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 March 31, 2002 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 (I.R.S. Employer Identification No.) of Incorporation or Organization) 660 Beta Drive Mayfield Village, Ohio 44143 - ---------------------------------- -------------------------------------- (Address of Principal Executive Office) (Zip Code) (440) 461-5200 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports 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 ----- ----- The number of common shares, without par value, outstanding as of May 10, 2002: 5,766,460.
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PREFORMED LINE PRODUCTS COMPANY INDEX TO FINANCIAL STATEMENTS PREFORMED LINE PRODUCTS COMPANY: Consolidated Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001...........................................3 Statements of Consolidated Income for the Three Months Ended March 31, 2002 and 2001 (unaudited).......................4 Statements of Consolidated Cash Flows for the Three Months Ended March 31, 2002 and 2001 (unaudited).......................5 Notes to Consolidated Financial Statements....................................6
PREFORMED LINE PRODUCTS COMPANY CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2002 AND DECEMBER 31, 2001 Thousands of dollars, except March 31, December 31, share and per share data 2002 2001 ------------ ------------ (Unaudited) ASSETS Cash and cash equivalents $ 8,964 $ 8,409 Accounts receivable, less allowance of $661 ($813 in 2001) 32,499 29,251 Inventories 38,418 38,637 Deferred income taxes 3,120 3,206 Prepaids and other 5,450 3,727 ------------ ------------ TOTAL CURRENT ASSETS 88,451 83,230 Property and equipment - net 53,040 54,206 Investments in foreign joint ventures 10,051 9,976 Deferred income taxes 1,729 1,435 Goodwill, patents and other intangibles 7,397 7,410 Other 4,098 4,933 ------------ ------------ TOTAL ASSETS $ 164,766 $ 161,190 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable to banks $ 2,729 $ 1,201 Trade accounts payable 12,035 9,560 Accrued compensation and amounts withheld from employees 3,644 3,585 Accrued expenses and other liabilities 3,668 3,890 Accrued profit-sharing and pension contributions 4,627 4,130 Dividends payable 1,151 1,151 Income taxes 2,385 923 Current portion of long-term debt 9,796 13,198 ------------ ------------ TOTAL CURRENT LIABILITIES 40,035 37,638 Long-term debt, less current portion 2,354 2,341 Deferred income taxes 640 431 SHAREHOLDERS' EQUITY Common shares - $2 par value, 15,000,000 shares authorized, 5,757,030 issued and outstanding, net of 398,618 treasury shares at par 11,514 11,514 Retained earnings 129,570 128,721 Accumulated foreign currency translation adjustment (19,347) (19,455) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 121,737 120,780 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 164,766 $ 161,190 ============ ============ See notes to consolidated financial statements. 3
PREFORMED LINE PRODUCTS COMPANY STATEMENTS OF CONSOLIDATED INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 <TABLE> <CAPTION> Thousands of dollars, except per share data Three months ended March 31, ---------------------------- 2002 2001 ---------- --------- (Unaudited) <S> <C> <C> Net sales $ 44,008 $ 50,073 Cost of products sold 29,466 35,054 ---------- ---------- GROSS PROFIT 14,542 15,019 Costs and expenses Selling 5,282 5,580 General and administrative 5,063 5,573 Research and engineering 1,616 1,697 Other operating expenses 86 374 ---------- ---------- 12,047 13,224 Royalty income - net (513) (620) ---------- ---------- OPERATING INCOME 3,008 2,415 Other income (expense) Equity in net income of foreign joint ventures 75 - Interest income 58 134 Interest expense (188) (418) Other (expense) (50) (50) ---------- ---------- (105) (334) ---------- ---------- INCOME BEFORE INCOME TAXES 2,903 2,081 Income taxes 902 960 ---------- ---------- NET INCOME $ 2,001 $ 1,121 ========== ========== Net income per share - basic and diluted $ 0.35 $ 0.19 ========== ========== Cash dividends declared per share $ 0.20 $ 0.15 ========== ========== Average number of shares outstanding - basic 5,757 5,751 ========== ========== Average number of shares outstanding - diluted 5,781 5,751 ========== ========== </TABLE> See notes to consolidated financial statements. 4
PREFORMED LINE PRODUCTS COMPANY STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001 Thousands of dollars THREE MONTHS ENDED MARCH 31, ---------------------------- 2002 2001 ---------- ------------ (Unaudited) OPERATING ACTIVITIES Net income $ 2,001 $ 1,121 Adjustment to reconcile net income to net cash (used in) provided by operations Depreciation and amortization 2,193 2,519 Deferred income taxes (289) - Equity in earnings of joint ventures (75) - Loss (gain) on sales of property and equipment (4) - Changes in operating assets and liabilities Receivables (3,248) (2,843) Inventories 219 (1,762) Trade payables and accruals 2,809 1,052 Income taxes 627 (1,469) Other - net 250 123 ---------- ------------ NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,483 (1,259) INVESTING ACTIVITIES Capital expenditures (911) (2,285) Business acquisitions - (791) Proceeds from the sale of property and equipment 27 7 ---------- ------------ NET CASH USED IN INVESTING ACTIVITIES (884) (3,069) FINANCING ACTIVITIES Increase in notes payable to banks 1,526 1,778 Proceeds from the issuance of debt 4,154 7,533 Payments of debt (7,621) (4,830) Dividends paid (1,151) (865) Purchase of common shares - (286) ---------- ------------ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,092) 3,330 Effects of exchange rate changes on cash and cash equivalents 48 (541) ---------- ------------ Increase (decrease) in cash and cash equivalents 555 (1,539) Cash and cash equivalents at beginning of year 8,409 9,470 ---------- ------------ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 8,964 $ 7,931 =========== ============= See notes to consolidated financial statements. 5
PREFORMED LINE PRODUCTS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 NOTE A - BASIS OF PRESENTATION The accompanying unaudited financial statements 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. Accordingly, these consolidated financial statements do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. 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 required to fairly present the financial position, results of operations, and changes in cash flows for the interim periods. Operating results for the three-month period ended March 31, 2002 are not necessarily indicative of the results to be expected for the year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes included in the Company's 10-K filed with the Securities and Exchange Commission. The balance sheet at December 31, 2001 has been derived from the audited financial statements, but does not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. Certain amounts in the financial statements have been reclassified to conform to the presentation of 2002. NOTE B - SUPPLEMENTAL INFORMATION Inventories March 31, December 31, Dollars in thousands 2002 2001 --------- ------------ Finished goods $ 17,001 $ 17,885 Work-in-process 1,234 1,022 Raw material 20,183 19,730 --------- --------- $ 38,418 $ 38,637 ========= ========= Comprehensive income The components of comprehensive income are as follows: Three months ended March 31, -------------------------- Dollars in thousands 2002 2001 --------- -------- Net income $ 2,001 $ 1,121 Other comprehensive income: Foreign currency adjustment 108 (2,232) --------- -------- Comprehensive income $ 2,109 $ (1,111) ========= ======== 6
NOTE C - COMPUTATION OF EARNINGS PER SHARE Three months ended March 31, ----------------------- Dollars and shares in thousands, except per share data 2002 2001 ------ ------ Numerator Net income $2,001 $1,121 ====== ====== Denominator Determination of shares Weighted average common shares outstanding 5,757 5,751 Dilutive effect - employee stock options 24 - ------ ------ Diluted weighted average common shares outstanding 5,781 5,751 ====== ====== Earnings per common share Basic $ 0.35 $ 0.19 Diluted $ 0.35 $ 0.19 NOTE D - NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite-lives will no longer be amortized but will be subject to annual impairment tests. Other intangibles will continue to be amortized over their useful lives, and will be assessed for impairment under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Asset. The Company has adopted SFAS No. 141 and No. 142 as of January 1, 2002. Consequently, the Company has discontinued the amortization of goodwill during 2002. In accordance with the Statements, the Company intends to complete the first step of the goodwill impairment testing by June 30, 2002. The aggregate amortization expense for the three months ended March 31, 2002 was $23 thousand, and amortization expense is estimated to be $368 thousand annually for the next five years. The following table sets forth the carrying value and accumulated amortization of goodwill and intangibles by segment at March 31, 2002. The second table includes a reconciliation of reported net income to adjusted net income after goodwill amortization for the three months ending March 31, 2002 and 2001. Dollars in thousands As of March 31, 2002 --------------------------------------- Domestic Foreign Net --------- ----------- --------- Amortized intangible assets Gross carrying amount - patents and other intangibles $ 4,730 $275 $ 5,005 Accumulated amortization - patents and other intangibles (635) (41) (676) ------- ---- ------- Total $ 4,095 $234 $ 4,329 ======= ==== ======= Unamortized intangible assets Gross carrying amount - goodwill $ 9,047 $827 $ 9,874 Accumulated amortization - goodwill (6,778) (28) (6,806) ------- ---- ------- Total $ 2,269 $799 $ 3,068 ======= ==== ======= 7
Reconciliation of reported net income to adjusted net income. <TABLE> <CAPTION> For the three months ended March 31, ------------------------------------ Thousands of dollars, except per share data 2002 2001 --------- --------- <S> <C> <C> Reported net income $ 2,001 $ 1,121 Add back: Goodwill amortization after income tax - 142 --------- --------- Adjusted net income $ 2,001 $ 1,263 ========= ========= Basic earnings per share: Reported net income $ 0.35 $ 0.19 Goodwill amortization after income tax - 0.02 --------- --------- Adjusted net income $ 0.35 $ 0.21 ========= ========= Diluted earnings per share: Reported net income $ 0.35 $ 0.19 Goodwill amortization after income tax - 0.02 --------- --------- Adjusted net income $ 0.35 $ 0.21 ========= ========= </TABLE> In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective for fiscal years beginning after December 15, 2001. This Statement supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events. This Statement was issued to establish a single accounting model to address the financial accounting and reporting for the impairment and disposal of long-lived assets. Although this Statement retains many of the provisions of FAS 121, there are a number of changes including the removal of goodwill from its scope. This Statement also retains the basic provision of APB Opinion No. 30. However, for long-lived assets held for sale, this Statement introduces the "components of an entity" (rather than a segment of a business) approach to determine discontinued operations. A "component of an entity" has clearly distinguishable operating and financial reporting practices. Criteria have been established to qualify an asset as held for sale, including being able to sell the asset immediately, and the asset transfer taking place within one year. The adoption of this Statement did not have a material impact on the Company. In May 2002, the FASB issued SFAS No. 145, Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002. The provisions of this Statement related to the rescission of SFAS No. 4 are effective for fiscal years beginning after May 15, 2002, while provisions related to SFAS No. 13 are effective for transactions occurring after May 15, 2002, and all remaining provisions of this Statement shall be effective for financial statements issued on or after May 15, 2002. This Statement eliminates SFAS No. 4, as a result, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria of APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. This Statement also eliminates SFAS No. 44, which was established to provide accounting requirements for effects of transition for provisions of the Motor Carrier Act of 1980. The deregulation of intrastate operating rights and transition to the provisions of those laws being complete has necessitated the rescission of SFAS No. 44. This Statement also eliminates the need to have SFAS No. 64, which was an amendment to SFAS No. 4 and has been rescinded with this Statement. Lastly, this Statement amends SFAS No. 13, requiring leases modifications that have economic effects similar to sale-leaseback transactions to be accounted for in the same manner as sale-leaseback transactions. The Company is currently in the process of evaluating this Statement and does not expect the adoption of this Statement to have a material impact on its financial statements and results of operations. 8
NOTE E - BUSINESS SEGMENTS <TABLE> <CAPTION> Three months ended March 31, ---------------------------- Dollars in thousands 2002 2001 -------- -------- <S> <C> <C> Net sales Domestic $ 26,326 $ 29,770 Foreign 17,682 20,303 -------- -------- Total net sales $ 44,008 $ 50,073 ======== ======== Intersegment sales Domestic $ 615 $ 1,381 Foreign 50 108 -------- -------- Total intersegment sales $ 665 $ 1,489 ======== ======== Operating income Domestic $ 2,078 $ 971 Foreign 930 1,444 -------- -------- 3,008 2,415 Equity in net income of joint ventures 75 - Interest income Domestic - 3 Foreign 58 131 -------- -------- 58 134 Interest expense Domestic 79 321 Foreign 109 97 -------- -------- 188 418 Other (expense) (50) (50) -------- -------- Income before income taxes $ 2,903 $ 2,081 ======== ======== </TABLE> <TABLE> <CAPTION> March 31, December 31, 2002 2001 --------- ------------ <S> <C> <C> Identifiable assets Domestic $ 84,824 $ 85,934 Foreign 69,891 65,280 -------- -------- 154,715 151,214 Corporate 10,051 9,976 -------- -------- Total assets $164,766 $161,190 ======== ======== </TABLE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth the Company's results of operations for the three-month period ended March 31, 2002 and 2001: <TABLE> <CAPTION> Three months ended March 31, ---------------------------- 2002 2001 Dollars in thousands, except per share data <S> <C> <C> NET SALES AND INCOME Net sales $44,008 $50,073 Operating income 3,008 2,415 Income before income taxes 2,903 2,081 Net income 2,001 1,121 PER SHARE AMOUNTS Net income - basic and diluted $ 0.35 $ 0.19 Dividends declared $ 0.20 $ 0.15 </TABLE> The following discussion of the financial results is based on 2002 and 2001 reported results for the three-month period ended March 31. For the three months ended March 31, 2002 consolidated revenue was $44 million, a decrease of $6.1 million, or 12%, from the same period in the prior year. Domestic revenue decreased $3.5 million, or 12%, and foreign revenue decreased $2.6 million, or 13%. A reduction in data communication sales accounted for approximately 68% of the decrease in domestic sales with the remaining decrease primarily attributable to lower volume sales of telecommunication products. Foreign sales in native currency were unfavorably impacted by $.9 million when converted to U.S. dollars as a result of the stronger U.S. dollar to most foreign currencies during the three month period compared to last year. Excluding this unfavorable currency impact, foreign sales decreased $1.7 million primarily as a result of volume decreases. Gross profit of $14.5 million for the three months ended March 31, 2002 was a decrease of $.5 million, or 3%, compared to the prior year. Gross profit when expressed as a percentage of sales increased three percentage points from the previous year from 30% to 33%. The increase in gross profit percent is due primarily to favorable product mix and lower conversion costs in the domestic market. The stronger U.S. dollar resulted in $.3 million lower gross profit on foreign sales. Excluding the impact of foreign currency translation, gross profit decreased $.2 million. Costs and expenses of $12 million were $1.2 million, or 9%, lower than last year. The stronger dollar favorably impacted costs and expenses by $.2 million and $.8 million of the decrease in cost and expenses was a result of the business realignment initiated in the quarter ended September 30, 2001. The reduction of commission expense due to lower sales, and lower amortization of goodwill (see NOTE D - NEW ACCOUNTING PRONOUNCEMENTS) also contributed to the improvement in costs and expenses. Royalty income for the quarter was $.1 million less than for the same period in 2001 due to the sluggish data communication market. Operating income of $3.0 million for the three months ended March 31, 2002 increased by $.6 million, or 25%, compared to $2.4 million in the previous year. This increase was the result of the $.5 million decrease in gross profit, the $1.2 million decrease in cost and expenses and the $.1 million decrease in royalty income. Other expense of $.1 million for the three month period ended March 31, 2002 decreased by $.2 million compared to 2001 primarily as a result of lower interest expenses. Income before income taxes for the quarter ended March 31, 2002 of $2.9 million was $.8 million greater than 2001. This was due to the $.6 million increase in operating income and the reduction of $.2 million in other expense. 10
Income taxes for the three months ended March 31, 2002 of $.9 million remained relatively unchanged from the previous year. As a result of the preceding, net income was $2 million for the three month period ended March 31, 2002 which represented an increase of $.9 million, or 79%, from the prior year. Earnings per share for the first quarter 2002 were $.35 compared to $.21 for 2001 after adjusting the prior year results by $.02 for the adoption of new accounting pronouncements (see NOTE D - NEW ACCOUNTING PRONOUNCEMENTS). WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $4.5 million for the first three months of 2002, an increase of $5.7 million when compared to 2001. This increase was primarily the result of higher net income of $.9 million and a $5.5 million decrease in working capital, partially offset by $.7 million in non-cash items. Net cash used in investing activities of $.9 million represents a reduction of $2.2 million when compared to 2001. This reduction is the result of lower capital expenditures in 2002 of $1.4 million and the lack of any acquisitions in 2002. The Company is continually analyzing potential acquisition candidates and business alternatives but has no commitments that would materially impact the operations of the business. Cash used in financing activities was $6.4 million more than cash provided by financing activities in the previous year. This was primarily the result of reduced borrowings in 2002 compared to 2001 as well as higher payments on debt in 2002. The Company has commitments under operating leases primarily for office and manufacturing space, transportation equipment and computer equipment. One such lease is for the Company's old aircraft with a lease commitment through 2005. The Company took delivery of a new aircraft in 2002. Under the terms of the lease of the old aircraft, the Company maintains the risk for the residual value in excess of the market value for the current aircraft. At the present time, the Company believes its risks, if any, to be immaterial as the estimated market value of the old aircraft approximates its residual value. The Company's annual lease expense for the new aircraft approximates that of the lease expense of the old aircraft. Although the Company believes its existing credit facilities, internally generated funds and ability to obtain additional financing will be sufficient to meet the Company's growth and operating needs for the next 12 months, there are inherent risks related to each of these sources. The Company had not completed its evaluation of its long-term borrowing requirements at March 31, 2002. As a result, its main credit facility, which matures on December 31, 2002, continues to be classified as a current liability. Once the Company's evaluation is complete, it may either extend the current facility or pursue a new long-term loan. The Company does not anticipate any difficulty obtaining renewed financing at a competitive interest rate or meeting scheduled principal and interest payments. Even with the Company's main credit facility becoming current, the Company's financial position remains strong and its current ratio at March 31, 2002 was 2.2:1, unchanged from December 31, 2001. At March 31, 2002, the Company's unused balance under its main credit facility was $32.5 million and its debt to equity ratio was 10%. In addition to the risks previously discussed, internally generated funds from continuing operations are contingent upon the Company's served markets remaining at current levels or improving. NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the FASB issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite-lives will no longer be amortized but will be subject to annual impairment tests. Other intangibles will continue to be amortized over their useful lives. The Company has adopted SFAS No. 141 and No. 142 as of January 1, 2002. Consequently, the Company has discontinued the amortization of goodwill during 2002. In accordance with the Statements the Company intends to complete the first step of the goodwill impairment testing by June 30, 2002. See NOTE D - NEW ACCOUNTING PRONOUNCEMENTS for further discussion. In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, 11
effective for fiscal years beginning after December 15, 2001. This Statement supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of and APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events. This Statement was issued to establish a single accounting model to address the financial accounting and reporting for the impairment and disposal of long-lived assets. Although this Statement retains many of the provisions of FAS 121, there are a number of changes including the removal of goodwill from its scope. This Statement also retains the basic provision of APB Opinion No. 30. However, for long-lived assets held for sale, this Statement introduces the "components of an entity" (rather than a segment of a business) approach to determine discontinued operations. A "component of an entity" has clearly distinguishable operating and financial reporting practices. Criteria have been established to qualify an asset as held for sale, including being able to sell the asset immediately, and the asset transfer taking place within one year. The adoption of the Statement did not have a material impact on the Company. In May 2002, the FASB issued SFAS No. 145, Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections as of April 2002. The provisions of this Statement related to the rescission of SFAS No. 4 are effective for fiscal years beginning after May 15, 2002, while provisions related to SFAS No. 13 are effective for transactions occurring after May 15, 2002, and all remaining provisions of this Statement shall be effective for financial statements issued on or after May 15, 2002. This Statement eliminates SFAS No. 4, as a result, gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria of APB Opinion No. 30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. This Statement also eliminates SFAS No. 44, which was established to provide accounting requirements for effects of transition for provisions of the Motor Carrier Act of 1980. The deregulation of intrastate operating rights and transition to the provisions of those laws being complete has necessitated the rescission of SFAS No. 44. This Statement also eliminates the need to have SFAS No. 64, which was an amendment to SFAS No. 4 and has been rescinded with this Statement. Lastly, this Statement amends SFAS No. 13, requiring leases modifications that have economic effects similar to sale-leaseback transactions to be accounted for in the same manner as sale-leaseback transactions. The Company is currently in the process of evaluating this Statement and does not expect the adoption of this Statement to have a material impact on its financial statements and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company operates manufacturing facilities and offices around the world and uses fixed and floating rate debt to finance the Company's global operations. As a result, the Company is subject to business risks inherent in non-U.S. activities, including political and economic uncertainty, import and export limitations and market risk related to changes in interest rates and foreign currency exchange rates. The Company believes the political and economic risks related to the Company's foreign operations are mitigated due to the stability of the countries in which the Company's largest foreign operations are located. Currently, the Company does not use derivative financial instruments such as interest rate swaps or foreign currency forward exchange contracts to manage the Company's market risks nor does the Company hold derivatives for trading purposes. The Company is exposed to market risk, including changes in interest rates. The Company is subject to interest rate risk on its variable rate revolving credit facilities, which consisted of borrowings of $14.9 million at March 31, 2002. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $158,000 for the three months ended March 31, 2002. The Company's primary currency rate exposures are related to foreign denominated debt, intercompany debt and cash and short-term investments. The calculation of potential loss in fair values is based on an immediate change in the U.S. dollar equivalent balances of the Company's currency exposures due to a 10% shift in exchange rates. The hypothetical 10% change in currency exchange rates over a one-year period would have a favorable/unfavorable impact on fair values of $2.4 million and income before tax of $.1 million. 12
PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the amount of any ultimate liability with respect to these actions will not materially affect our financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Exhibits None (b) Reports on Form 8-K None. 13
FORWARD LOOKING STATEMENTS Cautionary Statement for "Safe Harbor" Purposes Under The Private Securities Litigation Reform Act of 1995 This Form 10-Q contains forward-looking statements regarding the Company's and management's beliefs and expectations. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance (as opposed to historical items) and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the Company's control. Such uncertainties and factors could cause the Company's actual results to differ materially from those matters expressed in or implied by such forward-looking statements. The following factors, among others, could affect the Company's future performance and cause the Company's actual results to differ materially from those expressed or implied by forward-looking statements made in this report: - The overall demand for cable anchoring and control hardware for electrical transmission and distribution lines on a worldwide basis, which has a slow growth rate in mature markets such as the United States, Canada, Japan and Western Europe; - The effect on the Company's business resulting from economic uncertainty within Asia-Pacific and Latin American regions; - Technology developments that affect longer-term trends for communication lines such as wireless communication; - The Company's success at continuing to develop proprietary technology to meet or exceed new industry performance standards and individual customer expectations; - The rate of progress in continuing to reduce costs and in modifying the Company's cost structure to maintain and enhance the Company's competitiveness; - The Company's success in strengthening and retaining relationships with the Company's customers, growing sales at targeted accounts and expanding geographically; - The extent to which the Company is successful in expanding the Company's product lines into new areas for inside plant; - The Company's ability to identify, complete and integrate acquisitions for profitable growth; - The potential impact of consolidation and deregulation among the Company's suppliers, competitors and customers; - The relative degree of competitive and customer price pressure on the Company's products; - The cost, availability and quality of raw materials required for the manufacture of products; - The effects of fluctuation in currency exchange rates upon the Company's reported results from international operations, together with non-currency risks of investing in and conducting significant operations in foreign countries, including those relating to political, social, economic and regulatory factors; - Changes in significant government regulations affecting environmental compliance; - The Company's ability to continue to compete with larger companies who have acquired a substantial 14
number of the Company's former competitors; - The Company's ability to compete in the domestic data communications market and its success at penetrating the international data communication market; and - The factors set forth under the caption "Risk Factors" in the Company Form 10 Registration Statement filed with the Securities and Exchange Commission (see Amendment No. 3 to Form 10 filed on August 24, 2001). The Form 10 can be found on the Securities and Exchange Commission's website at www.sec.gov. 15
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. May 10, 2002 /s/ Robert G. Ruhlman -------------------------------------------- Robert G. Ruhlman President and Chief Executive Officer (Principal Executive Officer) May 10, 2002 /s/ Eric R. Graef -------------------------------------------- Eric R. Graef Vice President - Finance and Treasurer (Principal Accounting Officer) 16
EXHIBIT INDEX [ NONE] 17