PLPC

Business Context and Reporting Period

Company: Preformed Line Products Company (PLPC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: PLPC is an international designer and manufacturer of products and systems for overhead and underground networks in the energy, telecommunications, and cable industries. The company operates through reportable segments including PLP-USA, Australia, Brazil, South Africa, Canada, Poland, and All Other.

Key Financial Metrics

All figures in thousands of dollars, except per share data.

Material Changes vs. Prior Period

• Revenue Decline: Net sales decreased 21% ($15.8 million) for the three months and 13% ($17.0 million) for the six months ended June 30, 2009, compared to the same periods in 2008.
  • Currency Impact: A stronger U.S. dollar negatively impacted reported foreign sales by approximately 9% (three months) and 11% (six months).
  • Organic Decline: Excluding currency effects, sales decreased 12% (three months) and 2% (six months) due to weaker end markets and lower sales volumes in Brazil, Poland, and the U.S.
• Profitability: Net income attributable to PLPC decreased 35% for the three months and 25% for the six months compared to 2008.
  • Gross Margin: Gross profit decreased 16% (three months) and 10% (six months). Excluding currency, gross profit decreased 8% and 1% respectively.
  • Operating Expenses: Costs and expenses decreased 10% (three months) and 6% (six months), partially offsetting the revenue decline.
• Discontinued Operations: The company sold its Superior Modular Products (SMP) subsidiary in May 2008. Income from discontinued operations was $0.6 million for the three months and $0.8 million for the six months ended June 30, 2008. There was no income from discontinued operations in 2009.
• Accounting Change: Effective January 1, 2009, the company changed its depreciation method for PLP-USA assets from accelerated to straight-line, reducing depreciation expense by $0.1 million (three months) and $0.2 million (six months).

Guidance, Outlook, and Risks

• Outlook: Management anticipates flat to slight decreases in PLP-USA sales for the remainder of 2009 due to the difficult economy and depressed housing market. The company expects competitive pricing pressures and global economic declines to continue negatively affecting sales and profitability in 2009.
• Liquidity: The company maintains a strong financial position with a debt-to-equity ratio of 5%. It has $20 million in unused capacity under its main credit facility and $27.7 million in cash. Management believes operating cash flows will be sufficient to cover obligations.
• Risks:
  • Market Demand: Slow growth in mature markets (U.S., Canada, Western Europe) and declining demand for copper-based infrastructure.
  • Currency: Exposure to foreign currency exchange rates, particularly the strength of the U.S. dollar.
  • Raw Materials: Cost, availability, and quality of raw materials.
  • Regulatory: Changes in government regulations affecting environmental compliance.
• Unusual Items: Other income increased due to natural gas generation at the corporate headquarters in Mayfield Village, Ohio, which commenced in May 2008.

Investor Verification Checklist

• Verify the extent of the revenue decline in key international segments (Brazil, Poland) excluding currency translation effects.
• Confirm the sustainability of the cost reduction measures implemented to offset lower sales volumes.
• Review the impact of the depressed housing market on the PLP-USA segment's future order backlog.
• Assess the company's exposure to foreign currency fluctuations given the significant portion of international sales.
• Monitor the status of the joint venture with BlueSky Energy Pty Ltd in Australia and its contribution to future growth.