PREFORMED LINE PRODUCTS CO 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the readers of our consolidated financial statements better understand our results of operations, financial condition and present business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, our unaudited consolidated financial statements and related notes included elsewhere in this report. The MD&A is organized as follows: • Overview • Preface • Results of Operations • Application of Critical Accounting Policies and Estimates • Working Capital, Liquidity and Capital Resources • Recently Adopted Accounting Pronouncements • New Accounting Standards to be Adopted 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 also provide solar hardware systems, mounting hardware for a variety of solar power applications, and fiber optic and copper splice closures. PLPC is 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, manufacturing, 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 30 sales and manufacturing operations in 22 different countries. We report our segments in four geographic regions: PLP-USA (including corporate), The Americas (includes operations in North and South America without PLP-USA), EMEA (Europe, Middle East & Africa) and Asia-Pacific, in accordance with accounting standards codified in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 280, Segment Reporting. Each segment distributes a full range of our primary products. Our PLP-USA segment is comprised of our U.S. operations manufacturing our traditional products primarily supporting our domestic energy, communications and special industries products. Our other three segments, The Americas, EMEA and Asia-Pacific, support our energy, communications and special industries 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 Company rather than the results of any individual business component of the segment. We evaluate segment performance and allocate resources based on several factors primarily based on sales and net income. PREFACE Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (GAAP). Our discussions of the financial results include non-GAAP measures (e.g., foreign currency impact) to provide additional information concerning our financial results and provide information that we believe is useful to the readers of our consolidated financial statements in the assessment of our performance and operating trends. The following discussion describes our results of operations for the three and six month periods ended June 30, 2021. The first quarter of 2020 saw the initial global outbreak of a novel strain of coronavirus (“COVID-19”), which in the latter part of that quarter created significant global economic disruption. While the outbreak did not have a material impact on our results for those prior year, it created challenges for us in countries that were the earliest to be impacted by the pandemic, namely countries in our Asia-Pacific business segment. 21 As the virus spread, we took action to protect the health and safety of our employees while we maintained critical operations to protect our customers and suppliers. M any of our customers are considered “essential” and remained open for business, although in a limited capacity in some cases , which slowed demand into the second and third quarter of 2020 year , most notably for specific customers in our Asia Pacific segment . O ur North American plants have remained fully operational and only some of our international plants were closed temporarily. During the quarter ended June 30, 2021, the resurgence of COVID-19 and the Delta variant has resulted in new temporary closure requirements, primarily in our Asia Pacific segment. There have been some restrictions to the supply of products since the pandemic began and, during the quarter ended June 30, 2021, we experienced significant raw material and transportation cost inflation that negatively affected our earnings. To offset these increased costs, we announced price increases in June 2021, but due to our order backlog, these price increases had a limited effect in offsetting increased costs during the second quarter. Continued cost inflation in these areas through the second half of 2021 may require further price adjustments going forward to maintain profit margin, and any price increases may have a negative effect on demand. We may experience other potential price increases globally and restrictions on operations may continue or expand to other regions, however, we believe that our global supply chain currently remains strong. Due to the continued uncertainty created by COVID-19, restrictions on our operations, the operations of our customers and the global supply chain, we are continuing to actively monitor the impact of COVID-19 on current and future periods and actively manage costs and our liquidity position to provide additional flexibility while still supporting our customers and their specific needs. We have reduced and may continue to reduce operating expenses and could continue to experience lower variable SG&A, primarily through a decrease in travel-related expenses incurred by our associates due to travel restrictions in place. While we expect that the COVID-19 outbreak will continue to have an adverse impact on our business, the businesses of our customers and the global economy, we cannot predict the duration or scope of the COVID-19 pandemic or the magnitude of its impact on our business and results of operations. In addition, the impact of COVID-19 could potentially exacerbate other risks discussed, any of which could have a material adverse effect on the Company. We continue to assess all challenges related to COVID-19 and plan accordingly. The extent of any future impact is dependent upon several factors including those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”) on March 5, 2021. Our consolidated financial statements are subject to fluctuations in the exchange rates of foreign currencies in relation to the U.S. dollar. As foreign currencies strengthen against the U.S. dollar, our sales and costs increase as the foreign currency-denominated financial statements translate into more U.S. dollars, and, conversely, when foreign currencies weaken, our sales and costs decrease upon translation into U.S. dollars. The fluctuations of foreign currencies during the three months ended June 30, 2021 had a $6.2 million favorable effect on net sales when compared to the same period in 2020. There was a $.3 million favorable effect on net income for the three months ended June 30, 2021 as compared to the same period in 2020. On a reportable segment basis, the impact of foreign currency on net sales and net income for the three and six-month periods ended June 30, 2021 was as follows: Foreign Currency Translation Impact (Thousands of dollars) Net Sales Net Income Three Months Six Months Three Months Six Months The Americas $ 797 $ (1,006 ) $ 152 $ 104 EMEA 3,106 4,789 170 287 Asia-Pacific 2,271 4,176 (29 ) (69 ) Total $ 6,174 $ 7,959 $ 293 $ 322 The operating results for the three months ended June 30, 2021 are compared to the same period in 2020. Net sales for the three months ended June 30, 2021 of $133.0 million increased $15.4 million, or 13%, compared to 2020. As a percentage of net sales, gross profit decreased to 32.4% in 2021 from 33.6% in 2020. Gross profit for the three-month periods ended June 30, 2021 and 2020 was $43.0 million and $39.6 million, respectively. Excluding the favorable impact of foreign currency translation, gross profit increased $1.9 million, or 4%, compared to 2020. Costs and expenses of $30.3 million increased $5.5 million compared to 2020 and included an unfavorable impact from currency translation of $1.5 million. Operating income for the three months ended June 30, 2021 was $12.7 million, a decrease of $2.1 million compared to 2020. Net income for the three months ended June 30, 2021 of $8.9 million decreased $1.6 million compared to the three months ended June 30, 2020. The effect of currency translation had favorable impacts of $.4 million and $.3 million on operating income and net income, respectively. The operating results for the six months ended June 30, 2021 are compared to the same period in 2020. Net sales for the six months ended June 30, 2021 of $250.6 million increased $30.1 million, or 14%, compared to 2020. As a percentage of net sales, gross profit increased to 33.2% in 2021 from 32.9% in 2020. Gross profit for the six-month periods ended June 30, 2021 and 2020 was $83.2 22 million and $ 72.5 million, respectively. Excluding the favorable impact of foreign currency translation, gross profit increased $ 8.3 million, or 11 %, compared to 2020. Costs and expenses of $ 59.7 million increased $ 6.7 million compared to 2020 and included a n un favorable impact from currency translation of $ 2. 0 million. Operating income for the six months ended June 30, 2021 was $ 23.5 million, an increase of $ 4.1 million compared to 2020. Net income for the six months ended June 30, 2021 of $ 16. 1 million increased $ 1.9 million compared to the six months ended June 30, 2020. The effect of currency translation had favorable impacts of $. 5 million and $.3 million on o perating income and net income , respectively . The following table reflects the impact of foreign currency fluctuations on operating income for the three and six-month periods ended June 30, 2021 and 2020: Foreign Currency Impact Three Months Ended June 30 Six Months Ended June 30 (Thousands of dollars) 2021 2020 2021 2020 Operating income $ 12,738 $ 14,807 $ 23,506 $ 19,451 Translation gain (429 ) 0 (469 ) 0 Transaction (gain) loss (441 ) (400 ) 173 1,392 Net loss (gain) on forward currency contracts 1,266 221 938 (904 ) Operating income excluding currency impact $ 13,134 $ 14,628 $ 24,148 $ 19,939 Despite the constant changes in the current global economy, and aside from the uncertainty created by the COVID-19 outbreak, we believe our business fundamentals and our financial position are sound and that we are strategically well-positioned. We remain focused on assessing our business structure, global facilities and overall capacity in conjunction with the requirements of local manufacturing in the markets that we serve. The growth in PLP-USA net sales will require additional investment to be made 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 beginning in the quarter ended December 31, 2022. If necessary, we will modify redundant processes and further utilize our global manufacturing network to manage costs, increase sales volumes and deliver value to our customers. We have continued to invest in the business to expand into new markets for the Company, improve efficiency, develop new products, increase our capacity and become an even stronger supplier to our customers. We currently have a bank debt to equity ratio of 20.9% and have the continued ability borrow needed funds at a competitive interest rate under our credit facility. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2021 COMPARED TO THREE MONTHS ENDED JUNE 30, 2020 The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the three months ended June 30, 2021 and 2020. The Company’s past operating results are not necessarily indicative of future operating results. Three Months Ended June 30 (Thousands of dollars) 2021 2020 Change Net sales $ 133,038 100.0% $ 117,629 100.0% $ 15,409 Cost of products sold 89,999 67.6 78,063 66.4 11,936 GROSS PROFIT 43,039 32.4 39,566 33.6 3,473 Costs and expenses 30,301 22.8 24,759 21.0 5,542 OPERATING INCOME 12,738 9.6 14,807 12.6 (2,069 ) Other expense, net (161 ) (0.1) (922 ) (0.8) 761 INCOME BEFORE INCOME TAXES 12,577 9.5 13,885 11.8 (1,308 ) Income tax expense 3,686 2.8 3,397 2.9 289 NET INCOME 8,891 6.7 10,488 8.9 (1,597 ) Net adjustment attributable to noncontrolling interests (22 ) (0.0) (7 ) (0.0) (15 ) NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS $ 8,869 6.7% $ 10,481 8.9% $ (1,612 ) 23 Net sales. Net sales were $133.0 million for the three months ended June 30, 2021, an increase of $15.4 million, or 13%, from the three months ended June 30, 2020. Excluding the favorable effect of currency translation, net sales for the three months ended June 30, 2021 increased $9.2 million compared to the same period in 2020, or 8%, as summarized in the following table: Three Months Ended June 30 (Thousands of dollars) 2021 2020 Change Change Due to Currency Translation Change Excluding Currency Translation % change Net sales PLP-USA $ 62,087 $ 53,966 $ 8,121 $ 0 $ 8,121 15 % The Americas 18,625 17,486 1,139 797 342 2 EMEA 27,352 21,048 6,304 3,106 3,198 15 Asia-Pacific 24,974 25,129 (155 ) 2,271 (2,426 ) (10 ) Consolidated $ 133,038 $ 117,629 $ 15,409 $ 6,174 $ 9,235 8 % The year-over-year increase in PLP-USA net sales of $8.1 million, or 15%, was primarily due to a volume increase in communication product sales. International net sales for the three months ended June 30, 2021 experienced a favorable impact of $6.2 million when local currencies were converted to U.S. dollars. The following discussion of net sales excludes the effect of currency translation. The Americas net sales of $18.6 million increased $.3 million, or 2%, primarily due to a volume increase in communication product sales. EMEA net sales of $27.4 million increased $3.2 million, or 15%, primarily due to a volume increase in communication product sales within the region. Asia-Pacific net sales of $25.0 million decreased $2.4 million, or 10%, compared to 2020 primarily due to a volume decrease in energy products, and partially resulting from the continuing effects of the disruption to the global economy caused by the COVID-19 pandemic. Gross profit. Gross profit was $43.0 million and $39.6 million for the three-month periods ended June 30, 2021 and 2020, respectively. Excluding the favorable effect of currency translation, gross profit increased $1.6 million, or 4%, as summarized in the following table: Three Months Ended June 30 (Thousands of dollars) 2021 2020 Change Change Due to Currency Translation Change Excluding Currency Translation % change Gross profit PLP-USA $ 22,826 $ 20,370 $ 2,456 $ 0 $ 2,456 12 % The Americas 5,892 5,876 16 327 (311 ) (5 ) EMEA 8,325 7,641 684 988 (304 ) (4 ) Asia-Pacific 5,996 5,679 317 585 (268 ) (5 ) Consolidated $ 43,039 $ 39,566 $ 3,473 $ 1,900 $ 1,573 4 % PLP-USA gross profit of $22.8 million increased $2.5 million compared to the same period in 2020 mainly as a result of increased sales volume of $8.1 million combined with a product sales mix shift to higher margin product and continued cost containment within labor and manufacturing expense, offsetting the negative impact of rising commodity prices and inflation. International gross profit for the three months ended June 30, 2021 was favorably impacted by $1.9 million when local currencies were translated to U.S. dollars. The following discussion of gross profit excludes the effects of currency translation. The Americas gross profit decrease of $.3 million was primarily the result of relatively flat year-over-year sales in the region combined with an unfavorable shift in sales product mix. Despite an increase in sales of $3.2 million, EMEA’s gross profit decreased $.3 million, mainly due to margin pressure associated with rising commodity prices and inflation. Asia-Pacific’s gross profit decrease was the result of a year-over-year reduction in sales of $2.4 million combined with commodity price increases, partially mitigated by ongoing cost containment initiatives to mitigate the continued effects of the COVID-19 pandemic. 24 C osts and expenses. Costs and expenses of $ 30.3 million for the three months ended June 30 , 2021 in creased $ 5.5 million, or 22 %. Excluding the un favorable effect of currency translation, costs and expenses in creased $ 4.1 million, or 16 %, as summarized in the following table: Three Months Ended June 30 (Thousands of dollars) 2021 2020 Change Change Due to Currency Translation Change Excluding Currency Translation % change Costs and expenses PLP-USA $ 14,011 $ 11,617 $ 2,394 $ 0 $ 2,394 21 % The Americas 3,324 3,182 142 121 21 1 EMEA 6,784 4,956 1,828 749 1,079 22 Asia-Pacific 6,182 5,004 1,178 602 576 12 Consolidated $ 30,301 $ 24,759 $ 5,542 $ 1,472 $ 4,070 16 % PLP-USA costs and expenses of $14.0 million for the three months ended June 30, 2021 increased when compared to the same period in 2020 due to $1.4 million in net transactional foreign currency losses, increased commissions of $.5 million, higher personnel-related costs of $.4 million combined with net increases in various expenses of $.1 million. On a consolidated basis, costs and expenses for the three months ended June 30, 2021 were unfavorably impacted by $1.5 million when local currencies were translated to U.S. dollars. The following discussion of costs and expenses excludes the effect of currency translation. The Americas costs and expenses of $3.3 million were relatively flat when compared to the three-month period ended June 30, 2021. EMEA costs and expenses of $6.8 million increased $1.1 million mainly due to higher personnel-related expenses of $.5 million, $.3 million in net transactional foreign currency losses and $.2 million of increased professional fees and a net increase in various expenses of $.1 million. Asia-Pacific costs and expenses of $6.2 million increased $.6 million primarily due to unfavorable year-over-year net transactional foreign currency losses of $.4 million combined with higher personnel costs of $.2 million. Other expense, net. Other expense, net for the three-month periods ended June 30, 2021 and 2020 was $.2 million and $.9 million, respectively. Income taxes. Income taxes for the three months ending June 30, 2021 and 2020 were $ 3.7 million and $3.4 million, respectively, based on pre-tax income of $12.6 million and $13.9 million, respectively. The effective tax rates for the three-month periods ending June 30, 2021 and 2020 were 29% and 25%, respectively, compared to the U.S. federal statutory rate of 21%. Our tax rate is affected by recurring items, such as tax rates in foreign jurisdictions and the relative amount of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. Net income. As a result of the preceding items, net income for the three months ended June 30, 2021 was $8.9 million, compared to $10.5 million for the three months ended June 30, 2020, a decrease of $1.6 million as summarized in the following table: Three Months Ended June 30 (Thousands of dollars) 2021 2020 Change Change Due to Currency Translation Change Excluding Currency Translation % change Net income PLP-USA $ 6,319 $ 6,135 $ 184 $ 0 $ 184 3 % The Americas 1,962 1,695 267 152 115 7 EMEA 1,043 2,247 (1,204 ) 170 (1,374 ) (61 ) Asia-Pacific (455 ) 404 (859 ) (29 ) (830 ) (205 ) Consolidated $ 8,869 $ 10,481 $ (1,612 ) $ 293 $ (1,905 ) (18 ) % PLP-USA’s net income for the three months ended June 30, 2021 increased $.2 million compared to the same period in 2020, primarily due to an increase in operating income of $.2 million combined with an increase in net other income of $.5 million, partially offset by an increase in income tax expense of $.5 million. The following discussion of net income excludes the effect of currency translation. The Americas net income increased $.1 million as a result of a decrease in income tax expense of $.2 million, partially offset by a combined net decrease in operating income and net other income of $.1 million. EMEA net income decreased $1.4 million mainly as a result of a $1.4 million decrease in operating income. Asia-Pacific net income decreased $.8 largely due to a $.8 million decrease in operating income. 25 SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020 The following table sets forth a summary of the Company’s Statements of Consolidated Income and the percentage of net sales for the six months ended June 30, 2021 and 2020. The Company’s past operating results are not necessarily indicative of future operating results. Six Months Ended June 30 (Thousands of dollars) 2021 2020 Change Net sales $ 250,591 100.0 % $ 220,481 100.0 % $ 30,110 Cost of products sold 167,360 66.8 148,005 67.1 19,355 GROSS PROFIT 83,231 33.2 72,476 32.9 10,755 Costs and expenses 59,725 23.8 53,025 24.0 6,700 OPERATING INCOME 23,506 9.4 19,451 8.8 4,055 Other expense, net (375 ) (0.1 ) (462 ) (0.2 ) 87 INCOME BEFORE INCOME TAXES 23,131 9.2 18,989 8.6 4,142 Income tax expense 7,063 2.8 4,848 2.2 2,215 NET INCOME $ 16,068 6.4 $ 14,141 6.4 $ 1,927 Net loss attributable to noncontrolling interests (20 ) (0.0 ) 38 0.0 (58 ) NET INCOME ATTRIBUTABLE TO PREFORMED LINE PRODUCTS COMPANY SHAREHOLDERS $ 16,048 6.4 % $ 14,179 6.4 % $ 1,869 Net sales. Net sales were $250.6 million for the six months ended June 30, 2021, an increase of $30.1 million, or 14%, from the six months ended June 30, 2020. Excluding the favorable effect of currency translation, net sales for the six months ended June 30, 2021 increased $22.2 million compared to the same period in 2020, or 10%, as summarized in the following table: Six Months Ended June 30 (Thousands of dollars) 2021 2020 Change Change Due to Currency Translation Change Excluding Currency Translation % change Net sales PLP-USA $ 118,316 $ 100,567 $ 17,749 $ 0 17,749 18 % The Americas 36,146 34,727 1,419 (1,006 ) 2,425 7 EMEA 50,834 41,408 9,426 4,789 4,637 11 Asia-Pacific 45,295 43,779 1,516 4,176 (2,660 ) (6 ) Consolidated $ 250,591 $ 220,481 $ 30,110 $ 7,959 $ 22,151 10 % The year-over-year increase in PLP-USA net sales of $17.7 million, or 18%, was primarily due to a volume increase in communication product sales. International net sales for the six months ended June 30, 2021 experienced a favorable impact of $8.0 million when local currencies were converted to U.S. dollars. The following discussion of net sales excludes the net effect of currency translation. The Americas net sales of $36.1 million increased $2.4 million, or 7%, primarily due to a volume increase in communication product sales. EMEA net sales of $50.8 million increased $4.6 million, or 11%, primarily due to a volume increase in communication product sales within the region. Asia-Pacific net sales of $45.3 million decreased $2.7 million, or 6%, compared to 2020 primarily due to a volume decrease in energy products, partially resulting from the continuing effects of the disruption to the global economy caused by the COVID-19 pandemic. 26 Gross profit. Gross profit was $83.2 million and $72.5 million for the six-month periods ended June 30, 2021 and 2020, respectively. Excluding the favorable effect of currency translation, gross profit increased $8.3 million, or 11%, as summarized in the following table: Six Months Ended June 30 (Thousands of dollars) 2021 2020 Change Change Due to Currency Translation Change Excluding Currency Translation % change Gross profit PLP-USA $ 43,904 $ 37,767 $ 6,137 $ 0 $ 6,137 16 % The Americas 11,435 11,121 314 (182 ) 496 4 EMEA 16,459 13,600 2,859 1,581 1,278 9 Asia-Pacific 11,433 9,988 1,445 1,102 343 3 Consolidated $ 83,231 $ 72,476 $ 10,755 $ 2,501 $ 8,254 11 % PLP-USA gross profit of $43.9 million increased $6.1 million compared to the same period in 2020 as a result of increased sales volume of $17.7 million combined with a product sales mix shift to higher margin product and continued cost containment within labor and manufacturing expense, partially offset by commodity price increases and inflation. International gross profit for the six months ended June 30, 2021 was favorably impacted by $2.5 million when local currencies were translated to U.S. dollars. The following discussion of gross profit excludes the effects of currency translation. The Americas gross profit increase of $.5 million was primarily the result of a $2.4 million increase in sales combined with a product margin improvement in the region due to sales product mix. EMEA’s gross profit increased $1.3 million, mainly as a result an increase in sales of $4.6 million and a shift to higher sales volume in higher margin communication products. Despite a reduction in sales, Asia-Pacific’s gross profit increased $.3 million, partially as a result of continued cost containment measures to mitigate the ongoing effects of the COVID-19. Costs and expenses. Costs and expenses of $59.7 million for the six months ended June 30, 2021 increased $6.7 million, or 13%. Excluding the unfavorable effect of currency translation, costs and expenses increased $4.7 million, or 9%, as summarized in the following table: Six Months Ended June 30 (Thousands of dollars) 2021 2020 Change Change Due to Currency Translation Change Excluding Currency Translation % change Costs and expenses PLP-USA $ 27,143 $ 25,321 $ 1,822 $ 0 $ 1,822 7 % The Americas 7,045 6,712 333 (307 ) 640 10 EMEA 13,249 10,556 2,693 1,188 1,505 14 Asia-Pacific 12,288 10,436 1,852 1,151 701 7 Consolidated $ 59,725 $ 53,025 $ 6,700 $ 2,032 $ 4,668 9 % PLP-USA costs and expenses of $27.1 million for the six months ended June 30, 2021 increased $1.8 million when compared to the same period in 2020 mainly due to $1.2 of net unfavorable transactional foreign currency losses and increased personnel costs of $.6 million. On a consolidated basis, costs and expenses for the six months ended June 30, 2021 were unfavorably impacted by $2.0 million when local currencies were translated to U.S. dollars. The following discussion of costs and expenses excludes the effect of currency translation. The Americas costs and expenses of $7.0 million increased $.6 million for the six months ended June 30, 2021 compared to the same period in 2020 primarily due to higher personnel-related expense. EMEA costs and expenses of $13.2 million increased $1.5 million mainly due to higher personnel-related expenses of $1.0 million, and $.3 million increase in professional fees combined with $.2 million of net increases in various expenses. Asia-Pacific costs and expenses of $12.3 million increased $.7 million primarily due to an increase in personnel-related expense. Other expense, net. Other expense, net for the six-month periods ended June 30, 2021 and 2020 was $.4 million and $.5 million, respectively Income taxes. Income taxes for the six months ended June 30, 2021 and 2020 were $7.0 million and $4.8 million, respectively, based on pre-tax income of $23.1 million and $19.0 million, respectively. The effective tax rate for the six months ended June 30, 2021 and 2020 was 31% and 26%, respectively, compared to the U.S. federal statutory rate of 21%. Our tax rate is affected by recurring items, 27 such as tax rates in foreign jurisdictions and the relative amount of income we earn in those jurisdictions. It is also affected by discrete items that may occur in any given year but are not consistent from year to year. On January 1, 2021, the Company adopted Account Standards Update (ASU) 2019-12, Income Taxes (ASC 740) – Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also clarifies and amends existing guidance to improve consistent application. The adoption of ASU 2019-12 did not result in any material adjustments. Net income. As a result of the preceding items, net income for the six months ended June 30, 2021 was $16.0 million, compared to $14.2 million for the six months ended June 30, 2020, an increase of $1.9 million as summarized in the following table: Six Months Ended June 30 (Thousands of dollars) 2021 2020 Change Change Due to Currency Translation Change Excluding Currency Translation % change Net income PLP-USA $ 11,895 $ 9,686 $ 2,209 $ 0 $ 2,209 23 % The Americas 3,153 2,690 463 104 359 13 EMEA 2,239 2,583 (344 ) 287 (631 ) (24 ) Asia-Pacific (1,239 ) (780 ) (459 ) (69 ) (390 ) (50 ) Consolidated $ 16,048 $ 14,179 $ 1,869 $ 322 $ 1,547 11 % PLP-USA’s net income for the six months ended June 30, 2021 increased $2.2 million compared to the same period in 2020, primarily due to an increase in operating income of $4.3 million, partially offset by an increase in other expense, net of $.1 million combined with an increase in income tax expense of $2.0 million. The following discussion of net income excludes the effect of currency translation. The Americas net income increased $.4 million, mainly as a result of decreased income tax expense of $.2 million combined with a decrease in other expense, net of $.3 million, partially offset by a decrease in operating income of $.1 million. EMEA net income decreased $.6 million as a result of a $.2 million decrease in operating income and a $.2 million increase in other operating expense, net, of $.2 million combined with a $.2 million year-over-year increase in income tax expense. Asia-Pacific net income decreased $.4 million largely due to a $.4 million decrease in operating expense. POLICIES AND ESTIMATES Our critical accounting policies are consistent with the information set forth in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in our Form 10-K for the year ended December 31, 2020 filed on March 5, 2021 with the Securities and Exchange Commission and are, therefore, not presented herein. 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, repay debt, 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. During the first six months of 2021, we used cash of $7.3 million for capital expenditures. We ended the first six months of 2021 with $33.5 million of cash, cash equivalents and restricted cash (collectively, “Cash”). Our Cash is held in various locations throughout the world. At June 30, 2021, the majority of our Cash was held outside the United States (“U.S.”). We expect most accumulated non-U.S. Cash balances will remain outside of the U.S. and that we will meet U.S. liquidity needs through future operating 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 which may signal possible customer credit issues. We currently have not identified any potential material impact on our liquidity from customer credit issues. 28 Total debt , including notes payable, at June 30 , 202 1 was $ 63.4 million. At June 30 , 202 1 , our unused availability under our line of credit was $ 45.2 million and our bank debt to equity percentage was 2 0.9 %. O n April 17, 2020, we further extended the term on the line of credit t o June 30 , 2024 . All other terms remain the same, including the interest rate at LIBOR plus 1.125% unless our funded debt to Earnings before Interest, Taxes and Depreciation ratio exceeds 2.25 to 1, at which point the LIBOR spread becomes 1.500%. The line of credit agreement contains, among other provisions, requirements for maintaining levels of net worth and funded debt-to-earnings before interest, taxes, depreciation and amortization along with an interest coverage ratio. The net worth and profitability requirements are calculated based on the line of credit agreement. At June 30 , 202 1 and December 31, 2020 , we were in compliance with these covenants. We expect that our major source of funding for 2021 and beyond will be our operating cash flows and our existing Cash as well as our line of credit agreement. We earn a significant amount of our operating income outside the U.S., which, except for current earnings in certain jurisdictions, is deemed to be indefinitely reinvested in foreign jurisdictions. As we cannot predict the duration or scope of the continuing COVID-19 pandemic and its impact on our customers and suppliers, the negative financial impact to our financial results and liquidity cannot be reasonably estimated but could be material. We are actively managing the business to maintain cash flow and secure favorable liquidity position. We believe that our future cash flows, together with these factors, will be more than sufficient to cover debt repayments, other contractual obligations, capital expenditures and dividends for the next twelve 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 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. Sources and Uses of Cash Cash decreased $3.1 million compared to the same period in 2020. Net Cash provided by operating activities was $14.1 million. The most significant net investing and financing uses of Cash in the six months ended June 30, 2021 were payments of long-term debt of $53.0 million, capital expenditures of $7.3 million, share repurchases of $4.7 million and dividends paid of $2.1 million, partially offset by net debt and notes payable proceeds of $40.8 million. Currency had a positive $.3 million impact on Cash when translating foreign denominated financial statements to U.S. dollars. Net Cash provided from operating activities for the six months ended June 30, 2021 was $14.1 million compared to $9.2 million in the comparable prior year six-month period. The $4.9 million improvement was primarily a result of an increase in net income of $1.9 million, an increase in cash provided by non-cash items of $2.4 million and an increase in Cash provided by operating assets (net of operating liabilities) of $.5 million which included the $6.5 million deposit on the new corporate aircraft that was paid in the fourth quarter of 2020 and fully refunded in 2021, partially offset by increases in working capital aligned with favorable year-over-year sales. Net Cash used in investing activities of $7.3 million for the six months ended June 30, 2021 decreased $4.5 million when compared to Cash used in investing activities in the six months ended June 30, 2020 of $11.8 million. The change was primarily related to a year-over-year decrease in capital expenditures. Cash used in financing activities for the six months ended June 30, 2021 was $18.7 million compared to Cash provided by financing activities of $.7 million during the six months ended June 30, 2020. The $19.4 million change was primarily the result of a net decrease in net debt borrowings, net of payments in 2021 compared to 2020 of $21.8 million, partially offset by a decrease in net share repurchases and issuances of $2.3 million. 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 Q of the Notes to the Consolidated Financial Statements for more information. As of June 30, 2021, the Company had total outstanding guarantees of $7.5 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 June 30, 2021, the Company had total outstanding letters of credit of $4.5 million. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS See Note K of the Notes to the Consolidated Financial Statements 29 NEW ACCOUNTING STANDARDS TO BE ADOPTED See Note L of the Notes to the Consolidated Financial Statements FORWARD LOOKING STATEMENTS Cautionary Statement for “Safe Harbor” Purposes Under The Private Securities Litigation Reform Act of 1995 This Form 10-Q and other documents we file with the SEC contain forward-looking statements regarding the Company’s and management’s beliefs and expectations. As a general matter, forward-looking statements are those focused upon future plans, objectives or performance (as opposed to historical items) and include statements of anticipated events or trends and expectations and beliefs relating to matters not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to the Company’s operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control. Such uncertainties and factors could cause the Company’s actual results to differ materially from those matters expressed in or implied by such forward-looking statements. The following factors, among others, could affect the Company’s future performance and cause the Company’s actual results to differ materially from those expressed or implied by forward-looking statements made in this report: • The overall demand for cable anchoring and control hardware for electrical transmission and distribution lines on a worldwide basis, which has a slow growth rate in mature markets such as the U.S., Canada, Australia and Western Europe and may grow slowly or experience prolonged delay in developing regions despite expanding power needs; • The potential impact of global economic conditions on the Company’s ongoing profitability and future growth opportunities in the Company’s core markets in the U.S. and other foreign countries, which may experience continued or further instability due to political and economic conditions, social unrest, terrorism, changes in diplomatic and trade relationships and public health concerns (including viral outbreaks such as COVID-19). The COVID-19 pandemic has significantly impacted worldwide economic conditions and has and will continue to have an adverse effect on the Company’s operations and businesses as government authorities impose mandatory closures, work-from-home orders and social distancing protocols along with other unknown potential restrictions. The duration and scope of the COVID-19 pandemic cannot be predicted, and therefore, any anticipated negative financial impact to the Company’s operating results cannot be reasonably estimated; • The ability of the Company’s customers to raise funds needed to build the infrastructure their customers require; • Technological developments that affect longer-term trends for communication lines, such as enhancements to wireless communication; • The decreasing demand for product supporting copper-based infrastructure due to the introduction of products using new technologies or adoption of new industry standards; • The Company’s success at continuing to develop proprietary technology and maintaining high quality products and customer service to meet or exceed new industry performance standards and individual customer expectations; • The Company’s success in strengthening and retaining relationships with the Company’s customers, growing sales at targeted accounts and expanding geographically; • The extent to which the Company is successful at expanding the Company’s product line or production facilities into new areas or implementing efficiency measures at existing facilities; • The effects of fluctuation in currency exchange rates upon the Company’s foreign subsidiaries’ operations and reported results from international operations, together with non-currency risks of investing in and conducting significant operations in foreign countries, including those relating to political, social, economic and regulatory factors; • The Company’s ability to identify, complete, obtain funding for and integrate acquisitions for profitable growth; • The potential impact of consolidation, deregulation and bankruptcy among the Company’s suppliers, competitors and customers and of any legal or regulatory claims; • The relative degree of competitive and customer price pressure on the Company’s products; • The cost, availability and quality of raw materials required for the manufacture of products and any tariffs that may be associated with the purchase of these products. The Company’s supply chain has and could continue to be disrupted by the COVID-19 pandemic which could have a material, adverse effect on the ability to secure raw materials and supplies; 30 • Strikes, labor disruptions and other fluctuations in labor costs; • Changes in significant government regulations affecting environmental compliances or other litigation matters; • Security breaches, malicious computer viruses or other disruptions to the Company’s information technology structure or on the economy as a whole; • The telecommunication market’s continued deployment of Fiber-to-the-Premises; • The effects of the possible enactment of the Made in America Tax Plan which could increase the U.S. federal corporate income tax rates on U.S. income and, also, reduce tax credits from foreign sourced income; and • Those factors described under the heading “Risk Factors” in Item 1A of Part I of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 which was filed on March 5, 2021. The impact of COVID-19 could potentially exacerbate other risks discussed, any of which could have a material impact on the Company. The situation continues to change and additional impacts may arise that the Company is not aware of currently.