 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
10,762 |
|
|
|
2,720 |
|
|
|
140,339 |
|
|
|
(2,848 |
) |
|
|
(1,252 |
) |
|
|
149,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
17,623 |
|
|
|
|
|
|
|
|
|
|
|
17,623 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,419 |
) |
|
|
|
|
|
|
(15,419 |
) |
Recognized net actuarial loss net
of tax provision of $23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
39 |
|
Loss on unfunded pension
obligations net of tax benefit of $2,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,031 |
) |
|
|
(5,031 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,788 |
) |
Share-based compensation |
|
|
|
|
|
|
507 |
|
|
|
(18 |
) |
|
|
|
|
|
|
|
|
|
|
489 |
|
Excess tax benefits from stock based awards |
|
|
|
|
|
|
56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56 |
|
Purchase of 172,726 common shares |
|
|
(345 |
) |
|
|
|
|
|
|
(7,112 |
) |
|
|
|
|
|
|
|
|
|
|
(7,457 |
) |
Issuance of 15,600 common shares |
|
|
31 |
|
|
|
421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
452 |
|
Cash dividends declared $.80 per share |
|
|
|
|
|
|
|
|
|
|
(4,208 |
) |
|
|
|
|
|
|
|
|
|
|
(4,208 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
10,448 |
|
|
$ |
3,704 |
|
|
$ |
146,624 |
|
|
$ |
(18,267 |
) |
|
$ |
(6,244 |
) |
|
$ |
136,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
39
PREFORMED LINE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands of dollars, except share and per share data, unless specifically noted)
Note A Significant Accounting Policies
Nature of Operations
Preformed Line Products Company and subsidiaries (the Company) is a designer and
manufacturer of products and systems employed in the construction and maintenance of overhead and
underground networks for the energy, telecommunication, cable operators, data communication and
other similar industries. The Companys primary products support, protect, connect, terminate and
secure cables and wires. The Company also provides solar hardware systems and mounting hardware
for a variety of solar power applications. The Companys customers include public and private
energy utilities and communication companies, cable operators, financial institutions, governmental
agencies, contractors and subcontractors, distributors and value-added resellers. The Company
serves its worldwide markets through strategically located domestic and international manufacturing
facilities.
Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries
where ownership is greater than 50%. All intercompany accounts and transactions have been
eliminated upon consolidation.
Minority Interests
During 2008, the Company acquired an additional 8.3% of Belos SA (Belos), a Polish company,
for a total ownership interest of 92.04% of the issued and outstanding shares of Belos.
Additionally during 2008, the Company entered into a Joint Venture agreement to form a joint
venture between the Companys Australian subsidiary, Preformed Line Products Australia Pty Ltd and
BlueSky Energy Pty Ltd. The Company includes Belos and the BlueSky joint venture accounts in its
consolidated financial statements, and the minority shareholders interests in Belos and BlueSky
income and net assets are reported in the Minority Interests lines of the Statements of
Consolidated Income and the Consolidated Balance Sheets, respectively. (See Note M Business
Combinations for further details).
Cash and Cash Equivalents
Cash equivalents are stated at fair value and consist of highly liquid investments with
original maturities of three months or less at the time of acquisition.
Receivable Allowances
The Company maintains an allowance for doubtful accounts for estimated losses resulting from
the inability of our customers to make required payments. The allowances for uncollectible accounts
receivable is based upon the number of days the accounts are past due, the current business
environment, and specific information such as bankruptcy or liquidity issues of customers. The
Company also maintains an allowance for sales returns related to sales recorded during the year.
The estimated allowance is based on historical sales returns in the subsequent year related to the
prior year and any significant open return good authorizations as of the balance sheet date.
Inventories
The Company uses the last-in, first-out (LIFO) method of determining cost for the majority of
its material portion of inventories in PLP-USA. All other inventories are determined by the
first-in, first-out (FIFO) or average cost methods. Inventories are carried at the lower of cost
or market.
40
Fair Value of Financial Instruments
Financial Accounting Standards Board Statement No. 107, Disclosures about Fair Value of
Financial Instruments, requires disclosures of the fair value of financial insturments. The
carrying value of the Companys current financial instruments, which include cash and cash
equivalents, accounts receivable, accounts payable, and short-term debt, approximates its fair
value because of the short-term maturity of these instruments. At December 31, 2008, the fair
value of the Companys long-term debt was estimated using discounted cash flows analysis, based on
the Companys current incremental borrowing rates for similar types of borrowing arrangements.
Based on the analysis performed, the carrying value of the Companys long-term debt approximates
fair value at December 31, 2008.
Property, Plant and Equipment and Depreciation
Property, plant, and equipment is recorded at cost. Depreciation for the Companys PLP-USA
assets is computed using accelerated methods over the estimated useful lives, with the exception of
personal computers, which are depreciated over three years using the
straight-line method.
Depreciation for the remaining domestic and international operations assets is computed using the
straight-line method over the estimated useful lives. The estimated useful lives used, when
purchased new, are: land improvements, ten years; buildings, forty years; and machinery and
equipment, three to ten years. Appropriate reductions in estimated useful lives are made for
property, plant and equipment purchased in connection with an acquisition of a business or in a
used condition when purchased.
Long-Lived Assets
The Company records impairment losses on long-lived assets used in operations when events and
circumstances indicate that the carrying value of the assets might be impaired and the undiscounted
future cash flows estimated to be generated by such assets are less than the carrying value. The
Companys cash flows are based on historical results adjusted to reflect the Companys best
estimate of future market and operating conditions. The net carrying value of assets not
recoverable is then reduced to fair value. The estimates of fair value represent the Companys
best estimate based on industry trends and reference to market rates and transactions. The Company
did not record any impairments to long-lived assets during the year ended December 31, 2008.
Goodwill and Other Intangibles
Goodwill and intangible assets deemed to have indefinite lives are not amortized but are
subject to annual impairment tests. The Companys measurement date for its annual impairment test
is January 1 of each year. Patents and other intangible assets with finite lives represent
primarily the value assigned to patents and land use rights acquired with purchased businesses.
Patents and land use rights are amortized using the straight-line method over their useful lives.
Customer relationship intangibles are amortized using accelerated basis over the period in which
the economic benefits of the intangibles are consumed. Goodwill and other intangible assets are
also reviewed for impairment whenever events or changes in circumstances indicate the carrying
amount may be impaired, or in the case of finite lived intangible assets, when the carrying amount
may not be recoverable. Events or circumstances that would result in an impairment review
primarily include operations reporting losses or a significant change in the use of an asset.
Impairment charges are recognized pursuant to Statement of Financial Accounting Standards (SFAS)
No. 142, Goodwill and Other Intangible Assets
(SFAS 142). The Company did not record any impairments for
goodwill or other intangibles during the year ended December 31, 2008. During 2007 losses
continued for our Thailand operation which presented an indicator that the goodwill may be
impaired. The goodwill for the Thailand operation in the amount of $.2 million was impaired and
written off as of January 1, 2007.
Sales Recognition
Sales are recognized when products are shipped and the title and risk of loss has passed to
unaffiliated customers. Revenue related to shipping and handling costs billed-to customers are
included in net sales and the related shipping and handling costs are included in cost of products
sold.
41
Research and Development
Research and development costs for new products are expensed as incurred and totaled $2
million in 2008, $1.7 million in 2007 and $2.2 million in 2006.
Advertising
Advertising costs are expensed as incurred.
Foreign Currency Translation
Asset and liability accounts are translated into U.S. dollars using exchange rates in effect
at the date of the consolidated balance sheet. Revenues and expenses are translated at weighted
average exchange rates in effect during the period. Transaction gains and losses arising from
exchange rate changes on transactions denominated in a currency other than the functional currency
are included in income and expense as incurred. The translation adjustments are recorded in
accumulated other comprehensive income (loss). Upon sale or substantially complete liquidation of
an investment in a foreign entity, the cumulative translation adjustment for that entity is
reclassified from accumulated other comprehensive income (loss) to earnings.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the U.S. requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Derivative Financial Instruments
The Company had one di minimus derivative instrument at its Poland subsidiary. The Company
does not hold derivatives for trading purposes.
Reclassifications
Certain prior year amounts have been reclassified to conform to current year presentation.
The Companys consolidated financial statements were impacted by the divestiture of Superior
Modular Products (SMP) on May 30, 2008. The net assets and operating results of SMP are reported in
the Consolidated Balance Sheets and the Statements of Consolidated Income, and Statements of
Consolidated Cash Flows as Discontinued Operations for all periods presented. See Note N
Discontinued Operations for further details.
Recently Issued Accounting Pronouncements
In December 2008, the Financial Accounting Standards Board (FASB) issued Financial Staff
Position (FSP) Financial Accounting Standard 132R-1 Employers Disclosures about Postretirement
Benefit Plan Assets (FAS 132R-1), which amends FASB Statement 132 (revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. Beginning in fiscal years ending
after December 15, 2009, employers will be required to provide more transparency about the assets
in their postretirement benefit plans, including defined benefit pension plans. FAS 132R-1 was
issued in response to users concerns that employers financial statements do not provide adequate
transparency about the types of assets and associated risks in employers postretirement plans. In
current disclosures of the major categories of plan assets, many employers provide information
about only four asset categories: equity, debt, real estate, and other investments. For many
employers, the other investment category has increased to include a significant percentage of
plan assets. Users indicate that such disclosure is not sufficiently specific to permit evaluation
of the nature and risks of assets held as investments. FAS 132R-1s amended disclosure
requirements about plan assets are principles-based. The objectives of the disclosures are to
provide users with an understanding of the following:
42
|
|
|
How investment decisions are made, including factors necessary to understanding
investment policies and strategies |
|
|
|
|
The major categories of plan assets |
|
|
|
|
The inputs and valuation techniques used to measure the fair value of plan assets |
|
|
|
|
The effect of fair value measurements using significant unobservable inputs (Level 3
measurements in Statement 157 on changes in plan assets for the period) |
|
|
|
|
Significant concentrations of risk within plan assets |
The Company does not expect the adoption of this standard to have an impact on its financial
position, results of operations, or cash flows.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements. SFAS 162 will be
effective 60 days following the Securities and Exchange Commissions approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting Principles. The Company does not expect the
adoption of this standard to have an impact on its financial position, results of operations, or
cash flows.
In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of
Intangible Assets (FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142). The intent
of FSP 142-3 is to improve the consistency between the useful life of a recognized intangible asset
under SFAS 142 and the period of expected cash flows used to measure the fair value of the asset
under SFAS 141R and other U.S. generally accepted accounting principles. FSP 142-3 applies
prospectively to business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning after December 15, 2008.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161). SFAS 161 requires companies with derivative instruments to
disclose information on how derivative instruments and related hedged items are accounted for under
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and how derivative
instruments and related hedged items affect a Companys financial position, financial performance
and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. Because the Company does not currently use
derivative instruments and hedging of foreign currencies is minimal, the Company does not expect
this statement to have a material impact on our consolidated financial statements
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statements an amendment of ARB No. 51 (SFAS 160). This standard amends ARB No. 51 to
establish accounting and reporting for the noncontrolling interest in a subsidiary and for
deconsolidation of a subsidiary. It also amends certain of ARB No. 51s consolidation procedures
for consistency with the requirements of FASB Statement No. 141 (revised 2007), Business
Combinations. This standard is effective for financial statements issued for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15, 2008.
In December 2007, the FASB issued SFAS No. 141R, Business Combinations (SFAS 141R). SFAS
141R revises the principles and requirements for how the acquirer recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling
interest in the acquiree, and the goodwill acquired in a business combination or gain from a
bargain purchase. SFAS 141R also revises the principles and requirements for how the acquirer
determines what information to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. This standard is effective for financial
statements issued for fiscal years, and interim periods within those fiscal years, beginning on or
after December 15, 2008. The adoption of SFAS 141R will have an impact on accounting for business
combinations once adopted, but the effect is dependent upon acquisitions after that time.
SFAS 160 and 141R will be applied prospectively to future business combinations entered into
beginning in 2009. Certain provisions of SFAS 160 relating to presentation of noncontrolling
interests in consolidated balance
43
sheets and statements of consolidated income are required to be adopted retrospectively.
Note B Other Financial Statement Information
Inventories net
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Finished products |
|
$ |
21,829 |
|
|
$ |
20,417 |
|
Work-in-process |
|
|
2,382 |
|
|
|
2,363 |
|
Raw materials |
|
|
32,231 |
|
|
|
29,860 |
|
|
|
|
|
|
|
|
|
|
|
56,442 |
|
|
|
52,640 |
|
Excess of current cost over LIFO cost |
|
|
(5,122 |
) |
|
|
(3,733 |
) |
Noncurrent portion of inventory |
|
|
(2,908 |
) |
|
|
(5,119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
48,412 |
|
|
$ |
43,788 |
|
|
|
|
|
|
|
|
Costs for inventories of certain material are determined using the LIFO method and totaled
approximately $21.7 million and $18.6 million at December 31, 2008 and 2007, respectively.
During the first quarter of 2008, management determined the $.5
million of its current inventory balance should have been classified
as noncurrent at December 31, 2007. In addition to this
reclassification from current to noncurrent, management also
identified and corrected the classification of certain inventory
balances between the categories of inventory at December 31, 2007.
Although management determined that these adjustments were not
material, quantitatively or qualitatively, to the consolidated balance
sheet at December 31, 2007, the reclassifications are included in the
above table. Noncurrent inventory is included in other assets on the consolidated balance sheets.
Property and equipment net
Major classes of property, plant and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Land and improvements |
|
$ |
5,490 |
|
|
$ |
6,223 |
|
Buildings and improvements |
|
|
47,048 |
|
|
|
44,537 |
|
Machinery and equipment |
|
|
91,097 |
|
|
|
91,376 |
|
Construction in progress |
|
|
2,133 |
|
|
|
6,053 |
|
|
|
|
|
|
|
|
|
|
|
145,768 |
|
|
|
148,189 |
|
Less accumulated depreciation |
|
|
89,828 |
|
|
|
89,683 |
|
|
|
|
|
|
|
|
|
|
$ |
55,940 |
|
|
$ |
58,506 |
|
|
|
|
|
|
|
|
Depreciation of property and equipment was $8 million in 2008, $6.9 million in 2007 and $6.3
million in 2006. Machinery and equipment includes $.7 million and $1 million of capital leases at
December 31, 2008 and 2007, respectively.
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
In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans (SFAS 158). This standard requires an employer to
recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset
or liability in its statement of financial position and to recognize changes in the funded status
in the year in which the changes occur through comprehensive income. This standard also requires
an employer to measure the funded status of a plan as of the
44
date of its year-end statement of
financial position. This standard also requires disclosure in the notes to financial statements,
additional information about certain effects on net periodic benefit cost for the next fiscal year
that arise from delayed recognition of the gains or losses, prior service costs or credits, and
transition assets or obligations. The requirement to initially recognize the funded status of a
defined benefit postretirement plan and to provide the required disclosures was effective for an
employer with publicly traded equity securities as of the end of the fiscal year ending after
December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date
of the employers fiscal year-end statement of financial position is effective for fiscal years
ending after December 15, 2008.
As a result of adopting SFAS 158, the Company was required to recognize the underfunded status
of its PLP-USA defined benefit pension plan as a liability. The adjustment required the Company to
recognize the pension liability on adoption of this statement and resulted in a reduction of
accumulated other comprehensive income for an unrecognized net loss of $3.7 million pre-tax, or
$2.3 million net of tax at December 31, 2006. As of December 31, 2007, $2 million pre-tax or $1.3
million after-tax is included in accumulated other comprehensive income for unrecognized net
losses.
PLP-USA hourly employees of the Company who meet specific requirements as to age and service
are covered by a defined benefit pension plan. The Company uses a December 31 measurement date for
its plan.
Net periodic pension cost for PLP-USAs pension plan consists of the following components for
the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
704 |
|
|
$ |
708 |
|
|
$ |
793 |
|
Interest cost |
|
|
1,063 |
|
|
|
938 |
|
|
|
901 |
|
Expected return on plan assets |
|
|
(998 |
) |
|
|
(938 |
) |
|
|
(872 |
) |
Recognized net actuarial loss |
|
|
63 |
|
|
|
105 |
|
|
|
214 |
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost |
|
$ |
832 |
|
|
$ |
813 |
|
|
$ |
1,036 |
|
|
|
|
|
|
|
|
|
|
|
The following tables set forth benefit obligations, plan assets and the accrued benefit cost
of PLP-USAs pension plan at December 31:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of the
year |
|
$ |
15,952 |
|
|
$ |
16,410 |
|
Service cost |
|
|
704 |
|
|
|
708 |
|
Interest cost |
|
|
1,063 |
|
|
|
938 |
|
Actuarial loss (gain) |
|
|
3,241 |
|
|
|
(1,718 |
) |
Benefits paid |
|
|
(409 |
) |
|
|
(386 |
) |
|
|
|
|
|
|
|
Projected benefit obligation at end of year |
|
$ |
20,551 |
|
|
$ |
15,952 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of the
year |
|
$ |
13,165 |
|
|
$ |
12,428 |
|
Actual (loss) return on plan assets |
|
|
(3,735 |
) |
|
|
845 |
|
Employer contributions |
|
|
227 |
|
|
|
278 |
|
Benefits paid |
|
|
(409 |
) |
|
|
(386 |
) |
|
|
|
|
|
|
|
Fair value of plan assets at end of the year |
|
$ |
9,248 |
|
|
$ |
13,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded pension obligation |
|
$ |
(11,303 |
) |
|
$ |
(2,787 |
) |
|
|
|
|
|
|
|
In accordance with SFAS 158, the Company recognizes the underfunded status of its PLP-USA
pension plan as a liability. The amount recognized in accumulated other comprehensive loss related
to PLP-USAs pension plan at December 31 is comprised of the following:
45
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Balance at January 1 |
|
$ |
(1,233 |
) |
|
$ |
(2,326 |
) |
|
|
|
|
|
|
|
|
|
Reclassification adjustments: |
|
|
|
|
|
|
|
|
Pretax amortized net actuarial loss |
|
|
62 |
|
|
|
105 |
|
Tax provision |
|
|
(23 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to recognize (loss) gain
on unfunded pension obligations: |
|
|
|
|
|
|
|
|
Pretax (loss) gain on plan assets |
|
|
(7,973 |
) |
|
|
1,625 |
|
Tax (provision) benefit |
|
|
2,942 |
|
|
|
(598 |
) |
|
|
|
|
|
|
|
|
|
|
(5,031 |
) |
|
|
1,027 |
|
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
(6,225 |
) |
|
$ |
(1,233 |
) |
|
|
|
|
|
|
|
The estimated net loss for the PLP-USA pension plan that will be amortized from accumulated
other comprehensive income into periodic benefit cost for 2009 is $.5 million. There is no prior
service cost to be amortized in the future.
The PLP-USA pension plan had accumulated benefit obligations in excess of plan assets as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation |
|
$ |
16,101 |
|
|
$ |
12,837 |
|
Fair market value of assets |
|
|
9,248 |
|
|
|
13,165 |
|
Weighted-average assumptions used to determine benefit obligations at December 31 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
Discount rate |
|
|
5.75 |
% |
|
|
6.50 |
% |
Rate of compensation increase |
|
|
3.50 |
|
|
|
3.50 |
|
Weighted-average assumptions used to determine net periodic benefit cost for the years ended
December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
|
2006 |
Discount rate |
|
|
6.50 |
% |
|
|
6.00 |
% |
|
|
5.75 |
% |
Rate of compensation increase |
|
|
3.50 |
|
|
|
3.50 |
|
|
|
3.50 |
|
Expected long-term return on plan assets |
|
|
8.00 |
|
|
|
8.00 |
|
|
|
8.00 |
|
The net periodic pension cost for 2008 was based on a long-term asset rate of return of 8.0%.
This rate is based upon managements estimate of future long-term rates of return on similar assets
and is consistent with historical returns on such assets.
The Companys pension plan weighted-average asset allocations at December 31, 2008 and 2007,
by asset category, are as follows:
46
|
|
|
|
|
|
|
|
|
|
|
Plan assets |
|
|
at December 31 |
Asset category |
|
2008 |
|
2007 |
|
|
|
|
|
|
|
|
|
Equity securities |
|
|
58 |
% |
|
|
66 |
% |
Debt securities |
|
|
40 |
|
|
|
31 |
|
Cash and equivalents |
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
Management seeks to maximize the long-term total return of financial assets consistent with
the fiduciary standards of ERISA. The ability to achieve these returns is dependent upon the need
to accept moderate risk to achieve long-term capital appreciation.
In recognition of the expected returns and volatility from financial assets, retirement plan
assets are invested in the following ranges with the target allocation noted:
|
|
|
|
|
|
|
|
|
|
|
Range |
|
Target |
Equities |
|
|
30-80 |
% |
|
|
60 |
% |
Fixed Income |
|
|
20-70 |
% |
|
|
40 |
% |
Cash Equivalents |
|
|
0-10 |
% |
|
|
|
|
Investment in these markets is projected to provide performance consistent with expected
long-term returns with appropriate diversification.
The Companys policy is to fund amounts deductible for federal income tax purposes. The
Company expects to contribute $1.3 million to its pension plan in 2009.
The benefits expected to be paid out of the plan assets in each of the next five years and the
aggregate benefits expected to be paid for the subsequent five years are as follows:
|
|
|
|
|
Year |
|
Pension Benefits |
|
|
|
|
|
2009 |
|
$ |
453 |
|
2010 |
|
|
480 |
|
2011 |
|
|
516 |
|
2012 |
|
|
569 |
|
2013 |
|
|
639 |
|
2014-2018 |
|
|
4,436 |
|
The Company also provides retirement benefits through various defined contribution plans
including PLP-USAs Profit Sharing Plan. Expense for defined contribution plans was $3.6 million
in 2008, $3.5 million in 2007, and $3.6 million in 2006.
Further, the Company also provides retirement benefits through the Supplemental Profit Sharing
Plan. To the extent an employees award under PLP-USAs Profit Sharing Plan exceeds the maximum
allowable contribution permitted under existing tax laws, the excess is accrued for (but not
funded) under a non-qualified Supplemental Profit Sharing Plan. The return under this Supplemental
Profit Sharing Plan is calculated at a weighted average of the one year Treasury Bill rate plus 1%.
At December 31, 2008 and 2007, the interest rate for the Supplemental Profit Sharing Plan was
4.34% and 5.99%, respectively. Expense for the Supplemental Profit Sharing Plan was $.4 million
for 2008, $.2 million for 2007 and $.1 million for 2006. The Supplemental Profit Sharing Plan
unfunded status as of December 31, 2008 and 2007 was $1.3 million and $.9 million. The
Supplemental Profit Sharing Plan is noncurrent and is included in Other noncurrent liabilities.
47
Note D Debt and Credit Arrangements
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
|
|
|
|
|
|
|
Secured Notes |
|
|
|
|
|
|
|
|
Thailand Baht denominated (Baht106,400) at 5.18% in 2008 (4.50% in 2007) |
|
$ |
3,101 |
|
|
$ |
3,826 |
|
USD denominated at 8.00% |
|
|
|
|
|
|
250 |
|
Current portion of long-term debt |
|
|
494 |
|
|
|
1,949 |
|
|
|
|
|
|
|
|
Total short-term debt |
|
|
3,595 |
|
|
|
6,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
Australian dollar denominated term loans (A$1,667),
at 5.83% to 7.11% (5.83% to 6.54% in 2007), due 2009 and 2013, secured
by land and building |
|
|
1,152 |
|
|
|
3,127 |
|
Chinese Rmb denominated term loan (RMB10,000) at 6.48% due 2012,
secured by letter of credit |
|
|
1,467 |
|
|
|
1,371 |
|
Thailand Baht denominated capital loan (Baht1,055) at 3.75% to 3.95%
due 2010, secured by capital equipment |
|
|
9 |
|
|
|
19 |
|
Australian dollar denominated capital loan (A$405) at 6.80%
(6.80% in 2007), due 2009, secured by capital equipment |
|
|
33 |
|
|
|
204 |
|
Polish Zloty denominated loans (PLN834) at 3.00% to 6.31% (3.00 to 6.47%
in 2007) due 2011,
secured by building, capital equipment and commercial note |
|
|
284 |
|
|
|
238 |
|
Polish Zloty denominated loans (PLN593) at 6.31% due 2011,
secured by corporate guarantee |
|
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
3,147 |
|
|
|
4,959 |
|
Less current portion |
|
|
(494 |
) |
|
|
(1,949 |
) |
|
|
|
|
|
|
|
Total long-term debt, less current portion |
|
|
2,653 |
|
|
|
3,010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
$ |
6,248 |
|
|
$ |
9,035 |
|
|
|
|
|
|
|
|
A PLP-USA revolving credit agreement makes $20 million available to the Company at an interest
rate of money market plus .875%. At December 31, 2008, the interest rate on the revolving credit
agreement was 1.26%. There was no debt outstanding at December 31, 2008 under the revolving credit
agreement. The Company paid less than $.1 million in commitment fees on the revolving credit
agreement during 2008. The revolving credit agreement contains, among other provisions,
requirements for maintaining levels of working capital, net worth and profitability. At December
31, 2008, the Company was in compliance with these covenants.
Aggregate maturities of long-term debt during the next five years are as follows: $.5 million
for 2009, $.4 million for 2010, $.7 million for 2011, $.9 million for 2012, and $.6 million for
2013.
Interest paid was $.5 million in 2008, $.6 million in 2007 and $.5 million in 2006.
Note E Leases
The Company has commitments under operating leases primarily for office and manufacturing
space, transportation equipment, office equipment and computer equipment. Rental expense was $1.6
million in 2008, $1.5 million in 2007 and $1.3 million in 2006. Future minimum rental commitments
having non-cancelable terms exceeding one year are $1.3 million in 2009, $1.1 million in 2010, $.9
million in 2011, $.3 million in 2012, $.1 million in 2012, and an aggregate $8.5 million
thereafter. One such lease is for the Companys aircraft with a lease commitment through April
2012. Under the terms of the lease, the Company maintains the risk to make up a deficiency from
market value attributable to damage, extraordinary wear and tear, excess air hours or exceeding
maintenance overhaul schedules required by the Federal Aviation Administration. At the present
time, the Company does not believe it has incurred any obligation for any contingent rent under the
lease.
48
The Company has commitments under capital leases for equipment and vehicles. Amounts
recognized as capital lease obligations are reported in accrued expense and other liabilities and
other noncurrent liabilities in the Consolidated Balance Sheets. Future minimum rental
commitments for capital leases are less than $.1 million annually in 2009 through 2013. The
imputed interest for the capital leases is less than
$.1 million. Leased property and equipment under capital leases
are amortized using the straight-line method over the term of the
lease. Routine maintenance, repairs, and replacements are charged to
operations.
Note F Income Taxes
Income before income taxes, minority interests and discontinued operations was
derived from the following sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
8,311 |
|
|
$ |
6,627 |
|
|
$ |
5,371 |
|
Foreign |
|
|
16,449 |
|
|
|
14,694 |
|
|
|
11,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
24,760 |
|
|
$ |
21,321 |
|
|
$ |
17,180 |
|
|
|
|
|
|
|
|
|
|
|
The components of income tax expense for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Continuing operations |
|
$ |
7,718 |
|
|
$ |
7,501 |
|
|
$ |
5,353 |
|
Discontinued operations |
|
|
67 |
|
|
|
255 |
|
|
|
185 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,785 |
|
|
$ |
7,756 |
|
|
$ |
5,538 |
|
|
|
|
|
|
|
|
|
|
|
The components of income tax expense attributable to income from continuing operations for the
years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Current / Noncurrent |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
2,473 |
|
|
$ |
2,665 |
|
|
$ |
1,445 |
|
Foreign |
|
|
5,679 |
|
|
|
4,787 |
|
|
|
4,592 |
|
State and local |
|
|
411 |
|
|
|
375 |
|
|
|
221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,563 |
|
|
|
7,827 |
|
|
|
6,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(380 |
) |
|
|
(785 |
) |
|
|
(513 |
) |
Foreign |
|
|
(494 |
) |
|
|
569 |
|
|
|
(365 |
) |
State and local |
|
|
29 |
|
|
|
(110 |
) |
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(845 |
) |
|
|
(326 |
) |
|
|
(905 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,718 |
|
|
$ |
7,501 |
|
|
$ |
5,353 |
|
|
|
|
|
|
|
|
|
|
|
49
The differences between the provision for income taxes from continuing operations at the U.S.
statutory rate and the tax shown in the Statements of Consolidated Income for the years ended
December 31 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Statutory Federal Tax Rate |
|
|
34 |
% |
|
|
34 |
% |
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal tax at statutory rate |
|
$ |
8,419 |
|
|
$ |
7,249 |
|
|
$ |
5,841 |
|
State and local taxes, net of federal benefit |
|
|
233 |
|
|
|
185 |
|
|
|
164 |
|
Non-deductible expenses |
|
|
269 |
|
|
|
99 |
|
|
|
43 |
|
Foreign earnings and related tax credits |
|
|
40 |
|
|
|
77 |
|
|
|
47 |
|
Non-U.S. tax rate variances |
|
|
(992 |
) |
|
|
(340 |
) |
|
|
(132 |
) |
Valuation allowance |
|
|
140 |
|
|
|
265 |
|
|
|
(489 |
) |
Tax credits |
|
|
(65 |
) |
|
|
(137 |
) |
|
|
(168 |
) |
Other, net |
|
|
(326 |
) |
|
|
103 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,718 |
|
|
$ |
7,501 |
|
|
$ |
5,353 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets and liabilities are recognized for the expected future tax consequences of
temporary differences between the tax basis of assets and liabilities and their carrying value for
financial statement purposes. The tax effects of temporary differences that give rise to the
Companys deferred tax assets and liabilities at December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Accrued compensation and benefits |
|
$ |
973 |
|
|
$ |
1,115 |
|
Inventory valuation reserves |
|
|
1,355 |
|
|
|
1,367 |
|
Allowance for doubtful accounts |
|
|
50 |
|
|
|
176 |
|
Benefit plan reserves |
|
|
4,828 |
|
|
|
1,077 |
|
Foreign tax credits |
|
|
4,193 |
|
|
|
3,988 |
|
Capital tax loss carryforwards |
|
|
2,152 |
|
|
|
|
|
NOL carryforwards |
|
|
547 |
|
|
|
332 |
|
Other accrued expenses |
|
|
1,607 |
|
|
|
1,615 |
|
Undistributed foreign earnings |
|
|
|
|
|
|
1 |
|
Unrecognized tax benefits |
|
|
119 |
|
|
|
173 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
15,824 |
|
|
|
9,844 |
|
Valuation allowance |
|
|
(4,152 |
) |
|
|
(1,860 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
11,672 |
|
|
|
7,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation and other basis differences |
|
|
(2,079 |
) |
|
|
(1,730 |
) |
Undistributed foreign earnings |
|
|
(39 |
) |
|
|
|
|
Inventory |
|
|
(31 |
) |
|
|
(83 |
) |
Prepaid expenses |
|
|
(70 |
) |
|
|
(67 |
) |
Intangibles |
|
|
(401 |
) |
|
|
(845 |
) |
Other |
|
|
(48 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
(2,668 |
) |
|
|
(2,744 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
9,004 |
|
|
$ |
5,240 |
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Change in net deferred tax assets: |
|
|
|
|
|
|
|
|
Deferred income tax benefit |
|
$ |
845 |
|
|
$ |
326 |
|
Items of other comprehensive income (loss) |
|
|
2,919 |
|
|
|
(636 |
) |
Unrecognized tax benefits at implementation |
|
|
|
|
|
|
134 |
|
Deferred tax balances of acquired companies |
|
|
|
|
|
|
(1,023 |
) |
|
|
|
|
|
|
|
Total change in net deferred tax assets |
|
$ |
3,764 |
|
|
$ |
(1,199 |
) |
|
|
|
|
|
|
|
Deferred taxes are recognized at currently enacted tax rates for temporary differences between
the financial reporting and income tax bases of assets and liabilities and operating loss and tax
credit carryforwards.
At December 31, 2008, the Company had in total $6.9 million of gross deferred tax assets
related to the tax deductiblity of carryfowards: $4.2 million of foreign tax credit carryforwards
that will expire in years 2013 and 2014, $2.2 million of capital loss carryfowards that will expire
in 2013 and $.5 million of net operating loss carryfowards that will expire between the years 2009
and 2013. The Company has established a valuation allowance of $4.2 million at December 31, 2008
to record its gross deferred tax assets at an amount that is more likely than not to be realized.
The valuation allowance was recorded for $1.5 million of foreign tax credits carryfowards, $2.2
million of capital losses carryfowards and $.5 million of net operating loss carryforwards that may
expire before being realized. The net increase in the valuation allowance was $2.3 million in 2008
primarily due to the valuation allowance recorded for the capital loss from the sale of SMP, a
wholly owned domestic subsidiary. In 2007, the net increase in the valuation allowance was $.3
million due to the valuation allowance recorded for the expiration of net foreign operating loss
carryfowards.
As of December 31, 2008, the Company has established a deferred tax liability of less than $.1
million associated with its plans to repatriate approximately $5.5 million of its undistributed
foreign earnings. Upon repatriation, the associated U.S. income taxes will be fully offset by
foreign tax credit carryforwards. The Company has not provided for U.S. income taxes or foreign
witholding taxes on the remaining undistributed earnings of its foreign subsidiaries, which are
considered to be permanently reinvested. The amount of such earnings is approximately $77.5
million at December 31, 2008. These earnings would be taxable upon the sale or liquidation of
these foreign subsidiaries, or upon the remittance of dividends. While the measurement of the
unrecognized U.S. income taxes with respect to these earnings is not practicable, foreign tax
credits would be available to offset some or all of any portion of such earnings that are remitted
as dividends.
Income taxes paid, net of refunds, were approximately $7.7 million in 2008, $8.1 million in
2007 and $5.2 million in 2006.
The Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no
longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax
authorities for years before 2002.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the
implementation of FASB Financial Interpretation No. 48, the Company recognized approximately 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 as of the date of adoption was approximately $1.8 million, all of which would
affect the effective tax rate if recognized.
51
The changes in unrecognized tax benefits for the years ended December 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
Balance at January 1 |
|
$ |
1,585 |
|
|
$ |
1,819 |
|
Additions for tax positions of current year |
|
|
161 |
|
|
|
224 |
|
Additions for tax positions of prior years |
|
|
290 |
|
|
|
|
|
Reductions for tax positions of prior years |
|
|
(282 |
) |
|
|
(121 |
) |
Expiration of statutes of limitations |
|
|
(578 |
) |
|
|
(337 |
) |
|
|
|
|
|
|
|
Balance at December 31 |
|
$ |
1,176 |
|
|
$ |
1,585 |
|
|
|
|
|
|
|
|
Accrued interest is not included in the above unrecognized tax balances at December 31, 2008
and 2007. The Company recognizes interest accrued related to unrecognized tax benefits in income
tax expense. During the year ended December 31, 2008 and 2007, the Company recognized less than
$.1 million in interest, net of the amount lapsed through expiring statutes. The Company had
approximately $.2 million for the payment of interest accrued at December 31, 2008 and 2007. No
penalties have been accrued for unrecognized tax positions. If recognized, the entire balance of
unrecognized tax benefits would affect the tax rate. The Company may decrease its unrecognized tax
benefits by approximately $.6 million within the next twelve months due to the expiration of
statutes of limitations.
Note G Share-Based Compensation
The 1999 Stock Option Plan
The 1999 Stock Option Plan (the Plan) permits the grant of 300,000 options to buy common
shares of the Company to certain employees at not less than fair market value of the shares on the
date of grant. At December 31, 2008 there were 9,000 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.
Effective January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), Share-Based
Payment (SFAS 123R). SFAS 123R requires the Company to recognize compensation expense for
share-based payment awards measured at fair value. The Company adopted the
modified-prospective-transition method and accordingly has not restated amounts in prior periods.
The Company has elected to use the simplified method of calculating the expected term of the stock
options and historical volatility to compute fair value under the Black-Scholes option-pricing
model. The risk free rate for periods within the contractual life of the option is based on the
U.S. zero coupon Treasury yield in effect at the time of grant. Forfeitures have been estimated to
be zero, as the forfeitures that occurred during 2008 were related to the discontinued operations
and are not representative of forfeitures for outstanding stock options.
There were 13,000 options granted for the year ended December 31, 2008. There were 20,000
options granted during the year ended December 31, 2007. There were no options granted during the
year ended December 31, 2006. The fair values for the stock options granted in 2008 and 2007 were
estimated at the date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2007 |
Risk-free interest rate |
|
|
4.2 |
% |
|
|
4.3 |
% |
Dividend yield |
|
|
2.8 |
% |
|
|
2.9 |
% |
Expected life (years) |
|
|
6 |
|
|
|
6 |
|
Expected volatility |
|
|
34.4 |
% |
|
|
37.9 |
% |
Activity in the Companys plan for the year ended December 31, 2008 was as follows:
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
|
|
Number of |
|
Exercise Price |
|
Contractual |
|
Intrinsic |
|
|
Shares |
|
per Share |
|
Term (Years) |
|
Value |
Outstanding at January 1, 2008 |
|
|
110,942 |
|
|
$ |
25.25 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
13,000 |
|
|
$ |
51.62 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(15,600 |
) |
|
$ |
28.96 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(1,250 |
) |
|
$ |
32.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding (vested and expected
to vest) at December 31, 2008 |
|
|
107,092 |
|
|
$ |
27.83 |
|
|
|
5.2 |
|
|
$ |
2,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2008 |
|
|
86,592 |
|
|
$ |
23.59 |
|
|
|
4.2 |
|
|
$ |
1,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant-date fair value of options granted during 2008 and 2007 was $15.52
and $11.93, respectively. The total intrinsic value of stock options exercised during the years
ended December 31, 2008, 2007, and 2006 was $.4 million, $.9 million, and $.2 million,
respectively. Cash received for the exercise of stock options during 2008 and 2007 was $.5 million
and $.7 million, respectively.
For the years ended December 31, 2008, 2007 and 2006, the Company recorded compensation
expense related to the stock options currently vesting, reducing income before taxes and net income
by $.2 million in each year. The total compensation cost related to nonvested awards not yet
recognized at December 31, 2008 is expected to be a combined total of $.2 million over a
weighted-average period of 2.2 years.
The excess tax benefits from stock based awards for the year ended December 31, 2008 of $.1
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.
Long Term Incentive Plan of 2008
The Companys Shareholders approved the Preformed Line Products Company Long Term Incentive
Plan of 2008 at the 2008 Annual Meeting of Shareholders on April 28, 2008. Under the Preformed
Line Products Company Long Term Incentive Plan of 2008 (the LTIP Plan), certain employees,
officers, and directors will be eligible to receive awards of options and restricted shares. The
purpose of this LTIP Plan is to give the Company and its subsidiaries a competitive advantage in
attracting, retaining, and motivating officers, employees, and directors and to provide an
incentive to those individuals to increase shareholder value through long-term incentives directly
linked to the Companys performance. The total number of Company common shares reserved for awards
under the LTIP Plan is 400,000. Of the 400,000 common shares, 300,000 common shares have been
reserved for
restricted share awards and 100,000 common shares have been reserved for share options. The
LTIP Plan expires on April 17, 2018.
On August 21, 2008, there were 43,637 restricted share awards granted under the LTIP Plan to
the Companys CEO and six other executive officers. Of the 43,637 restricted shares granted,
4,273 were time-based awards and 39,364 were performance-based awards. For all of the participants
except the CEO, a portion of the restricted share award is subject to time-based cliff vesting and
a portion is subject to vesting based upon the Companys performance over a three year period. All
of the CEOs restricted shares are subject to vesting based upon the Companys performance over a
three year period.
The restricted shares are offered at no cost to the employees; however, the participant must
remain employed with the Company until the restrictions on the restricted shares lapse. The fair
value of restricted share award is based on the market price of a common share on the grant date,
which on August 21, 2008 was $54.24. The Company currently estimates that no awards will be
forfeited. For time-based restricted shares the Company recognizes stock-based compensation
expense on a straight-line basis over the requisite service period of the award in General and
administrative expense in the accompanying statement of consolidated income. Compensation
53
expense related to the time-based restricted shares for the year ended December 31, 2008 was di minimus.
In 2008 dividends were reinvested in additional restricted shares, and held subject to the same
vesting requirements as the underlying restricted shares. Dividends declared in 2009 and
thereafter will be accrued in cash dividends.
Time-based restricted share compensation expense will be recognized over a three-year period
commencing September 1, 2008 and ending August 31, 2011. As of December 31, 2008, there was $.2
million of total unrecognized compensation cost related to time-based restricted share awards that
is expected to be recognized over the following 32 months.
For the performance-based awards, the number of restricted shares in which the participants
will vest depends on the Companys level of performance measured by growth in pretax income and
sales growth over a three-year performance period from January 1, 2008 and ending December 31,
2010. Depending on the extent to which the performance criterion are satisfied under the LTIP
Plan, the participants are eligible to earn common shares over the vesting period. The maximum
potential performance-based compensation expense is $2.1 million over the performance period.
Under the LTIP Plan, the performance-based awards measurement period began on January 1, 2008 and
the vesting ends December 31, 2010. Performance-based compensation expense for the year ended
December 31, 2008 was $.3 million. As of December 31, 2008, the remaining performance-based
restricted share awards compensation expense is expected to be recognized over a period of two
years. In the event of a Change in Control, vesting of the restricted shares will be accelerated
and all restrictions will lapse. Unvested performance-based awards are based on a maximum potential
payout. Actual shares awarded at the end of the performance period may be less than the maximum
potential payout level depending on achievement of performance-based award objectives.
To satisfy the vesting of its restricted share awards, the Company has reserved new shares
from its authorized but unissued shares. Any additional granted awards will also be issued from
the Companys authorized but unissued shares. Under the LTIP Plan there are 356,363 common shares
currently available for additional grants.
Note H Computation of Earnings Per Share
Basic earnings per share were computed by dividing net income by the weighted-average number
of shares of common stock outstanding for each respective period. Diluted earnings per share were
calculated by dividing net income by the weighted-average of all potentially dilutive shares of
common stock that were outstanding during the periods presented.
54
The calculation of basic and diluted earnings per share for the years ended December 31, 2008,
2007 and 2006 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
16,754 |
|
|
$ |
13,766 |
|
|
$ |
11,827 |
|
Income from discontinued operations |
|
|
869 |
|
|
|
393 |
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
17,623 |
|
|
$ |
14,159 |
|
|
$ |
12,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
Determination of shares |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
5,279 |
|
|
|
5,372 |
|
|
|
5,611 |
|
Dilutive effect stock-based awards |
|
|
60 |
|
|
|
44 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common shares outstanding |
|
|
5,339 |
|
|
|
5,416 |
|
|
|
5,660 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.17 |
|
|
$ |
2.57 |
|
|
$ |
2.11 |
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
0.17 |
|
|
$ |
0.07 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
Total net income |
|
$ |
3.34 |
|
|
$ |
2.64 |
|
|
$ |
2.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
3.14 |
|
|
$ |
2.54 |
|
|
$ |
2.09 |
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
0.16 |
|
|
$ |
0.07 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
|
|
Total net income |
|
$ |
3.30 |
|
|
$ |
2.61 |
|
|
$ |
2.14 |
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008, 2007 and 2006, 13,000, zero, and 18,000 of stock
options were excluded from the calculation of diluted earnings per share due to the average market
price being lower than the exercise price plus any unearned compensation on unvested options, and
as such they are anti-dilutive.
Note I Goodwill and Other Intangibles
The Companys finite and indefinite-lived intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
Finite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents |
|
$ |
4,807 |
|
|
$ |
(2,901 |
) |
|
$ |
4,812 |
|
|
$ |
(2,585 |
) |
Land use rights |
|
|
1,350 |
|
|
|
(32 |
) |
|
|
1,259 |
|
|
|
(8 |
) |
Customer relationships |
|
|
1,003 |
|
|
|
(369 |
) |
|
|
985 |
|
|
|
(154 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,160 |
|
|
$ |
(3,302 |
) |
|
$ |
7,056 |
|
|
$ |
(2,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
$ |
|
|
|
|
|
|
|
$ |
1,328 |
|
|
|
|
|
Goodwill |
|
|
5,520 |
|
|
|
|
|
|
|
3,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,520 |
|
|
|
|
|
|
$ |
5,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company performs its annual impairment test for goodwill pursuant to SFAS 142 as of January 1 of each year. No adjustment to the carrying
value of goodwill was required during 2008. During 2007, losses continued for our Thailand
operation which presented an indicator that the
55
goodwill may be impaired. The goodwill for the
Thailand operation in the amount of $.2 million was determined to be impaired and was written off
as of December 31, 2007. The aggregate amortization expense for other intangibles with finite
lives, ranging from 7 to 82 years, was $.6 million for the year ended December 31, 2008, $.5
million for the year ended December 31, 2007, and $.3 million for the year ended December 31, 2006.
Amortization expense is estimated to be $.5 million annually for 2009 and 2010, and $.4 million
annually for 2011, 2012 and 2013.
The Companys only intangible asset with an indefinite life is goodwill. The $2.3 million
increase to goodwill in 2008 is related to the acquisition of Direct
Power and Water Corporation (DPW) in the amount of $.5 million, the
joint venture formed between the Companys Australian subsidiary and BlueSky Energy Pty Ltd in the
amount of $.5 million and $1.4 million related to the acquisition of Belos SA (Belos) (see Note L -
Business Combinations for further details).
The changes in the carrying amount of goodwill by segment for the years ended December 31,
2008 and 2007, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Australia |
|
|
South Africa |
|
|
Poland |
|
|
All Other |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2007 |
|
$ |
1,600 |
|
|
$ |
55 |
|
|
$ |
|
|
|
$ |
511 |
|
|
$ |
2,166 |
|
Impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(199 |
) |
|
|
(199 |
) |
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,723 |
|
|
|
1,723 |
|
Curency translation |
|
|
182 |
|
|
|
2 |
|
|
|
|
|
|
|
54 |
|
|
|
238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007 |
|
|
1,782 |
|
|
|
57 |
|
|
|
|
|
|
|
2,089 |
|
|
|
3,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions |
|
|
462 |
|
|
|
|
|
|
|
1,370 |
|
|
|
489 |
|
|
|
2,321 |
|
Curency translation |
|
|
(509 |
) |
|
|
(16 |
) |
|
|
(230 |
) |
|
|
26 |
|
|
|
(729 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008 |
|
$ |
1,735 |
|
|
$ |
41 |
|
|
$ |
1,140 |
|
|
$ |
2,604 |
|
|
$ |
5,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note J Fair Value of Financial Assets and Liabilities
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). 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 was effective for financial statements issued for
fiscal years beginning after November 15, 2007 and interim periods within those fiscal periods.
This standard enables the reader of the financial statements to assess the inputs used to develop
those measurements by establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. The standard requires that assets and liabilities
carried at fair value to be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities; Level 2:
Observable market based inputs or unobservable inputs that are corroborated by market data; or
Level 3: Unobservable inputs that are not corroborated by market data.
In February 2008, the FASB issued FAS No. 157-1, Application of FASB Statement No. 157 to
FASB Statement No. 13 and Other Accounting Pronouncements that Address Fair Value Measurements for
Purposes of Lease Classification or Measurement under Statement 13 (FSP 157-1). This FSP 157-1
amends SFAS No. 157, Fair Value Measurements, to exclude FASB Statement No. 13, Accounting for
Leases, and other accounting pronouncements that address fair value measurements for purposes of
lease classification or measurement under FASB Statement 13. This FSP was effective upon the
initial adoption of SFAS No. 157.
In February 2008, the FASB issued FASB Staff Position No. 157-2 , Effective Date of FASB
Statement No. 157 (FSP 157-2), which delays the effective date of SFAS 157 for all nonrecurring
fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years
beginning after November 15, 2008. FSP 157-2 states that a measurement is recurring if it happens
at least annually and defines nonfinancial assets and nonfinancial liabilities as all assets and
liabilities other than those meeting the definition of a financial asset or financial liability in
SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an
Amendment to FAS No. 115 (SFAS 159). The Company adopted FSP 157-2 as of January 1, 2008 as it
relates to financial assets
56
and financial liabilities and its adoption did not have an impact on
its consolidated financial statements. The Company does not expect the adoption of SFAS 157, as it
relates to nonfinancial assets and liabilities to have an impact on its financial position, results
of operations, or cash flows.
In October 2008, the FASB issued FSP 157-3, Determining Fair Value of a Financial Asset in a
Market That Is Not Active (FSP 157-3). FSP 157-3 clarified the application of SFAS No. 157 in an
inactive market. It demonstrated how the fair value of a financial asset is determined when the
market for that financial asset is inactive. FSP 157-3 was effective upon issuance, including prior
periods for which financial statements had not been issued. The implementation of this standard did
not have an impact on the Companys consolidated financial position and results of operations.
In February 2007, the FASB issued SFAS 159. This standard permits entities to measure certain
financial instruments and certain other items 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 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.
This standard is effective as of the beginning of the first fiscal year that begins after November
15, 2007. The Company adopted this standard on January 1, 2008 and did not elect to measure any
additional financial instruments or other items at fair value.
Note K Segment Information
The Company designs, manufactures and sells hardware employed in the construction and
maintenance of telecommunication, energy and other utility networks, data communication products
and mounting hardware for solar power applications. Principal products include cable anchoring and
control hardware, splice enclosures which are sold primarily to customers in North and South
America, Europe, South Africa and Asia Pacific.
During the second quarter of 2008, the Company sold its SMP segment. Therefore the Company
has reevaluated its reportable segments. The Company has seven reportable segments. The segments
have been determined based on results of operations as reported by location. The reportable
segments are PLP-USA, Australia, Brazil, South Africa, Canada, Poland and All Other. The PLP-USA
segment is comprised of the U.S. operations supporting primarily the Companys domestic energy and
telecommunications products. The Australia segment is comprised of the Companys operation in
Australia supporting the Companys energy, telecommunications, data communication and solar
products. The Brazil and South Africa segments are comprised of the manufacturing and sales
operations from those locations which meet at least one of the criteria of a reportable segment.
Our final two segments are Canada and Poland, which are comprised of manufacturing and sales
operations from those locations and have been included as segments to comply with reporting
segments for 75% of consolidated sales. Our remaining operations are included in the All Other
segment as none of these operations meet the criteria for a reportable segment and individually
represent less than 10% of each of the Companys combined net sales, consolidated net income, and
consolidated assets.
The accounting policies of the operating segments are the same as those described in Note A in
the Notes To Consolidated Financial Statements. The Company evaluates performance based on net
income. No single customer accounts for more than ten percent of the Companys consolidated
revenues. It is not practical to present revenues by product line. U.S. net sales for the years
ended December 31, 2008, 2007 and 2006 were $123.8 million, $110 million and $91.4 million,
respectively. U.S. long lived assets as of December 31, 2008 and 2007 were $23.1 million and $23.6
million, respectively.
The following table presents a summary of the Companys reportable segments for the years
ended December 31, 2008, 2007 and 2006. Current year and prior year amounts have been restated to
reflect the seven reportable segments. Financial results for the PLP-USA segment include the
elimination of all segments intercompany profits in inventory.
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
111,721 |
|
|
$ |
103,173 |
|
|
$ |
91,412 |
|
Australia |
|
|
27,244 |
|
|
|
29,855 |
|
|
|
25,867 |
|
Brazil |
|
|
30,279 |
|
|
|
26,236 |
|
|
|
20,990 |
|
South Africa |
|
|
9,535 |
|
|
|
8,049 |
|
|
|
8,244 |
|
Canada |
|
|
9,952 |
|
|
|
10,620 |
|
|
|
9,824 |
|
Poland |
|
|
20,602 |
|
|
|
5,202 |
|
|
|
|
|
All Other |
|
|
60,409 |
|
|
|
50,154 |
|
|
|
40,573 |
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
269,742 |
|
|
$ |
233,289 |
|
|
$ |
196,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales |
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
7,668 |
|
|
$ |
5,424 |
|
|
$ |
5,196 |
|
Australia |
|
|
62 |
|
|
|
137 |
|
|
|
288 |
|
Brazil |
|
|
1,828 |
|
|
|
1,977 |
|
|
|
1,126 |
|
South Africa |
|
|
854 |
|
|
|
888 |
|
|
|
417 |
|
Canada |
|
|
422 |
|
|
|
117 |
|
|
|
355 |
|
Poland |
|
|
411 |
|
|
|
34 |
|
|
|
|
|
All Other |
|
|
10,645 |
|
|
|
9,849 |
|
|
|
5,777 |
|
|
|
|
|
|
|
|
|
|
|
Total intersegment sales |
|
$ |
21,890 |
|
|
$ |
18,426 |
|
|
$ |
13,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
115 |
|
|
$ |
551 |
|
|
$ |
889 |
|
Australia |
|
|
109 |
|
|
|
21 |
|
|
|
18 |
|
Brazil |
|
|
79 |
|
|
|
106 |
|
|
|
215 |
|
South Africa |
|
|
129 |
|
|
|
91 |
|
|
|
51 |
|
Canada |
|
|
101 |
|
|
|
95 |
|
|
|
172 |
|
Poland |
|
|
17 |
|
|
|
13 |
|
|
|
|
|
All Other |
|
|
296 |
|
|
|
211 |
|
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
$ |
846 |
|
|
$ |
1,088 |
|
|
$ |
1,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
(39 |
) |
|
$ |
(38 |
) |
|
$ |
(31 |
) |
Australia |
|
|
(159 |
) |
|
|
(234 |
) |
|
|
(311 |
) |
Brazil |
|
|
(28 |
) |
|
|
(21 |
) |
|
|
(5 |
) |
South Africa |
|
|
(1 |
) |
|
|
|
|
|
|
(9 |
) |
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
Poland |
|
|
(70 |
) |
|
|
(25 |
) |
|
|
|
|
All Other |
|
|
(247 |
) |
|
|
(277 |
) |
|
|
(208 |
) |
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
$ |
(544 |
) |
|
$ |
(595 |
) |
|
$ |
(564 |
) |
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
2,577 |
|
|
$ |
2,268 |
|
|
$ |
1,451 |
|
Australia |
|
|
258 |
|
|
|
825 |
|
|
|
673 |
|
Brazil |
|
|
862 |
|
|
|
1,112 |
|
|
|
576 |
|
South Africa |
|
|
777 |
|
|
|
542 |
|
|
|
546 |
|
Canada |
|
|
747 |
|
|
|
991 |
|
|
|
901 |
|
Poland |
|
|
554 |
|
|
|
(31 |
) |
|
|
|
|
All Other |
|
|
1,943 |
|
|
|
1,794 |
|
|
|
1,206 |
|
|
|
|
|
|
|
|
|
|
|
Total income taxes |
|
$ |
7,718 |
|
|
$ |
7,501 |
|
|
$ |
5,353 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
4,877 |
|
|
$ |
4,018 |
|
|
$ |
3,920 |
|
Australia |
|
|
501 |
|
|
|
1,736 |
|
|
|
1,389 |
|
Brazil |
|
|
1,336 |
|
|
|
2,286 |
|
|
|
924 |
|
South Africa |
|
|
1,980 |
|
|
|
1,185 |
|
|
|
1,319 |
|
Canada |
|
|
1,537 |
|
|
|
1,811 |
|
|
|
1,693 |
|
Poland |
|
|
1,726 |
|
|
|
(61 |
) |
|
|
|
|
All Other |
|
|
4,797 |
|
|
|
2,791 |
|
|
|
2,582 |
|
|
|
|
|
|
|
|
|
|
|
Total income from continuing operations |
|
$ |
16,754 |
|
|
$ |
13,766 |
|
|
$ |
11,827 |
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations,
net of tax |
|
|
869 |
|
|
|
393 |
|
|
|
276 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
17,623 |
|
|
$ |
14,159 |
|
|
$ |
12,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31 |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Expenditure for long-lived assets |
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
3,472 |
|
|
$ |
4,589 |
|
|
$ |
4,974 |
|
Australia |
|
|
267 |
|
|
|
693 |
|
|
|
1,140 |
|
Brazil |
|
|
1,672 |
|
|
|
470 |
|
|
|
311 |
|
South Africa |
|
|
389 |
|
|
|
141 |
|
|
|
102 |
|
Canada |
|
|
137 |
|
|
|
74 |
|
|
|
1 |
|
Poland |
|
|
833 |
|
|
|
649 |
|
|
|
|
|
All Other |
|
|
3,241 |
|
|
|
2,615 |
|
|
|
2,969 |
|
|
|
|
|
|
|
|
|
|
|
Total expenditures for long-lived assets |
|
$ |
10,011 |
|
|
$ |
9,231 |
|
|
$ |
9,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
4,399 |
|
|
$ |
4,558 |
|
|
$ |
4,141 |
|
Australia |
|
|
772 |
|
|
|
749 |
|
|
|
759 |
|
Brazil |
|
|
638 |
|
|
|
169 |
|
|
|
565 |
|
South Africa |
|
|
111 |
|
|
|
117 |
|
|
|
72 |
|
Canada |
|
|
89 |
|
|
|
93 |
|
|
|
123 |
|
Poland |
|
|
972 |
|
|
|
286 |
|
|
|
|
|
All Other |
|
|
1,568 |
|
|
|
1,442 |
|
|
|
1,080 |
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
8,549 |
|
|
$ |
7,414 |
|
|
$ |
6,740 |
|
|
|
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
As of December 31 |
|
|
|
2008 |
|
|
2007 |
|
Identifiable assets |
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
72,641 |
|
|
$ |
70,535 |
|
Australia |
|
|
19,438 |
|
|
|
25,122 |
|
Brazil |
|
|
16,087 |
|
|
|
18,022 |
|
South Africa |
|
|
5,569 |
|
|
|
4,901 |
|
Canada |
|
|
8,545 |
|
|
|
8,672 |
|
Poland |
|
|
13,920 |
|
|
|
13,238 |
|
All Other |
|
|
54,675 |
|
|
|
51,188 |
|
Discontinued operations |
|
|
|
|
|
|
12,188 |
|
|
|
|
|
|
|
|
Total identifiable assets |
|
$ |
190,875 |
|
|
$ |
203,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets |
|
|
|
|
|
|
|
|
PLP-USA |
|
$ |
22,465 |
|
|
$ |
23,202 |
|
Australia |
|
|
7,332 |
|
|
|
9,864 |
|
Brazil |
|
|
3,355 |
|
|
|
3,540 |
|
South Africa |
|
|
637 |
|
|
|
548 |
|
Canada |
|
|
1,627 |
|
|
|
1,974 |
|
Poland |
|
|
5,372 |
|
|
|
5,036 |
|
All Other |
|
|
15,152 |
|
|
|
14,342 |
|
|
|
|
|
|
|
|
Total long-lived assets |
|
$ |
55,940 |
|
|
$ |
58,506 |
|
|
|
|
|
|
|
|
Note L
Related Party Transactions
On May 15, 2008, the Company purchased 152,726 Common Shares of the Company from the John
Deaver Drinko Trust, (the Drinko Trust) and from the Elizabeth Gibson Drinko IRA (the Drinko
IRA), at a price per share of $42.24. The purchase price was calculated using the average closing
price of the Companys Common Shares on the NASDAQ over the prior thirty calendar days less 15%.
John D. Drinko was a director of the Company from 1954 until his death in January 2008. Elizabeth
Drinko is the wife of John D. Drinko. The agreements were executed on behalf of the Drinko Trust
and Drinko IRA by Elizabeth Drinko, as beneficiary of the Drinko IRA and as Trustee of the Drinko
Trust and individually and by National City Bank, as Trustee of the Drinko IRA. The purchase was
made pursuant to the previously disclosed February 2007 authorization by the Companys Board of
Directors for repurchase of up to 200,000 common shares.
The Companys DPW operation rents two properties owned by RandReau Properties, LLC and RaRe
Properties, LLC., which are owned by Kevin Goodreau, Vice President of Business Development
Solar Division, and Jeffrey Randall, Vice President of Product Design Solar Division. For the
year ended December 31, 2008 DPW paid rent expense of $.2 million for the properties.
The Companys Belos operation hires temporary employees through a temporary work agency,
Flex-Work Sp. Z o.o., which is 50% owned by Agnieszka Rozwadowska. Agnieszka Rozwadowska is the
wife of Piotr Rozwadowski, the Managing Director of the Belos operation located in Poland. For the
year ended December 31, 2008, Belos incurred a total of $1.1 million for such temporary labor
expense.
The Company was a sponsor of Ruhlman Motorsports. Ruhlman Motorsports is owned by Randall M.
Ruhlman, a director of the Company, and by his wife. No sponsorship fees were paid during 2008.
In 2007 and 2006 the Company paid annual sponsorship fees of $950,000 to Ruhlman Motorsports.
The Company, upon the approval of the Audit Committee of the Board of Directors, purchased
from the estate of Jon R. Ruhlman Lot 61 at the Champions Golf and Country Club in Rogers,
Arkansas, at a price of $275,000. The price was determined based on the appraisal of Lot 61 and
the fair market price for which the Company had sold a comparable lot. The Company owned four
other lots in this development and considered Lot
60
61 more attractive than any of the lots owned by the Company, which are listed for resale. Jon R.
Ruhlman was the previous Chairman of the Companys Board of Directors and the late husband of
Barbara P. Ruhlman and late father of Robert G. Ruhlman and Randall M. Ruhlman, all of whom are
members of the Board of Directors. The purchase was consummated pursuant to an Agreement of
Purchase and Sale between the Company and the Estate of Jon R. Ruhlman and Mrs. Ruhlman, Executrix,
dated January 30, 2006.
On September 8, 2006, the Company, upon the approval of the Audit Committee of the Board of
Directors and the Board of Directors, purchased 365,311 Common Shares of the Company from Barbara
P. Ruhlman at a price per share of $31.48. The Audit Committee, which is comprised solely of
independent directors, acted as a special committee of the Board of Directors in connection with
the review of the transaction with Mrs. Ruhlman. In connection with its review, the Audit
Committee engaged an investment banking firm to serve as its financial advisor. Barbara P. Ruhlman
is a member of the Companys Board of Directors and the mother of Robert G. Ruhlman and Randall M.
Ruhlman, both of whom are also members of the Board of Directors. The purchase was consummated
pursuant to a Shares Purchase Agreement, dated September 9, 2006, between the Company and Mrs.
Ruhlman, as trustee, under trust agreement dated February 16, 1985.
Note M -Business Combinations
On
March 22, 2007, the Company acquired all of the issued and outstanding shares of DPW for $3 million, subject to a holdback of $.4 million. DPW is a
New Mexico company that designs and installs solar systems and manufactures, mounting hardware,
battery, and equipment enclosures. The holdback of $.4 million is held as security for the sellers
indemnity obligations. Depending on the post-closing performance of DPW, earn outs may be paid to
the sellers for each of the three years following the closing date of acquisition. The Company has
recorded an earn out payment of $.4 million as a liability in the purchase price allocation.
The Companys consolidated balance sheets reflect the acquisition of DPW under the purchase
method of accounting. The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition. The purchase price allocation has been
finalized.
|
|
|
|
|
Current assets |
|
$ |
1,474 |
|
Property and equipment |
|
|
289 |
|
Goodwill |
|
|
1,756 |
|
Other intangibles |
|
|
944 |
|
|
|
|
|
Total assets acquired |
|
|
4,463 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(1,045 |
) |
Deferred income taxes |
|
|
(418 |
) |
|
|
|
|
Total liabilites assumed |
|
|
(1,463 |
) |
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
3,000 |
|
|
|
|
|
The intangible assets acquired are $.9 million for customer relationships with a useful life
of ten years and less than $.1 million for covenants not to compete with a useful life of seven
years.
The consolidated financial statements for the year ended December 31, 2007 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 September 6, 2007, the Company acquired approximately 83.74% of the issued and outstanding
shares of Belos for $6 million plus contingent consideration depending on the post-closing
performance of Belos in the year following the closing. The Company recorded a current liability of
$2.7 million related to contingent
61
consideration. Belos is a Polish company that manufactures and supplies fittings for low, medium,
and high voltage power networks in its domestic and export markets.
The Companys consolidated balance sheets reflect the acquisition of Belos under the purchase
method of accounting. Since the cost of the acquired business including the contingent
consideration exceeded the fair value assigned to assets acquired and liabilities assumed, the
Company recorded goodwill of $1.2 million as part of the final purchase price allocation. The
following table summarizes the assigned fair values of the assets acquired and liabilities assumed
at the date of acquisition. The purchase price allocation has been finalized.
|
|
|
|
|
Current assets |
|
$ |
6,088 |
|
Property and equipment |
|
|
5,341 |
|
Goodwill |
|
|
1,196 |
|
Other intangibles |
|
|
1,041 |
|
Other assets |
|
|
437 |
|
|
|
|
|
Total assets acquired |
|
|
14,103 |
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
(2,744 |
) |
Long term debt, less current portion |
|
|
(112 |
) |
Other non-current liabilities and deferred taxes |
|
|
(1,585 |
) |
Minority interest |
|
|
(850 |
) |
|
|
|
|
Total liabilites assumed |
|
|
(5,291 |
) |
|
|
|
|
Net assets acquired |
|
$ |
8,812 |
|
|
|
|
|
Of the acquired intangibles, $1 million consists of land use rights with a useful life of
82.25 years and less than $.1 million for certain customer contracts with a useful life of one
year.
Additionally during October 2008, the Company acquired an additional 8.3% of the issued and
outstanding shares of Belos for $.3 million for a total 92.04% share ownership in Belos.
The consolidated financial statements for the year ended December 31, 2007 only include
results of Belos 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 is included in the Poland category for segment
disclosures.
On May 21, 2008, the Company entered into a Joint Venture Agreement for $.3 million, as
goodwill, to form a joint venture between the Companys Australian subsidiary, Preformed Line
Products Australia Pty Ltd (PLP-AU) and BlueSky Energy Pty Ltd, a solar systems integration and
installation business based in Sydney, Australia. PLP-AU holds a 50% ownership interest in the new
joint venture company, which will operate under the name BlueSky Energy Australia (BlueSky), with
the option to acquire the remaining 50% ownership interest from BlueSky Energy Pty Ltd over the
next five years. BlueSky Energy Pty Ltd has transferred technology and assets to the joint
venture. The Companys consolidated balance sheet as of December 31, 2008 reflects the acquisition
of the joint venture under the purchase method of accounting and due to the immateriality of the
joint venture on the results of operations no additional disclosures are included. The allocation
of the purchase price has not yet been finalized.
Note N Discontinued Operations
On May 30, 2008, the Company sold its SMP subsidiary for $11.7 million and recognized a $.8
million gain, net of tax, which includes expenses incurred related to the divestiture of SMP. The
sale includes $1.5 million to be held in escrow for one year. The Company does not have any
significant continuing involvement in the operations of SMP.
The sale of SMP has been accounted for in accordance with SFAS No. 144, Accounting for the
Impairment or Disposal of Long- Lived Assets. Accordingly, operating results of SMP are presented
in the Companys consolidated statements of income as discontinued operations, net of tax, and all
periods presented have
62
been reclassified. The operation had been reported within the SMP reporting segment, which is
comprised of the U.S. operations supporting the Companys data communication products. The
operating results of the business unit for the years ended December 31, 2008, 2007 and 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
Net Sales |
|
$ |
8,308 |
|
|
$ |
21,318 |
|
|
$ |
20,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
180 |
|
|
|
648 |
|
|
|
461 |
|
Provision for income taxes |
|
|
(67 |
) |
|
|
(255 |
) |
|
|
(185 |
) |
Gain on sale, net of expenses |
|
|
756 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
$ |
869 |
|
|
$ |
393 |
|
|
$ |
276 |
|
|
|
|
|
|
|
|
|
|
|
Note O Quarterly Financial Information (unaudited)
The following table summarizes our quarterly results of operations for each of the quarters in
2008 and 2007. The results of operations have been restated to reflect SMP as a discontinued
operation (see Note N Discontinued Operations for further details). These quarterly results are
unaudited, but in the opinion of management have been prepared on the same basis as our audited
financial information and include all adjustments necessary for a fair presentation of our results
of operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter ended |
|
|
March 31 |
|
June 30 |
|
September 30 |
|
December 31 |
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
59,865 |
|
|
$ |
75,362 |
|
|
$ |
73,952 |
|
|
$ |
60,563 |
|
Gross profit |
|
|
19,005 |
|
|
|
23,677 |
|
|
|
25,463 |
|
|
|
19,122 |
|
Income before income taxes, minority interest and discontinued operations |
|
|
4,249 |
|
|
|
7,329 |
|
|
|
9,421 |
|
|
|
3,761 |
|
Income from continuing operations |
|
|
2,801 |
|
|
|
4,869 |
|
|
|
6,457 |
|
|
|
2,627 |
|
Income (loss) from discontinued operations |
|
|
149 |
|
|
|
620 |
|
|
|
(34 |
) |
|
|
134 |
|
Net income |
|
|
2,950 |
|
|
|
5,489 |
|
|
|
6,423 |
|
|
|
2,761 |
|
Income from continuing operations per share, basic |
|
|
0.52 |
|
|
|
0.92 |
|
|
|
1.24 |
|
|
|
0.50 |
|
Net income per share, basic |
|
|
0.55 |
|
|
|
1.04 |
|
|
|
1.23 |
|
|
|
0.53 |
|
Income from continuing operations per share, diluted |
|
|
0.52 |
|
|
|
0.91 |
|
|
|
1.23 |
|
|
|
0.50 |
|
Net income per share, diluted |
|
|
0.54 |
|
|
|
1.03 |
|
|
|
1.22 |
|
|
|
0.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
51,979 |
|
|
$ |
58,072 |
|
|
$ |
60,413 |
|
|
$ |
62,825 |
|
Gross profit |
|
|
17,569 |
|
|
|
19,714 |
|
|
|
21,439 |
|
|
|
19,180 |
|
Income before income taxes, minority interest and discontinued operations |
|
|
4,951 |
|
|
|
5,893 |
|
|
|
8,183 |
|
|
|
2,294 |
|
Income from continuing operations |
|
|
3,285 |
|
|
|
3,384 |
|
|
|
5,496 |
|
|
|
1,601 |
|
Income (loss) from discontinued operations |
|
|
(133 |
) |
|
|
180 |
|
|
|
96 |
|
|
|
250 |
|
Net income |
|
|
3,152 |
|
|
|
3,564 |
|
|
|
5,592 |
|
|
|
1,851 |
|
Income from continuing operations per share, basic |
|
|
0.61 |
|
|
|
0.63 |
|
|
|
1.02 |
|
|
|
0.30 |
|
Net income per share, basic |
|
|
0.59 |
|
|
|
0.67 |
|
|
|
1.04 |
|
|
|
0.34 |
|
Income from continuing operations per share, diluted |
|
|
0.61 |
|
|
|
0.63 |
|
|
|
1.01 |
|
|
|
0.29 |
|
Net income per share, diluted |
|
|
0.58 |
|
|
|
0.66 |
|
|
|
1.03 |
|
|
|
0.34 |
|
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
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 Chief Financial Officer and Vice President
of Finance, of the effectiveness of the Companys disclosure controls and procedures (as defined in
Securities and Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2008. Based on the
evaluation, the Companys management,
63
including the Chief Executive Officer and Chief Financial Officer and Vice President of Finance,
concluded that the Companys disclosure controls and procedures were effective as of December 31,
2008.
Managements Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f)
and 15d-15(f). The Companys internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and preparation of
the consolidated financial statements in accordance with generally accepted accounting principles.
Because of inherent limitations, internal control over financial reporting may not prevent or
detect misstatements and even when determined to be effective, can only provide reasonable
assurance with respect to financial statement preparation and presentation.
Management, with the participation of the Companys Chief Executive Officer and Chief
Financial Officer and Vice President of Finance, assessed the effectiveness of the Companys
internal control over financial reporting as of December 31, 2008. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control Integrated Framework. Based upon this assessment,
management concluded that the Companys internal control over financial reporting was effective as
of December 31, 2008.
The effectiveness of the Companys internal control over financial reporting as of December
31, 2008 has been audited by Ernst & Young LLP, an independent registered public accounting firm,
who expressed an unqualified opinion as stated in their report, a copy of which is included below.
Changes in Internal Control Over Financial Reporting
As of December 31, 2007, the Company reported a material weakness in internal
control over financial reporting as a consequence of not having sufficient resources with the
appropriate technical accounting knowledge in the finance organization. During 2008, the Company
has engaged an outside consultant to assist in preparing and reviewing the accounting for income taxes and hired a Manager
of Internal Audit, a Technical Accounting Manager and a part-time financial analyst. These actions were
taken to remedy the material weakness in
internal control over financial reporting as of December 31, 2007.
There have
been no other changes in the Companys internal control over financial reporting (as
defined in Rule 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2008 that
materially affected, or is reasonably likely to materially affect, the Companys internal control
over financial reporting.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of Preformed Line Products Company
We have audited Preformed Line Products Companys internal control over financial reporting as of
December 31, 2008, based on criteria established in Internal ControlIntegrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Preformed Line Products Companys management is responsible for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about
64
whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such
other procedures as we considered necessary in the circumstances. We believe that our audit
provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Preformed Line Products Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2008, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheet of Preformed Line Products Company as of
December 31, 2008 and the related statements of consolidated income, cash flows and shareholders
equity for the year then ended and our report dated March 10, 2009 expressed an unqualified opinion
thereon.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 10, 2009
Item 9B. Other Information
None
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 is incorporated by reference to the information under
the captions Election of Directors and Section 16(a) Beneficial Ownership Compliance in the
Companys Proxy Statement, for the Annual Meeting of Shareholders to be held April 27, 2009 (the
Proxy Statement). Information relative to executive officers of the Company is contained in Part
I of this Annual Report of Form 10-K. The Company has adopted a code of conduct. A copy of the
code of conduct can be obtained from the Companys Internet site
at http://www.preformed.com in its About Us
section.
Item 11. Executive Compensation
The information set forth under the caption Director and Executive Officer Compensation in
the Proxy Statement is incorporated herein by reference.
65
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Other than the information required by Item 201(d) of Regulation S-K the information set forth
under the caption Security Ownership of Certain Beneficial Owners and Management in the Proxy
Statement is incorporated herein by reference. The information required by Item 201(d) of
Regulation S-K is set forth in Item 5 of this report.
Item 13. Certain Relationships , Related Transactions and Director Independence
The information set forth under the captions Transactions with Related Persons and Election
of Directors in the Proxy Statement is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information set forth under the captions Independent Public Accountants, Audit Fees,
Audit-Related Fees, Tax Fees and All Other Fees in the Proxy Statement is incorporated herein
by reference.
Part IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements and Schedule
(b) Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Exhibit |
|
|
|
3.1
|
|
Amended and Restated Articles of Incorporation (incorporated by reference to the Companys
Registration Statement on Form 10). |
|
|
|
3.2
|
|
Amended and Restated Code of Regulations of Preformed Line Products Company (incorporated by
reference to the Companys Registration Statement on Form 10). |
|
|
|
4
|
|
Description of Specimen Share Certificate (incorporated by reference to the Companys
Registration Statement on Form 10). |
|
|
|
10.1
|
|
Preformed Line Products Company 1999 Employee Stock Option Plan (incorporated by reference to
the Companys Registration Statement on Form 10). |
|
|
|
10.2
|
|
Preformed Line Products Company Officers Bonus Plan (incorporated by reference to the
Companys 10-K filed for the year ended December 31, 2007). |
|
|
|
10.3
|
|
Preformed Line Products Company Executive Life Insurance Plan Summary (incorporated by
reference to the Companys Registration Statement on Form 10). |
|
|
|
10.4
|
|
Preformed Line Products Company Supplemental Profit Sharing Plan (incorporated by reference
to the Companys Registration Statement on Form 10). |
66
|
|
|
Exhibit |
|
|
Number |
|
Exhibit |
|
|
|
10.5
|
|
Revolving Credit Agreement between National City Bank and Preformed Line Products Company,
dated December 30, 1994 (incorporated by reference to the Companys Registration Statement on
Form 10). |
|
|
|
10.6
|
|
Amendment to the Revolving Credit Agreement between National City Bank and Preformed Line
Products Company, dated October 31, 2002 (incorporated by reference to the Companys 10-K
filing for the year ended December 31, 2003). |
|
|
|
10.7
|
|
Preformed Line Products Company 1999 Employee Stock Option Plan Incentive Stock Option
agreement (incorporated by reference to the Companys 10-K filing for the year ended December
31, 2004). |
|
|
|
10.8
|
|
Retirement Agreement between Robert C. Hazenfield and Preformed Line Products Company dated
December 19, 2005, (incorporated by reference to the Companys 10-K filing for the year ended
December 31, 2005). |
|
|
|
10.9
|
|
Stock Purchase Agreement, dated March 22, 2007, by and among the Company and Claudia W.
Goodreau, Kevin M. Goodreau, Dora Ely Randall and Jeffrey J. Randall to acquire Direct Power
and Water Corporation (incorporated by reference to the Companys 10-Q filing for the quarter
ended March 31, 2007). |
|
|
|
10.10
|
|
Conditional Share Purchase Agreement, dated April 22, 2007, by and among the Company and BBO
Spolka z o.o. to acquire a holding in Zaklady Wytworcze Sprzetu Sieciowego Belos SA
(incorporated by reference to the Companys 10-Q filing for the three-month and six-month
ended June 30, 2007). |
|
|
|
10.11
|
|
Preformed Line Products Company Chief Executive Officer Bonus Plan (incorporated by
reference to the Companys 10-K filing for the year ended December 31, 2007). |
|
|
|
10.12
|
|
Preformed Line Products Company Long Term Incentive Plan of 2008 (incorporated by reference
to the Companys 8-K current report filing dated May 1, 2008). |
|
|
|
10.13
|
|
Deferred Shares Plan (incorporated by reference to the Companys 8-K current report filing
dated August 21, 2008). |
|
|
|
10.14
|
|
Form of Restricted Shares Grant Agreement (incorporated by reference to the Companys 10-Q
filing for the quarter ended September 30, 2008). |
|
|
|
10.15
|
|
Preformed Line Products Company Deferred Shares Plan (incorporated by reference to the
Companys 8-k current report filing dated August 21, 2008). |
|
|
|
10.16
|
|
Agreement and Plan of Merger, dated May 30, 2008, by and among the Company and Optical Cable
Corporation to divest Superior Modular Company Inc. (incorporated by reference to the
Companys 8-K current report filing dated May 30, 2008). |
|
|
|
10.17
|
|
Shares Purchase Agreement between the Company and Elizabeth Gibson Drinko as Trustee of the
John Deaver DrinkoTrust Agreement and individually (incorporated by reference to the Companys
8-K current report filing dated May 16, 2008). |
|
|
|
10.18
|
|
Shares Purchase Agreement between the Company and Elizabeth Gribson Drinko as grantor and
beneficiary of the Elizabeth Gibson Drinko IRA Trust under agreement dated April 21, 2008 and
National City Bank, as Trustee of the IRA Trust (incorporated by reference to the Companys
8-K current report filing dated May 16, 2008). |
|
|
|
14.1
|
|
Preformed Line Products Company Code of Conduct (incorporated by reference to the Companys
8-K current report filing dated August 6, 2007). |
|
|
|
21
|
|
Subsidiaries of Preformed Line Products Company, filed herewith. |
|
|
|
23.1
|
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, filed herewith. |
|
|
|
23.2
|
|
Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, filed herewith. |
|
|
|
31.1
|
|
Certifications of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith. |
|
|
|
31.2
|
|
Certifications of the Principal Financial Officer, Eric R. Graef, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith. |
|
|
|
32.1
|
|
Certification of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, furnished. |
|
|
|
32.2
|
|
Certification of the Principal Accounting Officer, Eric R. Graef, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished. |
67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
|
Preformed Line Products Company
|
|
March 13, 2009 |
/s/ Robert G. Ruhlman
|
|
|
Robert G. Ruhlman |
|
|
Chairman, President and Chief Executive Officer
(principal executive officer) |
|
|
|
|
|
March 13, 2009 |
/s/ Eric R. Graef
|
|
|
Eric R. Graef |
|
|
Chief Financial Officer and Vice President Finance
(principal financial officer) |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the capacity and on the dates
indicated.
|
|
|
|
|
|
|
|
March 13, 2009 |
/s/ Robert G. Ruhlman
|
|
|
Robert G. Ruhlman |
|
|
Chairman, President and Chief Executive Officer |
|
|
|
|
|
March 13, 2009 |
/s/ Barbara P. Ruhlman
|
|
|
Barbara P. Ruhlman |
|
|
Director |
|
|
|
|
|
March 13, 2009 |
/s/ Randall M. Ruhlman
|
|
|
Randall M. Ruhlman |
|
|
Director |
|
|
|
|
|
March 13, 2009 |
/s/ Glenn E. Corlett
|
|
|
Glenn E. Corlett |
|
|
Director |
|
|
|
|
|
March 13, 2009 |
/s/ Michael E. Gibbons
|
|
|
Michael E. Gibbons |
|
|
Director |
|
|
|
|
|
March 13, 2009 |
/s/ R. Steven Kestner
|
|
|
R. Steven Kestner |
|
|
Director |
|
|
|
|
|
March 13, 2009 |
/s/ Richard R. Gascoigne
|
|
|
Richard R. Gascoigne |
|
|
Director |
|
68
PREFORMED LINE PRODUCTS COMPANY
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 2008, 2007 and 2006
(Thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions charged |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
to costs and |
|
|
|
|
|
Other additions or |
|
Balance at end of |
For the year ended December 31, 2008: |
|
beginning of period |
|
expenses |
|
Deductions |
|
deductions (a) |
|
period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
733 |
|
|
$ |
114 |
|
|
$ |
(305 |
) |
|
$ |
(44 |
) |
|
$ |
498 |
|
Reserve for credit memos |
|
|
466 |
|
|
|
472 |
|
|
|
(464 |
) |
|
|
|
|
|
|
474 |
|
Slow-moving and obsolete inventory reserves |
|
|
3,332 |
|
|
|
1,161 |
|
|
|
(1,322 |
) |
|
|
(115 |
) |
|
|
3,056 |
|
Accrued product warranty |
|
|
104 |
|
|
|
147 |
|
|
|
(94 |
) |
|
|
(28 |
) |
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions charged |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
to costs and |
|
|
|
|
|
Other additions or |
|
Balance at end of |
For the year ended December 31, 2007: |
|
beginning of period |
|
expenses |
|
Deductions |
|
deductions |
|
period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
625 |
|
|
$ |
143 |
|
|
$ |
(172 |
) |
|
$ |
137 |
|
|
$ |
733 |
|
Reserve for credit memos |
|
|
447 |
|
|
|
795 |
|
|
|
(776 |
) |
|
|
|
|
|
|
466 |
|
Slow-moving and obsolete inventory reserves |
|
|
3,843 |
|
|
|
22 |
|
|
|
(1,047 |
) |
|
|
514 |
|
|
|
3,332 |
|
Accrued product warranty |
|
|
82 |
|
|
|
41 |
|
|
|
(124 |
) |
|
|
105 |
|
|
|
104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions charged |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
to costs and |
|
|
|
|
|
Other additions or |
|
Balance at end of |
For the year ended December 31, 2006: |
|
beginning of period |
|
expenses |
|
Deductions |
|
deductions |
|
period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
384 |
|
|
$ |
253 |
|
|
$ |
(28 |
) |
|
$ |
16 |
|
|
$ |
625 |
|
Reserve for credit memos |
|
|
173 |
|
|
|
742 |
|
|
|
(468 |
) |
|
|
|
|
|
|
447 |
|
Slow-moving and obsolete inventory reserves |
|
|
2,684 |
|
|
|
1,917 |
|
|
|
(834 |
) |
|
|
76 |
|
|
|
3,843 |
|
Accrued product warranty |
|
|
10 |
|
|
|
82 |
|
|
|
(10 |
) |
|
|
|
|
|
|
82 |
|
|
|
|
(a) |
|
Other additions or deductions relate to translation adjustments. Included in 2007 are
opening balances for acquisitions for the following reserves; allowance for doubtful
accounts of $86 thousand, inventory reserves of $440 thousand and $97 thousand for accrued
product warranty. |
|
(b) |
|
All periods presented have been restated to exclude discontinued operations. |
69
Exhibit Index
|
|
|
3.1
|
|
Amended and Restated Articles of Incorporation (incorporated by reference to the Companys
Registration Statement on Form 10). |
|
|
|
3.2
|
|
Amended and Restated Code of Regulations of Preformed Line Products Company (incorporated by
reference to the Companys Registration Statement on Form 10). |
|
|
|
4
|
|
Description of Specimen Stock Certificate (incorporated by reference to the Companys
Registration Statement on Form 10). |
|
|
|
10.1
|
|
Preformed Line Products Company 1999 Employee Stock Option Plan (incorporated by reference to
the Companys Registration Statement on Form 10). |
|
|
|
10.2
|
|
Preformed Line Products Company Officers Bonus Plan (incorporated by reference to the
Companys 10-K filing for the year ended December 31, 2007). |
|
|
|
10.3
|
|
Preformed Line Products Company Executive Life Insurance Plan Summary (incorporated by
reference to the Companys Registration Statement on Form 10). |
|
|
|
10.4
|
|
Preformed Line Products Company Supplemental Profit Sharing Plan (incorporated by reference
to the Companys Registration Statement on Form 10). |
|
|
|
10.5
|
|
Revolving Credit Agreement between National City Bank and Preformed Line Products Company,
dated December 30, 1994 (incorporated by reference to the Companys Registration Statement on
Form 10). |
|
|
|
10.6
|
|
Amendment to the Revolving Credit Agreement between National City Bank and Preformed Line
Products Company, dated October 31, 2002 (incorporated by reference to the Companys 10-K
filing for the year ended December 31, 2003). |
|
|
|
10.7
|
|
Preformed Line Products Company 1999 Employee Stock Option Plan Incentive Stock Option
Agreement (incorporated by reference to the Companys 10-K filing for the year ended December
31, 2004). |
|
|
|
10.8
|
|
Retirement Agreement between Robert C. Hazenfield and Preformed Line Products Company dated
December 19, 2005 (incorporated by reference to the Companys 10-K filing for the year ended
December 31, 2005). |
|
|
|
10.9
|
|
Stock Purchase Agreement, dated March 22, 2007, by and among the Company and Claudia W.
Goodreau, Kevin M. Goodreau, Dora Ely Randall and Jeffrey J. Randall to acquire Direct Power
and Water Corporation (incorporated by reference to the Companys 10-Q filing for the quarter
ended March 31, 2007). |
|
|
|
10.10
|
|
Conditional Share Purchase Agreement, dated April 22, 2007, by and among the Company and BBO
Spolka z o.o. to acquire a holding in Zaklady Wytworcze Sprzetu Sieciowego Belos SA
(incorporated by reference to the Companys 10-Q filing for the three-month and six-month
ended June 30, 2007). |
|
|
|
10.11
|
|
Preformed Line Products Company Chief Executive Officer Bonus Plan (incorporated by
reference to the Companys 10-K filing for the year ended December 31, 2007). |
|
|
|
10.12
|
|
Preformed Line Products Company Long Term Incentive Plan of 2008 (incorporated by reference
to the Companys 8-K current report filing dated May 1, 2008). |
|
|
|
10.13
|
|
Deferred Shares Plan (incorporated by reference to the Companys 8-K current report filing
dated August 21, 2008). |
|
|
|
10.14
|
|
Form of Restricted Shares Grant Agreement (incorporated by reference to the Companys 10-Q
filing for the quarter ended September 30, 2008). |
|
|
|
10.15
|
|
Preformed Line Products Company Deferred Shares Plan (incorporated by reference to the
Companys 8-k current report filing dated August 21, 2008). |
|
|
|
10.16
|
|
Agreement and Plan of Merger, dated May 30, 2008, by and among the Company and Optical Cable
Corporation to divest Superior Modular Company Inc. (incorporated by reference to the
Companys 8-K current report filing dated May 30, 2008). |
|
|
|
10.17
|
|
Shares Purchase Agreement between the Company and Elizabeth Gibson Drinko as Trustee of the
John Deaver DrinkoTrust Agreement and individually (incorporated by reference to the Companys
8-K current report filing dated May 16, 2008). |
|
|
|
10.18
|
|
Shares Purchase Agreement between the Company and Elizabeth Gribson Drinko as grantor and
beneficiary of the Elizabeth Gibson Drinko IRA Trust under agreement dated April 21, 2008 and
National City Bank, as Trustee of the IRA Trust (incorporated by reference to the
Companys 8-K current report filing dated May 16, 2008). |
70
|
|
|
14.1
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Preformed Line Products Company Code of Conduct (incorporated by reference to the Companys
8-K current report filing dated August 6, 2007). |
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21
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Subsidiaries of Preformed Line Products Company, filed herewith. |
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23.1
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Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, filed herewith. |
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23.2
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Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, filed herewith. |
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31.1
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Certifications of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith. |
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31.2
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Certifications of the Principal Financial Officer, Eric R. Graef, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith. |
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32.1
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Certification of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, furnished. |
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32.2
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Certification of the Principal Accounting Officer, Eric R. Graef, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished. |
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