# Preformed Line Products Co: Form 10-Q for the period ended Sep 30, 2018

- Company: [Preformed Line Products Co](/companies/plpc.md) (CIK 80035)
- Form: 10-Q
- Filed: 2018-11-08
- Accepted by EDGAR: Nov 8, 2018, 12:46 ET
- Period: 2018-09-30
- Accession: 0001564590-18-028397
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/80035/000156459018028397/plpc-10q_20180930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/80035/000156459018028397/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2018-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2018-07-01 to 2018-09-30 | $108.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2018-01-01 to 2018-09-30 | $315.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2018-07-01 to 2018-09-30 | $74.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2018-01-01 to 2018-09-30 | $215.3m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2018-07-01 to 2018-09-30 | $33.5m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2018-01-01 to 2018-09-30 | $100.2m | us-gaap:GrossProfit |
| Operating income | 3 months, 2018-07-01 to 2018-09-30 | $8.0m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2018-01-01 to 2018-09-30 | $25.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2018-07-01 to 2018-09-30 | $364.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2018-01-01 to 2018-09-30 | $992.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2018-07-01 to 2018-09-30 | −$1.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2018-01-01 to 2018-09-30 | $3.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2018-07-01 to 2018-09-30 | $9.1m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2018-01-01 to 2018-09-30 | $21.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2018-07-01 to 2018-09-30 | $1.76 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2018-01-01 to 2018-09-30 | $4.19 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2018-07-01 to 2018-09-30 | $1.80 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2018-01-01 to 2018-09-30 | $4.23 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2018-07-01 to 2018-09-30 | 5,138,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2018-01-01 to 2018-09-30 | 5,088,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2018-01-01 to 2018-09-30 | $7.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2018-01-01 to 2018-09-30 | $7.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 9 months, 2018-01-01 to 2018-09-30 | $3.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 9 months, 2018-01-01 to 2018-09-30 | $155.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2018-09-30 | $34.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2018-09-30 | $215.9m | us-gaap:AssetsCurrent |
| Total assets | at 2018-09-30 | $364.0m | us-gaap:Assets |
| Current liabilities | at 2018-09-30 | $70.4m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2018-09-30 | $32.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2018-09-30 | $1.4m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2018-09-30 | $246.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 42,006 characters.

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

The MD&A is organized as follows:

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

OVERVIEW

Preformed Line Products Company (the “Company”, “PLPC”, “we”, “us”, or “our”) was incorporated in Ohio in 1947. We are an international designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, information (data communication), and other similar industries. Our primary products support, protect, connect, terminate, and secure cables and wires. We also provide solar hardware systems, mounting hardware for a variety of solar power applications, and fiber optic and copper splice closures. PLPC is respected around the world for quality, dependability and market-leading customer service. Our goal is to continue to achieve profitable growth as a leader in the research, innovation, development, 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 27 sales and manufacturing operations in 18 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, telecommunications and solar 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 operating segment and Company rather than the results of any individual business component of the segment.

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

PREFACE

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

Our consolidated financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. As foreign currencies strengthen against the U.S. dollar, our sales and costs increase as the foreign currency-denominated financial statements translate into more U.S. dollars, and, conversely, when foreign currencies weaken, our sales and costs decrease upon translation into U.S. dollars. The fluctuations of foreign currencies during the three and nine months ended September 30, 2018 had a $4.3 million and $1.2 million unfavorable effect, respectively, on net sales compared to the same periods in 2017. The favorable effect on net income was $.3 million for both the three and nine-month periods ended September 30, 2018. On a reportable segment basis, the impact of foreign currency on net sales and net income for the three and nine months ended September 30, 2018 was as follows:

| (Thousands of dollars) | Foreign Currency Translation Impact Net Sales Three Months | Nine Months | Net Income Three Months | Nine Months |
| --- | ---: | ---: | ---: | ---: |
| The Americas | $(3,085) | $(5,318) | $306 | $125 |
| EMEA | (334) | 3,062 | 12 | 195 |
| Asia-Pacific | (835) | 1,073 | (8) | 15 |
| Total | $(4,254) | $(1,183) | $310 | $335 |

The operating results for the three months ended September 30, 2018 are compared to the same period in 2017. Net sales for the three months ended September 30, 2018 of $108.4 million increased $9.2 million, or 9.2%, compared to 2017. As a percentage of net sales, gross profit decreased to 30.9% in 2018 from 33.8% in 2017. Gross profit for both three-month periods ended September 30, 2018 and 2017 was $33.5 million. Excluding the unfavorable impact of foreign currency translation, gross profit increased $1.4 million, or 4.2%, compared to 2017. Costs and expenses of $25.5 million increased $1.8 million compared to 2017, including a favorable impact from currency translation of $1.9 million. Operating income for the three months ended September 30, 2018 was $8.0 million, a decrease of $1.8 million compared to 2017. Net income for the three months ended September 30, 2018 of $9.1 million increased $2.8 million compared to the three months ended September 30, 2017. The effect of currency translation had favorable impacts on operating income of $.5 million and net income of $.3 million, respectively.

The operating results for the nine months ended September 30, 2018 are compared to the same period in 2017. Net sales for the nine months ended September 30, 2018 of $315.5 million increased $34.1 million, or 12.1%, compared to the same period in 2017. As a percentage of net sales, gross profit increased to 31.8% in 2018 from 31.2% in 2017. Gross profit for the nine months ended September 30, 2018 of $100.2 million increased $12.3 million, or 14.0%, compared to 2017. Excluding the unfavorable impact of currency translation, gross profit increased $13.4 million, or 15.3%, compared to 2017. Costs and expenses of $75.1 million increased $5.6 million compared to 2017 which included a favorable impact from currency translation of $1.5 million. Operating income for the nine months ended September 30, 2018 was $25.1 million, an increase of $6.7 million compared to 2017. Net income for the nine months ended September 30, 2018 of $21.3 million increased $9.4 million compared to the same period in 2017. The effect of currency translation had favorable impacts on operating income of $.5 million net income of $.3 million.

The following table reflects the impact of foreign currency fluctuations on operating income for the three and nine months ended September 30, 2018 and 2017:

| (Thousands of dollars) | Foreign Currency Translation Impact Three Months Ended September 30 2018 | 2017 | Nine Months Ended September 30 2018 | 2017 |
| --- | ---: | ---: | ---: | ---: |
| Operating income | $8,015 | $9,810 | $25,093 | $18,362 |
| Translation gain | (460) | 0 | (451) | 0 |
| Transaction loss (gain) | 1,126 | (108) | 2,324 | (294) |
| Operating income excluding currency impact | $8,681 | $9,702 | $26,966 | $18,068 |

Despite the constant changes in the current global economy, we believe our business fundamentals and our financial position are sound and that we are strategically well-positioned. We remain focused on assessing our business structure, global facilities and overall capacity in conjunction with the requirements of local manufacturing in the markets that we serve. If necessary, we will modify redundant processes and utilize our global manufacturing network to manage costs, increase sales volumes and deliver value to our customers. We have continued to invest in the business to 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 15.4% and can borrow needed funds at a competitive interest rate under our credit facility.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2017

The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the three months ended September 30, 2018 and 2017. The Company’s past operating results are not necessarily indicative of future operating results.

| (Thousands of dollars) | Three Months Ended September 30 2018 |  | 2017 |  | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $108,413 | 100.0% | $99,239 | 100.0% | $9,174 |
| Cost of products sold | 74,922 | 69.1 | 65,704 | 66.2 | 9,218 |
| **GROSS PROFIT** | 33,491 | 30.9 | 33,535 | 33.8 | (44) |
| Costs and expenses | 25,476 | 23.5 | 23,725 | 23.9 | 1,751 |
| **OPERATING INCOME** | 8,015 | 7.4 | 9,810 | 9.9 | (1,795) |
| Other expense - net | (159) | (0.1) | (71) | (0.1) | (88) |
| **INCOME BEFORE INCOME TAXES** | 7,856 | 7.2 | 9,739 | 9.8 | (1,883) |
| Income taxes | (1,198) | (1.1) | 3,461 | 3.5 | (4,659) |
| **NET INCOME** | $9,054 | 8.4% | $6,278 | 6.3% | $2,776 |

*Net sales.* Net sales were $108.4 million for the three months ended September 30, 2018, an increase of $9.2 million, or 9.2%, from the three months ended September 30, 2017. Excluding the unfavorable effect of currency translation, net sales for the three months ended September 30, 2018 increased $13.4 million compared to the same period in 2017, or 14%, as summarized in the following table:

| (Thousands of dollars) Net sales | Three Months Ended September 30 2018 | 2017 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $46,189 | $40,181 | $6,008 | $0 | $6,008 | 15% |
| The Americas | 14,662 | 18,425 | (3,763) | (3,085) | (678) | (4) |
| EMEA | 18,273 | 15,190 | 3,083 | (334) | 3,417 | 22 |
| Asia-Pacific | 29,289 | 25,443 | 3,846 | (835) | 4,681 | 18 |
| Consolidated | $108,413 | $99,239 | $9,174 | $(4,254) | $13,428 | 14% |

The year-over-year increase in PLP-USA net sales of $6.0 million, or 15%, was primarily due to a volume increase in energy product sales. International net sales for the three months ended September 30, 2018 experienced an unfavorable impact of $4.3 million when local currencies were converted to U.S. dollars. The following discussion of net sales excludes the effect of currency translation. The Americas net sales of $14.7 million decreased $.7 million, or 4%, primarily due to a volume decrease in energy and communication product sales. EMEA net sales of $18.3 million increased $3.4 million, or 22%, primarily due to a volume increase in energy product sales within the region. In Asia-Pacific, net sales of $29.3 million increased $4.7 million, or 18%, compared to 2017 primarily due to a sales volume increase in the energy, communication and special industries products.

*Gross profit.* Gross profit was $33.5 million for both three-month periods ended September 30, 2018 and 2017. Excluding the unfavorable effect of currency translation, gross profit increased $1.4 million, or 4%, as summarized in the following table:

| (Thousands of dollars) Gross profit | Three Months Ended September 30 2018 | 2017 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $16,293 | $15,077 | $1,216 | $0 | $1,216 | 8% |
| The Americas | 5,290 | 6,740 | (1,450) | (1,131) | (319) | (5) |
| EMEA | 4,683 | 5,135 | (452) | (81) | (371) | (7) |
| Asia-Pacific | 7,225 | 6,583 | 642 | (246) | 888 | 13 |
| Consolidated | $33,491 | $33,535 | $(44) | $(1,458) | $1,414 | 4% |

22

PLP-USA gross profit of $16.3 million increased $1.2 million compared to the same period in 2017 as a result of increased sales volume combined with a product sales mix shift to higher margin products. International gross profit for the three months ended September 30, 2018 was unfavorably impacted by $1.5 million when local currencies were translated to U.S. dollars. The following discussion of gross profit excludes the effects of currency translation. The Americas gross profit decrease of $.3 million was primarily the result of the sales decrease of $.7 million combined with product margin decline in the region due to sales mix and increases in raw material costs. EMEA gross profit decreased $.4 million mainly as a result of as product mix shift toward lower margin products. Asia-Pacific gross profit increased $.9 million primarily as a result of a year-over-year increase in sales and a sales mix shift to higher margin products.

*Costs and expenses.* Costs and expenses of $25.5 million for the three months ended September 30, 2018 increased $1.8 million, or 7%. Excluding the favorable effect of currency translation, costs and expenses increased $3.7 million, or 15%, as summarized in the following table:

| (Thousands of dollars) Costs and expenses | Three Months Ended September 30 2018 | 2017 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $11,789 | $11,284 | $505 | $0 | $505 | 4% |
| The Americas | 4,340 | 3,464 | 876 | (1,589) | 2,465 | 71 |
| EMEA | 3,687 | 3,371 | 316 | (92) | 408 | 12 |
| Asia-Pacific | 5,660 | 5,606 | 54 | (238) | 292 | 5 |
| Consolidated | $25,476 | $23,725 | $1,751 | $(1,919) | $3,670 | 15% |

PLP-USA costs and expenses of $11.8 million for the three months ended September 30, 2018 increased $.5 million, or 4%, compared to 2017 mainly due to $.6 million of higher personnel related expenses, which includes benefits, and a net year-over-year loss on foreign currency exchange of $.1 million, partially offset by lower professional fee expenses of $.2 million. Foreign currency exchange gains and losses are primarily related to translating into U.S. dollars its foreign denominated loans, trade and royalty receivables from its foreign subsidiaries at the September 30, 2018 exchange rates. On a consolidated basis, costs and expenses for the three months ended September 30, 2018 were favorably impacted by $1.9 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 $4.3 million increased $2.5 million for the three months ended September 30, 2018 compared to the same period in 2017 primarily due to higher salary related expense of $.5 million combined with higher loss on transactions conducted in foreign currencies of $2.0 million. EMEA costs and expenses of $3.7 million increased $.4 million mainly due to an increase in personnel related expenses. Asia-Pacific costs and expenses of $5.7 million increased $.3 million. This increase was primarily due to increased salary related expenses of $.3 million and higher commission expense of $.2 million, partially offset by lower bad debt expense of $.2 million.

*Other income (expense).* Other expense for both three-month periods ended September 30, 2018 and 2017 was $.2 million and $.1 million, respectively.

*Income taxes.* Income taxes for the three months ended September 30, 2018 and 2017 were $(1.2) million and $3.5 million, respectively, based on pretax income of $7.9 million and $9.7 million, respectively. The effective tax rate for the three months ended September 30, 2018 and 2017 was (15%) and 36%, respectively, compared to the U.S. federal statutory rate for the same periods of 21% and 35%, respectively. The effective tax rate for the period ended September 30, 2018 was determined by applying the tax rules resulting from the Tax Act. See Note M of the financial statements for a further discussion of the impact of the Tax Act on the effective tax rate.

Our tax rate is affected by recurring items such as tax rates in foreign jurisdictions and the relative amount of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. In addition to state and local income taxes, the following items had the most significant impact on the difference between our statutory U.S. federal income tax rates of 21% and 35% for 2018 and 2017, respectively, and our effective tax rate:

1\. A $.9 million, or 12%, net decrease resulting from the adjustments to the calculation of the Transition Tax.

2\. A $.7 million, or 9%, net decrease resulting from a remeasurement of our deferred taxes due to the result of the U.S. federal statutory rate decrease included in the Tax Act.

3\. A $1.2 million, or 15%, net decrease resulting from a mix of U.S. permanent and discrete items.

2017

1\. A $.1 million, or 1%, increase resulting from losses in certain jurisdictions where no tax benefit is recognized.

2\. A $.4 million, or 4%, decrease resulting from earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate where such earnings are permanently reinvested.

3\. A $.4 million, or 4%, increase resulting from U.S. permanent items, primarily related to the repatriation of foreign earnings that are not permanently reinvested.

*Net income.* As a result of the preceding items, net income for the three months ended September 30, 2018 was $9.1 million, compared to $6.3 million for the three months ended September 30, 2017, an increase of $2.8 million as summarized in the following table:

| (Thousands of dollars) Net income (loss) | Three Months Ended September 30 2018 | 2017 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $6,200 | $1,918 | $4,282 | $0 | $4,282 | NM% |
| The Americas | 811 | 2,250 | (1,439) | 306 | (1,745) | (78) |
| EMEA | 805 | 1,259 | (454) | 12 | (466) | (37) |
| Asia-Pacific | 1,238 | 851 | 387 | (8) | 395 | 46 |
| Consolidated | $9,054 | $6,278 | $2,776 | $310 | $2,466 | 39% |

NM – Not Meaningful

PLP-USA’s net income for the three months ended September 30, 2018 increased $4.3 million compared to the same period in 2017 due to an increase in operating income of $.7 million and a decrease in income taxes of $3.6 million due to a benefit in the current period resulting from the Tax Act. The following discussion of net income excludes the effect of currency translation. The Americas net income decreased $1.7 million as a result of a $2.8 million decrease in operating income, partially offset by lower income taxes of $1.1 million. EMEA net income decreased $.5 million as a result of a $.8 million decrease in operating income offset by a $.3 million year-over-year decrease in income tax expense. Asia-Pacific net income increased $.4 million as a result of a $.1 million increase in operating income combined with a decrease in income tax expense of $.3 million.

NINE MONTHS ENDED SEPTEMBER 30, 2018 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2017

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, 2018 and 2017. The Company’s past operating results are not necessarily indicative of future operating results.

| (Thousands of dollars) | Nine Months Ended September 30 2018 |  | 2017 |  | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $315,467 | 100.0% | $281,320 | 100.0% | $34,147 |
| Cost of products sold | 215,255 | 68.2 | 193,446 | 68.8 | 21,809 |
| **GROSS PROFIT** | 100,212 | 31.8 | 87,874 | 31.2 | 12,338 |
| Costs and expenses | 75,119 | 23.8 | 69,512 | 24.7 | 5,607 |
| **OPERATING INCOME** | 25,093 | 8.0 | 18,362 | 6.5 | 6,731 |
| Other expense—net | (385) | (0.1) | (247) | (0.1) | (138) |
| **INCOME BEFORE INCOME TAXES** | 24,708 | 7.8 | 18,115 | 6.4 | 6,593 |
| Income taxes | 3,390 | 1.1 | 6,163 | 2.2 | (2,773) |
| **NET INCOME** | $21,318 | 6.8% | $11,952 | 4.2% | $9,366 |

*Net sales.* Net sales were $315.5 million for the nine months ended September 30, 2018, an increase of $34.1 million, or 12%, from the nine months ended September 30, 2017. Excluding the unfavorable effect of currency translation, net sales for the nine months ended September 30, 2018 increased $35.3 million compared to the same period in 2017, or 13%, as summarized in the following table:

| (Thousands of dollars) Net sales | Nine Months Ended September 30 2018 | 2017 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $128,296 | $113,130 | $15,166 | $0 | $15,166 | 13% |
| The Americas | 52,217 | 51,821 | 396 | (5,318) | 5,714 | 11 |
| EMEA | 54,756 | 46,620 | 8,136 | 3,062 | 5,074 | 11 |
| Asia-Pacific | 80,198 | 69,749 | 10,449 | 1,073 | 9,376 | 13 |
| Consolidated | $315,467 | $281,320 | $34,147 | $(1,183) | $35,330 | 13% |

The year-over-year increase in PLP-USA net sales of $15.2 million, or 13%, was primarily due to a volume increase in energy product sales. International net sales for the nine months ended September 30, 2018 experienced an unfavorable impact of $1.2 million when local currencies were converted to U.S. dollars. The following discussion of net sales excludes the effect of currency translation. The Americas net sales of $52.2 million increased $5.7 million, or 11%, primarily due to a volume increase in energy and communication product sales. EMEA net sales of $54.8 million increased $5.1 million, or 11%, primarily due to a volume increase in energy product sales in the region. In Asia-Pacific, net sales of $80.2 million increased $9.4 million, or 13%, compared to 2017 primarily due to a sales volume increase in energy, communication and special industries products.

*Gross profit.* Gross profit of $100.2 million for the nine months ended September 30, 2018 increased $12.3 million, or 14%, compared to the nine months ended September 30, 2017. Excluding the $1.1 million unfavorable effect of currency translation, gross profit increased $13.4 million, or 15%, as summarized in the following table:

| (Thousands of dollars) Gross profit | Nine Months Ended September 30 2018 | 2017 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $44,967 | $37,549 | $7,418 | $0 | $7,418 | 20% |
| The Americas | 20,569 | 18,177 | 2,392 | (2,178) | 4,570 | 25 |
| EMEA | 15,141 | 14,153 | 988 | 895 | 93 | 1 |
| Asia-Pacific | 19,535 | 17,995 | 1,540 | 215 | 1,325 | 7 |
| Consolidated | $100,212 | $87,874 | $12,338 | $(1,068) | $13,406 | 15% |

25

PLP-USA gross profit of $45.0 million increased $7.4 million compared to the same period in 2017 as a result of higher sales volume combined with a product sales mix shift to higher margin products, primarily in energy products. International gross profit for the nine months ended September 30, 2018 was unfavorably impacted by $1.1 million when local currencies were translated to U.S. dollars. The following discussion of gross profit excludes the effects of currency translation. The Americas gross profit increase of $4.6 million was primarily the result of the sales increase of $5.7 million combined with product margin improvement in the region due to sales mix. EMEA gross profit increased $.1 million year over year mainly as a result of the $5.1 million increase in sales. Asia-Pacific gross profit increased $1.3 million predominantly due to the region’s $9.4 million increase in sales.

*Costs and expenses.* Costs and expenses of $75.1 million for the nine months ended September 30, 2018 increased $5.6 million, or 8%. Excluding the favorable effect of currency translation, costs and expenses increased $7.1 million, or 10%, as summarized in the following table:

| (Thousands of dollars) Costs and expenses | Nine Months Ended September 30 2018 | 2017 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $35,159 | $32,886 | $2,273 | $0 | $2,273 | 7% |
| The Americas | 11,634 | 10,084 | 1,550 | (2,371) | 3,921 | 39 |
| EMEA | 11,637 | 10,597 | 1,040 | 652 | 388 | 4 |
| Asia-Pacific | 16,687 | 15,945 | 742 | 198 | 544 | 3 |
| Consolidated | $75,117 | $69,512 | $5,605 | $(1,521) | $7,126 | 10% |

PLP-USA costs and expenses of $35.2 million for the nine months ended September 30, 2018 increased $2.3 million, or 7%, compared to 2017 mainly due to $1.4 million of higher personnel related expenses, which includes benefits, combined with $.4 million of higher commissions as a result of increased sales, increased travel related expenses of $.2 million and a net year-over-year loss on foreign currency exchange of $1.0 million. The increased expenses were partially offset by a combined decrease in combined professional fees and consulting expense of $.6 million combined with a net decrease in other net expenses of $.1 million. Foreign currency exchange gains and losses are primarily related to translating into U.S. dollars its foreign denominated loans, trade and royalty receivables from its foreign subsidiaries at the September 30, 2018 exchange rates. On a consolidated basis, costs and expenses for the nine months ended September 30, 2018 were favorably impacted by $1.5 million when local currencies were translated to U.S. dollars. The following discussion of costs and expenses excludes the effect of currency translation. The Americas costs and expenses of $11.6 million increased $3.9 million for the nine months ended September 30, 2018 compared to the same period in 2017 primarily due to higher salary related expense of $.5 million, increased loss on transactions conducted in foreign currencies of $2.3 million, higher commission expense of $.1 million, increased bad debt expense of $.1 million and other net expense increases of approximately $.9 million. EMEA costs and expenses of $11.6 million increased $.4 million mainly due to an increase in personnel related expenses of $.7 million, partially offset by a decrease in commission expenses of $.1 million and combined decreases in other miscellaneous expenses of $.2 million. Asia-Pacific costs and expenses of $16.7 million increased $.5 million. This increase was primarily due to higher personnel costs of $.3 million, increased net loss on foreign currency exchange transactions of $.3 million and a combined net increase in miscellaneous expenses of $.2 million, partially offset by lower bad debt expense of $.3 million.

*Other income (expense).* Other expense for the nine-month periods ended September 30, 2018 and 2017 was $.4 million and $.2 million, respectively.

*Income taxes.* Income taxes for the nine months ended September 30, 2018 and 2017 were $3.4 million and $6.2 million, respectively, based on pre-tax income of $24.7 million and $18.1 million, respectively. The effective tax rate for the nine months ended September 30, 2018 and 2017 was 14% and 34%, respectively, compared to the U.S. federal statutory rate for the same periods of 21% and 35%, respectively. The effective tax rate for the period ended September 30, 2018 was determined by applying the tax rules resulting from the Tax Act. See Note M of the financial statements for a further discussion of the impact of the Tax Act on the effective tax rate.

Our tax rate is affected by recurring items such as tax rates in foreign jurisdictions and the relative amount of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. In addition to state and local income taxes, the following items had the most significant impact on the difference between our statutory U.S. federal income tax rates of 21% and 35% for 2018 and 2017, respectively, and our effective tax rate:

1\. A $.9 million, or 4%, net decrease resulting from the adjustments to the calculation of the Transition Tax.

2\. A $.7 million, or 3%, net decrease resulting from a remeasurement of our deferred taxes due to the result of the U.S. federal statutory rate decrease included in the Tax Act.

a. A $1.0 million, or 4%, net decrease resulting from the mix of U.S. permanent discrete items and provisions of the Tax Act

3\. A $.8 million, or 3%, increase resulting from earnings in jurisdictions with higher tax rates than the U.S. federal statutory rate.

2017

1\. A $.3 million, or 1%, increase resulting from losses in certain jurisdictions where no tax benefit is recognized.

2\. A $.8 million, or 4%, decrease resulting from earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate where such earnings are permanently reinvested.

3\. A $.4 million, or 2%, increase resulting from U.S. permanent items, primarily related to the repatriation of foreign earnings that are not permanently reinvested.

*Net income.* As a result of the preceding items, net income for the nine months ended September 30, 2018 was $21.3 million, compared to $12.0 million for the nine months ended September 30, 2017, an increase of $9.3 million as summarized in the following table:

| (Thousands of dollars) Net income | Nine Months Ended September 30 2018 | 2017 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $9,759 | $2,235 | $7,524 | $0 | $7,524 | NM |
| The Americas | 6,611 | 5,825 | 786 | 125 | 661 | 11 |
| EMEA | 2,729 | 2,547 | 182 | 195 | (13) | (1) |
| Asia-Pacific | 2,219 | 1,345 | 874 | 15 | 859 | 64 |
| Consolidated | $21,318 | $11,952 | $9,366 | $335 | $9,031 | 76% |

NM – Not Meaningful

PLP-USA’s net income for the nine months ended September 30, 2018 increased $7.5 million compared to the same period in 2017 due to a $5.2 million increase in operating income combined with a decrease in income taxes of $2.3 million. The following discussion of net income excludes the effect of currency translation. The Americas net income increased $.7 million as a result of a $.7 million increase in operating income. There was no year-over-year change in income tax expense. EMEA net income remained flat at $2.7 million with the decrease in operating income of $.3 million being fully offset by a decrease in income tax expense of $.3 million. Asia-Pacific net income increased $.9 million as a result of a $.8 million increase in operating income combined with a decrease in income tax expense of $.1 million.

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, 2017 filed on March 9, 2018 with the Securities and Exchange Commission and are, therefore, not presented herein. For more detail regarding the January 1, 2018 adoption of ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” refer to Note B “Revenue” and Note J “Recently Adopted Accounting Pronouncements.”

WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES

#### Management Assessment of Liquidity

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

Our investments include expenditures required for equipment and facilities as well as expenditures in support of our strategic initiatives. During the first nine months of 2018, we used cash of $7.3 million for capital expenditures. We ended the first nine months of 2018 with $34.3 million of cash and cash equivalents. Our cash and cash equivalents are held in various locations throughout the world. At September 30, 2018, the majority of our cash and cash equivalents were held outside the U.S. We expect most accumulated non-U.S. cash balances will remain outside of the U.S. and that we will meet U.S. liquidity needs through future cash flows, use of U.S. cash balances, external borrowings, or some combination of these sources. We complete comprehensive reviews of our significant customers and their creditworthiness by analyzing financial statements for customers where we have identified a measure of increased risk. We closely monitor payments and developments which may signal possible customer credit issues. We currently have not identified any potential material impact on our liquidity from customer credit issues.

Total debt at September 30, 2018 was $37.9 million. At September 30, 2018, our unused availability under our line of credit was $42.5 million and our bank debt to equity percentage was 15.4%. On March 13, 2018, we extended the term on our $65 million credit facility from June 30, 2019 to June 30, 2021. All other terms remain the same, including the interest rate at LIBOR plus 1.125% unless our funded debt to Earnings before Interest, Taxes and Depreciation ratio exceeds 2.25 to 1, then the LIBOR spread becomes 1.500%. The line of credit agreement contains, among other provisions, requirements for maintaining levels of net worth and funded debt-to-earnings before interest, taxes, depreciation and amortization along with an interest coverage ratio. The net worth and profitability requirements are calculated based on the line of credit agreement. At September 30, 2018 and December 31, 2017, we were in compliance with these covenants.

We expect that our major source of funding for 2018 and beyond will be our operating cash flows, our existing cash and cash equivalents as well as our line of credit agreement. We earn a significant amount of our operating income outside the United States, which, except for current earnings in certain jurisdictions, is deemed to be indefinitely reinvested in foreign jurisdictions. We believe our future operating cash flows will be more than sufficient to cover debt repayments, other contractual obligations, capital expenditures and dividends for the next 12 months and thereafter for the foreseeable future. In addition, we believe our borrowing capacity provides substantial financial resources, if needed, to supplement funding of capital expenditures and/or acquisitions. We also believe that we can expand our borrowing capacity, if necessary; however, we do not believe we would increase our debt to a level that would have a material adverse impact upon results of operations or financial condition.

#### Sources and Uses of Cash

Cash, cash equivalents and restricted cash (“cash’) decreased $4.8 million compared to the same period in 2017. Net cash provided by operating activities was $7.0 million. The most significant net investing and financing uses of cash were payments of long-term debt of $59.3 million, capital expenditures of $7.3 million, a combined net purchase of marketable securities and a company owned life insurance policy of $4.7 million, share repurchases of $4.1 million and dividends paid of $3.1 million, partially offset by net debt and notes payable proceeds of $60.6 million. Currency had a negative $1.6 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, 2018 and 2017 was $7.1 million and $21.7 million, respectively. The $14.6 million decrease was primarily a result of an increase in cash usage for operating assets (net of operating liabilities) of $24.0 million, which included a $5.3 million contribution to the pension plan, partially offset by an increase in net income of $9.4 million.

Net cash used in investing activities for the nine months ended September 30, 2018 increased $12.0 million when compared to cash provided by investing activities in the nine months ended September 30, 2017. The change was primarily related to a reduction in cash provided from fixed-term deposits of $7.8 million along with net cash used of $4.7 million related to the purchase of marketable securities and a company owned life insurance policy, partially offset by a decrease in cash used for capital expenditures of $.5 million.

Cash used for financing activities for the nine months ended September 30, 2018 was $4.8 million compared to a use of $15.7 million for the nine months ended September 30, 2017. The $10.9 million decrease was primarily the result of a net increase in debt borrowings in 2018 compared to 2017 of $12.3 million, partially offset by cash used for net stock issuances and repurchases of $1.4 million.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See Note J of the Notes to the Consolidated Financial Statements

NEW ACCOUNTING STANDARDS TO BE ADOPTED

See Note K of the Notes to the Consolidated Financial Statements

FORWARD LOOKING STATEMENTS

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

This Form 10-Q and other documents we file with the 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 U.S., Canada, Australia and Western Europe and may grow slowly or experience prolonged delay in developing regions despite expanding power needs;
- The potential impact of the global economic condition on the Company’s ongoing profitability and future growth opportunities in the Company’s core markets in the U.S. and other foreign countries where the financial situation is expected to be similar going forward;
- The ability of the Company’s 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 demand for product supporting copper-based infrastructure due to the introduction of products using new technologies or adoption of new industry standards;
- The Company’s success at continuing to develop proprietary technology and maintaining high quality products and customer service to meet or exceed new industry performance standards and individual customer expectations;
- The Company’s success in strengthening and retaining relationships with the Company’s customers, growing sales at targeted accounts and expanding geographically;
- The extent to which the Company is successful at expanding the Company’s product line or production facilities into new areas or implementing efficiency measures at existing facilities;
- The effects of fluctuation in currency exchange rates upon the Company’s foreign subsidiaries’ operations and reported results from international operations, together with non-currency risks of investing in and conducting significant operations in foreign countries, including those relating to political, social, economic and regulatory factors;
- The Company’s ability to identify, complete, obtain funding for and integrate acquisitions for profitable growth;
- The potential impact of consolidation, deregulation and bankruptcy among the Company’s suppliers, competitors and customers and of any legal or regulatory claims;
- The relative degree of competitive and customer price pressure on the Company’s products;
- The cost, availability and quality of raw materials required for the manufacture of products and any tariffs that may be associated with the purchase of these products;
- Strikes, labor disruptions and other fluctuations in labor costs;
- Changes in significant government regulations affecting environmental compliances or other litigation matters;
- The telecommunication market’s continued deployment of Fiber-to-the-Premises; and
- Those factors described under the heading “Risk Factors” on page 12 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed on March 9, 2018.

## Market risk

As filed, 2,122 characters.

The Company operates manufacturing facilities and offices around the world and uses fixed and floating rate debt to finance the Company’s global operations. As a result, the Company is subject to business risks inherent in non-U.S. activities, including political and economic uncertainty, import and export limitations and market risk related to changes in interest rates and foreign currency exchange rates. The Company believes that the political and economic risks related to the Company’s international operations are mitigated due to the geographic diversity in which the Company’s international operations are located.

Effective July 1, 2018, Argentina was designated as a highly inflationary economy as the projected three-year cumulative inflation rate exceeded 100%. As such, beginning July 1, 2018, the functional currency for the Company’s Argentina subsidiary became the U.S. dollar. The impact to the three and nine months ended September 30, 2018 was immaterial. Revenue from operations in Argentina was less than or equal to 2% of total consolidated net sales for the three and nine-month periods ended September 30, 2018.

As of September 30, 2018, the Company had no foreign currency forward exchange contracts outstanding. The Company does not hold derivatives for trading or speculative purposes.

The Company’s primary currency rate exposures are related to foreign denominated debt, intercompany debt, foreign denominated receivables and payables and cash and short-term investments. A hypothetical 10% change in currency rates would have a favorable/unfavorable impact on fair values on such instruments of $5.3 million and on income before taxes of $1.5 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 $37.9 million at September 30, 2018. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $.4 million for the nine months ended September 30, 2018.

## Controls and procedures

As filed, 1,251 characters.

### Evaluation of Disclosure Controls and Procedures

The Company’s Principal Executive Officer and Principal Accounting Officer have concluded that the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended, were effective as of September 30, 2018.

### Changes in Internal Control over Financial Reporting

On January 1, 2018, the Company adopted ASU 2014-09, “Revenue from Contracts with Customers (Topic 606).” For the adoption, the Company implemented changes to its revenue recognition process and control activities, including the development of new entity-wide policies, processes, controls, training and ongoing contract reviews to accommodate presentation and disclosure requirements. For more detail regarding the January 1, 2018 adoption of ASU No. 2014-09, refer to Note B “Revenue” and Note J “Recently Adopted Accounting Pronouncements.”

There were no other changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)) during the nine-month period ended September 30, 2018 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

## Risk factors

As filed, 222 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, 2017 filed with the Securities and Exchange Commission on March 9, 2018.

Filed Nov 8, 2018.
Source: SEC EDGAR, the filing index for accession 0001564590-18-028397. Last ingested by Listed: Nov 6, 2026, 07:10 ET. No prices; not investment advice.