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PLPC > SEC Filings for PLPC > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for PREFORMED LINE PRODUCTS CO

Form 10-Q for PREFORMED LINE PRODUCTS CO


8-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help investors better understand our results of operations, financial condition and present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited condensed consolidated financial statements and related notes included elsewhere in this report. The MD&A is organized as follows:

Overview

Preface

Results of Operations

Application of Critical Accounting Policies and Estimates

Working Capital, Liquidity and Capital Resources

Recently Adopted Accounting Pronouncements

Recently Issued Accounting Pronouncements

OVERVIEW

Preformed Line Products Company (the "Company", "PLPC", "we", "us", or "our") was incorporated in Ohio in 1947. We are an international designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, information (data communication), and other similar industries. Our primary products support, protect, connect, terminate, and secure cables and wires. We also provide solar hardware systems and mounting hardware for a variety of solar power applications. Our goal is to continue to achieve profitable growth as a leader in the innovation, development, manufacture, and marketing of technically advanced products and services related to energy, communications, and cable systems and to take advantage of this leadership position to sell additional quality products in familiar markets. We have 17 sales and manufacturing operations in 14 different countries.

Our business operations are aligned into four operating segments to better capitalize on business development opportunities, improve ongoing services, enhance the utilization of our worldwide resources and global sourcing initiatives and manage the Company better. We report our segments in four geographic regions: PLP-USA, The Americas (includes operations in North and South America without PLP-USA), EMEA (Europe, Middle East & Africa) and Asia-Pacific in accordance with accounting standards codified in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 280, Segment Reporting. Each segment distributes a full range of our primary products. Our PLP-USA segment is comprised of our U.S. operations manufacturing our traditional products primarily supporting our domestic energy and telecommunications products. Our other three segments, The Americas, EMEA and Asia-Pacific, support our energy, telecommunications, data communication and solar products in each respective geographical region.

The segment managers responsible for each region report directly to the Company's Chief Executive Officer, who is the chief operating decision maker, and are accountable for the financial results and performance of their entire segment for which they are responsible. The business components within each segment are managed to maximize the results of the entire Company rather than the results of any individual business component of the segment.

We evaluate segment performance and allocate resources based on several factors primarily based on sales and net income.

PREFACE

Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP). Our discussions of the financial results include non-GAAP measures (e.g., foreign currency impact) to provide additional information concerning our financial results and provide information that is useful to the assessment of our performance and operating trends.

Highlights:

Net sales for the nine months ended September 30, 2012 increased 5% to $335 million compared to $318.3 million in 2011.

Net income of $24 million increased 9% compared to $22 million in 2011.

Diluted earnings per share were $4.42 per share in 2012 compared to $4.09 per share in 2011.

Our bank debt to equity ratio has decreased from 14% at December 31, 2011 to 7% at September 31, 2012. Our bank debt of $16 million decreased $14.6 million compared to December 31, 2011.


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Our financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. As foreign currencies weaken against the U.S. dollar, our revenues and costs decrease as the foreign currency-denominated financial statements translate into less U.S. dollars. On average, foreign currencies weakened against the U.S. dollar in 2012. The most significant currencies that contributed to this movement were the South African rand, the Brazilian real and the Polish zloty. On a reportable segment basis, the unfavorable impact of foreign currency on net sales and net income for the three and nine month periods ended September 30, 2012, were as follows:

                              Net Sales                             Net Income
                   Three months        Nine Months        Three months        Nine Months
   The Americas   $         (3.5 )    $        (8.1 )    $         (0.3 )    $        (0.7 )
   EMEA                     (1.8 )             (4.8 )              (0.2 )             (0.5 )
   Asia-Pacific             (0.4 )             (0.2 )                -                (0.1 )

   Total          $         (5.7 )    $       (13.1 )    $         (0.5 )    $        (1.3 )

Additionally, we had net currency exchange gains in 2012 compared to currency exchange losses in 2011 on intercompany receivables and loans. The change in the currency exchange gains and losses had a positive impact on pre-tax earnings of $2.6 million for the three month period ended September 30, 2012 and $1.1 million for the nine month period ended September 30, 2012.

For the three month period ended September 30, 2012, net sales of $114.2 million increased $5.5 million compared to 2011. The fluctuations of foreign currencies during the three month period ended September 30, 2012 had an unfavorable impact on net sales of $5.7 million as compared to 2011. Excluding the impact on currency translation, sales increased 10%. As a percentage of net sales, gross profit was 33.7% and 34.6% of net sales for the three month periods ended September 30, 2012 and 2011, respectively. Excluding the effect of currency translation of $1.9 million, gross profit increased $2.9 million, or 8%, compared to 2011. Costs and expenses of $25.3 million decreased $2.1 million, or 8%, compared to 2011. Excluding the favorable effect of currency translation of $1.1 million, costs and expenses decreased $1 million, or 4%, compared to 2011. Excluding the unfavorable effect of currency translation and as a result of the preceding factors, operating income for the three month period ended September 30, 2012 of $13.2 million increased $3.9 million compared to 2011. Net income for the three month period ended September 30, 2012 of $9.3 million increased $2.6 million compared to 2011. Excluding the unfavorable effect of currency translation, net income increased $3.2 million, or 48%, compared to 2011.

For the nine month period ended September 30, 2012, net sales of $335 million increased $16.7 million, or 5%, compared to 2011. The fluctuations of foreign currencies during the nine month period ended September 30, 2012 had an unfavorable impact on net sales of $13.1 million as compared to 2011. Excluding the impact of currency translation of $13.1 million, sales increased 9% compared to 2011. As a percentage of net sales, gross profit was 33.3% and 33.5% of net sales for each of the nine month periods ended September 30, 2012 and 2011. Excluding the unfavorable effect of currency translation of $4.2 million, gross profit of $111.5 million increased $9.1 million, or 9%, compared to 2011. Costs and expenses of $76.5 million increased $3.2 million, or 4%, compared to 2011. Excluding the favorable effect of currency translation, costs and expenses increased $5.7 million, or 8%, compared to 2011. Excluding the unfavorable effect of currency translation and as a result of the preceding factors, operating income for the nine month period ended September 30, 2012 of $34.9 million increased $3.4 million compared to 2011. Net income for the nine month period ended September 30, 2012 of $24 million increased $2 million compared to 2011. Excluding the unfavorable effect of currency translation, net income increased $3.2 million compared to 2011.

The global financial and economic conditions continue to be somewhat volatile but our financial condition continues to remain strong. Our results for the three and nine month periods ended September 30, 2012 reflect good performance despite the continued uncertainties caused by the Eurozone crisis and reduced growth in areas of the Asia-Pacific segment. Despite the current global economy, we believe our business fundamentals are sound and strategically well-positioned as we remain focused on managing costs, increasing sales volumes and delivering value to our customers. We have continued to invest in the business to improve efficiency, develop new products, increase our capacity and become an even stronger supplier to our customers. We currently have a bank debt to equity ratio of 7% and can borrow needed funds at an attractive interest rate under our credit facility.

The financial results in the Asia-Pacific segment include an immaterial business combination entered into on January 31, 2012.


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THREE MONTH PERIOD ENDED SEPTEMBER 30, 2012 COMPARED TO THREE MONTH PERIOD ENDED
SEPTEMBER 30, 2011

The following table sets forth a summary of the Company's consolidated income
statements and the percentage of net sales for the three month periods ended
September 30, 2012 and 2011. The Company's past operating results are not
necessarily indicative of future operating results.



                                            Three month period ended September 30
   Thousands of dollars                 2012                       2011                Change
   Net sales                    $ 114,206       100.0 %    $ 108,690       100.0 %    $  5,516
   Cost of products sold           75,699        66.3 %       71,130        65.4 %       4,569

   GROSS PROFIT                    38,507        33.7 %       37,560        34.6 %         947
   Costs and expenses              25,348        22.2 %       27,480        25.3 %      (2,132 )

   OPERATING INCOME                13,159        11.5 %       10,080         9.3 %       3,079
   Other income (expense)             251         0.2 %          148         0.1 %         103

   INCOME BEFORE INCOME TAXES      13,410        11.7 %       10,228         9.4 %       3,182
   Income taxes                     4,126         3.6 %        3,568         3.3 %         558

   NET INCOME                   $   9,284         8.1 %    $   6,660         6.1 %    $  2,624

Net sales. For the three month period ended September 30, 2012, net sales were $114.2 million, an increase of $5.5 million, or 5%, from the three month period ended September 30, 2011. Excluding the effect of currency translation, net sales increased 10% as summarized in the following table:

                                                              Three month period ended September 30
                                                                                  Change             Change
                                                                                  due to            excluding
                                                                                 currency           currency           %
thousands of dollars                   2012          2011         Change        translation        translation       change
Net sales
PLP-USA                              $  41,291     $  38,896     $  2,395      $           0      $       2,395           6  %
The Americas                            23,791        26,601       (2,810 )           (3,524 )              714            3
EMEA                                    18,357        15,274        3,083             (1,782 )            4,865           32
Asia-Pacific                            30,767        27,919        2,848               (440 )            3,288           12

Consolidated                         $ 114,206     $ 108,690     $  5,516      $      (5,746 )    $      11,262          10  %

The increase in PLP-USA net sales of $2.4 million, or 6%, was primarily due to an increase in sales volume of $7.1 million partially offset by a price/mix decrease of $4.7 million. International net sales for the three month period ended September 30, 2012 were unfavorably affected by $5.7 million when local currencies were converted to U.S. dollars. The following discussions of changes in net sales exclude the effect of currency translation. The Americas net sales increase of $.7 million, or 3%, primarily related to a $3.1 million increase in energy sales in the region partially offset by a $2.4 million decrease in solar sales. EMEA net sales of $18.4 million increased $4.9 million, or 32%, primarily due to stronger overall market demand in the region. In Asia-Pacific, net sales of $30.8 million increased $3.3 million, or 12%, compared to 2011. Net sales increased $2.6 million due to an acquisition entered into on January 31, 2012 coupled with higher organic sales volume of $.7 million.


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Gross profit. Gross profit of $38.5 million for the three month period ended September 30, 2012 increased $.9 million, or 3%, compared to the three month period ended September 30, 2011. Excluding the effect of currency translation, gross profit increased 8% as summarized in the following table:

                                                             Three month period ended September 30
                                                                                Change             Change
                                                                                due to            excluding
                                                                               currency           currency            %
thousands of dollars                    2012         2011       Change        translation        translation       change
Gross profit
PLP-USA                               $ 13,958     $ 14,594     $  (636 )    $           0      $        (636 )         (4 )%
The Americas                             7,717        8,034        (317 )           (1,117 )              800           10
EMEA                                     7,076        5,351       1,725               (651 )            2,376           44
Asia-Pacific                             9,756        9,581         175               (164 )              339            4

Consolidated                          $ 38,507     $ 37,560     $   947      $      (1,932 )    $       2,879            8 %

PLP-USA gross profit of $14 million decreased $.6 million compared to 2011. Gross profit decreased on higher net sales for the three months ended September 30, 2012 primarily as a result of product mix combined with an increase in production costs. International gross profit for the three month period ended September 30, 2012 was unfavorably affected by $1.9 million when local currencies were translated to U.S. dollars. The following discussion of gross profit changes excludes the effect of currency translation. The Americas gross profit increase of $.8 million was primarily the result of $.6 million from higher net sales coupled with better product margins of $.2 million. The EMEA gross profit increased $2.4 million as a result of $1.8 million from higher net sales coupled with $.5 million related to better product margins in the region. Asia-Pacific gross profit of $9.8 million increased $.3 million compared to 2011. Asia-Pacific's gross profit increased $.3 million due to an acquisition entered into on January 31, 2012. Organic gross profit in Asia-Pacific increased $.2 million due to higher net sales but was offset by lower product margins.

Costs and expenses. Costs and expenses of $25.3 million for the three month period ended September 30, 2012 decreased $2.1 million, or 8%, compared to 2011. Excluding the favorable effect of currency translation, costs and expenses decreased 4% as summarized in the following table:

                                                              Three month period ended September 30
                                                                                 Change             Change
                                                                                 due to            excluding
                                                                                currency           currency            %
thousands of dollars                    2012         2011        Change        translation        translation        change
Costs and expenses
PLP-USA                               $  8,399     $ 10,728     $ (2,329 )    $           0      $      (2,329 )         (22 )%
The Americas                             4,835        5,376         (541 )             (661 )              120             2
EMEA                                     2,942        3,756         (814 )             (337 )             (477 )         (13 )
Asia-Pacific                             9,172        7,620        1,552               (137 )            1,689            22

Consolidated                          $ 25,348     $ 27,480     $ (2,132 )    $      (1,135 )    $        (997 )          (4 )%

PLP-USA costs and expenses decreased $2.3 million primarily due to changes in net currency exchange related to intercompany receivables and loans of $1.2 million coupled with a decrease in consulting expenses of $.7 million related to our information system implementation in 2011 and $.8 million included in 2011 for acquisition related costs. Partially offsetting these decreases in PLP-USA's costs and expenses were higher employee related costs of $.5 million. International costs and expenses for the three month period ended September 30, 2012 were favorably affected by $1.1 million when local currencies were translated to U.S. dollars. The following discussion of costs and expenses excludes the effect of currency translation. The Americas costs and expenses increased $.1 million primarily due to an increase in personnel related costs in the region, higher intercompany related expenses of $.1 million, slight increases in travel related expenses, an increase in the allowance for doubtful accounts in the region partially offset by lower commissions of $.2 million and lower net foreign currency exchange losses of $.3 million. EMEA costs and expenses decreased $.5 million primarily due to $1.2 million in net foreign currency exchange gains in 2012 partially offset by an increase in personnel related costs and $.2 million of higher intercompany related expenses in the region. Asia-Pacific costs and expenses increased $1.7 million compared to 2011. An acquisition that closed on January 31, 2012 added $.8 million to cost and expenses (including $.1 million related to intangible assets amortization expense) compared to 2011. The remaining increase in Asia-Pacific costs and expenses was due to personnel related costs in the region coupled with higher IT related costs (primarily due to system implementation costs in the region), partially offset by a net change in foreign currency exchange gain of $.2 million in 2012.


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Other income (expense). Other income (expense) for the three month period ended September 30, 2012 of $.3 million increased $.1 million compared to 2011 primarily due to higher net interest income.

Income taxes. Income taxes for the three month period ended September 30, 2012 of $4.1 million was $.6 million higher than the same period in 2011. The effective tax rate for the three month period ended September 30, 2012 was 31% compared to 35% in 2011. The effective tax rate for three month period ended September 30, 2012 is lower than the U.S. federal statutory rate of 35% primarily due to increased earnings in jurisdications with lower tax rates than the U.S. federal statutory rate where such earnings are permanently reinvested. The lower effective tax rate for the three month period ended September 30, 2012 compared with the same period for 2011 was primarily due to favorable discrete items related to 2011 but recognized in 2012.

Net income. As a result of the preceding items, net income for the three month period ended September 30, 2012 was $9.3 million, compared to $6.7 million for the three month period ended September 30, 2011. Excluding the effect of currency translation, net income increased $3.2 million as summarized in the following table:

                                                            Three month period ended September 30
                                                                              Change             Change
                                                                              due to            excluding
                                                                             currency           currency            %
thousands of dollars                  2012        2011        Change        translation        translation        change
Net income
PLP-USA                              $ 3,404     $ 2,389     $  1,015      $           0      $       1,015            42 %
The Americas                           2,292       1,806          486               (309 )              795            44
EMEA                                   3,254         893        2,361               (238 )            2,599           291
Asia-Pacific                             334       1,572       (1,238 )              (18 )           (1,220 )         (78 )

Consolidated                         $ 9,284     $ 6,660     $  2,624      $        (565 )    $       3,189            48 %

PLP-USA net income increased $1 million due to a $1.7 million increase in operating income partially offset by an increase in income taxes of $.5 million coupled with a decrease in other income. International net income for the three month period ended September 30, 2012 was unfavorably affected by $.6 million when local currencies were converted to U.S. dollars. The following discussion of net income excludes the effect of currency translation. The Americas net income increased $.8 million as a result of an increase in operating income of $.7 million and an increase in other income of $.3 million partially offset by an increase in income taxes of $.2 million. EMEA net income increased $2.6 million primarily as a result of an increase in operating income of $2.9 million partially offset by an increase in income taxes of $.3 million. Asia-Pacific net income decreased $1.2 million primarily as a result of a decrease in operating income of $1.3 million and an increase in other income of $.1 million partially offset by a decrease in income taxes of $.2 million.

NINE MONTH PERIOD ENDED SEPTEMBER 30, 2012 COMPARED TO NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2011

The following table sets forth a summary of the Company's consolidated income statements and the percentage of net sales for the nine month periods ended September 30, 2012 and 2011. The Company's past operating results are not necessarily indicative of future operating results.


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                                             Nine month period ended September 30
   Thousands of dollars                 2012                       2011                Change
   Net sales                    $ 334,992       100.0 %    $ 318,308       100.0 %    $ 16,684
   Cost of products sold          223,507        66.7 %      211,651        66.5 %      11,856

   GROSS PROFIT                   111,485        33.3 %      106,657        33.5 %       4,828
   Costs and expenses              76,547        22.9 %       73,319        23.0 %       3,228

   OPERATING INCOME                34,938        10.4 %       33,338        10.5 %       1,600
   Other income (expense)             576         0.2 %          189         0.1 %         387

   INCOME BEFORE INCOME TAXES      35,514        10.6 %       33,527        10.5 %       1,987
   Income taxes                    11,501         3.4 %       11,483         3.6 %          18

   NET INCOME                   $  24,013         7.2 %    $  22,044         6.9 %    $  1,969

Net sales. For the nine month period ended September 30, 2012, net sales were $335 million, an increase of $16.7 million, or 5%, from the nine month period ended September 30, 2011. Excluding the unfavorable effect of currency translation, net sales increased 9% as summarized in the following table:

                                                             Nine month period ended September 30
                                                                                 Change             Change
                                                                                 due to            excluding
                                                                                currency           currency           %
thousands of dollars                  2012          2011         Change        translation        translation       change
Net sales
PLP-USA                             $ 125,650     $ 109,308     $ 16,342      $           0      $      16,342          15  %
The Americas                           69,844        76,448       (6,604 )           (8,073 )            1,469            2
EMEA                                   50,014        45,593        4,421             (4,821 )            9,242           20
Asia-Pacific                           89,484        86,959        2,525               (164 )            2,689            3

Consolidated                        $ 334,992     $ 318,308     $ 16,684      $     (13,058 )    $      29,742           9  %

The increase in PLP-USA net sales of $16.3 million, or 15%, was primarily due to $15.5 million related to sales volume and $.8 million due to price/mix. International net sales for the nine month period ended September 30, 2012 were unfavorably affected by $13.1 million when local currencies were converted to U.S. dollars. The following discussions of changes in net sales exclude the effect of currency translation. The Americas net sales increase of $1.5 million, or 2%, increased primarily due to an increase in energy sales volume in the region of $7.9 million partially offset by lower solar sales of $6.5 million. EMEA net sales of $50 million increased $9.2 million, or 20%, primarily due to an overall increase in sales volume in the region. In Asia-Pacific, net sales of $89.5 million increased $2.7 million, or 3%, compared to 2011. The increase in net sales was primarily due to $8.6 million related to an acquisition entered into on January 31, 2012 partially offset by lower organic sales volume of $5.9 million in the region.

Gross profit. Gross profit of $111.5 million for the nine month period ended September 30, 2012 increased $4.8 million, or 5%, compared to the nine month period ended September 30, 2011. Excluding the effect of currency translation, gross profit increased 9% as summarized in the following table:

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