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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the fiscal quarter ended
or
for the Transition Period From ________To _______
Commission file number
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification No.) |
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(Address of Principal Executive Office) |
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(Zip Code) |
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(Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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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 “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Non-accelerated filer |
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Smaller Reporting Company |
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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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares outstanding as of July 24, 2023:
Table of Contents
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Item 1. |
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3 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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20 |
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Item 3. |
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27 |
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Item 4. |
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28 |
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Part II – Other Information |
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Item 1. |
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29 |
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Item 1A. |
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29 |
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Item 2. |
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29 |
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Item 3. |
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29 |
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Item 4. |
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29 |
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Item 5. |
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29 |
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Item 6. |
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29 |
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31 |
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2
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PREFORMED LINE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
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June 30, 2023 |
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December 31, 2022 |
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(Thousands of dollars, except share and per share data) |
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(Unaudited) |
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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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Pension asset |
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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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Operating lease liabilities, noncurrent |
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Deferred income taxes |
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Other noncurrent liabilities |
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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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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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Accumulated other comprehensive loss |
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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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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 (unaudited).
3
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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(Thousands of dollars, except share and 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 expense, net |
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OPERATING INCOME |
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Other (expense) income |
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Interest income |
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Interest expense |
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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 (unaudited).
4
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
(UNAUDITED)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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(Thousands of dollars) |
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Net income |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income, net of tax: |
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Foreign currency translation adjustment |
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( |
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Recognized net actuarial gain |
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Other comprehensive income, net of tax |
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( |
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Comprehensive loss (income) attributable to noncontrolling interests |
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( |
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( |
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COMPREHENSIVE INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS |
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$ |
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$ |
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$ |
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$ |
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See notes to consolidated financial statements (unaudited).
5
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
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Six Months Ended June 30, |
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2023 |
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2022 |
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(Thousands of dollars) |
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OPERATING ACTIVITIES |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by (used in) operations: |
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Depreciation and amortization |
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Deferred income taxes |
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( |
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Share-based compensation expense |
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Loss on exit of business |
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— |
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Loss (gain) on sale of property and equipment |
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Gain from company owned life insurance policy |
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— |
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Other, net |
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Changes in operating assets and liabilities: |
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( |
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
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INVESTING ACTIVITIES |
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Capital expenditures |
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Proceeds from the sale of property and equipment |
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Proceeds from company owned life insurance policy |
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— |
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Acquisition of businesses, net of cash |
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NET CASH USED IN INVESTING ACTIVITIES |
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FINANCING ACTIVITIES |
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(Payments) proceeds of notes payable to banks |
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Proceeds from long-term debt |
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Payments of long-term debt |
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Dividends paid |
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Proceeds from issuance of common shares |
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Purchase of common shares for treasury |
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( |
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Purchase of common shares for treasury from related parties |
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( |
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NET CASH (USED IN) PROVIDED BY FINANCING |
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( |
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Effects of exchange rate changes on cash, cash equivalents and restricted cash |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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Cash, cash equivalents and restricted cash at beginning of year |
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CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD |
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$ |
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$ |
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See notes to consolidated financial statements (unaudited).
6
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
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Accumulated Other |
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Common Shares |
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Common |
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Deferred |
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Paid in |
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Retained |
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Treasury |
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Cumulative |
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Unrecognized |
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Total Preformed Line Products Company Equity |
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Noncontrolling Interests |
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Total Equity |
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(In thousands, except share and per share data) |
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Balance at December 31, 2022 |
$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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Foreign currency translation |
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Recognized net actuarial gain, net |
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Total comprehensive income |
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Share-based compensation |
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Purchase of |
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( |
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( |
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Issuance of |
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Common shares distributed from rabbi |
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( |
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— |
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— |
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Cash dividends declared – $ |
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( |
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( |
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( |
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Balance at March 31, 2023 (unaudited) |
$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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$ |
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$ |
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Net income |
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( |
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Foreign currency translation |
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Recognized net actuarial gain, net |
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Total comprehensive income |
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( |
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Share-based compensation |
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Purchase of |
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( |
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( |
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Issuance of |
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Common shares distributed from rabbi |
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( |
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( |
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( |
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Cash dividends declared – $ |
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( |
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( |
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( |
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Balance at June 30, 2023 |
$ |
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$ |
( |
) |
$ |
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$ |
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$ |
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$ |
( |
) |
$ |
( |
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$ |
( |
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$ |
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$ |
- |
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$ |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2021 |
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Recognized net actuarial gain, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Purchase of |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
( |
) |
||||||||
Issuance of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Common shares issued to rabbi |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
||||||||
Cash dividends declared – $ |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
||||||||
Balance at March 31, 2022 |
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
( |
) |
$ |
|
||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Foreign currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
|
|
|
( |
) |
||||||||
Recognized net actuarial gain, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Issuance of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
Common shares issued to rabbi |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
— |
|
||||||||
Cash dividends declared – $ |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
( |
) |
|
|
|
( |
) |
||||||||
Balance at June 30, 2022 |
$ |
|
$ |
( |
) |
$ |
|
$ |
|
$ |
|
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
$ |
|
$ |
|
$ |
|
|||||||
See notes to consolidated financial statements (unaudited).
7
PREFORMED LINE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Tables in thousands of dollars, except share and per share data, unless specifically noted)
Note 1 – Significant Accounting Policies
The accompanying unaudited consolidated financial statements of Preformed Line Products Company and subsidiaries (the “Company” or “PLPC”) have been prepared in accordance with United States ("U.S.") generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. This Form 10-Q should be read in conjunction with the consolidated financial statements and accompanying notes included in our Form 10-K for the year ended December 31, 2022, filed on March 3, 2023 with the Securities and Exchange Commission. The interim period results are not necessarily indicative of the results to be expected for the full year. Management has evaluated subsequent events through the date this Form 10-Q was filed with the Securities and Exchange Commission.
The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from these estimates. In the opinion of management, these consolidated financial statements contain all estimates and adjustments, consisting of normal recurring accruals, required to fairly present the financial position, results of operations, and cash flows for the interim periods. Operating results for the three and six months ended June 30, 2023, are not necessarily indicative of the results to be expected for the full-year ending December 31, 2023.
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 the Company’s consolidated financial statements. Additionally, the Company’s consolidated financial statements include
Certain prior year amounts have been reclassified to conform to the current year presentation.
Recently Adopted Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates ("ASU"). In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers.” This ASU requires an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The ASU is effective for fiscal years and interim periods beginning after December 15, 2022. The adoption of this new standard did not have a material impact on the consolidated financial statements and related disclosures.
No other recently issued or effective ASUs had, or are expected to have, a material impact on the Company's results of operations, financial condition or liquidity.
Note 2 – 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.
8
Disaggregated Revenue
The Company’s revenues by segment and product type are as follows:
|
|
Three Months Ended June 30, 2023 |
|
|||||||||||||
Product Type |
|
PLP-USA |
|
The Americas |
|
EMEA |
|
Asia-Pacific |
|
Consolidated |
|
|||||
Energy |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Communications |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Special Industries |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Total |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Three Months Ended June 30, 2022 |
|
|||||||||||||
Product Type |
|
PLP-USA |
|
The Americas |
|
EMEA |
|
Asia-Pacific |
|
Consolidated |
|
|||||
Energy |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Communications |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Special Industries |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Total |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Six Months Ended June 30, 2023 |
|
|||||||||||||
Product Type |
|
PLP-USA |
|
The Americas |
|
EMEA |
|
Asia-Pacific |
|
Consolidated |
|
|||||
Energy |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Communications |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Special Industries |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
Total |
|
|
% |
|
% |
|
% |
|
% |
|
% |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Six Months Ended June 30, 2022 |
|
|||||||||||||
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
|
|
Six Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
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 |
|
$ |
|
|
$ |
|
||
9
Note 3 – Inventories, Net
Inventories, net
|
|
|
|
|
|||||
|
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Raw materials |
|
|
$ |
|
|
$ |
|
||
Work-in-process |
|
|
|
|
|
|
|
||
Finished products |
|
|
|
|
|
|
|
||
Inventories, net of excess and obsolete inventory reserve |
|
|
|
|
|
|
|
||
Excess of current cost over LIFO cost |
|
|
|
( |
) |
|
|
( |
) |
Inventories at LIFO cost |
|
|
$ |
|
|
$ |
|
||
Costs for inventories of certain material, mainly in the U.S., are determined using the LIFO method and totaled approximately $
Note 4 – Property and Equipment, Net
Major classes of property, plant and equipment are stated at cost and were as follows:
|
|
|
|
|
|
|
|
||
|
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||
Land and improvements |
|
|
$ |
|
|
$ |
|
||
Buildings and improvements |
|
|
|
|
|
|
|
||
Machinery, equipment and aircraft |
|
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
|
||
Property, plant and equipment, gross |
|
|
|
|
|
|
|
||
Less accumulated depreciation |
|
|
|
( |
) |
|
|
( |
) |
Property, plant and equipment, net |
|
|
$ |
|
|
$ |
|
||
Note 5 – Contingent Liabilities
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. As of June 30, 2023 and December 31, 2022, the Company maintained a reserve of 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
10
complaint filed by Altalink, L.P. (the “Plaintiff”) in the Court of Queen’s Bench of Alberta in Alberta, Canada in
The Complaint states that the Plaintiff engaged
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. A preliminary trial date for this complaint has been scheduled for January 2024.
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 6 – Pension Plans
The Company uses a December 31 measurement date for the Preformed Line Products Company Employees’ Retirement Plan (the “U.S. Plan”).
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
Interest cost |
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
Expected return on plan assets |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Recognized net actuarial loss |
|
|
|
|
|
|
|
|
|
|
|
||||
Net periodic pension expense (income) |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
There were
11
Note 7 – Accumulated Other Comprehensive Income (“AOCI”)
The following tables set forth the total changes in AOCI by component, net of tax:
|
|
Three Months Ended June 30, 2023 |
|
|
Three Months Ended June 30, 2022 |
|
||||||||||||||||||
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
||||||
|
|
Unrecognized |
|
|
Translation |
|
|
|
|
|
Unrecognized |
|
|
Translation |
|
|
|
|
||||||
|
|
Benefit Cost |
|
|
Adjustment |
|
|
Total |
|
|
Benefit Cost |
|
|
Adjustment |
|
|
Total |
|
||||||
Balance at April 1 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income before reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gain on foreign currency translation adjustment |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
||
Amounts reclassified from AOCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortization of defined benefit pension actuarial gain (a) |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net current period other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Balance at June 30 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Six Months Ended June 30, 2023 |
|
|
Six Months Ended June 30, 2022 |
|
||||||||||||||||||
|
|
|
|
|
Cumulative |
|
|
|
|
|
|
|
|
Cumulative |
|
|
|
|
||||||
|
|
Unrecognized |
|
|
Translation |
|
|
|
|
|
Unrecognized |
|
|
Translation |
|
|
|
|
||||||
|
|
Benefit Cost |
|
|
Adjustment |
|
|
Total |
|
|
Benefit Cost |
|
|
Adjustment |
|
|
Total |
|
||||||
Balance at January 1 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Other comprehensive income before reclassifications: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Gain on foreign currency translation adjustment |
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
||
Amounts reclassified from AOCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Amortization of defined benefit pension actuarial gain (a) |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net current period other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
||||
Balance at June 30 |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Note 8 – Debt and Credit Arrangements
On March 2, 2022, the Company amended its credit facility (the "Facility") to increase the capacity from $
On January 19, 2021, the Company purchased a new aircraft for $
The Company has borrowing facilities at certain of its foreign subsidiaries, which consist of overdraft lines, working capital credit lines, and facilities for the issuance of letters of credit and short-term borrowing needs. At June 30, 2023, and December 31, 2022, $
12
million and $
For both periods ended June 30, 2023 and December 31, 2022, the Company’s Asia-Pacific segment had $
Note 9 – Income Taxes
For the three-month period ended June 30, 2023 and 2022, the Company’s effective tax rate was
The Company provides valuation allowances against deferred tax assets when it is more likely than not that some portion or all of its deferred tax assets will not be realized. During the period ended June 30, 2023, the Company did
For the six-month periods ending June 30, 2023, the Company did
Note 10 – 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 periods presented.
The calculation of basic and diluted earnings per share for the three and six months ended June 30, was as follows:
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
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 three months ended June 30, 2023 and 2022, there were
13
Note 11 – Goodwill and Other Intangibles
The Company’s finite and indefinite-lived intangible assets consist of the following:
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
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 for the three and six months ended June 30, 2023 was $
The Company’s measurement date for its annual impairment test for goodwill is October 1st of each year. The Company performs additional interim impairment assessments as circumstances warrant. There were no indicators of impairment noted for the period ending June 30, 2023.
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, 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.
The Company’s only intangible asset with an indefinite life is goodwill. The Company’s goodwill is not deductible for tax purposes.
|
|
PLP-USA |
|
|
The Americas |
|
|
EMEA |
|
|
Asia-Pacific |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at January 1, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Currency translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance at June 30, 2023 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
See note 14 for additional information about acquisitions of businesses.
Note 12 – 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 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 Inputs – Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3 Inputs – Unobservable inputs that are not corroborated by market data.
14
The following table summarizes the Company’s assets and liabilities, recorded and measured at fair value, in the Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022:
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: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Supplemental profit sharing plan |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total liabilities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Description |
|
Balance as of December 31, 2022 |
|
|
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: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign currency forward contracts |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Supplemental profit sharing plan |
|
|
|
|
|
|
|
|
|
|
|
|
||||
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 $
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 June 30, 2023 and December 31, 2022, the fair value of the Company’s long-term debt was estimated using a 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
15
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
||||
Long-term debt and related current maturities |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Note 13 – Segment Information
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated by the chief operating decision maker, or decision making group, in deciding how to allocate resources to an individual segment and in assessing performance.
The following tables present a summary of the Company’s reportable operating segments for the three and six months ended June 30, 2023 and 2022. Financial results for the PLP-USA segment include the elimination of all segments’ intercompany profit in inventory.
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2023 |
|
|
2022 |
|
2023 |
|
|
2022 |
|
||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
PLP-USA |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
The Americas |
|
|
|
|
|
|
|
|
|
|
|
|
||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total net sales |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Intersegment sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
PLP-USA |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
The Americas |
|
|
|
|
|
|
|
|
|
|
|
|
||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total intersegment sales |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
||||
PLP-USA |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
The Americas |
|
|
|
|
|
|
|
|
|
|
|
|
||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total gross profit |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Preformed Line Products Company shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
||||
PLP-USA |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
The Americas |
|
|
|
|
|
|
|
|
|
|
|
|
||||
EMEA |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia-Pacific |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Total net income attributable to Preformed Line Products Company shareholders |
|
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Note 14 – Acquisitions of Businesses
Acquisition of Pilot Plastics
On February 1, 2023, the Company acquired substantially all of the assets of Pilot Plastics, headquartered in Akron, Ohio. Pilot Plastics is an injection molding manufacturer and the acquisition will expand the Company's injection molding capabilities and further enhance the Company's domestic manufacturing footprint. The purchase price was approximately $
The acquisition of Pilot Plastics is accounted for using the acquisition method of accounting, which requires the assets acquired and liabilities assumed to be recognized at their respective fair values on the acquisition date. The process of estimating the fair values of certain tangible assets, and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates.
16
The table below summarizes the fair values of the assets acquired and liabilities assumed on the acquisition date, inclusive of the preliminary measurement period adjustments recorded as of June 30, 2023, which were not material.
|
|
Adjusted Preliminary Allocation |
|
|
Accounts receivable |
|
$ |
|
|
Inventory |
|
|
||
Property, plant and equipment and other assets |
|
|
|
|
Accounts payable |
|
|
( |
) |
Other current liabilities |
|
|
( |
) |
Total identifiable net assets |
|
|
|
|
Total consideration, net of cash received |
|
$ |
|
|
Due to the consideration transferred equaling the fair value of the assets acquired, no residual goodwill was recognized. From the date of the acquisition through June 30, 2023, the Company’s consolidated financial statements included Pilot Plastics sales of approximately $
Acquisition of Delta Conectores, S.A. de C.V.
On October 3, 2022, the Company acquired Delta Conectores, S.A. de C.V. ("Delta"), a Mexico entity headquartered in Aguascalientes, Mexico, from its shareholders. Delta designs and manufactures substation connector systems and accessory hardware for high voltage AC systems in Mexico. The acquisition of Delta will expand the Company's operational and technical capabilities in the region while supporting its overall substation strategy. The purchase price was approximately $
The acquisition of Delta has been accounted for using the acquisition method of accounting, which requires the assets acquired and liabilities assumed to be recognized at their respective fair values on the acquisition date. The process of estimating the fair values of certain tangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. The fair value of the net assets acquired was $
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Delta. The goodwill recognized of $
Acquisition of Holplast, s.r.o.
On March 1, 2022, the Company acquired all issued and outstanding shares of Holplast, s.r.o (“Holplast”), an entity headquartered in Prostějov, Czech Republic, from its shareholder. Holplast specializes in injection molding and expands the Company’s operational capabilities in the region and strengthens the Company’s position in the global communications market. The purchase price was approximately $
The acquisition of Holplast has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed to be recognized at their respective fair values on the acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. During the measurement period, opening balance sheet adjustments were made to finalize the fair value estimates based on the final valuations received, which are summarized in the table below
17
|
|
Preliminary Allocation |
|
Measurement Period Adjustments |
|
Final Allocation |
|
|||
Cash |
|
$ |
|
$ |
|
$ |
|
|||
Accounts receivable |
|
|
|
|
|
|
|
|||
Inventory |
|
|
|
|
|
|
|
|||
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|||
Property, plant and equipment and other assets |
|
|
|
|
|
|
|
|||
Accounts payable |
|
|
( |
) |
|
( |
|
|
( |
) |
Other current liabilities |
|
|
( |
) |
|
|
|
( |
) |
|
Other noncurrent liabilities |
|
|
( |
) |
|
( |
) |
|
( |
) |
Total identifiable net assets |
|
|
|
|
|
|
|
|||
Goodwill |
|
|
|
|
( |
) |
|
|
||
Total consideration, inclusive of cash and debt |
|
$ |
|
$ |
|
$ |
|
|||
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Holplast. Other noncurrent liabilities assumed is mainly comprised of long-term debt totaling approximately $
All measurement period adjustments were completed within a year from the acquisition date, and such adjustments did not have a material impact on the Company's results of operations and financial position.
Acquisition of Maxxweld Conectores Electricos Ltda.
On January 4, 2022, the Company acquired Maxxweld Conectores Electricos 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 expands and strengthens the Company's operational and technical capabilities in the region while supporting its overall substation strategy. The purchase price was approximately $
The acquisition of Maxxweld has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed to be recognized at their respective fair values on the acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. During the measurement period opening balance sheet adjustments were made to finalize the fair value estimates based on the final valuations received, which are summarized in the table below.
|
|
Preliminary Allocation |
|
Measurement Period Adjustments |
|
Final Allocation |
|
|||
Accounts receivable |
|
$ |
|
$ |
|
$ |
|
|||
Inventory |
|
|
|
|
|
|
|
|||
Prepaid expenses and other current assets |
|
|
|
|
|
|
|
|||
Equipment and other assets |
|
|
|
|
|
|
|
|||
Other intangible assets |
|
|
|
|
|
|
|
|||
Accounts payable |
|
|
( |
) |
|
|
|
( |
) |
|
Other current liabilities |
|
|
( |
) |
|
|
|
( |
) |
|
Other noncurrent liabilities |
|
|
( |
) |
|
( |
) |
|
( |
) |
Total identifiable net assets |
|
|
|
|
|
|
|
|||
Goodwill |
|
|
|
|
( |
) |
|
|
||
Total consideration, net of cash received |
|
$ |
|
$ |
|
$ |
|
|||
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Maxxweld. As a result of the acquisition, goodwill of $
18
relationships, trademarks and backlog were
All measurement period adjustments were completed within a year from the acquisition date, and such adjustments did not have a material impact on the Company's results of operations and financial position.
Note 15 – Exit of Russian Operations
Due to the ongoing conflict in Ukraine and overt hostilities shown by Russia in the conflict, the Company decided to exit its Russian operations in March 2022, which was completed during the third quarter of 2022. The Russian operations did not have a material impact to the consolidated financial statements with net sales of $
19
Item 2. 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 unaudited consolidated financial statements and related notes included elsewhere in this report.
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 provide helical solutions, connectors, fiber optic and copper splice closures, solar hardware mounting applications, and electric vehicle charging station foundations. We also provide aerial drone inspection services for utility assets including transmission and distribution power lines, substations, and generation facilities. We are 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, manufacturing, 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 sales and manufacturing operations in 20 different countries.
We report our segments in four geographic regions: PLP-USA (including corporate), The Americas (includes operations in North and South America, 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, solar framing products and inspection services. Our other three segments, The Americas, EMEA and Asia-Pacific, support our energy, telecommunications, data communication, solar and other 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.
PREFACE
The following discussion describes our results of operations for the three and six months ended June 30, 2023 and 2022. Our consolidated financial statements are prepared in conformity with United States ("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.
Net sales of $181.8 million for the three months ended June 30, 2023, was an increase of $18.3 million year-over-year and net sales of $363.6 million for the six months ended June 30, 2023, was an increase of $61.9 million year-over-year. In the three and six months ended June 30, 2023, the inflationary headwinds we experienced related to raw materials, specifically plastic resins, aluminum and sand (grit), have partially subsided. Costs related to shipping and freight have similarly fallen from their 2022 peak. The decreases in these underlying costs along with the impacts of our previous price increases have benefited gross margins. For PLP-USA, our largest business segment, we saw a year-over-year benefit for the three and six month periods of $5.4 million and $8.4 million, respectively related to the reduction in these costs. Given the uncertainties in the macro-economic environment, we cannot determine if these trends will continue. If inflationary pressures increase again, it may require further price adjustments to maintain profit margin and any price increases may have a negative effect on demand.
Our consolidated financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. PLPC’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 June 30, 2023 exchange rates. The fluctuations of foreign currencies during the three and six months ended June 30, 2023 had an unfavorable impact on net sales of $2.5 million and $7.1 million, respectively. The fluctuations on foreign currencies during the three and six months ended June 30, 2023 had an unfavorable impact on net income of $0.4 million and $0.6 million, respectively. On a reportable segment basis, the impact of foreign currency translation on net sales and net income for the three and six months ended June 30, 2023 and 2022, was as follows:
20
|
|
Foreign Currency Translation Impact |
|
|||||||||||||
|
|
Three Months Ended June 30, 2023 |
|
|
Six Months Ended June 30, 2023 |
|
||||||||||
(Thousands of dollars) |
|
Net Sales |
|
|
Net Income |
|
|
Net Sales |
|
|
Net Income |
|
||||
The Americas |
|
$ |
(1,280 |
) |
|
$ |
(178 |
) |
|
$ |
(2,437 |
) |
|
$ |
(242 |
) |
EMEA |
|
|
18 |
|
|
|
(127 |
) |
|
|
(2,147 |
) |
|
|
(218 |
) |
Asia-Pacific |
|
|
(1,201 |
) |
|
|
(53 |
) |
|
|
(2,473 |
) |
|
|
(116 |
) |
Total |
|
$ |
(2,463 |
) |
|
$ |
(358 |
) |
|
$ |
(7,057 |
) |
|
$ |
(576 |
) |
As shown in our strong financial results, 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. The growth in PLP-USA net sales required additional investment within our PLP-USA facilities, both in the form of operational capacity as well as increased warehouse space. These investments in our U.S. operations will allow us to further enhance the service we provide to our U.S. customers in 2023. If necessary, we will modify redundant processes and further utilize our global manufacturing network to manage costs, increase sales volume and deliver value to our customers. We have continued to invest in the business to expand into new markets for the Company, evaluate strategic mergers and acquisitions, improve efficiency, develop new products and increase our capacity. Our liquidity remains strong, and we currently have a bank debt to equity percentage of 22.5%. We can borrow needed funds at a competitive interest rate under our credit facility.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2023 COMPARED TO THREE MONTHS ENDED JUNE 30, 2022
The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the three months ended June 30, 2023 and 2022. The Company’s past operating results are not necessarily indicative of future operating results.
|
|
Three Months Ended June 30, |
|
|||||||||||||||||
(Thousands of dollars) |
|
2023 |
|
|
|
2022 |
|
|
|
Change |
|
|||||||||
Net sales |
|
$ |
181,813 |
|
|
100.0 |
|
% |
|
$ |
163,471 |
|
|
100.0 |
|
% |
|
$ |
18,342 |
|
Cost of products sold |
|
|
115,486 |
|
|
63.5 |
|
|
|
|
110,765 |
|
|
67.8 |
|
|
|
|
4,721 |
|
GROSS PROFIT |
|
|
66,327 |
|
|
36.5 |
|
|
|
|
52,706 |
|
|
32.2 |
|
|
|
|
13,621 |
|
Costs and expenses |
|
|
38,179 |
|
|
21.0 |
|
|
|
|
34,757 |
|
|
21.3 |
|
|
|
|
3,423 |
|
OPERATING INCOME |
|
|
28,148 |
|
|
15.5 |
|
|
|
|
17,949 |
|
|
11.0 |
|
|
|
|
10,199 |
|
Other (expense) income, net |
|
|
(607 |
) |
|
(0.3 |
) |
|
|
|
(185 |
) |
|
(0.1 |
) |
|
|
|
(422 |
) |
INCOME BEFORE INCOME TAXES |
|
|
27,541 |
|
|
15.1 |
|
|
|
|
17,764 |
|
|
10.9 |
|
|
|
|
9,777 |
|
Income taxes |
|
|
7,077 |
|
|
3.9 |
|
|
|
|
4,043 |
|
|
2.5 |
|
|
|
|
3,034 |
|
NET INCOME |
|
|
20,464 |
|
|
11.3 |
|
|
|
|
13,721 |
|
|
8.4 |
|
|
|
|
6,743 |
|
Net loss (income) attributable to noncontrolling interests |
|
|
8 |
|
|
0.0 |
|
|
|
|
(9 |
) |
|
(0.0 |
) |
|
|
|
17 |
|
NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS |
|
$ |
20,472 |
|
|
11.3 |
|
% |
|
$ |
13,712 |
|
|
8.4 |
|
% |
|
$ |
6,760 |
|
Net sales. In 2023, net sales were $181.8 million, an increase of $18.3 million, or 11%, compared to 2022. Excluding the effect of currency translation, net sales increased 13% as summarized in the following table:
|
|
Three Months Ended June 30, |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
96,977 |
|
|
$ |
83,422 |
|
|
$ |
13,555 |
|
|
$ |
— |
|
|
$ |
13,555 |
|
|
|
16 |
|
% |
The Americas |
|
|
21,494 |
|
|
|
22,436 |
|
|
|
(942 |
) |
|
|
(1,280 |
) |
|
|
338 |
|
|
|
2 |
|
|
EMEA |
|
|
37,306 |
|
|
|
32,845 |
|
|
|
4,461 |
|
|
|
18 |
|
|
|
4,443 |
|
|
|
14 |
|
|
Asia-Pacific |
|
|
26,036 |
|
|
|
24,768 |
|
|
|
1,268 |
|
|
|
(1,201 |
) |
|
|
2,469 |
|
|
|
10 |
|
|
Consolidated |
|
$ |
181,813 |
|
|
$ |
163,471 |
|
|
$ |
18,342 |
|
|
$ |
(2,463 |
) |
|
$ |
20,805 |
|
|
|
13 |
|
% |
The increase in PLP-USA net sales of $13.6 million, or 16%, was primarily due to a volume increase in energy product and communication sales as well as the impact from price increases. International net sales for the three months ended June 30, 2023 were unfavorably affected by $2.5 million when local currencies were converted to U.S. dollars. The following discussion of changes in net sales excludes the effect of currency translation. The Americas net sales of $21.5 million increased $0.3 million, or 2%, primarily due
21
to volume increases from the October 2022 Delta acquisition, partially offset by volume decreases in the region. EMEA net sales of $37.3 million increased $4.4 million, or 14%, primarily due to volume increases in communication sales. Asia-Pacific net sales of $26.0 million increased $2.5 million, or 10%, due to volume increases in special industries and energy products.
Gross profit. Gross profit of $66.3 million for 2023 increased $13.6 million, or 26%, compared to 2022. Excluding the effect of currency translation, gross profit increased $14.5 million, or 27%, as summarized in the following table:
|
|
Three Months Ended June 30, |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
41,234 |
|
|
$ |
29,940 |
|
|
$ |
11,294 |
|
|
$ |
— |
|
|
$ |
11,294 |
|
|
|
38 |
|
% |
The Americas |
|
|
8,198 |
|
|
|
7,967 |
|
|
|
231 |
|
|
|
(315 |
) |
|
|
546 |
|
|
|
7 |
|
|
EMEA |
|
|
9,518 |
|
|
|
7,958 |
|
|
|
1,560 |
|
|
|
(171 |
) |
|
|
1,731 |
|
|
|
22 |
|
|
Asia-Pacific |
|
|
7,377 |
|
|
|
6,840 |
|
|
|
537 |
|
|
|
(365 |
) |
|
|
902 |
|
|
|
13 |
|
|
Consolidated |
|
$ |
66,327 |
|
|
$ |
52,706 |
|
|
$ |
13,621 |
|
|
$ |
(851 |
) |
|
$ |
14,472 |
|
|
|
27 |
|
% |
PLP-USA gross profit of $41.2 million increased by $11.3 million, or 38%, compared to the same period in 2022, primarily due to the incremental margins from the increased sales volumes, price increases and lower material costs. International gross profit for the period ended June 30, 2023 was unfavorably impacted by $0.9 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 increased $0.5 million, or 7%, which was primarily the result of higher margin from lower material costs. EMEA gross profit increased $1.7 million, or 22%, primarily due to the incremental margins from the increased sales volumes and lower manufacturing expenses. Asia-Pacific’s gross profit increased $0.9 million, or 13%, which was primarily driven by the incremental margins on the increased sales volume and lower manufacturing costs.
Costs and expenses. Costs and expenses of $38.2 million for the three months ended June 30, 2023 increased $3.4 million, or 10%, when compared to 2022. Excluding the effect of currency translation, costs and expenses increased $3.9 million, or 11%, as summarized in the following table:
|
|
Three Months Ended June 30, |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
20,459 |
|
|
$ |
17,701 |
|
|
$ |
2,758 |
|
|
$ |
— |
|
|
$ |
2,758 |
|
|
|
16 |
|
% |
The Americas |
|
|
5,001 |
|
|
|
4,130 |
|
|
|
871 |
|
|
|
(188 |
) |
|
|
1,059 |
|
|
|
26 |
|
|
EMEA |
|
|
6,819 |
|
|
|
6,488 |
|
|
|
331 |
|
|
|
3 |
|
|
|
328 |
|
|
|
5 |
|
|
Asia-Pacific |
|
|
5,900 |
|
|
|
6,438 |
|
|
|
(538 |
) |
|
|
(284 |
) |
|
|
(254 |
) |
|
|
(4 |
) |
|
Consolidated |
|
$ |
38,179 |
|
|
$ |
34,757 |
|
|
$ |
3,422 |
|
|
$ |
(469 |
) |
|
$ |
3,891 |
|
|
|
11 |
|
% |
PLP-USA costs and expenses of $20.5 million increased $2.8 million, or 16% year-over-year. PLP-USA’s increase was primarily attributable to increased salary-related expenses, sales, personnel and insurance costs. PLPC’s costs and expenses for the three months ended June 30, 2023 were favorably impacted by $0.5 million when local currencies were translated to U.S. dollars. The following discussion of costs and expenses excludes the effect of currency translation. The Americas costs and expenses of $5.0 million increased $1.1 million primarily due to increased salary-related and professional services costs. EMEA costs and expenses of $6.8 million increased by $0.3 million primarily due to increased salary-related costs. Asia-Pacific costs and expenses of $5.9 million decreased $0.3 million primarily due to one-time expenses to streamline operations recorded in the second quarter of 2022 that did not recur.
Other (expense) income, net. Other expense, net of $0.6 million for the three months ended June 30, 2023 was unfavorable by $0.4 million when compared to Other expense, net of $0.2 million for the three months ended June 30, 2022. The unfavorable movement was due to higher interest expense.
Income taxes. Income taxes for the three months ended June 30, 2023 and 2022 were $7.1 million and $4.0 million based on pre-tax income of $27.5 million and $17.8 million, respectively. The tax rate for the three months ended June 30, 2023 and 2022 was 26% and 23%, respectively. The effective tax rate for the three months ended June 30, 2023 was higher than the effective tax rate for the same period in 2022 mainly due to higher levels of income earned in higher tax jurisdictions as well as an increase in the limitation on the deductibility of executive compensation.
Net income. As a result of the preceding items, net income for the three months ended June 30, 2023 was $20.5 million, compared to $13.7 million for 2022. Excluding the effect of currency translation, net income increased $7.1 million as summarized in the following
22
table. In all regions, the increase in net income was due to increases in operating income described above, partially offset by higher interest expense and higher tax expense:
|
|
Three Months Ended June 30, |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
14,887 |
|
|
$ |
10,387 |
|
|
$ |
4,500 |
|
|
$ |
— |
|
|
$ |
4,500 |
|
|
|
43 |
|
% |
The Americas |
|
|
2,750 |
|
|
|
2,637 |
|
|
|
113 |
|
|
|
(178 |
) |
|
|
291 |
|
|
|
11 |
|
|
EMEA |
|
|
1,876 |
|
|
|
269 |
|
|
|
1,607 |
|
|
|
(127 |
) |
|
|
1,734 |
|
|
>100 |
|
|
|
Asia-Pacific |
|
|
959 |
|
|
|
419 |
|
|
|
540 |
|
|
|
(53 |
) |
|
|
593 |
|
|
>100 |
|
|
|
Consolidated |
|
$ |
20,472 |
|
|
$ |
13,712 |
|
|
$ |
6,760 |
|
|
$ |
(358 |
) |
|
$ |
7,118 |
|
|
|
52 |
|
% |
SIX MONTHS ENDED JUNE 30, 2023 COMPARED TO SIX MONTHS ENDED JUNE 30, 2022
The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the six months ended June 30, 2023 and 2022. The Company’s past operating results are not necessarily indicative of future operating results.
|
|
Six Months Ended June 30, |
|
|||||||||||||||||
(Thousands of dollars) |
|
2023 |
|
|
|
2022 |
|
|
|
Change |
|
|||||||||
Net sales |
|
$ |
363,637 |
|
|
100.0 |
|
% |
|
$ |
301,694 |
|
|
100.0 |
|
% |
|
$ |
61,943 |
|
Cost of products sold |
|
|
231,026 |
|
|
63.5 |
|
|
|
|
207,037 |
|
|
68.6 |
|
|
|
|
23,990 |
|
GROSS PROFIT |
|
|
132,611 |
|
|
36.5 |
|
|
|
|
94,657 |
|
|
31.4 |
|
|
|
|
37,954 |
|
Costs and expenses |
|
|
75,482 |
|
|
20.8 |
|
|
|
|
67,257 |
|
|
22.3 |
|
|
|
|
8,225 |
|
OPERATING INCOME |
|
|
57,129 |
|
|
15.7 |
|
|
|
|
27,400 |
|
|
9.1 |
|
|
|
|
29,729 |
|
Other (expense) income, net |
|
|
(1,329 |
) |
|
(0.4 |
) |
|
|
|
4,505 |
|
|
1.5 |
|
|
|
|
(5,835 |
) |
INCOME BEFORE INCOME TAXES |
|
|
55,800 |
|
|
15.3 |
|
|
|
|
31,905 |
|
|
10.6 |
|
|
|
|
23,895 |
|
Income taxes |
|
|
13,917 |
|
|
3.8 |
|
|
|
|
5,883 |
|
|
1.9 |
|
|
|
|
8,034 |
|
NET INCOME |
|
|
41,883 |
|
|
11.5 |
|
|
|
|
26,022 |
|
|
8.6 |
|
|
|
|
15,860 |
|
Net income attributable to noncontrolling interests |
|
|
(13 |
) |
|
(0.0 |
) |
|
|
|
(25 |
) |
|
(0.0 |
) |
|
|
|
12 |
|
NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS |
|
$ |
41,870 |
|
|
11.5 |
|
% |
|
$ |
25,997 |
|
|
8.6 |
|
% |
|
$ |
15,872 |
|
Net sales. Net sales were $363.6 million for the six months ended June 30, 2023, an increase of $61.9 million, or 21%, compared to 2022. Excluding the effect of currency translation, net sales increased 23% as summarized in the following table:
|
|
Six Months Ended June 30, |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
194,155 |
|
|
$ |
159,347 |
|
|
$ |
34,808 |
|
|
$ |
— |
|
|
$ |
34,808 |
|
|
|
22 |
|
% |
The Americas |
|
|
44,061 |
|
|
|
41,399 |
|
|
|
2,662 |
|
|
|
(2,437 |
) |
|
|
5,099 |
|
|
|
12 |
|
|
EMEA |
|
|
76,340 |
|
|
|
60,317 |
|
|
|
16,023 |
|
|
|
(2,147 |
) |
|
|
18,170 |
|
|
|
30 |
|
|
Asia-Pacific |
|
|
49,081 |
|
|
|
40,631 |
|
|
|
8,450 |
|
|
|
(2,473 |
) |
|
|
10,923 |
|
|
|
27 |
|
|
Consolidated |
|
$ |
363,637 |
|
|
$ |
301,694 |
|
|
$ |
61,943 |
|
|
$ |
(7,057 |
) |
|
$ |
69,000 |
|
|
|
23 |
|
% |
The increase in PLP-USA net sales of $34.8 million, or 22%, was primarily due to a volume increase in energy products and communication sales as well as the impact from price increases. International net sales for the six months ended June 30, 2023 were unfavorably affected by $7.1 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 $44.1 million increased $5.1 million, or 12%, primarily due to the volume increases from the October 2022 acquisition of Delta. EMEA net sales of $76.3 million increased $18.2 million, or 30%, primarily due to volume increases in communication sales. Asia-Pacific net sales of $49.1 million increased $10.9 million, or 27%, primarily due to volume increases in energy product sales.
23
Gross profit. Gross profit of $132.6 million for 2023 increased $38.0 million, or 40%, compared to 2022. Excluding the effect of currency translation, gross profit increased $40.1 million, or 42%, as summarized in the following table:
|
|
Six Months Ended June 30, |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
83,340 |
|
|
$ |
56,204 |
|
|
$ |
27,136 |
|
|
$ |
— |
|
|
$ |
27,136 |
|
|
|
48 |
|
% |
The Americas |
|
|
16,185 |
|
|
|
13,332 |
|
|
|
2,853 |
|
|
|
(643 |
) |
|
|
3,496 |
|
|
|
26 |
|
|
EMEA |
|
|
18,765 |
|
|
|
14,332 |
|
|
|
4,433 |
|
|
|
(729 |
) |
|
|
5,162 |
|
|
|
36 |
|
|
Asia-Pacific |
|
|
14,320 |
|
|
|
10,788 |
|
|
|
3,532 |
|
|
|
(754 |
) |
|
|
4,286 |
|
|
|
40 |
|
|
Consolidated |
|
$ |
132,611 |
|
|
$ |
94,657 |
|
|
$ |
37,954 |
|
|
$ |
(2,126 |
) |
|
$ |
40,080 |
|
|
|
42 |
|
% |
PLP-USA gross profit of $83.3 million increased by $27.1 million, or 48%, compared to the same period in 2022, primarily due to the incremental margins from the increased sales volumes and tailwinds from operational efficiencies, price increases and lower material costs. International gross profit for the period ended June 30, 2023 was unfavorably impacted by $2.1 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 increased $3.5 million, or 26%, which was primarily the result of the incremental margin from the increased sales volumes, and contributions from the October 2022 Delta acquisition. EMEA gross profit increased $5.2 million, or 36%, primarily due to the incremental margins from the increased sales volumes and the non-recurring charges recorded in 2022 related to the exit of our Russia operations. Asia-Pacific’s gross profit increased $4.3 million, or 40%, which was primarily driven by the incremental margins on the increased sales volume and cost containment measures.
Costs and expenses. Costs and expenses of $75.5 million for the six months ended June 30, 2023 increased $8.2 million, or 12%, when compared to 2022. Excluding the effect of currency translation, costs and expenses increased $9.7 million, or 14%, as summarized in the following table:
|
|
Six Months Ended June 30, |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
40,365 |
|
|
$ |
33,450 |
|
|
$ |
6,915 |
|
|
$ |
— |
|
|
$ |
6,915 |
|
|
|
21 |
|
% |
The Americas |
|
|
10,458 |
|
|
|
9,261 |
|
|
|
1,197 |
|
|
|
(469 |
) |
|
|
1,666 |
|
|
|
18 |
|
|
EMEA |
|
|
13,512 |
|
|
|
13,229 |
|
|
|
283 |
|
|
|
(414 |
) |
|
|
697 |
|
|
|
5 |
|
|
Asia-Pacific |
|
|
11,147 |
|
|
|
11,317 |
|
|
|
(170 |
) |
|
|
(579 |
) |
|
|
409 |
|
|
|
4 |
|
|
Consolidated |
|
$ |
75,482 |
|
|
$ |
67,257 |
|
|
$ |
8,225 |
|
|
$ |
(1,462 |
) |
|
$ |
9,687 |
|
|
|
14 |
|
% |
PLP-USA costs and expenses of $40.4 million increased $6.9 million, or 21% year-over-year. PLP-USA’s increase was primarily attributable to increased salary-related, sales, personnel and insurance costs. PLPC’s costs and expenses for the six months ended June 30, 2023 were favorably impacted by $1.5 million when local currencies were translated to U.S. dollars. The following discussion of costs and expenses excludes the effect of currency translation. The Americas costs and expenses of $10.5 million increased $1.7 million primarily due to increased salary-related costs, and bad debt expense. EMEA costs and expenses of $13.5 million increased by $0.7 million primarily due to increased salary-related, professional services, travel and marketing-related costs, partially offset by Russia closure costs that did not recur. Asia-Pacific costs and expenses of $11.1 million increased $0.4 million primarily due to increased sales and professional services, offset by one-time expenses to streamline operations recorded in the second quarter of 2022 that did not recur.
Other (expense) income, net. Other expense, net of $1.3 million for the six months ended June 30, 2023 was unfavorable by $5.8 million when compared to Other income, net of $4.5 million for the six months ended June 30, 2022. The unfavorable movement was primarily due to a nonrecurring gain of $4.4 million that was recorded in March 2022 related to a settlement of a Company-owned life insurance policy, and higher interest expense for the six months ended June 30, 2023.
Income taxes. Income taxes for the six months ended June 30, 2023 and 2022 were $13.9 million and $5.9 million based on pre-tax income of $55.8 million and $31.9 million, respectively. The tax rate for the six months ended June 30, 2023 and 2022 was 25% and 18%, respectively. The effective tax rate for the six months ended June 30, 2023 was higher than the effective tax rate for the same period in 2022 mainly due to a non-taxable benefit of $4.4 million related to the proceeds from the settlement of a Company-owned life insurance policy in 2022 in addition to an increase in unfavorable permanent adjustments.
Net income. As a result of the preceding items, net income for the six months ended June 30, 2023 was $41.9 million, compared to $26.0 million for 2022. Excluding the effect of currency translation, net income increased $16.4 million as summarized in the following table.
24
In all regions, the increase in net income was due to increases in operating income described above, partially offset by higher interest expense and higher tax expense:
|
|
Six Months Ended June 30, |
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
Change |
|
|
Change |
|
|
|
|
|
||||||
(Thousands of dollars) |
|
|
|
|
|
|
|
|
|
|
Due to |
|
|
Excluding |
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
Currency |
|
|
Currency |
|
|
% |
|
|
||||||
|
|
2023 |
|
|
2022 |
|
|
Change |
|
|
Translation |
|
|
Translation |
|
|
Change |
|
|
||||||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
PLP-USA |
|
$ |
31,682 |
|
|
$ |
23,626 |
|
|
$ |
8,056 |
|
|
$ |
— |
|
|
$ |
8,056 |
|
|
|
34 |
|
% |
The Americas |
|
|
4,639 |
|
|
|
2,566 |
|
|
|
2,073 |
|
|
|
(242 |
) |
|
|
2,315 |
|
|
|
90 |
|
|
EMEA |
|
|
3,537 |
|
|
|
551 |
|
|
|
2,986 |
|
|
|
(218 |
) |
|
|
3,204 |
|
|
>100 |
|
|
|
Asia-Pacific |
|
|
2,011 |
|
|
|
(746 |
) |
|
|
2,757 |
|
|
|
(116 |
) |
|
|
2,873 |
|
|
>100 |
|
|
|
Consolidated |
|
$ |
41,870 |
|
|
$ |
25,997 |
|
|
$ |
15,872 |
|
|
$ |
(576 |
) |
|
$ |
16,448 |
|
|
|
63 |
|
% |
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies are consistent with the information set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the year ended December 31, 2022 filed on March 3, 2023 with the Securities and Exchange Commission and are, therefore, not presented herein.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
Management Assessment of Liquidity
We measure liquidity on the basis of our ability to meet short-term and long-term operating needs, repay debt, fund additional investments, including acquisitions, and make dividend payments to shareholders. Significant factors affecting the management of liquidity are cash flows from operating activities, capital expenditures, cash dividends, business acquisitions and access to bank lines of credit.
Our investments include expenditures required for equipment and facilities as well as expenditures in support of our strategic initiatives. During the first six months of 2023, we used cash of $17.2 million for capital expenditures and $12.1 million for a business acquisition. We ended the first six months of 2023 with $43.2 million of cash, cash equivalents and restricted cash (collectively, “Cash”). Our Cash is held in various locations throughout the world. At June 30, 2023, the majority of our Cash was held outside the U.S. We expect most accumulated non-U.S. Cash balances will remain outside of the U.S. and that we will meet U.S. liquidity needs through future operating cash flows, use of U.S. Cash balances, external borrowings, or some combination of these sources. We complete comprehensive reviews of our significant customers and their creditworthiness by analyzing financial statements for customers where we have identified a measure of increased risk. We closely monitor payments and developments which may signal possible customer credit issues. We currently have not identified any potential material impact on our liquidity from customer credit issues.
Total debt, including notes payable, at June 30, 2023 was $89.5 million. At June 30, 2023, our unused availability under our credit facility (the "Facility") was $37.0 million and our bank debt to equity percentage was 22.5%. On March 2, 2022, the Company amended 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 is 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. On August 31, 2022, the Company amended the Facility and elected to change its rate from BSBY to SOFR, and added its New Zealand subsidiary as a co-borrower, all other terms remain the same. The Facility contains, among other provisions, requirements for maintaining levels of net worth and profitability. At June 30, 2023, the Company was in compliance with these covenants.
Our Asia-Pacific segment had $0.2 million in restricted cash for both periods ended June 30, 2023 and December 31, 2022. The restricted cash was used to secure bank debt and is included in Cash, cash equivalents and restricted cash on the Consolidated Balance Sheets.
On January 19, 2021, the Company purchased a new aircraft for $20.5 million and received funding for a term loan from PNC Equipment Finance, LLC for the full amount of the purchase price. The term of the loan is 120 months at a fixed interest rate of 2.744%. The loan is payable in 119 equal monthly installments, which commenced on March 1, 2021 with a final payment of any outstanding principal and accrued interest due and payable on the final monthly payment date. Of the $15.7 million outstanding on this debt facility at June 30, 2023, $2.1 million was classified as current. The loan is secured by the aircraft.
We expect that our major source of funding for 2023 and beyond will be our operating cash flows, our existing Cash as well as our Facility agreement. Except for current earnings in certain jurisdictions, our operating income 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
25
will be more than sufficient to cover debt repayments, other contractual obligations, capital expenditures and dividends for the next 12 months and thereafter for the foreseeable future. In addition, we believe our borrowing capacity provides substantial financial resources, if needed, to supplement funding of capital expenditures and/or acquisitions. We also believe that we can 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
Net cash provided by operating activities for the six months ended June 30, 2023 was $45.9 million compared to $6.2 million used in operating activities in the comparable prior year six-month period. The $52.1 million increase was primarily a result of increases in net income and changes in operating assets and liabilities.
Net cash used in investing activities for the six months ended June 30, 2023 was $29.1 million compared to $16.7 million in the comparable prior year six-month period. The $12.4 million change was primarily a result of an increase in capital expenditures and decreases in proceeds from the settlement of a Company-owned life insurance policy and sale of property and equipment in 2022 that did not recur.
Net cash used in financing activities for the six months ended June 30, 2023 was $11.7 million compared to cash provided by financing activities of $15.5 million in the comparable prior year six-month period. The $27.2 million change was primarily the result of an increase in payments on long-term debt and share repurchases.
We have commitments under operating leases primarily for office and manufacturing space, transportation equipment, office and computer equipment and finance leases primarily for equipment. At June 30, 2023, we had $1.2 million of current operating lease liabilities and $7.5 million of noncurrent operating lease liabilities. Total liabilities related to finance lease obligations were less than $1 million at June 30, 2023.
As of June 30, 2023, the Company had total outstanding guarantees of $13.9 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 June 30, 2023, the Company had total outstanding letters of credit of $1.0 million.
The Company has borrowing facilities at certain of its foreign subsidiaries, which consist of overdraft lines, working capital credit lines, and facilities for the issuance of letters of credit and short-term borrowing needs. At June 30, 2023 and December 31, 2022, $21.0 million and $26.1 million was outstanding, of which $18.5 million and $19.1 million were classified as current, respectively. These facilities support commitments made in the ordinary course of business.
FORWARD LOOKING STATEMENTS
Cautionary Statement for “Safe Harbor” Purposes Under The Private Securities Litigation Reform Act of 1995
This Form 10-Q and other documents we file with the SEC contain forward-looking statements regarding the Company’s and management’s beliefs and expectations. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance (as opposed to historical items) and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to the Company’s operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control. Such uncertainties and factors could cause the Company’s actual results to differ materially from those matters expressed in or implied by such forward-looking statements.
The following factors, among others, could affect the Company’s future performance and cause the Company’s actual results to differ materially from those expressed or implied by forward-looking statements made in this report:
26
ITEM 3. 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 six-month periods ended June 30, 2023 and 2022.
As of June 30, 2023, the Company had $0.2 million in assets related to 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, foreign denominated receivables and payables and cash and short-term investments. A hypothetical 10% change in currency rates would have an impact on fair values on such instruments of $6.5 million and a $2.0 million impact on income before income taxes at June 30, 2023.
The Company is exposed to market risk, including changes in interest rates and foreign exchange rates since we conduct business in a variety of foreign currencies. The Company is subject to interest rate risk on its variable rate revolving credit facilities, which consisted of long-term borrowings of $55.1 million at June 30, 2023. A 100-basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $0.3 million for the six months ended June 30, 2023.
27
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s Principal Executive Officer and Principal Accounting Officer have concluded that the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended, were effective as of June 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)) of the Securities and Exchange Act of 1934, as amended, during the six-month period ended June 30, 2023 that materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
28
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Information regarding the Company’s current legal proceedings is presented in Note 5 of the Notes to the Consolidated Financial Statements.
ITEM 1A. RISK FACTORS
There were no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 3, 2023. In addition, the impact of COVID-19 and ongoing conflict between Russia and Ukraine could potentially exacerbate other risks discussed, any of which could have a material adverse effect on the Company. The situation continues to change, and additional impacts may arise that the Company is not aware of currently.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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. The following table reflects repurchases for the three-month period ended June 30, 2023.
Period |
|
Total |
|
|
Average |
|
|
Total Number of |
|
|
Maximum Number |
|
||||
April |
|
|
— |
|
|
|
— |
|
|
|
122,157 |
|
|
|
127,843 |
|
May |
|
|
4,143 |
|
|
|
128.64 |
|
|
|
126,300 |
|
|
|
123,700 |
|
June |
|
|
35,935 |
|
|
|
154.75 |
|
|
|
162,235 |
|
|
|
87,765 |
|
Total |
|
|
40,078 |
|
|
|
|
|
|
|
|
|
|
|||
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
Item 6. Exhibits and Financial Statement Schedules
Exhibit Number |
|
Exhibit |
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101.INS |
|
Inline XBRL Instance Document. |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document. |
29
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document. |
|
|
|
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
|
|
104 |
|
Cover Page Interactive Data File (embedded within the inline XBRL document) |
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Preformed Line Products Company |
|
|
|
August 3, 2023 |
|
/s/ Robert G. Ruhlman |
|
|
Robert G. Ruhlman |
|
|
Chairman, President and Chief Executive Officer |
|
|
(principal executive officer) |
|
|
|
August 3, 2023 |
|
/s/ Andrew S. Klaus |
|
|
Andrew S. Klaus |
|
|
Chief Financial Officer |
|
|
(principal financial and accounting officer) |
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