# Preformed Line Products Co: Form 10-Q for the period ended Mar 31, 2020

- Company: [Preformed Line Products Co](/companies/plpc.md) (CIK 80035)
- Form: 10-Q
- Filed: 2020-05-01
- Accepted by EDGAR: May 1, 2020, 15:08 ET
- Period: 2020-03-31
- Accession: 0001564590-20-020469
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/80035/000156459020020469/plpc-10q_20200331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/80035/000156459020020469/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-01-01 to 2020-03-31 | $102.9m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-01-01 to 2020-03-31 | $69.9m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2020-01-01 to 2020-03-31 | $32.9m | us-gaap:GrossProfit |
| Operating income | 3 months, 2020-01-01 to 2020-03-31 | $5.2m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-01-01 to 2020-03-31 | $709.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-01-01 to 2020-03-31 | $1.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-01-01 to 2020-03-31 | $3.7m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-01-01 to 2020-03-31 | $0.74 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-01-01 to 2020-03-31 | $0.74 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-01-01 to 2020-03-31 | 5,017,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2020-01-01 to 2020-03-31 | −$3.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2020-01-01 to 2020-03-31 | $6.0m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2020-01-01 to 2020-03-31 | $1.2m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2020-01-01 to 2020-03-31 | $1.6m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2020-03-31 | $34.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-03-31 | $222.5m | us-gaap:AssetsCurrent |
| Total assets | at 2020-03-31 | $413.3m | us-gaap:Assets |
| Current liabilities | at 2020-03-31 | $74.5m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2020-03-31 | $58.7m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2020-03-31 | $3.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2020-03-31 | $251.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,049 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 29 sales and manufacturing operations in 20 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.

The following discussion describes our results of operations for the three months ended March 31, 2020. The first quarter of 2020 saw the global outbreak of a novel strain of coronavirus (“COVID-19”), which in the latter part of the quarter created significant global economic disruption. While the recent outbreak did not have a material impact on our reported results for this three-month period, it created challenges for us in countries that were the earliest to be impacted by the pandemic, namely our Asia-Pacific business segment. Due to restrictions on our operations, the operations of our customers and the global supply chain, and we are actively monitoring its impact on the second quarter and for future periods.

As the virus spread, we took action to protect the health and safety of our employees while we maintained critical operations to protect our customers and suppliers. Currently, many of our customers are considered “essential” and are open for business, although maybe in a limited capacity, which has slowed demand into the second quarter. Nearly all of our North American plants have remained operational and only some of our international plants have been closed temporarily. While there are some restrictions to the supply of products globally and those restrictions may continue or expand to other regions, our global supply chain currently remains strong.

Due to the uncertainty created by COVID-19, we are actively managing costs and our liquidity position to provide additional flexibility while still supporting our customers and their specific needs. We are scaling back capital expenditures and reducing operating expenses and could experience lower variable SG&A, primarily through a decrease in employee-related expenses and reduced travel-related expenses incurred by our associates, due to travel restrictions in place.

While we expect the COVID-19 outbreak will continue to have an adverse impact on our business, we cannot predict the duration or scope of the COVID-19 pandemic or the magnitude of its impact on our business and results of operations. The extent of any future impact is dependent upon several factors including those described below under Part II, Item 1A, Risk Factors, and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 6, 2020 other than as set forth below. In addition, the impact of COVID-19 could potentially exacerbate other risks discussed, any of which could have a material adverse effect on the Company.

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 months ended March 31, 2020 had a $4.1 million unfavorable effect on net sales compared to the same period in 2019. There was a $.1 million unfavorable effect on net income for the three-months ended March 31, 2020 as compared to the prior year. On a reportable segment basis, the impact of foreign currency on net sales and net income for the three months ended March 31, 2020 was as follows:

| (Thousands of dollars) | Foreign Currency Translation Impact Net Sales Three Months | Net Income Three Months |
| --- | ---: | ---: |
| The Americas | $(2,431) | $(142) |
| EMEA | (661) | 4 |
| Asia-Pacific | (991) | 13 |
| Total | $(4,083) | $(125) |

The operating results for the three months ended March 31, 2020 are compared to the same period in 2019. Net sales for the three months ended March 31, 2020 of $102.9 million increased $5.7 million, or 6%, compared to 2019. As a percentage of net sales, gross profit increased to 32.0% in 2020 from 28.1% in 2019. Gross profit for the three-month periods ended March 31, 2020 and 2019 was $32.9 million and $27.3 million, respectively. Excluding the unfavorable impact of foreign currency translation, gross profit increased $6.9 million, or 25%, compared to 2019. Costs and expenses of $27.8 million increased $2.5 million compared to 2019 and included a favorable impact from currency translation of $1.0 million. Operating income for the three months ended March 31, 2020 was $5.2 million, an increase of $3.2 million compared to 2019. Net income for the three months ended March 31, 2020 of $3.7 million increased $1.8 million compared to the three months ended March 31, 2019. The effect of currency translation had a $.2 million and a $.1 million negative impact on operating income and net income, respectively.

The following table reflects the impact of foreign currency fluctuations on operating income for the three months ended March 31, 2020 and 2019:

| (Thousands of dollars) | Foreign Currency Impact Three Months Ended March 31 2020 | 2019 |
| --- | ---: | ---: |
| Operating income | $5,153 | $2,046 |
| Translation loss | 12 | 0 |
| Transaction loss (gain) | 1,792 | (20) |
| Net gain on forward currency contracts | (1,125) | 0 |
| Operating income excluding currency impact | $5,832 | $2,026 |

Despite the constant changes in the current global economy, and aside from the uncertainty created by the COVID-19 outbreak, we believe our business fundamentals and our financial position are sound and 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 expand into new markets for the Company, improve efficiency, develop new products, increase our capacity and become an even stronger supplier to our customers. We currently have a bank debt to equity ratio of 28.8% and can borrow needed funds at a competitive interest rate under our credit facility.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2020 COMPARED TO THREE MONTHS ENDED MARCH 31, 2019

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 March 31, 2020 and 2019. The Company’s past operating results are not necessarily indicative of future operating results.

| (Thousands of dollars) | Three Months Ended March 31 2020 |  | 2019 |  | Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $102,852 | 100.0% | $97,153 | 100.0% | $5,699 |
| Cost of products sold | 69,942 | 68.0 | 69,888 | 71.9 | 54 |
| **GROSS PROFIT** | 32,910 | 32.0 | 27,265 | 28.1 | 5,645 |
| Costs and expenses | 27,757 | 27.0 | 25,219 | 26.0 | 2,538 |
| **OPERATING INCOME** | 5,153 | 5.0 | 2,046 | 2.1 | 3,107 |
| Other expense - net | (49) | (0.0) | (118) | (0.1) | 69 |
| **INCOME BEFORE INCOME TAXES** | 5,104 | 5.0 | 1,928 | 2.0 | 3,176 |
| Income tax expense | 1,451 | 1.4 | 104 | 0.1 | 1,347 |
| **NET INCOME** | 3,653 | 3.6 | 1,824 | 1.9 | 1,829 |
| Add: Net adjustment attributable to noncontrolling interests | 45 | 0.0 | 0 | 0.0 | 45 |
| **NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS** | $3,698 | 3.6% | $1,824 | 1.9% | $1,874 |

*Net sales.* Net sales were $102.9 million for the three months ended March 31, 2020, an increase of $5.7 million, or 6%, from the three months ended March 31, 2019. Excluding the unfavorable effect of currency translation, net sales for the three months ended March 31, 2020 increased $9.8 million compared to the same period in 2019, or 10%, as summarized in the following table:

| (Thousands of dollars) Net sales | Three Months Ended March 31 2020 | 2019 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $46,601 | $41,425 | $5,176 | $0 | $5,176 | 12% |
| The Americas | 17,241 | 13,771 | 3,470 | (2,431) | 5,901 | 43 |
| EMEA | 20,360 | 15,634 | 4,726 | (661) | 5,388 | 34 |
| Asia-Pacific | 18,650 | 26,323 | (7,673) | (991) | (6,683) | (25) |
| Consolidated | $102,852 | $97,153 | $5,699 | $(4,083) | $9,782 | 10% |

The year-over-year increase in PLP-USA net sales of $5.2 million, or 12%, was primarily due to a volume increase in energy product sales. International net sales for the three months ended March 31, 2020 experienced an unfavorable impact of $4.1 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 $17.2 million increased $5.9 million, or 43%, primarily due to a volume increase in energy and communications product sales. EMEA net sales of $20.4 million increased $5.4 million, or 34%, primarily due to a volume increase in energy and communications product sales within the region, including incremental sales from the newly acquired businesses. In Asia-Pacific, net sales of $18.7 million decreased $6.7 million, or 25%, compared to 2019 primarily due to a combined volume decrease in the energy, communications and special industries products mostly as a result of the disruption to the global economy caused by the COVID-19 pandemic.

*Gross profit.* Gross profit was $32.9 million and $27.3 million for the three-month periods ended March 31, 2020 and 2019, respectively. Excluding the unfavorable effect of currency translation, gross profit increased $6.9 million, or 25%, as summarized in the following table:

| (Thousands of dollars) Gross profit | Three Months Ended March 31 2020 | 2019 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $17,396 | $12,016 | $5,380 | $0 | $5,380 | 45% |
| The Americas | 5,246 | 4,071 | 1,175 | (773) | 1,948 | 48 |
| EMEA | 5,959 | 4,589 | 1,370 | (181) | 1,551 | 34 |
| Asia-Pacific | 4,309 | 6,589 | (2,280) | (257) | (2,023) | (31) |
| Consolidated | $32,910 | $27,265 | $5,645 | $(1,211) | $6,856 | 25% |

PLP-USA gross profit of $17.4 million increased $5.4 million compared to the same period in 2019 as a result of increased sales volume combined with a product sales mix shift to higher margin product and cost containment within material, labor and manufacturing expense. International gross profit for the three months ended March 31, 2020 was unfavorably impacted by $1.2 million when local currencies were translated to U.S. dollars. The following discussion of gross profit excludes the effects of currency translation. The Americas gross profit increase of $1.9 million was primarily the result of a $5.9 million increase in sales combined with a product margin improvement in the region due to sales product mix. EMEA gross profit increased $1.6 million, mainly as a result of increased sales volume. Asia-Pacific gross profit decreased $2.0 million primarily as a result of a year-over-year reduction in sales volume and the negative impact related to the COVID-19 pandemic.

*Costs and expenses.* Costs and expenses of $27.8 million for the three months ended March 31, 2020 increased $2.5 million, or 10%. Excluding the favorable effect of currency translation, costs and expenses increased $3.5 million, or 14%, as summarized in the following table:

| (Thousands of dollars) Costs and expenses | Three Months Ended March 31 2020 | 2019 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $13,193 | $12,434 | $759 | $0 | $759 | 6% |
| The Americas | 3,530 | 2,990 | 540 | (533) | 1,073 | 0 |
| EMEA | 5,601 | 4,057 | 1,544 | (181) | 1,725 | 0 |
| Asia-Pacific | 5,433 | 5,738 | (305) | (259) | (46) | 0 |
| Consolidated | $27,757 | $25,219 | $2,538 | $(973) | $3,511 | 14% |

PLP-USA costs and expenses of $13.2 million for the three months ended March 31, 2020 increased $.8 million compared to 2019 mainly due to $.9 million of higher personnel-related expenses which were partially offset by net combined miscellaneous decreases 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 March 31, 2020 exchange rates. On a consolidated basis, costs and expenses for the three months ended March 31, 2020 were favorably impacted by $1.0 million when local currencies were translated to U.S. dollars. The following discussion of costs and expenses excludes the effect of currency translation. The Americas costs and expenses of $3.5 million increased $1.1 million for the three months ended March 31, 2020 compared to the same period in 2019 primarily due to a $.5 million increase in personnel-related expenses and an increase in foreign currency exchange losses of $.7 million, partially offset by combined decreases in miscellaneous expenses of $.2 million. EMEA costs and expenses of $5.6 million increased $1.7 million mainly due to incremental costs incurred with our acquired businesses. Asia-Pacific costs and expenses of $5.4 million decreased less than $.1 million. This decrease was primarily due to a decrease in combined personnel-related, travel and entertainment and commission expenses.

*Other income (expense).* Other expense for the three-month periods ended March 31, 2020 and 2019 was $.4 million and $.1 million, respectively.

*Income taxes.* Income taxes for the three months ending March 31, 2020 and 2019 were $1.5 million and $.1 million, respectively, based on pre-tax income of $5.1 million and $1.9 million, respectively. The effective tax rate for the three-month periods ending March 31, 2020 and 2019 was 28% and 5%, respectively, compared to the U.S. federal statutory rate of 21%. 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 rate of 21% and our effective tax rate:

1\. A $.1 million, or 1%, net increase resulting from U.S. permanent items, primarily related to tax benefits related to stock-based compensation.

2\. A $.3 million, or 6%, increase resulting from earnings in jurisdictions with higher tax rates than the U.S. federal statutory rate where such earnings are permanently reinvested.

2019

1\. A $.4 million, or 21%, net decrease resulting from U.S. permanent items, primarily related to tax benefits related to stock-based compensation.

2\. A $.1 million, or 5%, increase resulting from earnings in jurisdictions with higher tax rates than the U.S. federal statutory rate where such earnings are permanently reinvested.

*Net income.* As a result of the preceding items, net income for the three months ended March 31, 2020 was $3.7 million, compared to $1.8 million for the three months ended March 31, 2019, an increase of $1.9 million as summarized in the following table:

| (Thousands of dollars) Net income | Three Months Ended March 31 2020 | 2019 | Change | Change Due to Currency Translation | Change Excluding Currency Translation | % change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| PLP-USA | $3,550 | $(81) | $3,631 | $0 | $3,631 | NM% |
| The Americas | 995 | 964 | 31 | (142) | 173 | 18 |
| EMEA | 337 | 513 | (176) | 4 | (180) | (35) |
| Asia-Pacific | (1,184) | 428 | (1,612) | 13 | (1,625) | (380) |
| Consolidated | $3,698 | $1,824 | $1,874 | $(125) | $1,999 | 110% |

NM – Not meaningful

PLP-USA’s net income for the three months ended March 31, 2020 increased $3.6 million compared to the same period in 2019, primarily due to an increase in operating income of $4.6 million combined with an increase in other income of $.4 million, partially offset by an increase in income taxes of $1.4 million. The following discussion of net income excludes the effect of currency translation. The Americas net income increased $.2 million as a result of a $.9 million increase in operating income, partially offset by higher income taxes of $.5 million combined with an increase in other non-operating expense of $.2 million. EMEA net income decreased $.2 million as a result of a $.3 million decrease in operating income, partially offset by a $.1 million year-over-year increase in income tax expense. Asia-Pacific net income decreased $1.6 million due to a $1.9 million decrease in operating income and an increase in other expense of $.1 million, partially offset by a decrease in income tax expense of $.4 million.

PLP’s EMEA segment incurred a net adjustment attributable to noncontrolling interests of less than $.1 million, which when added back to net income, resulted in an immaterial change to net income attributable to PLP Shareholders.

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, 2019 filed on March 6, 2020 with the Securities and Exchange Commission and are, therefore, not presented herein.

WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES

#### Management Assessment of Liquidity

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

Our investments include expenditures required for equipment and facilities as well as expenditures in support of our strategic initiatives. During the first three months of 2020, we used cash of $6.0 million for capital expenditures. We ended the first three months of 2020 with $34.1 million of cash, cash equivalents and restricted cash (“Cash”). Our Cash is held in various locations throughout the world. At March 31, 2020, the majority of our Cash was held outside the United States (“U.S.”). We expect most accumulated non-U.S. Cash balances will remain outside of the U.S. and that we will meet U.S. liquidity needs through future operating cash flows, use of U.S. Cash balances, external borrowings, or some combination of these sources. We complete comprehensive reviews of our significant customers and their creditworthiness by analyzing financial statements for customers where we have identified a measure of increased risk. We closely monitor payments and developments which may signal possible customer credit issues. We currently have not identified any potential material impact on our liquidity from customer credit issues.

Total debt, including notes payable, at March 31, 2020 was $72.5 million. At March 31, 2020, our unused availability under our line of credit was $26.5 million and our bank debt to equity percentage was 28.8%. In 2018, we extended the term on our $65 million credit facility from June 30, 2019 to June 30, 2021, and, on April 17, 2020, we further extended the term to June 30, 2024. All other terms remain the same, including the interest rate at LIBOR plus 1.125% unless our funded debt to Earnings before Interest, Taxes and Depreciation ratio exceeds 2.25 to 1, at which point the LIBOR spread becomes 1.500%. The line of credit agreement contains, among other provisions, requirements for maintaining levels of net worth and funded debt-to-earnings before interest, taxes, depreciation and amortization along with an interest coverage ratio. The net worth and profitability requirements are calculated based on the line of credit agreement. At March 31, 2020 and December 31, 2019, we were in compliance with these covenants.

We expect that our major source of funding for 2020 and beyond will be our operating cash flows and our existing Cash as well as our line of credit agreement. We earn a significant amount of our operating income outside the U.S., which, except for current earnings in certain jurisdictions, is deemed to be indefinitely reinvested in foreign jurisdictions.

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

#### Sources and Uses of Cash

Cash decreased $9.7 million compared to the same period in 2019. Net Cash used in operating activities was $3.1 million. The most significant net investing and financing uses of Cash in the three months ended March 31, 2020 were payments of long-term debt of $17.7 million, capital expenditures of $6.0 million, share repurchases of $4.0 million and dividends paid of $1.2 million, partially offset by net debt and notes payable proceeds of $28.3 million. Currency had a negative $1.8 million impact on Cash when translating foreign denominated financial statements to U.S. dollars.

Net Cash from operating activities for the three months ended March 31, 2020 was a use of $3.1 million compared to $.5 million of cash generated in the prior year three-month period. The $3.6 million decrease was primarily a result of an increase in Cash usage for operating assets (net of operating liabilities) of $6.8 million, partially offset by a decrease in usage for non-cash items of $1.4 million and an increase in net income of $1.8 million.

Net Cash used in investing activities of $6.0 million for the three months ended March 31, 2020 decreased $7.1 million when compared to Cash used in investing activities in the three months ended March 31, 2019 of $13.1 million. The change was primarily related to Cash used in the prior year to fund the SubCon acquisition, net of Cash, of $10.2 million combined with cash used to purchase marketable securities of $.5 million during the three months ended March 31, 2019, partially offset by a year-over-year increase in capital expenditures of $3.6 million.

Cash provided by financing activities for the three months ended March 31, 2020 was $5.7 million compared to $11.1 million for the three months ended March 31, 2019. The $5.4 million reduction was primarily the result of a net decrease in debt borrowings in 2020 compared to 2019 of $3.8 million and an increase in share repurchases of $1.4 million.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

See Note K of the Notes to the Consolidated Financial Statements

NEW ACCOUNTING STANDARDS TO BE ADOPTED

See Note L of the Notes to the Consolidated Financial Statements

FORWARD LOOKING STATEMENTS

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

This Form 10-Q and other documents we file with the 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, Australia and Western Europe and may grow slowly or experience prolonged delay in developing regions despite expanding power needs;
- The potential impact of global economic conditions on the Company’s ongoing profitability and future growth opportunities in the Company’s core markets in the U.S. and other foreign countries, which may experience continued or further instability due to political and economic conditions, social unrest, terrorism, changes in diplomatic and trade relationships and public health concerns (including viral outbreaks such as COVID-19). The COVID-19 pandemic has significantly impacted worldwide economic conditions and has and will continue to have an adverse effect on the Company’s operations and businesses as government authorities impose mandatory closures, work-from-home orders and social distancing protocols along with other unknown potential restrictions. The duration and scope of the COVID-19 pandemic cannot be predicted, therefore, anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated;
- The ability of the Company’s customers to raise funds needed to build the 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. The Company’s supply chain could be disrupted by the COVID-19 pandemic which could have a material, adverse effect on the ability to secure raw materials and supplies;
- Strikes, labor disruptions and other fluctuations in labor costs;
- Changes in significant government regulations affecting environmental compliances or other litigation matters;
- Security breaches or other disruptions to the Company’s information technology structure;
- The telecommunication market’s continued deployment of Fiber-to-the-Premises; and
- Those factors described under the heading “Risk Factors” in Item 1A, on page 11, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 which was filed on March 6, 2020. The impact of COVID-19 could potentially exacerbate other risks discussed, any of which could have a material impact on the Company. The situation continues to change rapidly and additional impacts may arise that the Company is not aware of currently.

## Market risk

As filed, 2,400 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 remeasurement impact to the three-month periods ended March 31, 2020 was immaterial and is included in the Company’s consolidated financial statements.

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 $4.9 million and on income before taxes of $1.7 million.

The Company is exposed to market risk, including changes in interest rates and foreign exchange rates since we conduct business in a variety of foreign currencies. The Company is subject to interest rate risk on its variable rate revolving credit facilities and term notes, which consisted of long-term borrowings, which includes the current portion, of $62.0 million at March 31, 2020. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $.7 million for the three months ended March 31, 2020.

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

## Controls and procedures

As filed, 742 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 March 31, 2020.

### Changes in Internal Control over Financial Reporting

There were no other changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)) of the Securities and Exchange Act of 1934 during the three-month period ended March 31, 2020 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

## Risk factors

As filed, 3,062 characters.

There were no defined material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 6, 2020 other than as set forth below. In addition, the impact of COVID-19 could potentially exacerbate other risks discussed, any of which could have a material adverse effect on the Company. The situation continues to change rapidly and additional impacts may arise that the Company is not aware of currently.

***Our business, results of operations and financial condition have been and may in the future be adversely impacted by the COVID-19 pandemic.***

The outbreak of COVID-19, which was declared a pandemic by the World Health Organization on March 11, 2020, has created significant volatility, uncertainty and disruption in the U.S. and global economies. The COVID-19 pandemic has resulted and will result in lost or delayed revenue to us and could have a material adverse effect on our business, results of operations and financial condition. In response to recommendations by public health organizations, federal, state, local and foreign governments have adopted various measures in an effort to slow and limit the spread of the COVID-19 virus, including mandatory closures, work-from-home and shelter in place orders and social distancing protocols. These and other measures have had and may continue to have an adverse impact on our business, as well as those of our suppliers (particularly in the Asia-Pacific region), customers and other business partners, which could cause delays in the production and distribution of our products, delays and cancellations of projects utilizing our products and the loss of sales and customers.

The extent to which the COVID-19 pandemic impacts our business, results of operations and financial condition will depend on various factors which continue to evolve and cannot be predicted, including: the scope, duration and severity of the pandemic; the effectiveness of stimulus measures and other actions implemented by federal, state, local or foreign governments; the ability of our suppliers to obtain or produce the materials needed for our products or to meet delivery requirements and commitments; disruptions to our global supply chain; the effect on our customers’ demand for our services and products; limitations on our ability to sell and provide our services and products due to the inability of our employees to perform their job due to illness caused by the pandemic or governmental stay at home orders or travel restrictions; reduced availability of ground or air transportation; the effectiveness of our actions to contain costs and maintain liquidity; and the ability of our customers to conduct their business or to pay for our services and products in a timely manner. The long-term financial and economic impacts of the COVID-19 pandemic may be prolonged and cannot be reliably quantified or estimated at this time due to the uncertainty of these future developments.

Filed May 1, 2020.
Source: SEC EDGAR, the filing index for accession 0001564590-20-020469. Last ingested by Listed: Nov 6, 2026, 07:10 ET. No prices; not investment advice.