# Preformed Line Products Co: Form 10-Q for the period ended Sep 30, 2021

- Company: [Preformed Line Products Co](/companies/plpc.md) (CIK 80035)
- Form: 10-Q
- Filed: 2021-10-29
- Accepted by EDGAR: Oct 29, 2021, 09:34 ET
- Period: 2021-09-30
- Accession: 0000950170-21-002496
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/80035/000095017021002496/plpc-20210930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/80035/000095017021002496/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2021-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2021-07-01 to 2021-09-30 | $135.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2021-01-01 to 2021-09-30 | $386.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2021-07-01 to 2021-09-30 | $92.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2021-01-01 to 2021-09-30 | $259.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2021-07-01 to 2021-09-30 | $43.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2021-01-01 to 2021-09-30 | $126.4m | us-gaap:GrossProfit |
| Operating income | 3 months, 2021-07-01 to 2021-09-30 | $13.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2021-01-01 to 2021-09-30 | $36.6m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2021-07-01 to 2021-09-30 | $559.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2021-01-01 to 2021-09-30 | $1.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2021-07-01 to 2021-09-30 | $3.1m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2021-01-01 to 2021-09-30 | $10.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2021-07-01 to 2021-09-30 | $10.7m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2021-01-01 to 2021-09-30 | $26.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2021-07-01 to 2021-09-30 | $2.15 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2021-01-01 to 2021-09-30 | $5.40 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2021-07-01 to 2021-09-30 | $2.19 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2021-01-01 to 2021-09-30 | $5.45 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2021-07-01 to 2021-09-30 | 4,975,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2021-01-01 to 2021-09-30 | 4,950,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2021-01-01 to 2021-09-30 | $24.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2021-01-01 to 2021-09-30 | $12.6m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2021-01-01 to 2021-09-30 | $3.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2021-01-01 to 2021-09-30 | $176.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2021-09-30 | $38.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2021-09-30 | $271.4m | us-gaap:AssetsCurrent |
| Total assets | at 2021-09-30 | $493.6m | us-gaap:Assets |
| Current liabilities | at 2021-09-30 | $114.4m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2021-09-30 | $42.4m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2021-09-30 | $3.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2021-09-30 | $308.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 45,467 characters.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the readers of our consolidated financial statements 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 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

New Accounting Standards to be Adopted

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, mounting hardware for a variety of solar power applications, and fiber optic and copper splice closures. PLPC is respected around the world for quality, dependability and market-leading customer service. Our goal is to continue to achieve profitable growth as a leader in the research, innovation, development, manufacturing, 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 30 sales and manufacturing operations in 22 different countries.

We report our segments in four geographic regions: PLP-USA (including corporate), 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, communications and special industries products. Our other three segments, The Americas, EMEA and Asia-Pacific, support our energy, communications and special industries 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 operating segment and 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 we believe is useful to the readers of our consolidated financial statements in the assessment of our performance and operating trends.

The following discussion describes our results of operations for the three and nine-month periods ended September 30, 2021. The first quarter of 2020 saw the initial global outbreak of a novel strain of coronavirus (“COVID-19”), which created significant global economic disruption. While the outbreak did not have a material impact on our results, it has continued to create challenges for us in countries that have significant outbreak mitigation strategies, namely countries in our Asia-Pacific business segment.

During the quarter ended September 30, 2021, the resurgence of COVID-19 and the Delta variant has resulted in extended lockdowns and temporary project postponements, primarily in our Asia Pacific segment, which continued to impact results in this segment. There have been some restrictions to the supply of products since the pandemic began and, during the quarters ended June 30, 2021 and September 30, 2021, we experienced significant raw material and transportation cost inflation that negatively affected our earnings. To offset these increased costs, we implemented an initial price increase in June 2021, but due to our order backlog, these price increases had a moderate effect in offsetting increased costs during the third quarter. A second price increase was implemented in October 2021 to further mitigate cost inflation. Continued cost inflation in these areas through the remainder of 2021 may require further price adjustments going forward to maintain profit margin, and any price increases may have a negative effect on demand.

We may experience other potential inflationary pressures globally and restrictions on operations may continue or expand to other regions, however, we believe that our global supply chain currently remains strong.

Due to the continued uncertainty created by COVID-19, restrictions on our operations, the operations of our customers and the global supply chain, we are continuing to actively monitor the impact of COVID-19 on current and future periods and actively manage costs and our liquidity position to provide additional flexibility while still supporting our customers and their specific needs.

While we expect that the COVID-19 outbreak will continue to bring uncertainty to our business, the businesses of our customers and the global economy, we cannot predict the duration or scope of the COVID-19 pandemic or the magnitude of its impact on our business and results of operations. In addition, the impact of COVID-19 could potentially exacerbate other risks discussed, any of which could have a material adverse effect on the Company. We continue to assess all challenges related to COVID-19 and plan accordingly. The extent of any future impact is dependent upon several factors including those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 5, 2021.

Our consolidated financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. As foreign currencies strengthen against the U.S. dollar, our sales and costs increase as the foreign currency-denominated financial statements translate into more U.S. dollars, and, conversely, when foreign currencies weaken, our sales and costs decrease upon translation into U.S. dollars. The fluctuations of foreign currencies during the three and nine months ended September 30, 2021 had a $2.0 million and $10.0 million favorable effect, respectively, on net sales when compared to the same period in 2020. There were favorable effects of $.2 million and $.5 million on net income for the three and nine-month periods ended September 30, 2021, respectively, as compared to the same period in 2020. On a reportable segment basis, the impact of foreign currency on net sales and net income for the three and nine-month periods ended September 30, 2021 was as follows:

| (Thousands of dollars) | Foreign Currency Translation Impact Net Sales Three Months | Nine Months | Net Income Three Months | Nine Months |
| --- | ---: | ---: | ---: | ---: |
| The Americas | $381 | $(625) | $72 | $176 |
| EMEA | 993 | 5,781 | 90 | 377 |
| Asia-Pacific | 663 | 4,839 | 29 | (40) |
| Total | $2,037 | $9,995 | $191 | $513 |

The operating results for the three months ended September 30, 2021 are compared to the same period in 2020. Net sales for the three months ended September 30, 2021 of $135.4 million increased $7.9 million, or 6%, compared to 2020. As a percentage of net sales, gross profit decreased to 31.9% in 2021 from 35.2% in 2020. Gross profit for the three-month periods ended September 30, 2021 and 2020 was $43.2 million and $44.9 million, respectively. Excluding the favorable impact of foreign currency translation, gross profit decreased $2.5 million, or 5%, compared to 2020. Costs and expenses of $30.1 million increased $2.1 million compared to 2020 and included an unfavorable impact from currency translation of $.5 million. Operating income for the three months ended September 30, 2021 was $13.1 million, a decrease of $3.8 million compared to 2020. Net income for the three months ended September 30, 2021 of $10.7 million decreased $13.0 million compared to the three months ended September 30, 2020. The effect of currency translation had favorable impacts of $.2 million on both operating income and net income.

The operating results for the nine months ended September 30, 2021 are compared to the same period in 2020. Net sales for the nine months ended September 30, 2021 of $386.0 million increased $38.0 million, or 11%, compared to 2020. As a percentage of net sales, gross profit decreased to 32.7% in 2021 from 33.7% in 2020. Gross profit for the nine-month periods ended September 30, 2021 and 2020 was $126.4 million and $117.4 million, respectively. Excluding the favorable impact of foreign currency translation, gross profit increased $5.8 million, or 5%, compared to 2020. Costs and expenses of $89.8 million increased $8.8 million compared to 2020 and included an unfavorable impact from currency translation of $2.5 million. Operating income for the nine months ended September 30, 2021 was $36.6 million, an increase of $.2 million compared to 2020. Net income for the nine months ended September 30, 2021 of $26.8 million decreased $.3 million compared to the nine months ended September 30, 2020. The effect of currency translation had favorable impacts of $.7 million and $.4 million on operating income and net income, respectively.

The following table reflects the impact of foreign currency fluctuations on operating income for the three and nine months ended September 30, 2021 and 2020:

| (Thousands of dollars) | Foreign Currency Impact Three Months Ended September 30 2021 | 2020 | Nine Months Ended September 30 2021 | 2020 |
| --- | ---: | ---: | ---: | ---: |
| Operating income | $13,078 | $16,890 | $36,584 | $36,340 |
| Translation gain | (245) | 0 | (714) | 0 |
| Transaction (gain) loss | (50) | 314 | 124 | 1,702 |
| Net loss (gain) on forward currency contracts | (198) | (136) | 740 | (1,039) |
| Operating income excluding currency impact | $12,585 | $17,068 | $36,734 | $37,003 |

Despite the constant changes in the current global economy, and aside from the uncertainty created by the COVID-19 outbreak, we believe our business fundamentals and our financial position are sound and we are strategically well-positioned. We remain focused on assessing our business structure, global facilities and overall capacity in conjunction with the requirements of local manufacturing in the markets that we serve. The growth in PLP-USA net sales will require additional investment to be made within our PLP-USA facilities, both in the form of operational capacity as well as increased warehouse space. These investments in our U.S. operations will allow us to further enhance the service we provide to our U.S. customers beginning in late 2022. If necessary, we will modify redundant processes and further utilize our global manufacturing network to manage costs, increase sales volumes and deliver value to our customers. We have continued to invest in the business to expand into new markets for the Company, 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 20.5% and have the continued ability borrow needed funds at a competitive interest rate under our credit facility.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2021 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2020

The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the three months ended September 30, 2021 and 2020. The Company’s past operating results are not necessarily indicative of future operating results.

| (Thousands of dollars) | Three Months Ended September 30 2021 |  | 2020 |  | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $135,380 | 100.0% | $127,463 | 100.0% | $7,917 |
| Cost of products sold | 92,217 | 68.1 | 82,549 | 64.8 | 9,668 |
| **GROSS PROFIT** | 43,163 | 31.9 | 44,914 | 35.2 | (1,751) |
| Costs and expenses | 30,085 | 22.2 | 28,024 | 22.0 | 2,061 |
| **OPERATING INCOME** | 13,078 | 9.7 | 16,890 | 13.3 | (3,812) |
| Other income, net | 722 | 0.5 | 530 | 0.4 | 192 |
| **INCOME BEFORE INCOME TAXES** | 13,800 | 10.2 | 17,420 | 13.7 | (3,620) |
| Income tax expense | 3,097 | 2.3 | 4,458 | 3.5 | (1,361) |
| **NET INCOME** | 10,703 | 7.9 | 12,962 | 10.2 | (2,259) |
| Net loss (gain) attributable to noncontrolling interests | 5 | 0.0 | (8) | (0.0) | 13 |
| **NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS** | $10,708 | 7.9% | $12,954 | 10.2% | $(2,246) |

24

*Net sales.* Net sales were $135.4 million for the three months ended September 30, 2021, an increase of $7.9 million, or 6%, from the three months ended September 30, 2020. Excluding the favorable effect of currency translation, net sales for the three months ended September 30, 2021 increased $5.9 million compared to the same period in 2020, or 5%, as summarized in the following table:

| (Thousands of dollars) Net sales | Three Months Ended September 30 2021 | 2020 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $66,891 | $53,027 | $13,864 | $0 | $13,864 | 26% |
| The Americas | 18,084 | 19,914 | (1,830) | 381 | (2,211) | (11) |
| EMEA | 26,619 | 27,034 | (415) | 993 | (1,408) | (5) |
| Asia-Pacific | 23,786 | 27,488 | (3,702) | 663 | (4,365) | (16) |
| Consolidated | $135,380 | $127,463 | $7,917 | $2,037 | $5,880 | 5% |

The year-over-year increase in PLP-USA net sales of $13.9 million, or 26%, was primarily due to a volume increase in communication product sales. International net sales for the three months ended September 30, 2021 experienced a favorable impact of $2.0 million when local currencies were converted to U.S. dollars. The following discussion of net sales excludes the effect of currency translation. The Americas net sales of $18.1 million decreased $2.2 million, or 11%, primarily due to a volume decrease in energy product sales. EMEA net sales of $26.6 million decreased $1.4 million, or 5%, primarily due to a volume decrease in energy product sales within the region. Asia-Pacific net sales of $23.8 million decreased $4.4 million, or 16%, compared to 2020 primarily due to a volume decrease in special industries products, partially resulting from the continuing effects of the disruption to the region's economy caused by the COVID-19 pandemic.

*Gross profit.* Gross profit was $43.2 million and $44.9 million for the three-month periods ended September 30, 2021 and 2020, respectively. Excluding the favorable effect of currency translation, gross profit decreased $2.5 million, or 5%, as summarized in the following table:

| (Thousands of dollars) Gross profit | Three Months Ended September 30 2021 | 2020 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $22,589 | $21,613 | $976 | $0 | $976 | 5% |
| The Americas | 6,283 | 6,535 | (252) | 130 | (382) | (6) |
| EMEA | 7,522 | 10,021 | (2,499) | 352 | (2,851) | (28) |
| Asia-Pacific | 6,769 | 6,745 | 24 | 236 | (212) | (3) |
| Consolidated | $43,163 | $44,914 | $(1,751) | $718 | $(2,469) | (5)% |

PLP-USA gross profit of $22.6 million increased $1.0 million compared to the same period in 2020 mainly as a result of increased sales volume of $13.9 million, offset by the negative impact of rising commodity prices, freight costs, inflation and an increase in warranty costs. Incremental price increases were enacted in the PLP-USA region in June and October of 2021 to further mitigate the ongoing inflation and commodity price increases. International gross profit for the three months ended September 30, 2021 was favorably impacted by $.7 million when local currencies were translated to U.S. dollars. The following discussion of gross profit excludes the effects of currency translation. The Americas gross profit decrease of $.4 million was primarily the result of a year-over-year sales decrease in the region combined with an unfavorable shift in sales product mix. EMEA’s gross profit decreased $2.9 million, mainly due to margin pressure associated with rising commodity prices, freight costs and inflation. Asia-Pacific’s gross profit decrease was the result of a year-over-year reduction in sales of $4.4 million combined with commodity price increases, partially mitigated by ongoing cost containment initiatives to offset the continued negative effects of the COVID-19 pandemic.

*Costs and expenses.* Costs and expenses of $30.1 million for the three months ended September 30, 2021 increased $2.1 million, or 7%. Excluding the unfavorable effect of currency translation, costs and expenses increased $1.6 million, or 6%, as summarized in the following table:

| (Thousands of dollars) Costs and expenses | Three Months Ended September 30 2021 | 2020 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $14,506 | $12,872 | $1,634 | $0 | $1,634 | 13% |
| The Americas | 3,607 | 3,707 | (100) | 49 | (149) | (4) |
| EMEA | 6,299 | 5,863 | 436 | 225 | 211 | 4 |
| Asia-Pacific | 5,673 | 5,582 | 91 | 199 | (108) | (2) |
| Consolidated | $30,085 | $28,024 | $2,061 | $473 | $1,588 | 6% |

PLP-USA costs and expenses of $14.5 million for the three months ended September 30, 2021 increased when compared to the same period in 2020 due to increases in commissions expense and professional fees combined with net year-over-year unfavorable transactional foreign currency losses. On a consolidated basis, costs and expenses for the three months ended September 30, 2021 were unfavorably impacted by $.5 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 of $3.6 million were relatively flat when compared to the three-month period ended September 30, 2021. EMEA costs and expenses of $6.3 million increased $.2 million mainly due to higher personnel-related expenses. Asia-Pacific costs and expenses were relatively flat year-over-year.

*Other income, net.* Other income, net for the three-month periods ended September 30, 2021 and 2020 was $.7 million and $.5 million, respectively. Other income, net for the three-month period ended September 30, 2021 includes a pre-tax recovery of approximately $1.0 million related to a recent Brazilian Supreme Court decision that granted the Company the right to recover, through offset of federal tax liabilities, certain tax over-payments collected by the Brazilian government. For the three-month period ended September 30, 2020, the Company recorded $.7 million of non-recurring COVID-19 subsidies received by various subsidiaries around the world.

*Income taxes.* Income taxes for the three months ended September 30, 2021 and 2020 were $3.1 million and $4.5 million, respectively, based on pre-tax income of $13.8 million and $17.3 million, respectively. The effective tax rate for the three-month periods ended September 30, 2021 and 2020 was 22% and 26%, respectively. The decrease in the effective tax rate is primarily related to favorable movement in permanent items including executive retirement compensation.

*Net income.* As a result of the preceding items, net income for the three months ended September 30, 2021 was $10.7 million, compared to $13.0 million for the three months ended September 30, 2020, a decrease of $2.2 million as summarized in the following table:

| (Thousands of dollars) Net income | Three Months Ended September 30 2021 | 2020 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $6,688 | $6,753 | $(65) | $0 | $(65) | (1)% |
| The Americas | 2,474 | 1,908 | 566 | 72 | 494 | 26 |
| EMEA | 697 | 2,912 | (2,215) | 90 | (2,305) | (79) |
| Asia-Pacific | 849 | 1,381 | (532) | 29 | (561) | (41) |
| Consolidated | $10,708 | $12,954 | $(2,246) | $191 | $(2,437) | (19)% |

PLP-USA’s net income for the three months ended September 30, 2021 decreased $.1 million compared to the same period in 2020, primarily due to an decrease in operating income of $.7 million combined with an increase in net other expense of $.1 million, partially offset by a decrease in income tax expense of $.7 million. The following discussion of net income excludes the effect of currency translation. The Americas net income increased $.5 million mainly as a result of a pre-tax recovery in Brazil of $1.0 million. EMEA net income decreased $2.3 million mainly as a result of a $3.0 million decrease in operating income, partially offset by a decrease in income tax expense of $.7 million. Asia-Pacific net income decreased $.6 largely due to a decrease in operating income of $.1 million combined with an increase of other expense, net of $.8 million, which was due to non-recurring subsidy income recorded during the three months ended September 30, 2020. A decrease in income tax expense of $.3 million partially offset the negative impacts on net income.

NINE MONTHS ENDED SEPTEMBER 30, 2021 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2020

The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the nine months ended September 30, 2021 and 2020. The Company’s past operating results are not necessarily indicative of future operating results.

| (Thousands of dollars) | Nine Months Ended September 30 2021 |  | 2020 |  | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $385,971 | 100.0% | $347,944 | 100.0% | $38,027 |
| Cost of products sold | 259,577 | 67.3 | 230,554 | 66.3 | 29,023 |
| **GROSS PROFIT** | 126,394 | 32.7 | 117,390 | 33.7 | 9,004 |
| Costs and expenses | 89,810 | 23.3 | 81,050 | 23.3 | 8,760 |
| **OPERATING INCOME** | 36,584 | 9.5 | 36,340 | 10.4 | 244 |
| Other income, net | 347 | 0.1 | 69 | 0.0 | 278 |
| **INCOME BEFORE INCOME TAXES** | 36,931 | 9.6 | 36,409 | 10.5 | 522 |
| Income tax expense | 10,161 | 2.6 | 9,306 | 2.7 | 855 |
| **NET INCOME** | $26,770 | 6.9 | $27,103 | 7.8 | $(333) |
| Net (gain) loss attributable to noncontrolling interests | (15) | (0.0) | 30 | 0.0 | (45) |
| **NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS** | $26,755 | 6.9% | $27,133 | 7.8% | $(378) |

*Net sales.* Net sales were $386.0 million for the nine months ended September 30, 2021, an increase of $38.0 million, or 11%, from the nine months ended September 30, 2020. Excluding the favorable effect of currency translation, net sales for the nine months ended September 30, 2021 increased $28.0 million compared to the same period in 2020, or 8%, as summarized in the following table:

| (Thousands of dollars) Net sales | Nine Months Ended September 30 2021 | 2020 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $185,208 | $153,595 | $31,613 | $0 | 31,613 | 21% |
| The Americas | 54,230 | 54,641 | (411) | (625) | 214 | 0 |
| EMEA | 77,452 | 68,441 | 9,011 | 5,781 | 3,230 | 5 |
| Asia-Pacific | 69,081 | 71,267 | (2,186) | 4,839 | (7,025) | (10) |
| Consolidated | $385,971 | $347,944 | $38,027 | $9,995 | $28,032 | 8% |

The year-over-year increase in PLP-USA net sales of $31.6 million, or 21%, was primarily due to a volume increase in communication product sales. International net sales for the nine months ended September 30, 2021 experienced a favorable impact of $10.0 million when local currencies were converted to U.S. dollars. The following discussion of net sales excludes the net effect of currency translation. The Americas net sales of $54.2 million increased $.2 million, primarily due to a volume increase in communication product sales, partially offset by decreases in energy product sales. EMEA net sales of $77.5 million increased $3.2 million, or 5%, primarily due to a volume increase in communication product sales within the region. Asia-Pacific net sales of $69.1 million decreased $7.0 million, or 10%, compared to 2020 primarily due to a year-over-year volume decrease across all product lines, partially resulting from the continuing effects of the disruption to the region's economy caused by the COVID-19 pandemic.

*Gross profit.* Gross profit was $126.4 million and $117.4 million for the nine-month periods ended September 30, 2021 and 2020, respectively. Excluding the favorable effect of currency translation, gross profit increased $5.8 million, or 5%, as summarized in the following table:

| (Thousands of dollars) Gross profit | Nine Months Ended September 30 2021 | 2020 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $66,493 | $59,379 | $7,114 | $0 | $7,114 | 12% |
| The Americas | 17,719 | 17,658 | 61 | (52) | 113 | 1 |
| EMEA | 23,981 | 23,621 | 360 | 1,933 | (1,573) | (7) |
| Asia-Pacific | 18,201 | 16,732 | 1,469 | 1,338 | 131 | 1 |
| Consolidated | $126,394 | $117,390 | $9,004 | $3,219 | $5,785 | 5% |

PLP-USA gross profit of $66.5 million increased $7.1 million compared to the same period in 2020 as a result of increased sales volume of $31.6 million combined with a product sales mix shift to higher margin product and continued cost containment within labor and manufacturing expense, partially offset by commodity price increases and inflation. International gross profit for the nine months ended September 30, 2021 was favorably impacted by $3.2 million when local currencies were translated to U.S. dollars. The following discussion of gross profit excludes the effects of currency translation. The Americas gross profit increase of $.1 million was largely the result of a product margin improvement in the region due to sales product mix. EMEA’s gross profit decreased $1.6 million, primarily as a result an increase in sales of $3.2 million and a shift to higher sales volume in higher margin communication products. Despite the year-over-year decrease in sales, Asia-Pacific’s gross profit remained relatively flat, partially as a result of continued cost containment measures to mitigate the ongoing effects of COVID-19.

*Costs and expenses.* Costs and expenses of $89.8 million for the nine months ended September 30, 2021 increased $8.8 million, or 11%. Excluding the unfavorable effect of currency translation, costs and expenses increased $6.3 million, or 8%, as summarized in the following table:

| (Thousands of dollars) Costs and expenses | Nine Months Ended September 30 2021 | 2020 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $41,649 | $38,193 | $3,456 | $0 | $3,456 | 9% |
| The Americas | 10,652 | 10,419 | 233 | (258) | 491 | 5 |
| EMEA | 19,549 | 16,420 | 3,129 | 1,413 | 1,716 | 10 |
| Asia-Pacific | 17,960 | 16,018 | 1,942 | 1,351 | 591 | 4 |
| Consolidated | $89,810 | $81,050 | $8,760 | $2,506 | $6,254 | 8% |

PLP-USA costs and expenses of $41.6 million for the nine months ended September 30, 2021 increased $3.5 million when compared to the same period in 2020 mainly due to increased commission expenses and higher personnel-related costs. On a consolidated basis, costs and expenses for the nine months ended September 30, 2021 were unfavorably impacted by $2.5 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 of $10.7 million increased $.5 million for the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to higher net transactional foreign currency losses. EMEA costs and expenses of $19.5 million increased $1.7 million mainly due to higher personnel-related expenses, which were partially offset by a decrease in foreign currency net transactional gains and lower travel and entertainment expenses. Asia-Pacific saw an increase of $.6 million primarily due to increases in personnel related costs.

*Other income, net.* Other income, net for the nine-month periods ended September 30, 2021 and 2020 was $.5 million and $.1 million, respectively. Other income, net for the nine-month period ended September 30, 2021 includes a pre-tax recovery of approximately $1.0 million related to a recent Brazilian Supreme Court decision that granted the Company the right to recover, through offset of federal tax liabilities, certain tax overpayments collected by the Brazilian government. For the nine-month period ended September 30, 2020, the Company recorded $.8 million of non-recurring COVID-19 subsidies received by various subsidiaries around the world.

*Income taxes.* Income taxes for the nine months ended September 30, 2021 and 2020 were $10.2 million and $9.0 million, respectively, based on pre-tax income of $36.9 million and $36.4 million, respectively. The effective tax rate for the nine months ended September 30, 2021 and 2020 was 28% and 26%, respectively. The increase in the effective tax rate was due increased earnings in higher tax jurisdictions.

On January 1, 2021, the Company adopted Accounting Standards Update (ASU) 2019-12, Income Taxes ("ASC 740") – Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The adoption of ASU 2019-12 did not result in any material adjustments.

*Net income.* As a result of the preceding items, net income for the nine months ended September 30, 2021 was $26.8 million, compared to $27.1 million for the nine months ended September 30, 2020, a decrease of $.4 million as summarized in the following table:

| (Thousands of dollars) Net income | Nine Months Ended September 30 2021 | 2020 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $18,583 | $16,439 | $2,144 | $0 | $2,144 | 13% |
| The Americas | 5,627 | 4,598 | 1,029 | 176 | 853 | 19 |
| EMEA | 2,935 | 5,495 | (2,560) | 377 | (2,937) | (53) |
| Asia-Pacific | (390) | 601 | (991) | (40) | (951) | 158 |
| Consolidated | $26,755 | $27,133 | $(378) | $513 | $(891) | (3)% |

PLP-USA’s net income for the nine months ended September 30, 2021 increased $2.1 million, or 13%, compared to the same period in 2020, primarily due to an increase in operating income of $3.7 million, partially offset by an increase in other expense, net of $.3 million combined with an increase in income tax expense of $1.3 million. The following discussion of net income excludes the effect of currency translation. The Americas net income increased $.9 million, mainly as a result of a pre-tax recovery of approximately $1.0 million in Brazil. EMEA net income decreased $2.9 million as a result of a $3.3 million decrease in operating income combined with a $.1 million increase in other operating expense, net, of $.1 million, partially offset by $.5 million year-over-year decrease in income tax expense. Asia-Pacific net income decreased $1.0 million mainly due to a $.5 million decrease in operating expense combined with an increase in other expense, net of $.7 million, partially offset by a decrease in income tax expense of $.2 million.

POLICIES AND ESTIMATES

Our critical accounting policies are consistent with the information set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the year ended December 31, 2020 filed on March 5, 2021 with the Securities and Exchange Commission and are, therefore, not presented herein.

WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES

#### Management Assessment of Liquidity

We measure liquidity on the basis of our ability to meet short-term and long-term operating needs, repay debt, fund additional investments, including acquisitions, and make dividend payments to shareholders. Significant factors affecting the management of liquidity are cash flows from operating activities, capital expenditures, cash dividends, business acquisitions and access to bank lines of credit.

Our investments include expenditures required for equipment and facilities as well as expenditures in support of our strategic initiatives. During the first nine months of 2021, we used cash of $12.6 million for capital expenditures. We ended the first nine months of 2021 with $38.3 million of cash, cash equivalents and restricted cash (collectively, “Cash”). Our Cash is held in various locations throughout the world. At September 30, 2021, the majority of our Cash was held outside the United States (“U.S.”). We expect most accumulated non-U.S. Cash balances will remain outside of the U.S. and that we will meet U.S. liquidity needs through future operating cash flows, use of U.S. Cash balances, external borrowings, or some combination of these sources. We complete comprehensive reviews of our significant customers and their creditworthiness by analyzing financial statements for customers where we have identified a measure of increased risk. We closely monitor payments and developments which may signal possible customer credit issues. We currently have not identified any potential material impact on our liquidity from customer credit issues.

Total debt, including notes payable, at September 30, 2021 was $63.2 million. At September 30, 2021, our unused availability under our line of credit was $50.6 million and our bank debt to equity percentage was 20.5%. On April 17, 2020, we further extended the term on the line of credit to June 30, 2024. All other terms remain the same, including the interest rate at LIBOR plus 1.125% unless our funded debt to Earnings before Interest, Taxes and Depreciation ratio exceeds 2.25 to 1, at which point the LIBOR spread becomes 1.500%. The line of credit agreement contains, among other provisions, requirements for maintaining levels of net worth and funded debt-to-earnings before interest, taxes, depreciation and amortization along with an interest coverage ratio. The net worth and profitability requirements are calculated based on the line of credit agreement. At September 30, 2021 and December 31, 2020, we were in compliance with these covenants.

We expect that our major source of funding for 2021 and beyond will be our operating cash flows and our existing Cash as well as our line of credit agreement. We earn a significant amount of our operating income outside the U.S., which, except for current earnings in certain jurisdictions, is deemed to be indefinitely reinvested in foreign jurisdictions.

As we cannot predict the duration or scope of the continuing COVID-19 pandemic and its impact on our customers and suppliers, the negative financial impact to our financial results and liquidity cannot be reasonably estimated but could be material. We are actively managing the business to maintain cash flow and a favorable liquidity position. We believe that our future cash flows, together with these factors, will be more than sufficient to cover debt repayments, other contractual obligations, capital expenditures and dividends for the next twelve months and thereafter for the foreseeable future. In addition, we believe our borrowing capacity provides substantial financial resources, if needed, to supplement funding of capital expenditures and/or acquisitions. We also believe that we can expand our borrowing capacity, if necessary, however, 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.

#### Sources and Uses of Cash

Cash decreased $2.9 million compared to the same period in 2020. Net Cash provided by operating activities was $24.1 million. The most significant net investing and financing uses of Cash in the nine months ended September 30, 2021 were payments of long-term debt of $81.6 million, capital expenditures of $12.6 million, share repurchases of $5.3 million and dividends paid of $3.1 million, partially offset by net debt and notes payable proceeds of $70.5 million. Currency had a positive $.8 million impact on Cash when translating foreign denominated financial statements to U.S. dollars.

Net Cash provided from operating activities for the nine months ended September 30, 2021 was $24.1 million compared to $33.6 million in the comparable prior year nine-month period. The $9.5 million decrease was primarily a result of an increase in Cash used by operating assets (net of operating liabilities) of $9.2 million, which included the $6.5 million deposit on the new corporate aircraft that was paid in the fourth quarter of 2020 and fully refunded in 2021, combined with a decrease in net income of $.3 million.

Net Cash used in investing activities of $12.6 million for the nine months ended September 30, 2021 decreased $11.6 million when compared to Cash used in investing activities in the nine months ended September 30, 2020 of $24.2 million. The change was primarily related to a year-over-year decrease in capital expenditures.

Cash used in financing activities for the nine months ended September 30, 2021 was $19.1 million compared to $6.5 million during the nine months ended September 30, 2020. The $12.6 million increase was primarily the result of a net increase in net debt payments, net of borrowings in 2021 compared to 2020 of $15.9 million, partially offset by a decrease in net share repurchases and issuances of $3.2 million.

We have commitments under operating leases, primarily for office and manufacturing space, transportation equipment, office and computer equipment and capital leases primarily for equipment. See Note Q of the Notes to the Consolidated Financial Statements for more information.

As of September 30, 2021, the Company had total outstanding guarantees of $8.7 million. Additionally, certain domestic and foreign customers require the Company to issue letters of credit or performance bonds as a condition of placing an order. As of September 30, 2021, the Company had total outstanding letters of credit of $3.2 million.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See Note K of the Notes to the Consolidated Financial Statements

NEW ACCOUNTING STANDARDS TO BE ADOPTED

See Note L of the Notes to the Consolidated Financial Statements

FORWARD LOOKING STATEMENTS

Cautionary Statement for “Safe Harbor” Purposes Under The Private Securities Litigation Reform Act of 1995

This Form 10-Q and other documents we file with the SEC contain forward-looking statements regarding the Company’s and management’s 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 Company’s operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control. Such uncertainties and factors could cause the Company’s 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 Company’s future performance and cause the Company’s actual results to differ materially from those expressed or implied by forward-looking statements made in this report:

The overall demand for cable anchoring and control hardware for electrical transmission and distribution lines on a worldwide basis, which has a slow growth rate in mature markets such as the U.S., Canada, Australia and Western Europe and may grow slowly or experience prolonged delay in developing regions despite expanding power needs;

The potential impact of global economic conditions on the Company’s ongoing profitability and future growth opportunities in the Company’s core markets in the U.S. and other foreign countries, which may experience continued or further instability due to political and economic conditions, social unrest, terrorism, changes in diplomatic and trade relationships and public health concerns (including viral outbreaks such as COVID-19). The COVID-19 pandemic has significantly impacted worldwide economic conditions and has and will continue to have an adverse effect on the Company’s operations and businesses as government authorities impose mandatory closures, work-from-home orders and social distancing protocols along with other unknown potential restrictions. The duration and scope of the COVID-19 pandemic cannot be predicted, and therefore, any anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated;

The ability of the Company’s customers to raise funds needed to build the infrastructure their customers require;

Technological developments that affect longer-term trends for communication lines, such as enhancements to wireless communication;

The decreasing demand for product supporting copper-based infrastructure due to the introduction of products using new technologies or adoption of new industry standards;

The Company’s success at continuing to develop proprietary technology and maintaining high quality products and customer service to meet or exceed new industry performance standards and individual customer expectations;

The Company’s success in strengthening and retaining relationships with the Company’s customers, growing sales at targeted accounts and expanding geographically, particularly in light of recent price increases;

The extent to which the Company is successful at expanding the Company’s product line or production facilities into new areas or implementing efficiency measures at existing facilities;

The effects of fluctuation in currency exchange rates upon the Company’s foreign subsidiaries’ operations and 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;

The Company’s ability to identify, complete, obtain funding for and integrate acquisitions for profitable growth;

The potential impact of consolidation, deregulation and bankruptcy among the Company’s suppliers, competitors and customers and of any legal or regulatory claims;

The relative degree of competitive and customer price pressure on the Company’s products;

The cost, availability and quality of raw materials required for the manufacture of products and any tariffs that may be associated with the purchase of these products. The Company’s supply chain has and could continue to be disrupted by the COVID-19 pandemic which could have a material, adverse effect on the ability to secure raw materials and supplies;

Strikes, labor disruptions and other fluctuations in labor costs;

Changes in significant government regulations affecting environmental compliances or other litigation matters;

Security breaches, malicious computer viruses or other disruptions to the Company’s information technology structure or on the economy as a whole;

The telecommunication market’s continued deployment of Fiber-to-the-Premises;

The effects of the possible enactment of the Made in America Tax Plan which could increase the U.S. federal corporate income tax rates on U.S. income and, also, reduce tax credits from foreign sourced income; and

Those factors described under the heading “Risk Factors” in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 which was filed on March 5, 2021. The impact of COVID-19 could potentially exacerbate other risks discussed, any of which could have a material impact on the Company. The situation continues to change and additional impacts may arise that the Company is not aware of currently.

## Market risk

As filed, 2,547 characters.

The Company operates manufacturing facilities and offices around the world and uses fixed and floating rate debt to finance the Company’s 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 that the political and economic risks related to the Company’s international operations are mitigated due to the geographic diversity in which the Company’s international operations are located.

Effective July 1, 2018, Argentina was designated as a highly inflationary economy as the projected three-year cumulative inflation rate exceeded 100%. As such, beginning July 1, 2018, the functional currency for the Company’s Argentina subsidiary became the U.S. dollar. Revenue from operations in Argentina represented less than 1% of total consolidated net sales for both nine-month periods ended September 30, 2021 and 2020.

As of September 30, 2021, the Company had $.3 million in net foreign currency forward exchange contracts outstanding. The Company does not hold derivatives for trading purposes.

The Company’s primary currency rate exposures are related to foreign denominated debt, intercompany debt, foreign denominated receivables and payables and cash and short-term investments. A hypothetical 10% change in currency rates would have a favorable/unfavorable impact on fair values on such instruments of $5.2 million and a $1.2 million favorable/unfavorable impact on income before at September 30, 2021.

The Company is exposed to market risk, including changes in interest rates and foreign exchange rates since we conduct business in a variety of foreign currencies. The Company is subject to interest rate risk on its variable rate revolving credit facilities and term notes, which consisted of long-term borrowings, which includes the current portion, of $45.5 million at September 30, 2021. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $.6 million for the nine months ended September 30, 2021.

As discussed elsewhere in this report, the outbreak of COVID-19 could negatively impact the Company’s business and results of operations. Since we cannot predict the duration or scope of the COVID-19 pandemic, the potential negative financial impact to the Company’s results cannot be reasonably estimated but could be material.

## Controls and procedures

As filed, 763 characters.

### Evaluation of Disclosure Controls and Procedures

The Company’s Principal Executive Officer and Principal Accounting Officer have concluded that the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended, were effective as of September 30, 2021.

### Changes in Internal Control over Financial Reporting

There were no other changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)) of the Securities and Exchange Act of 1934, as amended, during the three-month period ended September 30, 2021 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

## Risk factors

As filed, 456 characters.

There were no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 5, 2021. In addition, the impact of COVID-19 could potentially exacerbate other risks discussed, any of which could have a material adverse effect on the Company. The situation continues to change and additional impacts may arise that the Company is not aware of currently.

Filed Oct 29, 2021.
Source: SEC EDGAR, the filing index for accession 0000950170-21-002496. Last ingested by Listed: Nov 6, 2026, 07:10 ET. No prices; not investment advice.