# Preformed Line Products Co: Form 10-Q for the period ended Sep 30, 2014

- Company: [Preformed Line Products Co](/companies/plpc.md) (CIK 80035)
- Form: 10-Q
- Filed: 2014-11-07
- Accepted by EDGAR: Nov 7, 2014, 10:24 ET
- Period: 2014-09-30
- Accession: 0001193125-14-402476
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/80035/000119312514402476/d787643d10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/80035/000119312514402476/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2014-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 9 months, 2014-01-01 to 2014-09-30 | $292.0m | us-gaap:SalesRevenueGoodsNet |
| Cost of revenue | 3 months, 2014-07-01 to 2014-09-30 | $69.6m | us-gaap:CostOfGoodsSold |
| Cost of revenue | 9 months, 2014-01-01 to 2014-09-30 | $200.9m | us-gaap:CostOfGoodsSold |
| Gross profit | 3 months, 2014-07-01 to 2014-09-30 | $32.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2014-01-01 to 2014-09-30 | $91.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2014-07-01 to 2014-09-30 | $4.4m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2014-01-01 to 2014-09-30 | $12.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2014-07-01 to 2014-09-30 | $5.1m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2014-01-01 to 2014-09-30 | $17.0m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2014-07-01 to 2014-09-30 | $141.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2014-01-01 to 2014-09-30 | $504.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2014-07-01 to 2014-09-30 | $2.7m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2014-01-01 to 2014-09-30 | $6.7m | us-gaap:IncomeTaxExpenseBenefit |
| Diluted EPS | 3 months, 2014-07-01 to 2014-09-30 | $0.48 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2014-01-01 to 2014-09-30 | $1.92 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2014-07-01 to 2014-09-30 | $0.48 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2014-01-01 to 2014-09-30 | $1.93 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2014-07-01 to 2014-09-30 | 5,376,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2014-01-01 to 2014-09-30 | 5,389,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2014-01-01 to 2014-09-30 | $21.1m | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 9 months, 2014-01-01 to 2014-09-30 | $14.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2014-01-01 to 2014-09-30 | $3.3m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2014-01-01 to 2014-09-30 | $104.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2014-09-30 | $28.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2014-09-30 | $204.7m | us-gaap:AssetsCurrent |
| Total assets | at 2014-09-30 | $362.1m | us-gaap:Assets |
| Current liabilities | at 2014-09-30 | $59.9m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2014-09-30 | $32.1m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2014-09-30 | $123.0k | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2014-09-30 | $252.6m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 41,867 characters.

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

The MD&A is organized as follows:

- Overview
- Preface
- Results of Operations
- Application of Critical Accounting Policies and Estimates
- Working Capital, Liquidity and Capital Resources
- Recently Adopted Accounting Pronouncements
- New Accounting Standards to be Adopted

OVERVIEW

Preformed Line Products Company (the “Company”, “PLPC”, “we”, “us”, or “our”) was incorporated in Ohio in 1947. We are an international designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, information (data communication), and other similar industries. Our primary products support, protect, connect, terminate, and secure cables and wires. We also provide solar hardware systems and mounting hardware for a variety of solar power applications. Our goal is to continue to achieve profitable growth as a leader in the research, 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 19 sales and manufacturing operations in 15 different countries.

We report our segments in four geographic regions: PLP-USA (including Corporate), The Americas (includes operations in North and South America without PLP-USA), EMEA (Europe, Middle East & Africa) and Asia-Pacific in accordance with accounting standards codified in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 280, Segment Reporting. Each segment distributes a full range of our primary products. Our PLP-USA segment is comprised of our U.S. operations manufacturing our traditional products primarily supporting our domestic energy 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 the entire segment for which they are responsible. The business components within each segment are managed to maximize the results of the entire company rather than the results of any individual business component of the segment.

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

PREFACE

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

Our consolidated financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. As foreign currencies weaken against the U.S. dollar, our revenues and costs decrease as the foreign currency-denominated financial statements translate into fewer U.S. dollars. On average, foreign currencies weakened against the U.S. dollar in the first nine months of 2014. The most significant currencies that contributed to this movement were the Australian dollar, the Brazilian real, the South African rand and the Canadian dollar. On a reportable segment basis, the favorable (unfavorable) impact of foreign currency on net sales and net income for the three and nine months ended September 30, 2014, was as follows:

| (Millions of dollars) | Foreign Currency Impact Net Sales Three Months | Nine Months | Net Income Three Months | Nine Months |
| --- | ---: | ---: | ---: | ---: |
| The Americas | $(0.2) | $(4.0) | 0 | $(0.2) |
| EMEA | 0.4 | 0.7 | 0.1 | 0.1 |
| Asia-Pacific | 0.3 | (2.3) | 0 | 0.1 |
| Total | $0.5 | $(5.6) | $0.1 | $0 |

For the three months ended September 30, 2014, net sales of $102.1 million increased $1.3 million, or 1%, compared to 2013. Excluding the effect of currency translation, net sales increased 1%. As a percentage of net sales, gross profit increased to 31.8% of net sales from 31.4% of net sales compared to 2013. Gross profit of $32.5 million increased $.8 million compared to 2013. Excluding the effect of currency translation, gross profit increased $.5 million, or 2%, compared to 2013. Costs and expenses of $27.3 million increased $3.9 million compared to 2013. Excluding the effect of translation, costs and expenses increased $3.8 million compared to 2013. Operating income for the three months ended September 30, 2014 was $5.1 million, a decrease of $3.1 million compared to 2013. The favorable effect of currency translation of the preceding factors had a $.1 million favorable effect on both operating income and net income compared to 2013. Net income for the three months ended September 30, 2014 of $2.6 million decreased $3.5 million compared to 2013.

For the nine months ended September 30, 2014, net sales of $292.0 million decreased $19.2 million, or 6%, compared to 2013. The fluctuations of foreign currencies during the nine months ended September 30, 2014 had an unfavorable impact on net sales of $5.6 million as compared to 2013. Excluding the impact of currency translation of $5.6 million, sales decreased 4% compared to 2013. As a percentage of net sales, gross profit was 31.2% and 32.3% for the nine months ended September 30, 2014 and 2013, respectively. Gross profit of $91.1 million decreased $9.4 compared to 2013. Excluding the unfavorable effect of currency translation of $1.3 million, gross profit decreased $8.1 million, or 8%. Costs and expenses of $74.1 million decreased $.7 million. Excluding the effect of translation, costs and expenses increased $.6 million. Operating income for the nine months ended September 30, 2014 of $17 million decreased $8.7 million compared to 2013. The effect of currency translation was negligible on operating income and net income. Net income for the nine months ended September 30, 2014 of $10.4 million decreased $7.1 million compared to 2013.

The global political and economic conditions continued to impact the building of new transmission lines throughout the world; however, our financial condition continues to remain strong despite the continued uncertainties in Europe and reduced growth in the Asia-Pacific segment. Despite the current global economy, we believe our business fundamentals are sound and that we are 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 13.3% and can borrow needed funds at an attractive interest rate under our credit facility.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2014 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2013

The following table sets forth a summary of the Company’s Statement of Consolidated Income and the percentage of net sales for the three months ended September 30, 2014 and 2013. The Company’s past operating results are not necessarily indicative of future operating results.

| (Thousands of dollars) | Three Months Ended September 30 2014 |  | 2013 |  | Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $102,100 | 100.0% | $100,828 | 100.0% | $1,272 | 1% |
| Cost of products sold | 69,645 | 68.2% | 69,168 | 68.6% | 477 | 1 |
| **GROSS PROFIT** | 32,455 | 31.8% | 31,660 | 31.4% | 795 | 3 |
| Costs and expenses | 27,320 | 26.8% | 23,393 | 23.2% | 3,927 | 17 |
| **OPERATING INCOME** | 5,135 | 5.0% | 8,267 | 8.2% | (3,132) | (38) |
| Other income | 159 | 0.2% | 277 | 0.3% | (118) | NM |
| **INCOME BEFORE INCOME TAXES** | 5,294 | 5.2% | 8,544 | 8.5% | (3,250) | (38) |
| Income taxes | 2,739 | 2.7% | 2,440 | 2.4% | 299 | 12 |
| **NET INCOME** | $2,555 | 2.5% | $6,104 | 6.1% | $(3,549) | (58)% |

NM- Not meaningful.

*Net sales.* For the three months ended September 30, 2014, net sales were $102.1 million, an increase of $1.3 million, or 1%, from the three months ended September 30, 2013. Excluding the effect of currency translation, net sales increased $.8 million, or 1% as summarized in the following table:

| (Thousands of dollars) Net sales | Three Months Ended September 30 2014 | 2013 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $38,636 | $33,763 | $4,873 | $0 | $4,873 | 14% |
| The Americas | 22,979 | 23,507 | (528) | (224) | (304) | (1) |
| EMEA | 17,327 | 14,802 | 2,525 | 413 | 2,112 | 14 |
| Asia-Pacific | 23,158 | 28,756 | (5,598) | 325 | (5,923) | (21) |
| Consolidated | $102,100 | $100,828 | $1,272 | $514 | $758 | 1% |

The increase in PLP-USA net sales of $4.9 million, or 14%, was primarily due to a volume increase of $5.1 million partially offset by a price/mix decrease of $.2 million. International net sales for the three months ended September 30, 2014 were favorably affected by $.5 million when local currencies were converted to U.S. dollars. The following discussion of changes in net sales excludes the effect of currency translation. The Americas net sales of $23.0 million declined $.3 million, or 1%, with a decrease primarily in solar related sales. This solar sales decline was predominantly offset from the increased sales at Helix, which was acquired in January of 2014. EMEA net sales of $17.3 million increased $2.1 million primarily due to an increase in transmission projects in the region. In Asia-Pacific, net sales of $23.2 million decreased $5.9 million, or 21%, compared to 2013. The decrease in net sales was primarily due to a market downturn of substation and transmission projects in the region along with government deferrals of the construction of transmission lines in several locations in the region.

*Gross profit.* Gross profit of $32.5 million for the three months ended September 30, 2014 increased $.8 million, or 3%, compared to the three months ended September 30, 2013. Excluding the effect of currency translation, gross profit increased $.5 million, or 2% as summarized in the following table:

| (Thousands of dollars) Gross profit | Three Months Ended September 30 2014 | 2013 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $14,326 | $13,183 | $1,143 | $0 | $1,143 | 9% |
| The Americas | 5,978 | 6,133 | (155) | (59) | (96) | (2) |
| EMEA | 5,758 | 5,286 | 441 | 215 | 226 | 4 |
| Asia-Pacific | 6,393 | 7,058 | (665) | 88 | (753) | (11) |
| Consolidated | $32,455 | $31,660 | $764 | $244 | $520 | 2% |

PLP-USA gross profit of $14.3 million increased $1.1 million compared to the same period in 2013. PLP-USA’s increase was generated through the increase in sales volume; however, the mix of sales led to higher production costs thus lowering expected gross profit based on the quarter-over-quarter sales increase for 2014 compared to 2013. International gross profit for the three months ended September 30, 2014 was favorably impacted by $.3 million when local currencies were translated to U.S. dollars. The following discussion of gross profit changes excludes the effects of currency translation. The Americas gross profit decrease of $.1 million was primarily the result of the $.3 million sales decline. The EMEA gross profit increased $.2 million as a result of a $2.1 million sales increase mostly offset by higher product costs. Asia-Pacific gross profit decreased $.8 million as a result of lower net sales of $5.9 million that was significantly mitigated by improved mix of sales in a few of the locations.

*Costs and expenses.* Costs and expenses of $27.3 million for the three months ended September 30, 2014 increased $3.9 million, or 17%, compared to 2013. Excluding the effect of currency translation, costs and expenses increased $3.8 million, or 16% as summarized in the following table:

| (Thousands of dollars) Costs and expenses | Three Months Ended September 30 2014 | 2013 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $10,625 | $8,289 | $2,336 | $0 | $2,336 | 28% |
| The Americas | 5,783 | 4,180 | 1,603 | (58) | 1,661 | 40 |
| EMEA | 3,535 | 3,214 | 321 | 60 | 261 | 8 |
| Asia-Pacific | 7,377 | 7,710 | (333) | 104 | (437) | (6) |
| Consolidated | $27,320 | $23,393 | $3,927 | $106 | $3,821 | 16% |

PLP-USA costs and expenses increased $2.3 million primarily due to higher net foreign currency exchange losses of $2.1 million and increased repairs and maintenance costs of $.3 million. The foreign currency exchange losses are primarily related to translating into U.S. dollars our foreign denominated loans, trade receivables and royalty receivables from our foreign subsidiaries at the quarter-end exchange rates. International costs and expenses for the three months ended September 30, 2014 were favorably impacted by $.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 of $5.8 million increased $1.7 million primarily due to the net reduction of $.7 million of value added tax and the related interest and inflation recovered in 2013 at our Brazilian operations, a $.3 million increase in personnel and marketing related expenses, a $.4 million increase in costs and expenses related to the addition of Helix and a net foreign currency exchange loss of $.3 million. EMEA costs and expenses of $3.5 million increased $.3 million compared to 2013 due primarily start-up expenses for additional offices in the region. Asia-Pacific costs and expenses of $7.4 million decreased $.4 million primarily due to lower net foreign currency exchange losses of $.2 million and a $.2 million decrease in intercompany related expenses.

*Other income.* Other income (expense) for the three months ended September 30, 2014 declined $.1 million compared to 2013.

*Income taxes.* Income taxes for the three months ended September 30, 2014 of $2.7 million was $.3 million higher than the same period in 2013. The effective tax rate for the three months ended September 30, 2014 was 52% compared to 29% for the same period in 2013. The effective tax rate for three months ended September 30, 2014 was higher than the U.S. federal statutory rate of 35% and higher than the tax rate for the same period in 2013 primarily due to the Company providing a valuation allowance against deferred tax assets, attributable to operating losses in certain foreign jurisdictions coupled with a decrease in earnings in jurisdictions, where such earnings are permanently reinvested, with lower tax rates than the U.S. federal statutory rate.

*Net income.* As a result of the preceding items, net income for the three months ended September 30, 2014 was $2.6 million, compared to $6.1 million for the three months ended September 30, 2013. Excluding the effect of currency translation, net income decreased $3.7 million as summarized in the following table:

| (Thousands of dollars) Net income (loss) | Three Months Ended September 30 2014 | 2013 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $2,992 | $3,220 | $(228) | 0 | $(228) | (7)% |
| The Americas | (12) | 1,457 | (1,469) | (3) | (1,466) | (101) |
| EMEA | 1,708 | 1,618 | 90 | 119 | (29) | (2) |
| Asia-Pacific | (2,133) | (191) | (1,942) | 7 | (1,949) | N/M |
| Consolidated | $2,555 | $6,104 | $(3,549) | $123 | $(3,672) | (60)% |

NM- Not Meaningful

PLP-USA net income decreased $.2 million due to a $1.2 million decrease in operating income partially offset by a decrease in income taxes of $1 million. International net income for the three months ended September 30, 2014 was favorably affected by $.1 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 $1.5 million as a result of a $1.8 million decrease in operating income partially offset by a decrease in income taxes. EMEA net income was essentially unchanged. Asia-Pacific net loss increased $1.9 million as a result of increased income taxes of $1.6 million primarily due to the Company’s decision not to recognize the tax benefit attributable to operating losses along with an increased operating loss of $.3 million.

NINE MONTHS ENDED SEPTEMBER 30, 2014 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2013

The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the nine months ended September 30, 2014 and 2013. The Company’s past operating results are not necessarily indicative of future operating results.

| (Thousands of dollars) | Nine Months Ended September 30 2014 |  | 2013 |  | Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $292,006 | 100.0% | $311,233 | 100.0% | $(19,227) | (6)% |
| Cost of products sold | 200,906 | 68.8% | 210,725 | 67.7% | (9,819) | (5) |
| GROSS PROFIT | 91,100 | 31.2% | 100,508 | 32.3% | (9,408) | (9) |
| Costs and expenses | 74,140 | 25.4% | 74,885 | 24.1% | (745) | (1) |
| OPERATING INCOME | 16,960 | 5.8% | 25,623 | 8.2% | (8,663) | (34) |
| Other income | 77 | 0.0% | 518 | 0.2% | (441) | NM |
| INCOME BEFORE INCOME TAXES | 17,037 | 5.8% | 26,141 | 8.4% | (9,104) | (35) |
| Income taxes | 6,664 | 2.3% | 8,686 | 2.8% | (2,022) | (23) |
| NET INCOME | $10,373 | 3.6% | $17,455 | 5.6% | $(7,082) | (41)% |

NM- Not meaningful.

*Net sales.* For the nine months ended September 30, 2014, net sales were $292.0 million, a decrease of $19.2 million, or 6%, from the nine months ended September 30, 2013. Excluding the unfavorable effect of currency translation, net sales decreased 4% as summarized in the following table:

| (Thousands of dollars) Net sales | Nine Months Ended September 30 2014 | 2013 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $104,658 | $112,297 | $(7,639) | $0 | $(7,639) | (7)% |
| The Americas | 71,569 | 65,672 | 5,897 | (3,958) | 9,855 | 15 |
| EMEA | 47,050 | 47,609 | (559) | 660 | (1,219) | (3) |
| Asia-Pacific | 68,729 | 85,655 | (16,926) | (2,303) | (14,623) | (17) |
| Consolidated | $292,006 | $311,233 | $(19,227) | $(5,601) | $(13,626) | (4)% |

The decrease in PLP-USA net sales of $7.6 million, or 7%, was primarily due to $9.2 million related to sales volume and a net $1.6 million increase due to price/mix. International net sales for the nine months ended September 30, 2014 were unfavorably affected by $5.6 million when local currencies were converted to U.S. dollars. The following discussion of changes in net sales excludes the effect of currency translation. The Americas net sales increase of $9.9 million, or 15%, was primarily due to higher net transmission sales of $1.2 million and $8.7 million in sales at Helix, which was acquired in January of 2014. EMEA net sales of $47.1 million decreased $1.2 million, or 3%, primarily due to a national strike by the metal industry in one of our locations in the third quarter. The Asia-Pacific, net sales of $68.7 million decreased $14.6 million, or 17%, compared to the same period in 2013. The decrease in net sales is primarily related to lower transmission and substation sales as a result of slowing economies and government deferral of projects and political uncertainty in various locations within the region.

*Gross profit*. Gross profit of $91.1 million for the nine months ended September 30, 2014 decreased $9.4 million, or 9%, compared to the nine months ended September 30, 2013. Excluding the effect of currency translation, gross profit decreased 8% as summarized in the following table:

| (Thousands of dollars) Gross profit | Nine Months Ended September 30 2014 | 2013 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $37,709 | $43,121 | $(5,412) | $0 | $(5,412) | (13)% |
| The Americas | 18,592 | 18,152 | 440 | (1,086) | 1,526 | 8 |
| EMEA | 16,000 | 16,481 | (481) | 243 | (755) | (5) |
| Asia-Pacific | 18,799 | 22,754 | (3,955) | (484) | (3,471) | (15) |
| Consolidated | $91,100 | $100,508 | $(9,408) | $(1,327) | $(8,112) | (8)% |

PLP-USA gross profit of $37.7 million decreased $5.4 million compared to the same period in 2013. PLP-USA’s $5.4 million decrease in gross profit was related to the reduction in sales volume. International gross profit for the nine months ended September 30, 2014 was unfavorably impacted by $1.3 million when local currencies were translated to U.S. dollars. The following discussion of gross profit changes excludes the effects of currency translation. The Americas gross profit increase of $1.5 million was primarily the result of higher net sales. Additionally, Helix’s gross profit was negatively impacted by the sale of inventories which were adjusted to fair value on the acquisition date. The acquisition was accounted pursuant to the current business combination standards. In accordance with the standards, we recorded, as of their respective acquisition dates, the acquired inventories at their respective fair values. We have recognized $1.9 million of the acquired inventories fair value adjustment in Cost of products sold. The EMEA gross profit decreased $.8 million as a result of lower net sales in the region. Asia-Pacific gross profit decreased $3.5 million primarily due to a $4.5 million decrease in gross profit from lower net sales partially offset by a $1.0 million reduction in production costs and freight expense.

*Costs and expenses.* Costs and expenses of $74.1 million for the nine months ended September 30, 2014 decreased $.7 million, or 1%, compared to the nine months ended September 2013. Excluding the effect of currency translation, costs and expenses increased 1% as summarized in the following table:

| (Thousands of dollars) Costs and expenses | Nine Months Ended September 30 2014 | 2013 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $26,801 | $28,579 | $(1,778) | $0 | $(1,778) | (6)% |
| The Americas | 15,136 | 12,335 | 2,801 | (773) | 3,574 | 29 |
| EMEA | 11,118 | 10,143 | 975 | 104 | 871 | 9 |
| Asia-Pacific | 21,085 | 23,828 | (2,743) | (631) | (2,112) | (9) |
| Consolidated | $74,140 | $74,885 | $(745) | $(1,300) | $555 | 1% |

PLP-USA costs and expenses decreased $1.8 million primarily due to lower net foreign currency exchange losses of $1.2 million and lower personnel related and commission expenses. The foreign currency exchange losses are primarily related to translating into U.S. dollars our foreign denominated loans, trade receivables and royalty receivables from our foreign subsidiaries at the September month-end exchange rates. International costs and expenses for the nine months ended September 30, 2014 were favorably impacted by $1.3 million when local currencies were translated to U.S. dollars. The following discussions of costs and expenses exclude the effect of currency translation. The Americas costs and expenses increase of $3.6 million was primarily due to a $1.7 million refund of VAT and related interest and inflation from an income tax refund recorded at our Brazilian location in 2013 coupled with a $.8 million increase in costs and expenses of Helix acquired in January 2014. Additionally, there was an increase of $.8 million for net interest expense and royalty charges and $.3 million in personnel expenses. EMEA costs and expenses increased $.9 million due primarily to the start-up expenses for additional offices in the region. Asia-Pacific costs and expenses decreased $2.1 million primarily due to lower intercompany expenses of $.5 million, a $.7 million increase in net foreign currency exchange gains, and a $.9 million reduction in employee related and consulting costs.

*Other income (expense).* Other income for the nine months ended September 30, 2014 of $.1 million decreased $.4 million due to a $.2 million increase in interest expense and a $.2 million decrease in interest and other income.

*Income taxes.* Income taxes for the nine months ended September 30, 2014 of $6.7 million was $2 million lower than the same period in 2013. The effective tax rate for the nine months ended September 30, 2014 was 39% compared to 33% for the same period in 2013. The effective tax rate for nine months ended September 30, 2014 is higher than the U.S. federal statutory rate of 35% and higher than the tax rate for the same period in 2013 primarily due to the Company providing a valuation allowance against deferred tax assets, attributable to operating losses in certain foreign jurisdictions coupled with a decrease in earnings in jurisdictions, where such earnings are permanently reinvested, with lower tax rates than the U.S. federal statutory rate.

*Net income*. As a result of the preceding items, net income for the nine months ended September 30, 2014 was $10.4 million, compared to $17.5 million for the nine months ended September 30, 2013. Excluding the effect of currency translation, net income decreased $7.1 million as summarized in the following table:

| (Thousands of dollars) Net income (loss) | Nine Months Ended September 30 2014 | 2013 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $7,117 | $9,418 | $(2,301) | $0 | $(2,301) | (24)% |
| The Americas | 2,496 | 4,476 | (1,980) | (229) | (1,751) | (39) |
| EMEA | 3,676 | 4,907 | (1,231) | 114 | (1,345) | (27) |
| Asia-Pacific | (2,916) | (1,346) | (1,570) | 136 | (1,706) | 127 |
| Consolidated | $10,373 | $17,455 | $(7,082) | $21 | $(7,103) | (41)% |

PLP-USA net income decreased $2.3 million due to a $3.6 million decrease in operating income partially offset by lower income taxes of $1.4 million. International net income for the nine months ended September 30, 2014 was negligibly affected on a consolidated basis 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 $1.8 million as a result of a $2.0 million decrease in operating income coupled with a net increase in interest and other expense of $.5 million partially offset with lower income taxes of $.7 million. EMEA net income decreased $1.3 million due to a decrease in operating income of $1.6 million partially offset by $.3 million lower income taxes. Asia-Pacific net loss decreased $1.7 million as operating income declined $1.4 million and income taxes increased $.3 million as previously recorded deferred tax assets were written off in conjunction with the increased operating loss.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our critical accounting policies are consistent with the information set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the year ended December 31, 2013 and are, therefore, not presented herein.

WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES

#### Management Assessment of Liquidity

We measure liquidity on the basis of our ability to meet short-term and long-term operating needs, 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 2014, we used cash of $15 million, net of cash acquired, related to the acquisition of Helix in January 2014 and $14.5 million for capital expenditures. We ended the first nine months of 2014 with $28.7 million of cash and cash equivalents. We believe we have adequate sources of liquidity including additional borrowing capacity of $18.2 million, $3.9 million in term deposits and 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 September 30, 2014, 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 September 30, 2014 and December 31, 2013 was 3.4 to 1 and 3.6 to 1, respectively. At September 30, 2014, our unused availability under our line of credit was $18.2 million and our bank debt to equity percentage was 13.3%. 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 September 30, 2014 and December 31, 2013, we were in compliance with these covenants.

We expect that our major source of funding for 2014 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 existing domestic cash and cash equivalents 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 increased $4.4 million for the nine months ended September 30, 2014. Net cash provided by operating activities was $21.1 million. The major investing and financing uses of cash were capital expenditures of $14.5 million, the acquisition of Helix of $15 million, net of cash acquired, common share repurchases of $2.1 million and dividends of $3.3 million, offset by net borrowings of $19.2 million. Currency had a negative $.5 million impact on cash and cash equivalents when translating foreign denominated financial statements to U.S. dollars.

Net cash provided by operating activities for the nine months ended September 30, 2014 increased $6.5 million compared to the nine months ended September 30, 2013 primarily as a result of cash generated by operating assets (net of operating liabilities) of $13.4 million and an increase in non-cash items of $.2 million partially offset by a decrease in net income of $7.1 million.

Net cash used in investing activities for the nine months ended September 30, 2014 of $30.2 million represents an increase of $14.7 million when compared to cash used in investing activities in the nine months ended September 30, 2013. The increase was primarily related to the business acquisition of Helix of $15 million, net of cash acquired, in January 2014, capital expenditures decreases of $1.4 million in the nine months ended September 30, 2014 when compared to the same period in 2013 and an increase in 2014 of $.8 million due to fixed term deposits. The decrease in capital expenditures was due mostly to the $4 million related to the expansion of our worldwide corporate headquarters in 2013 and lower capital expenditures at our worldwide locations partially offset by the purchase of the land and building at Helix from the prior owner for $2.8 million and plant expansion of $3.3 million at our PLP-USA segment.

Cash provided by financing activities for the nine months ended September 30, 2014 was $14 million compared to $2.4 million for the nine months ended September 30, 2013. The increase was primarily a result of an increase in debt borrowings in 2014 compared to 2013 of $13.2 million partially offset by a increase of dividends paid of $2.2 million. The increase in borrowings was used primarily to finance the acquisition of Helix. 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.

NEW ACCOUNTING STANDARDS TO BE ADOPTED

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, or ASU 2014-08. ASU 2014-08 changes the criteria for reporting a discontinued operation. Under the new pronouncement, a disposal of a part of an organization that has a major effect on its operations and financial results is a discontinued operation. We are required to adopt ASU 2014-08 prospectively for all disposals or components of our business classified as held for sale during fiscal period beginning after December 15, 2014 and is currently evaluating what impact, if any, its adoption will have to the presentation of our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” or ASU 2014-09. ASU 2014-09 requires an entity to recognize revenue in a matter that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the amendment provides five steps that an entity should apply when recognizing revenue. The amendment also specifies the accounting of some costs to obtain or fulfill a contract with a customer and expands the disclosure requirements around contracts with customers. An entity can either adopt this amendment retrospectively to each prior reporting period presented or retrospectively with cumulative effect of initially applying the update recognized at the date of initial application. The amendment is effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. We are currently evaluating what impact, if any, its adoption will have to our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15 “Presentation of Financial Statements – Going Concern (Subtop 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 provides guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. We are required to adopt ASU 2014-15 prospectively for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We are currently evaluating what impact, if any, its adoption will have to the presentation of our consolidated financial statements.

FORWARD LOOKING STATEMENTS

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

This Form 10-Q and other documents we file with the Securities and Exchange Commission (“SEC”) contain forward-looking statements regarding the Company’s and management’s beliefs and expectations. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance (as opposed to historical items) and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to the Company’s operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control. Such uncertainties and factors could cause the Company’s actual results to differ materially from those matters expressed in or implied by such forward-looking statements.

The following factors, among others, could affect the Company’s future performance and cause the Company’s actual results to differ materially from those expressed or implied by forward-looking statements made in this report:

- The overall demand for cable anchoring and control hardware for electrical transmission and distribution lines on a worldwide basis, which has a slow growth rate in mature markets such as the United States (U.S.), Canada, and Western Europe and may not grow as expected in developing regions;
- The potential impact of the global economic condition and the depressed U.S. housing market on the Company’s ongoing profitability and future growth opportunities in our core markets in the U.S. and other foreign countries where the financial situation is expected to be similar going forward;
- Decrease in infrastructure spending globally as a result of worldwide depressed spending;
- The ability of our customers to raise funds needed to build the facilities their customers require;
- Technological developments that affect longer-term trends for communication lines such as wireless communication;
- The decreasing demands for product supporting copper-based infrastructure due to the introduction of products using new technologies or adoption of new industry standards;
- The Company’s success at continuing to develop proprietary technology and maintaining high quality products and customer service to meet or exceed existing or new industry performance standards and individual customer expectations;
- The Company’s success in strengthening and retaining relationships with the Company’s customers, growing sales at targeted accounts and expanding geographically;
- The extent to which the Company is successful in expanding the Company’s product line or production facilities into new areas;
- The effects of fluctuation in currency exchange rates upon the Company’s reported results from international operations, together with non-currency risks of investing in and conducting significant operations in foreign countries, including those relating to political, social, economic and regulatory factors;
- The Company’s ability to identify, complete, obtain funding for and integrate acquisitions for profitable growth;
- The potential impact of consolidation, deregulation and bankruptcy among the Company’s suppliers, competitors and customers;
- The relative degree of competitive and customer price pressure on the Company’s products;
- The cost, availability and quality of raw materials required for the manufacture of products;
- Strikes and other labor disruptions;
- Changes in significant government regulations affecting environmental compliances;
- The telecommunication market’s continued deployment of Fiber-to-the-Premises;
- The continued support by Federal, State, Local and Foreign Governments in incentive programs for upgrading electric transmission lines and promoting renewable energy deployment; and
- Those factors described under the heading “Risk Factors” on page 13 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 14, 2014.

## Market risk

As filed, 1,513 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 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.

The Company does not hold derivatives for trading purposes.

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 fair values on such instruments of $6.8 million and on income before tax of $3.3 million.

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 $33.5 million at September 30, 2014. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $.2 million for the nine months ended September 30, 2014.

## Controls and procedures

As filed, 699 characters.

### Evaluation of Disclosure Controls and Procedures

The Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended, were effective as of September 30, 2014.

### 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 September 30, 2014 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

## Risk factors

As filed, 223 characters.

There were no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission on March 14, 2014.

Filed Nov 7, 2014.
Source: SEC EDGAR, the filing index for accession 0001193125-14-402476. Last ingested by Listed: Nov 6, 2026, 07:10 ET. No prices; not investment advice.