PREFORMED LINE PRODUCTS CO - Quarter Report: 2009 June (Form 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 June 30, 2009

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

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

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 August 1, 2009: 5,236,939.

 

 

Table of Contents

		Page
Part I — Financial Information
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			17
Item 3. Quantitative and Qualitative Disclosures About Market Risk			27
Item 4. Controls and Procedures			27
Part II — Other Information
Item 1. Legal Proceedings			27
Item 1A. Risk Factors			27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 3. Defaults Upon Senior Securities			28
Item 4. Submission of Matters to a Vote of Security Holders			28
Item 5. Other Information			28
Item 6. Exhibits			29
SIGNATURES			32
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

PREFORMED LINE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

		June 30				December 31
Thousands of dollars, except share and per share data		2009				2008
ASSETS
Cash and cash equivalents		$	27,701			$	19,869
Accounts receivable, less allowances of $974 ($972 in 2008)			41,285				36,899
Inventories — net			49,149				48,412
Deferred income taxes			3,225				2,786
Prepaids and other			4,982				4,704
TOTAL CURRENT ASSETS			126,342				112,670
Property and equipment — net			58,769				55,940
Patents and other intangibles — net			3,538				3,858
Goodwill			6,151				5,520
Deferred income taxes			6,513				6,943
Other assets			6,788				5,944
TOTAL ASSETS		$	208,101			$	190,875
LIABILITIES AND SHAREHOLDERS’ EQUITY
Notes payable to banks		$	4,025			$	3,101
Current portion of long-term debt			894				494
Trade accounts payable			16,037				14,632
Accrued compensation and amounts withheld from employees			8,925				6,606
Accrued expenses and other liabilities			6,484				4,574
Accrued profit-sharing and other benefits			2,424				3,687
Dividends payable			1,073				1,054
Income taxes payable			1,225				1,100
TOTAL CURRENT LIABILITIES			41,087				35,248
Long-term debt, less current portion			2,930				2,653
Unfunded pension obligation			11,145				11,303
Income taxes payable, noncurrent			1,536				1,405
Deferred income taxes			683				725
Other noncurrent liabilities			2,632				2,540
SHAREHOLDERS’ EQUITY
PLPC shareholders’ equity:
Common stock — $2 par value per share, 15,000,000 shares authorized, 5,236,839 and 5,223,830 issued and outstanding, net of 551,059 treasury shares at par, respectively			10,474				10,448
Paid in capital			4,610				3,704
Retained earnings			150,938				146,624
Accumulated other comprehensive loss			(18,421	)			(24,511	)
TOTAL PLPC SHAREHOLDERS’ EQUITY			147,601				136,265
Noncontrolling interest			487				736
TOTAL SHAREHOLDERS’ EQUITY			148,088				137,001
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	208,101			$	190,875

See notes to consolidated financial statements (unaudited).

PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)

		Three month periods								Six month periods
		ended June 30								ended June 30
Thousands, except per share data		2009				2008				2009				2008
Net sales		$	59,568			$	75,362			$	118,262			$	135,227
Cost of products sold			39,718				51,685				79,834				92,545
GROSS PROFIT			19,850				23,677				38,428				42,682
Costs and expenses
Selling			5,526				6,186				10,890				11,760
General and administrative			7,371				7,691				14,423				15,047
Research and engineering			2,159				2,338				4,220				4,327
Other operating expense (income)			(311	)			233				(22	)			143
			14,745				16,448				29,511				31,277
OPERATING INCOME			5,105				7,229				8,917				11,405
Other income (expense)
Interest income			87				216				212				430
Interest expense			(107	)			(138	)			(216	)			(277	)
Other income (expense)			178				22				657				20
			158				100				653				173
INCOME BEFORE INCOME TAXES AND DISCONTINUED OPERATIONS			5,263				7,329				9,570				11,578
Income taxes			1,721				2,382				3,311				3,797
INCOME FROM CONTINUING OPERATIONS, NET OF TAX			3,542				4,947				6,259				7,781
Income from discontinued operations, net of tax			—				620				—				769
NET INCOME			3,542				5,567				6,259				8,550
Net income (loss) attributable to noncontrolling interest, net of tax			(42	)			78				(47	)			111
NET INCOME ATTRIBUTABLE TO PLPC		$	3,584			$	5,489			$	6,306			$	8,439
BASIC EARNINGS PER SHARE
Income per share from continuing operations attributable to PLPC shareholders		$	0.69			$	0.92			$	1.21			$	1.44
Discontinued operations attributable to PLPC common shareholders		$	—			$	0.12			$	—			$	0.14
Net income attributable to PLPC common shareholders		$	0.69			$	1.04			$	1.21			$	1.58
DILUTED EARNINGS PER SHARE
Income per share from continuing operations attributable to PLPC shareholders		$	0.68			$	0.91			$	1.19			$	1.43
Discontinued operations attributable to PLPC common shareholders		$	—			$	0.12			$	—			$	0.14
Net income attributable to PLPC common shareholders		$	0.68			$	1.03			$	1.19			$	1.57
Cash dividends declared per share		$	0.20			$	0.20			$	0.40			$	0.40
Weighted-average number of shares outstanding — basic			5,231				5,296				5,228				5,339
Weighted-average number of shares outstanding — diluted			5,311				5,345				5,306				5,387
Amount attributable to PLPC common shareholders
Income from continuing operations, net of tax		$	3,584			$	4,869			$	6,306			$	7,670
Discontinued operations, net of tax			—				620				—				769
Net Income		$	3,584			$	5,489			$	6,306			$	8,439

See notes to consolidated financial statements (unaudited).

PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)

		Six month periods
		ended June 30
Thousands of dollars		2009				2008
OPERATING ACTIVITIES
Net income		$	6,259			$	8,550
Less: income from discontinued operations			—				769
Income from continuing operations			6,259				7,781
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization			3,404				3,983
Provision for accounts receivable allowances			345				248
Provision for inventory reserves			1,548				735
Deferred income taxes			95				(330	)
Share-based compensation expense			669				88
Excess tax benefits from share-based awards			(75	)			(16	)
Net investment in life insurance			(33	)			(196	)
Other — net			(9	)			67
Changes in operating assets and liabilities:
Accounts receivable			(4,947	)			(11,113	)
Inventories			431				35
Trade accounts payables and accrued liabilities			3,154				4,950
Income taxes payable			517				1,175
Other — net			(144	)			(1,256	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			11,214				6,151
INVESTING ACTIVITIES
Capital expenditures			(4,198	)			(6,256	)
Business acquisitions			(433	)			(231	)
Proceeds from the sale of discontinued operations			750				11,783
Proceeds from the sale of property and equipment			89				185
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES			(3,792	)			5,481
FINANCING ACTIVITIES
Increase (decrease) in notes payable to banks			818				(987	)
Proceeds from the issuance of long-term debt			706				3,600
Payments of long-term debt			(250	)			(4,330	)
Dividends paid			(2,125	)			(2,152	)
Excess tax benefits from share-based awards			75				16
Proceeds from issuance of common shares			188				201
Purchase of common shares for treasury			(57	)			(7,457	)
NET CASH USED IN FINANCING ACTIVITIES			(645	)			(11,109	)
Effects of exchange rate changes on cash and cash equivalents			1,055				54
Net increase in cash and cash equivalents			7,832				577
NET CASH USED IN DISCONTINUED OPERATIONS
Operating cash flows			—				958
Investing cash flows			—				(1,596	)
NET CASH USED IN DISCONTINUED OPERATIONS			—				(638	)
Cash and cash equivalents at beginning of period			19,869				23,392
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	27,701			$	23,331

See notes to consolidated financial statements (unaudited).

PREFORMED LINE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In thousands, except share and per share data, unless specifically noted

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited consolidated 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.

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, consisting of normal recurring accruals, required to fairly present the financial position, results of operations, and cash flows for the interim periods. Operating results for the three and six month periods ended June 30, 2009 are not necessarily indicative of the results to be expected for the year ending December 31, 2009.

The consolidated balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements, but does not include all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and notes to consolidated financial statements included in the Company’s 2008 Annual Report on Form 10-K filed on March 13, 2009 with the Securities and Exchange Commission.

Management has evaluated all activity through the filing of these financial statements, August 7, 2009, and concluded that no subsequent events have occurred that would require recognition in the Financial Statements or disclosure in the Notes to Consolidated Financial Statements.

Reclassifications

Certain prior period amounts have been reclassified to conform to current year presentation.

NOTE B — OTHER FINANCIAL STATEMENT INFORMATION

Inventories — net

		June 30				December 31
		2009				2008
Finished products		$	21,988			$	21,829
Work-in-process			3,145				2,382
Raw materials			31,179				32,231
			56,312				56,442
Excess of current cost over LIFO cost			(3,577	)			(5,122	)
Noncurrent portion of inventory			(3,586	)			(2,908	)
		$	49,149			$	48,412

Noncurrent inventory is included in other assets on the consolidated balance sheets and is principally comprised of raw materials.

Property and equipment — net

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

		June 30				December 31
		2009				2008
Land and improvements		$	5,707			$	5,490
Buildings and improvements			48,901				47,048
Machinery and equipment			97,028				91,097
Construction in progress			3,181				2,133
			154,817				145,768
Less accumulated depreciation			96,048				89,828
		$	58,769			$	55,940

Property and equipment are recorded at cost. Depreciation for the Company’s PLP-USA assets prior to January 1, 2009 were computed using accelerated methods over the estimated useful lives, with the exception of personal computers, which were depreciated over three years using the straight-line method. Effective January 1, 2009, the Company changed its method of computing depreciation from accelerated methods to the straight-line method for its PLP-USA assets. Based on Statement of Financial Accounting Standards (SFAS) No. 154, “Accounting Changes and Error Corrections” (FAS 154), the Company determined that the change in depreciation method from an accelerated method to a straight-line method is a change in accounting estimate affected by a change in accounting principle. Per FAS 154, a change in accounting estimate affected by a change in accounting principle is to be applied prospectively. The change is considered preferable because the straight-line method will more accurately reflect the pattern of usage and the expected benefits of such assets and provide greater consistency with the depreciation methods used by other companies in the Company’s industry. The net book value of assets acquired prior to January 1, 2009 with useful lives remaining will be depreciated using the straight-line method prospectively. As a result of the change to the straight-line method of depreciating PLP-USA’s assets, depreciation expense decreased $.1 million, or $.02 per basic and diluted share, and $.2 million, or $.04 per basic and diluted share, for the three month and six month periods ended June 30, 2009, and the decrease is expected to approximate such amount in each of the remaining quarters in 2009.

Depreciation for the remaining assets is computed using the straight-line method over the estimated useful lives. The estimated useful lives used, when purchased new, are: land improvements, ten years; buildings, forty years; building improvements, five to forty years; and machinery and equipment, three to ten years. Appropriate reductions in estimated useful lives are made for property, plant and equipment purchased in connection with an acquisition of a business or in a used condition when purchased.

Comprehensive income

The components of comprehensive income (loss) for the three and six month periods ended June 30, 2009 are as follows:

		PLPC								Noncontrolling interest								Total
		Three month period								Three month period								Three month period
		ended June 30								ended June 30								ended June 30
		2009				2008				2009				2008				2009				2008
Net income (loss)		$	3,584			$	5,489			$	(42	)		$	78			$	3,542			$	5,567
Other comprehensive income, net of tax:
Change in unrealized gains on available-for-sale securities, net of tax			88				—				—				—				88				—
Foreign currency translation adjustments			9,172				3,200				9				6				9,181				3,206
Recognized net actuarial loss			84				4				—				—				84				4
Total other comprehensive income, net of tax			9,344				3,204				9				6				9,353				3,210
Comprehensive income (loss)		$	12,928			$	8,693			$	(33	)		$	84			$	12,895			$	8,777

		PLPC								Noncontrolling interest								Total
		Six month period								Six month period								Six month period
		ended June 30								ended June 30								ended June 30
		2009				2008				2009				2008				2009				2008
Net income (loss)		$	6,306			$	8,439			$	(47	)		$	111			$	6,259			$	8,550
Other comprehensive income, net of tax:
Change in unrealized losses on available-for-sale securities, net of tax			—				—				—				—				—				—
Foreign currency translation adjustments			5,923				5,104				6				6				5,929				5,110
Recognized net actuarial loss			167				8				—				—				167				8
Total other comprehensive income, net of tax			6,090				5,112				6				6				6,096				5,118
Comprehensive income (loss)		$	12,396			$	13,551			$	(41	)		$	117			$	12,355			$	13,668

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

PLP-USA hourly employees of the Company who meet specific requirements as to age and service are covered by a defined benefit pension plan. The Company uses a December 31 measurement date for this plan. Net periodic benefit cost for this plan included the following components:

		Three month period								Six month period
		ended June 30								ended June 30
		2009				2008				2009				2008
Service cost		$	216			$	167			$	431			$	335
Interest cost			292				256				584				512
Expected return on plan assets			(183	)			(261	)			(366	)			(522	)
Recognized net actuarial loss			132				6				264				12
Net periodic benefit cost		$	456			$	168			$	913			$	337

During the six month period ended June 30, 2009, $.8 million of contributions have been made to the plan. The Company presently anticipates contributing an additional $1.9 million to fund its pension plan in 2009.

NOTE D — COMPUTATION OF EARNINGS PER SHARE

Basic earnings per share were computed by dividing net income by the weighted-average number of common shares outstanding for each respective period. Diluted earnings per share were calculated by dividing net income by the weighted-average of all potentially dilutive common shares that were outstanding during the periods presented.

The calculation of basic and diluted earnings per share for the three and six month periods ended June 30, 2009 and 2008 were as follows:

		For the three month								For the six month
		period ended June 30								period ended June 30
		2009				2008				2009				2008
Numerator
Amount attributable to PLPC shareholders
Income from continuing operations		$	3,584			$	4,869			$	6,306			$	7,670
Income from discontinued operations			—				620				—				769
Net income attributable to PLPC		$	3,584			$	5,489			$	6,306			$	8,439
Denominator (in thousands)
Determination of shares
Weighted-average common shares outstanding			5,231				5,296				5,228				5,339
Dilutive effect — share-based awards			80				49				78				48
Diluted weighted-average common shares outstanding			5,311				5,345				5,306				5,387
Earnings per common share attributable to PLPC shareholders
Basic
Income from continuing operations		$	0.69			$	0.92			$	1.21			$	1.44
Income from discontinued operations		$	—			$	0.12			$	—			$	0.14
Net income attributable to PLPC		$	0.69			$	1.04			$	1.21			$	1.58
Diluted
Income from continuing operations		$	0.68			$	0.91			$	1.19			$	1.43
Income from discontinued operations		$	—			$	0.12			$	—			$	0.14
Net income attributable to PLPC		$	0.68			$	1.03			$	1.19			$	1.57

For the three and six month periods ended June 30, 2009, 13,000 and 43,450 stock options were excluded from the calculation of diluted earnings per share due to the average market price being lower than the exercise price, and as such they are anti-dilutive. For the three and six month periods ended June 30, 2008, 13,000 stock options were excluded from the calculation of diluted earnings per share due to the average market price being lower than the exercise price, and as such they are anti-dilutive.

NOTE E — GOODWILL AND OTHER INTANGIBLES

The Company’s finite and indefinite-lived intangible assets consist of the following:

		June 30, 2009								December 31, 2008
		Gross Carrying				Accumulated				Gross Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Finite-lived intangible assets
Patents		$	4,807			$	(3,057	)		$	4,807			$	(2,901	)
Land use rights			1,275				(43	)			1,350				(32	)
Customer relationships			1,003				(447	)			1,003				(369	)
		$	7,085			$	(3,547	)		$	7,160			$	(3,302	)
Indefinite-lived intangible assets
Goodwill		$	6,151							$	5,520

The Company performs its annual impairment test for goodwill utilizing a discounted cash flow methodology, market comparables, and an overall market capitalization reasonableness test in computing fair value by reporting unit. The Company then compares the fair value of the reporting unit with its carrying value to assess if goodwill and other indefinite life intangibles have been impaired. Based on the assumptions as to growth, discount rates and the weighting used for each respective valuation methodology, results of the valuations could be significantly changed. However, the Company believes that the methodologies and weightings used are reasonable and result in appropriate fair values of the reporting units.

The Company performed its annual impairment test for goodwill pursuant to SFAS No. 142, “Goodwill and Intangible Assets” as of January 1, 2009, and 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 and six month periods ended June 30, 2009 and 2008 was $.1 million and $.2 million. Amortization expense is estimated to be $.5 million annually for 2009 and 2010, and $.4 million annually for 2011 through 2013.

The Company’s addition of $.4 million to goodwill is related to an earnout payment for Direct Power and Water Corporation, acquired in March 2007. The Company’s only intangible asset with an indefinite life is goodwill. The changes in the carrying amount of goodwill, by segment, for the six month period ended June 30, 2009, are as follows:

		Australia				South Africa				Poland				All Other				Total
Balance at January 1, 2009		$	1,735			$	41			$	1,140			$	2,604			$	5,520
Additions			—				—				—				433				433
Curency translation			286				8				(94	)			(2	)			198
Balance at June 30, 2009		$	2,021			$	49			$	1,046			$	3,035			$	6,151

NOTE F — SHARE-BASED COMPENSATION

The 1999 Stock Option Plan

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 June 30, 2009, there were 9,000 options remaining available for issuance under the Plan. The Plan expires on December 14, 2009. 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 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 no options granted during the six month period ended June 30, 2009. There were 13,000 options granted during the six month period ended June 30, 2008. The fair value for the stock options granted in 2008 were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

		2008
Risk-free interest rate			4.2	%
Dividend yield			2.8	%
Expected life (years)			6
Expected volatility			34.4	%

Activity in the Company’s stock option plan for the six month period ended June 30, 2009 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, 2009			107,092			$	27.83
Granted			—				—
Exercised			(13,609	)		$	15.95
Forfeited			—				—
Outstanding (vested and expected to vest) at June 30, 2009			93,483			$	29.56				5.1			$	1,454
Exercisable at June 30, 2009			83,233			$	27.57				4.6			$	1,422

The weighted-average grant-date fair value of options granted during 2008 was $15.52. The total intrinsic value of stock options exercised during the six month periods ended June 30, 2009 and 2008 was $.4 million and $.1 million. Cash received for the exercise of stock options during 2009 was $.2 million. The total fair value of stock options vested during the six month periods ended June 30, 2009 and 2008 was $.1 million for each period.

For the six month periods ended June 30, 2009 and 2008, the Company recorded compensation expense related to the stock options of $.1 million. The total compensation cost related to nonvested awards not yet recognized at June 30, 2009 approximates $.1 million over the next two years.

The excess tax benefits from stock-based awards for the six month period ended June 30, 2009 was $.1 million and represents the reduction in income taxes otherwise payable during the period, attributable to actual gross tax benefits in excess of the expected tax benefits for options exercised in the current period.

Long Term Incentive Plan of 2008

Under the Preformed Line Products Company Long Term Incentive Plan of 2008 (the “LTIP”), certain employees, officers and directors will be eligible to receive awards of options and restricted shares. The purpose of this LTIP is to give the Company and its subsidiaries a competitive advantage in attracting, retaining and motivating officers, employees and directors and to provide an incentive to those individuals to increase shareholder value through long-term incentives directly linked to the Company’s performance. The total number of Company common shares reserved for awards under the LTIP is 400,000. Of the 400,000 common shares, 300,000 common shares have been reserved for restricted share awards and 100,000 common shares have been reserved for share options. The LTIP expires on April 17, 2018.

For all of the participants except the CEO, a portion of the restricted share award is subject to time-based cliff vesting and a portion is subject to cliff-vesting based upon the Company’s level of performance over the vesting period. All of the CEO’s restricted shares are subject to vesting based upon the Company’s performance over the vesting period.

Because the award of restricted shares is compensatory, the restricted shares are granted at no cost to the employees; however, the participant must remain employed with the Company until the restrictions on the restricted shares lapse. The fair value of restricted share awards is based on the market price of an unrestricted common share on the grant date. The Company currently estimates that no awards will be forfeited.

A summary of the restricted share awards for the six month period ended June 30, 2009 is as follows:

		Restricted Share Awards
		Performance								Total				Weighted-Average
		and Service				Service				Restricted				Grant-Date
		Required				Required				Awards				Fair Value
Nonvested as of January 1, 2009			39,364				4,273				43,637			$	54.74
Granted			75,982				8,202				84,184				29.75
Vested			—				—				—				—
Forfeited			—				—				—				—
Nonvested as of June 30, 2009			115,346				12,475				127,821			$	38.28

For time-based awards, the Company recognizes compensation expense on a straight-line basis over the requisite service period of the award in General and administrative expense. As of June 30, 2009, there was $.4 million of total unrecognized compensation cost related to time-based restricted share awards that is expected to be recognized over the weighted-average remaining period of 27 months. For the six month period ended June 30, 2009, time-based compensation expense was $.1 million.

For the performance-based awards, the number of restricted shares in which the participants will vest depends on the Company’s level of performance measured by growth in pretax income and net sales over a requisite performance period. Depending on the extent to which the performance criterions are satisfied under the LTIP, the participants are eligible to earn common shares at the end of the vesting period. Performance-based compensation expense for the six month period ended June 30, 2009 was $.5 million and is recorded in General and administrative expense. As of June 30, 2009, the remaining performance-based restricted share awards compensation expense of $2.5 million is expected to be recognized over a weighted-average remaining period of 21 months.

In the event of a Change in Control, vesting of the restricted shares will be accelerated and all restrictions will lapse. Unvested performance-based awards are based on a maximum potential payout. Actual shares awarded at the end of the performance period may be less than the maximum potential payout level depending on achievement of performance-based award objectives.

Dividends declared on 2009 grants and thereafter will be accrued in cash dividends.

To satisfy the vesting of its restricted share awards, the Company has reserved new shares from its authorized but unissued shares. Any additional granted awards will also be issued from the Company’s authorized but unissued shares. Under the LTIP, there are 172,179 common shares currently available for additional grants.

NOTE G — FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS 157). 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. This standard was effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal periods. This standard enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. The standard requires that assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities;

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data; or

Level 3: Unobservable inputs that are not corroborated by market data.

In April 2009, the FASB issued FSP No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS 157-4), which provides additional guidance in accordance with FAS 157, when the volume and level of activity for the asset or liability has significantly decreased. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP FAS 157-4 did not have an impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP No. 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP FAS 107-1 and APB 28-1), which amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments” and APB Opinion No. 28, “Interim Financial Reporting,” to require disclosures about the fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The adoption of FSP FAS 107-1 and APB 28-1 did not have an impact on the Company’s consolidated financial statements.

The carrying value of the Company’s current financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, notes payable, and short-term debt, approximates its fair value because of the short-term maturity of these instruments. At June 30, 2009, the fair value of the Company’s long-term debt was estimated using discounted cash flows analysis, based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements which are considered to be level two inputs. Based on the analysis performed, the fair value and the carrying value of the Company’s long-term debt are as follows:

		June 30, 2009								December 31, 2008
		Fair Value				Carrying Value				Fair Value				Carrying Value
Long-term debt and related current maturities		$	3,767			$	3,824			$	3,294			$	3,147

NOTE H — RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51” (SFAS 160). This standard amends ARB No. 51 to establish accounting and reporting for the noncontrolling interest in a subsidiary and for deconsolidation of a subsidiary. It also amends certain of ARB No. 51’s consolidation procedures for consistency with the requirements of SFAS No. 141R, “Business Combinations.” This standard became effective on January 1, 2009. As SFAS 160 is applied prospectively to future business combinations, the impact to the Company is the retroactive presentation and disclosure requirements for all periods presented on the Company’s consolidated financial statements of noncontrolling interests.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS 141R). SFAS 141R revises the principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired in a business combination or gain from a bargain purchase. SFAS 141R also revises the principles and requirements for how the acquirer determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This pronouncement became effective for the Company as of January 1, 2009. The adoption of this statement will impact the Company’s consolidated financial statements to the extent the Company enters into a business acquisition in the future.

In April 2009, the FASB issued FSP 141R-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” (FSP 141R-1). FSP 141R-1 amends and clarifies SFAS 141R to require that an acquirer recognize at fair value, at the acquisition date, an asset acquired or a liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value of such an asset acquired or liability assumed cannot be determined, the acquirer should apply the provisions of SFAS 5, “Accounting for Contingencies,” to determine whether the contingency should be recognized at the acquisition date or thereafter. FSP 141R-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is after the beginning of the first annual reporting period beginning after December 15, 2008. Accordingly, the Company adopted FSP 141R-1 at the same time as SFAS 141R. The adoption of this statement will impact the Company’s consolidated financial statements to the extent the Company enters into a business acquisition in the future.

In May 2009, the FASB issued FAS 165, “Subsequent Events” (FAS 165), which established principles and requirements for subsequent events. FAS 165 details the period after the balance sheet date during which the Company should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which the Company should recognize events or transactions occurring after the balance sheet date in its financial statements and the required disclosures for such events. This statement is effective for interim or annual reporting periods ending after June 15, 2009. The adoption of this statement impacted the Company’s disclosure reporting requirements and did not have an impact on the Company’s financial condition, results of operations, or cash flows.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments” (FSP FAS 115-2 and FAS 124-2), which amend the other-than-temporary impairment guidance for debt and equity securities. FSP FAS No. 115-2 and FAS No. 124-2 modify the other-than-temporary impairment guidance for debt securities through increased consistency in the timing of impairment recognition and enhanced disclosures related to the credit and noncredit components of impaired debt securities that are not expected to be sold. In addition, increased disclosures are required for both debt and equity securities regarding expected cash flows, credit losses, and securities with unrealized losses. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. The adoption of FSP FAS No. 115-2 and FAS No. 124-2 did not have an impact on the Company’s consolidated financial statements.

NOTE I — RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2009, the FASB issued FAS 166, “Accounting for Transfers of Financial Assets” (FAS 166), an amendment of FAS 140. FAS 166 is intended to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets: the effects of a transfer on its financial position, financial performance, and cash flows: and a transferor’s continuing involvement, if any, in transferred financial assets. This statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. The Company does not expect the adoption of FAS 166 to have an impact on the Company’s financial condition, results of operations, or cash flows.

In June 2009, the FASB issued FAS 167, “Amendments to FASB Interpretation No. 46(R)” (FAS 167). FAS 167 is intended to (1) address the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (“Interpretation”), as a result of the elimination of the qualifying special-purpose entity concept in FAS 166, and (2) constituent concerns about the application of certain key provisions of Interpretation, including those in which the accounting and disclosures under the Interpretation do not always provided timely and useful information about an enterprise’s involvement in a variable interest entity. FAS 167 must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009. The Company does not expect the adoption of FAS 167 to have an impact on the Company’s financial condition, results of operations, or cash flows.

In June 2009, the FASB issued FAS 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (FAS 168). FAS 168 will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of FAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non authoritative. This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company does not expect the adoption of FAS 168 to have an impact on the Company’s results of operations, financial condition or cash flows.

NOTE J — SEGMENT INFORMATION

The following tables present a summary of the Company’s reportable segments for the three and six month periods ended June 30, 2009 and 2008. Financial results for the PLP-USA segment include the elimination of all segments’ intercompany profit in inventory.

		Three month period								Six month period
		ended June 30								ended June 30
		2009				2008				2009				2008
Net sales
PLP-USA		$	26,028			$	30,697			$	54,699			$	55,704
Australia			6,260				7,783				11,942				14,688
Brazil			5,690				9,884				10,882				15,939
South Africa			2,293				2,536				4,147				4,137
Canada			3,200				2,706				5,555				5,072
Poland			2,737				5,439				5,695				9,374
All Other			13,360				16,317				25,342				30,313
Total net sales		$	59,568			$	75,362			$	118,262			$	135,227
Intersegment sales
PLP-USA		$	1,545			$	1,609			$	3,075			$	3,051
Australia			19				21				34				19
Brazil			230				425				970				1,010
South Africa			192				307				204				500
Canada			80				163				116				213
Poland			306				104				744				232
All Other			2,771				1,395				5,230				4,334
Total intersegment sales		$	5,143			$	4,024			$	10,373			$	9,359
Interest income
PLP-USA		$	—			$	21			$	15			$	67
Australia			5				31				9				55
Brazil			20				18				38				29
South Africa			29				46				67				73
Canada			3				24				10				53
Poland			9				1				18				4
All Other			21				75				55				149
Total interest income		$	87			$	216			$	212			$	430
Interest expense
PLP-USA		$	—			$	(14	)		$	(8	)		$	(22	)
Australia			(20	)			(46	)			(35	)			(96	)
Brazil			(14	)			(3	)			(25	)			(5	)
South Africa			(1	)			—				(1	)			—
Canada			—				—				—				—
Poland			(4	)			(22	)			(12	)			(40	)
All Other			(68	)			(53	)			(135	)			(114	)
Total interest expense		$	(107	)		$	(138	)		$	(216	)		$	(277	)
Income from continuing operations, net of tax
PLP-USA		$	1,094			$	1,471			$	2,250			$	2,349
Australia			62				139				112				227
Brazil			51				456				145				576
South Africa			304				591				611				914
Canada			616				540				938				841
Poland			123				522				548				722
All Other			1,292				1,228				1,655				2,152
Total income from continuing operations, net of tax			3,542				4,947				6,259				7,781
Income from discontinued operations, net of tax			—				620				—				769
Net income			3,542				5,567				6,259				8,550
Net income (loss) attributable to noncontrolling interest, net of tax			(42	)			78				(47	)			111
Net income attributable to PLPC		$	3,584			$	5,489			$	6,306			$	8,439

		June 30				December 31
		2009				2008
Assets
PLP-USA		$	73,578			$	72,641
Australia			23,560				19,438
Brazil			21,507				16,087
South Africa			7,982				5,569
Canada			10,060				8,545
Poland			13,394				13,920
All Other			58,020				54,675
Total assets		$	208,101			$	190,875

NOTE K — INCOME TAXES

The Company’s effective tax rate was 33% for the three month periods ended June 30, 2009 and 2008, and 35% and 33% for the six month periods ended June 30, 2009 and 2008, respectively. The higher effective tax rate for the period ending June 30, 2009 is primarily due to the losses in foreign jurisdictions providing no current tax benefits and the effect of permanent nondeductible expenses in the U.S., partially offset by the favorable benefit from foreign earnings in jurisdictions with lower tax rates.

The Company provides valuation allowances against deferred tax assets when it is more likely than not that some portion, or all of its deferred tax assets will not be realized.

As of June 30, 2009, the Company had gross unrecognized tax benefits of approximately $1.2 million. Under the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” the Company may decrease its unrecognized tax benefits by $.6 million within the next twelve months due to the expiration of statues of limitations. The Company recognized less than $.1 million of additional unrecognized tax benefit for the three month period ended June 30, 2009.

NOTE L — BUSINESS COMBINATIONS

On May 21, 2008, the Company entered into an agreement for $.3 million to form a joint venture between the Company’s Australian subsidiary, Preformed Line Products Australia Pty Ltd (PLP-AU) and BlueSky Energy Pty Ltd, a solar systems integration and installation business based in Sydney, Australia. PLP-AU holds a 50% ownership interest in the new joint venture company, which will operate under the name BlueSky Energy Australia (BlueSky), with the option to acquire the remaining 50% ownership interest from BlueSky Energy Pty Ltd over the next five years. BlueSky Energy Pty Ltd has transferred technology and assets to the joint venture. The Company’s consolidated balance sheet as of June 30, 2009 reflects the acquisition of the joint venture under the purchase method of accounting and due to the immateriality of the joint venture on the results of operations no additional disclosures are included. The allocation of the purchase price has been finalized.

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

OVERVIEW

Preformed Line Products Company (the “Company”, “PLPC”, “we”, “us”, or “our”) is an international designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, information (data communication), and other similar industries. Our primary products support, protect, connect, terminate, and secure cables and wires. We also provide solar hardware systems and mounting hardware for a variety of solar power applications. Our goal is to continue to achieve profitable growth as a leader in the innovation, development, manufacture, and marketing of technically advanced products and services related to energy, communications, and cable systems and to take advantage of this leadership position to sell additional quality products in familiar markets.

The reportable segments are PLP-USA, Australia, Brazil, South Africa, Canada, Poland, and All Other. Our PLP-USA segment is comprised of our U.S. operations primarily supporting our domestic energy and telecommunications products. The Australia segment is comprised of all of our operations in Australia supporting energy, telecommunications, data communications and solar products. Our Canada and Brazil segments are comprised of the manufacturing and sales operations from those locations which meet at least one of the criteria of a reportable segment. Our final two segments are Poland and South Africa, which are comprised of a manufacturing and sales operation, and have been included as segments to comply with reporting segments for 75% of consolidated sales. Our remaining operations are included in the All Other segment as none of these operations meet, or the future estimated results are not expected to meet the criteria for a reportable segment.

DISCONTINUED OPERATION

Our consolidated financial statements were impacted by the divestiture of Superior Modular Products (SMP) on May 30, 2008. We sold our SMP subsidiary for $11.8 million, which included a $.8 million gain, net of tax, and a holdback of $1.5 million. During the six month period ended June 30, 2009, we received the remaining balance of $.8 million of the holdback. We have not had any significant continuing involvement in the operations of SMP after the closing of the sale. For tax purposes, the sale of SMP generated a capital loss, which was not deductible except for amounts used to offset capital gains in the current year and from a preceding year. A full valuation allowance was provided against the deferred tax asset on the remaining portion of the capital loss carryover.

The operating results of SMP are presented in our consolidated statements of operations as income from discontinued operations, net of tax, and all periods presented have been reclassified. For the three month period ended June 30, 2008, income from discontinued operations, net of tax was $.6 million, or $.12 per diluted share. Income from discontinued operations, net of tax for the six month period ended June 30, 2008 was $.8 million, or $.14 per diluted share.

Preface

Our net sales for the three month period ended June 30, 2009 decreased $15.8 million, or 21%, and gross profit decreased $3.8 million, or 16%, compared to the three month period ended June 30, 2008. Our net sales decrease was impacted by a 27% decrease in total foreign net sales and a 14% decrease in U.S net sales due to the weaker end market. Of the 21% decrease in net sales, 9% was from an unfavorable effect on the change in the translation rate of local currencies as a result of a stronger U.S. dollar to certain foreign currencies compared to 2008. Therefore, excluding the effect of currency translation, net sales decreased 12% compared to 2008. Excluding the effect of currency translation, gross profit decreased 8% compared to the 2008, primarily due to the decrease in net sales partially offset by an improvement in production costs. Costs and expenses decreased $1.7 million, or 10%. Excluding the effect of currency translation, costs and expenses decreased 2% compared to 2008. As a result, income from continuing operations, net of tax, of $3.5 million, decreased $1.4 million, or 28%, and excluding the unfavorable effect on the change in the translation rates to local currencies, income from continuing operations, net of tax, decreased 22% compared to 2008.

Our net sales for the six month period ended June 30, 2009 decreased $17 million, or 13%, and gross profit decreased $4.3 million, or 10%, compared to the six month period ended June 30, 2008. Excluding an unfavorable effect on the change in the translation rate of local currencies as a result of a stronger U.S. dollar to certain foreign currencies, net sales decreased 2%. During the first six months, especially during the three month period ended June 30, 2009, certain of the end markets that we serve continued to see further sales declines. Gross profit decreased $4.3 million, or 6%, primarily due to the decrease in net sales. Excluding the effect of currency translation, gross profit decreased 1% compared to 2008. Costs and expenses decreased $1.8 million, or 6%, as foreign costs and expenses decreased $2 million partially offset by an increase in U.S. costs and expenses of $.2 million. As a result, income from continuing operations, net of tax, of $6.3 million, decreased $1.5 million, or 20%, compared to 2008. Excluding the effect of currency translation, income from continuing operations, net of tax, decreased 8% compared to 2008.

Despite the current economic conditions, our financial condition remains strong. We continue to generate substantial cash flows from operations, have proactively managed working capital and controlled capital spending. We currently have a debt to equity ratio of 5% and can borrow needed funds at an affordable interest rate from our untapped main credit facility. While current worldwide economic conditions necessitate that we concentrate our efforts on maintaining our financial strengths, we believe there are many available opportunities for growth. We are pursuing these opportunities as appropriate in the current environment in order to strongly position ourselves for when the economic recovery ultimately happens.

THREE MONTH PERIOD ENDED JUNE 30, 2009 COMPARED TO THREE MONTH PERIOD ENDED JUNE 30, 2008

Net Sales. For the three month period ended June 30, 2009, net sales were $59.6 million, a decrease of $15.8 million, or 21%, from the three month period ended June 30, 2008. Excluding the effect of currency translation, net sales decreased 12% as summarized in the following table:

		Three month period ended June 30
														Change				Change
														due to				excluding
														currency				currency				%
thousands of dollars		2009				2008				Change				translation				tranlation				change
Net sales
PLP-USA		$	26,028			$	30,697			$	(4,669	)		$	—			$	(4,669	)			(15	)%
Australia			6,260				7,783				(1,523	)			(1,540	)			17				—
Brazil			5,690				9,884				(4,194	)			(1,424	)			(2,770	)			(28	)
South Africa			2,293				2,536				(243	)			(219	)			(24	)			(1	)
Canada			3,200				2,706				494				(503	)			997				37
Poland			2,737				5,439				(2,702	)			(1,376	)			(1,326	)			(24	)
All Other			13,360				16,317				(2,957	)			(1,559	)			(1,398	)			(9	)
Consolidated		$	59,568			$	75,362			$	(15,794	)		$	(6,621	)		$	(9,173	)			(12	)%