PREFORMED LINE PRODUCTS CO - Quarter Report: 2007 September (Form 10-Q)

 

 

For the quarterly period ended September 30, 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(Registrant’s 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 o     No þ

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 January 4, 2008: 5,381,456.

 

 

Table of Contents

				Page
Part I — Financial Information
Item 1.		Financial Statements and Supplementary Data			3
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3.		Quantitative and Qualitative Disclosures About Market Risk			21
Item 4.		Controls and Procedures			22
Part II — Other Information
Item 1.		Legal Proceedings			22
Item 1A.		Risk Factors			23
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			23
Item 3.		Defaults Upon Senior Securities			23
Item 4.		Submission of Matters to a Vote of Security Holders			23
Item 5.		Other Information			23
Item 6.		Exhibits			23
SIGNATURES					26

		September 30,				December 31,
Thousands of dollars, except share data		2007				2006
ASSETS
Cash and cash equivalents		$	20,574			$	29,949
Accounts receivable, less allowances of $1,853 ($1,209 in 2006)			43,768				30,029
Inventories — net			53,435				40,415
Deferred income taxes			3,885				2,528
Prepaids and other			4,677				2,504
TOTAL CURRENT ASSETS			126,339				105,425
Property and equipment — net			60,451				52,810
Deferred income taxes			3,795				5,145
Goodwill — net			6,128				2,166
Patents and other intangibles — net			2,716				2,546
Other assets			2,837				2,760
TOTAL ASSETS		$	202,266			$	170,852
LIABILITIES AND SHAREHOLDERS’ EQUITY
Notes payable to banks		$	4,322			$	3,738
Current portion of long-term debt			1,434				2,157
Trade accounts payable			17,073				11,606
Accrued compensation and amounts withheld from employees			7,992				5,556
Accrued expenses and other liabilities			6,093				4,225
Accrued profit-sharing and other benefits			3,779				3,596
Dividends payable			1,076				1,072
Income taxes			1,724				1,129
TOTAL CURRENT LIABILITIES			43,493				33,079
Long-term debt, less current portion			3,523				2,204
Deferred income taxes			566				439
Unfunded pension liabilities			4,465				3,982
Unrecognized tax benefits			1,896				—
Other non-current liabilities			1,026				—
Minority interest			961				—
SHAREHOLDERS’ EQUITY
Common shares — $2 par value, 15,000,000 shares authorized, 5,378,456 and 5,360,259 issued and outstanding, net of 373,333 and 365,311 treasury shares at par, respectively			10,757				10,721
Paid in capital			2,429				1,562
Retained earnings			140,716				131,949
Accumulated other comprehensive loss			(7,566	)			(13,084	)
TOTAL SHAREHOLDERS’ EQUITY			146,336				131,148
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	202,266			$	170,852

See notes to consolidated financial statements.

		Three month periods ended September 30,								Nine month periods ended September 30,
In thousands, except per share data		2007				2006				2007				2006
Net sales		$	66,099			$	56,439			$	186,383			$	165,172
Cost of products sold			43,316				37,677				123,631				111,493
GROSS PROFIT			22,783				18,762				62,752				53,679
Costs and expenses
Selling			6,208				5,475				18,789				16,872
General and administrative			6,736				5,680				19,101				17,347
Research and engineering			2,026				1,928				6,029				5,807
Other operating expenses (income) — net			(169	)			136				121				318
			14,801				13,219				44,040				40,344
Royalty income — net			345				287				1,487				1,004
OPERATING INCOME			8,327				5,830				20,199				14,339
Other income (expense)
Interest income			279				389				853				1,144
Interest expense			(140	)			(164	)			(437	)			(399	)
Other expense — net			(9	)			(19	)			(22	)			(53	)
			130				206				394				692
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST			8,457				6,036				20,593				15,031
Income taxes			2,769				2,027				7,371				4,972
INCOME BEFORE MINORITY INTEREST			5,688				4,009				13,222				10,059
Minority interest			24				—				24				—
NET INCOME		$	5,664			$	4,009			$	13,198			$	10,059
Net income per share — basic		$	1.05			$	0.71			$	2.46			$	1.77
Net income per share — diluted		$	1.04			$	0.70			$	2.44			$	1.75
Cash dividends declared per share		$	0.20			$	0.20			$	0.60			$	0.60
Weighted average number of shares outstanding — basic			5,379				5,638				5,369				5,696
Weighted average number of shares outstanding — diluted			5,437				5,688				5,418				5,746

See notes to consolidated financial statements.

		Nine Month Periods Ended September 30,
Thousands of dollars		2007				2006
OPERATING ACTIVITIES
Net income		$	13,198			$	10,059
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization			5,642				5,162
Deferred income taxes			231				(656	)
Stock based compensation expense			188				193
Net investment in life insurance			71				72
Other — net			88				(93	)
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable			(9,998	)			(9,765	)
Inventories			(7,275	)			(1,158	)
Trade accounts payables and accrued liabilities			5,149				1,975
Income taxes			1,412				2,860
Other — net			(635	)			(765	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			8,071				7,884
INVESTING ACTIVITIES
Capital expenditures			(6,958	)			(8,463	)
Business acquisitions, net of cash received			(8,443	)			—
Proceeds from the sale of property and equipment			152				378
NET CASH USED IN INVESTING ACTIVITIES			(15,249	)			(8,085	)
FINANCING ACTIVITIES
Increase (decrease) in notes payable to banks			(111	)			1,388
Proceeds from the issuance of long-term debt			1,311				3,038
Payments of long-term debt			(1,309	)			(2,875	)
Dividends paid			(3,219	)			(3,435	)
Excess tax benefits from stock based awards			193				—
Issuance of common shares			487				102
Purchase of common shares for treasury			(328	)			(12,141	)
NET CASH USED IN FINANCING ACTIVITIES			(2,976	)			(13,923	)
Effects of exchange rate changes on cash and cash equivalents			779				558
Decrease in cash and cash equivalents			(9,375	)			(13,566	)
Cash and cash equivalents at beginning of year			29,949				39,592
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	20,574			$	26,026

See notes to consolidated financial statements.

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. 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 nine month period ended September 30, 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 Company’s Form 10-K/A for 2006 filed on January 4, 2008 with the Securities and Exchange Commission.

NOTE B — OTHER FINANCIAL STATEMENT INFORMATION

Inventories

		September 30,				December 31,
		2007				2006
Finished goods		$	22,395			$	17,044
Work-in-process			3,270				1,844
Raw material			31,570				25,431
			57,235				44,319
Excess of current cost over LIFO cost			(3,800	)			(3,904	)
		$	53,435			$	40,415

During 2007, management’s comprehensive review of the components of the Company’s Brazil operation’s excess and obsolescence reserve calculation discovered that the details of the reserve account included an inappropriate reserve of $.6 million at December 31, 2006. Based on the timing of the completion of certain aspects of this review, the Company recorded a $.4 million adjustment in the first quarter of 2007 and a $.2 million adjustment in the second quarter of 2007 related to the excess and obsolete reserve at December 31, 2006. Management determined that the total year-to-date adjustments related to Brazil’s excess and obsolete reserve of $.6 million were not material, quantitatively or qualitatively, to prior periods and are not expected to be material to the annual 2007 results of operations.

Property and equipment

Major classes of property, plant and equipment are stated at cost and were as follows:

		September 30,				December 31,
		2007				2006
Land and improvements		$	9,377			$	8,422
Buildings and improvements			46,167				41,941
Machinery and equipment			111,839				101,339
Construction in progress			6,888				2,629
			174,271				154,331
Less accumulated depreciation			113,820				101,521
		$	60,451			$	52,810

Comprehensive Income

The components of comprehensive income are as follows:

		Three month periods ended September 30,								Nine month periods ended September 30,
		2007				2006				2007				2006
Net income		$	5,664			$	4,009			$	13,198			$	10,059
Other comprehensive income:
Foreign currency adjustments			2,521				683				5,596				1,824
Net actuarial loss			(78	)			—				(78	)			—
Comprehensive income		$	8,107			$	4,692			$	18,716			$	11,883

Guarantees

Product warranty balance at January 1, 2007		$	82
Additions charged to Cost of products sold			145
Deductions			(35	)
Product warranty balance at September 30, 2007		$	192

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 Company’s domestic plan included the following components:

		Three month periods ended September 30,								Nine month periods ended September 30,
		2007				2006				2007				2006
Service cost		$	177			$	209			$	531			$	595
Interest cost			235				222				704				676
Expected return on plan assets			(235	)			(217	)			(704	)			(654	)
Net periodic benefit cost		$	177			$	214			$	531			$	617

As of September 30, 2007, $.1 million of contributions have been made. 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 September 30,								Nine month periods ended September 30,
		2007				2006				2007				2006
Numerator
Net income		$	5,664			$	4,009			$	13,198			$	10,059
Denominator
Determination of shares
Weighted average common shares outstanding			5,379				5,638				5,369				5,696
Dilutive effect — employee stock options			58				50				49				50
Diluted weighted average common shares outstanding			5,437				5,688				5,418				5,746
Earnings per common share
Basic		$	1.05			$	0.71			$	2.46			$	1.77
Diluted		$	1.04			$	0.70			$	2.44			$	1.75

NOTE E — GOODWILL AND OTHER INTANGIBLES

The Company had performed its 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 aggregate amortization expense for other intangibles with finite lives for each of the three months ended September 30, 2007 and 2006 was $.1 million, and for each of the nine months ended September 30, 2007 and 2006 was $.2 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, as of the periods ended:

		September 30, 2007				December 31, 2006
Intangible assets — primarily patents		$	5,442			$	5,026
Accumulated amortization			(2,726	)			(2,480	)
Total amoritized intangible assets		$	2,716			$	2,546

The Company’s only intangible asset with an indefinite life is goodwill. The Company’s additions of $3.7 million to goodwill are related to the acquisition of Direct Power and Water Corporation (DPW) in the amount of $2.6 million and the acquisition of Belos SA of $1.2 million (see Note J — Business Combinations for further details).The changes in the carrying amount of goodwill for the nine month period ended September 30, 2007, is as follows:

		Australia				South Africa				All Other				Total
Balance at January 1, 2007		$	257			$	55			$	1,854			$	2,166
Additions			—				—				3,740				3,740
Curency translation			—				1				221				222
Balance at September 30, 2007		$	257			$	56			$	5,815			$	6,128

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 September 30, 2007 there were 22,000 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.

There were 20,000 options granted during the nine months ended September 30, 2007. There were no options granted during the nine months ended September 30, 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			2.9	%
Expected life (years)			6
Expected volatility			37.9	%

Activity in the Company’s stock option plan for the nine months ended September 30, 2007 was as follows:

										Weighted
										Average
						Weighted				Remaining
						Average				Contractual				Aggregate
		Number of				Exercise Price				Term				Intrinsic
		Shares				per Share				(Years)				Value
Outstanding at January 1, 2007			130,811			$	23.43
Granted			20,000			$	37.44
Exercised			(27,369	)		$	21.55
Forfeited			—
Outstanding (vested and expected to vest) at September 30, 2007			123,442			$	26.11				6.7			$	3,198
Exercisable at September 30, 2007			90,692			$	21.98				5.3			$	2,724

The weighted—average grant-date fair value of options granted during 2007 was $11.93. The total intrinsic value of stock options exercised during the nine months ended September 30, 2007 and 2006 was $.7 million and $.2 million, respectively. Cash received for the exercise of stock options during 2007 was $.5 million. The total fair value of stock options that vested during the nine months ended September 30, 2007 and 2006 was $.1 million and $.3 million, respectively.

For the nine months ended September 30, 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 $.2 million. For the nine months ended September 30, 2007 and 2006, the impact on earnings per share was a reduction of $.03 per share, basic and diluted. The total compensation cost related to nonvested awards not yet recognized at September 30, 2007 is expected to be a combined total of $.3 million over a weighted-average period of 2 years.

The excess tax benefits from stock based awards for the nine months ended September 30, 2007 of $.2 million, as reported on the consolidated statements of cash flows in financing activities, represents the reduction in income taxes otherwise payable during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits for options exercised in the current period.

Activity for nonvested stock options for the nine months ended September 30, 2007 was as follows:

						Weighted-
						average
						grant-date
		Number of				fair value
		Shares				per share
Nonvested at January 1, 2007			28,000			$	10.61
Granted			20,000			$	11.93
Vested			(15,250	)		$	9.32
Forfeited			—				—
Nonvested at September 30, 2007			32,750			$	11.91

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 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 entity’s 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 2004.

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 nine months ended September 30, 2006 was an increase to net income of $31 thousand in the PLP-USA segment.

NOTE I —SEGMENT INFORMATION

The following table presents a summary of the Company’s reportable segments for the three month periods and nine month periods ended September 30, 2007 and 2006. Prior year amounts have been restated to reflect the current seven reportable segments. Financial results for the PLP-USA segment include the elimination of all segments’ intercompany profits in inventory.

		Three month periods ended September 30,								Nine month periods ended September 30,
		2007				2006				2007				2006
Net sales
PLP-USA		$	24,995			$	23,805			$	79,001			$	69,804
SMP			5,686				5,363				15,919				15,919
Australia			4,800				5,492				12,995				11,326
Brazil			7,396				4,396				18,738				16,079
South Africa			2,562				2,140				5,832				6,654
Canada			2,782				2,536				7,721				7,034
All Other			17,878				12,707				46,177				38,356
Total net sales		$	66,099			$	56,439			$	186,383			$	165,172
Intersegment sales
PLP-USA		$	1,472			$	1,333			$	4,536			$	4,119
SMP			47				103				157				400
Australia			15				53				98				209
Brazil			335				245				1,262				834
South Africa			205				192				637				303
Canada			21				43				60				338
All Other			2,423				1,362				7,091				4,247
Total intersegment sales		$	4,518			$	3,331			$	13,841			$	10,450

		Three month periods ended September 30,								Nine month periods ended September 30,
		2007				2006				2007				2006
Interest income
PLP-USA		$	125			$	245			$	443			$	725
SMP			15				15				48				24
Australia			—				3				8				11
Brazil			58				39				98				174
South Africa			19				13				59				26
Canada			21				48				67				117
All Other			41				26				130				67
Total interest income		$	279			$	389			$	853			$	1,144
Interest expense
PLP-USA		$	(15	)		$	(6	)		$	(30	)		$	(23	)
SMP			—				—				—				—
Australia			(22	)			(30	)			(58	)			(89	)
Brazil			(1	)			—				(19	)			(2	)
South Africa			—				(2	)			—				(2	)
Canada			—				—				—				—
All Other			(102	)			(126	)			(330	)			(283	)
Total interest expense		$	(140	)		$	(164	)		$	(437	)		$	(399	)
Income Taxes
PLP-USA		$	1,255			$	899			$	3,790			$	1,852
SMP			64				57				131				182
Australia			122				207				194				241
Brazil			304				50				765				494
South Africa			205				164				460				539
Canada			259				261				653				671
All Other			560				389				1,378				993
Total income taxes		$	2,769			$	2,027			$	7,371			$	4,972
Net Income
PLP-USA		$	2,272			$	1,535			$	5,651			$	3,419
SMP			96				85				143				281
Australia			246				460				412				537
Brazil			762				163				1,607				1,090
South Africa			369				383				992				1,258
Canada			448				452				1,128				1,160
All Other			1,471				931				3,265				2,314
Total net income		$	5,664			$	4,009			$	13,198			$	10,059
										September 30,				December 31,
										2007				2006
Identifiable assets
PLP-USA										$	72,668			$	73,005
SMP											13,257				12,809
Brazil											18,118				12,161
South Africa											5,268				4,103
Canada											7,925				6,637
All Other											85,030				62,137
Total assets										$	202,266			$	170,852

The identifiable assets for the Company’s Australia segment as of September 30, 2007 and December 31, 2006 have been included in All Other because the information is not separately maintained.

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 Company’s consolidated balance sheet as of September 30, 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 September 30, 2007 is as follows:

		Preliminary Value
		of Net Assets
		Acquired
Cash		$	75
Accounts receivable			475
Inventories			693
Prepaids and other			5
Property and equipment			223
Goodwill			2,569
Total assets			4,040
Notes payable to banks			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 consolidated financial statements for the three month and nine month periods ended September 30, 2007 only include results of DPW from the acquisition date. 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 All Other category for segment disclosures.

On April 22, 2007, the Company entered into a Stock Purchase Agreement for $6 million to acquire approximately 83.74% of the issued and outstanding shares of Belos SA, a Polish company that manufacturers and supplies fittings for low, medium and high voltage power networks in its domestic and export markets. The agreement was closed September 6, 2007.

The Company’s consolidated balance sheet as of September 30, 2007 reflects the acquisition of Belos SA under the purchase method of accounting. The Company recorded various assets acquired and liabilities assumed of Belos SA. 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 but it is most likely that the value of inventory, property and equipment will increase and goodwill as presently recorded will decrease.

The preliminary value of assets acquired and liabilities assumed in connection with the Belos SA acquisition as of September 30, 2007 is as follows:

		Preliminary Value
		of Net Assets
		Acquired
Cash		$	103
Accounts receivable			2,975
Inventories			2,811
Prepaids and other			149
Property and equipment			3,050
Other long term assets			83
Goodwill			1,171
Total assets			10,342
Notes payable to bank			150
Trade accounts payable			1,863
Accrued compensation and amounts withheld from employees			396
Accrued expenses and other liabilities			293
Other long term liabilities			622
Deferred income taxes			35
Income taxes payable			45
Minority interest			938
Total liabilities			4,342
Increase in net assets from acquisition		$	6,000

Annualized unaudited 2006 net revenues of Belos SA were approximately $14 million. The consolidated financial statements for the three month and nine month periods ended September 30, 2007 only include results of Belos SA from the acquisition date. 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. Belos SA is included in the All Other category for segment disclosures.

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Our consolidated financial results for the quarter ended September 30, 2007 incorporated the financial results of our solar energy operation (Direct Power and Water Corporation) acquired on March 22, 2007 as well as the results of Belos SA acquired on September 6, 2007. The results of both these operations are included in our All Other segment.

Our sales for the quarter ended September 30, 2007 increased 17% and gross profit increased 21% compared to the same period in 2006. Net sales increased in all of our segments with the exception of Australia. Net sales increased primarily as a result of incorporating the sales from our newly acquired solar energy operation and Belos SA, the favorable impact of the conversion of local currencies to the U.S. dollar and improved sales into PLP-USA energy and telecommunications markets. The 21% increase in gross profit was partially offset by a 12% increase in costs and expenses resulting in an increase in net income of 41%, or $.35 per diluted share, when compared to the quarter ended

September 30, 2006.

For the nine months ended September 30, 2007, our net sales increased 13% and gross profit increased 17% compared to the same period in 2006. The increase in gross profit was partially offset by a 9% increase in costs and expenses resulting in an increase in net income of 31%, or $.69 per diluted share, when compared to the same period in 2006.

THREE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2006

For the three months ended September 30, 2007, net sales were $66.1 million, an increase of $9.7 million, or 17%, from the same period in 2006 as summarized in the following table:

		Three month periods ended September 30,
thousands of dollars														Change
														due to
														currency								%
														conversion				Net				Net
		2007				2006				Change				rate changes				change				change
Net sales
PLP-USA		$	24,995			$	23,805			$	1,190				—			$	1,190				5	%
SMP			5,686				5,363				323				—				323				6
Australia			4,800				5,492				(692	)			502				(1,194	)			(22	)
Brazil			7,396				4,396				3,000				857				2,143				49
South Africa			2,562				2,140				422				16				406				19
Canada			2,782				2,536				246				179				67				3
All Other			17,878				12,707				5,171				1,028				4,143				33
Consolidated		$	66,099			$	56,439			$	9,660			$	2,582			$	7,078				13	%

The increase in PLP-USA net sales of $1.2 million, or 5%, was primarily due to increases in price and mix in our energy markets and telecommunications markets. We are beginning to see sales slowing in the distribution sector of the domestic energy market as it relates to new home construction. In the domestic telecommunications markets, we believe many of the large carriers are placing greater emphasis on building out fiber networks rather than maintaining the existing copper based infrastructure. Our SMP net sales increased $.3 million, or 6%, due to increased sales volume. Foreign net sales were favorably impacted by $2.6 million when local currency was converted to U.S. dollars as a result of the weaker U.S. dollar compared to certain currencies when compared to the third quarter 2006 conversion rates. Beginning in 2006 we experienced an increase in demand in many of our foreign energy markets and anticipate the strong level of demand to continue for the remainder of 2007 and into 2008. We continue to confront aggressive pricing pressures from our competition in our foreign energy markets. Excluding the effect of currency conversion, Australia net sales decreased $1.2 million, or 22%, primarily due to a volume decrease in energy sales. Brazil net sales increased $2.1 million, or 49%, and South Africa net sales increased $.4 million, or 19%, primarily as a result of increased sales volume. Excluding the effect of currency conversion, Canada net sales increased $.1 million compared to the same period in 2006. All Other net sales of $17.9 million increased $5.2 million, or 41%, compared to 2006 primarily as a result of including the $3.8 million of net sales from the acquisition of our solar energy operation on March 22, 2007 and our acquisition of Belos SA on September 6, 2007 and a $1 million favorable impact when certain local currencies were converted to U.S. dollars when compared to the third quarter 2006 conversion rates.

Gross profit of $22.8 million for the three months ended September 30, 2007 increased $4 million, or 21%, compared to the same period in 2006. PLP-USA gross profit of $9.3 million increased $1.6 million, or 21%, compared to 2006. PLP-USA gross profit increased $.4 million due to higher net sales and $1.2 million due to lower per unit manufacturing cost as a result of higher production volumes. SMP gross profit of $1.2 million decreased $.1 million due primarily to higher material costs. Foreign gross profit was favorably impacted by $.9 million when local currency was converted to U.S. dollars when compared to the third quarter 2006 conversion rates. Australia gross profit of $1.5 million decreased $.3 million primarily as a result of a $.4 million decrease in gross profit due to lower sales partially offset by the favorable effect of currency conversion. Brazil gross profit increased $1 million primarily as a result of a $.7 million increase in gross profit on increased sales and a $.3 million favorable effect of currency conversion rates

when compared to the same period in 2006. South Africa gross profit of $1 million increased $.1 million primarily due to an increase in gross profit on increased sales. Canada gross profit of $1.3 million increased $.1 million primarily due to the increase in gross profit on higher net sales. All Other gross profit of $6.1 million increased $1.6 million primarily as a result of a $.4 million favorable impact of converting certain foreign currency into U.S. dollars conversion rates compared to the same period in 2006 and a $1.4 million increase in gross profit on increased net sales. We continue to believe the costs of some raw material are beginning to stabilize and we anticipate a slower overall rate of cost increase for raw materials during the remainder of 2007.

Costs and expenses of $14.8 million for the three months ended September 30, 2007 increased $1.6 million, or 12%, compared to the previous year as summarized in the following table:

		Three months ended September 30,
thousands of dollars														Change
															due to
														currency								%
														conversion				Net				Net
		2007				2006				Change				rate changes				change				change
Costs and expenses
PLP-USA		$	7,032			$	6,551			$	481				—			$	481				7	%
SMP			1,430				1,545				(115	)			—				(115	)			(7	)
Australia			925				888				37				98				(61	)			(7	)
Brazil			1,284				1,145				139				142				(3	)			—
South Africa			373				307				66				2				64				21
Canada			441				342				99				28				71				21
All Other			3,315				2,441				874				213				661				27
Consolidated		$	14,800			$	13,219			$	1,581			$	483			$	1,098				8	%

The increase in PLP-USA costs and expenses was primarily due to a $.2 million increase in commission expense on increased sales, a $.4 million increase in personnel related expenses and a $.4 million increase in bad debt expenses as a result of recoveries made in 2006 which had previously been written off. These increases were partially offset by a $.2 million decrease in third party product testing, a $.1 million decrease in sales promotion and advertising expense and a $.2 million decrease in other operating expenses related to the write-down of certain assets in 2006 associated with certain products being removed from the market. SMP costs and expenses decreased $.1 million primarily due to a reduction in personnel expense. The change in costs and expenses at Australia, Brazil, South Africa and Canada excluding the impact of the currency conversion rate were less than $.1 million. All Other costs and expenses increased $.7 million net of the unfavorable impact of the currency conversion rate change primarily due to a $.4 million increase from the inclusion of our solar energy operations and Belos SA in our consolidated financial statements and a $.2 million increase in personnel expenses at all other operations.

Royalty income — net for the quarter ended September 30, 2007 of $.3 million increased $.1 million compared to the same period in 2006 due to increased data-communication royalty income for SMP.

Operating income of $8.3 million for the quarter ended September 30, 2007 increased $2.5 million, or 43%, compared to the same period in 2006. This increase was a result of the increase in gross profit of $4 million partially offset by the increase in costs and expenses of $1.5 million. PLP-USA operating income of $3.4 million increased $1.2 million due to the increase in gross profit of $1.6 million and a $.1 million increase in intercompany royalty income partially offset by the $.5 million increase in costs and expenses. SMP operating income remained relatively flat compared to the same period in 2006 as the decrease in costs and expenses and the increase in royalty income offset the decrease in gross profit. Australia operating profit decreased $.3 million as a result of a decrease in gross profit. Brazil operating income increased $.8 million as a result of the $1 million increase in gross profit partially offset by a $.2 million increase in costs and expenses and intercompany royalty expense. South Africa and Canada operating income remained relatively flat compared to the same period in 2006. All Other operating income increased $.7 million primarily as a result of the $1.6 million increase in gross profit partially offset by a $.9 million increase in costs and expenses and intercompany royalty expense.

Other income of $.1 million for the three months ended September 30, 2007 decreased $.1 million as a result of a decrease in interest income net of interest expense.

Income taxes for the three months ended September 30, 2007 of $2.8 million were $.8 million higher than the same period in 2006 as a result of $2.4 million of additional income before tax. The effective tax rate for the three months ended September 30, 2007 was 33% compared to 34% in 2006. The effective tax rate for three months ended September 30, 2007 is lower than the statutory federal rate of 34% primarily due to the additional tax benefits related to the reversal of uncertain tax positions as a result of the expiration of certain statutes of limitations.

As a result of the preceding items, net income for the three month period September 30, 2007 was $5.7 million, or $1.04 per diluted share, compared to net income of $4 million, or $.70 per diluted share for the same period in 2006. PLP-USA net income of $2.3 million increased $.7 million compared to the same period in 2006 as a result of a $1.2 million increase in operating income partially offset by a $.1 million decrease in interest income and a $.4 million increase in income taxes. SMP net income of $.1 million, South Africa net income of $.4 million and Canada net income of $.4 million remained relative flat compared to same period in 2006. Australia net income of $.2 million decreased $.2 million compared to the same period in 2006 primarily due to a $.3 million decrease in operating income partially offset by a $.1 million decrease in income taxes. Brazil net income of $.8 million increased $.6 million compared to the same period in 2006 as a result of a $.8 million increase in operating income partially offset by an increase in income taxes. All Other net income of $1.5 million increased $.5 million compared to the same period in 2006 as a result of a $.7 million increase in operating income partially offset by a increase in income taxes.

NINE MONTHS ENDED SEPTEMBER 30, 2007 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2006

For the nine months ended September 30, 2007, net sales were $186.4 million, an increase of $21.2 million, or 13%, from the same period in 2006 as summarized in the following table:

		Nine month periods ended September 30,
thousands of dollars														Change
														due to
														currency								%
														conversion				Net				Net
		2007				2006				Change				rate changes				change				change
Net sales
PLP-USA		$	79,001			$	69,804			$	9,197				—			$	9,197				13	%
SMP			15,919				15,919				—				—				—				—
Australia			12,995				11,326				1,669				1,155				514				5
Brazil			18,738				16,079				2,659				1,619				1,040				6
South Africa			5,832				6,654				(822	)			(439	)			(383	)			(6	)
Canada			7,721				7,034				687				202				485				7
All Other			46,177				38,356				7,821				2,935				4,886				13
Consolidated		$	186,383			$	165,172			$	21,211			$	5,472			$	15,739				10	%

PLP-USA net sales of $79 million increased $9.2 million, or 13%. The increase in PLP-USA sales for the nine month period ended September 30, 2007 is mostly due to increased volume compared to 2006. Sales in our energy markets increased 24% and sales in our telecommunications markets increased 8%. SMP net sales of $15.9 million were relatively flat compared to 2006. Foreign net sales were favorably impacted by $5.5 million when local currency was converted to U.S. dollars as a result of the weaker U.S. dollar compared to certain currencies when compared to the 2006 conversion rates for the same period. Australia net sales of $13 million increased $.5 million on increased sales volume and were favorably impacted by $1.2 million due to the change in conversion rates compared to the same period in 2006. Brazil net sales of $18.7 million increased $2.7 million primarily due to a $1.1 million increase in sales volume and $1.6 million favorable impact due to the change in conversion rates compared to the same period in 2006. South Africa net sales of $5.8 million declined $.8 million as a result of a $.4 million decrease in sales volume and a $.4 million unfavorable impact due to the change in conversion rates compared to the same period in 2006.

Canada net sales of $7.7 million increased $.7 million compared to the same period in 2006 on increased volume of $.5 million and a $.2 million favorable impact due to the change in conversion rates compared to the same period in 2006. All Other net sales increased $7.8 primarily as a result of a $2.9 million favorable impact due to the change in conversion rates compared to the same period in 2006 when certain currencies were converted to U.S. dollars. Excluding the effect of currency conversion, All Other net sales increased $4.9 million compared to the same period in 2006 due to the inclusion of the $5.3 million in sales from our solar energy operation and from Belos S.A. partially offset by $.4 million lower volume in our energy markets at all other operating locations.

Gross profit of $62.8 million for the nine months ended September 30, 2007 was an increase of $9.1 million, or 17%, compared to last year. PLP-USA gross profit increased $6 million, or 27%, compared to the same period in 2006. PLP-USA gross profit increased $2.9 million due to higher net sales and $3.1 million due to lower per unit manufacturing cost as a result of higher production volumes. SMP gross profit decreased $1.1 million, or 27%, primarily due to sales mix and increased material costs. Australia gross profit increased $.1 million primarily as a result of a $.2 million increase in gross profit on increased sales and a $.3 million favorable impact due to the change in the currency conversion rate compared to the same period in 2006 partially offset by a $.4 million increase in material cost and manufacturing expenses. Brazil gross profit increased $1.1 million primarily as a result of a $.3 million increase in gross profit on increased sales, a $.5 million favorable impact due to the currency conversion rate compared to the same period in 2006 and a $.6 million total year-to-date 2007 inventory adjustment partially offset by increased manufacturing expenses. During 2007, management’s comprehensive review of the components of the Company’s Brazil operation’s excess and obsolescence reserve calculation discovered that the details of the reserve account included an inappropriate reserve of $.6 million at December 31, 2006. Based on the timing of the completion of certain aspects of the review, the company recorded a $.4 million adjustment in the first quarter of 2007 and an additional adjustment of $.2 million in the second quarter of 2007 related to the excess and obsolete reserve. Management determined that the total year-to-date adjustments related to Brazil’s excess and obsolete reserve of $.6 million were not material, quantitatively or qualitatively, to prior periods and are not expected to be material to the annual 2007 results of operations. South Africa gross profit decreased $.5 million primarily as a result of a $.2 million decrease in gross profit on lower net sales, a $.2 million unfavorable impact due to the change in the currency conversion rate compared to the same period in 2006 and a $.1 million increase in manufacturing expenses. Canada gross profit increased $.2 million primarily due to the increase in net sales. All Other gross profit increased $3.1 million primarily as a result of a $1 million favorable impact due to the change in conversion rates compared to the same period in 2006 when certain currencies were converted to U.S. dollars, a $1.7 million increase due to increased sales and $.4 million improvement in margin due to product mix and increased production volumes.

Costs and expenses of $44 million for the nine months ended September 30, 2007 increased $3.7 million, or 9%, compared to the previous year as summarized in the following table:

		Nine months ended September 30,
thousands of dollars														Change
														due to
														currency								%
														conversion				Net				Net
		2007				2006				Change				rate changes				change				change
Costs and expenses
PLP-USA		$	22,179			$	20,435			$	1,744				—			$	1,744				9	%
SMP			4,219				4,587				(368	)			—				(368	)			(8	)
Australia			2,698				2,431				267				244				23				1
Brazil			3,293				3,101				192				273				(81	)			(3	)
South Africa			931				966				(35	)			(75	)			40				4
Canada			1,244				1,044				200				31				169				16
All Other			9,476				7,780				1,696				620				1,076				14
Consolidated		$	44,040			$	40,344			$	3,696			$	1,093			$	2,603				6	%