# Preformed Line Products Co: Form 10-K for the period ended Dec 31, 2013

- Company: [Preformed Line Products Co](/companies/plpc.md) (CIK 80035)
- Form: 10-K
- Filed: 2014-03-14
- Accepted by EDGAR: Mar 14, 2014, 15:08 ET
- Period: 2013-12-31
- Accession: 0001193125-14-099760
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/80035/000119312514099760/d630448d10k.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/80035/000119312514099760/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2013-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2013-10-01 to 2013-12-31 | $98.5m | us-gaap:SalesRevenueNet |
| Revenue | 12 months, 2013-01-01 to 2013-12-31 | $409.8m | us-gaap:SalesRevenueGoodsNet |
| Cost of revenue | 12 months, 2013-01-01 to 2013-12-31 | $278.9m | us-gaap:CostOfGoodsSold |
| Gross profit | 3 months, 2013-10-01 to 2013-12-31 | $30.4m | us-gaap:GrossProfit |
| Gross profit | 12 months, 2013-01-01 to 2013-12-31 | $130.9m | us-gaap:GrossProfit |
| Research and development | 12 months, 2013-01-01 to 2013-12-31 | $2.3m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 12 months, 2013-01-01 to 2013-12-31 | $31.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 12 months, 2013-01-01 to 2013-12-31 | $450.0k | us-gaap:InterestExpense |
| Income tax | 12 months, 2013-01-01 to 2013-12-31 | $11.2m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2013-10-01 to 2013-12-31 | $3.1m | us-gaap:ProfitLoss |
| Net income | 12 months, 2013-01-01 to 2013-12-31 | $20.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2013-10-01 to 2013-12-31 | $0.58 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 12 months, 2013-01-01 to 2013-12-31 | $3.77 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2013-10-01 to 2013-12-31 | $0.59 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 12 months, 2013-01-01 to 2013-12-31 | $3.84 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 12 months, 2013-01-01 to 2013-12-31 | 5,467,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 12 months, 2013-01-01 to 2013-12-31 | $18.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2013-01-01 to 2013-12-31 | $21.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 12 months, 2013-01-01 to 2013-12-31 | $2.3m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 12 months, 2013-01-01 to 2013-12-31 | $2.9m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2013-12-31 | $24.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2013-12-31 | $185.7m | us-gaap:AssetsCurrent |
| Total assets | at 2013-12-31 | $332.4m | us-gaap:Assets |
| Current liabilities | at 2013-12-31 | $52.2m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2013-12-31 | $13.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2013-12-31 | $195.0k | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2013-12-31 | $1.3m | us-gaap:ShortTermBorrowings |

## Business

As filed, 37,247 characters.

### 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 Company’s 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 Company’s 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 Company’s domestic and international manufacturing facilities have obtained an International Organization of Standardization (“ISO”) 9001:2008 Certified Management System, with the exception of Direct Power and Water Corporation (DPW), which was acquired during 2007. The ISO 9001:2008 certified management system is a globally recognized quality standard for manufacturing and assists the Company in marketing its products throughout the world. The Company’s 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 Company’s consolidated revenues.

The Company’s products include:

- Formed Wire and Related Hardware Products
- Protective Closures
- Data Communication Cabinets
- Plastic Products
- Other Products

*Formed Wire Products and Related Hardware Products* are used in the energy, communications, cable and special industries (i.e., metal building, tower and antenna industries, the agriculture and arborist industries, and marine systems industry) 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 Company’s 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 Company’s 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 68% of the Company’s revenues in 2013, 69% in 2012 and 67% in 2011.

*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 16% of the Company’s revenues in 2013, 2012 and 2011.

*Data Communication Cabinets* are products used in high-speed data systems to hold and protect electronic equipment. Data communication cabinets are approximately 2% of the Company’s revenues in 2013 and 3% in 2012 and 2011.

*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 4% of the Company’s revenues in 2013 and 2012 and 3% in 2011.

*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 complement the Company’s core line offerings. Other products are approximately 10% of the Company’s revenues in 2013, 8% of the Company’s revenue in 2012 and 11% of the Company’s revenues in 2011.

### 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 they are suspended or held. Thomas F. Peterson, the Company’s 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. Peterson’s patents have now expired, those patents served as the nucleus for licensing the Company’s formed wire products abroad.

The success of the Company’s 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 Company’s 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 by 2002 we had complete ownership of operations in Mexico and China. The Company’s 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 COYOTE® 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 April 1995 and will not expire until April 2015.

In 2007, the Company acquired the shares of DPW, located in New Mexico, U.S. This acquisition broadened the Company’s 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 Company’s existing line of energy products. From 2008 to 2010, the Company acquired the remaining outstanding shares of Belos.

In 2008, the Company divested its data communication business, Superior Modular Products.

In 2008, the Company formed a joint venture between the Company’s 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 held a 50% ownership interest in the joint venture company, which operates 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. In 2011, the Company acquired the additional 50% ownership interest from BlueSky Energy Pty Ltd.

In 2009, the Company acquired a 33.3% investment in Proxisafe Ltd. Proxisafe is a Canadian developmental company formed to design and commercialize new industrial safety equipment located in Calgary, Alberta. As of December 31, 2013, the Company owned 25.93% in Proxisafe.

In 2009, the Company acquired the Dulmison business from Tyco Electronics Group S.A. (Tyco Electronics), which included both the acquisition of equity of certain Tyco Electronics entities and the acquisition of assets from other Tyco Electronics entities. Dulmison was a leader in the supply and manufacturer of electrical transmission and distribution products. Dulmison designed, manufactured and marketed pole line hardware and vibration control products for the global electrical utility industry. Dulmison had operations in Australia, Thailand, Indonesia, Malaysia, Mexico and the United States. The Dulmison business has been fully integrated into the Company’s core businesses.

In 2010, the Company acquired Electropar Limited (Electropar), a New Zealand corporation. Electropar designs, manufactures and markets pole line and substation hardware for the global electrical utility industry. Electropar is based in New Zealand with a subsidiary operation in Australia. The acquisition has strengthened and is expected to continue to strengthen the Company’s position in the power distribution, transmission and substation hardware markets and expands the Company’s presence in the Asia-Pacific region.

In January 2012, the Company acquired Australian Electricity Systems Pty Ltd. (AES), an Australian company. AES designs, manufactures and markets hardware for the electrical utility industry. The acquisition has strengthened and is expected to continue to strengthen the Company’s position in the power distribution, transmission and substation hardware markets and will expand the Company’s presence in the Asia-Pacific region. For accounting purposes, the acquisition was an immaterial business combination.

The Company’s World headquarters is located at 660 Beta Drive, Mayfield Village, Ohio 44143.

### Business

The demand for the Company’s products comes primarily from new, maintenance and repair construction for the energy (including solar), telecommunication, data communication and special industries. The Company’s customers use many of the Company’s products, including formed wire products, to revitalize the aging outside plant infrastructure. Many of the Company’s products are used on a proactive basis by the Company’s 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 Company’s customers generally occurs in the case of emergencies or natural disasters, such as hurricanes, tornados, earthquakes, floods or ice storms. Under these circumstances, the Company provides 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 Company’s 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 Company’s protective closures and splice cases are used to protect cable from moisture, environmental hazards and other potential contaminants. The Company’s 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 its 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 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 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 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 Company’s 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 two decades. 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 areas to the energy-deficient areas means that new transmission lines will likely be built and many existing lines will likely be refurbished. Connecting renewable energy sources to the grid should also attract new investment to fund transmission infrastructure projects in the future. The Company believes that this will generate growth for the Company’s 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 with increased global competition may also have an adverse impact on the Company’s 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 Company’s 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 industry continues to grow 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 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 move toward building out the “last mile” in fiber networks. FTTP technology supports 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 racking and cabinet products made by the Company. The Company’s 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 Company’s 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 agriculture and arborist industries, and various applications within the marine systems industry. Products other than formed wire products are also marketed to other industries. For example, the Company’s 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. 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 L in the Notes To Consolidated Financial Statements for information and financial data relating to the Company’s international operations that represent reportable segments.

While a number of the Company’s 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. 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 manufacturer’s representatives, as well as key direct accounts and distributors who also buy and resell the Company’s products. The manufacturer’s 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 Company’s 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 Company’s products. These products capitalize on cost-efficiency while offering exacting mechanical performance that meets or exceeds industry standards. The Company’s 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 a 29,000 square foot Research and Engineering Center located at its corporate headquarters in Mayfield Village, Ohio. In 2013, the Company expanded its Research and Engineering Center by an additional 8,000 square feet. Using the Research and Engineering Center, engineers and technicians simulate a wide range of external conditions encountered by the Company’s 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 Company believes that its Research and Engineering Center is one of the most sophisticated in the world in its specialized field. The 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 Company’s 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 Company’s Research and Development Center continues to fuel product development efforts. For example, the Company estimates that approximately 18% of 2013 revenues were attributed to products developed by the Company in the past five years. In addition, the Company’s 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 $2.3 million in 2013, $2.1 million in 2012 and $2.4 million in 2011.

### 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, 2013, the Company had in force 35 U.S. patents and 85 international patents in 23 countries and had pending 15 U.S. patent applications and 51 international applications. While such domestic and international patents expire from time to time, the Company continues to 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 Company’s business. The Company, however, does not believe that any single patent, or group of related patents, is essential to the Company’s 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, 2013, the Company had obtained U.S. registration on 31 trademarks and three trademark applications remained pending. International registrations amounted to 251 registrations in 38 countries, with nine 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 is not 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 Company’s 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.

- 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 Company’s customers and representatives.
- The Company’s Research and Engineering Center in Mayfield Village, Ohio and Research and Engineering department’s subsidiary worldwide locations maintain a strong technical support function to develop unique solutions to customer problems.
- The Company is vertically integrated both in manufacturing and distribution and is continually upgrading equipment and processes.
- 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.
- The Company’s 17 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 world’s largest manufacturer of formed wire products for energy and communications markets. However, the Company’s formed wire products compete against other pole line hardware products manufactured by other companies.

The Company’s primary domestic competitor for pressurized copper closures is the 3M Company. Based on its experience in the industry, the Company believes it maintains a strong market share position.

The fiber optic closure market is one of the most competitive product areas for the Company, with the Company competing against, among others, Tyco Electronics, 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.

### Sources and Availability of Raw Materials

The principal raw materials used by the Company are galvanized wire, stainless steel, aluminum covered steel wire, aluminum 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 aluminum 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 Company’s product lines, such as aluminum and ferrous castings, fiber optic cable and connectors 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 other potential sources for these materials available, and the Company could relocate the tooling and processes to other manufacturers if necessary.

Raw material costs were, in general, flat during 2013. The Company expects price levels to continue to be stable during 2014.

### Backlog Orders

The Company’s backlog was approximately $47.7 million at the end of 2013 and $58.4 million at the end of 2012. 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.

### 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 Company’s facilities or at third-party facilities at which the Company has arranged for the disposal treatment of hazardous materials.

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 2014 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, 2013, the Company had 2,794 employees. Approximately 27% of the Company’s 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 Company’s SEC reports can be accessed through the investor relations section of its Internet site. The information found on the Company’s 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 SEC’s 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 SEC’s Internet site is http://www.sec.gov. The Company also has a link from its Internet site to the SEC’s Internet site, this link can be found on the investor relations page of the Company’s Internet site.

## Risk factors

As filed, 10,175 characters.

***Due to the Company’s dependency on the energy and telecommunication industries, the Company is susceptible to negative trends relating to those industries that could adversely affect the Company’s operating results.***

The Company’s sales to the energy and telecommunication industries represent a substantial portion of the Company’s 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 Company’s 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 significantly reduce their spending or may not continue as going concerns, which could have a material adverse effect on the Company’s 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 Company’s business will suffer if the Company fails to develop and successfully introduce new and enhanced products that meet the changing needs of the Company’s customers.***

The Company’s 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 Company’s 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 Company’s customers, could have a material adverse effect on the Company’s business, operating results and financial condition as a result of reduced net sales.

***The intense competition in the Company’s 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 Company’s competitors in the telecommunication and data communication markets are larger companies with significant influence over the distribution network. The Company may not 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 these advances (i.e., wireless, fiber optic network infrastructure, etc.) may adversely affect the Company’s ability to compete in this market.

***Competitors introduction of products embodying new technologies or the emergence of new industry standards can render existing products or products under development obsolete or unmarketable and result in lost sales.***

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. Future advances or further development of these or other new technologies may have a material adverse effect on the Company’s business, operating results and financial condition as a result of lost sales.

### Price increases of raw materials could result in lower earnings.

The Company’s cost of sales may be materially adversely affected by increases in the market prices of the raw materials used in the Company’s manufacturing processes. The Company may not be able to pass on price increases in raw materials to the Company’s customers through increases in product prices. As a result, the Company’s operating results could be adversely affected. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission established disclosure requirements regarding the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo and adjoining countries (“Conflict Mineral Rules”). These requirements could adversely affect the availability and pricing of conflict minerals used in the Company’s products.

***The Company’s international operations subject the Company to additional business risks that may have a material adverse effect on the Company’s business, operating results and financial condition.***

International sales account for a substantial portion of the Company’s net sales (60%, 59% and 60% in 2013, 2012 and 2011, 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, 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 variety of international laws and communications standards. The Company is subject to foreign currency volatility which could materially impact the Company’s results. 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. These risks of conducting business internationally may have a material adverse effect on the Company’s business, operating results and financial condition.

***The Company may not be able to successfully integrate businesses that it may acquire in the future or complete acquisitions on satisfactory terms, which could have a material adverse effect on the Company’s business, operating results and financial condition.***

A portion of the Company’s 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 Company’s 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 Company’s ability to pay dividends, fund capital expenditures, consummate additional acquisitions and significantly increase the Company’s interest expense. Any failure to successfully complete acquisitions or to successfully integrate such strategic acquisitions could have a material adverse effect on the Company’s business, operating results and financial condition.

***The Company may have interruptions in or lose business due to the uncertainty of the global economy, specifically the potential impact of bankruptcy among the Company’s suppliers and lack of available funding for the Company’s customers.***

The Company relies on sole source manufacturers for certain materials that complement the Company’s product lines. The current state of economic uncertainty presents a risk that existing suppliers could go out of business or significantly raise their prices. If, due to any of these risk factors, the Company had to relocate the tooling and processes to other manufacturers, there could be an adverse effect on the supply and the Company’s ability to make products on a timely basis. In addition, the demand for the Company’s products is significantly affected by the amount of discretionary business and consumer spending, each of which is impacted by the uncertainty of the global economy. The liquidity and financial position of the Company’s customers could also impact their ability to pay in full and/or on a timely basis. This lack of funding could have a negative impact on the Company’s results of operations.

### The Company may be adversely impacted by laws, regulation, and litigation.

The Company is subject to various laws and regulation. For example, extensive environmental regulations related to air and water quality, the discharge of pollutants, the handling of toxic waste and the handling and transport of products and components classified as hazardous impact our daily operations. Recently, the Conflict Mineral Rules mandated extensive due diligence to determine the source of conflict minerals for all of the Company’s locations, and may also result in potential changes to the products and sources of raw materials. The introduction of new laws or regulations, or changes in existing laws or regulations, could increase the costs of doing business.

## Properties

As filed, 2,410 characters.

The Company currently owns or leases 18 facilities, which together contain approximately 2.1 million square feet of manufacturing, warehouse, research and development, sales and office space worldwide. Most of the Company’s 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 Company’s principal facilities:

| Location | Use | Owned/Leased | Square Feet | Reportable Segment |
| --- | --- | --- | ---: | --- |
| 1. Mayfield Village, Ohio | Corporate Headquarters R&E | Owned | 99,000 | 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 | Building Owned; Warehouse Leased | 216,900 | Asia-Pacific |
| 5. São Paulo, Brazil | Manufacturing R&E Warehouse Office | Owned | 215,500 | The Americas |
| 6. Cambridge, Ontario, Canada | Manufacturing Warehouse Office | Owned | 73,300 | The Americas |
| 7. Andover, Hampshire, England | Manufacturing R&E Warehouse Office | Building Owned; Land Leased | 89,400 | EMEA |
| 8. Queretaro, Mexico | Manufacturing Warehouse Office | Owned | 84,000 | The Americas |
| 9. Beijing, China | Manufacturing Warehouse Office | Building Owned; Land Leased | 132,100 | Asia-Pacific |
| 10. Pietermarizburg, South Africa | Manufacturing R&E Warehouse Office | Owned | 68,800 | EMEA |

15

|  |  |  |  |  |
| --- | --- | --- | ---: | --- |
| 11. Sevilla, Spain | Manufacturing R&E Warehouse Office | Building Owned; Warehouse Leased | 74,000 | EMEA |
| 12. Albuquerque, New Mexico | Manufacturing Warehouse Office | Leased | 27,700 | The Americas |
| 13. Bielsko-Biala, Poland | Manufacturing Warehouse Office | Buildings Owned; Land Leased | 174,400 | EMEA |
| 14. Bekasi, Indonesia | Manufacturing Office | Owned | 60,100 | Asia-Pacific |
| 15. Selangor, Malaysia | Manufacturing Warehouse Office | Leased | 18,600 | Asia-Pacific |
| 16. Bangkok, Thailand | Manufacturing Warehouse Office | Owned | 135,700 | Asia-Pacific |
| 17. Auckland, New Zealand | Manufacturing Warehouse Office | Leased | 57,500 | Asia-Pacific |
| 18. Buenos Aires, Argentina | Manufacturing Warehouse Office | Leased | 26,372 | The Americas |

## Legal proceedings

As filed, 310 characters.

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.

## Management's discussion and analysis

As filed, 56,095 characters.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the readers of our 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 audited consolidated financial statements and related notes included elsewhere in this report.

The MD&A is organized as follows:

- Overview
- Recent Developments
- Market Overview
- Preface
- Results of Operations
- Working Capital, Liquidity and Capital Resources
- Critical Accounting Policies and Estimates
- 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 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 15 different countries.

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.

RECENT DEVELOPMENTS

On January 31, 2014, we acquired Helix Uniformed Limited (Helix), located in Montreal, Quebec, Canada. From an accounting perspective, the acquisition is not considered material. The acquisition of Helix will diversify our business in Canada, expand our manufacturing footprint and enhance our engineering capabilities locally.

In January and March 2012, we had two acquisitions. From an accounting perspective, both acquisitions were immaterial to the Company. On January 31, 2012, we acquired Australian Electricity Systems PTY Ltd (AES) in Australia. In March 2012, we purchased all of the assets of Forma Line Industries CC in South Africa. Both acquisitions expanded our product line offerings, manufacturing capacity and provided locations in close proximity to our customers in our EMEA and Asia-Pacific segments.

MARKET OVERVIEW

Our business continues to be concentrated in the energy and communications markets. During the past several years, industry consolidation continued as distributors and service provider consolidations took place in our major markets. This trend is expected to continue in 2014. The sluggish global economy coupled with a depressed U.S. housing market have affected, and could continue to affect construction projects and negatively impact growth opportunities in our core markets in the U.S. and countries such as Spain, Poland and Great Britain where the financial situation is expected to be similar going forward.

In 2013, sales in the energy market declined due to a slowdown in the number and scale of transmission projects. Energy Distribution business was up in 2013 mainly due to increases in our core helical business around the world. We expect the energy market to be relatively flat in 2014 given continued uncertainty in global markets.

We believe that the acquisitions of Dulmison from Tyco Electronics in December 2009 and Electropar in July 2010 further contributed to our leadership position and have enabled us to enhance the scope of our product lines and the technology we provide to the Energy market. The spacer, spacer-damper and stockbridge damper product lines fit well and complement our product offerings and enable us to offer the most comprehensive line of products in the industry. We further strengthened our overall presence in the Asia-Pacific region with the acquisition of Electropar in Auckland, New Zealand. With demand for electrical power continuing to increase, especially in many fast growing areas of the world, we believe that our leadership position in the market will enable us to take advantage of prospects for continued growth as the transmission grid is enhanced and extended.

Our international business is more concentrated in the energy markets. Historically, our international sales were primarily related to the distribution portion of the energy market but have grown through acquisition and new product development to include a significant contribution from the transmission market. We believe that we are well positioned to supply the needs of the world’s diverse energy market requirements as a result of our strategically located operations and array of product designs and technologies.

Our communication business in 2013 continued to face challenges throughout the world. Many communications customers continued with lower levels of capital and operational spending as the global economic uncertainty continued to negatively impact consumer spending on communication services. We continue to intensely focus on our customers and put resources towards new product development efforts. These efforts were directed at customer premise and demarcation applications which are the final connections between the network and the end consumer.

As economic conditions improve we believe our efforts in these areas will lead to growth in our communications business. Opportunities for growth also look promising internationally where deployment of fixed line telecommunications services and broadband penetration rates remain low as a percentage of the total population.

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 financial statements in the assessment of our performance and operating trends.

Our financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. As foreign currencies weakened against the U.S. dollar, our revenues and costs decrease as the foreign currency-denominated financial statements translate into less dollars. On average, foreign currencies weakened against the U.S. dollar in 2013. The fluctuations of foreign currencies during the year ended December 31, 2013 had an unfavorable impact on net sales of $10.5 million as compared to 2012. The most significant currencies that contributed to this movement were the South African rand, the Brazilian real and the Australian dollar. On a reportable segment basis, the unfavorable impact of foreign currency on net sales and net income for the twelve month period ended December 31, 2013, was as follows:

| Thousands of dollars | Foreign Currency Impact Year ended December 31 Net Sales | Net Income |
| --- | ---: | ---: |
| The Americas | $(4,861) | $(210) |
| EMEA | (2,106) | (440) |
| Asia-Pacific | (3,531) | 206 |
| Total | $(10,498) | $(444) |

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 5.7% and can borrow needed funds at an attractive interest rate under our credit facility.

The following table sets forth a summary of the Company’s consolidated income statements and the percentage of net sales for the years ended December 31, 2013 and 2012. The Company’s past operating results are not necessarily indicative of future operating results.

| Thousands of dollars | Year Ended December 31 2013 |  | 2012 |  | Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $409,776 | 100.0% | $439,192 | 100.0% | $(29,416) | (7)% |
| Cost of products sold | 278,875 | 68.1% | 294,754 | 67.1% | (15,879) | (5) |
| **GROSS PROFIT** | 130,901 | 31.9% | 144,438 | 32.9% | (13,537) | (9) |
| Costs and expenses | 99,753 | 24.3% | 100,316 | 22.8% | (563) | (1) |
| **OPERATING INCOME** | 31,148 | 7.6% | 44,122 | 10.0% | (12,974) | (29) |
| Other income (expense) | 646 | 0.2% | 705 | 0.2% | (59) | (8) |
| **INCOME BEFORE INCOME TAXES** | 31,794 | 7.8% | 44,827 | 10.2% | (13,033) | (29) |
| Income taxes | 11,207 | 2.7% | 15,541 | 3.5% | (4,334) | (28) |
| **NET INCOME** | $20,587 | 5.0% | $29,286 | 6.7% | $(8,699) | (30)% |

23

2013 RESULTS OF OPERATIONS COMPARED TO 2012

*Net Sales*. In 2013, net sales were $409.8 million, a decrease of $29.4 million, or 7%, compared to 2012. Excluding the effect of currency translation, net sales decreased $18.9 million as summarized in the following table:

| thousands of dollars Net sales | Year Ended December 31 2013 | 2012 | Change | Change due to currency translation | Change excluding currency% tranlation | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $144,054 | $162,027 | $(17,973) | $0 | $(17,973) | (11)% |
| The Americas | 91,497 | 92,584 | (1,087) | (4,861) | 3,774 | 4 |
| EMEA | 61,543 | 66,272 | (4,729) | (2,106) | (2,623) | (4) |
| Asia-Pacific | 112,682 | 118,309 | (5,627) | (3,531) | (2,096) | (2) |
| Consolidated | $409,776 | $439,192 | $(29,416) | $(10,498) | $(18,918) | (4)% |

The decrease in PLP-USA net sales of $18 million, or 11%, was due to a sales volume decrease of $16.5 million and a sales mix/price decrease of $1.4 million when compared to 2012. Of the sales volume decrease of $16.5 million, $10.3 million was due to the completion of projects in the transmission market in 2012. International net sales for the year ended December 31, 2013 were unfavorably affected by $10.5 million when local currencies were converted to U.S. dollars. The following discussions of international net sales exclude the effect of currency translation. The Americas net sales of $91.5 million increased $3.8 million, or 4%, primarily due to an increase in energy sales of $2.2 million coupled with higher solar sales of $1.6 million. EMEA’s net sales of $61.5 million decreased $2.6 million, or 4%, primarily due to significant energy transmission investment in the region in 2012 that did not repeat in 2013. The decrease in the energy transmission investments primarily related to the United Kingdom’s government delays on the national grid. Asia-Pacific net sales of $112.7 million decreased $2.1 million, or 2%, compared to 2012. The decrease in net sales was primarily due to lower transmission projects in the region and sales volume decreases in data communication.

*Gross Profit.* Gross profit of $130.9 million for 2013 decreased $13.5 million, or 9%, compared to 2012. Excluding the unfavorable effect of currency translation, gross profit decreased $10.8 million, or 7%, as summarized in the following table:

| thousands of dollars Gross profit | Year Ended December 31 2013 | 2012 | Change | Change due to currency translation | Change excluding currency% translation | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $55,969 | $58,814 | $(2,845) | $0 | $(2,845) | (5)% |
| The Americas | 24,815 | 27,772 | (2,957) | (1,217) | (1,740) | (6) |
| EMEA | 21,146 | 23,358 | (2,212) | (911) | (1,301) | (6) |
| Asia-Pacific | 28,971 | 34,494 | (5,523) | (602) | (4,921) | (14) |
| Consolidated | $130,901 | $144,438 | $(13,537) | $(2,730) | $(10,807) | (7)% |

PLP-USA gross profit of $56 million decreased $2.8 million compared to 2012. As a percentage of net sales, gross profit increased from 36.3% to 38.9% of net sales in 2013. Of PLP-USA’s $2.8 million decrease in gross profit, $6.5 million was due to lower net sales partially offset by $1.7 million of lower pension related expenses, a net decrease in warranty expense of $.8 million, a decrease in the elimination of intercompany profit in ending inventory and lower consulting related expenses. International gross profit for the twelve month period ended December 31, 2013 was unfavorably affected by $2.7 million when local currencies were translated to U.S.

dollars. The following discussion of gross profit changes excludes the unfavorable effect of currency translation. The Americas gross profit decrease of $1.7 million was primarily the result of higher material costs of $4.3 million partially offset by $1.2 million from higher net sales and lower production costs of $1.4 million. The EMEA gross profit decrease of $1.3 million was primarily the result of lower net sales with relatively unchanged product margins. Asia-Pacific gross profit decreased $4.9 million as a result of lower sales, higher product costs in the region, with higher provisions for excess inventory due to changing market conditions.

*Costs and expenses*. Costs and expenses of $99.8 million for the year ended December 31, 2013 decreased $.6 million, or less than 1%, compared to 2012. Excluding the effect of currency translation, costs and expenses increased 2% as summarized in the following table:

| thousands of dollars Costs and expenses | Year Ended December 31 2013 | 2012 | Change | Change due to currency translation | Change excluding currency% translation | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $38,622 | $35,682 | $2,940 | $0 | $2,940 | 8% |
| The Americas | 16,803 | 18,758 | (1,955) | (876) | (1,079) | (6) |
| EMEA | 13,325 | 14,092 | (767) | (327) | (440) | (3) |
| Asia-Pacific | 31,003 | 31,784 | (781) | (932) | 151 | 0 |
| Consolidated | $99,753 | $100,316 | $(563) | $(2,135) | $1,572 | 2% |

PLP-USA costs and expenses increased $2.9 million primarily due to higher net foreign currency exchange losses of $2.6 million, a $.4 million increase in intercompany debt forgiveness, a decrease in intercompany income of $.3 million, and an increase in legal expenses of $.5 million partially offset by lower commissions of $.6 million, a decrease in travel of $.2 million and lower consulting expense of $.1 million. The foreign currency exchange losses are primarily related to translating foreign denominated loans, trade receivables and royalty receivables from our foreign subsidiaries at the quarter end exchange rates. International costs and expenses for the twelve month period ended December 31, 2013 were favorably affected by $2.1 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 decreased $1.1 million primarily due to a $1.1 million VAT refund and related interest, inflation from an income tax refund at our Brazilian location, lower commissions of $.1 million and lower employee related costs in the region partially offset by higher net foreign currency exchange losses of $.3 million, higher intercompany related expenses of $.2 million and $.4 million due to higher costs related to geographic market expansion. EMEA costs and expenses decreased $.4 million primarily due to higher net foreign currency exchange gains of $.4 million, lower commission expense of $.1 million and intercompany debt forgiveness in the fourth quarter of 2012 of $1 million, partially offset by an increase in intercompany expenses of $.1 million and higher employee related costs and expenses. Asia-Pacific costs and expenses increased $.2 million primarily due to non-cash goodwill impairment charges of $.9 million related to two entities in the Asia-Pacific region coupled with higher commission expense of $.1 million, higher net foreign currency exchange losses of $.7 million, $1 million related to loan and intercompany interest forgiveness with our EMEA segment in 2012, a $.7 million reduction in the fair value of an acquisition earn-out consideration payment in 2012, partially offset by lower intercompany related expenses of $.2 million, a decrease in costs and expenses of $1.2 million due to the consolidation of our AES acquisition in 2012 into our Australian location and lower personnel related costs.

*Other income (expense).* Other income for the twelve month period ended December 31, 2013 of $.6 million decreased less than $.1 million compared to 2012 primarily due to lower Other income of $.2 million partially offset by lower net interest expense of $.1 million.

*Income taxes.* Income taxes for the year ended December 31, 2013 and December 31, 2012 were $11.2 million and $15.5 million, respectively. The effective tax rate on net income was 35.3% and 34.7% in 2013 and 2012, respectively. The 2013 effective tax rate is higher than the 2012 effective tax rate primarily due to the Company’s decision not to recognize the tax benefit attributable to operating losses in certain foreign jurisdictions.

The 2013 effective tax rate is higher than the 35% U.S. federal statutory tax rate primarily due to the Company’s decision not to recognize the tax benefit attributable to operating losses in certain foreign jurisdictions. The 2012 effective tax rate is lower than the 35% U.S. federal statutory tax rate primarily due to inclusion of earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate in jurisdictions where such earnings are permanently reinvested.

*Net income*. As a result of the preceding items, net income for the twelve month period ended December 31, 2013 was $20.6 million, compared to $29.3 million for the twelve month period ended December 31, 2012. Excluding the effect of currency translation, net income decreased $8.3 million as summarized in the following table:

| thousands of dollars Net income | Year Ended December 31 2013 | 2012 | Change | Change due to currency translation | Change excluding currency% translation | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $10,875 | $13,290 | $(2,415) | $0 | $(2,415) | (18)% |
| The Americas | 5,896 | 6,763 | (867) | (210) | (657) | (10) |
| EMEA | 6,047 | 6,840 | (793) | (440) | (353) | (5) |
| Asia-Pacific | (2,231) | 2,393 | (4,624) | 206 | (4,830) | NM |
| Consolidated | $20,587 | $29,286 | $(8,699) | $(444) | $(8,255) | (28)% |

NM-Not Meaningful

PLP-USA net income decreased $2.4 million due to a $5.8 million decrease in operating income partially offset by lower income taxes of $3.3 million and an increase in other income of $.1 million. International net income for the twelve month period ended December 31, 2013 was unfavorably affected by $.4 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 decreased $.7 million as a result of a decrease in operating income. EMEA net income decreased $.4 million as a result of a $.9 million decrease in operating income partially offset by lower taxes. Asia-Pacific net income decreased $4.8 million as a result of a $5.1 million decrease in operating income coupled with a decrease in other income of $.1 million partially offset by lower taxes.

2012 RESULTS OF OPERATIONS COMPARED TO 2011

*Net Sales*. In 2012, net sales were $439.2 million, an increase of $14.8 million, or 3%, compared to 2011. Excluding the effect of currency translation, net sales increased $28.9 million as summarized in the following table:

| thousands of dollars Net sales | Year Ended December 31 2012 | 2011 | Change | Change due to currency translation | Change excluding currency% tranlation | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $162,027 | $146,146 | $15,881 | $0 | $15,881 | 11% |
| The Americas | 92,584 | 100,144 | (7,560) | (9,635) | 2,075 | 2 |
| EMEA | 66,272 | 61,430 | 4,842 | (4,977) | 9,819 | 16 |
| Asia-Pacific | 118,309 | 116,684 | 1,625 | 516 | 1,109 | 1 |
| Consolidated | $439,192 | $424,404 | $14,788 | $(14,096) | $28,884 | 7% |

26

The increase in PLP-USA net sales of $15.9 million, or 11%, was due to a sales volume increase of $14 million and a sales mix and price increase of $1.9 million when compared to 2011. The PLP-USA sales volume increase was primarily due to sales to the transmission market. International net sales for the year ended December 31, 2012 were unfavorably affected by $14.1 million when local currencies were converted to U.S. dollars. The following discussions of international net sales exclude the effect of currency translation. The Americas net sales of $92.6 million increased $2.1 million, or 2%, primarily due to an increase in energy volume in the region of $10.1 million partially offset by lower solar sales of $8 million. EMEA net sales of $66.3 million increased $9.8 million, or 16%, primarily due to an overall increase in sales volume in the region. In Asia-Pacific, net sales of $118.3 million increased $1.1 million, or 1%, compared to 2011. The increase in net sales was primarily due to $10.5 million related to the acquisition of AES entered into on January 31, 2012, partially offset by lower organic sales volume of $9.7 million partially due to government deferrals of constructing transmission lines in the region.

*Gross Profit.* Gross profit of $144.4 million for 2012 increased $3.6 million, or 3%, compared to 2011. Excluding the unfavorable effect of currency translation, gross profit increased $8.1 million, or 6%, as summarized in the following table:

| thousands of dollars Gross profit | Year Ended December 31 2012 | 2011 | Change | Change due to currency translation | Change excluding currency% translation | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $58,814 | $52,826 | $5,988 | $0 | $5,988 | 11% |
| The Americas | 27,772 | 30,495 | (2,723) | (2,895) | 172 | 1 |
| EMEA | 23,358 | 18,984 | 4,374 | (1,653) | 6,027 | 32 |
| Asia-Pacific | 34,494 | 38,544 | (4,050) | 62 | (4,112) | (11) |
| Consolidated | $144,438 | $140,849 | $3,589 | $(4,486) | $8,075 | 6% |

PLP-USA gross profit of $58.8 million increased $6 million compared to 2011. As a percentage of net sales, gross profit increased from 36.1% of net sales in 2011 to 36.3% of net sales in 2012. PLP-USA’s gross profit increased $6 million primarily due to the increased net sales partially offset by $1.4 million in higher manufacturing expenses primarily due to an increase in employee related costs of $.9 million (of which $.6 million related to an increase in pension expense), coupled with increases in consulting, repairs and maintenance, freight and shipping expenses. International gross profit for the twelve month period ended December 31, 2012 was unfavorably affected by $4.5 million when local currencies were translated to U.S. dollars. The following discussion of gross profit changes excludes the unfavorable effect of currency translation. The Americas gross profit increase of $.2 million was primarily the result of $1.9 million from higher net sales partially offset by lower product margin in the region. The EMEA gross profit increase of $6 million was primarily a result of $3.8 million from higher net sales coupled with higher product margins of $2.2 million in the region. Of the $2.2 million increase in product margins, $1.8 million was due to product warranty expenses in the second quarter of 2011. During the second quarter of 2011, we accepted certified product from a supplier which later failed in the field. We took responsibility to expedite correcting the situation. Asia-Pacific gross profit of $34.5 million decreased $4.1 million compared to 2011 due to $2.8 million from lower net sales coupled with $2.3 million due to lower product margins, offset by $1 million of gross profit related to the acquisition entered into on January 31, 2012.

*Costs and expenses*. Costs and expenses of $100.3 million for the year ended December 31, 2012 increased $4.8 million, or 5%, compared to 2011. Excluding the effect of currency translation, costs and expenses increased 8% as summarized in the following table:

| thousands of dollars Costs and expenses | Year Ended December 31 2012 | 2011 | Change | Change due to currency translation | Change excluding currency% translation | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $35,682 | $35,864 | $(182) | $0 | $(182) | (1)% |
| The Americas | 18,758 | 18,574 | 184 | (1,856) | 2,040 | 11 |
| EMEA | 14,092 | 12,100 | 1,992 | (977) | 2,969 | 25 |
| Asia-Pacific | 31,784 | 28,957 | 2,827 | 133 | 2,694 | 9 |
| Consolidated | $100,316 | $95,495 | $4,821 | $(2,700) | $7,521 | 8% |

PLP-USA costs and expenses decreased $.2 million primarily due to a favorable change in net currency exchange related to intercompany receivables and loans of $.5 million coupled with an increase in intercompany income of $.8 million, lower information system implementation and consulting expenses of $2 million and $.6 million related to lower acquisition related costs. Partially offsetting these decreases in PLP-USA’s costs and expenses were higher employee related costs of $2.5 million, an increase in commissions of $.8 million, $.2 million related to an increase in repairs and maintenance, and advertising, travel and professional related costs each increased $.1 million. International costs and expenses for the twelve month period ended December 31, 2012 were favorably affected by $2.7 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 $2 million primarily due to an increase in personnel related costs in the region, higher intercompany related expenses of $.5 million, and an increase of $.5 million due to our investments in PLP-Argentina which began in June 2012. The increase in the Americas costs and expenses were partially offset by lower commissions of $.3 million in the region coupled with lower net foreign currency exchange losses of $.4 million. EMEA costs and expenses increased $3 million primarily due to an increase in personnel related costs coupled with higher intercompany related expenses of $.7 million and $.3 million due to an immaterial acquisition entered into on March 1, 2012 partially offset by $.2 million related to a change in net foreign currency exchange gains in 2012. Of the remaining increase in EMEA’s costs and expenses, $1 million was related to intercompany loan and interest forgiveness with our Asia-Pacific reporting segment. Asia-Pacific costs and expenses increased $2.7 million compared to 2011. This increase is due the acquisition on January 31, 2012 which added $2.8 million to cost and expenses compared to 2011, higher personnel related costs and higher ERP system implementation costs in the region. The increase in Asia-Pacific’s costs and expenses was partially offset by $1 million related to loan and intercompany interest forgiveness with our EMEA segment, lower commissions of $.2 million and a $.7 million reduction in the fair value of an acquisition earn-out consideration payment.

*Other income (expense).* Other income for the twelve month period ended December 31, 2012 of $.7 million increased $.1 million compared to 2011 primarily due to an increase in interest income of $.1 million coupled with lower net interest expense of $.2 million partially offset by a decrease in income related to PLP-USA’s gas well revenue at our corporate headquarters of $.2 million.

*Income taxes.* Income taxes for the year ended December 31, 2012 and December 31, 2011 were $15.5 million and $15 million, respectively. The effective tax rate on net income was 34.7% and 32.6% in 2012 and 2011, respectively. The 2012 effective tax rate is higher than the 2011 effective tax rate primarily due to net increased earnings in the U.S. at the federal statutory rate of 35% and the expiration of business tax provisions in 2012, including the research and experimentation credit, the Subpart F controlled foreign corporation look-through exception, among others. The 2012 effective tax rate is lower than the 35% U.S. federal statutory tax rate primarily due to inclusion of earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate in jurisdictions where such earnings are permanently reinvested. The 2011 effective tax rate is lower than the U.S. federal 35% statutory tax rate primarily due to earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate in jurisdictions where such earnings are permanently reinvested.

The American Taxpayer Relief Act of 2012 (the “Act”) was signed into law on January 2, 2013. The Act retroactively restored several expired business tax provisions, primarily the research and experimentation credit and the Subpart F controlled foreign corporation look-through exception. Because a change in tax law is accounted for in the period of enactment, the retroactive effect of the Act on the Company’s U.S. federal taxes for 2012 of a benefit of approximately $.3 million will be recognized in 2013.

*Net income*. As a result of the preceding items, net income for the twelve month period ended December 31, 2012 was $29.3 million, compared to $31 million for the twelve month period ended December 31, 2011. Excluding the effect of currency translation, net income decreased $.4 million as summarized in the following table:

| thousands of dollars Net income | Year Ended December 31 2012 | 2011 | Change | Change due to currency translation | Change excluding currency translation | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $13,290 | $10,413 | $2,877 | $0 | $2,877 | 28% |
| The Americas | 6,763 | 8,159 | (1,396) | (705) | (691) | (8) |
| EMEA | 6,840 | 5,519 | 1,321 | (521) | 1,842 | 33 |
| Asia-Pacific | 2,393 | 6,893 | (4,500) | (36) | (4,464) | (65) |
| Consolidated | $29,286 | $30,984 | $(1,698) | $(1,262) | $(436) | (1)% |

PLP-USA net income increased $2.9 million due to a $6.2 million increase in operating income partially offset by a decrease in other income of $.4 million coupled with an increase in income taxes of $2.9 million. International net income for the twelve month period ended December 31, 2012 was unfavorably affected by $1.3 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 decreased $.7 million as a result of a decrease in operating income of $1.8 million partially offset by an increase in other income of $.4 million and lower taxes of $.8 million. EMEA net income increased $1.8 million primarily due to a $3.1 million increase in operating income coupled with a $.1 million increase in other income partially offset by an increase in income taxes of $1.3 million. Asia-Pacific net income decreased $4.5 million primarily due to a decrease in operating income of $6.8 million partially offset by lower income taxes of $2.3 million.

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, 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. In 2013, we used cash of $21 million for capital expenditures. We ended the fourth quarter of 2013 with $24.3 million of cash and cash equivalents. We have adequate sources of liquidity including a borrowing capacity of $37.4 million and believe we have the ability to generate cash to meet existing or reasonably likely future cash requirements. Our cash and cash equivalents are held in various locations throughout the world. At December 31, 2013, the majority of our cash and cash equivalents are held outside the U.S. We expect accumulated non-U.S. cash balances will remain outside of the U.S. and that we will meet U.S. liquidity needs through future 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.

Our financial position remains strong and our current ratio at December 31, 2013 and 2012 was 3.6 to 1 and 3.3 to 1, respectively. At December 31, 2013, our unused availability under our line of credit was $37.4 million and our bank debt to equity percentage was 5.7%. On October 16, 2013, we decreased our borrowing capacity under our credit facility from $90 million to $50 million and on January 23, 2014 we extended the term to January 2017. All other terms, including the interest rate at LIBOR plus 1.125%, remain the same. The line of credit agreement contains, among other provisions, requirements for maintaining levels of working capital, net worth and profitability. At December 31, 2013 and throughout the year, we were in compliance with these covenants.

We expect that our major source of funding for 2013 and beyond will be our operating cash flows, our existing cash and cash equivalents as well as our line of credit agreement. 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 borrowing capacity provides substantial financial resources if needed to supplement funding of capital expenditures and/or acquisitions. 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.

We earn a significant amount of our operating income outside the United States, which, except for current earnings, is deemed to be indefinitely reinvested in foreign jurisdictions. We currently do not intend nor foresee a need to repatriate these funds. We expect domestic cash generated from operations to be sufficient to fund our domestic operating activities and cash commitments for investing and financing activities, such as regular quarterly dividends, debt repayment, and capital expenditures, for at least the next 12 months and thereafter for the foreseeable future.

#### Sources and Uses of Cash

Cash decreased $3.8 million for the year ended December 31, 2013. Net cash provided by operating activities was $21.5 million. The major investing and financing uses of cash were capital expenditures of $21 million, dividends of $2.3 million and common share repurchases of $6.9 million.

Net cash provided by operating activities decreased $32.2 million compared to 2012 primarily as a result of a decrease in net income of $8.7 million, an increase in operating assets (net of operating liabilities) of $26.7 million partially offset by an increase in non-cash items of $3.2 million.

Net cash used in investing activities of $24.1 million represents a decrease of $.1 million when compared to cash used in investing activities in 2012. The decrease was primarily related to business acquisition payments of $5.2 million in 2012 partially offset by a $1.4 million decrease in proceeds from the sale of property and equipment in the twelve month period ended December 31, 2013 when compared to the same period in 2012 and an increase in 2013 of $3.6 million due to restricted cash and long-term term deposits. In January 2012, we purchased AES in Australia for $4.3 million, net of cash received and working capital adjustments. In March 2012, we purchased all of the assets of Forma Line Industries CC in South Africa for $.9 million, net of cash received and working capital adjustments. Capital expenditures were $21 million in 2013, of which $10.2 million related to the expansion of our worldwide corporate headquarters and $1.9 million in machinery and equipment at our PLP-USA segment. The remainder of the expenditures was primarily due to the purchase of machinery and equipment in the EMEA, The Americas and Asia-Pacific segment and also a building in the EMEA segment.

Cash used by financing activities was $3.2 million compared to $30.4 million in 2012. This decrease in cash used by financing activities was primarily a result of net debt borrowings of $4.7 million in 2013 compared to net debt repayments of $20.7 million in 2012. Additionally, dividends paid decreased $4.2 million, earn-out payments decreased $.6 million and proceeds from the issuance of common shares increased $1 million partially offset by $4.2 million more of common shares repurchased during 2013. In December 2012, we advanced our first and second quarter expected dividend payments (which would have been payable in January and April 2013) due to the uncertainty of the U.S. tax laws.

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 December 2014. 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 small because the estimated market value of the aircraft approximates its residual value.

Contractual obligations and other commercial commitments are summarized in the following tables:

| Contractual Obligations Thousands of dollars | Payments Due by Period Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Notes payable to bank (A) | $1,105 | $1,105 | $0 | $0 | $0 |
| Long-term debt (B) | 13,249 | 195 | 13,054 | 0 | 0 |
| Capital leases | 345 | 145 | 130 | 35 | 0 |
| Operating leases | 18,066 | 2,552 | 3,242 | 2,365 | 9,907 |
| Purchase commitments | 3,713 | 3,713 | 0 | 0 | 0 |
| Pension contribution and other retirement plans (C) | 694 | 694 | 0 | 0 | 0 |
| Income taxes payable, non-current (D) | 0 | 0 | 0 | 0 | 0 |

| Other Commercial Commitments Thousands of dollars | Amount of Commitment Expiration by Period Total | Less than 1 year | 1-3 years | 4-5 years | After 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Letters of credit | $4,724 | $2,739 | $1,918 | $67 | $0 |
| Guarantees | 1,957 | 1,942 | 0 | 15 | 0 |

(A) Interest on short-term debt is included in the table at interest rates of 3.25% to 3.6% in effect at December 31, 2013.

(B) Interest on long-term debt is included in the table at interest rates from 1.29% to 8.12% based on the variable interest rates in effect at December 31, 2013.

(C) Amount represents the expected contribution to the Company’s defined benefit pension plan in 2014. Future expected amounts beyond one year 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, 2013, our unfunded contractual obligation was $5 million. Our Supplemental Profit Sharing Plan accrued liability at December 31, 2013 was $3 million.

(D) As of December 31, 2013, there were $1.6 million of tax liabilities, including interest and penalties, 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, we are 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 GAAP. 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.

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.

Revenue Recognition

Our revenue recognition policies are in accordance with FASB ASC 605, Revenue Recognition. We recognize sales when title passes to the customer either when goods are shipped or when they are delivered and based on the terms of the sale, there is persuasive evidence of an agreement, the price is fixed or determinable and collectability is reasonably assured. 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

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 2013, we recorded a provision for doubtful accounts of $.4 million. The allowance for doubtful accounts represents approximately 3% of our trade receivables at December 31, 2013 and 2% of our trade receivables at December 31, 2012.

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 24 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, 2013 the allowance for excess and obsolete inventory was 9% of gross inventory and at December 31, 2012, the allowance for excess and obsolete inventory was 7% of gross inventory. If the impact of market conditions deteriorates from those projected by management, additional inventory reserves 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 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 has been impaired. Based on the assumptions as to growth, discount rates and the weighting used for each respective valuation methodology, results of the valuations could be significantly changed. However, 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 October 1 of each year. We performed our annual impairment tests for goodwill as of October 1, 2013. We recorded impairment for goodwill for the year ended December 31, 2013 for $.9 million. We did not have any impairment for goodwill or other intangibles for the year ended December 31, 2012. See Note J for additional information.

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 establish 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 FASB ASC 740 (formerly 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.

ASC 740 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, 2013, we recognized a benefit of $.7 million for uncertain tax positions. At December 31, 2013, the total reserve for uncertain tax positions is $.6 million.

Pensions

We record 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 5.0% at December 31, 2013 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 plan’s historical returns and represents our best estimate of the likely future returns on the plan’s 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.

On December 12, 2012, we approved a freeze on further benefit accruals under the PLP-USA hourly employee pension plan and notified the participants of the freeze on December 19, 2012. Beginning February 1, 2013, participants ceased earning additional benefits under the plan and no new participants enter the plan. The plan freeze required an evaluation of the plans’ assets and obligations as of December 31, 2012, which resulted in a non-cash curtailment gain of $6.3 million, which was recognized in the Other comprehensive income (loss) during the fourth quarter 2012. The measurement of the plans’ assets and obligations also resulted in a reduction in our pension liability of $6.3 million. The evaluation did not have an effect on other components of net periodic pension expense for the year ended December 31, 2012.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same period. For other amounts, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments are effective prospectively for reporting periods beginning after December 15, 2012. We adopted this guidance in the first quarter of 2013. As these amendments relate to presentation only, the provisions of ASU 2012-04 did not have an effect on our results of operations, financial condition, and cash flows.

In July 2013, the FASB issued ASU 2013-11, Presentation of Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, an amendment to FASB ASC Topic 740, Income Taxes (ASC 740). This update clarifies that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. Retrospective application was permitted. The adoption of ASU 2013-11 did not have any impact on our financial position, results of operations, cash flows or disclosures.

NEW ACCOUNTING STANDARDS TO BE ADOPTED

Changes to GAAP are established by the FASB in the form of ASU’s to the FASB’s ASC.

In March 2013, the FASB issued ASU No. 2013-05, “Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.” ASU 2013-05 clarifies the applicable guidance for the release of the cumulative translation adjustment under current U.S. GAAP by emphasizing that the accounting for the release of the cumulative translation adjustment into net income for sales or transfers of a controlling financial interest within a foreign entity is the same irrespective of whether the sale or transfer is of a subsidiary or a group of assets that is a nonprofit activity or business. When a reporting entity ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity, the parent is required to apply the guidance in Subtopic 830-30 to release any related cumulative translation adjustment into net income. The amendments are effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. We are currently evaluating the impact of the adoption of ASU 2013-05 on our financial statements.

## Market risk

As filed, 3,156 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 stability of the countries in which the Company’s largest international operations are located.

As of December 31, 2013, the Company had no foreign currency forward exchange contract outstanding. The Company does not hold derivatives for trading purposes.

The Company is exposed to market risk, including changes in interest rates. The Company is subject to interest rate risk on its variable rate revolving credit facilities and term notes, which consisted of borrowings of $14.4 million at December 31, 2013. 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, 2013.

The Company’s 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 net fair values of $5.5 million and on income before tax of $2.3 million.

Included in our accounting for defined benefit pension plan are assumptions on future discount rates and the expected return on Plan assets. The Company considers current market conditions, including changes in interest rates and plan asset investment returns, as well as long-term assumptions in determining these assumptions. Actuarial assumptions may differ materially from actual results due to changing market and economic conditions or higher or lower withdrawal rates. These differences may result in a significant impact to the amount of net pension expense or income recorded in the future.

A discount rate is used to determine the present value of future payments. In general, our liability increases as the discount rate decreases and decreases as the discount rate increases. The discount rate used to determine our future benefit obligation was 5.0% and 4.0% at December 31, 2013 and 2012, respectively. The discount rate is a significant factor in determining the amounts reported. A 50 basis point change in the discount rate of 5.0% used at December 31, 2013 would have a $2.5 million effect on Plan’s projected benefit obligation.

The Company developed the expected return on plan assets by considering various factors which include targeted asset allocation percentages, historical returns, and expected future returns. The Company assumed an expected rate of return of 8.0% in both 2013 and 2012. A 50 basis point change in the expected rate of return would have $.1 million effect on the Plan’s subsequent year’s net periodic pension cost.

## Controls and procedures

As filed, 6,230 characters.

### Evaluation of Disclosure Controls and Procedures

The Company’s Principal Executive Officer and Principal Financial Officer have concluded based on their review thereof 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 December 31, 2013.

### Management’s 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 Company’s 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 Company’s Chief Executive Officer and Chief Financial Officer and Vice President of Finance, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013. 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* (1992 framework). Based upon this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2013.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 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

There have not been any changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2013 that materially affected, or is reasonably likely to materially affect, the Company’s 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 Company’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Preformed Line Products Company’s 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 Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s 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 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 company’s 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 company’s 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 company’s 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, 2013, 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 sheets of Preformed Line Products Company as of December 31, 2013 and 2012 and the related consolidated statements of income, comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2013 and our report dated March 14, 2014 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Cleveland, Ohio

March 14, 2014

Filed Mar 14, 2014.
Source: SEC EDGAR, the filing index for accession 0001193125-14-099760. Last ingested by Listed: Nov 6, 2026, 07:10 ET. No prices; not investment advice.