PREFORMED LINE PRODUCTS CO - Quarter Report: 2015 September (Form 10-Q)

Table of Contents

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

Preformed Line Products Company

(Exact Name of Registrant as Specified in Its Charter)

(440) 461-5200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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 (§232.405 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  x    No  ¨

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of common shares outstanding as of November 1, 2015: 5,272,030.

Table of Contents

Table of Contents

2

Table of Contents

PART I – FINANCIAL INFORMATION

3

Table of Contents

PREFORMED LINE PRODUCTS COMPANY

CONSOLIDATED BALANCE SHEETS

See notes to consolidated financial statements (unaudited).

4

Table of Contents

PREFORMED LINE PRODUCTS COMPANY

STATEMENTS OF CONSOLIDATED INCOME

(UNAUDITED)

See notes to consolidated financial statements (unaudited).

5

Table of Contents

PREFORMED LINE PRODUCTS COMPANY

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

See notes to consolidated financial statements (unaudited).

6

Table of Contents

PREFORMED LINE PRODUCTS COMPANY

STATEMENTS OF CONSOLIDATED CASH FLOWS

(UNAUDITED)

See notes to consolidated financial statements (unaudited).

7

Table of Contents

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 United States of America (U.S.) generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.

The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could differ from these estimates. In the opinion of management, these consolidated financial statements contain all estimates and adjustments, consisting of normal recurring accruals, required to fairly present the financial position, results of operations, and cash flows for the interim periods. Operating results for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for the full-year ending December 31, 2015.

The Consolidated Balance Sheet at December 31, 2014 has been derived from the audited consolidated financial statements, but does not include all of the information and notes required by U.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes to consolidated financial statements included in the Company’s 2014 Annual Report on Form 10-K filed on March 12, 2015 with the Securities and Exchange Commission.

NOTE B – OTHER FINANCIAL STATEMENT INFORMATION

Inventories – net

Cost of inventories for certain material is determined using the last-in-first-out (LIFO) method and totaled approximately $26.4 million at September 30, 2015 and $27 million at December 31, 2014. An actual valuation of inventories under the LIFO method can be made only at the end of the year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must be based on management’s estimates of expected year-end inventory levels and costs. Because these estimates are subject to change and may be different than the actual inventory levels and costs at the end of the year, interim results are subject to the final year-end LIFO inventory valuation. During the three and nine months ended September 30, 2015, the net change in LIFO inventories resulted in a $.4 million benefit to Income before income taxes for each period. During the three and nine months ended September 30, 2014, the net change in LIFO inventories resulted in a $.2 million and $.1 million charge to Income before income taxes, respectively.

Noncurrent inventory is included in Other assets on the Consolidated Balance Sheets.

8

Table of Contents

Property, plant and equipment - net

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

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

The Company uses a December 31 measurement date for the Preformed Line Products Company Employees’ Retirement Plan (the “Plan”). Net periodic benefit cost for this plan included the following components:

No contributions were made to the Plan during the nine months ended September 30, 2015. The Company does not anticipate contributing to the Plan in 2015.

9

Table of Contents

NOTE D – ACCUMULATED OTHER COMPREHENSIVE INCOME (“AOCI”)

The following tables set forth the total changes in AOCI by component, net of tax:

NOTE E – 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 stock that was outstanding during the periods presented.

The calculation of basic and diluted earnings per share for the three and nine months ended September 30, 2015 and 2014 was as follows:

For the three and nine months ended September 30, 2015, 59,750 and 51,850 stock options, respectively, were excluded from the calculation of diluted earnings per share as the effect would have been anti-dilutive. For the three and nine months ended September 30, 2014, 25,750 and 20,750 stock options, respectively, were excluded from the calculation of diluted earnings per share as the effect would have been anti-dilutive.

10

Table of Contents

For the three and nine months ended September 30, 2015, there were no restricted share units excluded from the calculation of diluted earnings per share. For the three and nine months ended September 30, 2014, 51,425 and 49,967 restricted share units, respectively, were excluded from the calculation of diluted earnings per share as the effect of the settlement in common shares would have been anti-dilutive.

NOTE F – GOODWILL AND OTHER INTANGIBLES

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

The aggregate amortization expense for other intangibles with finite lives for the three and nine months ended September 30, 2015 was $.3 million and $.9 million, respectively. The aggregate amortization expense for other intangibles with finite lives for the three and nine months ended September 30, 2014 was $.4 million and $1.2 million, respectively. Amortization expense is estimated to be $.3 million for the remaining period of 2015, $1 million annually for 2016 and 2017 and $.9 million annually for 2018 and 2019. The weighted-average remaining amortization period is approximately 21 years. The weighted-average remaining amortization period by intangible asset class is as follows: patents, 10.3 years; land use rights, 59.6 years; trademark, 10.1 years; technology, 16.2 years; and customer relationships, 14.4 years.

The Company’s measurement date for its annual impairment test for goodwill is October 1st of each year. 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 different. However, the Company believes that the methodologies and weightings used are reasonable and result in appropriate fair values of the reporting units.

During the third quarter of 2015, the Company’s market capitalization dropped below its equity carrying value. This was identified as an interim indicator of impairment. As such, the Company performed an interim goodwill impairment assessment of its Asia-Pacific reporting unit and one of its reporting units within The Americas segment. The result of this interim assessment was the Company passed step one by a margin of 16% and 24%, respectively, for the two reporting units, which compares to a margin of 24% and 39%, respectively, at October 1, 2014. The Company had goodwill balances of $8.3 million and $4.1 million, respectively, for these reporting units at September 30, 2015. The weighted average cost of capital and long-term growth assumptions used in the Company’s assessment were 14.7% and 3%, respectively, for its Asia Pacific reporting unit and 13.5% and 3%, respectively, for the reporting unit within The America’s segment. While it was determined that there was no impairment at September 30, 2015, the Company will continue to monitor the results of these operations as there is a reasonable possibility of a future impairment charge and significant uncertainties regarding the recoverability of the respective carrying values.

The Company’s only intangible asset with an indefinite life is goodwill. The changes in the carrying amount of goodwill, by segment, for the nine months ended September 30, 2015, are as follows:

11

Table of Contents

NOTE G – SHARE-BASED COMPENSATION

The 1999 Stock Option Plan

Activity in the Company’s 1999 Stock Option Plan for the nine months ended September 30, 2015 was as follows:

There were 0 and 1,000 stock options exercised during the nine months ended September 30, 2015 and 2014, respectively. The total intrinsic value of stock options exercised during the nine months ended September 30, 2015 and 2014 was $0 and less than $.1 million, respectively. Cash received for the exercise of stock options during the nine months ended September 30, 2015 and 2014 was $0 and less than $.1 million, respectively.

For the nine months ended September 30, 2015 and 2014, the Company recorded no compensation expense related to stock options for either period as all options were fully vested.

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 are eligible to receive awards of options, restricted shares and restricted share units. The purpose of this LTIP is to give the Company 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 900,000. Of the 900,000 common shares, 800,000 common shares have been reserved for restricted share units and 100,000 common shares have been reserved for stock options. The LTIP expires on April 17, 2018.

Restricted Share Units

For all of the participants except the CEO, a portion of the restricted share units (RSUs) 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 RSUs are subject to vesting based upon the Company’s performance over a three-year period.

The RSUs are offered at no cost to the employees; however, the participant must remain employed with the Company until the restrictions on the RSUs lapse. The fair value of RSUs is based on the market price of a common share on the grant date. The Company currently estimates that no RSUs will be forfeited. Dividends declared are accrued in cash.

12

Table of Contents

A summary of the RSUs for the nine months ended September 30, 2015 is as follows:

For time-based RSUs, 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 Statements of Consolidated Income. Compensation expense related to the time-based RSUs for the three and nine months ended September 30, 2015 was $.1 million and $.2 million, respectively. Compensation expense related to the time-based RSUs for the three and nine months ended September 30, 2014 was $.1 million and $.2 million, respectively. As of September 30, 2015, there was $.4 million of total unrecognized compensation cost related to time-based RSUs that is expected to be recognized over the weighted-average remaining period of approximately 1.7 years.

For the performance-based RSUs, the number of RSUs in which the participants will vest depends on the Company’s level of performance measured by growth in pretax income and sales growth 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 over the vesting period. For the three months and nine months ended September 30, 2015 a $1 million and $.8 million reduction, respectively, to performance-based compensation expense was recorded. During the three and nine months ended September 30, 2015, a $.8 million reduction in performance-based compensation expense was recorded for each period related to the 2013 performance-based RSU grant, due to changes in estimates for growth in sales and pretax income. During the three and nine months ended September 30, 2015, a $.6 million and $1.2 million, respectively, reduction in performance-based compensation expense was recorded related to the 2014 performance-based RSU grant, due to changes in estimates for growth in sales and pre-tax income. Performance-based compensation expense for the three months ended September 30, 2014 was a reduction of expense of less than $.1 million. Performance-based compensation expense for the nine months ended September 30, 2014 was $.4 million. During the three and nine months ended September 30, 2014, a $.2 million and $1.1 million reduction, respectively, in performance-based compensation expense was recorded related to the 2013 performance-based RSU grant, due to changes in estimates for growth in pre-tax income. During the three and nine months ended September 30, 2014, a $.4 million reduction in performance-based compensation expense was recorded related to the 2012 performance-based RSU grant, due to changes in estimates for growth in pre-tax income. As of September 30, 2015, the remaining performance-based RSUs compensation expense of $1.9 million is expected to be recognized over a period of approximately 2.25 years.

The excess tax benefits from service and performance-based RSUs for the nine months ended September 30, 2015 and 2014 was less than $.1 million and $.2 million, respectively, as reported on the Statements of Consolidated Cash Flows in financing activities, and represents the reduction in income taxes otherwise payable during the period, attributable to the actual gross tax benefits in excess of the expected tax benefits for RSUs vested in the current period.

In the event of a Change in Control (as defined in the LTIP), vesting of the RSUs 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 RSU 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 327,398 common shares currently available for additional RSU grants.

Deferred Compensation Plan

The Company maintains a trust, commonly referred to as a rabbi trust, in connection with the Company’s deferred compensation plan. This plan allows for two deferrals. First, Directors make elective deferrals of Director fees

13

Table of Contents

payable and held in the rabbi trust. The deferred compensation plan allows the Directors to elect to receive Director fees in common shares of the Company at a later date instead of fees paid each quarter in cash. Second, this plan allows certain Company employees to defer LTIP restricted shares or RSUs for future distribution in the form of common shares. Assets of the rabbi trust are consolidated, and the value of the Company’s stock held in the rabbi trust is classified in Shareholders’ equity and generally accounted for in a manner similar to treasury stock. The Company recognizes the original amount of the deferred compensation (fair value of the deferred stock award at the date of grant) as the basis for recognition in common shares issued to the rabbi trust. Changes in the fair value of amounts owed to certain employees or Directors are not recognized as the Company’s deferred compensation plan does not permit diversification and must be settled by the delivery of a fixed number of the Company’s common shares. As of September 30, 2015, 291,021 shares have been deferred and are being held by the rabbi trust.

Share Option Awards

The LTIP plan permits the grant of 100,000 options to buy common shares of the Company to certain employees at not less than fair market value of the shares on the date of grant. At September 30, 2015, there were 19,500 shares remaining available for issuance under the LTIP. 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 utilizes the Black-Scholes option pricing model for estimating fair values of options. The Black-Scholes model requires assumptions regarding the volatility of the Company’s stock, the expected life of the stock award and the Company’s dividend yield. The Company utilizes historical data in determining these assumptions. 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 2,000 and 22,000 options granted for the nine months ended September 30, 2015 and 2014, respectively.

The fair value for the stock options granted in 2015 and 2014 were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Activity in the Company’s LTIP plan for nine months ended September 30, 2015 was as follows:

The weighted-average grant-date fair value of options granted during 2015 and 2014 was $11.78 and 20.83. There were 0 and 1,250 stock options exercised during the nine months ended September 30, 2015 and 2014, respectively. The total intrinsic value of stock options exercised during the nine months ended September 30, 2015 and 2014 was $0 and less than $.1 million, respectively. Cash received for the exercise of stock options during the nine months ended September 30, 2015 and 2014 was $0 and $.1 million, respectively.

14

Table of Contents

For the three and nine months ended September 30, 2015, the Company recorded compensation expense related to the stock options currently vesting of $.1 million and $.2 million, respectively. For the three and nine months ended September 30, 2014, the Company recorded compensation expense related to the stock options currently vesting of $.1 million and $.2 million, respectively. The total compensation cost related to nonvested awards not yet recognized at September 30, 2015 is expected to be a combined total of $.3 million over a weighted-average period of approximately 1.8 years.

NOTE H – 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 September 30, 2015, 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 2 inputs. There have been no transfers in or out of Level 2 for the nine months ended September 30, 2015. Based on the analysis performed, the fair value and the carrying value of the Company’s long-term debt are as follows:

NOTE I – RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity,” or ASU 2014-08. ASU 2014-08 changes the criteria for reporting a discontinued operation. Under the new pronouncement, a disposal of a part of an organization that has a major effect on its operations and financial results is a discontinued operation. The Company is required to adopt ASU 2014-08 prospectively for all disposals or components of the business classified as held for sale during the fiscal period beginning after December 15, 2014. The Company adopted the guidance in the first quarter of 2015 and it did not have an effect on the Company’s results of operations, financial condition or cash flows.

NOTE J – NEW ACCOUNTING STANDARDS TO BE ADOPTED

In July 2015, the FASB issued Accounting Standards Update 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory.” The amendments in this Update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments in this Update are effective for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. The amendments in this Update should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating what impact, if any, its adoption will have to the presentation of the Company’s consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update 2015-05, “Intangibles – Goodwill and Other – Internal-Use Software (Topic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” The amendments in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal

15

Table of Contents

years, beginning after December 15, 2015. Earlier application is permitted. Amendments in this Update can be applied retrospectively or prospectively. The Company is currently not engaged in a cloud computing arrangement; however, it is evaluating what impact, if any, its adoption will have to the presentation of the Company’s consolidated financial statements if it enters such an arrangement.

In April 2015, the FASB issued Accounting Standards Update 2015-04, “Compensation – Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets.” For an entity that has a significant event in an interim period that calls for a re-measurement of defined benefit plan assets and obligations, the amendments in this Update provide a practical expedient that permits the entity to re-measure defined benefit plan assets and obligations using the month-end that is closest to the date of the significant event. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Earlier application is permitted. Amendments in this Update should be applied prospectively. The Company is currently evaluating what impact, if any, its adoption will have to the presentation of the Company’s consolidated financial statements.

In January 2015, the FASB issued Accounting Standards Update 2015-01, “Income Statement-Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items.” This Update eliminates from GAAP the concept of extraordinary items. A material event or transaction that an entity considers to be of an unusual nature or of a type that indicates infrequency of occurrence or both shall be reported as a separate component of income from continuing operations. The nature and financial effects of each event or transaction shall be presented as a separate component of income from continuing operations or, alternatively, disclosed in notes to financial statements. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company is currently evaluating what impact, if any, its adoption will have to the presentation of the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15 “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 provides guidance in GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The Company is required to adopt ASU 2014-15 prospectively for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company is currently evaluating what impact, if any, its adoption will have to the presentation of the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” or ASU 2014-09. ASU 2014-09 requires an entity to recognize revenue in a matter that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, the amendment provides five steps that an entity should apply when recognizing revenue. The amendment also specifies the accounting of some costs to obtain or fulfill a contract with a customer and expands the disclosure requirements around contracts with customers. An entity can either adopt this amendment retrospectively to each prior reporting period presented or retrospectively with cumulative effect of initially applying the update recognized at the date of initial application. In August 2015, the FASB issued ASU No. 2015-14 deferring the effective date of the amendment to annual reporting periods beginning after December 15, 2017. Early adoption is not permitted. The Company is currently evaluating what impact, if any, its adoption will have to the presentation of the Company’s consolidated financial statements.

16

Table of Contents

NOTE K – SEGMENT INFORMATION

The following tables present a summary of the Company’s reportable segments for the three and nine months ended September 30, 2015 and 2014. Financial results for the PLP-USA segment include the elimination of all segments’ intercompany profit in inventory.

NOTE L – INCOME TAXES

The Company’s effective tax rate was 90% and 52% for the three months ended September 30, 2015 and 2014, respectively, and 45% and 39% for the nine months ended September 30, 2015 and 2014, respectively. The income tax expense for this period was determined based on an estimated annual effective tax rate of 33% for the twelve month period ending December 31, 2015. The effective tax rate for the three months ended September 30, 2015 differs from the estimated annual 2015 effective tax rate primarily due to an increase in losses in jurisdictions where no tax benefit is recognized coupled with a relatively low level of pre-tax income during the quarter. The higher effective tax rate for the three and nine months ended September 30, 2015 compared to the U.S. federal statutory income tax rate of 35% was primarily due to an increase in losses in jurisdictions where no tax benefit is recognized.

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. No significant changes to the valuation allowance were reflected for the three and nine months ended September 30, 2015.

As of September 30, 2015, the Company had gross unrecognized tax benefits of approximately $.2 million. Under the provisions of ASC 740, Accounting for Income Taxes, the Company does not anticipate any material changes to the amount of unrecognized tax benefits within the next three months.

17

Table of Contents

NOTE M – PRODUCT WARRANTY RESERVE

The Company records an accrual for estimated warranty costs to Costs of products sold in the Consolidated Statements of Income. These amounts are recorded in Accrued expenses and other liabilities in the Consolidated Balance Sheets. The Company records and accounts for its warranty reserve based on specific claim incidents. Should the Company become aware of a specific potential warranty claim for which liability is probable and reasonably estimable, a specific charge is recorded and accounted for accordingly. Adjustments are made quarterly to the accruals as claim information changes.

The following is a rollforward of the product warranty reserve:

NOTE N – BUSINESS COMBINATIONS

On January 31, 2014, the Company acquired Helix Uniformed Limited (Helix), located in Montreal, Quebec, Canada. From an accounting perspective, the acquisition is not considered material. The acquisition of Helix diversified the Company’s business in Canada, expand its manufacturing footprint and enhance its engineering capabilities. The results of Helix are included in The Americas reportable segment.

NOTE O – CHARGES RELATED TO RESTRUCTURING ACTIVITIES

During 2015, the Company reconfigured one of its operations within its Asia Pacific segment by reducing its workforce and manufacturing facilities while outsourcing its production predominantly to its locations with lower cost operations. This was done in response to a slowdown in economic activity in the region as well as continued downward market pressure on prices. We expect total costs related to this reconfiguration to be approximately $2.7 million. Additionally, the Company initiated reconfiguration in The Americas segment which will be primarily a reduction in personnel and facilities in response to downward market pressure on prices. The total charges for The Americas segment are anticipated to be less than $1 million. Both of these actions are expected to reduce infrastructure and manufacturing costs.

Charges for the three months ended September 30, 2015 totaled $2.1 million including charges for severance ($.7 million), lease termination costs ($1.2 million) and asset disposals ($.2 million) principally in the Company’s Asia-Pacific segment ($1.9 million). Severance charges included $.2 million for The Americas segment. The difference between the anticipated total charges and recognized cost for the three months ended September 30, 2015 for The Americas segment will be recorded when facilities are vacated and as certain employees’ services cease. The Company plans to transfer production activities to its PLP-USA segment over the next six months. The costs recorded for the three months ended September 30, 2015 are included in Cost of products sold ($1.8 million), Research and engineering expense ($.1 million) and Other operating expense ($.2 million).

Charges for the nine months ended September 30, 20 15 totaled $2.7 million including charges for severance ($1.3 million), lease termination costs ($1.2 million) and asset disposals ($.2 million) principally in The Asia-Pacific segment ($2.5 million). Severance charges included $.2 million for the Company’s Americas segment. These costs are included in Cost of products sold ($2.4 million), Research and engineering expense ($.1 million) and Other operating expense ($.2 million).

18

Table of Contents

The restructuring liability is recorded in Accrued compensation and amounts withheld from employees, Accrued expenses and other liabilities and Other noncurrent liabilities.

A summary by reporting segment of the accruals recorded as a result of the restructuring is as follows:

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the readers of our consolidated financial statements better understand our results of operations, financial condition and present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and related notes included elsewhere in this report.

The MD&A is organized as follows:

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

19

Table of Contents

(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 achieve profitable growth as a leader in the research, 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. We have 29 sales and manufacturing operations in 17 different countries.

We report our segments in four geographic regions: PLP-USA (including corporate), The Americas (includes operations in North and South America without PLP-USA), EMEA (Europe, Middle East & Africa) and Asia-Pacific in accordance with accounting standards codified in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 280, Segment Reporting. Each segment distributes a full range of our primary products. Our PLP-USA segment is comprised of our U.S. operations manufacturing our traditional products primarily supporting our domestic energy and telecommunications products. Our other three segments, The Americas, EMEA and Asia-Pacific, support our energy, telecommunications, data communication and solar products in each respective geographical region.

The segment managers responsible for each region report directly to the Company’s Chief Executive Officer, who is the chief operating decision maker, and are accountable for the financial results and performance of the entire segment for which they are responsible. The business components within each segment are managed to maximize the results of the entire operating segment and company rather than the results of any individual business component of the segment.

We evaluate segment performance and allocate resources based on several factors primarily based on sales and net income.

PREFACE

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

Our consolidated financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. As foreign currencies weaken against the U.S. dollar, our revenues and costs decrease as the foreign currency-denominated financial statements translate into fewer U.S. dollars. On average, foreign currencies weakened against the U.S. dollar in the third quarter and first nine months of 2015. The fluctuations of foreign currencies during the three and nine months ended September 30, 2015 had an unfavorable impact on net sales of $11.6 million and $26.3 million, respectively, compared to the same periods in 2014. On a reportable segment basis, the favorable (unfavorable) impact of foreign currency on net sales and net income for the three and nine months ended September 30, 2015, was as follows:

The following operating results for the three months ended September 30, 2015 are compared to the same period in 2014. Net sales for the three months ended September 30, 2015 of $89.0 million decreased $13.1 million, or 13%, compared to 2014. Excluding the unfavorable effect of currency translation, net sales decreased 1%. As a percentage of net sales, gross profit decreased to 29.4% from 31.8% in 2014. Gross profit of $26.2 million decreased $6.3 million compared to 2014. Excluding the unfavorable effect of currency translation, gross profit decreased $3.5 million, or 11%, compared to 2014. Costs and expenses of $24.1 million decreased $3.2 million compared to 2014. Excluding the favorable effect of translation, costs and expenses decreased $.1 million compared to 2014. Operating income for the three months ended September 30, 2015 was $2.1 million, a decrease of $3.0 million compared to 2014. Net

20

Table of Contents

income for the three months ended September 30, 2015 of $.2 million was a decrease of $2.3 million compared to the net income in 2014. The effect of currency translation increased operating income $.3 million and increased net income $.7 million.

The following operating results for the nine months ended September 30, 2015 are compared to the same period in 2014. For the nine months ended September 30, 2015, net sales of $262.7 million decreased $29.3 million, or 10%, compared to 2014. The fluctuations of foreign currencies during the nine months ended September 30, 2015 had an unfavorable impact on net sales of $26.3 million as compared to 2014. Excluding the unfavorable impact of currency translation, sales decreased 1% compared to 2014. As a percentage of net sales, gross profit was 29.4% and 31.2% for the nine months ended September 30, 2015 and 2014, respectively. Gross profit of $77.4 million decreased $13.7 compared to 2014. Excluding the unfavorable effect of currency translation of $6.5 million, gross profit decreased $7.2 million, or 8% compared to 2014. Costs and expenses of $70.2 million decreased $4.0 million compared to 2014. Excluding the favorable effect of currency translation, costs and expenses increased $2.8 million compared to 2014. Operating income for the nine months ended September 30, 2015 of $7.2 million decreased $9.8 million compared to 2014. Net income for the nine months ended September 30, 2015 of $3.6 million decreased $6.7 million compared to 2014. The favorable effect of currency translation increased operating income $.2 million and net income $.6 million.

While the effect of currency translation was a slight addition to both operating income and net income compared to 2014, there was an incremental $1.7 million and $6.7 million in losses on foreign currency transactions for the three months and nine months ended September 30, 2015, respectively, that negatively impacted the operating results as summarized in the following table:

The majority of the incremental $1.7 million and $6.7 million losses on foreign currency transactions for the three and nine months ended September 30, 2015, respectively, was attributable to translating into U.S. dollars our foreign currency denominated loans, trade receivables and royalty receivables from foreign subsidiaries.

While the global economy has been challenging in 2015, we believe our business fundamentals are sound and we are strategically well-positioned. We remain focused on managing costs, driving sales and delivering value to our customers. We have continued to invest in the business to improve efficiency, develop new products, increase our capacity and become an even stronger supplier to our customers. We have also strategically consolidated facilities where appropriate with an expectation to leverage our cost structure. We currently have a bank debt to equity ratio of 14.9% and can borrow needed funds at an attractive interest rate under our credit facility.

21

Table of Contents

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2015 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2014

The following table sets forth a summary of the Company’s Statement of Consolidated Income and the percentage of net sales for the three months ended September 30, 2015 and 2014. The Company’s past operating results are not necessarily indicative of future operating results.