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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the fiscal year ended
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Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to Section 12(g) of the Act: (None)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “accelerated filer,” “large accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange act.
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Emerging Growth Company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No
The aggregate market value of voting and non-voting common shares held by non-affiliates of the registrant as of June 30, 2021 was $
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement for the Annual Meeting of Shareholders to be held May 10, 2022 are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14.
Table of Contents
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Item 1. |
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Item 1A. |
10 |
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Item 1B. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 4A. |
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Item 5. |
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Item 6. |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 7A. |
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Item 8. |
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Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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Item 9A. |
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Item 9B. |
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Item 9C. |
Disclosure Regarding Foreign Jurisdictions that Require Inspections |
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Item 10. |
60 |
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Item 11. |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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Item 13. |
Certain Relationships, Related Transactions, and Director Independence |
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Item 14. |
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Item 15. |
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2
Forward-Looking Statements
This Form 10-K and other documents filed with the Securities and Exchange Commission (“SEC”) contain forward-looking statements regarding Preformed Line Products Company’s (the “Company”) and the Company’s 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:
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In light of these risks and uncertainties, the Company cautions you not to place undue reliance on these forward-looking statements. Any forward-looking statements that the Company makes in this report speaks only as of the date of such statement, and the Company undertakes no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data.
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Part I
Item 1. Business
Background
Preformed Line Products Company together with its subsidiaries (the “Company”) is an international designer and manufacturer of products and systems employed in the construction and maintenance of overhead, ground-mounted and underground networks for the energy, telecommunication, cable operators, information (data communication) and other similar industries. The Company’s primary products support, protect, connect, terminate and secure cables and wires. The Company also provides solar hardware systems and mounting hardware for a variety of solar power applications. The Company’s goal is to continue to achieve profitable growth as a leader in the 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.
The Company serves a worldwide market through strategically located domestic and international manufacturing facilities. Each of the Company’s domestic and international manufacturing facilities have obtained an International Organization of Standardization (“ISO”) 9001:2015 Certified Management System Certificate. The ISO 9001:2015 certified management system is a globally recognized certified quality standard for manufacturing and assists the Company in marketing its products throughout the world. The Company’s customers include public and private energy utilities and communication companies, cable operators, financial institutions, governmental agencies, contractors and subcontractors, distributors and value-added resellers. The Company is not dependent on a single customer or small group of customers. No single customer accounts for more than 10% of the Company's consolidated revenues.
The Company’s products include:
Energy Products are used to support, protect, terminate and secure both power conductor and fiber communication cables and to control cable dynamics (e.g., vibration). Formed wire products are based on the principle of forming a variety of stiff wire materials into a helical (spiral) shape. Advantages of using the Company’s helical formed wire products are that they are economical, dependable and easy to use. The Company introduced formed wire products to the power industry over 70 years ago and such products enjoy an almost universal acceptance in the Company’s markets. Related products include hardware for supporting and protecting transmission conductors, spacers, spacer-dampers, stockbridge dampers, corona suppression devices and various compression fittings for dead-end applications. Energy products were approximately 61%, 66% and 67% of the Company’s revenues in 2021, 2020 and 2019, respectively.
Communications Products, including protective closures, are used to protect fixed line communication networks, such as fiber optic cable or copper cable, from moisture, environmental hazards and other potential contaminants. The protective closures also support Fiber-to-the-Premises ("FTTP") applications by carrying fiber optic technology into homes and businesses. In addition to closures, the Company supplies the communication industry with formed wire products to hold, support, protect and terminate the copper wires and cables and the fiber optic cables used by that industry to transfer voice, video or data signals. Communications products were approximately 30%, 24% and 22% of the Company’s revenues in 2021, 2020 and 2019, respectively.
Special Industries Products include hardware assemblies, pole line hardware, resale products, underground connectors, solar hardware systems, guy markers, tree guards, fiber optic cable markers, pedestal markers and urethane products. They are used by energy, renewable energy, communications, cable and special industries (i.e., metal building, tower and antenna industries, the agriculture and arborist industries, and marine systems industry) for various applications and are defined as products that complement the Company’s core line offerings. Special industries products were approximately 9%, 10% and 11% of the Company’s revenues in 2021, 2020 and 2019, respectively.
International Operations
The international operations of the Company are essentially the same as its domestic ("PLP-USA") business. The Company manufactures similar types of products in its international plants as are sold domestically, sells to similar types of customers and faces similar types of competition (and in some cases, the same competitors). Sources of supply of raw materials are not significantly different internationally. See Note M in the Notes to Consolidated Financial Statements for information and financial data relating to the Company’s international operations that represent reportable segments.
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Sales and Marketing
Domestically and internationally, the Company markets its products through a direct sales force and manufacturing representatives. The direct sales force is employed by the Company and works with manufacturers’ representatives, as well as key direct accounts and distributors who also buy and resell the Company’s products. The manufacturer’s representatives are independent organizations that represent the Company as well as other complimentary product lines. These organizations are paid a commission based on the sales amount they generate.
Research and Development
The Company is committed to providing technical leadership through scientific research and product development in order to continue to expand the Company’s position as a supplier to the communications and power industries. Research is conducted on a continuous basis using internal experience in conjunction with outside professional expertise to develop state-of-the-art materials for several of the Company’s products. These products capitalize on cost-efficiency while offering exacting mechanical performance that meets or exceeds industry standards. The Company’s research and development activities have resulted in numerous patents being issued to the Company (see “Patents and Trademarks” below).
Early in its history, the Company recognized the need to understand the performance of its products and the needs of its customers. To that end, the Company developed a 38,000 square foot Research and Engineering Center located at its corporate headquarters in Mayfield Village, Ohio. Using the Research and Engineering Center, engineers and technicians simulate a wide range of external conditions encountered by the Company’s products to ensure quality, durability and performance. The work performed in the Research and Engineering Center includes advanced studies and experimentation with various forms of vibration and environmental changes.
The Research and Engineering Center is one of the most sophisticated in the world in its specialized field. The Research and Engineering Center also has an advanced prototyping technology machine on-site to develop models of new designs where intricate part details are studied prior to the construction of expensive production tooling. Today, the Company’s reputation for vibration testing, tensile testing, fiber optic cable testing, environmental testing, field vibration monitoring and third-party contract testing is a competitive advantage. In addition to testing, the work performed at the Company’s Research and Development Center continues to fuel product development efforts. For example, the Company estimates that approximately 17.9% of 2021 revenues were attributed to products developed by the Company in the past five years. In addition, the Company’s position in the industry is further reinforced by its long-standing leadership role in many key international technical organizations which are charged with the responsibility of establishing industry-wide specifications and performance criteria, including IEEE (Institute of Electrical and Electronics Engineers), CIGRE (Counsiel Internationale des Grands Reseaux Electriques a Haute Tension), and IEC (International Electromechanical Commission). Research and development costs are expensed as incurred. Research and development costs for new products were $3.3 million in 2021, $2.8 million in 2020 and $3.0 million in 2019.
Patents and Trademarks
The Company applies for patents in the U.S. and other countries, as appropriate, to protect its significant patentable developments. As of December 31, 2021, the Company had in force 49 U.S. patents and 131 international patents in 21 countries and had 37 pending U.S. patent applications and 47 pending international applications. While such domestic and international patents expire from time to time, the Company continues to apply for and obtain patent protection on a regular basis. Patents held by the Company in the aggregate are of material importance in the operation of the Company’s business. The Company, however, does not believe that any single patent, or group of related patents, is essential to the Company’s business as a whole or to any of its businesses. Additionally, the Company owns and uses a substantial body of proprietary information and numerous trademarks. The Company relies on nondisclosure agreements to protect trade secrets and other proprietary data and technology. As of December 31, 2021, the Company had obtained U.S. registration on 32 trademarks and 4 trademark application remained pending. International registrations amounted to 240 registrations in 35 countries, with 25 pending international registrations.
U.S. patents are issued for terms of 20 years beginning with the date of filing of the patent application. Patents issued by international countries generally expire 20 years after filing. U.S. and international patents are not renewable after expiration of their initial term. U.S. and international trademarks are generally perpetual, renewable in 10-year increments upon a showing of continued use. To the knowledge of management, the Company is not subject to any significant allegation or charges of infringement of intellectual property rights by any organization.
In the normal course of business, the Company occasionally makes and receives inquiries with regard to possible patent and trademark infringement. The extent of such inquiries from third parties has been limited generally to verbal remarks or letters to Company representatives. The Company believes that it is unlikely that the outcome of these inquiries will have a material adverse effect on the Company’s financial position.
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Competition
All of the markets that the Company serves are highly competitive. In each market, the principal methods of competition are price, performance, and service. The Company believes, however, that several factors (described below) provide the Company with a competitive advantage.
Domestically, there are several competitors for formed wire products. Although it has other competitors in many of the countries where it has plants, the Company has leveraged its expertise and is very strong in the global market. The Company believes that it is the world’s largest manufacturer of formed wire products for energy and communications markets. However, the Company’s formed wire products compete against other pole line hardware products manufactured by other companies.
The fiber optic closure market is one of the most competitive product areas for the Company, with the Company competing against, among others, CommScope and Corning. There are a number of primary competitors and several smaller niche competitors that compete at all levels in the marketplace. The Company believes that it is one of four leading suppliers of fiber optic closures.
Sources and Availability of Raw Materials
The principal raw materials used by the Company are galvanized wire, stainless steel, aluminum covered steel wire, aluminum rod, plastic resins, glass-filled plastic compounds, neoprene rubbers and aluminum castings. The Company also uses certain other materials such as fasteners, packaging materials and fiber communications devices. The Company believes that it has adequate sources of supply for the raw materials used in its manufacturing processes and it regularly attempts to develop and maintain sources of supply in order to extend availability and encourage competitive pricing of these products.
Most plastic resins are purchased under contracts to stabilize costs and improve delivery performance and are available from a number of reliable suppliers. Wire and aluminum rods are purchased in standard stock diameters and coils under contracts from a number of reliable suppliers. Contracts have firm prices except for fluctuations of base metals and petroleum prices, which result in surcharges when global demand is greater than the available supply.
The Company also relies on certain other manufacturers to supply products that complement the Company’s product lines, such as ferrous castings, fiber optic cable and connectors and various metal racks. The Company believes there are multiple sources of supply for these products.
The Company relies on sole source manufacturers for certain raw materials used in production. The current state of economic uncertainty presents a risk that existing suppliers could go out of business or be unable to meet customer demand. However, there are other potential sources available for these materials, and the Company believes that it could relocate the tooling and processes to other manufacturers if necessary.
Raw material costs increased throughout 2021, partially as a result of supply chain constraints. The Company expects prices on metals and plastics to continue to increase throughout 2022. Throughout 2021, the Company experienced significant raw material and transportation cost inflation that negatively affected its earnings. To offset these increased costs, the Company implemented several price increases in the U.S. and internationally in 2021. Due to the large volume in the Company's backlog, tailwinds from these increases are expected in 2022, however, continued cost inflation in these areas may require further price adjustments in future periods to maintain profit margin. Any price increases could have a negative effect on demand.
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Backlog Orders
The Company’s order backlog is incredibly strong and was approximately $242.9 million at the end of 2021 and $115.1 million at the end of 2020. All customer orders entered are firm at the time of entry. Substantially all of the backlog existing at December 31, 2021 is expected to be shipped to customers in 2022.
Seasonality
The Company markets products that are used by utility maintenance and construction crews worldwide. The products are marketed through distributors and directly to end users, who maintain stock to ensure adequate supply for their customers or construction crews. As a result, the Company does not have a wide variation in sales from quarter to quarter.
Environmental, Social and Governance Matters
The Company is subject to extensive and changing federal, state, and local environmental laws, including laws and regulations that (i) relate to air and water quality, (ii) impose limitations on the discharge of pollutants into the environment, (iii) establish standards for the treatment, storage and disposal of toxic and hazardous waste, and (iv) require proper storage, handling, packaging, labeling, and transporting of products and components classified as hazardous materials. Stringent fines and penalties may be imposed for noncompliance with these environmental laws. In addition, environmental laws could impose liability for costs associated with investigating and remediating contamination at the Company’s facilities or at third-party facilities at which the Company has arranged for the disposal treatment of hazardous materials.
The Company believes it is in compliance in all material respects, with all applicable environmental laws and the Company is not aware of any noncompliance or obligation to investigate or remediate contamination that could reasonably be expected to result in a material liability. The Company does not expect to make any material capital expenditures during 2022 for environmental control facilities. The environmental laws continue to be amended and revised to impose stricter obligations, and compliance with future additional environmental requirements could necessitate capital outlays. However, the Company does not believe that these expenditures will ultimately result in a material adverse effect on its financial position or results of operations. The Company cannot predict the precise effect such future requirements, if enacted, would have on the Company. The Company believes that such regulations would be enacted over time and would affect the industry as a whole.
Climate change may impact the Company’s business by increasing operating costs due to damage to its facilities and distribution systems and disruptions to its manufacturing processes due to the increased frequency and severity of storms, floods, fires, fog, mist, freezing conditions, sea-level rise and other climate-related events. As discussed above, climate change-related regulatory activity and developments may adversely affect the Company’s business and financial results by requiring the Company to reduce its emissions, make capital investments to modernize certain aspects of its operations, purchase carbon offsets, or otherwise pay for its emissions. The Company seeks to address these potential risks in its business continuity planning; however, such events could make it difficult for the Company to deliver products and services to its customers and cause it to incur substantial expense.
The Company is committed to supporting environmental, social and governance ("ESG") initiatives and to its efforts to being a responsible and sustainable contributor to the environment, its employees, and the communities in which it operates. The Company is committed to reducing harmful air emissions, improving gas, electric and water usage efficiency while implementing alternative energy sources. The Company’s locations are also focused on efforts to reduce its waste, water and energy consumption through the implementation of such programs as pollution prevention, recycling waste materials in both manufacturing and office facilities, reducing solid waste disposal, reducing harmful air emissions, and implementing alternative energy sources. An example of this commitment is through solar power installations at some of the Company’s locations around the globe which are currently generating 1.4 megawatts of power. The Company has also installed more efficient LED lighting at many of its operations to further reduce energy usage. Some locations have also achieved the ISO-14001: Environmental Management Systems Certification. The Company has adopted several policies, including the Code of Conduct, which stresses the importance of adhering to the laws and contributing to society.
In addition to monitoring and managing compliance with environmental regulations, the Company is also committed to sustainability and environmental protection initiatives. For example, the Company is committed to protecting wildlife by working with utility companies to design and manufacture wildlife protection products that aid in reducing wildlife mortalities from interaction with electric power distribution lines, structures, and equipment. Its Wildlife Protection line of products includes the BIRD-FLIGHT™ Diverter, RAPTOR PROTECTOR™ Platform and a Squirrel Deterrent System. The Company is also committed to partnering with its customers to develop innovative products, technologies, and services that meet their needs while mitigating risk to the environment and natural resources.
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Additionally, the Company's product offerings further enhance global climate sustainability by bolstering grid reliability and efficiency, strengthening resilience to climate events, enabling transitions to renewable energy and upgrading aging infrastructure. The Company also quickly provides repair products to customers in the event of emergencies or natural disasters such as hurricanes, tornadoes, earthquakes, floods or ice storms.
The Company has always supported numerous charitable organizations and promotes community involvement. It makes donations to various organizations and encourages employees to do the same by offering matching donations. The Company shares its successes with the communities in which it operates at both a corporate and local level. Donations and investments in enhancing the lives of the people within the communities it impacts are an integral part of who the Company is and how it intends to represent its values.
Human Capital
At December 31, 2021, the Company had 2,927 employees, the overwhelming majority of which are full-time employees. Approximately 28% of the Company’s employees are located in the U.S.
The Company views its employees and culture as keys to its success and believes that its employees are its greatest asset. The Company aims to attract and retain employees who will be empowered to have the freedom to make decisions and take actions in the best interest of the Company, while being recognized and accountable for those decisions and actions. The Company focuses on innovation, inclusion and diversity, safety and engagement to develop the best talent.
The Company’s goal is to create a work environment that enables employees to perform in an environment where they feel respected and valued. As a global company with employees in over 20 countries, the Company values its broad diversity of cultures, ethnicities, races, languages, religions, sexual and gender orientations and is committed to cultivating a diverse, open and inclusive work environment. Workplace satisfaction is a key to attracting and retaining employees. The Company has built a culture where integrity and honesty guide the decision-making process, while promoting a culture of learning and talent development through tuition reimbursement, training, wellness programs, flexible benefits, and competitive compensation.
The Company has always had safety as a core value and promotes a health and safety culture that engages and empowers its employees to take responsibility for the health and safety of themselves and their co-workers. Further, throughout the COVID-19 pandemic, the Company has been successful with proactive measures to protect the health and safety of its employees and to maintain business continuity. The Company has established several safety protocols in its production and office areas, including, but not limited to, schedule rotations, face coverings, barriers, physical distance requirements, enhanced cleaning procedures, body temperature monitoring, vaccination clinics and employer-sponsored COVID-19 testing. The Company continues to assess all challenges related to COVID-19 and regularly updates its employees.
For more information on the risks related to the Company’s human capital resources, see Item 1A – Risk Factors.
Available Information
The Company maintains an Internet site at http://www.preformed.com, on which the Company makes available, free of charge, the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. The Company’s SEC reports can be accessed through the investor relations section of its Internet site. The information found on the Company’s Internet site is not part of this or any other report that is filed or furnished to the SEC.
The public may read and copy any materials the Company files with or furnishes to the SEC at the SEC’s Public Reference Room at 100 F. Street, NE., Washington, DC 20549. Information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information filed with the SEC by electronic filers. The SEC’s Internet site is http://www.sec.gov. The Company also has a link from its Internet site to the SEC’s Internet site. This link can be found on the investor relations page of the Company’s Internet site.
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Item 1A. Risk Factors
The Company’s business, operating results, financial condition and cash flows may be affected by a number of factors including, but not limited to those discussed below. Any of these factors could cause the Company’s actual results to vary material from recent results of future anticipated results.
Industry and Economic Risks
Due to the Company’s dependency on the energy and telecommunication industries, the Company is susceptible to negative trends relating to those industries that could adversely affect the Company’s operating results.
The Company’s sales to the energy and telecommunication industries represent a substantial portion of the Company’s historical sales. The concentration of revenue in such industries is expected to continue into the foreseeable future. Demand for products to these industries depends primarily on capital spending by customers for constructing, rebuilding, maintaining or upgrading their systems. The amount of capital spending and, therefore, the Company’s sales and profitability are affected by a variety of factors, including general economic conditions, access by customers to financing, government regulation, demand for energy and cable services, energy prices and technological factors. As a result, some customers may significantly reduce or delay their spending or may not continue as going concerns, which could have a material adverse effect on the Company’s business, operating results and financial condition. In addition, the Company may incur exit-related costs and impairments of goodwill, definite and indefinite-lived intangible assets and property, fixtures and equipment as the Company makes corresponding changes to its business to reflect these changes and uncertainties in the Company’s industries and customer demand, and these costs and impairments could have a significant negative impact on the Company’s operating results for the period in which they are incurred. Consolidation presents an additional risk to the Company in that merged customers will rely on relationships with a source other than the Company. Consolidation may also increase the pressure on suppliers, such as the Company, to sell product at lower prices.
The intense competition in the Company’s markets, particularly telecommunication, may lead to a reduction in sales and earnings.
The markets in which the Company operates are highly competitive. The level of intensity of competition may increase in the foreseeable future due to anticipated growth in the telecommunication and data communication industries. The Company’s competitors in the telecommunication and data communication markets are larger companies with significant influence over the distribution network. The Company may not be able to compete successfully against its competitors, many of which may have access to greater financial resources than the Company. In addition, the pace of technological development in the telecommunication market is rapid and these advances (i.e., wireless, fiber optic network infrastructure, etc.) may adversely affect the Company’s ability to compete in this market.
Competitors’ introduction of products embodying new technologies or the emergence of new industry standards can render existing products or products under development obsolete or unmarketable and result in lost sales.
The energy and telecommunication industries are characterized by rapid technological change. Satellite, wireless and other communication technologies currently being deployed may represent a threat to copper, coaxial and fiber optic-based systems by reducing the need for wire-line networks. Future advances or further development of these or other new technologies may have a material adverse effect on the Company’s business, operating results and financial condition as a result of lost sales.
Price increases or decreased or delayed availability of raw materials could result in lower earnings.
The Company’s cost of sales may be materially adversely affected by increases in the market prices of the raw materials used in the Company’s manufacturing processes. During 2021, the Company implemented several price increases in the U.S. and internationally to mitigate rising material costs. This may have impacted or could continue to impact the Company's demand for its products. The Company may not be able to pass on further price increases in raw materials to the Company’s customers through increases in product prices. As a result, the Company’s operating results could be adversely affected. In addition, any decrease or delay in the availability of these materials or interruptions generally in the global supply chain could slow production and delivery to the Company’s customers. The impact of the COVID-19 pandemic and recent inflation, which is expected to continue, has disrupted and may continue to disrupt the global supply chain and could have a material, adverse effect on the ability to secure raw materials and supplies.
The Company’s international operations subject the Company to additional business risks that may have a material adverse effect on the Company’s business, operating results and financial condition.
International sales account for a substantial portion of the Company’s net sales (50%, 57% and 60% in 2021, 2020 and 2019, respectively). Due to its international sales, the Company is subject to the risks of conducting business internationally, including unexpected changes in, or impositions of, legislative or regulatory requirements, which could materially adversely affect U.S. dollar sales or operating expenses, tariffs and other barriers and restrictions, potentially longer payment cycles, greater difficulty in accounts
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receivable collection, reduced or limited protection of intellectual property rights, potentially adverse taxes and the burdens of complying with a variety of international laws and communications standards. The Company is subject to foreign currency volatility, which could materially impact the Company’s operating results, including the impact of hyper-inflationary conditions in certain economies, particularly where exchange controls limit or eliminate the Company’s ability to convert from local currency. The Company is also subject to general geopolitical risks, such as political and economic instability, social unrest, acts of war, military conflict, international hostilities or the perception that hostilities may be imminent, terrorism and changes in diplomatic and trade relationships, including any retaliatory measures, sanctions or tariffs imposed in response to any acts of war or military conflicts in connection with its international operations. Any such disruption could cause delays in the production and distribution of the Company’s products and the loss of sales and customers. Moreover, these types of events could negatively impact consumer spending or the economy in the impacted regions or depending upon the severity, globally. These risks of conducting business internationally may have a material adverse effect on the Company’s business, operating results and financial condition.
Additionally, in 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union (“Brexit”). Continued uncertainty relating to Brexit could adversely impact the Company. The United Kingdom formally exited the European Union on January 31, 2020 and had a transition period that ended on December 31, 2020. Since January 1, 2021, the European Union – United Kingdom Trade and Cooperative Agreement has provisionally been in effect and entered into force on May 21, 2021. Due to the lack of comparable precedent, the ultimate effect of Brexit and the trade and cooperative agreement are difficult to predict and could continue to have a further adverse impact on global economic conditions, the stability of global financial markets and global market liquidity, including effects on the discontinuation, reform or replacement of LIBOR as a reference interest rate included under the Company’s credit facility. Any of these factors could depress economic activity or lead to long-term volatility in the currency markets which could adversely impact the Company’s business, financial condition and results of operations.
The Company's financial results could be adversely affected by the change in interest rates.
Any period of interest rate increases may adversely affect the Company’s profitability. As of December 31, 2021, 38% of the Company's indebtedness bears interest at rates that float with the market. A higher level of floating rate debt would increase the exposure to changes in interest rates. Additionally, the interest rates on some of the Company’s debt is tied to LIBOR. The use of LIBOR is expected to be phased out by June 2023. The uncertainty regarding the transition from LIBOR to another reference rate or rates could have adverse impacts on the Company’s available debt that currently uses LIBOR as a reference rate, and ultimately, adversely affect our financial condition and results of operations.
The COVID-19 pandemic may continue to have a material adverse effect on the Company’s business, operating results and financial condition.
The Company is subject to public health concerns, including viral outbreaks such as the COVID-19 pandemic. Worldwide economic conditions have been significantly impacted by COVID-19 and the effects could continue to have an adverse effect on the Company’s operations and businesses as government authorities could continue to impose mandatory closures, work-from-home orders and social distancing protocols along with other unknown potential restrictions. COVID-19 has disrupted and could continue to disrupt the global supply chain, which could have a material, adverse effect on the Company’s ability to secure raw materials and supplies and could result in increased costs and the loss of sales and customers. The impact of COVID-19 could potentially exacerbate all the risks discussed and lead to the creation of new risks, any of which could have a material adverse effect on the Company’s business, operating results and financial condition. The duration and scope of the COVID-19 pandemic cannot be predicted, and therefore, any anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated.
Business and Operations Risks
The Company’s business will suffer if the Company fails to develop and successfully introduce new and enhanced products that meet the changing needs of the Company’s customers.
The Company’s ability to anticipate changes in technology and industry standards and to successfully develop and introduce new products on a timely basis is a significant factor in the Company’s ability to grow and remain competitive. New product development often requires long-term forecasting of market trends, development and implementation of new designs and processes and a substantial capital commitment. The trend toward consolidation of the energy, telecommunication and data communication industries may require the Company to quickly adapt to rapidly changing market conditions and customer requirements. Any failure by the Company to anticipate or respond in a cost-effective and timely manner to technological developments or changes in industry standards or customer requirements, or any significant delays in product development or introduction or any failure of new products to be widely accepted by the Company’s customers, could have a material adverse effect on the Company’s business, operating results and financial condition as a result of reduced net sales.
11
The Company may not be able to successfully integrate businesses that it may acquire in the future or complete acquisitions on satisfactory terms, which could have a material adverse effect on the Company’s business, operating results and financial condition.
A portion of the Company’s growth in sales and earnings has been generated from acquisitions. The Company expects to continue a strategy of identifying and acquiring businesses with complementary products. In connection with this growth strategy, the Company faces certain risks and uncertainties in addition to the risks faced in the Company’s day-to-day operations, including the risks pertaining to integrating acquired businesses, realizing the benefits of acquired technology, utilizing new personnel and operating in new jurisdictions. In addition, the Company may incur debt to finance future acquisitions, and the Company may issue securities in connection with future acquisitions that may dilute the holdings of current and future shareholders. Covenant restrictions relating to additional indebtedness could restrict the Company’s ability to pay dividends, fund capital expenditures, consummate additional acquisitions and significantly increase the Company’s interest expense. Any failure to successfully complete acquisitions or to successfully integrate such strategic acquisitions could have a material adverse effect on the Company’s business, operating results and financial condition.
The Company may have interruptions in or lose business due to the uncertainty of the global economy, specifically related to the lack of available funding for the Company’s customers.
The demand for the Company’s products is significantly affected by the amount of discretionary business and consumer spending, each of which is impacted by the continued uncertainty of the global economy. The Company’s operations could be adversely affected by global economic conditions such as recession, political or social unrest, economic instability, acts of war, military conflict, international hostilities or the perception that hostilities may be imminent, terrorism and changes in diplomatic and trade relationships, including any retaliatory measures, sanctions or tariffs imposed in response to any acts of war or military conflicts, public health concerns or otherwise. The liquidity and financial position of the Company’s customers could also impact their ability to pay in full and/or on a timely basis. This lack of funding could have a negative impact on the Company’s operating results and financial condition.
The Company employs information technology systems to support its business, and any material breach, interruption or failure may adversely impact the Company’s business.
The Company employs information technology systems to support its business. Security breaches and other disruptions to the Company’s information technology infrastructure could interfere with the Company’s operations, and compromise information belonging to the Company and its customers, suppliers and employees, exposing the Company to liability which could adversely impact the Company’s business and reputation. In the ordinary course of business, the Company relies on information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities. Additionally, the Company collects and stores certain data, including proprietary business information, and may have access to confidential or personal information in certain of its businesses that is subject to privacy and security laws, regulations and customer-imposed controls. Despite the Company’s cybersecurity measures and oversight of such matters by the Board of Directors, which are continuously reviewed and upgraded, the Company’s information technology networks and infrastructure and protected data may still be vulnerable to damage, disruptions or shutdowns due to attack by hackers or breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures, systems failures, service providers including cloud services, natural disasters or other catastrophic events. It is possible for such vulnerabilities to remain undetected for an extended period, up to and including several years. Any such events could result in legal claims or proceedings, liability or penalties under privacy laws, disruption in operations, and damage to the Company’s reputation, which could adversely affect the Company’s business.
Legal, Tax and Regulatory Risks
The Company may be adversely impacted by laws, regulation, and litigation.
The Company is subject to various laws and regulation. For example, extensive environmental regulations related to air and water quality, the discharge of pollutants, climate change, the handling of toxic waste and the handling and transport of products and components classified as hazardous impact its daily operations. The introduction of new laws or regulations, or changes in existing laws or regulations, could increase the costs of doing business. It is difficult to predict what impact, if any, changes in federal policy, including environmental and tax policies will have on our industry, the economy as a whole, consumer confidence and spending. As a result, the nature, timing and impact on our business of potential changes to the current legal and regulatory frameworks are uncertain. At any given time, the Company may also be subject to litigation or claims related to its products, suppliers, customers, employees, shareholders, distributors, sales representatives, intellectual property or acquisitions, among other things, the disposition of which may have an adverse effect upon the Company’s business, financial condition, or results of operation. The outcome of litigation is difficult to assess or quantify. Lawsuits can result in the payment of substantial damages by defendants. If the Company is required to pay substantial damages and expenses as a result of these or other types of lawsuits, the Company’s business and results of operations would be adversely affected. Regardless of whether any claims against the Company are valid or whether it is liable, claims may be expensive to defend,
12
may cause reputational harm (particularly where any claims relate to significant harm to persons and property) and may divert time and money away from the Company’s operations. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of the Company’s insurance coverage or financial statement accruals for any claims could adversely affect the Company’s business and operating results.
The Company may not be able to successfully manage its intellectual property and may be subject to infringement claims.
The Company relies on a combination of contractual rights and patent, trademark, copyright and trade secret laws to establish and protect its proprietary technology. Third parties may challenge, invalidate, circumvent, infringe or misappropriate the Company’s intellectual property, or such intellectual property may not be sufficient to permit the Company to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly redesign efforts, discontinuance of certain product offerings or other competitive harm. Others, including its competitors may independently develop similar technology, duplicate or design around the Company’s intellectual property, and in such cases, it could not assert its intellectual property rights against such parties. The Company may also be subject to costly litigation in the event its technology infringes upon or otherwise violate a third party’s proprietary rights. Any claim from third parties may result in a limitation on its ability to use the intellectual property subject to these claims or the requirement to pay a licensing fee or royalty. The Company may be forced to litigate to enforce or determine the scope and enforceability of its intellectual property rights, trade secrets and know-how, which is expensive, could cause a diversion of resources and may not prove successful, especially in countries where such rights are more difficult to enforce. The loss of intellectual property protection or the inability to obtain third party intellectual property could harm its business and ability to compete.
Tax matters, including changes in tax rates, disagreements with taxing authorities and imposition of new taxes could impact the Company’s operating results and financial condition.
The Company is subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating the provision and accruals for these taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain. The Company’s effective tax rates could be affected by numerous factors, including but not limited to, intercompany transactions, the relative amount of its foreign earnings, including earnings being lower than anticipated in jurisdictions where the Company has lower statutory rates and higher than anticipated in jurisdictions where the Company has higher statutory rates, losses incurred in jurisdictions for which the Company is not able to realize the related tax benefit, changes in foreign currency exchange rates, changes in its deferred tax assets and liabilities and any related valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations. In addition, many countries are actively pursuing changes to their tax laws applicable to corporate multinationals such as the proposed U.S. Build Back Better Plan, which potentially could raise the U.S. corporate tax rate. Additionally, due to the COVID-19 pandemic, foreign governments facilitated economic stimulus by enacting new tax legislation throughout 2021. Foreign governments will continue to contemplate future changes to tax law to assist in economic recovery. These future changes could materially affect the Company’s financial position and results of operations.
Risk Factors Related to Human Capital
The Company depends on maintaining a skilled workforce and any interruption in the workforce could negatively impact the Company’s operating results and financial condition.
The Company’s ability to sustain and grow its business requires a commitment to hire, retain and develop a highly skilled and diverse management team and workforce. Failure to ensure that the Company has the depth and breadth of personnel with the necessary skill set and experience, the loss of key employees or interruptions in the Company's workforce, including unionization efforts and changes in labor relations, could impede the Company’s ability to deliver its growth objectives and execute its strategy. Additionally, the health of the Company's employees is critical and protection of its employees is the Company's top priority.
The Company continues to develop and invest in human capital through continuing education, work-related certifications, and talent and performance management systems. These efforts directly impact the ability to deliver its growth objectives and execute its strategy.
Item 1B. Unresolved Staff Comments
The Company does not have any unresolved staff comments.
13
Item 2. Properties
The Company currently owns or leases 40 facilities, which together contain approximately 2.6 million square feet of manufacturing, warehouse, research and development, sales and office space worldwide. Most of the Company’s international facilities contain space for offices, research and engineering (R&E), warehousing and manufacturing with manufacturing using a majority of the space. The following table provides information regarding the Company’s principal facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Approximate |
|
|||||||||
|
|
|
|
Type of Facilities |
|
|
|
|
|
|
|
|
Square Feet |
|
||||||||||||
Segment |
|
Location |
|
Manufacturing |
|
|
Warehouse |
|
|
R&E |
|
|
Office |
|
|
Owned |
|
|
Leased |
|
||||||
United States |
|
United States |
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
3 |
|
|
|
704,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Americas |
|
Brazil |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
167,600 |
|
|
|
|
|
|
|
Argentina |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
26,400 |
|
||
|
|
Canada |
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
124,400 |
|
|
|
|
|
|
|
Mexico |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
2 |
|
|
|
113,000 |
|
|
|
1,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Asia-Pac |
|
Australia |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
4 |
|
|
|
122,900 |
|
|
|
79,200 |
|
|
|
China |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
132,100 |
|
|
|
|
|
|
|
Indonesia |
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
2 |
|
|
|
197,900 |
|
|
|
|
||
|
|
Malaysia |
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
18,600 |
|
|||
|
|
Thailand |
|
|
1 |
|
|
|
3 |
|
|
|
|
|
|
1 |
|
|
|
80,000 |
|
|
|
49,500 |
|
|
|
|
New Zealand |
|
|
1 |
|
|
|
2 |
|
|
|
1 |
|
|
|
2 |
|
|
|
34,200 |
|
|
|
6,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
EMEA |
|
Great Britain |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
90,400 |
|
|
|
|
|
|
|
Austria |
|
|
1 |
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
14,100 |
|
|||
|
|
Czech Republic |
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
66,700 |
|
|
|
|
South Africa |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
68,800 |
|
|
|
|
|
|
|
Spain |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
63,300 |
|
|
|
10,800 |
|
|
|
Poland |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
175,000 |
|
|
|
|
|
Item 3. Legal Proceedings
Information regarding the Company’s current legal proceedings is presented in Note B of the Notes to the Consolidated Financial Statements.
Item 4. Mine Safety Disclosures
Not applicable
Item 4A. Information about our Executive Officers
Each executive officer is elected by the Board of Directors, serves at its pleasure and holds office until a successor is appointed, or until the earliest of death, resignation or removal.
Name |
|
Age |
|
Position |
Robert G. Ruhlman |
|
65 |
|
Chairman, President and Chief Executive Officer |
William H. Haag |
|
58 |
|
Vice President - Asia-Pacific Region |
John M. Hofstetter |
|
57 |
|
Executive Vice President - U.S. Operations |
Andrew S. Klaus |
|
56 |
|
Chief Financial Officer |
Dennis F. McKenna |
|
55 |
|
Chief Operating Officer |
John J. Olenik |
|
51 |
|
Vice President - Research and Engineering |
Tim O'Shaughnessy |
|
51 |
|
Vice President - Human Resources |
J. Ryan Ruhlman |
|
38 |
|
Vice President - Marketing and Business Development |
Caroline S. Vaccariello |
|
55 |
|
General Counsel and Corporate Secretary |
14
The following sets forth the name and recent business experience for each person who is an executive officer of the Company at March 4, 2022:
Robert G. Ruhlman was elected Chairman in July 2004. Mr. Ruhlman has served as Chief Executive Officer since July 2000 and as President since 1995 (positions he continues to hold). Mr. Ruhlman is the father of J. Ryan Ruhlman, Vice-President – Marketing and Business Development and a Director of the Company, and of Maegan A. R. Cross, also a Director of the Company.
William H. Haag was elected Vice President - Asia-Pacific Region in January 2018. Prior to that, Mr. Haag served as the Company’s Vice President - International Operations since April 1999.
John M. Hofstetter was elected Executive Vice President - U.S. Operations in October 2020. Prior to that, Mr. Hofstetter served as Vice President – Sales and Global Communications Markets and Business Development in April 2012.
Andrew S. Klaus was elected Chief Financial Officer in April 2020. Previous to his employment with the Company, Mr. Klaus served as the Chief Accounting Officer and VP Corporate Controller at Vertiv Holdings Co. since 2017. Mr. Klaus served as the Chief Financial Officer of Consolidated Precisions Products Corporation from 2013 to 2017 and Vice President, Corporate Controller for JMC Steel Group (now known as Zekelman Industries, Inc.) from 2007 to 2013.
Dennis F. McKenna was elected Chief Operating Officer in January 2019. Prior to that, Mr. McKenna served as Executive Vice President Global Business Development since January 2015 where he expanded his role to include worldwide marketing and business development strategies. Prior to that, he was elected Vice President - Marketing and Global Business Development in April 2004.
John J. Olenik was elected Vice President - Research and Engineering in January 2020. Prior to that, Mr. Olenik was the Company’s Director of Engineering since 2013 where he was promoted from his prior role as Engineering Manager of Power Product Development. Mr. Olenik has been with the Company since 1997.
Tim O’Shaughnessy was elected Vice President - Human Resources in January 2019. Prior to that, Mr. O’Shaughnessy served as the Company’s Director of Human Resources since 2017 where he was promoted from his previous role of International Human Resource Manager which he began in 2013. Mr. O’Shaughnessy previously held various roles within the Finance organization since joining the Company in 2005.
J. Ryan Ruhlman was elected to the Company’s Board of Directors in July 2015 and as Vice President - Marketing and Business Development in December 2015, which expanded his role to include new acquisition and market opportunities. Prior to that, he was promoted to Director Marketing and Business Development in January 2015 including responsibilities for Special Industries, Distribution and Transmission Markets, as well as Marketing Communications. Mr. Ruhlman is the son of Robert G. Ruhlman, the Chief Executive Officer and Chairman of the Company, and the brother of Maegan A. R. Cross, a Director of the Company.
Caroline S. Vaccariello was elected General Counsel and Corporate Secretary in January 2007.
15
Part II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
The Company’s common shares are traded on NASDAQ under the trading symbol “PLPC”. As of March 1, 2022, the Company had approximately 2,900 shareholders of record. The following table sets forth for the periods indicated (i) the high and low closing sale prices per share of the Company’s common shares as reported by the NASDAQ and (ii) the amount per share of cash dividends paid by the Company.
|
|
Year ended December 31 |
|
|||||||||||||||||||||
|
|
2021 |
|
|
2020 |
|
||||||||||||||||||
Quarter |
|
High |
|
|
Low |
|
|
Dividend |
|
|
High |
|
|
Low |
|
|
Dividend |
|
||||||
First |
|
|
79.00 |
|
|
|
64.29 |
|
|
$ |
0.20 |
|
|
$ |
60.76 |
|
|
$ |
36.41 |
|
|
$ |
0.20 |
|
Second |
|
|
81.30 |
|
|
|
65.45 |
|
|
|
0.20 |
|
|
|
55.00 |
|
|
|
38.43 |
|
|
|
0.20 |
|
Third |
|
|
75.76 |
|
|
|
64.50 |
|
|
|
0.20 |
|
|
|
60.45 |
|
|
|
47.25 |
|
|
|
0.20 |
|
Fourth |
|
|
71.47 |
|
|
|
57.15 |
|
|
|
0.20 |
|
|
|
67.59 |
|
|
|
48.77 |
|
|
|
0.20 |
|
While the Company expects to continue to pay dividends of a comparable amount in the near term, the declaration and payment of future dividends will be made at the discretion of the Company’s Board of Directors in light of the current needs of the Company. Therefore, there can be no assurance that the Company will continue to make such dividend payments in the future.
There were no equity compensation plans not approved by security holders during the year ended December 31, 2021. The approved transactions for the year ended December 31, 2021 are as follows.
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|||
|
|
Number of |
|
|
Weighted-average |
|
|
Number of securities |
|
|||
Plan Category |
|
(1) |
|
|
(1) |
|
|
(2) |
|
|||
Equity compensation plans approved by security |
|
|
239,504 |
|
|
$ |
56.84 |
|
|
|
612,717 |
|
16
Performance Graph
Set forth below is a line graph comparing the cumulative total return of a hypothetical investment in the Company’s common shares with the cumulative total return of hypothetical investments in the NASDAQ Composite Index and the Peer Group Index based on the respective market price of each investment at December 31, 2016, December 31, 2017, December 31, 2018, December 31, 2019, December 31, 2020, and December 31, 2021, assuming in each case an initial investment of $100 on December 31, 2016, and reinvestment of dividends.
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
2019 |
|
|
2020 |
|
|
2021 |
|
||||||
PREFORMED LINE PRODUCTS CO |
|
|
100.00 |
|
|
|
123.98 |
|
|
|
95.79 |
|
|
|
108.08 |
|
|
|
124.43 |
|
|
|
119.02 |
|
NASDAQ MARKET INDEX |
|
|
100.00 |
|
|
|
129.64 |
|
|
|
125.96 |
|
|
|
172.17 |
|
|
|
249.51 |
|
|
|
304.85 |
|
PEER GROUP INDEX |
|
|
100.00 |
|
|
|
116.69 |
|
|
|
92.92 |
|
|
|
123.45 |
|
|
|
166.33 |
|
|
|
188.14 |
|
Purchases of Equity Securities
On July 28, 2021, the Board of Directors authorized a plan to repurchase up to an additional 191,163 of Preformed Line Products Company common shares, resulting in a total of 250,000 shares available for repurchase with no expiration date. There were no repurchases under this plan for the three months ended December 31, 2021. There were 242,930 shares remaining to be purchased as of December 31, 2021.
Item 6. Selected Financial Data
[Reserved]
17
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the readers of our financial statements better understand our results of operations, financial condition and present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our audited consolidated financial statements and related notes included elsewhere in this report.
The MD&A is organized as follows:
OVERVIEW
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 30 sales and manufacturing operations in 22 different countries.
We report our segments in four geographic regions: PLP-USA (including corporate), The Americas (includes operations in North and South America, excluding 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 the 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.
MARKET OVERVIEW
Our business continues to be concentrated in the energy and communications markets. During the past several years, industry consolidation continued as distributor and service provider integrations occurred in our major markets. There has also been a historical lack of commitment by developed countries to upgrade and strengthen their electrical grids and communication networks despite the growing need. More recently, increasing commodity prices, transportation costs, and foreign currency fluctuations coupled with the varying degrees of recovery from the COVID-19 pandemic throughout the global economy has led to a challenging operating environment. While these factors are likely to continue to provide inherent uncertainty going forward, the COVID-19 pandemic and other large scale environmental events have placed a renewed focus on key infrastructure priorities around the world, including bolstering grid reliability, strengthening grid resilience to climate events, upgrading aging infrastructure, enhancing communication networks and transitioning to renewable energy. Our focused portfolio is well-positioned to respond to these priorities.
18
In 2021, sales in the energy market continued to remain strong while sales in the communications market increased due to the number and scale of projects in North America and globally. We believe that our leadership position in these and other markets and the ability to deliver reliable products quickly will position us for continued growth as transmission grids are enhanced and extended. As communication networks continue to be upgraded and expanded, our product offering positions us well to participate in the expansion.
Our international business is mostly concentrated in the energy and communications markets, which is where we experienced our most significant top line growth in 2021. Historically, our international sales were primarily related to the medium voltage distribution segment of the energy market but have grown through acquisition and new product development to include a significant contribution from the transmission and telecommunications markets. We expect growth in our communications business from opportunities where deployment of fixed line and wireless telecommunications services and broadband penetration rates remain low as a percentage of the total population.
We believe that we are well positioned to supply the needs of the world’s diverse energy and communication markets as a result of our focused portfolio, strategic operational footprint and product designs and technologies.
PREFACE
The following discussion describes our results of operations for the years ended December 31, 2021 and 2020. Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles ("GAAP"). Our discussions of the financial results include non-GAAP measures (e.g., foreign currency impact) to provide additional information concerning our financial results and provide information that we believe is useful to the readers of our financial statements in the assessment of our performance and operating trends.
While the ongoing COVID-19 pandemic has not had a material effect on our overall results, it has continued to create challenges for us in countries that have significant outbreak mitigation strategies, namely, countries in our Asia-Pacific business segment, which led to temporary project postponements and continued to impact results in this segment. We are continuing to actively monitor the impact of COVID-19 on current and future periods and actively manage costs and our liquidity position to provide additional flexibility while still supporting our customers and their specific needs. We cannot predict the duration or scope of the COVID-19 pandemic or the magnitude of its impact on our business and results of operations. In addition, the impact of COVID-19 could potentially exacerbate other risks discussed, any of which could have a material adverse effect on the Company. We continue to assess all challenges related to COVID-19 and plan accordingly.
Overall customer demand remained strong and contributed to record net sales revenue of $517.4 million for the year ended December 31, 2021. However, we also experienced significant commodity and transportation cost inflation that negatively affected our earnings. To mitigate the ongoing inflationary pressures, we implemented several price increases in the U.S. and internationally in 2021. Due to the large volume in our order backlog, we expect tailwinds from these increases into 2022, however, continued cost inflation in these areas may require further price adjustments going forward to maintain profit margin, and any price increases may have a negative effect on demand.
Our financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. Foreign currencies strengthened against the U.S. dollar in 2021 as opposed weakening in 2020. The fluctuations of foreign currencies during the year ended December 31, 2021 had a favorable impact on net sales of $9.3 million and an unfavorable impact of $16.9 million during the year ended December 31, 2020. The effect of currency translation had a favorable impact on net income in the year ended December 31, 2021 of $0.4 million and an unfavorable impact of $1.3 million in the year ended December 31, 2020. On a reportable segment basis, the impact of foreign currency translation on net sales and net income for the years ended December 31, 2021 and 2020, respectively, was as follows:
|
|
Foreign Currency Translation Impact |
|
|||||||||||||
|
|
Net Sales |
|
|
Net Income (Loss) |
|
||||||||||
(Thousands of dollars) |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
The Americas |
|
$ |
(893 |
) |
|
$ |
(15,523 |
) |
|
$ |
59 |
|
|
$ |
(1,391 |
) |
EMEA |
|
|
5,295 |
|
|
|
(777 |
) |
|
|
335 |
|
|
|
(26 |
) |
Asia-Pacific |
|
|
4,864 |
|
|
|
(563 |
) |
|
|
20 |
|
|
|
73 |
|
Total |
|
$ |
9,266 |
|
|
$ |
(16,863 |
) |
|
$ |
414 |
|
|
$ |
(1,344 |
) |
Loss on foreign currency translation on operating income for the year ended December 31, 2021 was $0.7 million. There were transaction losses of $0.3 million that were combined with losses on forward currency contracts of $0.7 million in the year ended
19
December 31, 2021 and $1.5 million of transaction losses in the year ended December 31, 2020 which were partially mitigated by forward currency contract gains of $0.4 million as summarized in the following table:
|
|
Foreign Currency Translation Impact |
|
|||||
|
|
Year Ended December 31 |
|
|||||
(Thousands of dollars) |
|
2021 |
|
|
2020 |
|
||
Operating income |
|
$ |
47,549 |
|
|
$ |
40,207 |
|
Translation loss |
|
|
733 |
|
|
|
0 |
|
Transaction loss |
|
|
308 |
|
|
|
1,455 |
|
Net loss (gain) on forward currency contracts |
|
|
690 |
|
|
|
(415 |
) |
Operating income excluding currency impact |
|
$ |
49,280 |
|
|
$ |
41,247 |
|
Despite the continued challenges in the global economy, we believe our business portfolio and our financial position are sound and strategically well-positioned. We remain focused on assessing our global market opportunities and overall manufacturing capacity in conjunction with the requirements of local manufacturing in the markets that we serve. If necessary, we will utilize our global manufacturing network to manage costs, while driving sales and delivering value to our customers. We have continued to invest in our business to expand our market footprint, improve efficiency, develop new products, increase our capacity and become an even stronger supplier to our current and new customers. Our liquidity remains strong and we currently have a bank debt to equity ratio of 18.8%. We can borrow needed funds at a competitive interest rate under our credit facility. A consolidated increase in debt of $3.6 million as of December 31, 2021 was partially a result of current year funding needs for the purchase of a new corporate aircraft to replace the former aircraft which was substantially offset by decreases in debt levels globally, most notably in variable debt instruments. See Note E "Debt and Credit Arrangements" in the Notes to Consolidated Financial Statements for more information related to our debt position.
The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the years ended December 31, 2021 and 2020. The Company’s past operating results are not necessarily indicative of future operating results.
|
|
Year Ended December 31 |
|
|||||||||||||||||||
(Thousands of dollars) |
|
2021 |
|
|
|
2020 |
|
|
|
Change |
|
|||||||||||
Net sales |
|
$ |
517,417 |
|
|
|
100.0 |
|
% |
|
$ |
466,449 |
|
|
|
100.0 |
|
% |
|
$ |
50,968 |
|
Cost of products sold |
|
|
351,175 |
|
|
|
67.9 |
|
|
|
|
312,436 |
|
|
|
67.0 |
|
|
|
|
38,739 |
|
GROSS PROFIT |
|
|
166,242 |
|
|
|
32.1 |
|
|
|
|
154,013 |
|
|
|
33.0 |
|
|
|
|
12,229 |
|
Costs and expenses |
|
|
118,693 |
|
|
|
22.9 |
|
|
|
|
113,806 |
|
|
|
24.4 |
|
|
|
|
4,887 |
|
OPERATING INCOME |
|
|
47,549 |
|
|
|
9.2 |
|
|
|
|
40,207 |
|
|
|
8.6 |
|
|
|
|
7,342 |
|
Other income, net |
|
|
1,347 |
|
|
|
0.3 |
|
|
|
|
364 |
|
|
|
0.1 |
|
|
|
|
983 |
|
INCOME BEFORE INCOME TAXES |
|
|
48,896 |
|
|
|
9.5 |
|
|
|
|
40,571 |
|
|
|
8.7 |
|
|
|
|
8,325 |
|
Income taxes |
|
|
13,175 |
|
|
|
2.5 |
|
|
|
|
10,810 |
|
|
|
2.3 |
|
|
|
|
2,365 |
|
NET INCOME |
|
|
35,721 |
|
|
|
6.9 |
|
|
|
|
29,761 |
|
|
|
6.4 |
|
|
|
|
5,960 |
|
Less: Net loss attributable to noncontrolling interests |
|
|
8 |
|
|
|
0.0 |
|
|
|
|
42 |
|
|
|
0.0 |
|
|
|
|
(34 |
) |
NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS |
|
$ |
35,729 |
|
|
|
6.9 |
|
% |
|
$ |
29,803 |
|
|
|
6.4 |
|
% |
|
$ |
5,926 |
|
2021 RESULTS OF OPERATIONS COMPARED TO 2020
Net sales. In 2021, net sales were $517.4 million, an increase of $51.0 million, or 11%, compared to 2020. Excluding the favorable effect of currency translation, net sales increased 9% as summarized in the following table:
|
|
Year Ended December 31 |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
257,602 |
|
|
$ |
201,277 |
|
|
$ |
56,325 |
|
|
$ |
0 |
|
|
$ |
56,325 |
|
|
|
28 |
|
% |
The Americas |
|
|
70,732 |
|
|
|
74,192 |
|
|
|
(3,460 |
) |
|
|
(893 |
) |
|
|
(2,567 |
) |
|
|
(3 |
) |
|
EMEA |
|
|
95,922 |
|
|
|
91,108 |
|
|
|
4,814 |
|
|
|
5,295 |
|
|
|
(481 |
) |
|
|
(1 |
) |
|
Asia-Pacific |
|
|
93,161 |
|
|
|
99,872 |
|
|
|
(6,711 |
) |
|
|
4,864 |
|
|
|
(11,575 |
) |
|
|
(12 |
) |
|
Consolidated |
|
$ |
517,417 |
|
|
$ |
466,449 |
|
|
$ |
50,968 |
|
|
$ |
9,266 |
|
|
$ |
41,702 |
|
|
|
9 |
|
% |
20
The increase in PLP-USA net sales of $56.3 million, or 28%, was primarily due to a volume increase in communication and energy product sales, combined with benefits resulting from price increases in June and October of 2021. International net sales for the year ended December 31, 2021 were favorably affected by $9.3 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 $70.7 million decreased $2.6 million, or 3%, primarily due to decreased volume in energy product sales, partially offset by an in increase in communication product sales. EMEA net sales of $95.9 million decreased $0.5 million, or 1%, primarily due to volume decreases in communication products in the region. The Asia-Pacific net sales of $93.2 million decreased $11.6 million, or 12%, compared to 2020 primarily due to the continued volume decreases from the postponement of large-scale projects caused by the ongoing COVID-19 pandemic.
Gross Profit. Gross profit of $166.2 million for 2021 increased $12.2 million, or 8%, compared to 2020. Excluding the favorable effect of currency translation, gross profit increased $9.2 million, or 6%, as summarized in the following table:
|
|
Year Ended December 31 |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
87,740 |
|
|
$ |
75,182 |
|
|
$ |
12,558 |
|
|
$ |
0 |
|
|
$ |
12,558 |
|
|
|
17 |
|
% |
The Americas |
|
|
23,312 |
|
|
|
23,854 |
|
|
|
(542 |
) |
|
|
(141 |
) |
|
|
(401 |
) |
|
|
(2 |
) |
|
EMEA |
|
|
30,839 |
|
|
|
31,019 |
|
|
|
(180 |
) |
|
|
1,805 |
|
|
|
(1,985 |
) |
|
|
(6 |
) |
|
Asia-Pacific |
|
|
24,351 |
|
|
|
23,958 |
|
|
|
393 |
|
|
|
1,415 |
|
|
|
(1,022 |
) |
|
|
(4 |
) |
|
Consolidated |
|
$ |
166,242 |
|
|
$ |
154,013 |
|
|
$ |
12,229 |
|
|
$ |
3,079 |
|
|
$ |
9,150 |
|
|
|
6 |
|
% |
PLP-USA gross profit of $87.7 million increased by $12.6 million, or 17%, compared to 2020 mostly due to an increase in sales of $56.3 million and a shift in mix toward higher margin products, most notably in the communications market, partially offset by the negative impact of rising commodity prices, freight costs, inflation and an increase in warranty costs. Incremental price increases were enacted in the PLP-USA region in 2021 to further mitigate the ongoing inflation and commodity price increases. International gross profit for the year ended December 31, 2021 was favorably impacted by $3.1 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 decreased $.4 million, or 2%, which was primarily the result of the year-over-year decrease in net sales. EMEA gross profit decreased $2.0 million year-over-year, partially as a result of decreased sales of $0.5 million combined with increased expenses in the region, largely due to higher freight and raw material costs. Asia-Pacific’s gross profit decreased $1.0 million when compared to the year ended December 31, 2020, largely as a result of the year-over-year decrease in sales of $11.6 million, partially offset by manufacturing cost savings.
Costs and expenses. Costs and expenses of $118.7 million for the year ended December 31, 2021 increased $4.9 million, or 4%, when compared to 2020. Excluding the unfavorable effect of currency translation, costs and expenses increased $2.5 million, or 2%, as summarized in the following table:
|
|
Year Ended December 31 |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
55,111 |
|
|
$ |
52,794 |
|
|
$ |
2,317 |
|
|
$ |
0 |
|
|
$ |
2,317 |
|
|
|
4 |
|
% |
The Americas |
|
|
13,807 |
|
|
|
16,008 |
|
|
|
(2,201 |
) |
|
|
(335 |
) |
|
|
(1,866 |
) |
|
|
(12 |
) |
|
EMEA |
|
|
25,505 |
|
|
|
22,636 |
|
|
|
2,869 |
|
|
|
1,324 |
|
|
|
1,545 |
|
|
|
7 |
|
|
Asia-Pacific |
|
|
24,270 |
|
|
|
22,368 |
|
|
|
1,902 |
|
|
|
1,357 |
|
|
|
545 |
|
|
|
2 |
|
|
Consolidated |
|
$ |
118,693 |
|
|
$ |
113,806 |
|
|
$ |
4,887 |
|
|
$ |
2,346 |
|
|
$ |
2,541 |
|
|
|
2 |
|
% |
PLP-USA costs and expenses of $55.1 million increased $2.3 million, or 4% year-over-year. PLP-USA’s increase was mainly attributable to increased commissions of $2.1 million, a year-over-year incremental loss on foreign currency exchange of $1.3 million, partially offset by the prior year loss on sale of capital assets of $1.0 million combined with miscellaneous net decreases of $0.1 million. PLP’s foreign currency exchange losses were primarily related to translating into U.S. dollars its foreign currency denominated loans, trade receivables and royalty receivables from its foreign subsidiaries at the December 2021 year-end exchange rates. PLP’s costs and expenses for the year ended December 31, 2020 were unfavorably impacted by $2.3 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 decrease of $1.9 million was primarily due to a prior year litigation reserve of $2.2 million, partially offset by miscellaneous
21
net decreases of $0.3 million. EMEA costs and expenses of $25.5 million increased $1.5 million mainly due to higher personnel related costs of $1.8 million, partially offset by a decrease in bad-debt expense of $0.3 million. Asia-Pacific costs and expenses of $24.3 million increased $0.5 million primarily due to an increase in personnel related costs.
Other income, net. Other income, net of $1.3 million for the year ended December 31, 2021 was favorable by $1.0 million when compared to other income, net for the twelve months ended December 31, 2020 of $0.4 million. Other income, net for year ended December 31, 2021 includes a pre-tax recovery of approximately $2.1 million related to a recent Brazilian Supreme Court decision that granted the Company the right to recover, through offset of federal tax liabilities, certain tax overpayments collected by the Brazilian government. During the year ended December 31, 2020, the Asia-Pacific segment recorded $1.1 million of income for COVID-19 related government subsidies which did not recur in 2021 which partially offset the current year income realized in Brazil.
Income taxes. Income taxes for the years ended December 31, 2021 and 2020 were $13.2 million and $10.8 million, respectively, based on pre-tax income of $48.9 million and $40.6 million, respectively. The effective tax rate for the years ended December 31, 2021 and 2020 was 27.0% and 26.6%, respectively, compared to the U.S. federal statutory rate of 21.0%. Our effective tax rate is affected by recurring items, such as tax rates in foreign jurisdictions, which differ from the U.S. federal statutory income tax rate, and the relative amount of income earned in those jurisdictions where such earnings are permanently reinvested. It is also affected by discrete items that may occur in any given period but are not consistent from year to year. The following items had the most significant impact on the difference between our statutory U.S. federal income tax rate of 21.0%:
2021
2020
Net income. As a result of the preceding items, net income for the year ended December 31, 2021 was $35.7 million, compared to $29.8 million for 2020. Excluding the effect of currency translation, net income increased $5.5 million as summarized in the following table:
|
|
Year Ended December 31 |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
24,384 |
|
|
$ |
16,564 |
|
|
$ |
7,820 |
|
|
$ |
0 |
|
|
$ |
7,820 |
|
|
|
47 |
|
% |
The Americas |
|
|
8,351 |
|
|
|
5,068 |
|
|
|
3,283 |
|
|
|
59 |
|
|
|
3,224 |
|
|
|
64 |
|
|
EMEA |
|
|
3,715 |
|
|
|
6,644 |
|
|
|
(2,929 |
) |
|
|
335 |
|
|
|
(3,264 |
) |
|
|
(49 |
) |
|
Asia-Pacific |
|
|
(721 |
) |
|
|
1,527 |
|
|
|
(2,248 |
) |
|
|
20 |
|
|
|
(2,268 |
) |
|
|
(149 |
) |
|
Consolidated |
|
$ |
35,729 |
|
|
$ |
29,803 |
|
|
$ |
5,926 |
|
|
$ |
414 |
|
|
$ |
5,512 |
|
|
|
18 |
|
% |
PLP-USA’s net income of $24.4 million increased $7.8 million year-over-year, mainly due to an increase in operating income of $10.2 million, partially offset by an increase in income tax expense of $2.5 million. International net income for the year ended December 31, 2021 was favorably affected by approximately $0.4 million when local currencies were converted to U.S. dollars. The following discussion of net income excludes the effect of currency translation. The Americas net income of $8.4 million increased $3.2 million mainly as a result of a $1.5 million increase in operating income combined with an increase in other income (expense) of $2.5
22
million, partially offset by an increase in income tax expense of $0.7 million. EMEA net income decreased $3.3 million as a result of a $3.5 million decrease in operating income, partially offset by a decrease in income tax expense. Asia-Pacific net income decreased $2.3 million mainly as a result of a $1.6 million decrease in operating income, a decrease in other income, net of $0.9 million, partially offset by a decrease in income tax expense for the region of $0.2 million.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
Management Assessment of Liquidity
We measure liquidity on the basis of our ability to meet short-term and long-term operating needs, fund additional investments, including acquisitions, and make dividend payments to shareholders. Significant factors affecting the management of liquidity are cash flows from operating activities, capital expenditures, cash dividends, business acquisitions and access to bank lines of credit.
Our investments include expenditures required for equipment and facilities as well as expenditures in support of our strategic initiatives. In 2021, we used cash of $18.4 million for capital expenditures. At December 21, 2021, we had $36.4 million of cash, cash equivalents and restricted cash (collectively “Cash”). Our Cash is held in various locations throughout the world. At December 31, 2021, the majority of our cash is held outside the U.S.
We expect the majority of 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 that may signal possible customer credit issues. We currently have not identified any potential material impact on our liquidity from customer credit issues.
Our financial position remains strong and our current ratio at December 31, 2021 and 2020 was 2.6 to 1 and 2.4 to 1, respectively. Total debt, including Notes payable, at December 31, 2021 was $59.6 million. On April 17, 2020, we extended the term on its $65.0 million Credit Facility (the "Facility") from June 30, 2021 to June 30, 2024 and added its Austrian subsidiary as a borrower on the Facility. All other terms remained the same, including the interest rate at LIBOR plus 1.125% unless the Company’s funded debt to Earnings before Interest, Taxes and Depreciation ratio exceeds 2.25 to 1, at which point the LIBOR spread becomes 1.500%. At December 31, 2021, we had the following borrowings on the $65.0 million Facility; the U.S. borrowed $3.4 million at 1.205%, our Polish subsidiary borrowed $6.1 million at 2.455%, our Australian subsidiary borrowed $2.4 million at 2.980% and our Austrian subsidiary borrowed $1.4 million at 1.216%. Under the Facility, at December 31, 2021, we had utilized $13.3 million with $51.7 million available, net of long-term outstanding letters of credit of $0.1 million. Our bank debt to equity percentage was 18.8%. The Facility agreement contains, among other provisions, requirements for maintaining levels of net worth and profitability. At December 31, 2021, we were in compliance with these covenants.
On March 2, 2022, the we entered into an amendment to the Facility to increase the borrowing capacity from $65.0 million to $90.0 million. As part of this amendment, the index used to determine the interest rate changed from LIBOR to the Bloomberg Short Term Bank Yield Index ("BSBY"). The interest rate will now be defined as BSBY plus 1.125% unless the funded debt to Earnings before Interest, Taxes and Depreciation ration exceeds 2.25 to 1, at which point the BSBY spread becomes 1.500%. The amendment also allows us to change our rate from BSBY to the Second Overnight Financing Rate ("SOFR") at the its discretion. The amendment extended the maturity from June 30, 2024 to March 2, 2026. All other terms remain the same.
Our Asia-Pacific segment had $0.2 million and $0.6 million in restricted cash at December 31, 2021 and 2020, respectively. The restricted cash was used to secure bank debt and is included in Cash and Other assets for the years ended December 31, 2021 and 2020, respectively, on the balance sheet.
We sold our corporate aircraft in December of 2020, thereby eliminating the balance due on the previous loan which was secured by the corporate aircraft. The proceeds of the sale were used to pay off the debt associated with the former aircraft. On January 19, 2021, the Company received funding for a term loan in the amount of $20.5 million to fund the purchase of a new corporate aircraft. At December 31, 2021, the outstanding balance on the term loan was $18.8 million, of which $2.1 million was classified as current. See Note E in the Notes to Consolidated Financial Statements for more information.
We expect that our major source of funding for 2022 and beyond will be our operating cash flows, our existing cash and cash equivalents as well as our Credit Facility 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 currently do not intend nor foresee a need to repatriate these funds. 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
23
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 further 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 at December 31, 2021 decreased $8.8 million when compared to December 31, 2020. Net Cash provided by operating activities was $33.6 million. The most significant net investing and financing uses of Cash were net payments of debt of $14.2 million, capital expenditures of $18.4 million, share repurchases of $5.3 million and dividends paid of $4.1 million. Currency had an unfavorable impact of $0.9 million on Cash when translating foreign denominated financial statements to U.S. dollars.
Net Cash provided by operating activities for the years ended December 31, 2021 and 2020 was $33.6 million and $41.6 million, respectively. The $8.0 million decrease was primarily a result of an increase in cash used to fund working capital of $26.9, partially offset by miscellaneous net favorable movements in non-cash items of $12.9 million and an increase in net income of $6.0 million.
Net Cash used in investing activities of $18.2 million for the year ended December 31, 2021 represents an increase of $4.2 million when compared to Cash used in investing activities for the year ended December 31, 2020. The increased use of Cash was primarily related to the prior year Cash proceeds from the sale of property and equipment of $10.5 million, primarily from the sale of the corporate aircraft, partially offset by a decrease in capital expenditures of $6.2 million.
Cash used in financing activities for both years ended December 31, 2021 and 2020 was $23.2 million. The year-over-year change in cash usage was due to an increase in net debt payments of $4.5 million, partially offset by a year-over-year decrease in cash used in capital stock transactions of $4.4 million.
We have commitments under operating leases primarily for office and manufacturing space, transportation equipment, office and computer equipment and capital leases, primarily for equipment. See Note F in the Notes to Consolidated Financial Statements for more information.
As of December 31, 2021, the Company had total outstanding guarantees of $10.0 million. Additionally, certain domestic and foreign customers require the Company to issue letters of credit or performance bonds as a condition of placing an order. As of December 31, 2021, the Company had total outstanding letters of credit of $2.2 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.
Critical accounting policies are defined as those that are reflective of significant judgment and uncertainties, and potentially may result in materially different outcomes under different assumptions and conditions.
Revenue Recognition
Net sales include products and shipping and handling charges, net of estimates for product returns. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. All revenue is recognized when the Company satisfies the performance obligations under the contract and control of the product is transferred to the customer, primarily based on shipping terms. Revenue for shipping and handling charges are recognized at the time the products are shipped to, delivered to or picked up by the customer. The Company estimates product returns based on historical return rates.
Allowance for Credit Losses
We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. We record estimated allowances for uncollectible accounts receivable based upon the number of days the accounts are past due, the current business environment, and specific information such as bankruptcy or liquidity issues of customers. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. The allowance for credit losses represents approximately 3.0% and 2.8% of our trade receivables balance at December 31, 2021 and 2020, respectively.
24
Excess and Obsolescence Reserves
We provide excess and obsolescence reserves to state inventories at the lower of cost or estimated net realizable value. We identify inventory items that have had no usage or are in excess of the usages over the historical 12 to 24 months. A management team with representatives from marketing, manufacturing, engineering and finance reviews these inventory items, determines the disposition of the inventory and assesses the net realizable value based on their knowledge of the product and market conditions. These conditions include, among other things, future demand for product, product utility, unique customer order patterns or unique raw material purchase patterns, changes in customer and quality issues. The reserve for excess and obsolete inventory was 6.6% and 7.5% of gross inventory for the years ended December 31, 2021 and December 31, 2020, respectively. If the impact of market conditions deteriorates from those projected by management, additional inventory reserves may be necessary.
Impairment of Long-Lived Assets
We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying value of those items. Our cash flows are based on historical results adjusted to reflect the best estimate of future market and operating conditions. The net carrying value of assets not recoverable is then reduced to fair value. The estimates of fair value represent the best estimate based on industry trends and reference to market rates and transactions.
Goodwill
Our measurement date for our annual impairment test is October 1 of each year. We did not have any impairment for goodwill for the years ended December 31, 2021 or 2020. See Note J for additional information.
We may use both quantitative and qualitative approaches when testing goodwill for impairment. For selected reporting units where the qualitative approach is utilized, a qualitative evaluation of events and circumstances impacting the reporting unit is performed to determine if it is more likely than not that the fair value of the reporting unit exceeds its carrying amount. If that determination is made, no further evaluation is necessary. Otherwise, the Company performs a quantitative impairment test on the reporting unit.
For the quantitative approach, the Company uses a combination of the income approach, which uses a discounted cash flow methodology, and the market approach, which uses comparable market multiples, in computing fair value by reporting unit. The Company then compares the fair value of the reporting unit with its carrying value to assess if goodwill has been impaired. The fair value estimates are subjective and sensitive to significant assumptions, such as revenue growth rates, operating margins, the weighted-average cost of capital ("WACC"), and estimated market multiples, of which are affected by expectations of future market or economic conditions. The Company believes that the methodologies, significant assumptions, and weightings used are reasonable and result in appropriate fair values of the reporting units.
Impairment assessments inherently involve management judgments regarding a number of assumptions. Due to the multiple variables inherent in arriving at the estimates of the reporting unit's fair value, differences in assumptions could have an effect on the estimated fair value of a reporting unit and could result in goodwill impairment charges in a future period.
Deferred Tax Assets
Deferred taxes are recognized at currently enacted tax rates for temporary differences between the financial reporting and income tax basis of assets and liabilities and operating loss and tax credit carryforwards. We establish a valuation allowance to record our deferred tax assets at an amount that is more-likely-than-not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the valuation allowance would be charged to expense in the period such determination was made.
Pension Obligations
We record obligations and expenses related to a pension benefit plan based on actuarial valuations, which include key assumptions on discount rates, expected returns on plan assets and compensation increases. These actuarial assumptions are reviewed annually and modified as appropriate. The effect of modifications is generally recorded or amortized over future periods. The discount rate of 2.92% at December 31, 2021 reflects an analysis of yield curves as of the end of the year and the schedule of expected cash needs of the plan. The expected long-term return on plan assets of 6.50% reflects the plan’s historical returns and represents our best estimate of the likely future returns on the plan’s asset mix. We believe the assumptions used in recording obligations under the plans are reasonable based on prior experience, market conditions and the advice of plan actuaries. However, an increase in the discount rate would decrease the plan obligations and the net periodic benefit cost, while a decrease in the discount rate would increase the plan obligations and the net
25
periodic benefit cost. In addition, an increase in the expected long-term return on plan assets would decrease the net periodic pension cost, while a decrease in expected long-term return on plan assets would increase the net periodic pension cost.
26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company operates manufacturing facilities and offices around the world and uses fixed and floating rate debt to finance the Company's global operations. As a result, the Company is subject to business risks inherent in non-U.S. activities, including political and economic uncertainty, import and export limitations and market risk related to changes in interest rates and foreign currency exchange rates. The Company believes that the political and economic risks related to the Company's international operations are mitigated due to the geographic diversity in which the Company's international operations are located.
Effective July 1, 2018, Argentina was designated as a highly inflationary economy as the projected three-year cumulative inflation rate exceeded 100%. As such, beginning July 1, 2018, the functional currency for the Company’s Argentina subsidiary became the U.S. dollar. Revenue from operations in Argentina represented less than 1% of total consolidated net sales for the year ended December 31, 2021 and less than 2% of consolidated net sales for the years ended December 31, 2020 and 2019.
As of December 31, 2021, the Company had $0.5 million in foreign currency forward exchange contracts outstanding. The Company does not hold derivatives for trading purposes.
The Company's primary currency rate exposures are related to foreign denominated debt, intercompany debt, forward exchange contracts, 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 tax of $1.6 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 long-term borrowings of $43.2 million at December 31, 2021. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $0.6 million for the year ended December 31, 2021.
Included in the Company’s accounting for the defined benefit pension plan (“Plan”) are assumptions on future discount rates and the expected return on Plan assets. The Company considers current market conditions, including changes in interest rates and Plan asset investment returns. Actuarial assumptions may differ materially from actual results due to changing market, demographic and economic conditions or higher or lower withdrawal rates. These differences may result in a significant impact to the amount of net pension expense or income recorded in the future.
A discount rate is used to determine the present value of future payments. In general, our liability increases as the discount rate decreases and decreases as the discount rate increases. The discount rate used to determine the future benefit obligation was 2.92% and 2.69% at December 31, 2021 and 2020, respectively. The discount rate is a significant factor in determining the amounts reported. A 50 basis point change in the discount rate of 2.92% used at December 31, 2021 would have a $3.4 million effect on the Plan’s projected benefit obligation.
The Company developed the expected return on Plan assets by considering various factors which include targeted asset allocation percentages, historical returns, and expected future returns. The Company assumed an expected rate of return of 6.50% and 7.00% for the years ended December 31, 2021 and 2020, respectively. A 50 basis point change in the expected rate of return would have a $0.2 million effect on the Plan’s subsequent year’s net periodic pension cost.
As discussed elsewhere in this report, the continuing effects 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 or the possibility or severity of new variants, the potential negative financial impact to the Company’s results cannot be reasonably estimated but could be material. Although the recent deployment of vaccinations is expected to mitigate potential future adverse impact, the impact cannot be predicted with certainty.
27
Item 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of Preformed Line Products Company
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Preformed Line Products (the Company) as of December 31, 2021 and 2020, the related Statements of Consolidated Income, Comprehensive Income, Cash Flows, and Shareholders' Equity for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2021 and 2020, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 4, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
28
Quantitative Impairment Assessment of Goodwill |
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Description of the matter
How we addressed the matter
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At December 31, 2021, the Company’s goodwill was $28.2 million. As discussed in Note J to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level or more frequently if impairment indicators arise using either a qualitative or quantitative assessment. Under the quantitative assessment, goodwill is tested for impairment utilizing a combination of the income approach, which uses a discounted cash flow methodology, and the market approach, which uses comparable company market multiples, to estimate the fair value of each reporting unit.
Auditing management’s quantitative goodwill impairment assessment for one reporting unit was complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions, such as revenue growth rates, operating margins, weighted average cost of capital (WACC), and estimated market multiples, which are affected by expectations of future market or economic conditions.
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment process. This included controls over management’s review of the significant assumptions underlying the fair value determination described above.
To test the estimated fair value of the Company’s reporting unit, we performed audit procedures that included, among others, assessing the methodologies used, testing the significant assumptions described above, and testing the underlying data used by the Company in its analysis. For example, we compared the significant assumptions used by management to current industry and economic trends and to historical results. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. We also utilized our specialists to review the methodology, and certain assumptions such as the WACC and market multiples. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2008
March 4, 2022
29
PREFORMED LINE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
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December 31 |
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2021 |
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2020 |
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(Thousands of dollars, except share and per share data) |
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ASSETS |
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Cash, cash equivalents and restricted cash |
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$ |
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$ |
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Accounts receivable, less allowances of $ |
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Inventories - net |
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Prepaid expenses |
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Other current assets |
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TOTAL CURRENT ASSETS |
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Property, plant and equipment - net |
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Operating lease, right-of-use assets |
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Goodwill |
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Other intangible assets - net |
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Deferred income taxes |
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Other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Trade accounts payable |
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$ |
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$ |
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Notes payable to banks |
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Operating lease liabilities, current |
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Current portion of long-term debt |
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Accrued compensation |
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Accrued expenses and other liabilities |
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Accrued profit-sharing and other benefits |
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Dividends payable |
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Income taxes payable |
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TOTAL CURRENT LIABILITIES |
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Long-term debt, less current portion |
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Pension obligation |
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Operating lease liabilities, non-current |
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Deferred income taxes |
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Other noncurrent liabilities |
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SHAREHOLDERS' EQUITY |
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Shareholders' equity: |
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Common shares - $ |
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Common shares issued to rabbi trust, |
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( |
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( |
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Deferred compensation liability |
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Paid-in capital |
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Retained earnings |
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Treasury shares, at cost, |
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December 31, 2020, respectively |
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( |
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( |
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Accumulated other comprehensive loss |
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( |
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( |
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TOTAL PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS' EQUITY |
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Noncontrolling interest |
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( |
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( |
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TOTAL SHAREHOLDERS' EQUITY |
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |
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$ |
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$ |
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See notes to consolidated financial statements.
30
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
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Year Ended December 31 |
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2021 |
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2020 |
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2019 |
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(In thousands, except per share data) |
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Net sales |
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$ |
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$ |
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$ |
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Cost of products sold |
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GROSS PROFIT |
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Costs and expenses |
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Selling |
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General and administrative |
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Research and engineering |
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Other operating expenses - net |
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OPERATING INCOME |
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Other income (expense) |
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Interest income |
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Interest expense |
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( |
) |
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( |
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( |
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Other income - net |
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( |
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INCOME BEFORE INCOME TAXES |
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Income tax expense |
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NET INCOME |
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$ |
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$ |
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$ |
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Net loss (income) attributable to noncontrolling interests |
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( |
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NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS |
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$ |
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$ |
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$ |
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AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING: |
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Basic |
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Diluted |
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EARNINGS PER SHARE OF COMMON STOCK ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS: |
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Basic |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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See notes to consolidated financial statements.
31
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
|
|
Year Ended December 31 |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(Thousands of dollars) |
|
|||||||||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Other comprehensive (loss) income, net of tax: |
|
|
|
|
|
|
|
|
|
|||
Foreign currency translation adjustment |
|
|
( |
) |
|
|
|
|
|
|
||
Recognized net actuarial gains |
|
|
|
|
|
|
|
|
|
|||
Gain (loss) on unfunded pension obligations |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Other comprehensive (loss) income, net of tax |
|
|
( |
) |
|
|
|
|
|
|
||
Less: Comprehensive loss (income) attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
( |
) |
||
Comprehensive income attributable to Preformed Line Products Company shareholders |
|
$ |
|
|
$ |
|
|
$ |
|
|||
See notes to consolidated financial statements.
32
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
|
|
Year Ended December 31 |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
|
(Thousands of dollars) |
|
|||||||||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Adjustments to reconcile net income to net cash provided by operations: |
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|||
Provision for accounts receivable allowances |
|
|
|
|
|
|
|
|
|
|||
Provision for inventory reserves |
|
|
|
|
|
|
|
|
|
|||
Deferred income taxes |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Share-based compensation expense |
|
|
|
|
|
|
|
|
|
|||
(Gain) loss on sale of property and equipment |
|
|
( |
) |
|
|
|
|
|
|
||
Other - net |
|
|
|
|
|
|
|
|
|
|||
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|||
Accounts receivable |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Inventories |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Prepaid expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Trade accounts payables and accrued liabilities |
|
|
|
|
|
|
|
|
|
|||
Accrued income and other taxes |
|
|
( |
) |
|
|
|
|
|
|
||
Contributions to company pension plan |
|
|
|
|
|
( |
) |
|
|
|
||
Other - net |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
NET CASH PROVIDED BY OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|||
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Proceeds from the sale of property and equipment |
|
|
|
|
|
|
|
|
|
|||
Purchase of marketable securities |
|
|
|
|
|
|
|
|
( |
) |
||
Proceeds from sale of marketable securities |
|
|
|
|
|
|
|
|
|
|||
Purchase of company owned life insurance policies |
|
|
|
|
|
|
|
|
( |
) |
||
Acquisition of businesses, net of cash |
|
|
|
|
|
|
|
|
( |
) |
||
NET CASH USED IN INVESTING ACTIVITIES |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|||
Increase (decrease) in notes payable to banks |
|
|
|
|
|
|
|
|
( |
) |
||
Proceeds from long-term debt |
|
|
|
|
|
|
|
|
|
|||
Payments of long-term debt |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Dividends paid |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common shares |
|
|
|
|
|
|
|
|
|
|||
Purchase of common shares for treasury |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Purchase of common shares for treasury from related parties |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
NET CASH (USED IN) PROVIDED BY FINANCING |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents and restricted cash at beginning of year |
|
|
|
|
|
|
|
|
|
|||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR(1) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
(1)
See notes to consolidated financial statements.
33
PREFORMED LINE PRODUCTS COMPANY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Common Shares |
|
|
Common |
|
|
Deferred |
|
|
Paid in |
|
|
Retained |
|
|
Treasury |
|
|
Cumulative |
|
|
Unrecognized |
|
|
Total Preformed Line Products Company Equity |
|
|
Noncontrolling Interests |
|
|
Total Equity |
|
|||||||||||
|
(In thousands, except share and per share data) |
|
|
|
|
|
|
|
||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at January 1, 2019 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Recognized net actuarial gain, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loss on unfunded pension obligations, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchase of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||||
Issuance of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Common shares distributed from rabbi trust of |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash dividends declared - $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||||
Balance at December 31, 2019 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Recognized net actuarial gain, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loss on unfunded pension obligations, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchase of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||||
Issuance of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Common shares distributed from rabbi trust of |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash dividends declared - $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||||
Balance at December 31, 2020 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||||||
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||||
Recognized net actuarial gain, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loss on unfunded pension obligations, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Purchase of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||||
Issuance of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Common shares distributed from rabbi trust of |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash dividends declared - $ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||||||
Balance at December 31, 2021 |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||||
See notes to consolidated financial statements.
34
PREFORMED LINE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tables in thousands of dollars, except share and per share data, unless specifically noted)
Note A - Significant Accounting Policies
Nature of Operations
Principles of Consolidation and Noncontrolling Interests
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries for which it has a controlling interest. All intercompany accounts and transactions have been eliminated upon consolidation.
Noncontrolling interests are presented in the Company’s Consolidated Financial Statements as if parent company investors (controlling interests) and other minority investors (noncontrolling interests) in partially owned subsidiaries have similar economic interests in a single entity. As a result, investments in noncontrolling interests are reported as equity in our Consolidated Financial Statements. Additionally, the Company’s Consolidated Financial Statements include
Cash and Cash Equivalents
Cash, cash equivalents and restricted cash (“Cash”) are stated at fair value and consist of highly liquid investments with original maturities of three months or less at the time of acquisition. Restricted cash is included on the Cash and cash equivalents on the Company’s Consolidated Balance Sheets.
Accounts Receivable Allowances
The Company maintains an allowance for credit losses for estimated losses resulting from the inability of its customers to make required payments. Prior to the adoption of Financial Accounting Standards Board (“FASB”) ASC 326 “Financial Instruments – Credit Losses", the allowances for uncollectible accounts receivable were based upon the number of days the accounts are past due, the current business and macroeconomic environment, geographic considerations and specific information such as bankruptcy or liquidity issues of its customers. Rather than recognizing losses when they are deemed to be probable, the Company now uses a current expected credit loss model in order to immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments, mainly trade receivables. Additionally, the allowance is based upon identified delinquent accounts, customer payment patterns and other analyses of historical data trends. The Company also maintains an allowance for future sales credits related to sales recorded during the year. The estimated allowance is based on historical sales credits issued in the subsequent year related to the prior year and any significant, preapproved open return good authorizations as of the balance sheet date.
Inventories
Fair Value of Financial Instruments
Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosures of the fair value of financial instruments. The estimated fair value of financial instruments was principally based on market prices where such prices were available, and when unavailable, fair values were estimated based on market prices of similar instruments.
35
Property, Plant and Equipment and Depreciation
Property, plant, and equipment is recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives. The estimated useful lives used, when purchased new, are: land improvements,
Long-Lived Assets
The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the carrying value of the assets are impaired and the undiscounted future cash flows estimated to be generated by such assets are less than the carrying value. The Company’s cash flows are based on historical results adjusted to reflect the Company’s best estimate of future market and operating conditions. The net carrying value of assets not recoverable is then reduced to fair value. The estimate of fair value represents the Company’s best estimate based on industry trends and reference to market rates and transactions. The Company did not record any impairment to long-lived assets during the years ended December 31, 2021 and 2020.
Goodwill and Other Intangibles
Goodwill and other intangible assets are generally recoded as a result of a business acquisition. Goodwill represents the excess of purchase price over the fair value of the tangible and identifiable net assets acquired during a business combination and is not subject to amortization but is subject to annual impairment testing. Goodwill is reviewed for impairment annually on October 1 or more frequently when changes in circumstances indicate the carrying amount may be impaired. Such events or changes may include, but are not limited to, a significant deterioration in overall economic conditions, changes in the business climate of the Company's industry, overall performance indicators, a decline in the Company's market capitalization, business reorganization or restructuring or disposal of all or part of a reporting unit.
Goodwill is tested for impairment at the reporting unit level, and is based on the net assets for each reporting unit, including goodwill and intangible assets. The Company’s reporting units are equivalent to the reportable operating segments, except for the Americas segment which has
Intangible assets with definite lives, consisting primarily of purchased customer relationships, patents, technology, customer backlogs, trademarks and land use rights, are generally amortized over periods from
The Company may use both quantitative and qualitative approaches when testing goodwill for impairment. A qualitative analysis is performed by assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales and gross profit margins, discount rates and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative analysis performed for each reporting unit to determine if it is more likely than not that the fair value of the reporting unit exceeds its carrying amount. If that determination is made, no further evaluation is necessary. Otherwise, the Company performs a quantitative impairment test on the reporting unit.
For the quantitative approach, the Company uses a combination of the income approach, which uses a discounted cash flow methodology, and the market approach, which uses comparable market multiples, in computing fair value by reporting unit. The Company then compares the fair value of the reporting unit with its carrying value to assess if goodwill has been impaired. The fair value estimates are subjective and sensitive to significant assumptions, such as future cash flows, revenue growth rates, operating margins, the weighted-average cost of capital ("WACC"), and estimated market multiples, of which are affected by expectations of future market or economic conditions. The future cash flows are based on the Company’s long-term operating plan and a terminal value was used to estimate the reporting unit’s cash flows beyond the period covered by the operating plan. The WACC is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. The Company believes that the methodologies, significant assumptions, and weightings used are reasonable and result in appropriate fair values of the reporting units.
36
Impairment assessments inherently involve management judgments regarding a number of assumptions such as those described above. Due to the multiple variables inherent in arriving at the estimates of the reporting unit's fair value, differences in assumptions could have an effect on the estimated fair value of a reporting unit and could result in goodwill impairment charges in a future period.
Revenue Recognition
Net sales include products and shipping and handling charges, net of estimates for product returns. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. All revenue is recognized when the Company satisfies the performance obligations under the contract and control of the product is transferred to the customer, primarily based on shipping terms. Revenue for shipping and handling charges are recognized at the time the products are shipped to, delivered to or picked up by the customer. Payment terms vary by the type and location of the customer and the products offered but are generally short-term in nature. The Company estimates product returns based on historical return rates.
Research and Development
Research and development costs for new products are expensed as incurred and totaled $
Income Taxes
Income taxes are computed in accordance with the provisions of FASB ASC 740, “Income Taxes” and includes U.S. (federal and state) and foreign income taxes. In the Consolidated Financial Statements, the benefits of a consolidated return have been reflected where such returns have or could be filed based on the entities and jurisdictions included in the financial statements.
Uncertain tax positions are recorded in accordance with ASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than likely than not to be realized upon ultimate settlement with the related tax authority.
Deferred taxes are recognized at currently enacted tax rates for temporary differences between the financial reporting and income tax basis of assets and liabilities and operating loss and tax credit carryforwards. The Company establishes a valuation allowance to record deferred tax assets at an amount that is more-likely-than-not to be realized. In the event the Company were to determine that it would be able to realize our deferred tax assets in the future in excess of the recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of the net deferred tax assets in the future, an adjustment to the valuation allowance would be charged to expense in the period such determination was made.
Advertising
Advertising costs are expensed as incurred and totaled $
Foreign Currency Translation
Asset and liability accounts are translated into U.S. dollars using exchange rates in effect at the date of the Consolidated Balance Sheet. The translation adjustments are recorded in Accumulated other comprehensive income (loss). Revenues and expenses are translated at weighted average exchange rates in effect during the period. Transaction gains and losses arising from exchange rate changes on transactions denominated in a currency other than the functional currency are included in income and expense as incurred. Aggregate transaction losses, including hedge activity, for both years ended December 31, 2021 and 2020 was $
Effective July 1, 2018, Argentina was designated as a highly inflationary economy as the projected
37
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
Business Combinations
Upon acquisition of a business, the Company uses the income, market or cost approach (or a combination thereof) for the valuation as appropriate. The valuation inputs in these models and analyses are based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability.
In the event there is an earn-out associated with an acquisition, the Company uses a valuation model to measure the contingent consideration, which may include significant assumptions such as revenue projections and discount rates. The Company uses a discounted cash flow model to measure the useful lives of intangible assets. The significant assumptions used to estimate the fair value of the intangible assets include discount rates and certain assumptions that form the basis of future cash flows (such as revenue growth rates, attrition rates, and royalty rates). These assumptions relate to the future performance of the acquired businesses, are forward-looking and could be affected by future economic and market conditions.
Fair value estimates are based on a series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. Management values property, plant and equipment using the cost approach supported where available by observable market data, which includes consideration of obsolescence. Acquired inventories are marked to fair value. For certain items, the carrying value is determined to be a reasonable approximation of fair value based on information available to the Company.
Derivative Financial Instruments
The Company operates internationally and enters into intercompany transactions denominated in foreign currencies. Consequently, the Company is subject to market risk arising from exchange rate movements between the dates foreign currency transactions occur and the dates they are settled. The Company currently uses foreign currency forward contracts to reduce the risk related to some of these transactions. These contracts usually have maturities of
Recently Adopted Accounting Pronouncements
On
No other recently issued or effective ASU's had, or are expected to have, a material impact on the Company's results of operations, financial condition or liquidity.
Note B - Other Financial Statement Information
Inventories – net
|
|
December 31 |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work-in-process |
|
|
|
|
|
|
||
Finished products |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Excess of current cost over LIFO cost |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
38
Costs for inventories of certain material, mainly in the U.S., are determined using the LIFO method and totaled approximately $
Property and equipment – net
Major classes of property, plant and equipment are as follows:
|
|
December 31 |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Land and improvements |
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
||
Machinery, equipment and aircraft |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
$ |
|
|
$ |
|
||
Depreciation of property and equipment was $
Legal proceedings
The Company can be party to a variety of pending legal proceedings and claims arising in the normal course of business, including, but not limited to, litigation relating to employment, workers’ compensation, product liability, environmental and intellectual property. The Company has liability insurance to cover many of these claims.
Although the outcomes of these matters are not predictable with certainty, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In the event the Company determines that a loss is not probable, but is reasonably possible, and the likelihood to develop what the Company believes to be a reasonable range of potential loss exists, the Company will include disclosure related to such matters. To the extent that there is a reasonable possibility the losses could exceed amounts already accrued, the Company will adjust the accrual in the period in which the determination is made, disclose an estimate of the additional loss or range of loss and if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made. During the years ended December 31, 2021 and 2020, the Company maintained approximately $
The Company and its subsidiaries Helix Uniformed Ltd. (“Helix”) and Preformed Line Products (Canada) Limited (“PLPC Canada”), were each named, jointly and severally, with each of SNC-Lavalin ATP, Inc. (“SNC ATP”), HD Supply Canada Inc., by its trade names HD Supply Power Solutions and HD Supply Utilities (“HD Supply”), and Anixter Power Solutions Canada Inc. (the corporate successor to HD Supply, “Anixter” and, together with the Company, PLPC Canada, Helix, SNC ATP and HD Supply, the (“Defendants”) in a complaint filed by
The Complaint states that Plaintiff engaged SNC ATP to design, engineer, procure and construct numerous power distribution and transmission facilities in Alberta (the “Projects”) and that through SNC ATP and HD Supply (now Anixter), spacer dampers manufactured by Helix were procured and installed in the Projects. The Complaint alleges that the spacer dampers have and may continue to become loose, open and detach from the conductors, resulting in damage and potential injury and a failure to perform the intended function of providing spacing and damping to the Project. The Plaintiffs are seeking an estimated $
The Company believes the claims against it are without merit and intends to vigorously defend against such claims. The Company is unable to predict the outcome of this case, however, it has recorded a reserve for the low end of the range for potential loss associated with this matter. If this matter is concluded in a manner adverse to the Company, it could have a material effect on the Company’s financial results.
39
The Company is not a party to any other pending legal proceedings that the Company believes would, individually or in the aggregate, have a material adverse effect on its financial condition, results of operations or cash flow.
Note C - Pension Plans
PLP-USA hourly employees of the Company who meet specific requirements as to age and length and date of service are covered by a defined benefit pension plan (“Plan”). On December 12, 2012, the Company approved a freeze on further benefit accruals under the Plan and notified the participants of the freeze on December 19, 2012. Beginning February 1, 2013, participants ceased earning additional benefits under the Plan and no new participants entered the Plan. The Company uses a December 31 measurement date for its Plan.
Net periodic pension cost for the Plan consists of the following components for the year ended December 31:
|
|
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Service cost |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|||
Expected return on plan assets |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recognized net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
|||
Net periodic pension (income) cost |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
The following tables set forth benefit obligations, plan assets and the accrued benefit cost of the Plan at December 31:
|
|
|
|
2021 |
|
|
2020 |
|
||
Projected benefit obligation at beginning of the year |
|
|
|
$ |
|
|
$ |
|
||
Interest cost |
|
|
|
|
|
|
|
|
||
Actuarial (gain) loss |
|
|
|
|
( |
) |
|
|
|
|
Benefits paid |
|
|
|
|
( |
) |
|
|
( |
) |
Projected benefit obligation at end of year |
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Fair value of plan assets at beginning of the year |
|
|
|
$ |
|
|
$ |
|
||
Actual return on plan assets |
|
|
|
|
|
|
|
|
||
Employer contributions |
|
|
|
|
|
|
|
|
||
Benefits paid |
|
|
|
|
( |
) |
|
|
( |
) |
Fair value of plan assets at end of the year |
|
|
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
|
|
||
Unfunded pension obligation |
|
|
|
$ |
|
|
$ |
|
||
The actuarial gain in 2021 was primarily the result of an increase in the Plan discount rate from
In accordance with ASC 715-20, the Company recognizes the underfunded status of the Plan as a liability. The amount recognized in Accumulated other comprehensive loss related to the Plan at December 31 is comprised of the following:
|
|
|
|
2021 |
|
|
2020 |
|
||
Balance at January 1 |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
||
Reclassification adjustments: |
|
|
|
|
|
|
|
|
||
Pre-tax amortized net actuarial gain |
|
|
|
|
|
|
|
|
||
Tax provision |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||
Adjustment to recognize (gain) loss on unfunded |
|
|
|
|
|
|
|
|
||
Pre-tax gain (loss) |
|
|
|
|
|
|
|
( |
) |
|
Tax (provision) / benefit |
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
||
Balance at December 31 |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
40
The 2021 pre-tax unfunded pension obligation gain of $
The Plan had accumulated benefit obligations in excess of Plan assets as follows:
|
|
|
|
2021 |
|
|
2020 |
|
||
Accumulated benefit obligation |
|
|
|
$ |
|
|
$ |
|
||
Fair market value of assets |
|
|
|
|
|
|
|
|
||
Weighted-average assumptions used to determine benefit obligations at December 31: |
|
2021 |
|
2020 |
||
Discount rate |
|
|
|
|
||
Rate of compensation increase |
|
|
|
|
||
Weighted -average assumptions used to determine net periodic benefit cost at December 31: |
|
2021 |
|
2020 |
|
2019 |
||
Discount rate |
|
|
|
|
|
|||
Rate of compensation increase |
|
|
|
|
|
|||
Expected long-term return on plan assets |
|
|
|
|
|
|||
The net periodic pension cost for 2021 was based on a long-term asset rate-of-return of
At December 31, 2021 and 2020, the Plan’s pooled investment funds were measured at fair value using the net asset value ("NAV"). The NAV is based on the value of the assets owned by the plan, less liabilities. These pooled assets are not quoted on an active exchange. The fair value of the Plan assets at December 31, 2021 and 2020 was $
The Plan weighted-average asset allocations at December 31, 2021 and 2020, by asset category, are as follows:
|
|
|
|
Plan assets |
|
|
|||||
|
|
|
|
at December 31 |
|
|
|||||
|
|
|
|
2021 |
|
|
2020 |
|
|
||
Asset category |
|
|
|
|
|
|
|
|
|
||
Equity securities |
|
|
|
|
|
% |
|
|
% |
||
Debt securities |
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
% |
|
|
% |
||
Management seeks to maximize the long-term total return of financial assets consistent with the fiduciary standards of ERISA. The ability to achieve these returns is dependent upon the need to accept moderate risk to achieve long-term capital appreciation.
In recognition of the expected returns and volatility from financial assets, Plan assets are invested in the following ranges with the target allocation noted:
|
|
Range |
|
Target |
Equities |
|
|
||
Fixed Income |
|
|
||
Cash Equivalents |
|
|
Investment in these markets is projected to provide performance consistent with expected long-term returns with appropriate diversification.
The Company's policy is to fund amounts deductible for federal income tax purposes. The Company is currently evaluating the option to contribute to the Plan in 2022.
41
The benefits expected to be paid out of the Plan assets in each of the next five years and the aggregate benefits expected to be paid for the subsequent five years are as follows:
Year |
|
Pension Benefits |
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027-2031 |
|
|
|
|
The Company also provides retirement benefits through various defined contribution plans including PLP-USA’s Profit Sharing Plan. Expense for these defined contribution plans was $
Further, the Company also provides retirement benefits through the Supplemental Profit Sharing Plan. To the extent an employee’s award under PLP-USA’s Profit Sharing Plan exceeds the maximum allowable contribution permitted under existing tax laws, the excess is accrued for (but not funded) under a non-qualified Supplemental Profit Sharing Plan. The Supplemental Profit Sharing Plan allows participants the ability to hypothetically invest their proportionate award into various investment options, which primarily includes mutual funds. Expense for the Supplemental Profit Sharing Plan was $
Note D - Accumulated Other Comprehensive Income (“AOCI”)
The following tables set forth the total changes in AOCI by component, net of tax:
|
|
Year Ended December 31, 2021 |
|
|
Year Ended December 31, 2020 |
|
||||||||||||||||||
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
||||||
|
|
Unrecognized |
|
|
Translation |
|
|
|
|
|
Unrecognized |
|
|
Translation |
|
|
|
|
||||||
|
|
Benefit Cost |
|
|
Adjustment |
|
|
Total |
|
|
Benefit Cost |
|
|
Adjustment |
|
|
Total |
|
||||||
Balance at January 1 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income before reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(Loss) gain on foreign currency translation adjustment |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
||||
Gain (loss) on unfunded pension obligations |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amounts reclassified from AOCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortization of defined benefit pension actuarial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net current period other comprehensive income (loss) |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|||
Balance at December 31 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
42
Note E - Debt and Credit Arrangements
|
|
December 31 |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Short-term debt |
|
|
|
|
|
|
||
Notes payable to banks |
|
|
|
|
|
|
||
Thailand Bhat denominated at |
|
|
|
|
|
|
||
Thailand Bhat denominated at |
|
|
|
|
|
|
||
Thailand Bhat denominated at |
|
|
|
|
|
|
||
France Euro denominated at |
|
|
|
|
|
|
||
Brazil Real denominated at |
|
|
|
|
|
|
||
Brazil Real denominated at |
|
|
|
|
|
|
||
Brazil Real denominated at |
|
|
|
|
|
|
||
China Yuan Renminbi denominated at |
|
|
|
|
|
|
||
China Yuan Renminbi denominated at |
|
|
|
|
|
|
||
Austria Euro denominated at |
|
|
|
|
|
|
||
Current portion of long-term debt |
|
|
|
|
|
|
||
U.S. Dollar denominated at |
|
|
|
|
|
|
||
Austria Euro denominated at |
|
|
|
|
|
|
||
Austria Euro denominated at |
|
|
|
|
|
|
||
Indonesia U.S. Dollar denominated at |
|
|
|
|
|
|
||
New Zealand Dollar denominated at |
|
|
|
|
|
|
||
Brazil Real denominated at |
|
|
|
|
|
|
||
Total short-term debt |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Long-term debt |
|
|
|
|
|
|
||
U.S. Dollar denominated at |
|
|
|
|
|
|
||
U.S. Dollar denominated at |
|
|
|
|
|
|
||
Brazilian Real denominated at |
|
|
|
|
|
|
||
Brazilian Real denominated at |
|
|
|
|
|
|
||
Poland Zloty denominated at |
|
|
|
|
|
|
||
Australian Dollar denominated at |
|
|
|
|
|
|
||
Austria Euro denominated at |
|
|
|
|
|
|
||
Austria Euro denominated at |
|
|
|
|
|
|
||
Austria Euro denominated at |
|
|
|
|
|
|
||
Austria Euro denominated at |
|
|
|
|
|
|
||
Austria Euro denominated at |
|
|
|
|
|
|
||
Indonesia U.S. Dollar denominated at |
|
|
|
|
|
|
||
New Zealand Dollar denominated at |
|
|
|
|
|
|
||
New Zealand Dollar denominated at |
|
|
|
|
|
|
||
Total long-term debt |
|
|
|
|
|
|
||
Less current portion |
|
|
( |
) |
|
|
( |
) |
Total long-term debt, less current portion |
|
|
|
|
|
|
||
Total debt |
|
$ |
|
|
$ |
|
||
On January 19, 2021, the Company received funding for a term loan from PNC Equipment Finance, LLC in the principal amount of $
On April 17, 2020, the Company extended the term on its $
43
Company’s Australian subsidiary borrowed $
On April 25, 2019, the Company borrowed $
On August 16, 2021, the Company's New Zealand subsidiary extended the term of its $
The Company’s Asia Pacific segment had $
Aggregate maturities of long-term debt during the next five years are as follows: $
Interest paid was $
Guarantees and Letters of Credit
The Company has provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees vary with end dates ranging from the current year through the completion of such transactions. The guarantees would typically be triggered in the event of non-performance. As of December 31, 2021, the Company had total outstanding guarantees of $
Note F - Leases
The Company regularly enters into leases in the normal course of business. As of December 31, 2021,
The Company evaluates renewal and termination options at the lease commencement date to determine if the Company is reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for the Company’s operating and financing leases as of December 31, 2021 was
Lease expense is recognized for these leases on a straight-line basis over the lease term with variable lease payments recognized in the period those payments are incurred. The components of operating and finance lease costs are recognized in Costs and expenses and Interest expense, respectively, on the Company’s Consolidated Statements of Income.
|
|
Year Ended December 31 |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Components of lease expense |
|
|
|
|
|
|
||
Operating lease cost |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Finance lease cost |
|
|
|
|
|
|
||
Amortization of right-of-use assets |
|
|
|
|
|
|
||
Interest on lease liabilities |
|
|
|
|
|
|
||
Total lease cost |
|
$ |
|
|
$ |
|
||
44
The discount rate implicit within each lease is often not determinable and, therefore, the Company establishes the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the Company’s leases is determined based on lease term and currency in which lease payments are made, adjusted for impacts of collateral. The weighted average discount rate used to measure the Company’s operating and finance lease liabilities as of December 31, 2021 was
Future maturities of the Company’s lease liabilities as of December 31, 2021 are as follows:
|
|
Year Ended December 31, 2021 |
|
|||||
|
|
Operating Leases |
|
|
Finance Leases |
|
||
2022 |
|
$ |
|
|
$ |
|
||
2023 |
|
|
|
|
|
|
||
2024 |
|
|
|
|
|
|
||
2025 |
|
|
|
|
|
|
||
2026 and thereafter |
|
|
|
|
|
|
||
Total lease payments |
|
$ |
|
|
$ |
|
||
Less amount of lease payment representing interest |
|
|
|
|
|
|
||
Total present value of payments |
|
$ |
|
|
$ |
|
||
Amounts recognized as finance lease obligations are reported in Accrued expense and other liabilities and Other noncurrent liabilities in the Consolidated Balance sheets.
The Company received sublease income of $
Supplemental cash flow information related to leases for the years ended December 31, 2021 and 2020 was as follows:
|
|
Year Ended December 31 |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Supplemental cash flow information |
|
|
|
|
|
|
||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
||
Operating cash flows from operating leases |
|
$ |
|
|
$ |
|
||
Operating cash flows from finance leases |
|
|
|
|
|
|
||
Financing cash flows from finance leases |
|
|
|
|
|
|
||
Note G - Income Taxes
The Company recorded net tax provisions of $
Income before income taxes was derived from the following sources:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
United States |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Foreign |
|
|
|
|
|
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
45
The components of income taxes for the years ended December 31 are as follows:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Current |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Foreign |
|
|
|
|
|
|
|
|
|
|||
State and local |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Deferred |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Foreign |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
State and local |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The differences between the provision for income taxes at the U.S. federal statutory rate and the tax shown in the Statements of Consolidated Income for the years ended December 31 are summarized as follows:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
U. S. federal statutory tax rate |
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|||
Federal tax at statutory rate |
|
$ |
|
|
$ |
|
|
$ |
|
|||
State and local taxes, net of federal benefit |
|
|
|
|
|
|
|
|
|
|||
Non-deductible officers' compensation |
|
|
|
|
|
|
|
|
|
|||
Other U.S. federal permanent items |
|
|
|
|
|
|
|
|
( |
) |
||
Global intangible low-taxed income |
|
|
|
|
|
|
|
|
|
|||
Foreign tax credits |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Non-U.S. tax rate variances |
|
|
|
|
|
|
|
|
|
|||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Tax credits |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other, net |
|
|
|
|
|
( |
) |
|
|
|
||
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their carrying value for financial statement purposes.
|
|
2021 |
|
|
2020 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Accrued compensation and benefits |
|
$ |
|
|
$ |
|
||
Inventory valuation reserves |
|
|
|
|
|
|
||
Allowance for credit losses |
|
|
|
|
|
|
||
Benefit plan reserves |
|
|
|
|
|
|
||
Net operating loss carryforwards |
|
|
|
|
|
|
||
Foreign tax credit |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Unrealized foreign exchange |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Gross deferred tax assets |
|
|
|
|
|
|
||
Valuation allowance |
|
|
( |
) |
|
|
( |
) |
Net deferred tax assets |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Deferred tax liabilities: |
|
|
|
|
|
|
||
Depreciation and other basis differences |
|
|
( |
) |
|
|
( |
) |
Intangibles |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
( |
) |
|
|
( |
) |
Deferred tax liabilities |
|
|
( |
) |
|
|
( |
) |
Net deferred tax assets |
|
$ |
|
|
$ |
|
||
46
|
|
2021 |
|
|
2020 |
|
||
Change in net deferred tax assets: |
|
|
|
|
|
|
||
Deferred income tax expense |
|
|
|
|
|
|
||
Ordinary movement |
|
$ |
( |
) |
|
$ |
|
|
Items of other comprehensive (loss) income |
|
|
( |
) |
|
|
|
|
Currency translation |
|
|
|
|
|
( |
) |
|
Total change in net deferred tax assets |
|
$ |
( |
) |
|
$ |
|
|
Deferred taxes are recorded at a rate at which such items are expected to reverse based on currently enacted tax rates for temporary differences between the financial reporting and income tax basis of assets and liabilities and operating loss and tax credit carryforwards.
At December 31, 2021, the Company had $
The Company assesses the available positive and negative evidence to determine if it is more likely than not that sufficient future taxable income will be generated to utilize the existing deferred tax assets by jurisdiction. Based on this evaluation, the Company has established a valuation allowance of $
The Company considers the majority of the earnings in our non-U.S. subsidiaries to be permanently reinvested and accordingly did not record any associated deferred income taxes on such earnings. Accordingly, the Company intends to continue to invest approximately $
The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. As of December 31, 2021, with few exceptions, the Company is no longer subject to U.S. federal examinations by tax authorities for years before 2017 and state, local or foreign examinations by tax authorities for years before 2015.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits related to uncertain tax positions, excluding interest and penalties, for the year ended December 31:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Balance at January 1 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Additions for tax positions of prior years |
|
|
|
|
|
|
|
|
|
|||
Expiration of statutes of limitations |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Balance at December 31 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Company records accrued interest as well as penalties related to unrecognized tax benefits as part of the provision for income taxes. During the year ended December 31, 2021, the remaining portion of the Company’s uncertain tax position which was $
Note H - Share-Based Compensation
Long Term Incentive Plan of 2008 and 2016 Incentive Plan
The Company maintains an equity award program to give the Company a competitive advantage in attracting, retaining, and motivating officers, employees and directors and to provide an incentive to those individuals to increase shareholder value through long-term incentives directly linked to the Company’s performance. Under the Preformed Line Products Company Long Term Incentive Plan of 2008 (the “LTIP”), certain employees, officers, and directors were eligible to receive awards of options, restricted shares and restricted share units (RSUs). The total number of Company common shares reserved for awards under the LTIP was
47
Restricted Share Units
For the regular annual grants, a portion of the RSUs is subject to time-based cliff vesting and a portion is subject to vesting based upon the Company’s performance over a set period for all participants except the CEO. All of the CEO’s regular annual RSUs are subject to vesting based upon the Company’s performance over a set-year period.
The RSUs are offered at no cost to the employees, however, the participant must remain employed with the Company until the restrictions on the RSUs lapse. The fair value of RSUs is based on the market price of a common share on the grant date. Dividends declared are accrued.
A summary of the RSUs for the year ended December 31, 2021 is as follows:
|
|
Restricted Share Awards |
|
|||||||||||||
|
|
Performance |
|
|
|
|
|
Total |
|
|
Weighted-Average |
|
||||
|
|
and Service |
|
|
Service |
|
|
Restricted |
|
|
Grant-Date |
|
||||
|
|
Required (1) |
|
|
Required |
|
|
Awards |
|
|
Fair Value |
|
||||
Nonvested as of January 1, 2021 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
Nonvested as of December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
$ |
|
||||
(1) Nonvested, performance-based RSU's are reflected above at the maximum performance achievement level.
For time-based RSUs, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award in General and administrative expense in the accompanying Statements of Consolidated Income. Annual compensation expense related to the time-based RSUs for the years ended December 31, 2021, 2020 and 2019 was $
For the performance-based RSUs, the number of RSUs in which the participants will vest depends on the Company’s level of performance measured by growth in pre-tax income and sales growth over a requisite performance period. Depending on the extent to which the performance criteria are satisfied under the LTIP, the participants are eligible to earn common shares over the vesting period. Performance-based compensation expense for the years ended December 31, 2021, 2020 and 2019 was $
The excess tax benefits from service and performance-based RSUs was $
In the event of a Change in Control (as defined in the LTIP and Incentive Plan), vesting of the RSUs will be accelerated and all restrictions will lapse. Nonvested performance-based awards are based on a maximum target potential payout. Actual shares awarded at the end of the performance period may be less than the maximum potential payout level depending on achievement of performance-based award objectives.
To satisfy the vesting of its RSUs, the Company has reserved new shares from its authorized but unissued shares. Any additional granted awards will also be issued from the Company’s authorized but unissued shares.
Deferred Compensation Plan
The Company maintains a trust, commonly referred to as a rabbi trust, in connection with the Company’s deferred compensation plan. This plan allows for
48
are not recognized as the Company’s deferred compensation plan does not permit diversification and must be settled by the delivery of a fixed number of the Company’s common shares. As of December 31, 2021,
Share Option Awards
The LTIP permitted and now the Incentive Plan permits the grant of
The Company utilizes the Black-Scholes option pricing model for estimating fair values of options. The Black-Scholes model requires assumptions regarding the volatility of the Company’s stock, the expected life of the stock award and the Company’s dividend yield. The Company utilizes historical data in determining these assumptions. The risk-free rate for periods within the contractual life of the option is based on the U.S. zero coupon Treasury yield in effect at the time of grant. Forfeitures have been estimated to be
There were
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Risk-free interest rate |
|
% |
|
|
% |
|
|
% |
|||
Dividend yield |
|
% |
|
|
% |
|
|
% |
|||
Expected life (years) |
|
|
|
|
|
||||||
Expected volatility |
|
% |
|
|
% |
|
|
% |
|||
Activity in the Company’s LTIP and Incentive Plan for the year ended December 31, 2021 was as follows:
|
|
Number of |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
Outstanding at January 1, 2021 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Forfeited |
|
|
|
|
- |
|
|
|
|
|
|
|
||||
Outstanding (vested and expected to vest) at |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The weighted-average grant-date fair value of options granted during 2021 was $
The Company recorded compensation expense related to the stock options currently vested of $
The excess tax benefits from share-based awards for each of the years ended December 31, 2021, 2020 and 2019 was less than $
49
Note I - Computation of Earnings Per Share
Basic earnings per share were computed by dividing net income by the weighted-average number of common shares outstanding for each respective period. Diluted earnings per share were calculated by dividing net income by the weighted-average of all potentially dilutive common shares that were outstanding during the years presented.
The calculation of basic and diluted earnings per share for the year ended December 31 was are as follows:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Numerator |
|
|
|
|
|
|
|
|
|
|||
Net income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Denominator |
|
|
|
|
|
|
|
|
|
|||
Determination of shares (in thousands) |
|
|
|
|
|
|
|
|
|
|||
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|||
Dilutive effect - share-based awards |
|
|
|
|
|
|
|
|
|
|||
Diluted weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Earnings per common share |
|
|
|
|
|
|
|
|
|
|||
Basic |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Diluted |
|
$ |
|
|
$ |
|
|
$ |
|
|||
For the year ended December 31, 2021, 2020 and 2019,
Note J - Goodwill and Other Intangibles
The Company’s finite and indefinite-lived intangible assets consist of the following:
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||||||||||
|
|
Gross Carrying |
|
|
Accumulated |
|
|
Gross Carrying |
|
|
Accumulated |
|
||||
|
|
Amount |
|
|
Amortization |
|
|
Amount |
|
|
Amortization |
|
||||
Finite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Patents |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Land use rights |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Trademark |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
Customer relationships |
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Goodwill |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
The aggregate amortization expense for other intangibles with finite lives, ranging from
Goodwill and other intangible assets are generally recoded as a result of a business acquisition. Goodwill represents the excess of purchase price over the fair value of the tangible and identifiable net assets acquired during a business combination and is not subject to amortization but is subject to annual impairment testing. Intangible assets with definite lives, consisting primarily of purchased customer relationships, patents, technology, customer backlogs, trademarks and land use rights, are generally amortized over periods from
50
The Company assesses intangible assets with a determinable life for impairment consistent with its policy for assessing other long-lived assets. Goodwill and intangible assets are also reviewed for impairment annually in the fourth quarter or more frequently when changes in circumstances indicate the carrying amount may be impaired, or in the case of finite-lived intangible assets, when the carrying amount may not be recoverable. Such events or changes may include, but are not limited to, a significant deterioration in overall economic conditions, changes in the business climate of the Company's industry, overall performance indicators, a decline in the Company's market capitalization, business reorganization or restructuring or disposal of all or part of a reporting unit. Impairment charges are recognized pursuant to FASB ASC 350-20, “Goodwill.”
The Company's goodwill is tested for impairment at a level referred to as the reporting unit. The level at which goodwill is tested for impairment indicates whether the operations within the reporting unit constitute a self-sustaining business.
The Company may use both quantitative and qualitative approaches when testing goodwill for impairment. For selected reporting units where the qualitative approach is utilized, a qualitative evaluation of events and circumstances impacting the reporting unit is performed to determine if it is more likely than not that the fair value of the reporting unit exceeds its carrying amount. If that determination is made, no further evaluation is necessary. Otherwise, the Company performs a quantitative impairment test on the reporting unit.
For the quantitative approach, the Company uses a combination of the income approach, which uses a discounted cash flow methodology, and the market approach, which uses comparable market multiples in computing fair value by reporting unit. The Company then compares the fair value of the reporting unit with its carrying value to assess if goodwill has been impaired. The fair value estimates are subjective and sensitive to significant assumptions, such as revenue growth rates, operating margins, the weighted-average cost of capital ("WACC"), and estimated market multiples, of which are affected by expectations of future market or economic conditions. The Company believes that the methodologies, significant assumptions, and weightings used are reasonable and result in appropriate fair values of the reporting units.
Given the continued decline in the Company’s results in the Asia-Pacific region and the uncertainty surrounding COVID-19, including the lingering impacts of the Delta variant, the Company concluded that an indicator of impairment was present and conducted an interim quantitative impairment review of its goodwill in the Asia-Pacific reporting unit as of September 30, 2021. The Company reassessed its previous forecasts for this reporting unit which predicted increased sales levels in the second half of 2021. However, actual results were lower than forecast due to extended lockdowns and the postponement of projects within the region. The interim impairment assessment was performed utilizing the same methodologies as the annual assessments discussed above and included revised projections, which are subject to various risks and uncertainties, including forecasted revenues, expenses and cash flows. Based on the interim impairment assessment and annual assessment at October 1, 2021, the Asia-Pacific reporting unit’s fair value exceeded its carrying value by approximately
The Company re-evaluated the results of its Asia-Pacific region at December 31, 2021 and did not identify additional impairment indicators. The Company will continue to evaluate the results of its Asia-Pacific region and conduct interim testing if additional impairment indicators are present in future quarters. At December 31, 2021, the Asia-Pacific reporting unit's goodwill was $
The qualitative goodwill impairment test approach was used on the Company's remaining reporting units and there was no evidence that the fair value of each reporting unit would not exceed its carrying value at the October 1, 2021 measurement date. As such,
|
|
USA |
|
|
The Americas |
|
|
EMEA |
|
|
Asia-Pacific |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at January 1, 2020 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Currency translation |
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Balance at December 31, 2021 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Impairment assessments inherently involve management judgments regarding a number of assumptions such as those described above. Due to the multiple variables inherent in arriving at the estimates of the reporting unit's fair value, differences in assumptions could have an effect on the estimated fair value of a reporting unit and could result in goodwill impairment charges in a future period.
The Company’s only intangible asset with an indefinite life is goodwill. The Company’s goodwill is not deductible for tax purposes.
51
Note K - Fair Value of Financial Assets and Liabilities
The Company measures and records certain assets and liabilities at fair value. A fair value hierarchy is used for those assets and liabilities measured at fair value that distinguishes between assumptions based on market data (observable inputs), and the Company’s assumptions (unobservable inputs). The hierarchy consists of the following three levels:
Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2 Inputs other than Level 1 inputs that are either directly or indirectly observable, which may include:
Level 3 Inputs to the valuation methodology are unobservable and developed using estimates and assumptions developed by the Company which reflect those that a market participant would use.
The following table summarizes the Company’s assets and liabilities, recorded and measured at fair value, in the consolidated balance sheets as of December 31, 2021 and 2020:
Description |
|
Balance as of |
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities |
|
|
Significant Other Observable Inputs |
|
|
Significant Unobservable Inputs |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Supplemental profit sharing plan |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Description |
|
Balance as of |
|
|
Quoted Prices in Active Markets for Identical Assets or Liabilities |
|
|
Significant Other Observable Inputs |
|
|
Significant Unobservable Inputs |
|
||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Supplemental profit sharing plan |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Foreign currency forward contracts |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company operates internationally and enters into intercompany transactions denominated in foreign currencies. Consequently, the Company is subject to market risk arising from exchange rate movements between the dates foreign currency transactions occur and the dates they are settled. The Company currently uses foreign currency forward contracts to reduce the risk related to some of these transactions. These contracts usually have maturities of
The Company has a non-qualified Supplemental Profit Sharing Plan for its executives. The liability for this unfunded Supplemental Profit Sharing Plan was $
52
recorded within Other noncurrent liabilities on the Company’s Consolidated Balance Sheets. The Supplemental Profit Sharing Plan allows participants the ability to hypothetically invest their proportionate award into various investment options, which primarily includes mutual funds. The Company credits earnings, gains and losses to the participants’ deferred compensation account balances based on the investments selected by the participants. The Company measures the fair value of the Supplemental Profit Sharing Plan liability using the market values of the participants’ underlying investment accounts.
The carrying value of the Company’s current financial instruments, which include cash, cash equivalents and restricted cash, accounts receivable, accounts payable and short-term debt, approximates fair value because of the short-term maturity of these instruments.
At December 31, 2021, the fair value of the Company’s long-term debt was estimated using discounted cash flows analysis, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements that are considered to be Level 2 inputs.
|
|
December 31, 2021 |
|
|
December 31, 2020 |
|
||||||||||
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
||||
Long-term debt and related current maturities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note L - Revenue
Revenue recognition
Sales are recognized when obligations under the terms of the contract are satisfied and control of promised goods or services have transferred to our customers. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services and is primarily based on shipping terms. Sales are measured as the amount of consideration the Company expects to receive in exchange for transferring products.
Net sales include products and shipping and handling charges, net of estimates for product returns. The Company estimates product returns based on historical return rates. Revenue for shipping and handling charges are recognized at the time the products are shipped to, delivered to or picked up by the customer. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold.
Payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized, and payment is due is not significant. Sales, value added, and other taxes collected concurrent with revenue are excluded from sales.
PLP records reductions to sales for returns, and customer and distributor incentives, primarily comprised of rebates, at the time of the initial sale. Rebates are estimated based on sales terms, historical experience, trend analysis, and projected market conditions in the various markets served.
Sales commissions are expensed when the amortization period is less than a year and are generally not capitalized as they are typically earned at the completion of the contract when the customer is invoiced or when the customer pays PLP.
Sales of products and services varies by segment and are discussed in Note M, "Segment Information".
Disaggregated revenue
The Company’s revenues by segment and product type are as follows:
|
|
Year Ended December 31, 2021 |
|
|||||||||||||
Product Type |
|
PLP-USA |
|
The Americas |
|
EMEA |
|
Asia-Pacific |
|
Consolidated |
|
|||||
Energy |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Communications |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Special Industries |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Total |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
53
|
|
Year Ended December 31, 2020 |
|
|||||||||||||
Product Type |
|
PLP-USA |
|
The Americas |
|
EMEA |
|
Asia-Pacific |
|
Consolidated |
|
|||||
Energy |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Communications |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Special Industries |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Total |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Credit losses for receivables
The Company maintains an allowance for credit losses for estimated losses resulting from the inability of its customers to make required payments. The Company uses a current expected credit loss model in order to immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments, mainly trade receivables. Additionally, the allowance is based upon identified delinquent accounts, customer payment patterns and other analyses of historical data trends. Receivable balances are written off against an allowance for credit losses after a final determination has been made.
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Allowance for credit losses, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Additions charged to costs and expenses |
|
|
|
|
|
|
|
|
|
|||
Write-offs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Foreign exchange and other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Allowance for credit losses, end of period |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Note M - Segment Information
The Company designs, manufactures and sells hardware employed in the construction and maintenance of telecommunication, energy and other utility networks, data communication products and mounting hardware for solar power applications. Principal products include cable anchoring, control hardware and splice enclosures, which are sold primarily to customers in North and South America, Europe, South Africa and Asia-Pacific.
The Company reports its segments in
The segment managers responsible for each region report directly to the Company’s Chief Executive Officer, who is the chief operating decision maker and are accountable for the financial results and performance of their entire segment for which they are responsible. The business components within each segment are managed to maximize the results of the entire company rather than the results of any individual business component of the segment.
The amount of each segment’s performance reported to the chief operating decision maker is for purposes of making decisions about allocating resources to the segment and assessing its performance. The Company evaluates segment performance and allocates resources based on several factors primarily based on sales and income from continuing operations, net of tax.
The accounting policies of the operating segments are the same as those described in Note A in the Notes to Consolidated Financial Statements.
54
The following table presents a summary of the Company’s reportable segments for the years ended December 31, 2021, 2020 and 2019. Financial results for the PLP-USA segment include the elimination of all segments’ intercompany profits in inventory.
|
|
Year Ended December 31 |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Net sales |
|
|
|
|
|
|
|
|
|
|||
PLP-USA |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Americas |
|
|
|
|
|
|
|
|
|
|||
EMEA |
|
|
|
|
|
|
|
|
|
|||
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|||
Total net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Intersegment sales |
|
|
|
|
|
|
|
|
|
|||
PLP-USA |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Americas |
|
|
|
|
|
|
|
|
|
|||
EMEA |
|
|
|
|
|
|
|
|
|
|||
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|||
Total intersegment sales |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
|
|
|
|
|
|
|
|
|||
PLP-USA |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Americas |
|
|
|
|
|
|
|
|
|
|||
EMEA |
|
|
|
|
|
|
|
|
|
|||
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|||
Total interest income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Interest expense |
|
|
|
|
|
|
|
|
|
|||
PLP-USA |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The Americas |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
EMEA |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Asia-Pacific |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total interest expense |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|||
Income taxes |
|
|
|
|
|
|
|
|
|
|||
PLP-USA |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Americas |
|
|
|
|
|
|
|
|
|
|||
EMEA |
|
|
|
|
|
|
|
|
|
|||
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|||
Total income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Net income attributable to Preformed Line Products Company shareholders |
|
|
|
|
|
|
|
|
|
|||
PLP-USA |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Americas |
|
|
|
|
|
|
|
|
|
|||
EMEA |
|
|
|
|
|
|
|
|
|
|||
Asia-Pacific |
|
|
( |
) |
|
|
|
|
|
|
||
Total net income |
|
$ |
|
|
$ |
|
|
$ |
|
|||
55
|
|
Year Ended December 31 |
|
|||||||||
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Expenditure for long-lived assets |
|
|
|
|
|
|
|
|
|
|||
PLP-USA |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Americas |
|
|
|
|
|
|
|
|
|
|||
EMEA |
|
|
|
|
|
|
|
|
|
|||
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|||
Total expenditures for long-lived assets |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|||
PLP-USA |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Americas |
|
|
|
|
|
|
|
|
|
|||
EMEA |
|
|
|
|
|
|
|
|
|
|||
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|||
Total depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
As of December 31 |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Identifiable assets |
|
|
|
|
|
|
||
PLP-USA |
|
$ |
|
|
$ |
|
||
The Americas |
|
|
|
|
|
|
||
EMEA |
|
|
|
|
|
|
||
Asia-Pacific |
|
|
|
|
|
|
||
Total identifiable assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Long-lived assets |
|
|
|
|
|
|
||
PLP-USA |
|
$ |
|
|
$ |
|
||
The Americas |
|
|
|
|
|
|
||
EMEA |
|
|
|
|
|
|
||
Asia-Pacific |
|
|
|
|
|
|
||
Total long-lived assets |
|
$ |
|
|
$ |
|
||
Note N - Related Party Transactions
The Company’s Australian subsidiary previously utilized copper extrusion services from Cast Alloy. As of December 31, 2020, the Company’s Australian subsidiary no longer utilized the copper extrusion services from Cast Alloy, therefore, there was
The Company’s Austrian subsidiary currently has a loan due, carrying an interest rate of
The Company’s Austrian subsidiary leases a portion of its Dornbirn, Austria location from a holding company owned by a current employee. During each of the years ended December 31, 2021, 2020 and 2019, the Company paid $
The Company’s Czech Republic subsidiary leases a factory at its Prostějov, Czech Republic location from a company currently owned by
During each year of the years ended December 31, 2021, 2020 and 2019, the Company paid approximately $
56
On October 28, 2020, the Board of the Directors of the Company approved the appointment of David C. Sunkle to serve on its Board of Directors effective upon his retirement at December 31, 2020 for a term commencing January 1, 2021 and ending when his successor has been duly elected and qualified at the annual meeting of shareholders in 2022 or until his earlier resignation or removal. In addition, Mr. Sunkle has a consulting agreement with the Company that expires on
Note O - Product Warranty Reserve
The Company records an accrual for estimated warranty costs to Costs of products sold in the Statements of Consolidated Income. These amounts are recorded in Accrued expenses and other liabilities in the Consolidated Balance Sheets. The Company records and accounts for its warranty reserve based on specific claim incidents. Should the Company become aware of a specific potential warranty claim for which liability is probable and reasonably estimable, a specific charge is recorded and accounted for accordingly. Adjustments are made quarterly to the accruals as claim information changes.
The following is a rollforward of the product warranty reserve:
|
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
Balance at January 1 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Additions charged to costs and expenses |
|
|
|
|
|
|
|
|
|
|||
Warranty usage |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Currency translation |
|
|
( |
) |
|
|
|
|
|
|
||
Balance at December 31 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Note P - Subsequent Events
On January 2, 2022, Director Emeritus Barbara P. Ruhlman passed away at the age of 89. Barbara was member of the Company’s Board of Directors from 1988 to 2016, at which time she elected to resign and was appointed as the Company’s Director Emeritus. Barbara was the daughter of the Company’s founder, Thomas F. Peterson, and was the mother of the Company’s current Chief Executive Officer, Robert G. Ruhlman. A Company-owned life insurance policy was maintained for Barbara until her death. At December 31, 2021, the cash surrender value was recorded in Other assets on the Company’s Consolidated Balance Sheets. The Company expects to receive cash proceeds from the life insurance policy of approximately $
On January 4, 2022, the Company acquired all issued and outstanding shares of Maxxweld Conectores Eletricos Ltda. ("Maxxweld"), a Brazilian entity headquartered in Curitiba, Brazil, from its shareholders. Maxxweld designs and manufactures substation connector systems and accessory hardware for high voltage AC systems. The acquisition of Maxxweld will expand and strengthen the Company's operational and technical capabilities in the region while supporting its overall substation strategy. The purchase price was approximately $
On March 1, 2022, the Company acquired all issued and outstanding shares of Holplast, s.r.o (“Holplast”), an entity headquartered in Prostejov, Czech Republic from its shareholder. Holplast specializes in injection molding and will expand the Company’s operational capabilities in the region and strengthen the Company’s position in the global communications market. The purchase price was approximately $
To fund the Holplast acquisition, the Company borrowed $
On March 2, 2022, the Company amended its credit facility to increase the capacity from $
57
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Principal Executive Officer and Principal Financial Officer have concluded based on their review thereof that the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended, were effective as of December 31, 2021.
Management’s Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of the consolidated financial statements in accordance with generally accepted accounting principles.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation.
Management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013).
Based upon its assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, who expressed an unqualified opinion as stated in their report, a copy of which is included below.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2021 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
58
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
of Preformed Line Products Company
Opinion on Internal Control over Financial Reporting
We have audited Preformed Line Products Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Preformed Line Products (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Consolidated Balance Sheets of the Company as of December 31, 2021 and 2020, the related Statements of Consolidated Income, Comprehensive Income, Cash Flows, and Shareholders’ Equity for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated March 4, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Cleveland, Ohio
March 4, 2022
59
Item 9B. Other Information
On March 2, 2022, the Company entered into an amendment to the Facility to increase the capacity from $65.0 million to $90.0 million. As part of this amendment, the index used to determine the interest rate changed from LIBOR to the Bloomberg Short Term Bank Yield Index (“BSBY”). The interest rate will now be defined as BSBY plus 1.125% unless the Company’s funded debt to Earnings before Interest, Taxes and Depreciation ratio exceeds 2.25 to 1, at which point the BSBY spread becomes 1.500%. The amendment also allows the Company to change its rate from BSBY to the Secured Overnight Financing Rate (“SOFR”) at the Company’s discretion. The amendment extended the maturity from June 30, 2024 to March 2, 2026. All other terms remain the same.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Require Inspections
None.
Part III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item 10 is incorporated by reference to the information under the captions “Corporate Governance – Board Composition”, “Corporate Governance - Election of Directors”, “Section 16(a) Beneficial Ownership Compliance”, “Corporate Governance – Code of Conduct” and “Corporate Governance – Board Committees and Meetings – Audit Committee” in the Company’s Proxy Statement, for the Annual Meeting of Shareholders to be held May 10, 2022 (the “Proxy Statement”). Information relative to executive officers of the Company is contained in Part I of this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information set forth under the caption “Directors and Executive Officers Compensation” and “Compensation Policies and Risk” in the Proxy Statement is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Other than the information required by Item 201(d) of Regulation S-K the information set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement is incorporated herein by reference. The information required by Item 201(d) of Regulation S-K is set forth in Item 5 of this report.
The information set forth under the captions “Transactions with Related Persons” and “Election of Directors” in the Proxy Statement is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information set forth under the captions “Independent Registered Public Accounting Firm”, “Audit Fees”, “Audit-Related Fees”, “Tax Fees” and “All Other Fees” in the Proxy Statement is incorporated herein by reference.
60
Part IV
Item 15. Exhibits and Financial Statement Schedules
Page |
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Financial Statements |
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30 |
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31 |
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32 |
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33 |
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34 |
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35 |
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Page |
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Schedule |
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65 |
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Exhibit Number |
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Exhibit |
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3.1 |
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3.2 |
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3.3 |
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4 |
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4.2 |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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10.5 |
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10.6 |
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10.7 |
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10.8 |
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10.9 |
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10.10 |
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10.11 |
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61
10.12 |
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10.13 |
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10.14 |
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10.15 |
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10.16 |
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10.17 |
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10.18 |
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10.19 |
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10.20 |
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10.21 |
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10.22 |
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10.23 |
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10.24 |
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10.25 |
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10.26 |
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10.27 |
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14.1 |
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21 |
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Subsidiaries of Preformed Line Products Company, filed herewith. |
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23.1 |
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Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm, filed herewith. |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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62
101.INS |
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Inline XBRL Instance Document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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104 |
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Cover Page Interactive Data File (embedded within the inline XBRL document) |
* Indicates management contracts or compensatory plan or arrangement.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
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Preformed Line Products Company |
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March 4, 2022 |
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/s/ Robert G. Ruhlman |
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Robert G. Ruhlman |
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Chairman, President and Chief Executive Officer |
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(principal executive officer) |
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March 4, 2022 |
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/s/ Andrew S. Klaus |
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Andrew S. Klaus |
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Chief Financial Officer |
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(principal financial and accounting officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacity and on the dates indicated.
March 4, 2022 |
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/s/ Robert G. Ruhlman |
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Robert G. Ruhlman |
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Chairman, President and Chief Executive Officer |
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March 4, 2022 |
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/s/ Glenn E. Corlett |
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Glenn E. Corlett |
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Director |
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March 4, 2022 |
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/s/ Matthew D. Frymier |
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Matthew D. Frymier |
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Director |
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March 4, 2022 |
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/s/ Michael E. Gibbons |
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Michael E. Gibbons |
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Director |
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March 4, 2022 |
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/s/ R. Steven Kestner |
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R. Steven Kestner |
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Director |
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March 4, 2022 |
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/s/ Richard R. Gascoigne |
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Richard R. Gascoigne |
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Director |
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March 4, 2022 |
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/s/ J. Ryan Ruhlman |
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J. Ryan Ruhlman |
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Director
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March 4, 2022 |
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/s/ Maegan A. R. Cross |
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Maegan A. R. Cross |
March 4, 2022 |
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Director
/s/ David C. Sunkle David C. Sunkle Director |
64
PREFORMED LINE PRODUCTS COMPANY
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
Year Ended December 31, 2021, 2020 and 2019
(Thousands of dollars)
For the year ended December 31, 2021: |
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Balance at beginning of |
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Additions |
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Deductions |
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Other |
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Balance at |
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|||||
Allowance for credit losses |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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|||
Reserve for credit memos |
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( |
) |
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( |
) |
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|||
Slow-moving and obsolete inventory reserves |
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( |
) |
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||||
Accrued product warranty |
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( |
) |
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( |
) |
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|||
Foreign net operating loss tax carryforwards |
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( |
) |
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||||
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|||||
For the year ended December 31, 2020: |
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Balance at beginning of |
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Additions |
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Deductions |
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Other |
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Balance at |
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|||||
Allowance for credit losses |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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|||
Reserve for credit memos |
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( |
) |
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Slow-moving and obsolete inventory reserves |
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( |
) |
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||||
Accrued product warranty |
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( |
) |
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||||
Foreign net operating loss tax carryforwards |
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( |
) |
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||||
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For the year ended December 31, 2019: |
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Balance at beginning of |
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Additions |
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Deductions |
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Other |
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Balance at |
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|||||
Allowance for credit losses |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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|||
Reserve for credit memos |
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( |
) |
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Slow-moving and obsolete inventory reserves |
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( |
) |
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||||
Accrued product warranty |
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( |
) |
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||||
Foreign net operating loss tax carryforwards |
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( |
) |
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( |
) |
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65
