PREFORMED LINE PRODUCTS CO - Quarter Report: 2010 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, 2010

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

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 (S232.405 of this chapter) 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, 2010: 5,253,534.

 

 

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			16
Item 3. Quantitative and Qualitative Disclosures About Market Risk			26
Item 4. Controls and Procedures			26
Part II — Other Information
Item 1. Legal Proceedings			26
Item 1A. Risk Factors			27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			27
Item 3. Defaults Upon Senior Securities			27
Item 4. (Removed and Reserved)			27
Item 5. Other Information			27
Item 6. Exhibits			27
SIGNATURES			30
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		2010				2009
ASSETS
Cash and cash equivalents		$	22,110			$	24,097
Accounts receivable, less allowances of $1,157 ($995 in 2009)			51,894				49,245
Inventories — net			57,131				56,036
Deferred income taxes			3,452				3,256
Prepaids			3,705				3,214
Prepaid taxes			3,759				1,049
Other current assets			1,241				2,062
TOTAL CURRENT ASSETS			143,292				138,959
Property and equipment — net			68,304				67,766
Patents and other intangibles — net			7,501				8,087
Goodwill			6,654				6,925
Deferred income taxes			5,038				4,358
Other assets			9,287				9,277
TOTAL ASSETS		$	240,076			$	235,372
LIABILITIES AND SHAREHOLDERS’ EQUITY
Notes payable to banks		$	3,268			$	3,181
Current portion of long-term debt			1,080				1,330
Trade accounts payable			20,405				18,764
Accrued compensation and amounts withheld from employees			11,167				8,345
Accrued expenses and other liabilities			7,490				8,375
Accrued profit-sharing and other benefits			2,652				3,890
Dividends payable			1,091				1,076
Income taxes payable and deferred income taxes			1,522				1,379
TOTAL CURRENT LIABILITIES			48,675				46,340
Long-term debt, less current portion			3,704				3,099
Unfunded pension obligation			9,202				8,678
Income taxes payable, noncurrent			1,722				1,898
Deferred income taxes			852				1,515
Other noncurrent liabilities			2,924				3,021
SHAREHOLDERS’ EQUITY
PLPC Shareholders’ equity:
Common stock — $2 par value per share, 15,000,000 shares authorized, 5,253,306 and 5,248,298 issued and outstanding, net of 553,747 and 554,059 treasury shares at par, respectively			10,507				10,497
Paid in capital			7,301				5,885
Retained earnings			171,048				165,953
Accumulated other comprehensive loss			(15,591	)			(11,369	)
TOTAL PLPC SHAREHOLDERS’ EQUITY			173,265				170,966
Noncontrolling interest			(268	)			(145	)
TOTAL SHAREHOLDERS’ EQUITY			172,997				170,821
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	240,076			$	235,372

See notes to consolidated financial statements (unaudited).

PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
(UNAUDITED)

		Three month periods ended June 30								Six month periods ended June 30
		2010				2009				2010				2009
		(Thousands of dollars, except share and per share data)
Net sales		$	82,137			$	59,568			$	151,045			$	118,262
Cost of products sold			54,682				39,718				103,565				79,834
GROSS PROFIT			27,455				19,850				47,480				38,428
Costs and expenses
Selling			7,038				5,526				13,540				10,890
General and administrative			9,666				7,371				19,144				14,423
Research and engineering			2,700				2,159				5,559				4,220
Other operating expense (income)			1,135				(311	)			990				(22	)
			20,539				14,745				39,233				29,511
OPERATING INCOME			6,916				5,105				8,247				8,917
Other income (expense)
Interest income			94				87				177				212
Interest expense			(126	)			(107	)			(296	)			(216	)
Other income			409				178				760				657
			377				158				641				653
INCOME BEFORE INCOME TAXES			7,293				5,263				8,888				9,570
Income taxes			1,197				1,721				1,758				3,311
NET INCOME			6,096				3,542				7,130				6,259
Net (loss) attributable to noncontrolling interest, net of tax			—				(42	)			(98	)			(47	)
NET INCOME ATTRIBUTABLE TO PLPC		$	6,096			$	3,584			$	7,228			$	6,306
BASIC EARNINGS PER SHARE
Net income attributable to PLPC common shareholders		$	1.16			$	0.69			$	1.38			$	1.21
DILUTED EARNINGS PER SHARE
Net income attributable to PLPC common shareholders		$	1.13			$	0.68			$	1.34			$	1.19
Cash dividends declared per share		$	0.20			$	0.20			$	0.40			$	0.40
Weighted-average number of shares outstanding — basic			5,253				5,231				5,253				5,228
Weighted-average number of shares outstanding — diluted			5,402				5,311				5,401				5,306

See notes to consolidated financial statements (unaudited).

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

		Six month periods ended June 30
		2010				2009
		(Thousands of dollars)
OPERATING ACTIVITIES
Net income		$	7,130			$	6,259
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and amortization			4,042				3,404
Provision for accounts receivable allowances			277				345
Provision for inventory reserves			737				1,548
Deferred income taxes			(1,164	)			95
Share-based compensation expense			1,383				669
Excess tax benefits from share-based awards			—				(75	)
Net investment in life insurance			(26	)			(33	)
Unrealized foreign currency gain on hedge contract			(451	)			—
Other — net			(5	)			(9	)
Changes in operating assets and liabilities:
Accounts receivable			(3,586	)			(4,947	)
Inventories			(2,113	)			431
Trade accounts payables and accrued liabilities			4,446				3,154
Income taxes payable			(627	)			517
Other — net			(3,331	)			(144	)
NET CASH PROVIDED BY OPERATING ACTIVITIES			6,712				11,214
INVESTING ACTIVITIES
Capital expenditures			(6,606	)			(4,198	)
Business acquisitions			—				(433	)
Proceeds from the sale of discontinued operations			—				750
Proceeds from the sale of property and equipment			225				89
NET CASH USED IN INVESTING ACTIVITIES			(6,381	)			(3,792	)
FINANCING ACTIVITIES
Increase (decrease) in notes payable to banks			(3	)			818
Proceeds from the issuance of long-term debt			11,946				706
Payments of long-term debt			(11,471	)			(250	)
Dividends paid			(2,167	)			(2,125	)
Excess tax benefits from share-based awards			—				75
Proceeds from issuance of common shares			84				188
Purchase of common shares for treasury			(21	)			(57	)
NET CASH USED IN FINANCING ACTIVITIES			(1,632	)			(645	)
Effects of exchange rate changes on cash and cash equivalents			(686	)			1,055
Net increase (decrease) in cash and cash equivalents			(1,987	)			7,832
Cash and cash equivalents at beginning of year			24,097				19,869
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	22,110			$	27,701

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 and subsidiaries (the “Company” or “PLPC”) 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, 2010 are not necessarily indicative of the results to be expected for the year ending December 31, 2010.

The consolidated balance sheet at December 31, 2009 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 2009 Annual Report on Form 10-K filed on March 15, 2010 with the Securities and Exchange Commission.

NOTE B — OTHER FINANCIAL STATEMENT INFORMATION

Inventories — net

		June 30				December 31
		2010				2009
Finished products		$	27,404			$	26,161
Work-in-process			4,365				3,473
Raw materials			33,644				34,788
			65,413				64,422
Excess of current cost over LIFO cost			(5,108	)			(4,463	)
Noncurrent portion of inventory			(3,174	)			(3,923	)
		$	57,131			$	56,036

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
		2010				2009
Land and improvements		$	7,009			$	7,188
Buildings and improvements			51,772				51,297
Machinery and equipment			106,566				104,179
Construction in progress			5,734				6,068
			171,081				168,732
Less accumulated depreciation			102,777				100,966
		$	68,304			$	67,766

Comprehensive income (loss)

The components of comprehensive income (loss) for the three and six month periods ended June 30 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
		2010				2009				2010				2009				2010				2009
Net income (loss)		$	6,096			$	3,584			$	—			$	(42	)		$	6,096			$	3,542
Other comprehensive income, net of tax:
Change in unrealized gains on available-for-sale securities, net of tax			—				88				—				—				—				88
Foreign currency translation adjustments			(4,140	)			9,172				41				9				(4,099	)			9,181
Recognized net actuarial loss, net of tax			30				84				—				—				30				84
Total other comprehensive income (loss), net of tax			(4,110	)			9,344				41				9				(4,069	)			9,353
Comprehensive income (loss)		$	1,986			$	12,928			$	41			$	(33	)		$	2,027			$	12,895

		PLPC								Noncontrolling interest								Total
		Six month period								Six month period								Six month period
		ended June 30								ended June 30								ended June 30
		2010				2009				2010				2009				2010				2009
Net income (loss)		$	7,228			$	6,306			$	(98	)		$	(47	)		$	7,130			$	6,259
Other comprehensive income, net of tax:
Change in unrealized losses on available-for-sale securities, net of tax			—				—				—				—				—				—
Foreign currency translation adjustments			(4,310	)			5,923				25				6				(4,285	)			5,929
Recognized net actuarial loss, net of tax			88				167				—				—				88				167
Total other comprehensive income (loss), net of tax			(4,222	)			6,090				25				6				(4,197	)			6,096
Comprehensive income (loss)		$	3,006			$	12,396			$	(73	)		$	(41	)		$	2,933			$	12,355

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 ended June 30								Six month period ended June 30
		2010				2009				2010				2009
Service cost		$	185			$	216			$	407			$	431
Interest cost			276				292				598				584
Expected return on plan assets			(240	)			(183	)			(480	)			(366	)
Recognized net actuarial loss			49				132				140				264
Net periodic benefit cost		$	269			$	457			$	665			$	913

During the six month period ended June 30, 2010, no contributions have been made to the plan. The Company presently anticipates making no contributions to fund the plan in 2010.

NOTE D — COMPUTATION OF EARNINGS PER SHARE

Basic earnings per share were computed by dividing net income attributable to PLPC common shareholders by the weighted-average number of common shares outstanding for each respective period. Diluted earnings per share were calculated by dividing net income attributable to PLPC common shareholders 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, 2010 and 2009 were as follows:

		For the three month period ended June 30								For the six month period ended June 30
		2010				2009				2010				2009
Numerator
Net income attributable to PLPC		$	6,096			$	3,584			$	7,228			$	6,306
Denominator
Determination of shares
Weighted average common shares outstanding			5,253				5,231				5,253				5,228
Dilutive effect — share-based awards			149				80				148				78
Diluted weighted average common shares outstanding			5,402				5,311				5,401				5,306
Earnings per common share attributable to PLPC shareholders
Basic		$	1.16			$	0.69			$	1.38			$	1.21
Diluted		$	1.13			$	0.68			$	1.34			$	1.19

For the three and six month periods ended June 30, 2010, 41,500 and 32,500 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 the stock options are anti-dilutive. For the three and six month periods ended June 30, 2009, 43,450 and 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 the stock options are anti-dilutive.

NOTE E — GOODWILL AND OTHER INTANGIBLES

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

		June 30, 2010								December 31, 2009
		Gross Carrying				Accumulated				Gross Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Finite-lived intangible assets
Patents		$	4,826			$	(3,370	)		$	4,827			$	(3,213	)
Land use rights			1,227				(62	)			1,365				(55	)
Trademark			313				(43	)			311				—
Customer relationships			5,359				(749	)			5,372				(520	)
		$	11,725			$	(4,224	)		$	11,875			$	(3,788	)
Indefinite-lived intangible assets
Goodwill		$	6,654							$	6,925

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 has 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 as of January 1, 2010, and determined that no adjustment to the carrying value was required. The aggregate amortization expense for other intangibles with finite lives for the three and six month periods ended June 30, 2010 was $.2 million and $.4 million. The aggregate amortization expense for other intangibles with finite lives for the three and six month periods ended June 30, 2009 was $.1 million and $.2 million. Amortization expense is estimated to be $.9 million for 2010, $.7 million for 2011, $.8 million for 2012 and 2013 and $.7 million for 2014.

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, 2010, are as follows:

		Australia				South Africa				Poland				All Other				Total
Balance at January 1, 2010		$	2,243			$	52			$	1,161			$	3,469			$	6,925
Currency translation			(92	)			(2	)			(178	)			1				(271	)
Balance at June 30, 2010		$	2,151			$	50			$	983			$	3,470			$	6,654

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, 2010 there were no shares remaining to be issued 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 no options granted during the six month periods ended June 30, 2010 and 2009.

Activity in the Plan for the six month period ended June 30, 2010 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, 2010			85,502			$	33.29
Granted			—			$	0.00
Exercised			(4,696	)		$	15.13
Forfeited			—			$	0.00
Outstanding (vested and expected to vest) at June 30, 2010			80,806			$	34.34				5.8			$	226
Exercisable at June 30, 2010			69,056			$	32.94				5.1			$	226

The total intrinsic value of stock options exercised during the six month periods ended June 30, 2010 and 2009 was $.1 million and $.4 million. Cash received for the exercise of stock options during 2010 was $.1 million. There were no excess tax benefits from stock based awards for the six month period ended June 30, 2010.

For the six month periods ended June 30, 2010 and 2009, the Company recorded compensation expense related to the stock options currently vesting, reducing income before taxes and net income by less than $.1 million for both periods. The total compensation cost related to nonvested awards not yet recognized at June 30, 2010 is expected to be a combined total of $.2 million over a weighted average period of 1.9 years.

Long Term Incentive Plan of 2008

Under the Preformed Line Products Company Long Term Incentive Plan of 2008 (the “LTIP Plan”), certain employees, officers, and directors will be eligible to receive awards of options and restricted shares. The purpose of this LTIP Plan 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 Plan 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 Plan expires on April 17, 2018.

Restricted Share Awards

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 vesting based upon the Company’s performance over a three year period. All of the CEO’s restricted shares are subject to vesting based upon the Company’s performance over a three year period.

The restricted shares are offered 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 a restricted share award is based on the market price of a common share on the grant date. The Company currently estimates that no awards will be forfeited. Dividends declared in 2009 and thereafter will be accrued in cash dividends. In 2008, dividends were reinvested in additional restricted shares, and held subject to the same vesting requirements as the underlying restricted shares.

A summary of the restricted share awards for the six month period ended June 30, 2010 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, 2010			115,346				12,475				127,821			$	38.28
Granted			66,973				7,303				74,276				35.75
Vested			—				—				—				—
Forfeited			—				—				—				—
Nonvested as of June 30, 2010			182,319				19,778				202,097			$	37.35

For time-based restricted shares the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period of the award in General and administrative expense in the accompanying statement of consolidated income. Compensation expense related to the time-based restricted shares for the six month periods ended June 30, 2010 and 2009 was $.1 million. As of June 30, 2010, there was $.5 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 approximately 1.4 years.

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 sales over a requisite performance period. Depending on the extent to which the performance criterions are satisfied under the LTIP Plan, the participants are eligible to earn common shares over the vesting period. Performance-based compensation expense for the six month periods ended June 30, 2010 and 2009 was $1.1 million and $.5 million, respectively. As of June 30, 2010, the remaining performance-based restricted share awards compensation expense of $3.8 million is expected to be recognized over a period of approximately 1.1 years.

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.

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 Plan, there are 97,903 common shares currently available for additional restricted share grants.

Share Option Awards

The LTIP plan permits the grant of 100,000 share 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, 2010 there were 89,000 shares remaining available for issuance under the LTIP 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.

The Company has elected to use the simplified method of calculating the expected term of the stock options and historical volatility to compute fair value under the Black-Scholes option-pricing model. The risk free rate for periods within the contractual life of the option is based on the U.S. zero coupon Treasury yield in effect at the time of grant. Forfeitures have been estimated to be zero.

There were no options granted for the six month periods ended June 30, 2010 and 2009.

Activity in the Company’s plan for the six month period ended June 30, 2010 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, 2010			11,000			$	38.76
Granted			—			$	0.00
Exercised			—			$	0.00
Forfeited			—			$	0.00
Outstanding (vested and expected to vest) at June 30, 2010			11,000			$	38.76				9.5			$	0
Exercisable at June 30, 2010			—				—				—				—

There were no stock options exercised under the LTIP Plan during the six month period ended June 30, 2010. There were no excess tax benefits from stock based awards for the six month period ended June 31, 2010.

For the six month periods ended June 30, 2010 and 2009, the Company recorded compensation expense related to the stock options currently vesting, reducing income before taxes and net income by less than $.1 million and zero, respectively. The total compensation cost related to nonvested awards not yet recognized at June 30, 2010 is expected to be a combined total of $.1 million over a weighted average period of approximately 2.3 years.

NOTE G — FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

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, 2010, 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. There have been no transfers in or out of level two for the six month period ended June 30, 2010. Based on the analysis performed, the fair value and the carrying value of the Company’s long-term debt are as follows:

		June 30, 2010								December 31, 2009
		Fair Value				Carrying Value				Fair Value				Carrying Value
Long-term debt and related current maturities		$	4,724			$	4,784			$	4,617			$	4,429

As a result of being a global company, the Company’s earnings, cash flows and financial position are exposed to foreign currency risk. The Company’s primary objective for holding derivative financial instruments is to manage foreign currency risks. The Company accounts for derivative instruments and hedging activities as either assets or liabilities in the consolidated balance sheet and carry these instruments at fair value. The Company does not enter into any trading or speculative positions with regard to derivative instruments.

During June 2010, the Company entered into a forward foreign exchange contract to reduce its exposure to foreign currency rate changes related to the purchase price of Electropar which closed on July 30, 2010. This contract was effective as a hedge from an economic perspective, but was not designated as a hedge for accounting purposes under ASC 815. The Company entered into this contract with a global financial institution that the Company believes to be creditworthy.

Foreign currency derivative instruments outstanding are not designated as hedges for accounting purposes, the gains and losses related to mark-to-market adjustments were recognized as other income and expense on the statement of consolidated income during the period in which the derivative instruments were outstanding.

As of June 30, 2010, the Company had a forward foreign currency contract with an exercise value of $12.9 million which matured on July 28, 2010 at a forward rate of NZD $1.00=$.6632 USD. The unrealized gain recognized into earnings as a result of revaluing the instrument to fair value on June 30, 2010 was $.5 million which was included in other income (expense) in the statement of consolidated income and other current assets on the consolidated balance sheet. Fair value of $13.3 million was determined using the market approach by references to quoted prices in active markets for similar assets, which is Level 2 as defined in the fair value hierarchy.

The following table summarizes the fair value of derivative instruments recorded in the Consolidated Balance Sheets at June 30, 2010 and 2009:

				Asset Derivative
				Fair Value at June 30,
Derivative Not Designated as Hedging Instrument		Balance Sheet Classification		2010				2009
Foreign exchange forward contracts		Other current assets		$	451.0			$	—

The following table shows the effects of the Company’s derivatives not designated as hedging instruments in the Consolidated Statements of Income:

				Amount of Gain (Loss)
		Location of Gain or (loss)		Recognized in Earnings
		Recognized in Income on		On Derivative at June 30,
Derivative not Desigated as Hedging Instruments		Derivative		2010				2009
Foreign exchange forward contracts		Other income (expense)		$	451.0			$	—

NOTE H — RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In June 2009, the FASB updated guidance included in FASB ASC 810-10, related to the consolidation of variable interest entities. This guidance will require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. In addition, this updated guidance amends the quantitative approach for determining the primary beneficiary of a variable interest entity. ASC 810-10 amends certain guidance for determining whether an entity is a variable interest entity and adds additional reconsideration events for determining whether an entity is a variable interest entity. Further, this guidance requires enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. This updated guidance is effective as of the beginning of the first annual reporting period and interim reporting periods that begin after November 15, 2009. The adoption of this guidance did not have an impact on the Company’s financial statements or disclosures.

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820). This Update provides amendments to Subtopic 820-10 and related guidance within U.S. GAAP to require disclosure of the transfers in and out of Levels 1 and 2 and a schedule for Level 3 that separately identifies purchases, sales, issuances and settlements and requires more detailed disclosures regarding valuation techniques and inputs. The Company adopted this new standard effective January 1, 2010 and it had no impact on the Company’s financial statements or disclosures.

NOTE I — RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements — a consensus of the FASB Emerging Issues Task Force (ASU 2009-13). ASU 2009-13 addresses the accounting for sales arrangements that include multiple products or services by revising the criteria for when deliverables may be accounted for separately rather than as a combined unit. Specifically, this guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is necessary to separately account for each product or service. This hierarchy provides more options for establishing selling price than existing guidance. ASU 2009-13 is required to be applied prospectively to new or materially modified revenue arrangements in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company is currently evaluating the effect the adoption of ASU 2009-13 will have on our financial position, results of operations, cash flows, and related disclosures; however no effect is expected.

ASU No. 2009-05 (ASC Topic 820), which amends Fair Value Measurements and Disclosures — Overall, ASU No. 2009-13 (ASC Topic 605), Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985), Certain Revenue Arrangements that include Software Elements, and various other ASU’s No. 2009-2 through ASU No. 2010-19 which contain technical corrections to existing guidance or affect guidance to specialized industries or entities, were recently issued. These updates have no current applicability to the Company or their effect on the financial statements would not have been significant.

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, 2010 and 2009. Financial results for the PLP-USA segment include the elimination of all segments’ intercompany profit in inventory.

		Three month period ended June 30								Six month period ended June 30
		2010				2009				2010				2009
Net sales
PLP-USA		$	30,666			$	26,028			$	57,147			$	54,699
Australia			13,287				6,260				24,178				11,942
Brazil			7,637				5,690				16,264				10,882
South Africa			2,969				2,293				5,780				4,147
Canada			3,026				3,200				5,614				5,555
Poland			4,090				2,737				7,403				5,695
All Other			20,462				13,360				34,659				25,342
Total net sales		$	82,137			$	59,568			$	151,045			$	118,262
Intersegment sales
PLP-USA		$	2,205			$	1,545			$	3,327			$	3,075
Australia			157				19				208				34
Brazil			212				230				1,082				970
South Africa			122				192				230				204
Canada			224				80				394				116
Poland			137				306				311				744
All Other			6,662				2,771				11,109				5,230
Total intersegment sales		$	9,719			$	5,143			$	16,661			$	10,373

		Three month period ended June 30								Six month period ended June 30
		2010				2009				2010				2009
Income taxes (benefit)
PLP-USA		$	(40	)		$	1,218			$	(468	)		$	2,139
Australia			342				21				597				49
Brazil			(323	)			31				(75	)			89
South Africa			250				116				438				236
Canada			219				277				370				422
Poland			111				32				149				138
All Other			638				26				747				238
Total income taxes		$	1,197			$	1,721			$	1,758			$	3,311
Net income
PLP-USA		$	1,834			$	1,094			$	805			$	2,250
Australia			560				62				1,018				112
Brazil			702				51				1,167				145
South Africa			642				304				1,125				611
Canada			489				616				825				938
Poland			424				123				556				548
All Other			1,445				1,292				1,634				1,655
Total net income			6,096				3,542				7,130				6,259
Loss attributable to noncontrolling interest, net of tax			—				(42	)			(98	)			(47	)
Net income attributable to PLPC		$	6,096			$	3,584			$	7,228			$	6,306

		June 30				December 31
		2010				2009
Assets
PLP-USA		$	69,250			$	65,266
Australia			34,353				31,269
Brazil			24,608				25,194
South Africa			8,567				7,081
Canada			9,661				9,006
Poland			12,914				14,777
All Other			80,354				82,330
			239,707				234,923
Corporate assets			369				449
Total assets		$	240,076			$	235,372

NOTE K — INCOME TAXES

The Company’s effective tax rate was 16% and 33% for the three month periods ended June 30, 2010 and 2009, respectively, and 20% and 35% for six month periods ended June 30, 2010 and 2009, respectively. The lower effective tax rate for the three and six month periods ended June 30, 2010 is primarily due to the favorable benefit from foreign earnings in jurisdictions with lower tax rates, a favorable tax incentive for technological innovation, and the decrease of unrecognized tax benefits effectively settled through audits.

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, 2010, the Company had gross unrecognized tax positions of approximately $1.1 million. Under the provisions of ASC 740 Income Taxes, the Company may decrease its unrecognized tax benefits by $.1 million within the next twelve months due to the expiration of statues of limitations. The Company recognized less than $.2 million of a decrease in unrecognized tax benefit for the six month period ended June 30, 2010, primarily due to settlement of unrecognized tax benefits.

NOTE L — SUBSEQUENT EVENTS

On July 30, 2010, the Company completed the business combination acquiring all of the outstanding equity of Electropar Limited (Electropar) for NZ$20.5 million or $13.3 million USD in cash and the assumption of certain liabilities, subject to a customary post-closing working capital adjustment. Electropar designs, manufacturers and markets pole line and substation hardware for the global electrical utility industry. Electropar is based out of New Zealand with a subsidiary operation in Australia. The acquisition of Electropar will strengthen the Company’s position in the power distribution, transmission and substation hardware markets and will expand its presence in the Asia-Pacific region.

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”) was incorporated in Ohio in 1947. We are an international designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, information (data communication), and other similar industries. Our primary products support, protect, connect, terminate, and secure cables and wires. We also provide solar hardware systems 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 South Africa 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 Canada, 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.

RECENT DEVELOPMENTS

On May 15, 2010, we entered into a definitive agreement with Tony Lachlan Wallace, Grant Lachlan Wallace and Helen Amelia Wallace each of Auckland, New Zealand as trustees of the Wallace Family Trust, Grant Lachlan Wallace, Tony Lachlan Wallace and Alison Kay Wallace each of Auckland, NZ, as trustees of the T&A Wallace Family Trust, and Cameron Wallace Trust (collectively, “Sellers”) for the Sale and Purchase of Shares in Electropar Limited, a New Zealand corporation. Electropar Limited (Electropar) designs, manufactures and markets pole line and substation hardware for the global electrical utility industry. Electropar is based out of New Zealand with a subsidiary operation in Australia. The acquisition of Electropar will strengthen our position in the power distribution, transmission and substation hardware markets and will expand our presence in the Asia-Pacific region.

Pursuant to the Purchase Agreement, PLPC acquired all of the outstanding equity of Electropar for NZ$20.5 million or $13.3 million USD subject to a customary post-closing working capital adjustment. In addition, we may be required to make an additional earn-out consideration payment to the Sellers up to NZ$2 million based on Electropar achieving a financial performance target (Earnings Before Interest, Taxes, Depreciation and Amortization) for the 12 month period following closing. In addition, the Purchase Agreement includes customary representations, warranties, covenants and indemnification provisions. The acquisition of Electropar closed on July 30, 2010.

On December 18, 2009, PLPC and Tyco Electronics Group S.A. (Tyco Electronics) completed a Stock and Asset Purchase Agreement, pursuant to which, PLPC acquired from Tyco Electronics its Dulmison business for $16 million and the assumption of certain liabilities. The acquisition of Dulmison strengthened our position in the power distribution and transmission hardware market and expanded our presence in the Asia-Pacific region. As a result of the acquisition, we added operations in Indonesia and Malaysia and strengthened our existing positions in Australia, Thailand, Mexico and the United States.

Preface

Our net sales for the three month period ended June 30, 2010 increased $22.6 million, or 38%, and gross profit increased $7.6 million, or 38%, compared to the three month period ended June 30, 2009. Our net sales increase was caused by a 49% increase in foreign net sales in addition to a 25% increase in U.S. net sales. Our financial results are subject to fluctuation results in the exchange rates of foreign currencies in relation to the U.S. dollar. Of the 38% increase in net sales, 6% was from the favorable effect on the change in the translation rate of local currencies as a result of the strengthening of the U.S. dollar to certain weaker foreign currencies compared to 2009. Excluding the effect of currency translation, sales and gross profit increased 32% compared to 2009. Excluding the effect of currency translation, costs and expenses increased $5.1 million, or 34%, as foreign costs and expenses increased $2.5 million and U.S. costs and expenses increased $2.6 million. As a result of the preceding, excluding the effect of currency translation, net income increased $2.3 million compared to 2009.

Our net sales for the six month period ended June 30, 2010 increased $32.8 million, or 28%, and gross profit increased $9.1 million, or 24%, compared to the six month period ended June 30, 2009. Our net sales increase was caused by a 64% increase in total foreign net sales coupled with a 9% increase in U.S. net sales. Our financial results are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. Of the 28% increase in net sales, 9% was from the favorable effect on the change in the translation rate of local currencies as a result of the U.S. dollar to certain weaker foreign currencies compared to 2009. Excluding the effect of currency translation, gross profit increased 14% compared to 2009. Excluding the effect of currency translation, cost and expenses increased $7.6 million, or 26%, as U.S. and foreign costs and expenses both increased $3.8 million. As a result of the preceding, excluding the effect of currency translation, net income increased $.3 million compared to 2009.

Despite the recent global economic downturn, we are seeing an improvement in our global marketplace and our financial condition continues to remain strong. We continue to generate cash flows from operations, have proactively managed working capital and have controlled capital spending. We currently have a debt to equity ratio of 5% and can borrow needed funds at an attractive interest rate under our credit facility. While current worldwide 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 position ourselves for when the economic recovery ultimately happens.

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S. (GAAP) Our discussions of the financial results include non-GAAP measures (primarily the impact of foreign currency) to provide additional information concerning our financial results and provide information that is useful to the assessment of our performance and operating trends.

THREE MONTH PERIOD ENDED JUNE 30, 2010 COMPARED TO THREE MONTH PERIOD ENDED JUNE 30, 2009

The following table sets forth a summary of the Company’s consolidated income statements for the three month period ended June 30, 2010 and June 30, 2009. The Company’s past operating results are not necessarily indicative of future operating results.

		Three month period ended June 30
Thousands of dollars		2010				2009				Change				% Change
Net sales		$	82,137			$	59,568			$	22,569				38	%
Cost of products sold			54,682				39,718				14,964				38
Gross profit			27,455				19,850				7,605				38
Gross profit as percentage of net sales			33	%			33	%
Costs and expenses			20,539				14,745				5,794				39
Costs and expenses as percentage of net sales			25	%			25	%
Operating income			6,916				5,105				1,811				35
Other income			377				158				219				139
Income before income taxes			7,293				5,263				2,030				39
Income before income taxes as percentage of net sales			9	%			9	%
Income taxes			1,197				1,721				(524	)			(30	)
Net income		$	6,096			$	3,542			$	2,554				72	%

Net Sales. For the three month period ended June 30, 2010, net sales were $82.1 million, an increase of $22.6 million, or 38%, from the three month period ended June 30, 2009. Excluding the effect of currency translation, net sales increased 32% as summarized in the following table:

		Three month period ended June 30
														Change				Change
														due to				excluding
														currency				currency				%
thousands of dollars		2010				2009				Change				translation				tranlation				change
Net sales
PLP-USA		$	30,666			$	26,028			$	4,638			$	—			$	4,638				18	%
Australia			13,287				6,260				7,027				1,933				5,094				81
Brazil			7,637				5,690				1,947				1,043				904				16
South Africa			2,969				2,293				676				329				347				15
Canada			3,026				3,200				(174	)			363				(537	)			(17	)
Poland			4,090				2,737				1,353				201				1,152				42
All Other			20,462				13,360				7,102				(208	)			7,310				55
Consolidated		$	82,137			$	59,568			$	22,569			$	3,661			$	18,908				32	%

The increase in PLP-USA net sales of $4.6 million, or 18%, was primarily due to sales volume increases of $2.8 million, sales mix increases of $2.3 million partially offset by lower average sales prices when compared to 2009. International net sales for the three month period ended June 30, 2010, were favorably affected by $3.7 million when converted to U.S. dollars, as a result of the U.S. dollar compared to certain weaker foreign currencies. The following discussions of international net sales exclude the effect of currency translation. Australia net sales increased $5.1 million, or 81%, as a result of higher sales volume of $4 million primarily related to the Dulmison acquisition in December 2009 coupled with a $.6 million increase in sales related to BlueSky, and higher energy sales volume. Brazil net sales increased $.9 million, or 16%, primarily as a result of higher sales volume. South Africa net sales increased $.3 million, or 15%, as a result of increased energy sales. Canada net sales decreased $.5 million, or 17%, due to lower sales volume in their domestic markets primarily due to a one-time sales project in 2009. Poland net sales increased $1.2 million, or 42%, due primarily to an increase in sales volume as a result of an improvement in Poland’s overall economy. All Other net sales increased $7.3 million, or 55%, due to an overall increase in sales volume coupled with an estimated $3.7 million in net sales realized through the acquisition entered into in December 2009 reported in All Other.

Gross profit. Gross profit of $27.5 million for the three month period ended June 30, 2010 increased $7.6 million, or 38%, compared to the three month period ended June 30, 2009. Excluding the effect of currency translation, gross profit increased 32% as summarized in the following table:

		Three month period ended June 30
														Change				Change
														due to				excluding
														currency				currency				%
thousands of dollars		2010				2009				Change				translation				translation				change
Gross profit
PLP-USA		$	9,729			$	8,808			$	921			$	—			$	921				10	%
Australia			4,416				1,694				2,722				661				2,061				122
Brazil			2,048				1,302				746				269				477				37
South Africa			1,461				901				560				162				398				44
Canada			1,357				1,435				(78	)			161				(239	)			(17	)
Poland			1,304				800				504				58				446				56
All Other			7,140				4,910				2,230				(38	)			2,268				46
Consolidated		$	27,455			$	19,850			$	7,605			$	1,273			$	6,332				32	%