PREFORMED LINE PRODUCTS CO 10-K

Item 7. 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 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 audited consolidated financial statements and related notes included elsewhere in this report. OVERVIEW Preformed Line Products Company (the “Company”, “PLPC”, “we”, “us”, or “our”) was incorporated in Ohio in 1947. We are an international designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, information (data communication), and other similar industries. Our primary products support, protect, connect, terminate, and secure cables and wires. We provide helical solutions, connectors, fiber optic and copper splice closures, solar hardware mounting applications, and electric vehicle charging station foundations. We also provide aerial drone inspection services for utility assets including transmission and distribution power lines, substations, and generation facilities . We are respected around the world for quality, dependability and market-leading customer service. Our goal is to continue 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 sales and manufacturing operations in 20 different countries. We report our segments in four geographic regions: PLP-USA (including corporate), The Americas (includes operations in North and South America, excluding 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, telecommunications, solar framing products and inspection services. Our other three segments, The Americas, EMEA and Asia-Pacific, support our energy, telecommunications, data communication, solar and other 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 their 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 the 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. MARKET OVERVIEW Our business continues to be concentrated in the energy and communications markets. During the past several years, industry consolidation continued as distributor and service provider integrations occurred in our major markets. There has also been a historical lack of commitment by developed countries to upgrade and strengthen their electrical grids and communication networks despite the growing need. More recently, increasing commodity prices, inflation, rising interest rates, transportation costs, and foreign currency fluctuations have led to a challenging operating environment. While these factors generally moderated in 2023, they may continue to provide inherent uncertainty going forward, the COVID-19 pandemic and other large scale environmental events have placed a renewed focus on key infrastructure priorities around the world, including bolstering grid reliability, strengthening grid resilience to climate events, upgrading aging infrastructure, enhancing communication networks and transitioning to renewable energy. Our focused portfolio is well-positioned to respond to these priorities. Strong domestic demand in 2023 drove record net sales, in our core energy and communications markets, primarily in the first half of the year. We believe that our leadership position in these and other markets and the ability to deliver reliable products quickly will position us for continued growth as transmission grids and communication networks are enhanced, upgraded and extended. Our international business is mainly concentrated in the energy and communications markets. Historically, our international sales were primarily related to the medium voltage distribution segment of the energy market but have grown through acquisition and new product development to include a significant contribution from the transmission and telecommunications markets. We believe that we are well positioned to supply the needs of the world’s diverse energy and communication markets as a result of our focused portfolio, strategic operational footprint, including expansion from recent acquisitions and product designs and technologies. 19 PREFACE The following discussion describes our results of operations for the years ended December 31, 2023, 2022 and 2021. 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 financial statements in the assessment of our performance and operating trends. Overall customer demand remained strong, predominantly in the first half of the year and contributed to record net sales revenue of $669.7 million for the year ended December 31, 2023. During the twelve months ending December 31, 2023, the inflationary headwinds we experienced related to raw materials, specifically plastic resins, aluminum and sand (grit), have generally subsided. Costs related to shipping and freight have similarly fallen from their 2022 peak. The decreases in these underlying costs along with the impacts of our previous price increases have benefited gross margins. For PLP-USA, our largest business segment, we saw a year-over-year benefit for the twelve-month period ended December 31, 2023 of $19.7 million related to the reduction in these costs. Given the uncertainties in the macro-economic environment, we cannot determine if these trends will continue. If inflationary pressures increase again, it may require further price adjustments to maintain profit margin and any price increases may have a negative effect on demand. Our financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. PLP’s foreign currency exchange gains or (losses) were primarily related to translating into U.S. dollars its foreign currency denominated loans, trade receivables and payables from its foreign subsidiaries at the December 2023 year-end exchange rates. The fluctuations of foreign currencies during the years ended December 31, 2023 and December 31, 2022 had a favorable impact on net sales of $0.4 million and an unfavorable impact of $24.2 million, respectively. The effect of currency translation had a unfavorable impact on net income in the year ended December 31, 2023 of $0.2 million and a favorable impact of $0.3 million in the year ended December 31, 2022. On a reportable segment basis, the impact of foreign currency translation on net sales and net income for the years ended December 31, 2023 and 2022, respectively, was as follows: Foreign Currency Translation Impact Net Sales Net Income (Loss) (Thousands of dollars) 2023 2022 2023 2022 The Americas $ 1,771 $ (2,306 ) $ 166 $ 330 EMEA 1,696 (15,189 ) (101 ) (686 ) Asia-Pacific (3,042 ) (6,662 ) (278 ) 686 Total $ 425 $ (24,157 ) $ (213 ) $ 330 As shown in our strong financial results, we believe our business portfolio and our financial position are sound and strategically well-positioned. We remain focused on assessing our global market opportunities and overall manufacturing capacity in conjunction with the requirements of local manufacturing in the markets that we serve. The growth in PLP-USA net sales required additional investment within our PLP-USA facilities, both in the form of operational capacity as well as increased warehouse space. These investments in our U.S. operations will allow us to further enhance the service we provide to our U.S. customers and reduce our lead times. Additionally, our continued commitment to manufacturing in the USA positions us well for Build America, Buy America requirements of the Broadband Equity, Access, and Deployment Program. If necessary, we will modify redundant processes and further utilize our global manufacturing network to manage costs, increase sales volume and deliver value to our customers. We have continued to invest in the business to expand into new markets for the Company, evaluate strategic mergers and acquisitions, improve efficiency, develop new products and increase our capacity. Our liquidity remains strong and we currently have a bank debt to equity percentage of 15.0%. We can borrow needed funds at a competitive interest rate under our credit facility. A consolidated decrease in debt of $27.3 million as of December 31, 2023 was primarily a result of improved cash conversion and less funding needs for capital expenditures and business acquisitions. See Note 7 "Debt and Credit Arrangements" in the Notes to Consolidated Financial Statements for more information related to our debt position. The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the years ended December 31, 2023 and 2022. The Company’s past operating results are not necessarily indicative of future operating results. 20 Year Ended December 31, (Thousands of dollars) 2023 2022 Change Net sales $ 669,679 100.0 % $ 637,021 100.0 % $ 32,658 Cost of products sold 434,831 64.9 421,841 66.2 12,990 GROSS PROFIT 234,848 35.1 215,180 33.8 19,668 Costs and expenses 150,694 22.5 145,819 22.9 4,875 OPERATING INCOME 84,154 12.6 69,361 10.9 14,793 Other (expense) income, net (1,810 ) (0.3 ) 4,343 0.7 (6,153 ) INCOME BEFORE INCOME TAXES 82,344 12.3 73,704 11.6 8,640 Income taxes 19,007 2.8 19,305 3.0 (298 ) NET INCOME 63,337 9.5 54,399 8.5 8,938 Net income attributable to noncontrolling interests (5 ) (0.0 ) (4 ) (0.0 ) (1 ) NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS $ 63,332 9.5 % $ 54,395 8.5 % $ 8,937 2023 RESULTS OF OPERATIONS COMPARED TO 2022 Net sales. In 2023, net sales were $669.7 million, an increase of $32.7 million, or 5.1%, compared to 2022. Excluding the effect of currency translation, net sales increased 5.1% as summarized in the following table: Year Ended December 31, Change Change (Thousands of dollars) Due to Excluding Currency Currency % 2023 2022 Change Translation Translation Change Net sales PLP-USA $ 345,613 $ 340,288 $ 5,325 $ — $ 5,325 1.6 % The Americas 86,059 85,200 859 1,771 (912 ) (1.1 ) EMEA 135,080 122,657 12,423 1,696 10,727 8.7 Asia-Pacific 102,927 88,876 14,051 (3,042 ) 17,093 19.2 Consolidated $ 669,679 $ 637,021 $ 32,658 $ 425 $ 32,233 5.1 % The increase in PLP-USA net sales of $5.3 million, or 1.6%, was primarily due to a volume increase in energy product sales, combined with previously enacted price increases, partially offset by lower volume in communication sales, particularly in the second half of the year as a result of customer inventory destocking. International net sales for the year ended December 31, 2023 were favorably affected by $0.4 million when local currencies were converted to U.S. dollars. The following discussion of changes in net sales excludes the effect of currency translation. The Americas net sales of $86.1 million decreased $0.9 million, or 1.1%, primarily due to volume decreases within communications sales, partially offset by increases in energy product sales resulting from the contributions of the 2022 Delta acquisition. EMEA net sales of $135.1 million increased $10.7 million, or 8.7%, primarily due to volume increases in energy product and communication sales in the region. Asia-Pacific net sales of $102.9 million increased $17.1 million, or 19.2%, primarily due to volume increases in energy product sales. Gross Profit. Gross profit of $234.8 million for 2023 increased $19.7 million, or 9.1%, compared to 2022. Excluding the effect of currency translation, gross profit increased $19.6 million, or 9.1%, as summarized in the following table: Year Ended December 31, Change Change (Thousands of dollars) Due to Excluding Currency Currency % 2023 2022 Change Translation Translation Change Gross profit PLP-USA $ 138,961 $ 129,169 $ 9,792 $ — $ 9,792 7.6 % The Americas 30,005 31,451 (1,446 ) 740 (2,186 ) (7.0 ) EMEA 36,372 29,405 6,967 264 6,703 22.8 Asia-Pacific 29,510 25,155 4,355 (973 ) 5,328 21.2 Consolidated $ 234,848 $ 215,180 $ 19,668 $ 31 $ 19,637 9.1 % PLP-USA gross profit of $139.0 million increased by $9.8 million, or 7.6%, compared to 2022, primarily due to increased sales volume combined with previously enacted price increases and lower material costs, partially offset by higher depreciation charges. The impact on International gross profit for the year ended December 31, 2023, when local currencies were translated to U.S. dollars was de minimis. The following discussion of gross profit changes excludes the effects of currency translation. The Americas gross profit 21 decreased $2.2 million, or 7.0%, which was primarily due to higher manufacturing and depreciation costs. EMEA gross profit increased $6.7 million or 22.8%, primarily due to incremental margins on the increased sales volume. Asia-Pacific’s gross profit increased $5.3 million, or 21.2%, which was primarily driven by the incremental margins on the increased sales volume. Costs and expenses. Costs and expenses of $150.7 million for the year ended December 31, 2023 increased $4.9 million, or 3.3%, when compared to 2022. Excluding the effect of currency translation, costs and expenses increased $4.6 million, or 3.1%, as summarized in the following table: Year Ended December 31, Change Change (Thousands of dollars) Due to Excluding Currency Currency % 2023 2022 Change Translation Translation Change Costs and expenses PLP-USA $ 79,289 $ 73,941 $ 5,348 $ — $ 5,348 7.2 % The Americas 22,724 16,816 5,908 490 5,418 32.2 EMEA 28,193 25,884 2,309 397 1,912 7.4 Asia-Pacific 20,488 29,178 (8,690 ) (591 ) (8,099 ) (27.8 ) Consolidated $ 150,694 $ 145,819 $ 4,875 $ 296 $ 4,579 3.1 % PLP-USA costs and expenses of $79.3 million increased $5.3 million, or 7.2% year-over-year. PLP-USA’s increase was primarily attributable to increased salary-related, insurance and depreciation costs, partially offset by lower professional services costs. PLP’s costs and expenses for the year ended December 31, 2023 were unfavorably impacted by $0.3 million when local currencies were translated to U.S. dollars. The following discussions of costs and expenses exclude the effect of currency translation. The Americas costs and expenses of $22.7 million increased $5.4 million primarily due to a one-time legal settlement, as disclosed in Note 4, higher personnel and sales-related expenses and the impact of the devaluation of the Argentina Peso. EMEA costs and expenses of $28.2 million increased by $1.9 million primarily due to an increase in salary-related and bad debt expenses. Asia-Pacific costs and expenses of $20.5 million decreased $8.1 million, primarily due to a one-time $6.5 million goodwill impairment charge recorded in 2022 that did not recur and a one-time $2.5 million gain on the sale of plant and equipment in 2023. Other (expense) income, net. Other expense, net of $(1.8) million for the year ended December 31, 2023 was unfavorable by $(6.1) million when compared to Other income, net for the year ended December 31, 2022 of $4.3 million. The increase in expense was primarily due to a nonrecurring gain of $4.4 million that was recorded in March 2022 related to a settlement of a Company-owned life insurance policy and higher interest expense for the twelve-months ended December 31, 2023. Income taxes. Income taxes for the years ended December 31, 2023 and 2022 were $19.0 million and $19.3 million, respectively, based on pre-tax income of $82.3 million and $73.7 million, respectively. The effective tax rate for the years ended December 31, 2023 and 2022 was 23.1% and 26.2%, respectively. Our effective tax rate was affected by recurring items, such as tax rates in foreign jurisdictions, which differ from the U.S. federal statutory income tax rate, and the relative amount of income earned in those jurisdictions where such earnings are permanently reinvested. It is also affected by discrete items that may occur in any given period but are not consistent from year to year. The following items had the most significant impact on the difference between our statutory U.S. federal income tax rate of 21.0%: 2023 1. A $3.7 million, or 4.5%, net decrease resulting from generation of foreign tax credits. 2. A $3.0 million, or 3.6%, net increase resulting from the inclusion of Global Intangible Low-Taxed Income. 3. A $1.8 million, or 2.2%, net increase resulting from earnings in various U.S. States. 4. A $1.7 million, or 2.0%, net increase resulting from earnings in jurisdictions with higher tax rates than the U.S. federal statutory rate where such earnings are permanently reinvested. 2022 1. A $2.1 million, or 2.9%, net increase resulting from a valuation allowance recorded in certain international jurisdictions. 2. A $2.0 million, or 2.7%, net increase resulting from a goodwill impairment charge as discussed in Note 12 of the Notes to the Consolidated Financial Statements. 3. A $1.8 million, or 2.4%, net decrease resulting from earnings in jurisdictions with lower tax rates than the U.S. federal statutory rate where such earnings are permanently reinvested. 22 Net income. As a result of the preceding items, net income for the year ended December 31, 2023 was $63.3 million, compared to $54.4 million for 2022. Excluding the effect of currency translation, net income increased $9.2 million as summarized in the following table. Year Ended December 31, Change Change (Thousands of dollars) Due to Excluding Currency Currency % 2023 2022 Change Translation Translation Change Net income PLP-USA $ 45,392 $ 44,657 $ 735 $ — $ 735 1.6 % The Americas 5,755 11,420 (5,665 ) 166 (5,831 ) (51.1 ) EMEA 5,796 1,915 3,881 (101 ) 3,982 207.9 Asia-Pacific 6,389 (3,597 ) 9,986 (278 ) 10,264 (285.3 ) Consolidated $ 63,332 $ 54,395 $ 8,937 $ (213 ) $ 9,150 16.8 % WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES Management Assessment of Liquidity We measure liquidity on the basis of our ability to meet short-term and long-term operating needs, fund additional investments, including acquisitions, and make dividend payments to shareholders. Significant factors affecting the management of liquidity are cash flows from operating activities, capital expenditures, cash dividends, business acquisitions and access to bank lines of credit. Our investments include expenditures required for equipment and facilities as well as expenditures in support of our strategic initiatives. In 2023, we used cash of $35.3 million for capital expenditures. At December 31, 2023, we had $53.6 million of cash, cash equivalents and restricted cash (collectively “Cash”). Our Cash is held in various locations throughout the world. At December 31, 2023, the majority of our cash is held outside the U.S. We expect the majority of accumulated non-U.S. cash balances will remain outside of the U.S. and that we will meet U.S. liquidity needs through future cash flows, use of U.S. cash balances, external borrowings, or some combination of these sources. We complete comprehensive reviews of our significant customers and their creditworthiness by analyzing financial statements for customers where we have identified a measure of increased risk. We closely monitor payments and developments that may signal possible customer credit issues. We currently have not identified any potential material impact on our liquidity from customer credit issues. Total debt, including notes payable, at December 31, 2023 was $62.3 million. At December 31, 2023, our unused availability under our credit facility (the "Facility") was $55.7 million and our bank debt to equity percentage was 15.0%. The Facility contains, among other provisions, requirements for maintaining levels of net worth and profitability. At December 31, 2023, the Company was in compliance with these covenants. Our Asia-Pacific segment had $0.2 million in restricted cash for both years ended December 31, 2023 and 2022. The restricted cash was used to secure bank debt and is included in Cash, cash equivalents and restricted cash on the balance sheet. We sold our corporate aircraft in December of 2020, thereby eliminating the balance due on the previous loan which was secured by the corporate aircraft. The proceeds of the sale were used to pay off the debt associated with the former aircraft. On January 19, 2021, the Company received funding for a term loan in the amount of $20.5 million to fund the purchase of a new corporate aircraft, which replaces the Company's previously-owned aircraft that was sold in December 2020. At December 31, 2023, the outstanding balance on the term loan was $14.7 million, of which $2.1 million was classified as current. See Note 7 in the Notes to Consolidated Financial Statements for more information. We expect that our major source of funding for 2023 and beyond will be our operating cash flows, our existing cash and cash equivalents as well as our Facility agreement. Except for current earnings in certain jurisdictions, our operating income is deemed to be indefinitely reinvested in foreign jurisdictions. We currently do not intend nor foresee a need to repatriate these funds. We believe our future operating cash flows will be more than sufficient to cover debt repayments, other contractual obligations, capital expenditures and dividends for the next 12 months and thereafter for the foreseeable future. In addition, we believe our borrowing capacity provides substantial financial resources, if needed, to supplement funding of capital expenditures and/or acquisitions. We also believe that we can further expand our borrowing capacity, if necessary; however, we do not believe we would increase our debt to a level that would have a material adverse impact upon results of operations or financial condition. 23 Sources and Uses of Cash Net Cash provided by operating activities for the years ended December 31, 2023 and 2022 was $107.7 million and $26.2 million, respectively. The $81.5 million increase was primarily a result of an increase in cash from working capital and an increase in net income. Net Cash used in investing activities of $44.8 million for the year ended December 31, 2023 represents a decrease of $2.0 million when compared to Cash used in investing activities for the year ended December 31, 2022. The decreased use of Cash was primarily related to a decrease in capital expenditures and acquisitions of businesses, partially offset by one-time cash proceeds related to a life insurance settlement in 2022. Net Cash used in financing activities for the year ended December 31, 2023 was $48.9 million compared to cash provided by financing activities of $22.5 million for the year ended December 31, 2022. The year-over-year change in cash was mainly due to payments of notes payable and long-term debt, as well as an increase in the repurchase of shares during the year. We have commitments under operating leases primarily for office and manufacturing space, transportation equipment, office and computer equipment and capital leases, primarily for equipment. See Note 8 in the Notes to Consolidated Financial Statements for more information. As of December 31, 2023, the Company had total outstanding guarantees of $14.1 million. Additionally, certain domestic and foreign customers require the Company to issue letters of credit or performance bonds as a condition of placing an order. As of December 31, 2023, the Company had total outstanding letters of credit of $1.0 million. The Company has other borrowing facilities at certain of its foreign subsidiaries, which consist of overdraft lines, working capital credit lines, and facilities for the issuance of letters of credit and short-term borrowing needs. At December 31, 2023, and December 31, 2022, $13.3 million and $26.1 million was outstanding, of which $11.4 million and $19.1 million were classified as current, respectively. These facilities support commitments made in the ordinary course of business. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are reflective of significant judgment and uncertainties, and potentially may result in materially different outcomes under different assumptions and conditions. Revenue Recognition Net sales include products and shipping and handling charges, net of estimates for product returns. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. All revenue is recognized when the Company satisfies the performance obligations under the contract and control of the product is transferred to the customer, primarily based on shipping terms. Revenue for shipping and handling charges are recognized at the time the products are shipped to, delivered to or picked up by the customer. The Company estimates product returns based on historical return rates. Allowance for Credit Losses We maintain an allowance for credit losses for estimated losses resulting from the inability of our customers to make required payments. We record estimated allowances for uncollectible accounts receivable based upon the number of days the accounts are past due, the current business environment, and specific information such as bankruptcy or liquidity issues of customers. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required. 24 Excess and Obsolescence Reserves We provide excess and obsolescence reserves to state inventories at the lower of cost or estimated net realizable value. We identify inventory items that have had no usage or are in excess of the usages over the historical 12 to 24 months. A management team with representatives from marketing, manufacturing, engineering and finance reviews these inventory items, determines the disposition of the inventory and assesses the net realizable value based on their knowledge of the product and market conditions. These conditions include, among other things, future demand for product, product utility, unique customer order patterns or unique raw material purchase patterns, changes in customer and quality issues. If the impact of market conditions deteriorates from those projected by management, additional inventory reserves may be necessary. Impairment of Long-Lived Assets We record impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets are impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying value of those items. Our cash flows are based on historical results adjusted to reflect the best estimate of future market and operating conditions. The net carrying value of assets not recoverable is then reduced to fair value. The estimates of fair value represent the best estimate based on industry trends and reference to market rates and transactions. Goodwill Goodwill is reviewed for impairment annually on October 1 or more frequently when changes in circumstances indicate the carrying amount may be impaired. We may use both quantitative and qualitative approaches when testing goodwill for impairment. For selected reporting units where the qualitative approach is utilized, a qualitative evaluation of events and circumstances impacting the reporting unit is performed to determine if it is more likely than not that the fair value of the reporting unit exceeds its carrying amount. If that determination is made, no further evaluation is necessary. Otherwise, the Company performs a quantitative impairment test on the reporting unit. For the quantitative approach, the Company uses a combination of the income approach, which uses a discounted cash flow methodology, and the market approach, which uses comparable market multiples, 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. The fair value estimates are subjective and sensitive to significant assumptions, such as revenue growth rates, operating margins, the weighted-average cost of capital, and estimated market multiples, of which are affected by expectations of future market or economic conditions. The Company believes that the methodologies, significant assumptions, and weightings used are reasonable and result in appropriate fair values of the reporting units. Impairment assessments inherently involve management judgments regarding a number of assumptions. Due to the multiple variables inherent in arriving at the estimates of the reporting unit's fair value, differences in assumptions could have an effect on the estimated fair value of a reporting unit and could result in goodwill impairment charges in a future period. Deferred Tax Assets Deferred taxes are recognized at currently enacted tax rates for temporary differences between the financial reporting and income tax basis of assets and liabilities and operating loss and tax credit carryforwards. We establish a valuation allowance to record our deferred tax assets at an amount that is more-likely-than-not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the valuation allowance would be charged to expense in the period such determination was made. Pension Obligations We record obligations and expenses related to a pension benefit plan based on actuarial valuations, which include key assumptions on discount rates, expected returns on plan assets and compensation increases. These actuarial assumptions are reviewed annually and modified as appropriate. The effect of modifications is generally recorded or amortized over future periods. The discount rate of 5.34% at December 31, 2023 reflects an analysis of yield curves as of the end of the year and the schedule of expected cash needs of the plan. The 2024 expected long-term return on plan assets of 6.25% reflects the plan’s historical returns and represents our best estimate of the likely future returns on the plan’s asset mix. We believe the assumptions used in recording obligations under the plans are reasonable based on prior experience, market conditions and the advice of plan actuaries. However, an increase in the discount rate would decrease the plan obligations and the net periodic benefit cost, while a decrease in the discount rate would increase the plan obligations and the net periodic benefit cost. In addition, an increase in the expected long-term return on plan assets would decrease the net periodic pension cost, while a decrease in expected long-term return on plan assets would increase the net periodic pension cost. 25 Item 7A. Quantitative and Qualitat ive 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 that the political and economic risks related to the Company's international operations are mitigated due to the geographic diversity in which the Company's international operations are located. Effective July 1, 2018, Argentina was designated as a highly inflationary economy as the projected three-year cumulative inflation rate exceeded 100%. As such, beginning July 1, 2018, the functional currency for the Company’s Argentina subsidiary became the U.S. dollar. Revenue from operations in Argentina represented less than 1% of total consolidated net sales for the years ended December 31, 2023, 2022 and 2021. As of December 31, 2023, the Company had $0.2 million in foreign currency forward exchange assets and no foreign currency forward exchange liabilities outstanding. The Company does not hold derivatives for trading purposes. The Company's primary currency rate exposures are related to foreign denominated debt, intercompany debt, forward exchange contracts, foreign denominated receivables and payables and cash and short-term investments. A hypothetical 10% change in currency rates would have a favorable/unfavorable impact on fair values on such instruments of approximately $6.5 million and on income before tax of $2.3 million. 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 and term notes, which consisted of long-term borrowings of $55.3 million at December 31, 2023. A 100 basis point increase in the interest rate would have resulted in an increase in interest expense of approximately $0.4 million for the year ended December 31, 2023. Included in the Company’s accounting for the defined benefit pension plan (“Plan”) are assumptions on future discount rates and the expected return on Plan assets. The Company considers current market conditions, including changes in interest rates and Plan asset investment returns. Actuarial assumptions may differ materially from actual results due to changing market, demographic and economic conditions or higher or lower withdrawal rates. These differences may result in a significant impact to the amount of net pension expense or income recorded in the future. A discount rate is used to determine the present value of future payments. In general, a pension liability increases as the discount rate decreases and decreases as the discount rate increases. The discount rate used to determine the future benefit obligation was 5.34% and 5.55% at December 31, 2023 and 2022, respectively. The discount rate is a significant factor in determining the amounts reported. A 50 basis point change in the discount rate of 5.34% used at December 31, 2023 would have a $1.9 million effect on the Plan’s projected benefit obligation. The Company developed the expected return on Plan assets by considering various factors which include targeted asset allocation percentages, historical returns, and expected future returns. The Company assumed an expected rate of return of 7.00% for the year ended December 31, 2023 and 6.50% for the year ended December 31, 2022. A 50 basis point change in the expected rate of return would have a $0.2 million effect on the Plan’s subsequent year’s net periodic pension cost. 26 Item 8. Financial Statemen ts and Supplementary Data Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Preformed Line Products Company Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Preformed Line Products Company (the Company) as of December 31, 2023 and 2022, the related statements of consolidated income, comprehensive income, cash flows and shareholders' equity for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 8, 2024 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. Quantitative Impairment Assessment of Goodwill Description of the Matter At December 31, 2023, the Company’s goodwill was $29.5 million. As discussed in Note 12 to the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level or more frequently if impairment indicators arise. Goodwill is tested for impairment utilizing a combination of the income approach, which uses a discounted cash flow methodology, and the market approach, which uses comparable company market multiples, to estimate the fair value of each reporting unit. Auditing management’s quantitative goodwill impairment assessment for one reporting unit was complex and highly judgmental due to the significant estimation required to determine the fair value of the reporting unit. In particular, the fair value estimate was sensitive to significant assumptions, such as revenue growth rates and operating margins, which are affected by expectations of future market or economic conditions. 27 How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment process. This included controls over management’s review of the significant assumptions underlying the fair value determination described above. To test the estimated fair value of the Company’s reporting unit, we performed audit procedures that included, among others, assessing the methodologies used, testing the significant assumptions described above, and testing the underlying data used by the Company in its analysis. We assessed the historical accuracy of management’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the reporting unit that would result from changes in the assumptions. We also utilized our internal valuation specialists to review the methodology and certain assumptions. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2008. Cleveland, Ohio March 8, 2024 28 PREFORMED LINE PRODUCTS COMPANY CONSOLIDATED B ALANCE SHEETS December 31, 2023 2022 (Thousands of dollars, except share and per share data) ASSETS Cash, cash equivalents and restricted cash $ 53,607 $ 37,239 Accounts receivable, net 106,892 125,261 Inventories, net 148,814 147,458 Prepaid expenses 8,246 13,283 Other current assets 7,256 4,929 TOTAL CURRENT ASSETS 324,815 328,170 Property, plant and equipment, net 207,892 175,011 Operating lease, right-of-use assets 11,671 10,752 Goodwill 29,497 28,004 Other intangible assets, net 12,981 14,082 Deferred income taxes 7,109 5,320 Other assets 9,186 7,140 TOTAL ASSETS $ 603,151 $ 568,479 LIABILITIES AND SHAREHOLDERS' EQUITY Trade accounts payable $ 37,788 $ 46,839 Notes payable to banks 6,968 18,098 Operating lease liabilities, current 1,671 1,606 Current portion of long-term debt 6,486 3,018 Accrued compensation 18,441 14,962 Accrued expenses and other liabilities 27,414 17,635 Accrued profit-sharing and other benefits 9,577 9,394 Dividends payable 1,300 1,318 Income taxes payable 1,672 2,465 TOTAL CURRENT LIABILITIES 111,317 115,335 Long-term debt, less current portion 48,796 68,420 Operating lease liabilities, non-current 7,892 7,023 Deferred income taxes 3,536 4,165 Other noncurrent liabilities 15,454 14,912 SHAREHOLDERS' EQUITY Common shares – $ 2 par value per share, 15,000,000 shares authorized, 4,908,413 and 4,917,020 issued and outstanding, at December 31, 2023 and December 31, 2022, respectively 13,607 13,351 Common shares issued to rabbi trust, 243,118 and 245,386 shares at December 31, 2023 and December 31, 2022, respectively ( 10,183 ) ( 10,261 ) Deferred compensation liability 10,183 10,261 Paid-in capital 60,958 53,646 Retained earnings 520,154 460,930 Treasury shares, at cost, 1,894,419 and 1,758,901 shares at December 31, 2023 and December 31, 2022, respectively ( 118,249 ) ( 99,303 ) Accumulated other comprehensive loss ( 60,306 ) ( 69,987 ) TOTAL PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS' EQUITY 416,164 358,637 Noncontrolling interest ( 8 ) ( 13 ) TOTAL SHAREHOLDERS' EQUITY 416,156 358,624 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 603,151 $ 568,479 See notes to consolidated financial statements. 29 PREFORMED LINE PRODUCTS COMPANY STATEMENTS OF CON SOLIDATED INCOME Year Ended December 31, 2023 2022 2021 (In thousands, except per share data) Net sales $ 669,679 $ 637,021 $ 517,417 Cost of products sold 434,831 421,841 351,175 GROSS PROFIT 234,848 215,180 166,242 Costs and expenses Selling 51,078 45,712 40,539 General and administrative 74,643 70,317 55,257 Research and engineering 22,481 19,661 19,188 Goodwill impairment — 6,529 — Other operating expense, net 2,492 3,600 3,709 150,694 145,819 118,693 OPERATING INCOME 84,154 69,361 47,549 Other income (expense) Interest income 1,811 631 169 Interest expense ( 3,905 ) ( 3,214 ) ( 2,023 ) Other income, net 284 6,926 3,201 ( 1,810 ) 4,343 1,347 INCOME BEFORE INCOME TAXES 82,344 73,704 48,896 Income tax expense 19,007 19,305 13,175 NET INCOME $ 63,337 $ 54,399 $ 35,721 Net (income) loss attributable to noncontrolling interests ( 5 ) ( 4 ) 8 NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS $ 63,332 $ 54,395 $ 35,729 AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING: Basic 4,920 4,931 4,907 Diluted 4,997 4,999 4,970 EARNINGS PER SHARE OF COMMON STOCK ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS: Basic $ 12.87 $ 11.03 $ 7.28 Diluted $ 12.68 $ 10.88 $ 7.19 See notes to consolidated financial statements. 30 PREFORMED LINE PRODUCTS COMPANY STATEMENTS OF CONSOLIDATED C OMPREHENSIVE INCOME Year Ended December 31, 2023 2022 2021 (Thousands of dollars) Net income $ 63,337 $ 54,399 $ 35,721 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment 9,667 ( 9,272 ) ( 8,376 ) Pension adjustment, net of tax 14 1,004 1,208 Other comprehensive income (loss), net of tax 9,681 ( 8,268 ) ( 7,168 ) Comprehensive (income) loss attributable to noncontrolling interests ( 5 ) ( 4 ) 8 Comprehensive income attributable to Preformed Line Products Company shareholders $ 73,013 $ 46,127 $ 28,561 See notes to consolidated financial statements. 31 PREFORMED LINE PRODUCTS COMPANY STATEMENTS OF CONSO LIDATED CASH FLOWS Year Ended December 31, 2023 2022 2021 (Thousands of dollars) OPERATING ACTIVITIES Net income $ 63,337 $ 54,399 $ 35,721 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization 18,914 16,430 15,564 Provision for accounts receivable allowances 3,441 2,169 2,895 Provision for inventory reserves 8,081 2,352 3,052 Deferred income taxes ( 2,232 ) ( 2,656 ) 6,544 Share-based compensation expense 4,948 4,596 4,163 Goodwill impairment — 6,529 — Gain from company owned life insurance policy — ( 4,364 ) — Loss on exit of business — 1,025 — Gain on sale of property and equipment ( 2,478 ) ( 775 ) ( 184 ) Other, net 435 92 656 Changes in operating assets and liabilities: Accounts receivable 16,969 ( 28,049 ) ( 11,576 ) Inventories ( 4,952 ) ( 36,979 ) ( 24,154 ) Prepaid expenses 5,961 5,051 ( 2,974 ) Trade accounts payable and accrued liabilities 2,302 6,707 11,558 Accrued income and other taxes ( 937 ) 2,005 ( 4,332 ) Contributions to company pension plan ( 1,500 ) ( 2,132 ) — Other, net ( 4,647 ) ( 247 ) ( 3,335 ) NET CASH PROVIDED BY OPERATING ACTIVITIES 107,642 26,153 33,598 INVESTING ACTIVITIES Capital expenditures ( 35,332 ) ( 40,598 ) ( 18,384 ) Proceeds from the sale of property and equipment 2,631 3,169 141 Proceeds from company owned life insurance policy — 6,909 — Acquisition of businesses, net of cash ( 12,089 ) ( 16,235 ) — NET CASH USED IN INVESTING ACTIVITIES ( 44,790 ) ( 46,755 ) ( 18,243 ) FINANCING ACTIVITIES (Payments) Proceeds of notes payable to banks ( 11,081 ) 2,214 376 Proceeds from long-term debt 169,172 185,016 98,919 Payments of long-term debt ( 186,179 ) ( 155,929 ) ( 113,537 ) Dividends paid ( 4,106 ) ( 4,099 ) ( 4,128 ) Proceeds from issuance of common shares 2,164 808 409 Purchase of common shares for treasury ( 728 ) ( 158 ) ( 177 ) Purchase of common shares for treasury from related parties ( 18,164 ) ( 5,309 ) ( 5,092 ) NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ( 48,922 ) 22,543 ( 23,230 ) Effects of exchange rate changes on cash, cash equivalents and restricted cash 2,438 ( 1,108 ) ( 894 ) Net increase (decrease) in cash, cash equivalents and restricted cash 16,368 833 ( 8,769 ) Cash, cash equivalents and restricted cash at beginning of year 37,239 36,406 45,175 CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR (1) $ 53,607 $ 37,239 $ 36,406 (1) Non-cash investing and financing activities: The Company purchased a new corporate aircraft during the year ended December 31, 2021 with a term loan in the principal amount of $ 20.5 million. For further information regarding this transaction, refer to Note 7 of the Notes to the Consolidated Financial Statements. See notes to consolidated financial statements. 32 PREFORMED LINE PRODUCTS COMPANY STATEMENTS OF CONSOLIDAT ED SHAREHOLDERS' EQUITY Accumulated Other Comprehensive Income (Loss) Common Shares Common Shares Issued to Rabbi Trust Deferred Compensation Liability Paid in Capital Retained Earnings Treasury Shares Cumulative Translation Adjustment Unrecognized Pension Benefit Cost Total Preformed Line Products Company Equity Noncontrolling Interests Total Equity (In thousands, except share and per share data) Balance at January 1, 2021 $ 13,028 $ ( 10,940 ) $ 10,940 $ 43,134 $ 379,035 $ ( 88,568 ) $ ( 47,847 ) $ ( 6,704 ) $ 292,078 $ ( 9 ) $ 292,069 Net income 35,729 35,729 ( 8 ) 35,721 Foreign currency translation adjustment ( 8,376 ) ( 8,376 ) ( 8,376 ) Pension adjustment, net of tax 1,208 1,208 1,208 Total comprehensive income 28,561 ( 8 ) 28,553 Share-based compensation 4,163 ( 166 ) 3,997 3,997 Purchase of 73,460 common shares ( 5,268 ) ( 5,268 ) ( 5,268 ) Issuance of 78,730 common shares 157 517 674 674 Common shares distributed from rabbi trust of 22,370 , net 838 ( 838 ) — — Cash dividends declared - $ 0.80 per share ( 3,925 ) ( 3,925 ) ( 3,925 ) Balance at December 31, 2021 $ 13,185 $ ( 10,102 ) $ 10,102 $ 47,814 $ 410,673 $ ( 93,836 ) $ ( 56,223 ) $ ( 5,496 ) $ 316,117 $ ( 17 ) $ 316,100 Net income 54,395 54,395 4 54,399 Foreign currency translation adjustment ( 9,272 ) ( 9,272 ) ( 9,272 ) Pension adjustment, net of tax 1,004 1,004 1,004 Total comprehensive income 46,127 4 46,131 Share-based compensation 4,596 ( 193 ) 4,403 4,403 Purchase of 73,514 common shares ( 5,467 ) ( 5,467 ) ( 5,467 ) Issuance of 83,391 common shares 166 1,236 1,402 1,402 Common shares contributed to rabbi trust of 2,248 , net ( 159 ) 159 — — Cash dividends declared - $ 0.80 per share ( 3,945 ) ( 3,945 ) ( 3,945 ) Balance at December 31, 2022 $ 13,351 $ ( 10,261 ) $ 10,261 $ 53,646 $ 460,930 $ ( 99,303 ) $ ( 65,495 ) $ ( 4,492 ) $ 358,637 $ ( 13 ) $ 358,624 Net income 63,332 63,332 5 63,337 Foreign currency translation adjustment 9,667 9,667 9,667 Pension adjustment, net of tax 14 14 14 Total comprehensive income 73,013 5 73,018 Share-based compensation 4,948 ( 175 ) 4,773 4,773 Purchase of 135,518 common shares ( 18,946 ) ( 18,946 ) ( 18,946 ) Issuance of 126,911 common shares 256 2,364 2,620 2,620 Common shares distributed from rabbi trust of 2,268 , net 78 ( 78 ) — — Cash dividends declared - $ 0.80 per share ( 3,933 ) ( 3,933 ) ( 3,933 ) Balance at December 31, 2023 $ 13,607 $ ( 10,183 ) $ 10,183 $ 60,958 $ 520,154 $ ( 118,249 ) $ ( 55,828 ) $ ( 4,478 ) $ 416,164 $ ( 8 ) $ 416,156 See notes to consolidated financial statements. 33 PREFORMED LINE PRODUCTS COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Tables in thousands of dollars, except share and per share data, unless specifically noted) Note 1 – Significant Accounting Policies Nature of Operations Preformed Line Products Company and subsidiaries (the “Company”) is a designer and manufacturer of products and systems employed in the construction and maintenance of overhead and underground networks for the energy, telecommunication, cable operators, data communication and other similar industries. The Company’s primary products support, protect, connect, terminate and secure cables and wires. The Company provides helical solutions, connectors, fiber optic and copper splice closures, solar framing applications, and electric vehicle charging station foundations. The Company’s customers include public and private energy utilities and communication companies, cable operators, contractors and subcontractors, distributors and value-added resellers. The Company serves its worldwide markets through strategically located domestic and international manufacturing facilities . Principles of Consolidation and Noncontrolling Interests The accompanying consolidated financial statements, including the accounts of the Company and its wholly-owned subsidiaries for which it has a controlling interest, were prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and include the assets, liabilities, revenues and expenses of all majority-owned subsidiaries over which the Company exercises control. Intercompany transactions and balances are eliminated in consolidation. Noncontrolling interests are presented in the Company’s Consolidated Financial Statements as if parent company investors (controlling interests) and other minority investors (noncontrolling interests) in partially owned subsidiaries have similar economic interests in a single entity. As a result, investments in noncontrolling interests are reported as equity in our Consolidated Financial Statements. Additionally, the Company’s Consolidated Financial Statements include 100 % of a controlled subsidiary’s earnings, rather than only our share. Transactions between the parent company and noncontrolling interests are reported in equity as transactions between stockholders, provided that these transactions do not create a change in control. Cash, Cash Equivalents and Restricted Cash Cash, cash equivalents and restricted cash (“Cash”) are stated at fair value and consist of highly liquid investments with original maturities of three months or less at the time of acquisition. Restricted cash, which is not material, is included in Cash, cash equivalents and restricted cash on the Company’s Consolidated Balance Sheets . Accounts Receivable Allowances The Company maintains an allowance for credit losses for estimated losses resulting from the inability of its customers to make required payments. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Board ("ASC") 326 “Financial Instruments – Credit Losses", the Company uses a current expected credit loss model in order to immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments, mainly trade receivables. Additionally, the allowance is based upon identified delinquent accounts, customer payment patterns and other analyses of historical data trends. The Company also maintains an allowance for future sales credits related to sales recorded during the year. The estimated allowance is based on historical sales credits issued in the subsequent year related to the prior year and any significant, preapproved open return good authorizations as of the balance sheet date. Inventories The Company uses the last-in, first-out (“LIFO”) method of determining cost for the majority of its material portion of inventories in PLP-USA. All other inventories are determined by the first-in, first-out (“FIFO”) or average cost methods. Inventories are carried at lower of cost or net realizable value. Reserves are maintained for estimated obsolescence or excess inventory based on past usage and future demand. Fair Value of Financial Instruments FASB ASC 825, “Disclosures about Fair Value of Financial Instruments,” requires disclosures of the fair value of financial instruments. The estimated fair value of financial instruments was principally based on market prices where such prices were available, and when unavailable, fair values were estimated based on market prices of similar instruments. 34 Property, Plant and Equipment and Depreciation Property, plant, and equipment is recorded at cost less accumulated depreciation or amortization. Property under finance lease agreements is carried at the present value of lease payments over the lease term less accumulated amortization. Depreciation is based on the estimated service lives of depreciable assets and is calculated using the straight-line method. Fully depreciated assets are retained in property and accumulated depreciation accounts until they are removed from service. The estimated useful lives for assets purchased new are: land improvements, ten years ; buildings, forty years ; building improvements, five to forty years ; machinery and equipment, three to ten years ; and aircraft, fifteen years . Appropriate reductions in estimated useful lives are made for property, plant and equipment purchased in connection with an acquisition of a business or in a used condition when purchased. Long-Lived Assets The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the carrying value of the assets are impaired and the undiscounted future cash flows estimated to be generated by such assets are less than the carrying value. The Company’s cash flows are based on historical results adjusted to reflect the Company’s best estimate of future market and operating conditions. The net carrying value of assets not recoverable is then reduced to fair value. The estimate of fair value represents the Company’s best estimate based on industry trends and reference to market rates and transactions. The Company did not record an impairment to long-lived assets during the years ended December 31, 2023 and 2022, other than in the divestiture of the Russian operations during 2022, which is disclosed in Note 18. Goodwill and Other Intangibles In accordance with ASC 805, “Business Combinations,” the Company uses the acquisition method of accounting to allocate costs of acquired businesses to the assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition. The excess costs of acquired businesses over the fair values of the assets acquired and liabilities assumed are recognized as goodwill. Goodwill and other intangible assets are generally recorded as a result of a business acquisition. Goodwill represents the excess of purchase price over the fair value of the tangible and identifiable net assets acquired during a business combination and is not subject to amortization but is subject to annual impairment testing. Goodwill is reviewed for impairment annually on October 1 or more frequently when changes in circumstances indicate the carrying amount may be impaired. Such events or changes may include, but are not limited to, a significant deterioration in overall economic conditions, changes in the business climate of the Company's industry, overall performance indicators, a decline in the Company's market capitalization, business reorganization or restructuring or disposal of all or part of a reporting unit. Goodwill is tested for impairment at the reporting unit level, and is based on the net assets for each reporting unit, including goodwill and intangible assets. The Company’s reporting units are equivalent to the reportable operating segments, except for the Americas segment which has two reporting units (Canada and Other Americas). Goodwill is assigned to each reporting unit, as this represents the lowest level that constitutes a business and is the level at which management regularly reviews the operating results. Intangible assets with definite lives, consisting primarily of purchased cust omer relationships, patents, technology, customer backlogs, trademarks and land use rights, are generally amortized over periods from two years to ninety-nine years . The Company has no indefinite lived intangible assets other than goodwill. The Company’s intangible assets with finite lives are generally amortized over the period in which the economic benefits of the intangibles are consumed, using either a projected cash flo w basis method or the straight-line method. The straight-line method is used in circumstances in which it better reflects the pattern in which the economic benefits of the intangible asset are consumed or otherwise expire compared to using a projected cash flow basis method. An evaluation of the remaining useful life of intangible assets with a determinable life is performed on a periodic basis and when events and circumstances warrant an evaluation. The Company assesses intangible assets with a determinable life for impairment when the carrying amount may not be recoverable, consistent with its policy for assessing other long-lived assets. The Company did no t record an impairment to intangible assets with finite lives during the years ended December 31, 2023 and 2022. The Company may use both quantitative and qualitative approaches when testing goodwill for impairment. A qualitative analysis is performed by assessing certain trends and factors, including projected market outlook and growth rates, forecasted and actual sales and gross profit margins, discount rates and other relevant qualitative factors. These trends and factors are compared to, and based on, the assumptions used in the most recent quantitative analysis performed for each reporting unit to determine if it is more likely than not that the fair value of the reporting unit exceeds its carrying amount. If that determination is made, no further evaluation is necessary. Otherwise, the Company performs a quantitative impairment test on the reporting unit. For the quantitative approach, the Company uses a combination of the income approach, which uses a discounted cash flow methodology, and the market approach, which uses comparable market multiples, 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. The fair value estimates are subjective and sensitive to significant assumptions, such as future cash flows, revenue growth rates, operating 35 margins, the weighted-average cost of capital ("WACC"), and estimated market multiples, of which are affected by expectations of future market or economic conditions. The future cash flows are based on the Company’s long-term operating plan and a terminal value was used to estimate the reporting unit’s cash flows beyond the period covered by the operating plan. The WACC is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. The Company believes that the methodologies, significant assumptions, and weightings used are reasonable and result in appropriate fair values of the reporting units. Impairment assessments inherently involve management judgments regarding a number of assumptions such as those described above. Due to the multiple variables inherent in arriving at the estimates of the reporting unit's fair value, differences in assumptions could have an effect on the estimated fair value of a reporting unit and could result in goodwill impairment charges in a future period. Revenue Recognition Net sales include products and shipping and handling charges, net of estimates for product returns. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products. All revenue is recognized when the Company satisfies the performance obligations under the contract and control of the product is transferred to the customer, primarily based on shipping terms. Revenue for shipping and handling charges are recognized at the time the products are shipped to, delivered to or picked up by the customer. Payment terms vary by the type and location of the customer and the products offered but are generally short-term in nature. The Company estimates product returns based on historical return rates. Research and Development Research and development costs for new products are expensed as incurred and totaled $ 5.2 million in 2023 , $ 4.5 million in 2022 and $ 3.3 million in 2021 . Income Taxes Income taxes are computed in accordance with the provisions of FASB ASC 740, “Income taxes” and includes U.S. (federal and state) and foreign income taxes. In the Consolidated Financial Statements, the benefits of a consolidated return have been reflected where such returns have or could be filed based on the entities and jurisdictions included in the financial statements. Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in the Consolidated Financial Statements. Deferred tax liabilities and assets are determined based on the differences between the book and tax basis of particular assets and liabilities and operating loss carryforwards using tax rates in effect for the years in which the differences are expected to reverse. Deferred tax assets are recognized to the extent that the Company believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. Uncertain tax positions are recorded in accordance with ASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. Deferred Tax Assets Deferred taxes are recognized at currently enacted tax rates for temporary differences between the financial reporting and income tax basis of assets and liabilities and operating loss and tax credit carryforwards. We establish a valuation allowance to record our deferred tax assets at an amount that is more-likely-than-not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to the valuation allowance would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to the valuation allowance would be charged to expense in the period such determination was made. Uncertain Tax Positions We identify tax positions taken on the federal, state, local and foreign income tax returns filed or to be filed. A tax position can include: a reduction in taxable income reported in a previously filed tax return or expected to be reported on a future tax return that 36 impacts the measurement of current or deferred income tax assets or liabilities in the period being reported; a decision not to file a tax return; an allocation or a shift of income between jurisdictions; the characterization of income or a decision to exclude reporting taxable income in a tax return; or a decision to classify a transaction, entity or other position in a tax return as tax exempt. We determine whether a tax position is an uncertain or a routine business transaction tax position that is more-likely-than-not to be sustained at the full amount upon examination. Under ASC 740, “Tax Benefits from Uncertain Tax Positions” that reduce our current or future income tax liability are reported in our financial statements only to the extent that each benefit is recognized and measured under a two-step approach. The first step requires us to assess whether each tax position based on its technical merits and facts and circumstances as of the reporting date, is more-likely-than-not to be sustained upon examination. The second step measures the amount of tax benefit that we would recognize in the financial statements based on a cumulative probability approach. A tax position that meets the more-likely-than-not threshold that is not highly certain is measured based on the largest amount of benefit that is greater than 50 % likely of being realized upon ultimate settlement with the tax authority, assuming that the tax authority has examined the position and has full knowledge of all relevant information. Advertising Advertising costs are expensed as incurred and totaled $ 2.4 million in 2023, $ 2.7 million in 2022 and $ 1.5 million in 2021 . Foreign Currency Translation Asset and liability accounts are translated into U.S. dollars using exchange rates in effect at the date of the Consolidated Balance Sheet. The translation adjustments are recorded in Accumulated other comprehensive income (loss). Revenues and expenses are translated at weighted average exchange rates in effect during the period. Transaction gains and losses arising from exchange rate changes on transactions denominated in a currency other than the functional currency are included in income and expensed as incurred. Aggregate transaction losses, including hedge activity, was $ 3.2 million for the year ended December 31, 2023, $ 0.4 million for the year ended December 31, 2022 and $ 1.0 million for the year ended December 31, 2021 . Upon sale or substantially complete liquidation of an investment in a foreign entity, the cumulative translation adjustment for that entity is reclassified from Accumulated other comprehensive loss to earnings. Effective July 1, 2018, Argentina was designated as a highly inflationary economy as the projected three-year cumulative inflation rate exceeded 100 %. As such, beginning July 1, 2018, the functional currency for the Company’s Argentina subsidiary became the U.S. dollar. Revenue from operations in Argentina was less than 1 % of total consolidated net sales for the years ended December 31, 2023, 2022 and 2021 . Use of Estimates The preparation of financial statements in accordance with U.S. GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The Company's consolidated financial statements include amounts that are based on management's best estimates and judgments. Actual results could differ from these estimates. Certain prior year amounts have been reclassified to conform to current year presentation. Business Combinations Upon acquisition of a business, the Company uses the income, market or cost approach (or a combination thereof) for the valuation as appropriate. The valuation inputs in these models and analyses are based on market participant assumptions. Market participants are considered to be buyers and sellers unrelated to the Company in the principal or most advantageous market for the asset or liability. The Company uses a discounted cash flow model to measure the fair value of intangible assets. The significant assumptions used to estimate the fair value of the intangible assets include discount rates and certain assumptions that form the basis of future cash flows (such as revenue growth rates, attrition rates, and royalty rates). These assumptions relate to the future performance of the acquired businesses, are forward-looking and could be affected by future economic and market conditions. Fair value estimates are based on a series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. Management values property, plant and equipment using the cost approach supported where available by observable market data, which includes consideration of obsolescence. Acquired inventories are marked to fair value. For certain items, the carrying value is determined to be a reasonable approximation of fair value based on information available to the Company. 37 Derivative Financial Instruments The Company operates internationally and enters into intercompany transactions denominated in foreign currencies. Consequently, the Company is subject to market risk arising from exchange rate movements between the dates foreign currency transactions occur and the dates they are settled. The Company currently uses foreign currency forward contracts to reduce the risk related to some of these transactions. These contracts usually have maturities of 90 days or less and generally require an exchange of foreign currencies for U.S. dollars at maturity at rates stated in the contracts. These contracts are not designated as hedging instruments under U.S. GAAP. Accordingly, the changes in the fair value of the foreign currency forward contracts are recognized in each accounting period in “Other operating expense, net” on the Consolidated Statements of Income together with the transaction gain or loss from the related balance sheet position. The Company records the contracts at fair value in the Consolidated Balance Sheets. The Company does not hold derivatives for trading purposes. Recently Adopted or Issued Accounting Pronouncements The Company considers the applicability and impact of all Accounting Standards Updates ("ASU"). In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Liabilities from Contracts with Customers.” This ASU requires an acquiring entity to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. The ASU was effective for fiscal years and interim periods beginning after December 15, 2022, with early adoption permitted. The adoption of this new standard did not have a material impact on the consolidated financial statements and related disclosures. In November 2023, the FASB issued Accounting Standards Update No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU enhances reportable segment disclosures on both an annual and interim basis primarily in regards to the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (CODM) and included within the reported measure(s) of segment profit or loss. In addition, the ASU requires disclosure, by segment, of other items included in the reported measure(s) of segment profit or loss, including qualitative information describing the composition, nature and type of each item. The ASU also expands disclosure requirements related to the CODM, including how the reported measure(s) of segment profit or loss are used to assess segment performance and allocate resources, the method used to allocate overhead for significant segment expenses and others. Lastly, all current required annual segment reporting disclosures under Topic 280 are now effective for interim periods. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The company is evaluating the impact of adopting this ASU. In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” This ASU enhances income tax disclosures by providing information to better assess how an entity's operations, related tax risks, tax planning and operational opportunities affect its tax rate and prospects for future cash flows. This ASU requires additional disclosures to the annual effective tax rate reconciliation including specific categories and further disaggregated reconciling items that meet the quantitative threshold. Additionally, the ASU requires disclosures relating to income tax expense and payments made to federal, state, local and foreign jurisdictions. This ASU is effective for fiscal years and interim periods beginning after December 15, 2024. The Company is evaluating the impact of adopting this ASU. Note 2 – Inventories, Net Inventories, net December 31, 2023 2022 Raw materials $ 98,708 $ 104,872 Work-in-process 14,397 14,450 Finished products 46,250 41,295 Inventories, net of excess and obsolete inventory reserve 159,355 160,617 Excess of current cost over LIFO cost ( 10,541 ) ( 13,159 ) Inventories at LIFO cost $ 148,814 $ 147,458 Costs for inventories of certain material, mainly in the U.S., are determined using the LIFO method and totaled approximately $ 60.1 million and $ 68.3 million at December 31, 2023 and 2022, respectively. The net change in LIFO inventories for December 31, 2023 and 2022 resulted in a benefit of $ 2.6 million and a charge of $ 3.7 million to Cost of products sold, respectively. The Company’s reserves for slow-moving and obsolete inventory at December 31, 2023 and 2022 were $ 17.6 million and $ 10.8 million, respectively. 38 Note 3 – Property and Equipment, Net Major classes of property, plant and equipment are as follows: December 31, 2023 2022 Land and improvements $ 21,374 $ 19,609 Buildings and improvements 129,369 102,245 Machinery, equipment and aircraft 238,868 218,549 Construction in progress 22,619 31,076 Property, plant and equipment, gross 412,230 371,479 Less accumulated depreciation ( 204,338 ) ( 196,468 ) Property, plant and equipment, net $ 207,892 $ 175,011 Depreciation of property and equipment was $ 17.0 million in 2023 , $ 14.3 million in 2022 and $ 13.6 million in 2021 . Note 4 – Contingent Liabilities The Company can be party to a variety of pending legal proceedings and claims arising in the normal course of business, including, but not limited to, litigation relating to employment, workers’ compensation, product liability, environmental and intellectual property. The Company has liability insurance to cover many of these claims. Although the outcomes of these matters are not predictable with certainty, the Company records a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. In the event the Company determines that a loss is not probable, but is reasonably possible, and the likelihood to develop what the Company believes to be a reasonable range of potential loss exists, the Company will include disclosure related to such matters. To the extent that there is a reasonable possibility the losses could exceed amounts already accrued, the Company will adjust the accrual in the period in which the determination is made, disclose an estimate of the additional loss or range of loss and if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made. In November 2016, the Company and its subsidiaries Helix Uniformed Ltd. (“Helix”) and Preformed Line Products (Canada) Limited (“PLPC Canada”), were each named, jointly and severally, with each of SNC-Lavalin ATP, Inc. (“SNC ATP”), HD Supply Canada Inc., by its trade names HD Supply Power Solutions and HD Supply Utilities (“HD Supply”), and Anixter Power Solutions Canada Inc. (the corporate successor to HD Supply, “Anixter”) and, together with the Company, PLPC Canada, Helix, SNC ATP and HD Supply (the “Defendants”), in a complaint filed by Altalink, L.P. (the “Plaintiff”) in the Court of Queen’s Bench of Alberta in Alberta, Canada in November 2016 (the “Complaint”). The Complaint stated that the Plaintiff engaged SNC ATP to design, engineer, procure and construct numerous power distribution and transmission facilities in Alberta (the “Projects”) and that through SNC ATP and HD Supply (now Anixter), spacer dampers manufactured by Helix were procured and installed in the Projects. The Complaint alleged that the spacer dampers have and may continue to become loose, open and detach from the conductors, resulting in damage and potential injury and a failure to perform the intended function of providing spacing and damping to the Project. The Plaintiff was seeking an estimated $ 56.0 million Canadian dollars in damages jointly and severally from the Defendants, representing the costs of monitoring and replacing the spacer dampers and remediating property damage, due to alleged defects in the design and construction of, and supply of materials for, the Projects by SNC ATP and HD Supply/Anixter and in the design of the spacer dampers by Helix. On September 26, 2023, the Defendants and the Plaintiff entered into a settlement agreement which dismisses the action against all Defendants with prejudice. Net of insurance, the total settlement amount required to be paid by the Company is $ 4.3 million Canadian dollars ($ 3.2 million US dollars), of which $ 2.5 million Canadian dollars ($ 1.8 million US dollars) was previously recorded and $ 1.8 million Canadian dollars ($ 1.4 million US dollars) was recorded in the third quarter in General and administrative expense. The settlement reflects the Company’s desire to eliminate the burden, expense, distraction and further uncertainties of litigation, and settlement does not constitute an admission of liability, wrongdoing or fault by the Company and its subsidiaries . The settlement amount was paid during the fourth quarter of 2023. The Company is not a party to any other 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 flow. For the years ended December 31, 2023 and 2022, reserves for global legal matters were zero and $ 1.8 million, respectively. 39 Note 5 – Pension Plans The Company maintains a noncontributory defined benefit pension plan covering eligible U.S. employees (the "U.S. Plan") and a defined contribution plan to provide retirement benefits for employees as well as other foreign defined benefit plans. These plans are maintained and contributions are made in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA"), local statutory law or as determined by the Board of Directors. The plans generally provide benefits based upon years of service and compensation. The Company also established arrangements for certain key employees, which provide for supplemental retirement benefits. The Company's plans are funded except for a U.S. non-qualified plan for certain key employees and certain foreign plans. Within the U.S., hourly employees of the Company who meet specific requirements as to age and length and date of service are covered by the U.S. Plan. On December 12, 2012, the Company approved a freeze on further benefit accruals under the U.S. Plan and notified the participants of the freeze on December 19, 2012. Beginning February 1, 2013, participants ceased earning additional benefits under the U.S. Plan and no new participants entered the U.S. Plan. The Company uses a December 31 measurement date for its Plan. In August 2023, the Board of Directors of the Company approved a resolution to terminate the U.S. Plan and preliminary administrative actions have been undertaken to proceed with the termination. During the fourth quarter of 2023, the Company made a $ 1.5 million contribution to the U.S. Plan. A summary of the U.S. Plan follows for the year ended December 31: 2023 2022 2021 Service cost $ — $ — $ — Interest cost 1,568 1,185 1,138 Expected return on plan assets ( 2,017 ) ( 2,455 ) ( 2,343 ) Recognized net actuarial loss 463 445 614 Net periodic pension cost (benefit) $ 14 $ ( 825 ) $ ( 591 ) Components of net pension cost (benefit), other than service cost, are included in other income, net in the Consolidated Statement of Income. The following tables set forth the changes in benefit obligations, the change in plan assets, the funded status, and amounts recognized in the consolidated financial statements for the U.S. Plan at December 31: 2023 2022 Projected benefit obligation at beginning of the year $ 29,013 $ 41,410 Interest cost 1,568 1,185 Actuarial loss (gain) 670 ( 12,185 ) Benefits paid ( 1,478 ) ( 1,397 ) Projected benefit obligation at end of year $ 29,773 $ 29,013 Fair value of plan assets at beginning of the year $ 29,632 $ 37,757 Actual return on plan assets 2,242 ( 8,859 ) Employer contributions 1,500 2,132 Benefits paid ( 1,478 ) ( 1,398 ) Fair value of plan assets at end of the year $ 31,896 $ 29,632 Pension asset $ ( 2,123 ) $ ( 619 ) 40 In 2023, in accordance with ASC 715-20, the Company recognized the over-funded status of the U.S. Plan as a non-current asset. The amount recognized in Accumulated other comprehensive loss related to the U.S. Plan at December 31 is comprised of the following: 2023 2022 Balance at January 1 $ ( 4,492 ) $ ( 5,496 ) Reclassification adjustments: Pre-tax amortized net actuarial loss 463 445 Tax benefit ( 110 ) ( 105 ) 353 340 Adjustment to recognize (loss) gain on pension asset: Pre-tax (loss) gain ( 445 ) 870 Tax benefit 106 ( 206 ) ( 339 ) 664 Balance at December 31 $ ( 4,478 ) $ ( 4,492 ) The 2023 pre-tax pension loss of $ 0.7 million was the result of a decrease in the discount rate to 5.34 % from 5.55 % in 2022. There were no changes in the mortality rate used this year, and as a result, no mortality gain or loss for the last two years. There is no prior service cost to be amortized in the future. The U.S. Plan had assets in excess of accumulated benefit obligations as follows: 2023 2022 Accumulated benefit obligation $ 29,773 $ 29,013 Fair market value of assets 31,896 29,632 Weighted-average assumptions used to determine benefit obligations at December 31: 2023 2022 Discount rate 5.34 % 5.55 % Rate of compensation increase n/a n/a Weighted-average assumptions used to determine net periodic benefit cost at December 31: 2023 2022 2021 Discount rate 5.55 % 2.92 % 2.69 % Rate of compensation increase n/a n/a n/a Expected long-term return on plan assets 7.00 % 6.50 % 6.50 % The net periodic pension cost for 2023 was based on a long-term asset rate-of-return of 7.00 %. This rate is based upon management’s estimate of future long-term rates of return on similar assets and is consistent with historical returns on such assets. At December 31, 2023 and 2022, the Plan’s pooled investment funds were measured at fair value using the net asset value ("NAV"). The NAV is based on the value of the assets owned by the plan, less liabilities. These pooled assets are not quoted on an active exchange. The fair value of the Plan assets at December 31, 2023 and 2022 was $ 31.9 million and $ 29.6 milli on, respectively. The U.S. Plan weighted-average asset allocations at December 31, 2023 and 2022, by asset category, are as follows: Plan assets at December 31 Asset category 2023 2022 Equity securities 18 % 37 % Debt securities 77 63 Cash and equivalents 5 — 100 % 100 % Management seeks to maximize the long-term total return of financial assets consistent with the fiduciary standards of ERISA. The ability to achieve these returns is dependent upon the need to accept moderate risk to achieve long-term capital appreciation. 41 In recognition of the expected returns and volatility from financial assets, U.S. Plan assets are invested in the following ranges with the target allocation noted below. The Company reassesses the target allocations periodically: Range Target Equities 10 - 30 % 20 % Fixed Income 70 - 90 % 80 % Cash Equivalents 0 - 10 % 0 % Investment in these markets is projected to provide performance consistent with expected long-term returns with appropriate diversification. The Company's policy is to fund amounts deductible for federal income tax purposes. If the U.S. Plan is not terminated, the benefits expected to be paid out of the U.S. Plan assets in each of the next five years and the aggregate benefits expected to be paid for the subsequent five years are as follows: Year Pension Benefits 2024 $ 1,521 2025 1,597 2026 1,674 2027 1,767 2028 1,852 2029-2033 10,137 Other Benefit Plans The Company also provides retirement benefits through various defined contribution plans including PLP-USA’s Profit Sharing Plan. Expense for these defined contribution plans w as $ 6.6 million in 2023, $ 6.3 million in 2022, and $ 5.8 million in 2021. The Company also provides retirement benefits through the Supplemental Profit Sharing Plan. To the extent an employee’s award under PLP-USA’s Profit Sharing Plan exceeds the maximum allowable contribution permitted under existing tax laws, the excess is accrued for (but not funded) under a non-qualified Supplemental Profit Sharing Plan. The Supplemental Profit Sharing Plan allows participant s the ability to hypothetically invest their proportionate award into various investment options, which primarily includes mutual funds. The benefit (expense) for the Supplemental Profit Sharing Plan for the year ended December 31, 2023, 2022 and 2021 was ($ 0.9 ) million, $ 1.3 million, and ($ 0.9 ) million, respectively. The Supplemental Profit Sharing Plan unfunded status for the years ended Decem ber 31, 2023 and 2022 was $ 8.2 million and $ 7.3 million, respectively, and is included in Other noncurrent liabilities . The Company also has established nonqualified foreign defined benefit plans, which provide post-employment benefits based on years of service. For the periods ending December 31, 2023 and 2022, the Company's benefit obligations related to these unfunded programs were $ 2.9 million and $ 2.1 million, respectively. During 2023, 2022 and 2021, the Company recorded benefit costs relating to these programs of $ 0.6 million, $ 0.2 million, and $ 0.3 million, respectively. Note 6 – Accumulated Other Comprehensive Income (“AOCI”) The following tables set forth the total changes in AOCI by component, net of tax: Year Ended December 31, 2023 Year Ended December 31, 2022 Cumulative Cumulative Unrecognized Translation Unrecognized Translation Benefit Cost Adjustment Total Benefit Cost Adjustment Total Balance at January 1 $ ( 4,492 ) $ ( 65,495 ) $ ( 69,987 ) $ ( 5,496 ) $ ( 56,223 ) $ ( 61,719 ) Other comprehensive income before reclassifications: Gain on foreign currency translation adjustment — 9,667 9,667 — ( 9,272 ) ( 9,272 ) (Loss) gain on pension asset ( 339 ) — ( 339 ) 664 — 664 Amounts reclassified from AOCI: Amortization of defined benefit pension actuarial loss (a) 353 — 353 340 — 340 Net current period other comprehensive income (loss) 14 9,667 9,681 1,004 ( 9,272 ) ( 8,268 ) Balance at December 31 $ ( 4,478 ) $ ( 55,828 ) $ ( 60,306 ) $ ( 4,492 ) $ ( 65,495 ) $ ( 69,987 ) (a) This AOCI component is included in the computation of net periodic pension income (costs) as noted in Note 5 – Pension Plans. 42 Note 7 – Debt and Credit Arrangements December 31, 2023 2022 Short-term debt Notes payable to banks Thailand Bhat denominated at 3.94 % $ 2,262 $ 3,119 Thailand Bhat denominated at 2.00 % — 926 Thailand Bhat denominated at 2.00 % — 181 France Euro denominated at 6.37 % 2,774 5,323 Brazil Real denominated at 5.40 % — 236 Brazil Real denominated at 15.09 % — 2,350 China Yuan Renminbi denominated at 4.50 % 1,314 5,665 Argentina Peso denominated at 37.00 % — 70 Vietnam Dong denominated at 7.30 % 18 228 Indonesia U.S. Dollar denominated at 6.82 % 600 — Current portion of long-term debt U.S. Dollar denominated at 2.74 % 2,050 2,050 Czech Republic Koruna denominated at 3.00 % 21 21 Indonesia U.S. Dollar denominated at 3.50 % 4,267 800 Czech Republic Koruna denominated at 3.69 % 94 147 Czech Republic Koruna denominated at 1.60 % 54 — Total short-term debt 13,454 21,116 Long-term debt, including current portion U.S. Dollar denominated at 6.62 %, due 2026 22,653 35,444 U.S. Dollar denominated at 2.74 %, due 2031 14,692 16,742 Brazilian Real denominated at 8.30 % due 2025 1,000 1,800 Poland Zloty denominated at 6.97 % due 2026 7,691 5,636 Australian Dollar denominated at 4.06 %, due 2026 — 1,350 Austria Euro denominated at 4.90 % due 2026 1,387 1,331 Indonesia U.S. Dollar denominated at 3.50 % due 2024 4,267 5,067 New Zealand Dollar denominated at 5.78 % due 2026 2,538 2,853 Czech Republic Koruna denominated at 3.00 % due 2025 191 226 Czech Republic Koruna denominated at 3.69 % due 2031 703 989 Czech Republic Koruna denominated at 1.60 % due 2026 160 — Total long-term debt 55,282 71,438 Less current portion ( 6,486 ) ( 3,018 ) Total long-term debt, less current portion 48,796 68,420 Total debt $ 62,250 $ 89,536 The Company maintains a credit facility (the "Facility") with a capacity of $ 90.0 million that expires March 2, 2026 . The interest rate is defined as the Secured Overnight Financing Rate (“SOFR”) plus 1.125 % unless the Company’s funded debt to Earnings before Interest, Taxes and Depreciation ratio exceeds 2.25 to 1, at which point the SOFR spread becomes 1.500 %. At December 31, 2023, the Company had utilized $ 34.3 million with $ 55.7 million available on the Facility. There were no long-term outstanding letters of credit as of December 31, 2023. Our bank debt to equity percentage was 15.0 %. The Facility contains, among other provisions, requirements for maintaining levels of net worth and profitability. At December 31, 2023, the Company was in compliance with these covenants. On January 19, 2021, the Company received funding for a term loan from PNC Equipment Finance, LLC in the principal amount of $ 20.5 million for the full amount of the purchase price for a new corporate aircraft. The term of the loan is 120 months at a fixed interest rate of 2.744 %. The loan is payable in 119 equal monthly installments , which commenced on March 1, 2021 with a final payment of any outstanding principal and accrued interest due and payable on the final monthly payment date. Of the $ 14.7 million outstanding on this debt facility at December 31, 2023, $ 2.1 million was classified as current. The loan is secured by the aircraft. The Company has other borrowing facilities at certain of its foreign subsidiaries, which consist of overdraft lines, working capital credit lines, and facilities for the issuance of letters of credit and short-term borrowing needs. At December 31, 2023, and December 31, 2022, $ 13.3 million and $ 26.1 million was outstanding, of which $ 11.4 million and $ 19.1 million were classified as current, respectively. These facilities support commitments made in the ordinary course of business. 43 The Company’s Asia-Pacific segment had $ 0.2 million in restricted cash used to secure bank debt as of December 31, 2023, and 2022, respectively. The restricted cash is shown on the Company’s Consolidated Balance Sheets in Cash, cash equivalents and restricted cash. Aggregate maturities of long-term debt during the next five years are as follows: $ 4.3 million for 2024, $ 1.2 million for 2025, $ 34.4 million for 2026, $ 0 for 2027, $ 0 for 2028, and $ 19.7 million thereafter. Interest paid was $ 3.8 million in 2023, $ 3.1 million in 2022, and $ 1.6 mil lion in 2021. Guarantees and Letters of Credit The Company has provided financial guarantees for uncompleted work and financial commitments. The terms of these guarantees v ary with end dates ranging from the current year through the completion of such transactions. The guarantees would typically be triggered in the event of non-performance. As of December 31, 2023, the Company had total outstanding guarantees of $ 14.1 million. Additionally, certain domestic and foreign customers require the Company to issue letters of credit or performance bonds as a condition of placing an order. As of December 31, 2023, the Company had total outstanding letters of credit of $ 1.0 million. Note 8 – Leases The Company regularly enters into leases in the normal course of business. As of December 31, 2023 , the leases in effect were related to land, buildings, vehicles, office equipment and other production equipment under operating leases with lease terms of up to 99 years . Some of the Company's leases include one or more renewal options, the exercise of which is generally at the Company's discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at the Company’s discretion. The Company evaluates renewal and termination options at the lease commencement date to determine if the Company is reasonably certain to exercise the option on the basis of economic factors. The weighted average remaining lease term for the Company’s operating and financing leases as of December 31, 2023 was 16.9 and 2.8 years, respectively. Lease expense is recognized for these leases on a straight-line basis over the lease term with variable lease payments recognized in the period those payments are incurred. The components of operating and finance lease costs are recognized in Costs and expenses and Interest expense, respectively, on the Company’s Consolidated Statements of Income . The Company’s operating and finance lease costs for the years ended December 31 were as follows: Year Ended December 31, 2023 2022 2021 Components of lease expense: Operating lease cost $ 2,767 $ 2,538 $ 2,870 Finance lease cost: Amortization of right-of-use assets 119 189 388 Interest on lease liabilities 17 19 13 Total lease cost $ 2,903 $ 2,746 $ 3,271 The discount rate implicit within each lease is often not determinable and, therefore, the Company establishes the discount rate based on its incremental borrowing rate. The incremental borrowing rate for the Company’s leases is determined based on lease term and currency in which lease payments are made. The weighted average discount rate used to measure the Company’s operating and finance lease liabilities as of December 31, 2023 was 5.28 % and 3.84 %, respectively. The weighted average discount rate used to measure the Company’s operating and finance lease liabilities as of December 31, 2022 was 4.73 % and 3.92 %, respectively. Future maturities of the Company’s lease liabilities as of December 31, 2023 are as follows: Year Ended December 31, 2023 Operating Leases Finance Leases 2024 $ 2,194 $ 140 2025 1,944 137 2026 1,561 79 2027 1,097 28 2028 and thereafter 7,763 — Total lease payments 14,559 384 Less amount of lease payment representing interest 4,996 19 Total present value of lease payments $ 9,563 $ 365 44 Amounts recognized as finance lease obligations are reported in Accrued expense and other liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets. The Company received sublease income of $ 0.5 million and $ 1.1 million for the years ended December 31, 2023 and 2022, respectively. Supplemental cash flow information related to leases for the years ended December 31, 2023 and 2022 was as follows: Year Ended December 31, 2023 2022 2021 Supplemental cash flow information Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows for operating leases $ 2,775 $ 2,528 $ 2,608 Operating cash flows for finance leases 17 19 13 Financing cash flows for finance leases 171 256 375 Note 9 – Income Taxes Income before income taxes was derived from the following sources: 2023 2022 2021 United States $ 57,736 $ 58,887 $ 32,570 Foreign 24,608 14,817 16,326 Total income before income taxes $ 82,344 $ 73,704 $ 48,896 The components of income taxes for the years ended December 31 are as follows: 2023 2022 2021 Current Federal $ 12,263 $ 12,529 $ 649 Foreign 6,654 7,346 5,065 State and local 2,322 2,086 917 21,239 21,961 6,631 Deferred Federal ( 1,866 ) 577 7,172 Foreign 11 ( 3,326 ) ( 75 ) State and local ( 377 ) 93 ( 553 ) ( 2,232 ) ( 2,656 ) 6,544 Income taxes $ 19,007 $ 19,305 $ 13,175 45 The differences between the provision for income taxes at the U.S. federal statutory rate and the tax shown in the Statements of Consolidated Income for the years ended December 31 are summarized as follows: 2023 2022 2021 Federal tax at statutory rate 21.0 % 21.0 % 21.0 % State and local taxes, net of federal benefit 2.2 2.2 1.5 Global intangible low-taxed income 3.6 0.9 1.6 Non-U.S. tax rate variances 2.0 ( 2.4 ) 6.0 Non-deductible officers' compensation 1.5 1.4 1.6 Valuation allowance 0.7 2.9 ( 1.5 ) Non-deductible Goodwill Impairment — 2.7 — Uncertain tax positions — 0.7 — Other Life Insurance Proceeds — ( 1.2 ) — Other U.S. federal permanent items ( 0.2 ) ( 0.1 ) 0.5 Tax credits ( 1.3 ) ( 0.3 ) ( 1.7 ) Other stock compensation ( 1.5 ) ( 0.3 ) ( 0.4 ) Foreign tax credits ( 4.5 ) ( 2.0 ) ( 2.5 ) Other, net ( 0.4 ) 0.7 0.8 Effective income tax rate 23.1 % 26.2 % 26.9 % Income tax expense for the periods ended December 31, 2023, 2022, and 2021 was $ 19.0 million, $ 19.3 million, and $ 13.2 million, respectively. The decrease in the effective tax rate from 2022 to 2023 was primarily due to the favorable impact related to increased stock compensation activity and valuation allowances recorded in 2022 that did not recur. This was offset by the unfavorable impact from the mix of income earned in jurisdictions with a higher tax rate than the U.S. It is also affected by discrete items in 2022 that did not recur including the non-deductible goodwill impairment in the Asia-Pacific region and a non-taxable benefit related to the proceeds from a settlement of a Company-owned life insurance policy. Deferred Income Tax Assets and Liabilities Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred tax assets and liabilities were as follows: 2023 2022 Deferred tax assets: Benefit plan reserves $ 6,200 $ 6,348 Research and development capitalization 5,522 1,533 Inventory valuation reserves 4,041 2,548 Net operating loss carryforwards 1,940 2,722 Accrued compensation and benefits 1,374 994 Allowance for credit losses 1,329 917 Foreign tax credit 1,018 1,153 Other accrued expenses 972 2,531 Unrealized foreign exchange 314 215 Gross deferred tax assets 22,710 18,961 Valuation allowance ( 2,567 ) ( 3,080 ) Net deferred tax assets 20,143 15,881 Deferred tax liabilities: Depreciation and other basis differences ( 13,382 ) ( 10,825 ) Intangibles ( 2,579 ) ( 3,263 ) Other ( 609 ) ( 634 ) Deferred tax liabilities ( 16,570 ) ( 14,722 ) Net deferred tax assets $ 3,573 $ 1,159 46 2023 2022 Change in net deferred tax assets: Ordinary movement $ 2,232 $ 2,656 Deferred tax balances from business acquisitions 153 ( 1,999 ) Items of other comprehensive loss 216 ( 312 ) Currency translation ( 79 ) ( 7 ) Other ( 108 ) ( 208 ) Total change in net deferred tax assets $ 2,414 $ 130 As of December 31, 2023, various international subsidiaries had gross net operating losses totaling $ 8.1 million, resulting in deferred tax assets of $ 1.9 million. Of the international net operating losses, $ 0.5 million carryforward indefinitely, while the remainder, if not utilized, will expire between 2026 and 2033 . It is more likely than not that certain net operating loss carryforwards will not be realized; therefore, we have recorded a valuation allowance of $ 1.3 million against them. The net operating loss carryforwards are subject to various annual limitations under the tax laws of the different jurisdictions. The Company considers earnings in our non-U.S. subsidiaries to be permanently reinvested and therefore did not record any associated deferred income taxes on such earnings. Accordingly, the Company intends to continue to invest approximately $ 137.3 million of such earnings, as well as our capital in these subsidiaries, indefinitely outside of the U.S. Unrecognized Income Tax Benefits The following is a tabular reconciliation of the total amounts of unrecognized tax benefits related to uncertain tax positions, excluding interest and penalties, for the year ended December 31: 2023 2022 2021 Balance at January 1 $ 482 $ — $ 66 Additions for tax positions of prior years — 482 — Settlements with tax authorities ( 72 ) — — Expiration of statutes of limitations — — ( 66 ) Balance at December 31 $ 410 $ 482 $ — The decrease in unrecognized tax benefits was related to a settlement with foreign tax authorities. The Company records accrued interest as well as penalties related to unrecognized tax benefits as part of the provision for income taxes. The accrued interest and penalties related to the gross unrecognized tax benefits, excluded from above, was de minimis in all years presented. Preformed Line Products Company and its subsidiaries file income tax return in the United States and various countries around the world. With few exceptions, the Company is no longer subject to United States federal examinations by tax authorities for years before 2019 and foreign, state, and local examinations by authorities for years before 2017. Note 10 – Share-Based Compensation 2016 Incentive Plan The Company maintains an equity award program to provide 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 Preformed Line Products Company 2016 Incentive Plan (the “Incentive Plan”) was put in place upon approval by the Company’s Shareholders at the 2016 Annual Meeting of Shareholders on May 10, 2016. Under the Incentive Plan, certain employees, officers, and directors will be eligible to receive awards of options and restricted stock units (RSUs) . The total number of Company common shares reserved for awards under the Incentive Plan is 1,000,000 of which 900,000 common shares have been reserved for RSUs and 100,000 common shares have been reserved for share options. As of December 31, 2023, 70,000 options and 507,912 RSUs have been granted under the Incentive Plan. The Incentive Plan expires on May 10, 2026 . Restricted Share Units For the regular annual grants, a portion of the RSUs is subject to time-based cliff vesting and a portion is subject to vesting based upon the Company’s performance over a set period for all participants except the CEO. All of the CEO’s regular annual RSUs are subject to vesting based upon the Company’s performance over a set-year period. 47 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. Dividends declared are accrued. A summary of the RSUs for the year ended December 31, 2023 is as follows: Restricted Share Awards Performance Total Weighted-Average and Service Service Restricted Grant-Date Required (1) Required Awards Fair Value Nonvested as of January 1, 2023 178,536 28,039 206,575 $ 61.54 Granted 46,119 11,520 57,639 88.69 Vested ( 63,767 ) ( 13,245 ) ( 77,012 ) 57.28 Forfeited ( 4,411 ) ( 2,206 ) ( 6,617 ) 74.93 Nonvested as of December 31, 2023 156,477 24,108 180,585 71.61 (1) Nonvested, performance-based RSUs are reflected above at the maximum performance achievement level. 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. Annual compensation expense related to the time-based RSUs for the years ended December 31, 2023, 2022 and 2021 was $ 0.9 million, $ 0.7 million, and $ 0.5 million, respectively. As of December 31, 2023, there was $ 0.9 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 pre-tax income and sales growth over a requisite performance period. Depending on the extent to which the performance criteria are satisfied under the Incentive Plan, the participants are eligible to earn common shares over the vesting period. Performance-based compensation expense for the years ended December 31, 2023, 2022 and 2021 was $ 3.8 million, $ 3.6 million, and $ 3.4 million, respectively. As of December 31, 2023, the remaining performance-based RSUs compensation expense of $ 4.4 million at maximum performance achievement level is expected to be recognized over a period of approximately 1.7 years. The excess tax benefits from service and performance-based RSUs wa s $ 2.6 million, $ 0.3 million, and $ 0.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. This 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 restricted shares vested in the current period. In the event of a Change in Control (as defined in the Incentive Plan), vesting of the RSUs will be accelerated and all restrictions will lapse. Nonvested performance-based awards are based on a maximum target 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 RSUs, 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. 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 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 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 December 31, 2023, 243,118 shares have been deferred and are being held by the rabbi trust. Share Option Awards The Incentive 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. Options issued to date under the Incentive Plan vest 50 % after one year following 48 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 no options granted during the year ended December 31, 2023 and 26,500 and 3,000 options granted in the years ended December 31, 2022 and 2021, respectively . The fair values for the stock options granted were estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 2022 2021 Risk-free interest rate 3.1 % 1.1 % Dividend yield 1.3 % 1.4 % Expected life (years) 5 5 Expected volatility 37.1 % 39.7 % Activity in the Company’s Incentive Plan for the year ended December 31, 2023 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, 2023 60,300 $ 57.75 Granted — — Exercised ( 37,800 ) 57.07 Forfeited — — Outstanding (vested and expected to vest) at December 31, 2023 22,500 58.89 8.0 $ 1,687 Exercisable at December 31, 2023 8,500 54.26 7.1 $ 677 There were 37,800 , 13,150 , and 7,000 stock options exercised during the years ended December 31, 2023, 2022 and 2021, respectively. The total intrinsic value of stock options exercised was $ 3.5 million, $ 0.3 million, and $ 0.2 million for the years ended December 31, 2023, 2022 and 2021, respectively. Cash received for the exercise of stock options during the year ended December 31, 2023 and 2022 was $ 2.2 million and $ 0.8 million, respectively. The Company recorded compensation expense related to the stock options currently vested of $ 0.3 million, $ 0.3 million and $ 0.2 million during the years ended December 31, 2023, 2022 and 2021, respectively. The total compensation cost related to nonvested awards not yet recognized at December 31, 2023 is expected to be $ 0.2 million over a weighted-average period of approximately 1.5 years. The excess tax benefits from share-based awards for the year ended December 31, 2023 was $ 2.4 million. The excess tax benefits from share-based awards for each of the years ended December 31, 2022 and 2021 was less than $ 0.1 million. This 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 options exercised in the current period. Note 11 – 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 shares that were outstanding during the years presented. 49 The calculation of basic and diluted earnings per share for the year ended December 31 was as follows: 2023 2022 2021 Numerator Net income $ 63,332 $ 54,395 $ 35,729 Denominator Determination of shares (in thousands) Weighted-average common shares outstanding 4,920 4,931 4,907 Dilutive effect – share-based awards 77 68 63 Diluted weighted-average common shares outstanding 4,997 4,999 4,970 Earnings per common share Basic $ 12.87 $ 11.03 $ 7.28 Diluted $ 12.68 $ 10.88 $ 7.19 For the year ended December 31, 2023, 2022 and 2021, zero , 31,500 , and 13,000 stock options, respectively, were excluded from the calculation of diluted earnings per share as the effect would have been anti-dilutive. Note 12 – Goodwill and Other Intangibles The Company’s finite and indefinite-lived intangible assets consist of the following: December 31, 2023 December 31, 2022 Gross Carrying Accumulated Gross Carrying Accumulated Amount Amortization Amount Amortization Finite-lived intangible assets Patents $ 4,806 $ ( 4,806 ) $ 4,806 $ ( 4,806 ) Land use rights 1,109 ( 307 ) 1,175 ( 414 ) Trademark 1,988 ( 1,682 ) 1,963 ( 1,576 ) Technology 7,104 ( 3,738 ) 6,950 ( 3,189 ) Customer relationships 19,240 ( 10,733 ) 18,637 ( 9,464 ) $ 34,247 $ ( 21,266 ) $ 33,531 $ ( 19,449 ) Indefinite-lived intangible assets Goodwill $ 29,497 $ 28,004 The aggregate amortization expense for other intangibles with finite lives, ranging from 1 to 67 years, for the years ended December 31, 2023, 2022 and 2021 wa s $ 1.8 , $ 2.2 million, and $ 1.9 million, respectively. Amortization expense is estimated to be $ 1.8 million for 2024, $ 1.6 million for 2025, and $ 1.5 million for 2026, 2027 and 2028. The weighted-average remaining amortization period is approximately 11.8 years. The weighted-average remaining amortization period by intangible asset class; land use rights, 52.8 years; trademark, 14.3 years; technology, 7.1 years and customer relationships, 9.8 years. The Company may use both quantitative and qualitative approaches when testing goodwill for impairment. For selected reporting units where the qualitative approach is utilized, a qualitative evaluation of events and circumstances impacting the reporting unit is performed to determine if it is more likely than not that the fair value of the reporting unit exceeds its carrying amount. If that 50 determination is made, no further evaluation is necessary. Otherwise, the Company performs a quantitative impairment test on the reporting unit. For the quantitative approach, the Company uses a combination of the income approach, which uses a discounted cash flow methodology, and the market approach, which uses comparable market multiples 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. The fair value estimates are subjective and sensitive to significant assumptions, such as revenue growth rates, operating margins, the WACC, and estimated market multiples, of which are affected by expectations of future market or economic conditions. The Company believes that the methodologies, significant assumptions, and weightings used are reasonable and result in appropriate fair values of the reporting units. There were no impairment charges recorded in 2023. Based on the interim impairment assessment performed as of September 30, 2022, the Asia-Pacific reporting unit’s carrying value exceeded its fair value by more than the carrying amount of goodwill, which was caused by both a reduction in forecasted results and an increase in the weighted average cost of capital due to rising interest rates. As a result, the Company recognized a non-cash impairment charge of $ 6.5 million as of September 30, 2022. This charge was identified separately in the consolidated income statement and impacted income from operations. Total combined goodwill for the remaining reporting units was $ 29.5 million as shown in the following table: USA The Americas EMEA Asia-Pacific Total Balance at January 1, 2022 $ 3,078 $ 4,244 $ 13,561 7,311 $ 28,194 Acquisitions — $ 5,068 $ 2,455 — 7,523 Impairments — — — ( 6,529 ) ( 6,529 ) Currency translation — 285 ( 687 ) ( 782 ) ( 1,184 ) Balance at December 31, 2022 3,078 9,597 15,329 — 28,004 Acquisitions — 387 — — 387 Currency translation — 598 508 — 1,106 Balance at December 31, 2023 $ 3,078 $ 10,582 $ 15,837 $ — $ 29,497 Impairment assessments inherently involve management judgments regarding a number of assumptions such as those described above. Due to the multiple variables inherent in arriving at the estimates of the reporting unit's fair value, differences in assumptions could have an effect on the estimated fair value of a reporting unit and could result in goodwill impairment charges in a future period. The Company’s only intangible asset with an indefinite life is goodwill. The Company’s goodwill is not deductible for tax purposes. Note 13 – Fair Value of Financial Assets and Liabilities The Company measures and records certain assets and liabilities at fair value. A fair value hierarchy is used for those assets and liabilities measured at fair value that distinguishes between assumptions based on market data (observable inputs), and the Company’s assumptions (unobservable inputs). The hierarchy consists of the following three levels: Level 1 Inputs – Quoted market prices in active markets for identical assets or liabilities. Level 2 Inputs – Observable market-based inputs or unobservable inputs that are corroborated by market data. Level 3 Inputs – Unobservable inputs that are not corroborated by market data. 51 The following table summarizes the Company’s assets and liabilities, recorded and measured at fair value, in the consolidated balance sheets as of December 31, 2023 and 2022: Description Balance as of December 31, 2023 Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Foreign currency forward contracts $ 158 $ — $ 158 $ — Total Assets $ 158 $ — $ 158 $ — Liabilities: Foreign currency forward contracts $ — $ — $ — $ — Supplemental profit sharing plan $ 8,222 — 8,222 — Total Liabilities $ 8,222 $ — $ 8,222 $ — Description Balance as of December 31, 2022 Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Assets: Foreign currency forward contracts $ 548 $ — $ 548 $ — Total Assets $ 548 $ — $ 548 $ — Liabilities: Foreign currency forward contracts 81 — 81 — Supplemental profit sharing plan $ 7,299 $ — 7,299 $ — Total Liabilities $ 7,380 $ — $ 7,380 $ — The Company operates internationally and enters into intercompany transactions denominated in foreign currencies. Consequently, the Company is subject to market risk arising from exchange rate movements between the dates foreign currency transactions occur and the dates they are settled. The Company currently uses foreign currency forward contracts to reduce the risk related to some of these transactions. These contracts usually have maturities of 90 days or less and generally require an exchange of foreign currencies for U.S. dollars at maturity at rates stated in the contracts. These contracts are not designated as hedging instruments under U.S. GAAP. Accordingly, the changes in the fair value of the foreign currency forward contracts are recognized in each accounting period in “Other operating expense - net” on the Consolidated Statements of Income together with the transaction gain or loss from the related balance sheet position. For the twelve months ended December 31, 2023 and 2022, the Company recognized net los ses of $ 0.7 million and $ 0.1 mi llion, respectively, on foreign currency forward contracts. The gains and losses on foreign currency forward contracts are recorded in Other operating expense, net on the Company’s Statement of Consolidated Income. The Company has a non-q ualified Supplemental Profit Sharing Plan for its executives. The liability for this unfunded Supplemental Profit Sharing Plan was $ 8.2 million at December 31, 2023 and $ 7.3 million at December 31, 2022. These amounts are recorded within Other noncurrent liabilities on the Company’s Consolidated Balance Sheets. The Supplemental Profit Sharing Plan allows participants the ability to hypothetically inve st their proportionate award into various investment options, which primarily includes mutual funds. The Company credits earnings, gains and losses to the participants’ deferred compensation account balances based on the investments selected by the participants. The Company measures the fair value of the Supplemental Profit Sharing Plan liability using the market values of the participants’ underlying investment accounts. The carrying value of the Company’s current financial instruments, which include cash, cash equivalents and restricted cash, accounts receivable, accounts payable and short-term debt, approximates fair value because of the short-term maturity of these instruments. At December 31, 2023, 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 that are considered to be Level 2 inputs . Based on the analysis performed, the fair value and the carrying value of the Company’s long-term debt are as follows: 52 December 31, 2023 December 31, 2022 Fair Value Carrying Value Fair Value Carrying Value Long-term debt and related current maturities $ 51,786 $ 55,282 $ 68,054 $ 71,438 Note 14 – Revenue Revenue recognition Sales are recognized when obligations under the terms of the contract are satisfied and control of promised goods or services have transferred to our customers. Control is transferred when the customer has the ability to direct the use of and obtain benefits from the goods or services and is primarily based on shipping terms. Sales are measured as the amount of consideration the Company expects to receive in exchange for transferring products. Net sales include products and shipping and handling charges, net of estimates for product returns. The Company estimates product returns based on historical return rates. Revenue for shipping and handling charges are recognized at the time the products are shipped to, delivered to or picked up by the customer. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Payment terms vary by the type and location of the customer and the products or services offered. Generally, the time between when revenue is recognized, and payment is due is not significant. Sales, value added, and other taxes collected concurrent with revenue are excluded from sales. PLP records reductions to sales for returns, and customer and distributor incentives, primarily comprised of rebates, at the time of the initial sale. Rebates are estimated based on sales terms, historical experience, trend analysis, and projected market conditions in the various markets served. Sales commissions are expensed when the amortization period is less than a year and are generally not capitalized as they are typically earned at the completion of the contract when the customer is invoiced or when the customer pays PLP. Sales of products and services varies by segment and are discussed in Note 15, "Segment Information". Disaggregated revenue The following table presents the Company’s revenues disaggregated by segment and product type: Year Ended December 31, 2023 Product Type PLP-USA The Americas EMEA Asia-Pacific Consolidated Energy 63 % 74 % 52 % 73 % 64 % Communications 33 % 24 % 44 % 3 % 29 % Special Industries 4 % 2 % 4 % 24 % 7 % Total 100 % 100 % 100 % 100 % 100 % Year Ended December 31, 2022 Product Type PLP-USA The Americas EMEA Asia-Pacific Consolidated Energy 53 % 70 % 62 % 73 % 59 % Communications 43 % 28 % 28 % 2 % 33 % Special Industries 4 % 2 % 10 % 25 % 8 % Total 100 % 100 % 100 % 100 % 100 % Credit losses for receivables The Company maintains an allowance for credit losses for estimated losses resulting from the inability of its customers to make required payments. The Company uses a current expected credit loss model in order to immediately recognize an estimate of credit losses that are expected to occur over the life of the financial instruments, mainly trade receivables. Additionally, the allowance is based upon identified delinquent accounts, customer payment patterns and other analyses of historical data trends. Receivable balances are written off against an allowance for credit losses after a final determination has been made. The change in the allowance for credit losses includes expense and net write-offs, which are identified in the following table: 53 2023 2022 2021 Allowance for credit losses, beginning of period $ 5,021 $ 3,091 $ 2,848 Additions charged to costs and expenses 3,250 2,108 931 Write-offs ( 218 ) ( 122 ) ( 435 ) Foreign exchange and other 207 ( 56 ) ( 253 ) Allowance for credit losses, end of period $ 8,260 $ 5,021 $ 3,091 Note 15 – Segment Information The Company reports its segments in four geographic regions: PLP-USA, The Americas, EMEA (Europe, Middle East & Africa) and Asia-Pacific in accordance with accounting standards codified in FASB ASC 280, “Segment Reporting”. Each segment distributes a full range of the Company’s primary products. The PLP-USA segment is comprised of U.S. operations manufacturing the Company’s traditional products primarily supporting domestic energy, telecommunications and solar products. The other three segments, The Americas, EMEA and Asia-Pacific support the Company’s 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 their entire segment for which they are responsible. The business components within each segment are managed to maximize the results of the entire company rather than the results of any individual business component of the segment. The amount of each segment’s performance reported to the chief operating decision maker is for purposes of making decisions about allocating resources to the segment and assessing its performance. The Company evaluates segment performance and allocates resources based on several factors primarily based on sales and income from continuing operations, net of tax. The accounting policies of the operating segments are the same as those described in Note 1. We have one customer accounting for 11.6 % of the Company’s consolidated revenue. In certain circumstances, PLP-USA performs all manufacturing and shipping activity to US-based entities on behalf of EMEA, where the sales order is recorded. These sales and related profits have been reclassified for segment purposes only from EMEA to PLP-USA. The following table presents a summary of the Company’s reportable segments for the years ended December 31, 2023, 2022 and 2021. Financial results for the PLP-USA segment include the elimination of all segments’ intercompany profits in inventory. 54 Year Ended December 31, 2023 2022 2021 Net sales PLP-USA $ 378,563 $ 366,819 $ 257,602 The Americas 86,059 85,200 70,732 EMEA 102,130 96,126 95,922 Asia-Pacific 102,927 88,876 93,161 Total net sales $ 669,679 $ 637,021 $ 517,417 Intersegment sales PLP-USA $ 9,350 $ 9,081 $ 6,176 The Americas 16,345 17,915 9,486 EMEA 8,531 3,280 2,784 Asia-Pacific 23,750 33,652 21,610 Total intersegment sales $ 57,976 $ 63,928 $ 40,056 Interest income PLP-USA $ — $ — $ — The Americas 1,615 534 138 EMEA 125 82 4 Asia-Pacific 71 15 27 Total interest income $ 1,811 $ 631 $ 169 Interest expense PLP-USA $ ( 1,991 ) $ ( 1,138 ) $ ( 665 ) The Americas ( 255 ) ( 678 ) ( 368 ) EMEA ( 899 ) ( 664 ) ( 309 ) Asia-Pacific ( 760 ) ( 734 ) ( 681 ) Total interest expense $ ( 3,905 ) $ ( 3,214 ) $ ( 2,023 ) Income taxes PLP-USA $ 12,342 $ 15,285 $ 8,185 The Americas 3,022 3,218 3,250 EMEA 1,670 1,918 1,492 Asia-Pacific 1,973 ( 1,116 ) 248 Total income taxes $ 19,007 $ 19,305 $ 13,175 Net income attributable to Preformed Line Products Company shareholders PLP-USA $ 45,392 $ 45,194 $ 24,384 The Americas 5,755 11,420 8,351 EMEA 5,796 1,379 3,715 Asia-Pacific 6,389 ( 3,598 ) ( 721 ) Total net income $ 63,332 $ 54,395 $ 35,729 55 2023 2022 2021 Expenditure for long-lived assets PLP-USA $ 25,317 $ 31,012 $ 12,750 The Americas 4,861 3,702 1,289 EMEA 2,849 2,247 2,785 Asia-Pacific 2,305 3,637 1,560 Total expenditures for long-lived assets $ 35,332 $ 40,598 $ 18,384 Depreciation and amortization PLP-USA $ 9,270 $ 7,104 $ 6,195 The Americas 2,702 2,452 1,855 EMEA 3,493 3,354 3,146 Asia-Pacific 3,449 3,520 4,368 Total depreciation and amortization $ 18,914 $ 16,430 $ 15,564 As of December 31, 2023 2022 Identifiable assets PLP-USA $ 256,508 $ 229,751 The Americas 111,056 108,560 EMEA 119,741 118,805 Asia-Pacific 115,846 111,363 $ 603,151 $ 568,479 Long-lived assets PLP-USA $ 125,035 $ 95,673 The Americas 24,618 20,539 EMEA 20,780 19,764 Asia-Pacific 37,459 39,035 Total long-lived assets $ 207,892 $ 175,011 Note 16 – Related Party Transactions The Company’s Czech Republic subsidiary leases a factory at its Prostějov, Czech Republic location from a company currently owned by two current employees. During each of the years ended December 31, 2023, 2022 and 2021, the Company paid $ 0.3 million in lease expenses. The lease term is for 10 years from its original effective date of April 1, 2019. During each year of the years ended December 31, 2023, 2022 and 2021, the Company paid app roximately $ 0.2 million, $ 0.1 million and $ 0.1 million, respectively, in legal fees to Baker & Hostetler LLP, of which Steven Kestner, a member of our Board of Directors, is a Partner. On October 28, 2020, the Board of the Directors of the Company approved the appointment of David C. Sunkle to serve on its Board of Directors effective upon his retirement at December 31, 2020 for a term commencing January 1, 2021 and ending in 2024. In addition, Mr. Sunkle has a consulting agreement with the Company that expires on December 31, 2025 . Note 17 – Acquisitions of Businesses Acquisition of Pilot Plastics On February 1, 2023, the Company acquired substantially all of the assets of Pilot Plastics, headquartered in Akron, Ohio. Pilot Plastics is an injection molding manufacturer and the acquisition expanded the Company's injection molding capabilities and further enhanced the Company's domestic manufacturing footprint. The purchase price was approximatel y $ 13.8 million, net of cash as of the closing date. The purchase price is subject to a holdback of approximately $ 1.7 million. To fund the Pilot Plastics acquisition, the Company borrowed on the Facility. The acquisition of Pilot Plastics is accounted for using the acquisition method of accounting, which requires the assets acquired and liabilities assumed to be recognized at their respective fair values on the acquisition date. The process of estimating the fair values 56 of certain tangible assets, and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. The table below summarizes the fair values of the assets acquired and liabilities assumed on the acquisition date, inclusive of the preliminary measurement period adjustments recorded as of December 31, 2023, which were not material. The measurement period remains open and future adjustments are not expected to have a material impact to the Consolidated Statements of Income. Adjusted Preliminary Allocation Accounts receivable $ 970 Inventory 585 Property, plant and equipment and other assets 13,628 Accounts payable ( 1,299 ) Other current liabilities ( 71 ) Total identifiable net assets 13,813 Total consideration, net of cash received $ 13,813 Due to the consideration transferred equaling the fair value of the assets acquired, no residual goodwill was recognized. From the date of the acquisition through December 31, 2023, the Company’s consolidated financial statements included Pilot Plastics sales of approximatel y $ 6.7 milli on and are reported in the PLP-USA segment. Acquisition of Delta Conectores , S.A. de C.V. On October 3, 2022, the Company acquired Delta Conectores, S.A. de C.V. ("Delta"), a Mexico entity headquartered in Aguascalientes, Mexico, from its shareholders. Delta designs and manufactures substation connector systems and accessory hardware for high voltage AC systems in Mexico. The acquisition of Delta expanded the Company's operational and technical capabilities in the region while supporting its overall substation strategy. The purchase price was $ 3.3 million, net of cash received, subject to a holdback of $ 0.6 million. The acquisition of Delta has been accounted for using the acquisition method of accounting, which requires the assets acquired and liabilities assumed to be recognized at their respective fair values on the acquisition date. The process of estimating the fair values of certain tangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. The fair value of t he identifiable net assets acquired was $ 2.9 million. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Delta. The goodwill recognized of $ 0.4 million is not deductible for tax purposes. All measurement period adjustments were completed within a year from the acquisition date, and such adjustments did not have a material impact on the Company's results of operations and financial position. Acquisition of Holplast, s.r.o. On March 1, 2022, the Company acquired all issued and outstanding shares of Holplast, s.r.o (“Holplast”), an entity headquartered in Prostějov , Czech Republic, from its shareholder. Holplast specializes in injection molding and the acquisition expanded the Company’s operational capabilities in the region and strengthens the Company’s position in the global communications market. The purchase price was approximately $ 5.3 million with a holdback of $ 0.8 million, inclusive of cash and debt. The acquisition of Holplast has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values on the acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. During the measurement period, opening balance sheet adjustments were made to finalize the fair value estimates based on the final valuations received, which are summarized in the table below. 57 Final Allocation Cash $ 907 Accounts receivable 452 Inventory 308 Prepaid expenses and other current assets 7 Property, plant and equipment and other assets 2,981 Accounts payable ( 296 ) Other current liabilities ( 95 ) Other non-current liabilities ( 1,452 ) Total identifiable net assets 2,812 Goodwill 2,475 Total consideration, net of cash received $ 5,287 Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Holplast. Other non-current liabilities assumed is mainly comprised of long-term debt totaling approximately $ 1.1 million at a rate of 3.21 % with terms expiring between May 2023 and December 2030 . The goodwill recognized of $ 2.5 million is not deductible for tax purposes. All measurement period adjustments were completed within a year from the acquisition date, and such adjustments did not have a material impact on the Company's results of operations and financial position. Acquisition of Maxxweld Conectores Electricos Ltda. On January 4, 2022, the Company acquired Maxxweld Conectores Eletricos Ltda. ("Maxxweld"), a Brazilian entity headquartered in Curitiba, Brazil, from its shareholders. Maxxweld designs and manufactures substation connector systems and accessory hardware for high voltage AC systems. The acquisition of Maxxweld expands and strengthens the Company's operational and technical capabilities in the region while supporting its overall substation strategy. The purchase price was approximately $ 11.2 million, net of cash received, as of the closing date. The purchase price is subject to a holdback of approximately $ 1.8 million. The acquisition of Maxxweld has been accounted for using the acquisition method of accounting which requires the assets acquired and liabilities assumed be recognized at their respective fair values on the acquisition date. The process of estimating the fair values of certain tangible assets, identifiable intangible assets and assumed liabilities requires the use of judgment in determining the appropriate assumptions and estimates. During the measurement period, opening balance sheet adjustments were made to finalize the fair value estimates based on the final valuations received, which are summarized in the table below. Final Allocation Accounts receivable $ 2,132 Inventory 1,367 Prepaid expenses and other current assets 41 Equipment and other assets 725 Other intangible assets 4,359 Accounts payable ( 599 ) Other current liabilities ( 322 ) Other non-current liabilities ( 1,561 ) Total identifiable net assets 6,142 Goodwill 5,068 Total consideration, net of cash received $ 11,210 Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the anticipated synergies of acquiring Maxxweld. As a result of the acquisition, goodwill of $ 5.1 million recognized is not deductible for tax purposes. Other intangible assets of $ 4.4 million include customer relationships, tradenames and backlog. The preliminary estimated fair values of the customer relationships, trademarks and backlog were $ 4.0 million, $ 0.2 million and $ 0.2 million, respectively, were determined using either the relief-from-royalty model or the multi-period excess earnings model, which are discounted cash flow models that rely on the Company's estimates. These estimates require judgment of future revenue growth rates, future margins, and the applicable weighted-average cost of capital used to discount those estimated cash flows. The weighted-average cost of capital is an estimate of the overall after-tax rate of return required by equity and debt market holders of a business enterprise. The estimated useful lives for customer relationships, trademarks and backlog were 15 years, 20 years, and 1 year, respectively. See Note 12 for additional information about goodwill and other intangible assets. 58 All measurement period adjustments were completed within a year from the acquisition date, and such adjustments did not have a material impact on the Company's results of operations and financial position. Note 18 – Exit of Russian Operations Due to the ongoing conflict in Ukraine and overt hostilities shown by Russia in the conflict, the Company decided to exit its Russian operations in March 2022, which was completed during the third quarter of 2022. The Russian operations did not have a material impact to the consolidated financial statements with net sales of $ 0.3 million for the twelve months ended December 31, 2022, and $ 1.0 million for the twelve months ended December 31, 2021, respectively. As a result of the decision to exit operations, net charges of approximately $ 1.0 million were recorded for the twelve months ended December 31, 2022, mainly as a result of asset impairments and one-time termination benefits. These impacts were included in Cost of products sold, General and administrative expense, or Other income, net, as appropriate. In Note 15 – Segment Information, these charges are recorded in the EMEA segment. 59 Item 9. Changes in and Disagreements with Acco untants on Accounting and Financial Disclosure None.