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 months ended March 31, 2016 are not necessarily indicative of the
results to be expected for the full-year ending December 31, 2016.
The Consolidated Balance Sheet at December 31, 2015 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 Companys 2015 Annual Report on Form 10-K filed on March 11, 2016 with the Securities and Exchange Commission.
Reclassifications
Certain prior period amounts have been
reclassified to conform to current year presentation, as discussed in Note K segment information.
NOTE B OTHER FINANCIAL STATEMENT INFORMATION
Inventories net
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
Finished products
|
|
$
|
37,544
|
|
|
$
|
37,812
|
|
Work-in-process
|
|
|
7,121
|
|
|
|
6,902
|
|
Raw materials
|
|
|
35,162
|
|
|
|
34,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,827
|
|
|
|
79,568
|
|
Excess of current cost over LIFO cost
|
|
|
(3,893
|
)
|
|
|
(3,538
|
)
|
Noncurrent portion of inventory
|
|
|
(5,632
|
)
|
|
|
(6,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,302
|
|
|
$
|
69,912
|
|
|
|
|
|
|
|
|
|
|
Cost of inventories for certain material is determined using the last-in-first-out (LIFO) method and totaled approximately
$26.9 million at March 31, 2016 and $26.8 million at December 31, 2015. 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 managements 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 months ended March 31, 2016 and March 31, 2015, the net change in LIFO inventories resulted in a $.4 million and $.1 million charge, respectively, to Income (loss)
before income taxes.
Noncurrent inventory is included in Other assets on the Consolidated Balance Sheets.
7
Property, plant and equipment - net
Major classes of Property, plant and equipment are stated at cost and were as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
Land and improvements
|
|
$
|
12,693
|
|
|
$
|
12,260
|
|
Buildings and improvements
|
|
|
72,601
|
|
|
|
71,711
|
|
Machinery and equipment
|
|
|
140,980
|
|
|
|
137,599
|
|
Construction in progress
|
|
|
7,399
|
|
|
|
3,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
233,673
|
|
|
|
224,939
|
|
Less accumulated depreciation
|
|
|
136,965
|
|
|
|
132,974
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
96,708
|
|
|
$
|
91,965
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Service cost
|
|
$
|
55
|
|
|
$
|
27
|
|
Interest cost
|
|
|
365
|
|
|
|
358
|
|
Expected return on plan assets
|
|
|
(450
|
)
|
|
|
(465
|
)
|
Recognized net actuarial loss
|
|
|
123
|
|
|
|
139
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
93
|
|
|
$
|
59
|
|
|
|
|
|
|
|
|
|
|
No contributions were made to the Plan during the three months ended March 31, 2016. The Company does not anticipate
contributing to the Plan in 2016.
8
NOTE D ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)
The following tables set forth the total changes in AOCI by component, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2016
|
|
|
Three Months Ended March 31, 2015
|
|
|
|
Defined benefit
pension plan
activity
|
|
|
Currency
Translation
Adjustment
|
|
|
Total
|
|
|
Defined benefit
pension plan
activity
|
|
|
Currency
Translation
Adjustment
|
|
|
Total
|
|
Balance at January 1
|
|
$
|
(6,235
|
)
|
|
$
|
(47,916
|
)
|
|
$
|
(54,151
|
)
|
|
$
|
(7,007
|
)
|
|
$
|
(28,127
|
)
|
|
$
|
(35,134
|
)
|
Other comprehensive income (loss) before reclassifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on foreign currency translation adjustment
|
|
|
0
|
|
|
|
3,867
|
|
|
|
3,867
|
|
|
|
0
|
|
|
|
(8,614
|
)
|
|
|
(8,614
|
)
|
|
|
|
|
|
|
|
Amounts reclassified from AOCI:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension actuarial loss (a)
|
|
|
77
|
|
|
|
0
|
|
|
|
77
|
|
|
|
86
|
|
|
|
0
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current period other comprehensive income (loss)
|
|
|
77
|
|
|
|
3,867
|
|
|
|
3,944
|
|
|
|
86
|
|
|
|
(8,614
|
)
|
|
|
(8,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31
|
|
$
|
(6,158
|
)
|
|
$
|
(44,049
|
)
|
|
$
|
(50,207
|
)
|
|
$
|
(6,921
|
)
|
|
$
|
(36,741
|
)
|
|
$
|
(43,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
This AOCI component is included in the computation of net periodic pension costs.
|
NOTE E COMPUTATION OF
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share were computed by dividing Net income (loss) by the weighted-average number of common shares
outstanding for each respective period. Diluted earnings (loss) per share were calculated by dividing Net income (loss) by the weighted-average of all potentially dilutive common stock that was outstanding during the periods presented.
The calculation of basic and diluted earnings (loss) per share for the three months ended March 31, 2016 and 2015 was as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
2,658
|
|
|
$
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
Determination of shares
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
5,211
|
|
|
|
5,396
|
|
Dilutive effect - share-based awards
|
|
|
18
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average common shares outstanding
|
|
|
5,229
|
|
|
|
5,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.51
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.51
|
|
|
$
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2016, 61,800 stock options were excluded from the calculation of diluted earnings per
share as the effect would have been anti-dilutive. For the three months ended March 31, 2015, 59,750 stock options were excluded from the calculation of diluted loss per share as the effect would have been anti-dilutive.
For the three months ended March 31, 2016, there were no restricted share units excluded from the calculation of diluted earnings per share. For the
three months ended March 31, 2015, 12,775 restricted share units were excluded from the calculation of diluted loss per share as the effect of the settlement in common shares would have been anti-dilutive.
9
NOTE F GOODWILL AND OTHER INTANGIBLES
The Companys finite and indefinite-lived intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
Finite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
4,815
|
|
|
$
|
(4,799
|
)
|
|
$
|
4,815
|
|
|
$
|
(4,799
|
)
|
Land use rights
|
|
|
1,179
|
|
|
|
(182
|
)
|
|
|
1,155
|
|
|
|
(173
|
)
|
Trademark
|
|
|
1,750
|
|
|
|
(934
|
)
|
|
|
1,713
|
|
|
|
(899
|
)
|
Technology
|
|
|
3,098
|
|
|
|
(912
|
)
|
|
|
3,021
|
|
|
|
(860
|
)
|
Customer relationships
|
|
|
12,147
|
|
|
|
(4,697
|
)
|
|
|
11,816
|
|
|
|
(4,501
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
22,989
|
|
|
$
|
(11,524
|
)
|
|
$
|
22,520
|
|
|
$
|
(11,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
16,290
|
|
|
|
|
|
|
$
|
15,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate amortization expense for other intangibles with finite lives for the three months ended March 31, 2016 and 2015
was $.3 million and $.4 million, respectively. Amortization expense is estimated to be $.7 million for the remaining period of 2016, $1.0 million annually for 2017 and 2018 and $.9 million annually for 2019 and 2020. The weighted-average
remaining amortization period is approximately 20.5 years. The weighted-average remaining amortization period by intangible asset class is as follows: patents, 9.8 years; land use rights, 58.9 years; trademark, 10.1 years; technology, 15.6
years; and customer relationships, 13.9 years.
The Companys 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.
The Companys only intangible asset with an indefinite life is goodwill. The changes in the carrying amount of goodwill, by segment, for the three months
ended March 31, 2016, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USA
|
|
|
The Americas
|
|
|
EMEA
|
|
|
Asia-Pacific
|
|
|
Total
|
|
Balance at January 1, 2016
|
|
$
|
3,078
|
|
|
$
|
3,918
|
|
|
$
|
1,301
|
|
|
$
|
7,524
|
|
|
$
|
15,821
|
|
Currency translation
|
|
|
0
|
|
|
|
253
|
|
|
|
38
|
|
|
|
178
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2016
|
|
$
|
3,078
|
|
|
$
|
4,171
|
|
|
$
|
1,339
|
|
|
$
|
7,702
|
|
|
$
|
16,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
NOTE G SHARE-BASED COMPENSATION
The 1999 Stock Option Plan
Activity in the Companys
1999 Stock Option Plan for the three months ended March 31, 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
per Share
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
12,000
|
|
|
$
|
41.44
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding (exercisable and vested) at March 31, 2016
|
|
|
12,000
|
|
|
$
|
41.44
|
|
|
|
1.6
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no stock options exercised during the three months ended March 31, 2016 or 2015.
The Company recorded no compensation expense related to stock options for either the three months ended March 31, 2016 and 2015 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
Companys 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 the regular annual grants, 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 Companys performance over a three-year period. All of the CEOs regular annual RSUs are subject to vesting based upon the Companys 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 time-based RSUs will be forfeited. Dividends declared are accrued in cash.
A summary of the RSUs for the three months ended March 31, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Share Units
|
|
|
|
Performance
and Service
Required
|
|
|
Service
Required
|
|
|
Total
Restricted
Share Units
|
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
Nonvested as of January 1, 2016
|
|
|
91,603
|
|
|
|
10,872
|
|
|
|
102,475
|
|
|
$
|
53.88
|
|
Granted
|
|
|
79,241
|
|
|
|
9,901
|
|
|
|
89,142
|
|
|
|
33.73
|
|
Vested
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
|
Forfeited
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested as of March 31, 2016
|
|
|
170,844
|
|
|
|
20,773
|
|
|
|
191,617
|
|
|
$
|
44.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
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 months ended March 31, 2016 and 2015 was $.1
million for each period. As of March 31, 2016, there was $.6 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 2.2 years.
For the performance-based RSUs, the number of RSUs in which the participants will vest depends on the Companys level of performance measured by
growth in pre-tax 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.
Performance-based compensation expense for the three months ended March 31, 2016 and 2015 was $.3 million and $.4 million, respectively. During the three months ended March 31, 2015, a $.4 million 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. As of March 31, 2016, the remaining performance-based RSUs compensation expense of $3.2 million is expected to be
recognized over a period of approximately 2.5 years.
The excess tax benefits from time and performance-based RSUs for the three months ended March 31,
2016 and 2015, was less than $.1 million for each period, 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 Companys authorized but unissued shares. Under the LTIP, there are 223,256 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 Companys deferred compensation plan. This plan allows for two deferrals. First, Directors make elective deferrals of Director fees 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 Companys 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 Companys deferred compensation plan does not permit diversification and must be settled by the delivery of a fixed number of the
Companys common shares. As of March 31, 2016, 296,326 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 March 31, 2016, there were 11,000 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 Companys stock, the expected life of the stock award and the Companys 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.
12
There were no options granted for the three months ended March 31, 2016 and 2015, respectively.
Activity in the Companys LTIP plan for three months ended March 31, 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise Price
per Share
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
Outstanding at January 1, 2016
|
|
|
56,250
|
|
|
$
|
55.30
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
0
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(3,000
|
)
|
|
$
|
71.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding (vested and expected to vest) at March 31, 2016
|
|
|
53,250
|
|
|
$
|
54.38
|
|
|
|
6.5
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2016
|
|
|
30,500
|
|
|
$
|
58.24
|
|
|
|
7.3
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2016 and 2015, the Company recorded compensation expense related to the stock options
currently vesting of less than $.1 million and $.1 million, respectively. The total compensation cost related to nonvested awards not yet recognized at March 31, 2016 is expected to be $.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 Companys 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 March 31, 2016, the fair value of the Companys long-term debt was estimated using discounted cash flow analysis based on the
Companys 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 three months ended March 31, 2016. Based on the
analysis performed, the carrying value of the Companys long-term debt approximates fair value at March 31, 2016 and December 31, 2015.
NOTE I
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) No. 2015-17, Income Taxes - Balance Sheet Classification of Deferred Taxes which requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. Prior to the issuance of the standard,
deferred tax liabilities and assets were required to be separately classified into a current amount and a noncurrent amount in the balance sheet. The new accounting guidance represents a change in accounting principle and the standard is required to
be adopted in annual periods beginning after December 15, 2016. Early adoption is permitted and the Company elected to early adopt this guidance as of March 31, 2016 and to apply the guidance retrospectively to all periods presented. Accordingly, as
of December 31, 2015, the Company reclassified the prior period amount of $8.6 million related to its deferred tax assets and $.2 million related to its deferred tax liabilities from current to noncurrent, resulting in an increase of $7.4 million to
its noncurrent deferred tax assets and a decrease of $1.0 million to the noncurrent deferred income tax liabilities. Because the application of this guidance affects classification only, such reclassifications did not have a material effect on the
Companys consolidated financial position or results of its operations.
13
In January 2015, the FASB issued ASU 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. The adoption of ASU 2015-1 had no impact to the presentation of the Companys consolidated financial statements for the three months ended March 31, 2016.
In April 2015, the FASB issued ASU 2015-04, Compensation Retirement Benefits (Topic 715): Practical Expedient for the Measurement Date of an
Employers 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 adoption of ASU 2015-04 had no impact to the presentation of the Companys
consolidated financial statements for the three months ended March 31, 2016.
In April 2015, the FASB issued ASU 2015-05, Intangibles
Goodwill and Other Internal-Use Software (Topic 350-40): Customers 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 years, beginning
after December 15, 2015. The adoption of ASU 2015-5 had no impact to the presentation of the Companys consolidated financial statements for the three months ended March 31, 2016 as the Company is currently not engaged in a cloud computing
arrangement.
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for
Measurement-Period Adjustments. This Update requires an acquiring entity to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.
The amendments also require an entity to record the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been
completed at the acquisition date. An entity must present separately on the face of the statement of operations or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in
previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments should be applied prospectively. The adoption of ASU 2015-16 had no impact to the presentation of the
Companys consolidated financial statements for the three months ended March 31, 2016.
NOTE J NEW ACCOUNTING STANDARDS TO BE ADOPTED
In March 2016, the FASB issues ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU
2016-09 provides guidance in GAAP for the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The
Company is required to adopt ASU 2016-09 for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the
amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is
currently evaluating what impact, if any, its adoption will have to the presentation of the Companys consolidated financial statements.
14
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The amendments in this Update
require the recognition of assets and liabilities arising from lease transactions on the balance sheet and the disclosure of key information about leasing arrangements. Accordingly, a lessee will recognize a lease asset for its right to use the
underlying asset and a lease liability for the corresponding lease obligation. Both the asset and liability will initially be measured at the present value of the future minimum lease payments over the lease term. Subsequent measurement, including
the presentation of expenses and cash flows, will depend on the classification of the lease as either a finance or an operating lease. Initial costs directly attributable to negotiating and arranging the lease will be included in the asset. For
leases with a term of 12 months or less, a lessee can make an accounting policy election by class of underlying asset to not recognize an asset and corresponding liability. Lessees will also be required to provide additional qualitative and
quantitative disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. These disclosures are intended to supplement the amounts recorded in the financial statements and provide additional information about the
nature of an organizations leasing activities. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is
currently evaluating what impact, if any, its adoption will have to the presentation of the Companys consolidated financial statements.
In July
2015, the FASB issued ASU 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 Companys 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 Entitys Ability to Continue as a Going Concern. ASU 2014-15 provides guidance in GAAP about managements responsibility to evaluate whether there is substantial doubt about an entitys 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 Companys 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 Companys consolidated financial statements.
15
NOTE K SEGMENT INFORMATION
The following tables present a summary of the Companys reportable segments for the three months ended March 31, 2016 and 2015. Financial results for the
PLP-USA segment include the elimination of all segments intercompany profit in inventory. During the fourth quarter of 2015, the Company reconfigured a product line in The Americas segment and consolidated its manufacturing processes into the
PLP-USA segment. As such, prior year amounts have been reclassified to conform to the current year presentation.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2016
|
|
|
2015
|
|
Net sales
|
|
|
|
|
|
|
|
|
PLP-USA
|
|
$
|
34,647
|
|
|
$
|
34,130
|
|
The Americas
|
|
|
12,452
|
|
|
|
13,974
|
|
EMEA
|
|
|
13,918
|
|
|
|
14,196
|
|
Asia-Pacific
|
|
|
17,665
|
|
|
|
23,490
|
|
|
|
|
|
|
|
|
|
|
Total net sales
|
|
$
|
78,682
|
|
|
$
|
85,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intersegment sales
|
|
|
|
|
|
|
|
|
PLP-USA
|
|
$
|
2,213
|
|
|
$
|
2,830
|
|
The Americas
|
|
|
1,292
|
|
|
|
1,375
|
|
EMEA
|
|
|
399
|
|
|
|
423
|
|
Asia-Pacific
|
|
|
1,748
|
|
|
|
1,892
|
|
|
|
|
|
|
|
|
|
|
Total intersegment sales
|
|
$
|
5,652
|
|
|
$
|
6,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
|
|
|
|
|
|
PLP-USA
|
|
$
|
(20
|
)
|
|
$
|
(221
|
)
|
The Americas
|
|
|
547
|
|
|
|
(88
|
)
|
EMEA
|
|
|
505
|
|
|
|
528
|
|
Asia-Pacific
|
|
|
(34
|
)
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
Total income taxes
|
|
$
|
998
|
|
|
$
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
PLP-USA
|
|
$
|
(123
|
)
|
|
$
|
(1,245
|
)
|
The Americas
|
|
|
1,095
|
|
|
|
(184
|
)
|
EMEA
|
|
|
1,694
|
|
|
|
1,804
|
|
Asia-Pacific
|
|
|
(8
|
)
|
|
|
(631
|
)
|
|
|
|
|
|
|
|
|
|
Total net income (loss)
|
|
$
|
2,658
|
|
|
$
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
PLP-USA
|
|
$
|
109,735
|
|
|
$
|
106,854
|
|
The Americas
|
|
|
61,938
|
|
|
|
60,010
|
|
EMEA
|
|
|
53,434
|
|
|
|
50,755
|
|
Asia-Pacific
|
|
|
105,350
|
|
|
|
105,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330,457
|
|
|
|
323,056
|
|
Corporate assets
|
|
|
313
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
330,770
|
|
|
$
|
323,370
|
|
|
|
|
|
|
|
|
|
|
NOTE L INCOME TAXES
The
Companys effective tax rate was 27% and (334)% for the three months ended March 31, 2016 and 2015, respectively. The income tax expense for the current period was determined based on an estimated annual effective tax rate of 30% for the
twelve-month period ending December 31, 2016. The effective tax rate for the three months ended March 31, 2016 is lower than the estimated annual 2016 effective tax rate and the U.S. federal statutory rate of 35% primarily due to an increase in
earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate, where such earnings are permanently reinvested coupled with a relatively low level of pre-tax income in the U.S during the quarter. The effective rate for the
three months ended March 31, 2015 was not meaningful primarily due to the amount, timing and mix of earnings by jurisdiction and the reversal of losses in certain jurisdictions where no tax benefit was recognized in 2015, partially offset by an
increase in earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate where such earnings are permanently reinvested.
16
As described in Note I, the Company elected to early adopt FASB guidance ASU 2015-17 Income Taxes-Balance
Sheet Classification of Deferred Taxes as of March 31, 2016 and to apply the guidance retrospectively to all periods presented related to the classification of current and noncurrent deferred tax assets and liabilities. Accordingly, as of
December 31, 2015, the Company reclassified the prior period amount of $8.6 million related to its deferred tax assets and $.2 million related to its deferred tax liabilities from current to noncurrent, resulting in an increase of $7.4 million to
our noncurrent deferred tax assets and a decrease of $1.0 million to the noncurrent deferred income tax liabilities.
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 recorded for the period ended March 31,
2016.
As of March 31, 2016, the Company had gross unrecognized tax benefits of approximately $.2 million with no significant changes during this period.
The Company may decrease its unrecognized tax benefits by $.2 million within the next nine months.
NOTE M PRODUCT WARRANTY RESERVE
The Company records an accrual for estimated warranty costs to Costs of products sold in the Consolidated Statements of Operations. 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:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Beginning of period balance
|
|
$
|
714
|
|
|
$
|
892
|
|
Additions charged to income
|
|
|
3
|
|
|
|
32
|
|
Warranty usage
|
|
|
(41
|
)
|
|
|
(107
|
)
|
Currency translation
|
|
|
12
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
End of period balance
|
|
$
|
688
|
|
|
$
|
783
|
|
|
|
|
|
|
|
|
|
|
NOTE N CHARGES RELATED TO RESTRUCTURING ACTIVITIES
During the year ended December 2015, the Company reconfigured one of its operations within its Asia Pacific segment by reducing its workforce and manufacturing
facilities while outsourcing 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. Additionally, the Company reduced the number of personnel and facilities in the PLP-USA segment in response to downward market pressure on prices. Both of these actions reduced infrastructure and manufacturing costs. There was
$.1 million and $.5 million of expense recognized in the three months ended March 31, 2016 and 2015, respectively, for these restructuring activities. The restructuring liability remaining at March 31, 2016 was recorded in Accrued expenses.
17
A summary by reporting segment of the accruals recorded as a result of the restructuring is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
Lease
Termination
Costs
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
December 31, 2015 Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA
|
|
$
|
150
|
|
|
$
|
304
|
|
|
$
|
5
|
|
|
$
|
459
|
|
Asia-Pacific
|
|
|
0
|
|
|
|
604
|
|
|
|
0
|
|
|
|
604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
150
|
|
|
$
|
908
|
|
|
$
|
5
|
|
|
$
|
1,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA
|
|
|
59
|
|
|
|
0
|
|
|
|
0
|
|
|
|
59
|
|
Asia-Pacific
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
59
|
|
|
|
0
|
|
|
|
0
|
|
|
|
59
|
|
|
|
|
|
|
Payments and other adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA
|
|
|
(209
|
)
|
|
|
(119
|
)
|
|
|
(5
|
)
|
|
|
(333
|
)
|
Asia-Pacific
|
|
|
0
|
|
|
|
(64
|
)
|
|
|
0
|
|
|
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(209
|
)
|
|
|
(183
|
)
|
|
|
(5
|
)
|
|
|
(397
|
)
|
|
|
|
|
|
March 31, 2016 Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PLP-USA
|
|
|
0
|
|
|
|
185
|
|
|
|
0
|
|
|
|
185
|
|
Asia-Pacific
|
|
|
0
|
|
|
|
540
|
|
|
|
0
|
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
0
|
|
|
$
|
725
|
|
|
$
|
0
|
|
|
$
|
725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|