PREFORMED LINE PRODUCTS 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
Commission file number 0-31164
Preformed Line Products Company
(Exact Name of Registrant as Specified in Its Charter)
|
|
|
Ohio
|
|
34-0676895 |
|
|
|
(State or Other Jurisdiction of Incorporation or Organization)
|
|
(I.R.S. Employer Identification No.) |
|
|
|
660 Beta Drive |
|
|
Mayfield Village, Ohio
|
|
44143 |
|
|
|
(Address of Principal Executive Office)
|
|
(Zip Code) |
(440) 461-5200
(Registrants telephone number, including area code)
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.
Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange act.
Large accelerated filer o Accelerated filer þ Non-accelerated filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
The number of common shares outstanding as of May 7, 2007: 5,365,477.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our independent registered public accounting firm has not completed its review of our interim
financial statements included in this Form 10-Q, as required by Rule 10-01(d) of Regulation S-X.
The Company is cooperating fully to ensure that the review of the Companys quarterly financial
statements by the Companys independent registered public accounting firm is completed as quickly
as possible.
3
PREFORMED LINE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
Thousands of dollars, except share data |
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
21,392 |
|
|
$ |
29,949 |
|
Accounts receivable, less allowances of $1,088 ($1,209 in 2006) |
|
|
38,336 |
|
|
|
30,029 |
|
Inventories net |
|
|
44,183 |
|
|
|
40,415 |
|
Deferred income taxes |
|
|
3,380 |
|
|
|
2,528 |
|
Prepaids and other |
|
|
4,760 |
|
|
|
2,504 |
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
|
112,051 |
|
|
|
105,425 |
|
|
|
|
|
|
|
|
|
|
Property and equipment net |
|
|
54,016 |
|
|
|
52,810 |
|
Deferred income taxes |
|
|
3,914 |
|
|
|
5,145 |
|
Goodwill net |
|
|
4,793 |
|
|
|
2,166 |
|
Patents and other intangibles net |
|
|
2,465 |
|
|
|
2,546 |
|
Other assets |
|
|
2,653 |
|
|
|
2,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
179,892 |
|
|
$ |
170,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable to banks |
|
$ |
4,816 |
|
|
$ |
3,738 |
|
Current portion of long-term debt |
|
|
2,168 |
|
|
|
2,157 |
|
Trade accounts payable |
|
|
14,865 |
|
|
|
11,606 |
|
Accrued compensation and amounts withheld from employees |
|
|
6,218 |
|
|
|
5,556 |
|
Accrued expenses and other liabilities |
|
|
4,865 |
|
|
|
4,225 |
|
Accrued profit-sharing and other benefits |
|
|
2,332 |
|
|
|
3,596 |
|
Dividends payable |
|
|
1,072 |
|
|
|
1,072 |
|
Income taxes |
|
|
1,041 |
|
|
|
1,129 |
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
|
37,377 |
|
|
|
33,079 |
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion |
|
|
1,740 |
|
|
|
2,204 |
|
Deferred income taxes |
|
|
639 |
|
|
|
439 |
|
Unfunded pension liabilities |
|
|
4,185 |
|
|
|
3,982 |
|
Unrecognized tax benefits |
|
|
1,875 |
|
|
|
|
|
Other non-current liabilities |
|
|
375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common shares $2 par value, 15,000,000 shares authorized,
5,358,437 and 5,360,259 issues and outstanding, net of
367,333 and 365,311 treasury shares at par, respectively |
|
|
10,717 |
|
|
|
10,721 |
|
Paid in capital |
|
|
1,629 |
|
|
|
1,562 |
|
Retained earnings |
|
|
133,686 |
|
|
|
131,949 |
|
Accumulated other comprehensive loss |
|
|
(12,331 |
) |
|
|
(13,084 |
) |
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY |
|
|
133,701 |
|
|
|
131,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
179,892 |
|
|
$ |
170,852 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
4
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended March 31, |
|
In thousands, except per share data |
|
2007 |
|
|
2006 |
|
Net sales |
|
$ |
56,531 |
|
|
$ |
52,635 |
|
Cost of products sold |
|
|
37,623 |
|
|
|
36,164 |
|
|
|
|
|
|
|
|
GROSS PROFIT |
|
|
18,908 |
|
|
|
16,471 |
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
Selling |
|
|
5,963 |
|
|
|
5,767 |
|
General and administrative |
|
|
5,816 |
|
|
|
5,796 |
|
Research and engineering |
|
|
1,946 |
|
|
|
1,873 |
|
Other operating expenses net |
|
|
186 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
13,911 |
|
|
|
13,497 |
|
|
|
|
|
|
|
|
|
|
Royalty income net |
|
|
381 |
|
|
|
346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
|
5,378 |
|
|
|
3,320 |
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest income |
|
|
305 |
|
|
|
402 |
|
Interest expense |
|
|
(165 |
) |
|
|
(102 |
) |
Other expense net |
|
|
(6 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
|
|
|
134 |
|
|
|
281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES |
|
|
5,512 |
|
|
|
3,601 |
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
|
1,794 |
|
|
|
1,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
$ |
3,718 |
|
|
$ |
2,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share basic |
|
$ |
0.69 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share diluted |
|
$ |
0.69 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per share |
|
$ |
0.20 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding basic |
|
|
5,360 |
|
|
|
5,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding diluted |
|
|
5,406 |
|
|
|
5,792 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
5
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Three Month Periods Ended March 31, |
|
Thousands of dollars |
|
2007 |
|
|
2006 |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,718 |
|
|
$ |
2,499 |
|
Adjustments to reconcile net income to net cash used in operations: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,816 |
|
|
|
1,669 |
|
Deferred income taxes |
|
|
558 |
|
|
|
(132 |
) |
Stock based compensation expense |
|
|
64 |
|
|
|
74 |
|
Net investment in life insurance |
|
|
124 |
|
|
|
|
|
Other net |
|
|
32 |
|
|
|
(3 |
) |
Changes in operating assets and liabilities, net of acquisition: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(8,681 |
) |
|
|
(7,300 |
) |
Inventories |
|
|
(2,335 |
) |
|
|
(43 |
) |
Trade accounts payables and accrued liabilities |
|
|
2,371 |
|
|
|
636 |
|
Income taxes |
|
|
269 |
|
|
|
331 |
|
Other net |
|
|
(709 |
) |
|
|
(841 |
) |
|
|
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES |
|
|
(2,773 |
) |
|
|
(3,110 |
) |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(2,054 |
) |
|
|
(2,899 |
) |
Business acquisitions, net of cash received |
|
|
(2,550 |
) |
|
|
|
|
Proceeds from the sale of property and equipment |
|
|
22 |
|
|
|
15 |
|
|
|
|
|
|
|
|
NET CASH USED IN INVESTING ACTIVITIES |
|
|
(4,582 |
) |
|
|
(2,884 |
) |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Increase in notes payable to banks |
|
|
460 |
|
|
|
|
|
Proceeds from the issuance of long-term debt |
|
|
|
|
|
|
2,534 |
|
Payments of long-term debt |
|
|
(550 |
) |
|
|
(2,160 |
) |
Dividends paid |
|
|
(1,072 |
) |
|
|
(1,147 |
) |
Issuance of common shares |
|
|
3 |
|
|
|
10 |
|
Purchase of common shares for treasury |
|
|
(68 |
) |
|
|
(641 |
) |
|
|
|
|
|
|
|
NET CASH USED IN FINANCING ACTIVITIES |
|
|
(1,227 |
) |
|
|
(1,404 |
) |
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents |
|
|
25 |
|
|
|
249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(8,557 |
) |
|
|
(7,149 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
29,949 |
|
|
|
39,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
|
$ |
21,392 |
|
|
$ |
32,443 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
6
PREFORMED LINE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Tables in thousands, except per share data
NOTE A BASIS OF PRESENTATION
The accompanying unaudited financial statements of Preformed Line Products Company (the Company)
have been prepared in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form 10-Q and Article 10
of Regulation S-X. However, the Companys independent registered public accounting firm has not completed its timely review of our interim financial statements included in this Form 10-Q, as required by Rule 10-01(d) of Regulation S-X. These consolidated financial statements do not include all of the
information and notes required by accounting principles generally accepted in the United States of
America for complete financial statements. Certain amounts in the prior year financial statements
have been adjusted for the retrospective application of Financial Accounting Standards Board (FASB)
Staff Position AUG AIR 1, Accounting for Planned Major Maintenance Activities, and the
beginning of the year retained earnings has been reduced for the cumulative effect of adopting FASB
Interpretation (FIN) No. 48, Accounting for Uncertainty in Income Taxes (see Note H). The
preparation of these consolidated financial statements requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and the accompanying
notes. Actual results could differ from these estimates. However, in the opinion of management,
these consolidated financial statements contain all estimates and adjustments required to fairly
present the financial position, results of operations, and cash flows for the interim periods.
Operating results for the three-month period ended March 31, 2007 are not necessarily indicative of
the results to be expected for the year ending December 31, 2007.
The consolidated balance sheet at December 31, 2006 has been derived from the audited consolidated
financial statements, but does not include all of the information and notes required by accounting
principles generally accepted in the United States of America for complete financial statements.
For further information, refer to the consolidated financial statements and notes to consolidated
financial statements included in the Companys Form 10-K for 2006 filed with the Securities and
Exchange Commission.
NOTE B OTHER FINANCIAL STATEMENT INFORMATION
Inventories
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Finished goods |
|
$ |
18,104 |
|
|
$ |
17,044 |
|
Work-in-process |
|
|
2,506 |
|
|
|
1,844 |
|
Raw material |
|
|
27,382 |
|
|
|
25,431 |
|
|
|
|
|
|
|
|
|
|
|
47,992 |
|
|
|
44,319 |
|
Excess of current cost over LIFO cost |
|
|
(3,809 |
) |
|
|
(3,904 |
) |
|
|
|
|
|
|
|
|
|
$ |
44,183 |
|
|
$ |
40,415 |
|
|
|
|
|
|
|
|
7
Property and equipment
Major classes of property, plant and equipment are stated at cost and were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Land and improvements |
|
$ |
8,577 |
|
|
$ |
8,422 |
|
Buildings and improvements |
|
|
42,306 |
|
|
|
41,941 |
|
Machinery and equipment |
|
|
101,339 |
|
|
|
101,339 |
|
Construction in progress |
|
|
4,159 |
|
|
|
2,629 |
|
|
|
|
|
|
|
|
|
|
|
156,381 |
|
|
|
154,331 |
|
Less accumulated depreciation |
|
|
102,365 |
|
|
|
101,521 |
|
|
|
|
|
|
|
|
|
|
$ |
54,016 |
|
|
$ |
52,810 |
|
|
|
|
|
|
|
|
Comprehensive Income
The components of comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
3,718 |
|
|
$ |
2,499 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Foreign currency adjustments |
|
|
753 |
|
|
|
527 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
4,471 |
|
|
$ |
3,026 |
|
|
|
|
|
|
|
|
Guarantees
|
|
|
|
|
Product warranty balance at January 1, 2007 |
|
$ |
82 |
|
Additions charged to Cost of products sold |
|
|
2 |
|
Deductions |
|
|
(20 |
) |
|
|
|
|
Product warranty balance at March 31, 2007 |
|
$ |
64 |
|
|
|
|
|
Legal Proceedings
From time to time, the Company may be subject to litigation incidental to its business. The
Company is not a party to any 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 flows.
NOTE C PENSION PLANS
Net periodic benefit cost for the Companys domestic plan included the following components:
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
Service cost |
|
$ |
177 |
|
|
$ |
181 |
|
Interest cost |
|
|
235 |
|
|
|
214 |
|
Expected return on plan assets |
|
|
(235 |
) |
|
|
(205 |
) |
Recognized net actuarial loss |
|
|
26 |
|
|
|
55 |
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
203 |
|
|
$ |
245 |
|
|
|
|
|
|
|
|
8
The first quarterly contribution was made on April 13, 2007 in the amount of $.1 million. The
Company presently anticipates contributing an additional $.2 million to fund its pension plan in
2007 for a total of $.3 million.
NOTE D COMPUTATION OF EARNINGS PER SHARE
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
Numerator |
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,718 |
|
|
$ |
2,499 |
|
|
|
|
|
|
|
|
Denominator |
|
|
|
|
|
|
|
|
Determination of shares |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
5,360 |
|
|
|
5,731 |
|
Dilutive effect employee stock options |
|
|
46 |
|
|
|
61 |
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
5,406 |
|
|
|
5,792 |
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.69 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
Diluted |
|
$ |
0.69 |
|
|
$ |
0.43 |
|
|
|
|
|
|
|
|
NOTE E GOODWILL AND OTHER INTANGIBLES
The Company performed its annual impairment test for goodwill pursuant to SFAS No. 142, Goodwill
and Intangible Assets, as of January 2007 and had determined that no adjustment to the carrying
value of goodwill was required. The Companys only intangible asset with an indefinite life is
goodwill. The aggregate amortization expense for other intangibles with finite lives for each of
the three-months ended March 31, 2007 and 2006 was $.1 million. Amortization expense is estimated
to be $.3 million annually for 2007 through 2011.
The following table sets forth the carrying value and accumulated amortization of intangibles,
including the effect of foreign currency translation, by segment at March 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic |
|
|
Foreign |
|
|
Total |
|
Amortized intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
Gross carrying amount patents and other intangibles |
|
$ |
4,947 |
|
|
$ |
79 |
|
|
$ |
5,026 |
|
Accumulated amortization patents and other intangibles |
|
|
(2,502 |
) |
|
|
(59 |
) |
|
|
(2,561 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,445 |
|
|
$ |
20 |
|
|
$ |
2,465 |
|
|
|
|
|
|
|
|
|
|
|
The changes in the carrying amount of goodwill for the three-month period ended March 31,
2007, is as follows:
|
|
|
|
|
Balance at January 1, 2007 |
|
$ |
2,166 |
|
Additions |
|
|
2,565 |
|
Currency translation |
|
|
62 |
|
|
|
|
|
Balance at March 31, 2007 |
|
$ |
4,793 |
|
|
|
|
|
NOTE F STOCK OPTIONS
The 1999 Stock Option Plan (the Plan) permits the grant of 300,000 options to buy common shares of
the Company to certain employees at not less than fair market value of the shares on the date of
grant. At March 31, 2007 there were 27,000 shares remaining available for issuance under the Plan.
Options issued to date under the Plan vest 50% after one year following the date of the grant, 75%
after two years, and 100% after three years and expire from five to ten years from the date of
grant. Shares issued as a result of stock option exercises will be funded with the issuance of new
shares.
9
There were 15,000 options granted during the three months ended March 31, 2007. There were no
options granted during the three months ended March 31, 2006. The fair value for the stock options
granted in 2007 was estimated at the date of grant using the Black-Scholes option-pricing model
with the following weighted average assumptions:
|
|
|
|
|
|
|
2007 |
Risk-free interest rate |
|
|
4.3 |
% |
Dividend yield |
|
|
3.1 |
% |
Expected life |
|
|
6 |
|
Expected volatility |
|
|
40.7 |
% |
Activity in the Companys stock option plan for the three months ended March 31, 2007 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
|
|
Number of |
|
Exercise Price |
|
Contractual |
|
Intrinsic |
|
|
Shares |
|
per Share |
|
Term (Years) |
|
Value |
Outstanding at January 1, 2007 |
|
|
130,811 |
|
|
$ |
23.43 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
15,000 |
|
|
$ |
35.50 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(200 |
) |
|
$ |
15.13 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding (vested and expected
to vest) at March 31, 2007 |
|
|
145,611 |
|
|
$ |
21.02 |
|
|
|
6.4 |
|
|
$ |
1,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2007 |
|
|
102,611 |
|
|
$ |
20.73 |
|
|
|
5.4 |
|
|
$ |
1,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weightedaverage grant-date fair value of options granted during 2007 was $11.76. The total
intrinsic value of stock options exercised during the three months ended March 31, 2007 and 2006
was $4 thousand and $17 thousand, respectively. There were no stock options that vested during the
three months ended March 31, 2007 and 2006.
For the three months ended March 31, 2007 and 2006, the Company recorded compensation expense
related to the stock options recognized over the requisite service period, reducing income before
taxes and net income by $.1 million. For the three months ended March 31, 2007 and 2006, the
impact on earnings per share was a reduction of $.01 per share, basic and diluted. The total
compensation cost related to nonvested awards not yet recognized at March 31, 2007 is expected to
be a combined total of $.3 million over a weighted-average period of 2 years.
Activity for nonvested stock options for the three months ended March 31, 2007 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
average grant- |
|
|
Number of |
|
date fair value |
|
|
Shares |
|
per share |
Nonvested at January 1, 2007 |
|
|
28,000 |
|
|
$ |
10.61 |
|
Granted |
|
|
15,000 |
|
|
$ |
11.76 |
|
Vested |
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2007 |
|
|
43,000 |
|
|
$ |
11.01 |
|
|
|
|
|
|
|
|
|
|
NOTE G RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement of Financial Account Standards (SFAS) No. 157, Fair
Value Measurements. This standard defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about fair value
measurements. This standard does not require
10
new fair value measurements; however the application of this standard may change current
practice for an entity. This standard is effective for financial statements issued for fiscal
years beginning after November 15, 2007 and interim periods within those fiscal periods. The
Company is evaluating the impact this standard will have on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment to FASB No. 115. This standard permits entities to
measure certain financial assets and liabilities at fair value. The fair value option established
by this standard permits all entities to choose to measure eligible items at fair value at
specified election dates. A business entity shall report unrealized gains and losses on items for
which the fair values option has been elected at each subsequent reporting period. The fair value
option election is irrevocable, unless a new election date occurs. SFAS No. 159 establishes
presentation and disclosure requirements to help financial statement users understand the effect of
the entitys election on earnings, but does not eliminate disclosure requirements of other
accounting standards. Assets and liabilities that are measured at fair value must be displayed on
the face of the balance sheet. This standard is effective as of the beginning of the first fiscal
year that begins after November 15, 2007. The Company is evaluating the impact this standard will
have on its consolidated financial statements.
NOTE H NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
taxes an interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN 48). This
interpretation prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. Under FIN 48, the impact of an uncertain income tax position on the income tax return must
be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the
relevant taxing authority. An uncertain tax position will not be recognized if it has less than a
50% likelihood of being sustained. This interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
This interpretation is effective for the Company starting January 1, 2007.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementation
of FIN 48, the Company recognized a $.8 million increase in the liability for unrecognized tax
benefits which was accounted for as a reduction in retained earnings. The total amount of
unrecognized tax benefits, including the accrual for interest and
penalties, as of the date of adoption was $1.8 million, all of which would affect
the effective tax rate if recognized.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in
income taxes. The Company had $.1 million accrued for the payment of interest and penalties at
December 31, 2006. Upon adoption of FIN 48 on January 1, 2007, the Company increased its accrual
for interest and penalties to $.2 million.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With
few exceptions, the Company is no longer subject to U.S. federal, state, local, or foreign
examinations by tax authorities for years before 2003.
The Company does not expect that the unrecognized tax benefit will change significantly within the
next twelve months.
In September 2006, the FASB issued FASB Staff Position AUG AIR-1, Accounting for Planned Major
Maintenance Activities. This staff position amends certain provisions in the AICPA Industry Audit
Guide, Audits of Airlines (Airline Guide), and APB No. 28, Interim Financial Reporting. This staff
position prohibits the use of the accrue-in-advance method of accounting for planned major
maintenance activities in annual and interim financial reporting periods. The Company adopted the
direct expense method effective January 1, 2007, and has retrospectively applied this new
accounting principle to prior periods.
The cumulative effect of the retrospective application of the new accounting principle to the
carrying value of assets and liabilities and the offsetting adjustment to opening January 1, 2006
retained earnings was a decrease in deferred tax assets of $.1 million, a decrease in accrued
liabilities of $.3 million and an increase in beginning retained earnings of $.2 million. The
effect on the results of operations for the quarter ended March 31, 2006 was an increase to net
income of $15 thousand in our domestic segment.
11
NOTE I BUSINESS SEGMENTS
|
|
|
|
|
|
|
|
|
|
|
Three month periods ended March 31, |
|
|
|
2007 |
|
|
2006 |
|
Net sales |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
32,041 |
|
|
$ |
27,961 |
|
Foreign |
|
|
24,490 |
|
|
|
24,674 |
|
|
|
|
|
|
|
|
Total net sales |
|
$ |
56,531 |
|
|
$ |
52,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
1,698 |
|
|
$ |
1,494 |
|
Foreign |
|
|
1,667 |
|
|
|
808 |
|
|
|
|
|
|
|
|
Total intersegment sales |
|
$ |
3,365 |
|
|
$ |
2,302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
2,369 |
|
|
$ |
916 |
|
Foreign |
|
|
3,009 |
|
|
|
2,404 |
|
|
|
|
|
|
|
|
|
|
|
5,378 |
|
|
|
3,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
Domestic |
|
|
185 |
|
|
|
242 |
|
Foreign |
|
|
120 |
|
|
|
160 |
|
|
|
|
|
|
|
|
|
|
|
305 |
|
|
|
402 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
|
Domestic |
|
|
(35 |
) |
|
|
(6 |
) |
Foreign |
|
|
(130 |
) |
|
|
(96 |
) |
|
|
|
|
|
|
|
|
|
|
(165 |
) |
|
|
(102 |
) |
Other expense net |
|
|
(6 |
) |
|
|
(19 |
) |
|
|
|
|
|
|
|
Income before income taxes |
|
$ |
5,512 |
|
|
$ |
3,601 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
|
|
2007 |
|
|
2006 |
|
Identifiable assets |
|
|
|
|
|
|
|
|
Domestic |
|
$ |
88,641 |
|
|
$ |
85,814 |
|
Foreign |
|
|
91,251 |
|
|
|
85,038 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
179,892 |
|
|
$ |
170,852 |
|
|
|
|
|
|
|
|
NOTE J BUSINESS COMBINATIONS
On March 22, 2007, the Company entered into and closed a Stock Purchase Agreement (Agreement) for
$3 million, subject to a holdback of $.4 million, acquiring all of the issued and outstanding
shares of Direct Power and Water Corporation (DPW), a New Mexico company that designs and installs
solar systems and manufactures mounting hardware, battery, and equipment enclosures. The hold back
of $.4 million is to be held as security for any liability of the sellers pursuant to the indemnity
obligations set forth in the Agreement. Depending on the post-closing performance of DPW, certain
earn out consideration may be paid for the three years following the closing.
The Companys consolidated balance sheet as of March 31, 2007 reflects the acquisition of DPW under
the purchase method of accounting. The Company recorded various assets acquired and liabilities
assumed, primarily the working capital accounts of DPW. The allocation of the purchase price has
not yet been finalized as the valuation of inventories, long lived assets and intangibles is not
yet completed. The purchase price allocation remains subject to revision.
The preliminary value of assets acquired and liabilities assumed in connection with the DPW
acquisition as of March 31, 2007 is as follows:
12
|
|
|
|
|
|
|
Preliminary Value |
|
|
|
of Net Assets |
|
|
|
Acquired |
|
Cash |
|
$ |
75 |
|
Accounts receivable |
|
|
475 |
|
Inventories |
|
|
697 |
|
Prepaids and other |
|
|
5 |
|
Property and equipment |
|
|
223 |
|
Goodwill |
|
|
2,565 |
|
|
|
|
|
Total assets |
|
|
4,040 |
|
|
|
|
|
|
|
|
|
|
Notes payable to bank |
|
|
244 |
|
Trade accounts payable |
|
|
492 |
|
Accrued compensation and amounts withheld from employees |
|
|
31 |
|
Accrued expenses and other liabilities |
|
|
20 |
|
Deferred income taxes |
|
|
132 |
|
Income taxes payable |
|
|
121 |
|
|
|
|
|
Total liabilities |
|
|
1,040 |
|
|
|
|
|
|
|
|
|
|
Increase in net assets from acquisition |
|
$ |
3,000 |
|
|
|
|
|
Annualized
unaudited 2006 net revenues of DPW were approximately $7.1 million. The Company will
begin including the results of DPW in its consolidated financial statements in April 2007. The
reported results of operations are not materially different from the proforma amounts that would
include the impact of the acquisition from the beginning of the periods presented. DPW is included
in the domestic segment.
NOTE K SUBSEQUENT EVENTS
On April 22, 2007, the Company entered into a Stock Purchase Agreement to acquire approximately 84%
of the issued and outstanding shares of Belos SA (Belos), a joint stock company located in
Bielsko Biala, Poland, for $6 million, subject to a holdback of $1 million. Belos is a
manufacturer and supplier of fittings and equipment for low, medium and high voltage power networks
and mining applications in its domestic and export markets. The closing of this agreement is
contingent upon clearance from the Polish Minister of Internal Affairs and Administration as
required under the Act on Acquisition of Real Estates by Foreigners of 20 March 1920, which is
expected to take eight weeks. Depending on the post-closing performance of Belos, certain earn out
consideration may be paid for the year following the closing.
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
EXECUTIVE SUMMARY
Our net sales for the quarter ended March 31, 2007 increased 7% and gross profit increased 15%
compared to the same period in 2006. Net sales increased as a result of increased domestic sales
coupled with the favorable impact of the conversion of local currencies to U.S. dollars partially
offset by a decrease in sales within our South American and European markets. Gross profit
increased as a result of increased sales while manufacturing fixed costs remained relatively
unchanged. The increased gross profit partially offset by a 3% increase in costs and expenses
resulted in an increase in net income of 49%, or $.26 per diluted share, when compared to the same
period in 2006.
THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THREE MONTHS ENDED MARCH 31, 2006
For the three months ended March 31, 2007, net sales were $56.5 million, an increase of $3.9
million, or 7%, from the same period in 2006. Domestic net sales increased $4.1 million, or 15%.
The increase in domestic net sales was due primarily to sales increases in the domestic energy
markets. We anticipate the domestic energy market to show
13
continued strength for the remainder of 2007 as long as the general economy remains strong. Our
first quarter net sales in the domestic telecommunications market increased 7% while our net sales
in the data communications market decreased 13%. We expect an increase in demand for our
communication products for the remainder of 2007 as a result of increasing investments by cable
television companies to defend their market share as well as the investment by communication
companies in Fiber-to-the-Premises (FTTP) installations. Foreign net sales of $24.5 million
decreased $.2 million, or 1%. Foreign net sales were favorably impacted by $1 million when
converted to U.S. dollars as a result of the weaker U.S. dollar compared to certain foreign
currencies when compared to the first quarter 2006 conversion rates. Excluding the effect of
currency conversion, foreign net sales decreased $1.2 million primarily as a result of decreased
sales in the energy markets in Latin America and Europe. Despite our first quarter foreign net
sales not being at levels anticipated, we expect that growth in the energy markets will continue
for the foreseeable future not only as new construction projects are added in developing markets
but also due to the need to rebuild and refurbish much of the foreign energy transmission and
distribution infrastructure in developed countries.
Gross profit of $18.9 million for the three months ended March 31, 2007 increased $2.4 million, or
15%, compared to the same period in 2006. Domestic gross profit of $9.8 million increased $1.6
million, or 20%. Domestic gross profit increased $1.2 million due to increased net sales and $.4
million as a result of lower per unit manufacturing cost being realized as a result of higher
production volumes when compared to 2006. Foreign gross profit of $9.1 million increased $.8
million, or 10%. Foreign gross profit increased $.7 million due to a $.4 million adjustment to
cost of sales as a result of an adjustment to correct a certain inventory reserve balance, lower
fixed manufacturing expenses and a $.3 million favorable impact resulting from converting native
currency to U.S. dollars partially offset by the decrease in gross profits due to lower foreign net
sales. We expect continued pressure on gross profit percentage as a result of the anticipated
increases in our raw material costs. However, we expect the use of alternative new materials and a
new production process to partially offset this impact.
Effective January 1, 2007, we applied FASB Staff Position AUG AIR 1 retrospectively. As a
result, domestic general and administrative cost and expenses for the three months ended March 31,
2006 were decreased by $22 thousand.
Costs and expenses of $13.9 million for the three month period ended March 31, 2007 increased $.4
million, or 3%, compared to the previous year, as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
Increase |
|
thousands of dollars |
|
2007 |
|
|
2006 |
|
|
(decrease) |
|
|
(decrease) |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling |
|
$ |
4,072 |
|
|
$ |
3,963 |
|
|
$ |
109 |
|
|
|
3 |
% |
General and administrative |
|
|
3,282 |
|
|
|
3,310 |
|
|
|
(28 |
) |
|
|
-1 |
% |
Research and engineering |
|
|
1,297 |
|
|
|
1,312 |
|
|
|
(15 |
) |
|
|
-1 |
% |
Other operating expense net |
|
|
176 |
|
|
|
|
|
|
|
176 |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
8,827 |
|
|
$ |
8,585 |
|
|
$ |
242 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling |
|
$ |
1,891 |
|
|
$ |
1,804 |
|
|
$ |
87 |
|
|
|
5 |
% |
General and administrative |
|
|
2,534 |
|
|
|
2,508 |
|
|
|
26 |
|
|
|
1 |
% |
Research and engineering |
|
|
649 |
|
|
|
561 |
|
|
|
88 |
|
|
|
16 |
% |
Other operating expense net |
|
|
10 |
|
|
|
61 |
|
|
|
(51 |
) |
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,084 |
|
|
$ |
4,934 |
|
|
$ |
150 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,911 |
|
|
$ |
13,519 |
|
|
$ |
392 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic costs and expenses of $8.8 million for the three month period ended March 31, 2007
increased $.3 million, or 3%, compared to the same period in 2006. Domestic selling expenses of
$4.1 million increased $.1 million primarily as a result of an increase in advertising and
promotional expense. General and administrative expenses of $3.3 million
14
and research and engineering expenses of $1.3 million remained relatively unchanged from the
same period in 2006. Other operating expense increased $.2 million primarily as a result of an
adjustment to the carrying value of certain insurance policies.
Foreign costs and expenses of $5.1 million for the three months ended March 31, 2007 increased $.1
million, or 3%, compared to the same period in 2006. Net of the unfavorable impact on foreign cost
and expenses when foreign costs in local currencies were translated into U.S. dollars, foreign
costs and expenses remained relatively unchanged from the same period in 2006.
Royalty income net for the quarter ended March 31, 2007 of $.4 million improved slightly compared
to 2006.
Operating income of $5.4 million for the quarter ended March 31, 2007 increased $2.1 million, or
62%, compared to the same period in 2006. This increase was primarily a result of the $2.4 million
increase in gross profit partially offset by the $.4 million increase in costs and expenses.
Domestic operating income increased $1.5 million compared to the same period in 2006 as a result of
the increase in gross profit of $1.6 million and the increase in royalty income being partially
offset by a $.3 million increase in costs and expenses. Foreign operating income of $3 million
increased $.6 million, compared to the same period in 2006, as a result of the increase in gross
profit of $.8 million partially offset by a $.1 million increase in costs and expenses and a $.1
million increase in intercompany royalty expense.
Other income of $.1 million for the three months ended March 31, 2007 decreased $.1 million as a
result of a decrease in interest income.
Income taxes for the three months ended March 31, 2007 of $1.8 million increased $.7 million
compared to the same period in 2006 as a result of $1.9 million of additional income before taxes.
The effective tax rate for the quarter ended March 31, 2007 was 33% compared to 31% in 2006. The
effective tax rate for 2007 is lower than the statutory federal rate of 34% due primarily to
foreign tax rate differences.
As a result of the preceding items, net income for the three month period ended March 31, 2007 was
$3.7 million, or $.69 per diluted share, compared to net income of $2.5 million, or $.43 per
diluted share, for the same period in 2006.
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
Cash decreased $8.6 million for the three months ended March 31, 2007. Net cash used in operating
activities was $2.8 million primarily because accounts receivable increased as a result of higher
sales in the quarter compared to year-end. The major investing and financing uses of cash were
capital expenditures of $2.1 million, a cash outlay of $2.6 million for a business acquisition and
$1.1 million in dividend payments.
Net cash used for investing activities of $4.6 million represents an increase of $1.7 million when
compared to the cash used for investing activities in 2006. In March 2007, we acquired all the
issued and outstanding shares of Direct Power and Water Corporation (DPW) for an initial cash
payment of $2.6 million. Capital expenditures decreased $.8 million in the three months ended
March 31, 2007 when compared to the same period in 2006.
Cash used in financing activities was $1.2 million compared to $1.4 million in the previous year.
This decrease was primarily a result of lower dividends paid on fewer outstanding shares.
Our current ratio was 3.0 to 1 at March 31, 2007 compared to 3.2 to 1 at December 31, 2006. Our
current ratio decreased primarily due to the $4.6 million cash used in the quarter to acquire
property and equipment and the acquisition of a business. At March 31, 2007, our unused
balance under our main credit facility was $20 million and our bank debt to equity percentage was
7%. Our main revolving credit agreement contains, among other provisions, requirements for
maintaining levels of working capital, net worth and profitability. At March 31, 2007, we were in
compliance with these covenants. We believe our future operating cash flows will be more than
sufficient to cover debt repayments, other contractual obligations, capital expenditures and
dividends. In addition, we believe our existing cash position, together with our untapped
borrowing capacity, provides substantial financial resources. If we were to incur significant
indebtedness, we expect to be able to continue to meet liquidity needs under the credit
facilities but possibly at an increased cost for interest and commitment fees. We would not
increase our debt to a level that we believe would have a material adverse impact upon the results
of operations or financial condition.
15
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued Statement of Financial Account Standards (SFAS) No. 157, Fair
Value Measurements. This standard defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about fair value
measurements. This standard does not require new fair value measurements; however the application
of this standard may change current practice for an entity. This standard is effective for
financial statements issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal periods. The Company is evaluating the impact this standard will have on its
consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment to FASB No. 115. This standard permits entities to
measure certain financial assets and liabilities at fair value. The fair value option established
by this standard permits all entities to choose to measure eligible items at fair value at
specified election dates. A business entity shall report unrealized gains and losses on items for
which the fair values option has been elected at each subsequent reporting period. The fair value
option election is irrevocable, unless a new election date occurs. SFAS No. 159 establishes
presentation and disclosure requirements to help financial statement users understand the effect of
the entitys election on earnings, but does not eliminate disclosure requirements of other
accounting standards. Assets and liabilities that are measured at fair value must be displayed on
the face of the balance sheet. This standard is effective as of the beginning of the first fiscal
year that begins after November 15, 2007. The Company is evaluating the impact this standard will
have on its consolidated financial statements.
NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
taxes an interpretation of FASB Statement No. 109, Accounting for Income Taxes (FIN 48). This
interpretation prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be taken in a tax
return. Under FIN 48, the impact of an uncertain income tax position on the income tax return must
be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the
relevant taxing authority. An uncertain tax position will not be recognized if it has less than a
50% likelihood of being sustained. This interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition.
This interpretation is effective for the Company starting January 1, 2007.
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the
implementation of FIN 48, the Company recognized a $.8 million increase in the liability for
unrecognized tax benefits which was accounted for as a reduction in retained earnings. The total
amount of unrecognized tax benefits, including the accrual for
interest and penalties, as of the date of adoption was $1.8 million, all of which would
affect the effective tax rate if recognized.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits in
income taxes. The Company had $.1 million accrued for the payment of interest and penalties at
December 31, 2006. Upon adoption of FIN 48 on January 1, 2007, the Company increased its accrual
for interest and penalties to $.2 million.
The Company is subject to taxation in the U.S. and various states and foreign jurisdictions. With
few exceptions, the Company is no longer subject to U.S. federal, state, local, or foreign
examinations by tax authorities for years before 2003.
The Company does not expect that the unrecognized tax benefit will change significantly within the
next twelve months.
In September 2006, the FASB issued FASB Staff Position AUG AIR-1, Accounting for Planned Major
Maintenance Activities. This staff position amends certain provisions in the AICPA Industry Audit
Guide, Audits of Airlines (Airline Guide), and APB No. 28, Interim Financial Reporting. This staff
position prohibits the use of the accrue-in-advance method of accounting for planned major
maintenance activities in annual and interim financial reporting periods. The Company adopted the
direct expense method effective January 1, 2007, and has retrospectively applied this new
accounting principle to prior periods.
The cumulative effect of the retrospective application of the new accounting principle to the
carrying value of assets and liabilities and the offsetting adjustment to opening January 1, 2006
retained earnings was a decrease in deferred tax assets of $.1 million, a decrease in accrued
liabilities of $.3 million and an increase in beginning retained earnings
16
of $.2 million. The effect on the results of operations for the quarter ended March 31, 2006
was an increase to net income of $15 thousand in our domestic segment.
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 Companys global operations. As a result, the Company is subject
to business risks inherent in non-U.S. activities, including political and economic uncertainty,
import and export limitations, and market risk related to changes in interest rates and foreign
currency exchange rates. The Company believes the political and economic risks related to the
Companys foreign operations are mitigated due to the stability of the countries in which the
Companys largest foreign operations are located.
The Company has no foreign currency forward exchange contracts outstanding at March 31, 2007. The
Company does not hold derivatives for trading purposes.
The Company is exposed to market risk, including changes in interest rates. The Company is subject
to interest rate risk on its variable rate revolving credit facilities and term notes, which
consisted of borrowings of $8.7 million at March 31, 2007. A 100 basis point increase in the
interest rate would have resulted in an increase in interest expense of less than $.1 million for
the three-month period ended March 31, 2007.
The Companys primary currency rate exposures are related to foreign denominated debt, intercompany
debt, foreign exchange contracts, foreign denominated receivables, and cash and short-term
investments. A hypothetical 10% change in currency rates would have a favorable/unfavorable impact
on fair values of $1.5 million and on income before income taxes of less than $.1 million.
ITEM 4. CONTROLS AND PROCEDURES
An evaluation was performed under the supervision and with the participation of the Companys
management, including the Chief Executive Officer and Vice President of Finance, of the
effectiveness of the Companys disclosure controls and procedures (as defined in Securities and
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2007. Based on the evaluation, the
Companys management, including the Chief Executive Officer and Vice President of Finance,
concluded that the Companys disclosure controls and procedures were effective as of March 31,
2007.
There were no changes in the Companys internal control over financial reporting during the quarter
ended March 31, 2007 that materially affected or are reasonably likely to materially affect the
Companys internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that arise in the ordinary course of
business. In the opinion of management, the amount of any ultimate liability with respect to these
actions will not materially affect our financial condition or results of operations.
ITEM 1A. RISK FACTORS
There were no material changes from the risk factors previously disclosed in the Companys 10-K for
the fiscal year ended December 31, 2006 filed on March 15, 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On February 15, 2007, the Board of Directors authorized a plan to repurchase up to 200,000 shares
of Preformed Line Products Company, superseding any previously authorized plan, including the
December 2004 plan. The repurchase plan does not have an expiration date. The following
table includes repurchases for the three-month period ending March 31, 2007.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Purchases of Equity Securities |
|
|
|
|
|
|
|
|
|
|
Total Number of Shares |
|
Maximum Number of |
|
|
Total Number |
|
|
|
|
|
Purchased as Part of |
|
Shares that may yet be |
|
|
of Shares |
|
Average Price |
|
Publicly Announced |
|
Purchased under the |
Period |
|
Purchased |
|
Paid per Share |
|
Plans or Programs |
|
Plans or Programs |
January |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
February |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000 |
|
March |
|
|
2,022 |
|
|
$ |
33.63 |
|
|
|
2,022 |
|
|
|
197,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
2.1 |
|
Stock Purchase Agreement, dated March 22, 2007, by and among the Company and Claudia W.
Goodreau, Kevin M. Goodreau, Dora Ely Randall and Jeffrey J. Randall to acquire Direct Power
and Water Corporation. |
|
31.1 |
|
Certifications of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith. |
|
31.2 |
|
Certifications of the Principal Financial Officer, Eric R. Graef, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith. |
|
32.1 |
|
Certification of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, furnished. |
|
32.2 |
|
Certification of the Principal Accounting Officer, Eric R. Graef, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished. |
18
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 the Company files with the Securities and Exchange Commission
contain forward-looking statements regarding the Companys and managements 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 Companys
operations and business environment, all of which are difficult to predict and many of which are
beyond the Companys control. Such uncertainties and factors could cause the Companys 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 Companys future performance and
cause the Companys actual results to differ materially from those expressed or implied by
forward-looking statements made in this report:
|
|
|
The overall demand for cable anchoring and control hardware for electrical transmission
and distribution lines on a worldwide basis, which has a slow growth rate in mature markets
such as the United States, Canada, and Western Europe; |
|
|
|
|
The effect on the Companys business resulting from economic uncertainty within Latin American regions; |
|
|
|
|
Technology developments that affect longer-term trends for communication lines such as wireless communication; |
|
|
|
|
The Companys success at continuing to develop proprietary technology to meet or exceed
new industry performance standards and individual customer expectations; |
|
|
|
|
The rate of progress in continuing to modify the Companys cost structure to maintain
and enhance the Companys competitiveness; |
|
|
|
|
The Companys success in strengthening and retaining relationships with the Companys
customers, growing sales at targeted accounts and expanding geographically; |
|
|
|
|
The extent to which the Company is successful in expanding the Companys product line into new areas; |
|
|
|
|
The Companys ability to identify, complete and integrate acquisitions for profitable growth; |
|
|
|
|
The potential impact of consolidation, deregulation and bankruptcy among the Companys suppliers, competitors and customers; |
|
|
|
|
The relative degree of competitive and customer price pressure on the Companys products; |
|
|
|
|
The cost, availability and quality of raw materials required for the manufacture of products; |
|
|
|
|
The effects of fluctuation in currency exchange rates upon the Companys reported
results from international operations, together with non-currency risks of investing in and
conducting significant operations in foreign countries, including those relating to
political, social, economic and regulatory factors; |
|
|
|
|
Changes in significant government regulations affecting environmental compliances; |
|
|
|
|
The Companys ability to compete in the domestic data communication market; |
|
|
|
|
The telecommunication markets continued deployment of Fiber-to-the-Premises; |
|
|
|
|
Those factors described under the heading Risk Factors on page 12 of the Companys
Form 10-K for the fiscal year ended December 31, 2006 filed on March 15, 2007. |
19
SIGNATURES
Pursuant to the requirements 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.
|
|
|
|
|
|
|
|
May 10, 2007 |
/s/ Robert G. Ruhlman
|
|
|
Robert G. Ruhlman |
|
|
Chairman, President and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
|
May 10, 2007 |
/s/ Eric R. Graef
|
|
|
Eric R. Graef |
|
|
Vice
President - Finance and Treasurer (Principal
Accounting Officer) |
|
|
20
EXHIBIT INDEX
2.1 |
|
Stock Purchase Agreement, dated March 22, 2007, by and among the Company and Claudia W.
Goodreau, Kevin M. Goodreau, Dora Ely Randall and Jeffrey J. Randall to acquire Direct Power
and Water Corporation. |
|
31.1 |
|
Certifications of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith. |
|
31.2 |
|
Certifications of the Principal Financial Officer, Eric R. Graef, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith. |
|
32.1 |
|
Certification of the Principal Executive Officer, Robert G. Ruhlman, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, furnished. |
|
32.2 |
|
Certification of the Principal Accounting Officer, Eric R. Graef, pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, furnished. |
21