Attached files
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
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||
þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, 2011 | ||
or
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||
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to |
Commission file number
1-4682
Thomas & Betts
Corporation
(Exact name of registrant as specified in its charter)
Tennessee
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22-1326940 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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8155 T&B Boulevard
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||
Memphis, Tennessee
(Address of principal executive offices) |
38125 (Zip Code) |
(901) 252-8000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes þ No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
Large accelerated
filer þ
|
Accelerated filer o | |
Non-accelerated
filer o
|
Smaller reporting company o | |
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
Outstanding Shares |
||
Title of Each Class | at October 24, 2011 | |
Common Stock, $.10 par value
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52,049,867 |
Thomas &
Betts Corporation and Subsidiaries
TABLE OF
CONTENTS
1
Table of Contents
CAUTION
REGARDING FORWARD-LOOKING STATEMENTS
This Report includes forward-looking comments and
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are
not historical facts regarding Thomas & Betts
Corporation and are subject to risks and uncertainties in our
operations, business, economic and political environment. For
further explanation of these risks and uncertainties, see
Item 1A. Risk Factors in our
Form 10-K
for the year ended December 31, 2010. Forward looking
statements contain words such as:
achieve
|
anticipates | intends | ||
should
|
expects | predict | ||
could
|
might | will | ||
may
|
believes |
other similar expressions
|
These forward-looking statements are not guarantees of future
performance. Many factors could affect our future financial
condition or results of operations. Accordingly, actual results,
performance or achievements may differ materially from those
expressed or implied by the forward-looking statements contained
in this Report. We undertake no obligation to revise any
forward-looking statement included in this Report to reflect any
future events or circumstances.
A reference in this Report to we, our,
us, Thomas & Betts or the
Corporation refers to Thomas & Betts
Corporation and its consolidated subsidiaries.
2
Table of Contents
PART I.
FINANCIAL INFORMATION
Item 1. | Financial Statements |
Thomas &
Betts Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales
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$ | 604,426 | $ | 518,233 | $ | 1,693,903 | $ | 1,471,842 | ||||||||
Cost of sales
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412,927 | 352,096 | 1,168,878 | 1,013,310 | ||||||||||||
Gross profit
|
191,499 | 166,137 | 525,025 | 458,532 | ||||||||||||
Selling, general and administrative
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110,389 | 97,470 | 313,656 | 289,880 | ||||||||||||
Earnings from operations
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81,110 | 68,667 | 211,369 | 168,652 | ||||||||||||
Interest expense, net
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(8,476 | ) | (9,042 | ) | (24,200 | ) | (26,315 | ) | ||||||||
Other (expense) income, net
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1,387 | (975 | ) | (315 | ) | 90 | ||||||||||
Earnings from continuing operations before income taxes
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74,021 | 58,650 | 186,854 | 142,427 | ||||||||||||
Income tax provision
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19,688 | 16,056 | 53,538 | 41,324 | ||||||||||||
Net earnings from continuing operations
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54,333 | 42,594 | 133,316 | 101,103 | ||||||||||||
Earnings from discontinued operations, net
|
| 1,510 | | 4,554 | ||||||||||||
Net earnings
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$ | 54,333 | $ | 44,104 | $ | 133,316 | $ | 105,657 | ||||||||
Basic earnings per share:
|
||||||||||||||||
Continuing operations
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$ | 1.05 | $ | 0.83 | $ | 2.58 | $ | 1.95 | ||||||||
Discontinued operations
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| 0.02 | | 0.09 | ||||||||||||
Net earnings
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$ | 1.05 | $ | 0.85 | $ | 2.58 | $ | 2.04 | ||||||||
Diluted earnings per share:
|
||||||||||||||||
Continuing operations
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$ | 1.03 | $ | 0.81 | $ | 2.51 | $ | 1.91 | ||||||||
Discontinued operations
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| 0.03 | | 0.09 | ||||||||||||
Net earnings
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$ | 1.03 | $ | 0.84 | $ | 2.51 | $ | 2.00 | ||||||||
Average shares outstanding:
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||||||||||||||||
Basic
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51,900 | 51,602 | 51,772 | 51,863 | ||||||||||||
Diluted
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52,990 | 52,641 | 53,108 | 52,912 |
The accompanying Notes are an
integral part of these Consolidated Financial Statements.
3
Table of Contents
September 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
ASSETS
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||||||||
Current Assets
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||||||||
Cash and cash equivalents
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$ | 465,449 | $ | 455,198 | ||||
Receivables, net
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303,962 | 230,203 | ||||||
Inventories
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276,158 | 220,250 | ||||||
Deferred income taxes
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31,669 | 32,745 | ||||||
Other current assets
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23,475 | 18,699 | ||||||
Total Current Assets
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1,100,713 | 957,095 | ||||||
Property, plant and equipment, net
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298,149 | 305,796 | ||||||
Goodwill
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975,536 | 967,889 | ||||||
Other intangible assets, net
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335,466 | 340,544 | ||||||
Other assets
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49,252 | 61,069 | ||||||
Total Assets
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$ | 2,759,116 | $ | 2,632,393 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Current Liabilities
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||||||||
Current maturities of long-term debt
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$ | 335 | $ | 322 | ||||
Accounts payable
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181,411 | 190,839 | ||||||
Accrued liabilities
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137,236 | 126,241 | ||||||
Income taxes payable
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14,954 | 26,263 | ||||||
Total Current Liabilities
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333,936 | 343,665 | ||||||
Long-Term Liabilities
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||||||||
Long-term debt, net of current maturities
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574,489 | 574,090 | ||||||
Long-term benefit plan liabilities
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134,930 | 141,998 | ||||||
Deferred income taxes
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43,165 | 41,405 | ||||||
Other long-term liabilities
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51,950 | 64,453 | ||||||
Contingencies (Note 15)
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||||||||
Shareholders Equity
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||||||||
Common stock
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5,140 | 5,095 | ||||||
Additional paid-in capital
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48,378 | 34,384 | ||||||
Retained earnings
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1,654,161 | 1,520,845 | ||||||
Accumulated other comprehensive income (loss)
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(87,033 | ) | (93,542 | ) | ||||
Total Shareholders Equity
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1,620,646 | 1,466,782 | ||||||
Total Liabilities and Shareholders Equity
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$ | 2,759,116 | $ | 2,632,393 | ||||
The accompanying Notes are an
integral part of these Consolidated Financial Statements.
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Table of Contents
Thomas &
Betts Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended |
||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Cash Flows from Operating Activities:
|
||||||||
Net earnings
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$ | 133,316 | $ | 105,657 | ||||
Adjustments:
|
||||||||
Depreciation and amortization
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63,386 | 60,031 | ||||||
Share-based compensation expense
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9,227 | 8,730 | ||||||
Deferred income taxes
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6,693 | (6,491 | ) | |||||
Incremental tax benefits from share-based payment arrangements
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(2,460 | ) | (942 | ) | ||||
Changes in operating assets and liabilities, net:
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||||||||
Receivables
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(65,693 | ) | (56,707 | ) | ||||
Inventories
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(50,608 | ) | (26,463 | ) | ||||
Accounts payable
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(14,286 | ) | 12,258 | |||||
Accrued liabilities
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8,955 | 18,724 | ||||||
Income taxes payable
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(11,624 | ) | 21,885 | |||||
Other
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(5,522 | ) | 8,238 | |||||
Net cash provided by (used in) operating activities
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71,384 | 144,920 | ||||||
Cash Flows from Investing Activities:
|
||||||||
Purchases of businesses, net of cash acquired
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(29,184 | ) | (98,910 | ) | ||||
Purchases of property, plant and equipment
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(30,784 | ) | (22,253 | ) | ||||
Other
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2,067 | 37 | ||||||
Net cash provided by (used in) investing activities
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(57,901 | ) | (121,126 | ) | ||||
Cash Flows from Financing Activities:
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||||||||
Stock options exercised
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23,909 | 5,162 | ||||||
Repurchase of common shares
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(21,155 | ) | (42,853 | ) | ||||
Debt issuance costs
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(2,231 | ) | | |||||
Repayment of debt and other borrowings
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(304 | ) | (36,092 | ) | ||||
Incremental tax benefits from share-based payment arrangements
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2,460 | 942 | ||||||
Net cash provided by (used in) financing activities
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2,679 | (72,841 | ) | |||||
Effect of exchange-rate changes on cash and cash equivalents
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(5,911 | ) | 5,655 | |||||
Net increase (decrease) in cash and cash equivalents
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10,251 | (43,392 | ) | |||||
Cash and cash equivalents, beginning of period
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455,198 | 478,613 | ||||||
Cash and cash equivalents, end of period
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$ | 465,449 | $ | 435,221 | ||||
Cash payments for interest
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$ | 21,482 | $ | 23,769 | ||||
Cash payments for income taxes
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$ | 63,768 | $ | 27,031 |
The accompanying Notes are an
integral part of these Consolidated Financial Statements.
5
Table of Contents
Thomas &
Betts Corporation and Subsidiaries
(Unaudited)
1. | Basis of Presentation |
The financial information presented as of any date other than
December 31 has been prepared from the books and records without
audit. Financial information as of December 31 has been derived
from the Corporations audited consolidated financial
statements, but does not include all disclosures required by
U.S. generally accepted accounting principles. In the
opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation
of the financial information for the periods indicated have been
included. These consolidated financial statements should be read
in conjunction with the consolidated financial statements and
notes included in the Corporations Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010. The results of
operations for the periods ended September 30, 2011 and
2010 are not necessarily indicative of the operating results for
the full year.
2. | Basic and Diluted Earnings Per Share |
The following is a reconciliation of the basic and diluted
earnings per share computations:
Quarter Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands, except per share data)
|
||||||||||||||||
Net earnings from continuing operations
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$ | 54,333 | $ | 42,594 | $ | 133,316 | $ | 101,103 | ||||||||
Earnings from discontinued operations, net
|
| 1,510 | | 4,554 | ||||||||||||
Net earnings
|
$ | 54,333 | $ | 44,104 | $ | 133,316 | $ | 105,657 | ||||||||
Basic shares:
|
||||||||||||||||
Average shares outstanding
|
51,900 | 51,602 | 51,772 | 51,863 | ||||||||||||
Basic earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 1.05 | $ | 0.83 | $ | 2.58 | $ | 1.95 | ||||||||
Discontinued operations
|
| 0.02 | | 0.09 | ||||||||||||
Net earnings
|
$ | 1.05 | $ | 0.85 | $ | 2.58 | $ | 2.04 | ||||||||
Diluted shares:
|
||||||||||||||||
Average shares outstanding
|
51,900 | 51,602 | 51,772 | 51,863 | ||||||||||||
Additional shares on the potential dilution from stock options,
nonvested restricted stock and performance units
|
1,090 | 1,039 | 1,336 | 1,049 | ||||||||||||
52,990 | 52,641 | 53,108 | 52,912 | |||||||||||||
Diluted earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 1.03 | $ | 0.81 | $ | 2.51 | $ | 1.91 | ||||||||
Discontinued operations
|
| 0.03 | | 0.09 | ||||||||||||
Net earnings
|
$ | 1.03 | $ | 0.84 | $ | 2.51 | $ | 2.00 | ||||||||
The Corporation had stock options that were
out-of-the-money
which were excluded because of their anti-dilutive effect. Such
out-of-the
money stock options were associated with 0.7 million
6
Table of Contents
shares of common stock for the third quarter of 2011 and
1.8 million shares of common stock for the third quarter of
2010.
Out-of-the
money stock options were associated with 0.3 million shares
of common stock for the first nine months of 2011 and
1.8 million shares of common stock for the first nine
months of 2010.
3. | Acquisitions & Divestitures |
2011
Acquisition
In July 2011, the Corporation acquired the AmbiRad Group
(AmbiRad), a leading manufacturer of specialized
commercial and industrial heating and ventilation products,
which are sold throughout Europe and exported to other global
markets, for approximately $30 million. The purchase price
allocation resulted in goodwill of approximately $7 million
and other intangible assets of approximately $19 million,
all of which was assigned to the Corporations HVAC
segment. The results of these operations have been included in
the consolidated financial statements of the Corporation since
the acquisition date.
2010
Acquisitions
In April 2010, the Corporation acquired PMA AG
(PMA), a leading European manufacturer of
technologically advanced cable protection systems, for
approximately $114 million. The purchase price consisted of
cash of approximately $78 million and debt assumed of
approximately $36 million. The purchase price allocation
resulted in goodwill of approximately $33 million and other
intangible assets of approximately $60 million, all of
which was assigned to the Companys Electrical segment. The
results of these operations have been included in the
consolidated financial statements of the Corporation since the
acquisition date.
In January 2010, the Corporation acquired JT Packard &
Associates, Inc. (JT Packard), the nations
largest independent service provider for critical power
equipment used by industrial and commercial enterprises in a
broad array of markets, for approximately $21 million. The
purchase price allocation resulted in goodwill of approximately
$6 million and other intangible assets of approximately
$11 million, all of which was assigned to the
Corporations Electrical segment. The results of these
operations have been included in the consolidated financial
statements of the Corporation since the acquisition date.
During 2010, the Corporation divested of its non-strategic
communications products business. The operations associated with
this business have been reflected as discontinued operations in
the Corporations consolidated statements of operations.
Discontinued operations in the third quarter of 2010 reflected
net sales of approximately $15 million, earnings before
income taxes of $2.3 million and net earnings of
$1.5 million from the divested communications product
business. Discontinued operations in the first nine months of
2010 reflected net sales of approximately $45 million,
earnings before income taxes of $6.9 million and net
earnings of $4.6 million from the divested communications
product business.
7
Table of Contents
4. | Inventories |
The Corporations inventories at September 30, 2011
and December 31, 2010 were:
September 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(In thousands)
|
||||||||
Finished goods
|
$ | 121,335 | $ | 106,998 | ||||
Work-in-process
|
33,310 | 23,636 | ||||||
Raw materials
|
121,513 | 89,616 | ||||||
Total inventories
|
$ | 276,158 | $ | 220,250 | ||||
5. | Property, Plant and Equipment |
The Corporations property, plant and equipment at
September 30, 2011 and December 31, 2010 were:
September 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(In thousands)
|
||||||||
Land
|
$ | 33,068 | $ | 32,775 | ||||
Building
|
204,809 | 201,866 | ||||||
Machinery and equipment
|
677,112 | 663,642 | ||||||
Construction-in-progress
|
14,953 | 12,412 | ||||||
Gross property, plant and equipment
|
929,942 | 910,695 | ||||||
Less: Accumulated depreciation
|
631,793 | 604,899 | ||||||
Net property, plant and equipment
|
$ | 298,149 | $ | 305,796 | ||||
6. | Goodwill and Other Intangible Assets |
The following table reflects activity for goodwill by segment
during the third quarter of 2011:
Quarter Ended September 30, 2011 | ||||||||||||||||
Other |
||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||
Beginning of |
Currency |
End of |
||||||||||||||
Period | Additions | Translation | Period | |||||||||||||
(In thousands)
|
||||||||||||||||
Electrical
|
$ | 911,263 | $ | | $ | (8,376 | ) | $ | 902,887 | |||||||
Steel Structures
|
64,759 | | | 64,759 | ||||||||||||
HVAC
|
702 | 7,434 | (246 | ) | 7,890 | |||||||||||
$ | 976,724 | $ | 7,434 | $ | ( 8,622 | ) | $ | 975,536 | ||||||||
8
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The following table reflects activity for goodwill by segment
during the first nine months of 2011:
Nine Months Ended September 30, 2011 | ||||||||||||||||
Other |
||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||
Beginning of |
Currency |
End of |
||||||||||||||
Period | Additions | Translation | Period | |||||||||||||
(In thousands)
|
||||||||||||||||
Electrical
|
$ | 902,478 | $ | | $ | 409 | $ | 902,887 | ||||||||
Steel Structures
|
64,759 | | | 64,759 | ||||||||||||
HVAC
|
652 | 7,434 | (196 | ) | 7,890 | |||||||||||
$ | 967,889 | $ | 7,434 | $ | 213 | $ | 975,536 | |||||||||
The following table reflects activity for other intangible
assets during the third quarter of 2011:
Quarter Ended September 30, 2011 | ||||||||||||||||||||
Other |
||||||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||||||
Beginning of |
Amortization |
Currency |
End of |
|||||||||||||||||
Period | Additions | Expense | Translation | Period | ||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Intangible assets subject to amortization
|
$ | 333,834 | $ | 12,208 | $ | | $ | (4,164 | ) | $ | 341,878 | |||||||||
Accumulated amortization
|
(108,727 | ) | | (9,131 | ) | 694 | (117,164 | ) | ||||||||||||
225,107 | 12,208 | (9,131 | ) | (3,470 | ) | 224,714 | ||||||||||||||
Other intangible assets not subject to amortization
|
105,400 | 6,603 | | (1,251 | ) | 110,752 | ||||||||||||||
Total
|
$ | 330,507 | $ | 18,811 | $ | (9,131 | ) | $ | (4,721 | ) | $ | 335,466 | ||||||||
The following table reflects activity for other intangible
assets during the first nine months of 2011:
Nine Months Ended September 30, 2011 | ||||||||||||||||||||
Other |
||||||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||||||
Beginning of |
Amortization |
Currency |
End of |
|||||||||||||||||
Period | Additions | Expense | Translation | Period | ||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Intangible assets subject to amortization
|
$ | 328,177 | $ | 12,208 | $ | | $ | 1,493 | $ | 341,878 | ||||||||||
Accumulated amortization
|
(91,370 | ) | | (25,983 | ) | 189 | (117,164 | ) | ||||||||||||
236,807 | 12,208 | (25,983 | ) | 1,682 | 224,714 | |||||||||||||||
Other intangible assets not subject to amortization
|
103,737 | 6,603 | | 412 | 110,752 | |||||||||||||||
Total
|
$ | 340,544 | $ | 18,811 | $ | (25,983 | ) | $ | 2,094 | $ | 335,466 | |||||||||
9
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7. | Income Taxes |
The Corporations income tax provision for the third
quarter of 2011 was $19.7 million, or an effective rate of
26.6% of pre-tax income, compared to an income tax provision in
the third quarter of 2010 of $16.1 million, or an effective
rate of 27.4% of pre-tax income. The Corporations income
tax provision for the nine months ended September 30, 2011
was $53.5 million, or an effective rate of 28.7% of pre-tax
income, compared to an income tax provision for the nine months
ended September 30, 2010 of $41.3 million, or an
effective rate of 29.0% of pre-tax income. The decrease in the
effective tax rate for the third quarter and first nine months
of 2011 primarily reflects the impact of shifts in the estimated
global distribution of our current year annual pre-tax earnings.
The effective tax rate for the third quarter and first nine
months of 2010 reflects the favorable impact of the release of a
$1.5 million tax reserve associated with an outstanding tax
issue. The effective tax rate for each period also reflects
benefits from the Puerto Rican manufacturing operations, which
have a significantly lower effective tax rate than the
Corporations blended statutory tax rate in other
jurisdictions.
During the first quarter of 2011, the Corporation concluded a
Canada Revenue Agency audit of the Corporations Canadian
income tax returns for the tax years 2005 2009,
resulting in an assessment of approximately $8 million,
including interest. Substantially all of this assessment was
paid during the second quarter of 2011. The Canadian tax
assessment is offset by an expected recovery of
U.S. federal and state income taxes of approximately
$7 million, resulting from the Corporations petition
for tax relief under the competent authority administrative
process.
The Corporation had deferred tax liabilities in excess of its
deferred tax assets totaling $5.6 million as of
September 30, 2011 and net deferred tax assets totaling
$12.4 million as of December 31, 2010. Realization of
the deferred tax assets is dependent upon the Corporations
ability to generate sufficient future taxable income. Management
believes that it is more-likely-than-not that future taxable
income, based on tax laws in effect as of September 30,
2011, will be sufficient to realize the recorded deferred tax
assets, net of any valuation allowance.
8. | Comprehensive Income |
Total comprehensive income and its components are as follows:
Quarter Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands)
|
||||||||||||||||
Net earnings
|
$ | 54,333 | $ | 44,104 | $ | 133,316 | $ | 105,657 | ||||||||
Net unrealized gains (losses) on cash flow hedge, net of tax
|
2,330 | 1,100 | 6,302 | 1,829 | ||||||||||||
Foreign currency translation adjustments
|
(31,836 | ) | 34,027 | (3,731 | ) | 4,433 | ||||||||||
Amortization of net prior service costs and net actuarial
losses, net of tax
|
1,268 | 2,104 | 3,938 | 6,766 | ||||||||||||
Comprehensive income
|
$ | 26,095 | $ | 81,335 | $ | 139,825 | $ | 118,685 | ||||||||
9. | Fair Value of Financial Instruments |
The Corporations financial instruments include cash and
cash equivalents, restricted cash, marketable securities,
short-term receivables and payables, and debt. Financial
instruments also include an interest rate swap agreement, which
is discussed further in Note 11 below. The carrying amounts
of the Corporations financial instruments generally
approximated their fair values at September 30, 2011 and
December 31, 2010, except that, based on the borrowing
rates available to
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the Corporation under current market conditions, the fair value
of long-term debt (including current maturities) was
approximately $622 million at September 30, 2011 and
$588 million at December 31, 2010.
10. | Debt |
The Corporations long-term debt at September 30, 2011
and December 31, 2010 was:
September 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(In thousands)
|
||||||||
Senior credit facility due August
2016(a)
|
$ | | $ | | ||||
Senior credit facility due October
2012(a)
|
325,000 | 325,000 | ||||||
Unsecured 5.625% Senior Notes due
2021(b)
|
248,505 | 248,301 | ||||||
Other, including capital leases
|
1,319 | 1,111 | ||||||
Long-term debt (including current maturities)
|
574,824 | 574,412 | ||||||
Less current maturities
|
335 | 322 | ||||||
Long-term debt, net of current maturities
|
$ | 574,489 | $ | 574,090 | ||||
(a) | Interest is paid monthly. | |
(b) | Interest is paid semi-annually. |
As of September 30, 2011 and December 31, 2010, the
Corporation had outstanding $250 million of
5.625% Senior Notes due 2021. The indentures underlying the
unsecured notes contain standard covenants such as restrictions
on mergers, liens on certain property, sale-leaseback of certain
property and funded debt for certain subsidiaries. The
indentures also include standard events of default such as
covenant default and cross-acceleration.
During the third quarter of 2011, the Corporation entered into a
new $500 million unsecured, senior credit facility
(new revolving credit facility) with a five year
term expiring in August 2016. At September 30, 2011, no
borrowings were outstanding under this facility. Under the new
revolving credit facility agreement, the Corporation will select
an interest rate at the time of its initial draw reflecting
LIBOR plus a margin based on the Corporations credit
rating or the highest rate based on several other benchmark
rates, including: (i) JPMorgan Chase Banks New York
Prime rate, (ii) the federal funds effective rate, or
(iii) an adjusted LIBOR rate.
All borrowings and other extensions of credit under the
Corporations new revolving credit facility are subject to
the satisfaction of customary conditions, including absence of
defaults and accuracy in material respects of representations
and warranties. The proceeds of any loans under the facility may
be used for general operating needs and for other general
corporate purposes in compliance with the terms of the facility
agreement. The Corporation pays an annual commitment fee to
maintain the facility of 20 basis points.
Fees to access the facility and letters of credit are based on a
pricing grid related to the Corporations debt ratings with
Moodys, S&P, and Fitch during the term of the
facility.
The Corporations new revolving credit facility requires
that it maintain:
| a maximum leverage ratio of 3.75 to 1.00; and | |
| a minimum interest coverage ratio of 3.00 to 1.00. |
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Table of Contents
The new revolving credit facility also contains customary
covenants that could restrict the Corporations ability to:
incur additional indebtedness; grant liens; make investments,
loans, or guarantees; declare dividends; or repurchase company
stock.
Outstanding letters of credit, which reduced availability under
the new revolving credit facility, amounted to $4.7 million
at September 30, 2011. The letters of credit relate
primarily to environmental assurances.
Concurrent to entering into the new revolving credit facility,
the Corporation amended its existing unsecured, senior credit
facility (existing revolving credit facility) to
reduce the total availability under this facility from
$750 million to the $325 million of debt outstanding
plus open letters of credit outstanding under the facility at
the time of the amendment. Letters of credit under this facility
at September 30, 2011 amounted to $17.6 million. The
letters of credit relate primarily to third-party insurance
claims processing. As borrowings and letters of credit under the
facility are reduced, the amount of the facility will decrease.
The amendment to the existing revolving credit facility
conformed all covenants and obligations to those found in the
new revolving credit facility, except those related to interest
on borrowings and fees, which remain unchanged. At
September 30, 2011 and December 31, 2010,
$325 million was outstanding under this facility. The
existing revolving credit facility has a five-year term expiring
October 2012.
The Corporation has a EUR 10 million (approximately
US$13.6 million) committed revolving credit facility with a
European bank. The Corporation pays an annual commitment fee of
20 basis points on the undrawn balance to maintain this
facility. This credit facility contains standard covenants and
events of default such as covenant default and cross-default.
This facility has an indefinite maturity, and no borrowings were
outstanding as of September 30, 2011 and December 31,
2010. Outstanding letters of credit which reduced availability
under the European facility amounted to
EUR 0.9 million (approximately US$1.2 million) at
September 30, 2011.
The Corporation has a CAN 30 million (approximately
US$29.4 million) committed revolving credit facility with a
Canadian bank. The Corporation pays an annual commitment fee of
12.5 basis points on the undrawn balance to maintain this
facility. This credit facility contains standard covenants and
events of default such as covenant default and cross-default.
This facility matures in December 2011, and no borrowings were
outstanding as of September 30, 2011 and December 31,
2010.
As of September 30, 2011, the Corporations aggregate
availability of funds under its credit facilities is
approximately $537 million, after deducting outstanding
letters of credit.
As of September 30, 2011, the Corporation also had letters
of credit in addition to those discussed above that do not
reduce availability under the Corporations credit
facilities. The Corporation had approximately $19 million
of such additional letters of credit that relate primarily to
environmental assurances, third-party insurance claims
processing, performance bonds, performance guarantees and
acquisition obligations.
11. | Derivative Instruments |
The Corporation is exposed to market risk from changes in
interest rates, foreign exchange rates and raw material prices,
among others. At times, the Corporation may enter into various
derivative instruments to manage certain of those risks. The
Corporation does not enter into derivative instruments for
speculative or trading purposes.
12
Table of Contents
Interest
Rate Swap Agreement
During 2007, the Corporation entered into a forward-starting
amortizing interest rate swap for a notional amount of
$390 million. The notional amount reduced to
$325 million in December 2010, and reduces to
$200 million in December 2011 and $0 in October 2012. The
interest rate swap hedges the Corporations exposure to
changes in interest rates on $325 million of borrowings
under its existing revolving credit facility. The Corporation
has designated the receive variable/pay fixed interest rate swap
as a cash flow hedge for accounting purposes. Under the interest
rate swap, the Corporation receives one-month London Interbank
Offered Rate (LIBOR) and pays an underlying fixed
rate of 4.86%. For derivative instruments that are designated
and qualify as cash flow hedges, the effective portion of the
gain or loss on the derivative is reported as a component of
accumulated other comprehensive income (loss) and reclassified
into earnings in the applicable periods during which the hedged
transaction affects earnings. Gains or losses on the derivative
representing hedge ineffectiveness are recognized in current
period earnings.
The Corporation values the interest rate swap at fair value.
Fair value is the price received to transfer an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. Measuring fair value
involves a hierarchy of valuation inputs used to measure fair
value. This hierarchy prioritizes the inputs into three broad
levels as follows: Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or
liabilities; Level 2 inputs are quoted prices for similar
assets and liabilities in active markets or inputs that are
observable for the asset or liability, either directly or
indirectly; and, Level 3 inputs are unobservable inputs in
which little or no market data exists, therefore requiring a
company to develop its own valuation assumptions.
The Corporations interest rate swap was reflected in the
Corporations consolidated balance sheet in other long-term
liabilities at its fair value of $11.0 million as of
September 30, 2011 and $21.3 million as of
December 31, 2010. This swap is measured at fair value at
the end of each reporting period. The Corporations fair
value estimate was determined using significant unobservable
inputs and assumptions (Level 3) and, in addition, the
liability valuation reflects the Corporations credit
standing. The valuation technique utilized by the Corporation to
calculate the swap fair value is the income approach. Using
inputs for current market expectations of LIBOR rates,
Eurodollar futures prices, treasury yields and interest rate
swap spreads, this approach compares the present value of a
constructed zero coupon yield curve and the present value of an
extrapolated forecast of future interest rates. This determined
value is then reduced by a credit valuation adjustment that
takes into effect the current credit risk of the interest rate
swap counterparty or the Corporation, as applicable.
The Corporations balance of accumulated other
comprehensive income has been reduced by $6.8 million, net
of tax of $4.2 million, as of September 30, 2011 and
$13.1 million, net of tax of $8.0 million, as of
December 31, 2010 to reflect the above interest rate swap
liability.
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Table of Contents
The following is a reconciliation associated with the interest
rate swap of the fair value activity using Level 3 inputs
during the third quarter and first nine months of 2011 and 2010:
Quarter Ended | Nine Months Ended | |||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions)
|
||||||||||||||||
Asset (liability) at beginning of period
|
$ | (14.8 | ) | $ | (27.5 | ) | $ | (21.3 | ) | $ | (28.7 | ) | ||||
Total realized/unrealized gains or losses:
|
||||||||||||||||
Included in earnings
|
(3.8 | ) | (4.6 | ) | (11.4 | ) | (13.6 | ) | ||||||||
Increase (decrease) in fair value included in comprehensive
income
|
3.7 | 1.9 | 10.2 | 3.0 | ||||||||||||
Settlements
|
3.9 | 4.5 | 11.5 | 13.6 | ||||||||||||
Asset (liability) at end of period
|
$ | (11.0 | ) | $ | (25.7 | ) | $ | (11.0 | ) | $ | (25.7 | ) | ||||
The ineffective portion of the swap reflected in interest
expense, net during the third quarter and the first nine months
of 2011 and 2010 was immaterial.
Forward
Foreign Exchange Contracts
The Corporation had no outstanding forward sale or purchase
contracts as of September 30, 2011 or December 31,
2010. The Corporation is exposed to the effects of changes in
exchange rates primarily from the Canadian dollar and European
currencies. From time to time, the Corporation utilizes forward
foreign exchange contracts for the sale or purchase of foreign
currencies to mitigate this risk.
Commodities
Futures Contracts
The Corporation had no outstanding commodities futures contracts
as of September 30, 2011 or December 31, 2010. The
Corporation is exposed to risk from fluctuating prices for
certain materials used to manufacture its products, such as:
steel, aluminum, copper, zinc, resins and rubber compounds. At
times, some of the risk associated with usage of aluminum,
copper and zinc has been mitigated through the use of futures
contracts that mitigate the price exposure to these commodities.
12. | Share-Based Payment Arrangements |
Share-based compensation expense, net of tax, of
$1.5 million and $1.4 million was charged against
income during the third quarter of 2011 and 2010, respectively.
Share-based compensation expense, net of tax, of
$5.7 million and $5.4 million was charged against
income during the first nine months of 2011 and 2010,
respectively.
During the third quarter of 2011, the Corporation had 18,179
stock options exercised at a weighted average exercise price of
$26.14 per share and had 4,269 stock options forfeited or
expired. During the first nine months of 2011, the Corporation
had 672,257 stock options exercised at a weighted average
exercise price of $35.55 per share and had 18,750 stock options
forfeited or
14
Table of Contents
expired. During the first nine months of 2011, the Corporation
granted 4,367 nonvested shares (restricted stock) with a
weighted average grant date fair value of $52.66 per share.
Compensation expense, net of tax, of $0.3 million was
charged to selling, general and administrative expense as of the
grant date for stock awards under the Corporations
Non-Employee Directors Equity Compensation Plan during the first
nine months of both 2011 and 2010. The Corporation granted
non-employee members of the Board of Directors a total of
8,082 shares of common stock with a weighted average grant
date fair value of $55.66 during the first nine months of 2011.
13. | Pension and Other Postretirement Benefits |
Net periodic cost for the Corporations pension and other
postretirement benefits included the following components:
Quarter Ended | ||||||||||||||||
Other |
||||||||||||||||
Postretirement |
||||||||||||||||
Pension Benefits | Benefits | |||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands)
|
||||||||||||||||
Service cost
|
$ | 1,006 | $ | 2,768 | $ | 1 | $ | 2 | ||||||||
Interest cost
|
7,313 | 7,315 | 197 | 229 | ||||||||||||
Expected return on plan assets
|
(8,541 | ) | (8,298 | ) | | | ||||||||||
Plan net loss (gain)
|
1,599 | 3,094 | 27 | (31 | ) | |||||||||||
Prior service cost (gain)
|
227 | 283 | (63 | ) | (63 | ) | ||||||||||
Transition obligation (asset)
|
(5 | ) | (4 | ) | 192 | 192 | ||||||||||
Net curtailment/settlement loss (gain)
|
(165 | ) | | | | |||||||||||
Net periodic benefit cost
|
$ | 1,434 | $ | 5,158 | $ | 354 | $ | 329 | ||||||||
Nine Months Ended | ||||||||||||||||
Other |
||||||||||||||||
Postretirement |
||||||||||||||||
Pension Benefits | Benefits | |||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands)
|
||||||||||||||||
Service cost
|
$ | 3,072 | $ | 8,045 | $ | 4 | $ | 4 | ||||||||
Interest cost
|
22,015 | 21,745 | 593 | 688 | ||||||||||||
Expected return on plan assets
|
(25,692 | ) | (24,692 | ) | | | ||||||||||
Plan net loss (gain)
|
4,810 | 9,248 | 81 | (93 | ) | |||||||||||
Prior service cost (gain)
|
685 | 847 | (189 | ) | (189 | ) | ||||||||||
Transition obligation (asset)
|
(15 | ) | (12 | ) | 575 | 575 | ||||||||||
Net curtailment/settlement loss (gain)
|
830 | 1,213 | | | ||||||||||||
Net periodic benefit cost
|
$ | 5,705 | $ | 16,394 | $ | 1,064 | $ | 985 | ||||||||
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Contributions to our qualified pension plans during the nine
months ended September 30, 2011 and 2010 were not
significant. We expect required contributions to our qualified
pension plans during the remainder of 2011 to be minimal.
14. | Segment Disclosures |
The Corporation has three reportable segments: Electrical, Steel
Structures and HVAC. The Corporations reportable segments
are based primarily on product lines and represent the primary
mode used to assess allocation of resources and performance. The
Corporation evaluates its business segments primarily on the
basis of segment earnings, with segment earnings defined as
earnings before corporate expense, depreciation and amortization
expense, share-based compensation expense, interest, income
taxes and certain other items. Corporate expense includes legal,
finance and administrative costs. The Corporation has no
material inter-segment sales.
The Electrical segment designs, manufactures and markets
thousands of different electrical connectors, components and
other products for industrial, construction and utility
applications. The Steel Structures segment designs, manufactures
and markets highly engineered steel transmission structures. The
HVAC segment designs, manufactures and markets heating and
ventilation products for commercial and industrial buildings.
The Corporations U.S. Electrical and International
Electrical operating segments have been aggregated in the
Electrical reporting segment since they have similar economic
characteristics as well as similar products and services,
production processes, types of customers and methods used for
distributing their products.
Quarter Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands)
|
||||||||||||||||
Net Sales
|
||||||||||||||||
Electrical
|
$ | 500,693 | $ | 439,172 | $ | 1,427,992 | $ | 1,235,759 | ||||||||
Steel Structures
|
66,893 | 57,232 | 176,604 | 166,753 | ||||||||||||
HVAC
|
36,840 | 21,829 | 89,307 | 69,330 | ||||||||||||
Total
|
$ | 604,426 | $ | 518,233 | $ | 1,693,903 | $ | 1,471,842 | ||||||||
Segment Earnings
|
||||||||||||||||
Electrical
|
$ | 105,165 | $ | 89,588 | $ | 285,281 | $ | 237,786 | ||||||||
Steel Structures
|
10,497 | 11,092 | 19,078 | 29,027 | ||||||||||||
HVAC
|
3,024 | 2,868 | 10,047 | 9,466 | ||||||||||||
Segment earnings
|
118,686 | 103,548 | 314,406 | 276,279 | ||||||||||||
Corporate expense
|
(13,709 | ) | (12,615 | ) | (30,424 | ) | (40,205 | ) | ||||||||
Depreciation and amortization expense
|
(21,426 | ) | (20,054 | ) | (63,386 | ) | (58,775 | ) | ||||||||
Share-based compensation expense
|
(2,441 | ) | (2,212 | ) | (9,227 | ) | (8,647 | ) | ||||||||
Interest expense, net
|
(8,476 | ) | (9,042 | ) | (24,200 | ) | (26,315 | ) | ||||||||
Other (expense) income, net
|
1,387 | (975 | ) | (315 | ) | 90 | ||||||||||
Earnings before income taxes
|
$ | 74,021 | $ | 58,650 | $ | 186,854 | $ | 142,427 | ||||||||
15. | Contingencies |
Legal
Proceedings
The Corporation is involved in legal proceedings and litigation
arising in the ordinary course of business. In those cases where
the Corporation is the defendant, plaintiffs may seek to recover
large
16
Table of Contents
or sometimes unspecified amounts or other types of relief and
some matters may remain unresolved for several years. Such
matters may be subject to many uncertainties and outcomes which
are not predictable with assurance. The Corporation has provided
for losses to the extent probable and estimable. The legal
matters that have been recorded in the Corporations
consolidated financial statements are based on gross assessments
of expected settlement or expected outcome and do not reflect
possible recovery from insurance companies or other parties.
Additional losses, even though not anticipated, could have a
material adverse effect on the Corporations financial
position, results of operations or liquidity in any given period.
Guarantee
and Indemnification Arrangements
The Corporation generally warrants its products against certain
manufacturing and other defects. These product warranties are
provided for specific periods of time and usage of the product
depending on the nature of the product, the geographic location
of its sale and other factors. The accrued product warranty
costs are based primarily on historical experience of actual
warranty claims as well as current information on repair costs.
The following table provides the changes in the
Corporations accruals for estimated product warranties:
Quarter Ended |
Nine Months Ended |
|||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands)
|
||||||||||||||||
Balance at beginning of period
|
$ | 3,107 | $ | 2,798 | $ | 2,574 | $ | 3,064 | ||||||||
Acquired liabilities for warranties
|
609 | | 609 | | ||||||||||||
Liabilities accrued for warranties issued during the period
|
853 | 404 | 2,444 | 1,141 | ||||||||||||
Warranty claims paid during the period
|
(1,595 | ) | (453 | ) | (2,577 | ) | (1,471 | ) | ||||||||
Changes in liability for pre-existing warranties during the
period, including expirations
|
14 | 10 | (62 | ) | 25 | |||||||||||
Balance at end of period
|
$ | 2,988 | $ | 2,759 | $ | 2,988 | $ | 2,759 | ||||||||
The Corporation also continues to monitor events that are
subject to guarantees and indemnifications to identify whether
it is probable that a loss has occurred, and would recognize any
such losses under the guarantees and indemnifications at fair
value when those losses are estimable.
16. | Share Repurchase Plan |
In September 2010, the Corporations Board of Directors
approved a share repurchase plan that authorized the Corporation
to buy up to 3,000,000 of its common shares. To-date through
September 30, 2011, the Corporation repurchased, with
available cash resources, 1,000,000 common shares through
open-market transactions under this plan. During the third
quarter and first nine months of 2011, the Corporation
repurchased, with available cash resources, 500,000 common
shares through open-market transactions under this plan. The
timing of future repurchases, if any, will depend upon a variety
of factors, including market conditions. This authorization
expires in December 2012.
17
Table of Contents
17. | Recently Issued Accounting Standards |
In June 2011, the FASB issued Accounting Standards Update
No. 2011-05,
Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. This standard eliminates the option
to report other comprehensive income and its components in the
statement of changes in equity and instead requires that such
information be presented in either (1) a single continuous
statement of comprehensive income, or (2) in two separate
but consecutive statements. This new guidance is effective
beginning in 2012 and must be applied retrospectively. This
standard concerns financial statement presentation only and will
not have a material impact on the consolidated financial
position or results of operations.
18
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Executive
Overview
Thomas & Betts Corporation is a global leader in the
design, manufacture, and marketing of essential components used
to manage the connection, distribution, transmission and
reliability of electrical power in industrial, construction and
utility applications. We are also a leading producer of
commercial heating and ventilation units used in commercial and
industrial buildings and highly engineered steel structures used
for utility transmission. We have operations in over 20
countries. Manufacturing, marketing and sales activities are
concentrated primarily in North America and Europe.
Critical
Accounting Policies
The preparation of financial statements contained in this report
requires the use of estimates and assumptions to determine
certain amounts reported as net sales, costs, expenses, assets
or liabilities and certain amounts disclosed as contingent
assets or liabilities. Actual results may differ from those
estimates or assumptions. Our significant accounting policies
are described in Note 2 of the Notes to Consolidated
Financial Statements in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010. We believe our
critical accounting policies include the following:
| Revenue Recognition: We recognize revenue when products are shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. We recognize revenue for service agreements over the applicable service periods. Sales discounts, quantity and price rebates, and allowances are estimated based on contractual commitments and experience and recorded as a reduction of revenue in the period in which the sale is recognized. Quantity rebates are in the form of volume incentive discount plans, which include specific sales volume targets or year-over-year sales volume growth targets for specific customers. Certain distributors can take advantage of price rebates by subsequently reselling our products into targeted construction projects or markets. Following a distributors sale of an eligible product, the distributor submits a claim for a price rebate. A number of distributors, primarily in our Electrical segment, have the right to return goods under certain circumstances and those returns, which are reasonably estimable, are accrued as a reduction of revenue at the time of shipment. We analyze historical returns and allowances, current economic trends and specific customer circumstances when evaluating the adequacy of accounts receivable related reserves and accruals. We provide allowances for doubtful accounts when credit losses are both probable and estimable. | |
| Inventory Valuation: Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. To ensure inventories are carried at the lower of cost or market, we periodically evaluate the carrying value of our inventories. We also periodically perform an evaluation of inventory for excess and obsolete items. Such evaluations are based on managements judgment and use of estimates. Such estimates incorporate inventory quantities on-hand, aging of the inventory, sales history and forecasts for particular product groupings, planned dispositions of product lines and overall industry trends. | |
| Goodwill and Other Intangible Assets: We apply the acquisition (purchase) method of accounting for all business combinations. Under this method, all assets and liabilities acquired in a business combination, including goodwill, indefinite-lived intangibles and other |
19
Table of Contents
intangibles, are recorded at fair value. The purchase price allocation requires subjective judgments concerning estimates of the fair value of the acquired assets and liabilities. Goodwill consists principally of the excess of cost over the fair value of net assets acquired in business combinations and is not amortized. For each amortizable intangible asset, we use a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are consumed. If that pattern cannot be reliably determined, the straight-line amortization method is used. We perform an annual impairment test of goodwill and indefinite-lived intangible assets. We perform our annual impairment assessment as of the beginning of the fourth quarter of each year, unless circumstances dictate more frequent interim assessments. In evaluating when an interim assessment of goodwill is necessary, we consider, among other things, the trading level of our common stock, changes in expected future cash flows and mergers and acquisitions involving companies in our industry. In evaluating when an interim assessment of indefinite-lived intangible assets is necessary, we review for significant events or significant changes in circumstances. Our evaluation process did not result in an interim assessment of goodwill or long-lived intangible assets for recoverability for the quarter ended September 30, 2011. |
In conjunction with each test of goodwill we determine the fair
value of each reporting unit and compare the fair value to the
reporting units carrying amount. A reporting unit is
defined as an operating segment or one level below an operating
segment. We determine the fair value of our reporting units
using a combination of three valuation methods: market multiple
approach; discounted cash flow approach; and comparable
transactions approach. The market multiple approach provides
indications of value based on market multiples for public
companies involved in similar lines of business. The discounted
cash flow approach calculates the present value of projected
future cash flows using appropriate discount rates. The
comparable transactions approach provides indications of value
based on an examination of recent transactions in which
companies in similar lines of business were acquired. The fair
values derived from these three valuation methods are then
weighted to arrive at a single value for each reporting unit.
Relative weights assigned to the three methods are based upon
the availability, relevance and reliability of the underlying
data. We then reconcile the total values for all reporting units
to our market capitalization and evaluate the reasonableness of
the implied control premium.
To the extent a reporting units carrying amount exceeds
its fair value, an indication exists that the reporting
units goodwill may be impaired, and we must perform a
second more detailed impairment assessment. The second
impairment assessment involves allocating the reporting
units fair value to all of its recognized and unrecognized
assets and liabilities in order to determine the implied fair
value of the reporting units goodwill as of the assessment
date. The implied fair value of the reporting units
goodwill is then compared to the carrying amount of goodwill to
quantify an impairment charge as of the assessment date.
Methods used to determine fair values for indefinite-lived
intangible assets involve customary valuation techniques that
are applicable to the particular class of intangible asset and
apply inputs and assumptions that we believe a market
participant would use.
| Long-Lived Assets: We review long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Indications of impairment require significant judgment by management. For purposes of recognizing and measuring impairment of long-lived assets, we evaluate assets at the lowest level of identifiable cash flows for associated product groups. If the sum of the undiscounted expected future cash flows over the remaining useful life of the |
20
Table of Contents
primary asset in the associated product groups is less than the carrying amount of the assets, the assets are considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. When fair values are not available, we estimate fair values using the expected future cash flows discounted at a rate commensurate with the risks associated with the recovery of the assets. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to dispose. |
| Pension and Other Postretirement Benefit Plan Actuarial Assumptions: We recognize the overfunded or underfunded status of benefit plans in our consolidated balance sheets. For purposes of calculating pension and postretirement medical benefit obligations and related costs, we use certain actuarial assumptions. Two critical assumptions, the discount rate and the expected return on plan assets, are important elements of expense and/or liability measurement. We evaluate these assumptions annually. Other assumptions include employee demographic factors (retirement patterns, mortality and turnover), rate of compensation increase and the healthcare cost trend rate. See additional information contained in Managements Discussion and Analysis of Financial Condition and Results of Operations Qualified Pension Plans. | |
| Income Taxes: We use the asset and liability method of accounting for income taxes. This method recognizes the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities and requires an evaluation of asset realizability based on a more-likely-than-not criteria. We have valuation allowances for deferred tax assets primarily associated with foreign net operating loss carryforwards and foreign income tax credit carryforwards. Realization of the deferred tax assets is dependent upon our ability to generate sufficient future taxable income. We believe that it is more-likely-than-not that future taxable income, based on enacted tax laws in effect as of September 30, 2011, will be sufficient to realize the recorded deferred tax assets net of existing valuation allowances. | |
| Environmental Costs: Environmental expenditures that relate to current operations are expensed or capitalized, as appropriate. Remediation costs that relate to an existing condition caused by past operations are accrued when it is probable that those costs will be incurred and can be reasonably estimated based on evaluations of currently available facts related to each site. The operation of manufacturing plants involves a high level of susceptibility in these areas, and requires subjective judgments by management in assessing environmental or occupational health and safety liabilities. |
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Summary
of Consolidated Results
Quarter Ended September 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
% of Net |
% of Net |
|||||||||||||||
In Thousands | Sales | In Thousands | Sales | |||||||||||||
Net sales
|
$ | 604,426 | 100.0 | $ | 518,233 | 100.0 | ||||||||||
Cost of sales
|
412,927 | 68.3 | 352,096 | 67.9 | ||||||||||||
Gross profit
|
191,499 | 31.7 | 166,137 | 32.1 | ||||||||||||
Selling, general and administrative
|
110,389 | 18.3 | 97,470 | 18.8 | ||||||||||||
Earnings from operations
|
81,110 | 13.4 | 68,667 | 13.3 | ||||||||||||
Interest expense, net
|
(8,476 | ) | (1.4 | ) | (9,042 | ) | (1.8 | ) | ||||||||
Other (expense) income, net
|
1,387 | 0.2 | (975 | ) | (0.2 | ) | ||||||||||
Earnings from continuing operations before income taxes
|
74,021 | 12.2 | 58,650 | 11.3 | ||||||||||||
Income tax provision
|
19,688 | 3.2 | 16,056 | 3.1 | ||||||||||||
Net earnings from continuing operations
|
54,333 | 9.0 | 42,594 | 8.2 | ||||||||||||
Earnings from discontinued operations, net
|
| | 1,510 | 0.3 | ||||||||||||
Net earnings
|
$ | 54,333 | 9.0 | $ | 44,104 | 8.5 | ||||||||||
Basic earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 1.05 | $ | 0.83 | ||||||||||||
Discontinued operations
|
| 0.02 | ||||||||||||||
Net earnings
|
$ | 1.05 | $ | 0.85 | ||||||||||||
Diluted earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 1.03 | $ | 0.81 | ||||||||||||
Discontinued operations
|
| 0.03 | ||||||||||||||
Net earnings
|
$ | 1.03 | $ | 0.84 | ||||||||||||
Nine Months Ended September 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
% of Net |
% of Net |
|||||||||||||||
In Thousands | Sales | In Thousands | Sales | |||||||||||||
Net sales
|
$ | 1,693,903 | 100.0 | $ | 1,471,842 | 100.0 | ||||||||||
Cost of sales
|
1,168,878 | 69.0 | 1,013,310 | 68.8 | ||||||||||||
Gross profit
|
525,025 | 31.0 | 458,532 | 31.2 | ||||||||||||
Selling, general and administrative
|
313,656 | 18.5 | 289,880 | 19.7 | ||||||||||||
Earnings from operations
|
211,369 | 12.5 | 168,652 | 11.5 | ||||||||||||
Interest expense, net
|
(24,200 | ) | (1.5 | ) | (26,315 | ) | (1.8 | ) | ||||||||
Other (expense) income, net
|
(315 | ) | | 90 | | |||||||||||
Earnings from continuing operations before income taxes
|
186,854 | 11.0 | 142,427 | 9.7 | ||||||||||||
Income tax provision
|
53,538 | 3.1 | 41,324 | 2.8 | ||||||||||||
Net earnings from continuing operations
|
133,316 | 7.9 | 101,103 | 6.9 | ||||||||||||
Earnings from discontinued operations, net
|
| | 4,554 | 0.3 | ||||||||||||
Net earnings
|
$ | 133,316 | 7.9 | $ | 105,657 | 7.2 | ||||||||||
Basic earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 2.58 | $ | 1.95 | ||||||||||||
Discontinued operations
|
| 0.09 | ||||||||||||||
Net earnings
|
$ | 2.58 | $ | 2.04 | ||||||||||||
Diluted earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 2.51 | $ | 1.91 | ||||||||||||
Discontinued operations
|
| 0.09 | ||||||||||||||
Net earnings
|
$ | 2.51 | $ | 2.00 | ||||||||||||
22
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2011
Compared with 2010
Overview
Net sales in the third quarter and the first nine months of 2011
increased from the prior-year periods primarily reflecting
higher organic sales volumes in our Electrical segment, the
positive impact of the 2011 acquisition of AmbiRad (July 2011),
the 2010 acquisitions of JT Packard (January 2010), PMA AG
(PMA) (April 2010) and Cable Management Group,
Ltd. (CMG) (October 2010), the positive impact of
current year price increases and a weaker U.S. dollar.
Earnings from operations, both in dollars and as a percentage of
sales, increased from the respective prior-year periods. These
improvements reflect the impact of increased organic sales
volumes, a favorable shift in product mix in our Electrical
segment, improved manufacturing leverage from increased
production volumes, especially in our Electrical segment, and
the impact of acquisitions, which were partially offset by lower
segment earnings in our Steel Structures segment. The first nine
months of 2011 included a benefit from legal settlements, in
addition to charges related to facility consolidations. The
first nine months of 2010 included a charge for environmental
remediation and facility consolidation charges.
Net earnings in the third quarter of 2011 were
$54.3 million ($1.03 per diluted share) compared to net
earnings of $44.1 million ($0.84 per diluted share) in the
third quarter of 2010. The third quarter of 2010 included the
favorable impact of the release of a $1.5 million ($0.03
per diluted share) tax reserve.
Net earnings in the first nine months of 2011 were
$133.3 million ($2.51 per diluted share) compared to net
earnings of $105.7 million ($2.00 per diluted share) in the
prior-year period. Net earnings in the first nine months of 2011
included net after-tax facility consolidation charges in the
first and second quarter of $2.3 million ($0.04 per diluted
share) and $2.0 million ($0.04 per diluted share),
respectively, and a net after-tax benefit from legal settlements
in the second quarter of $3.0 million ($0.06 per diluted
share). Net earnings in the first nine months of 2010 included
net after-tax facility consolidation charges in the first
quarter of $2.1 million ($0.04 per diluted share) and a net
after-tax environmental remediation charge in the second quarter
of $3.3 million ($0.06 per diluted share) in addition to
the third quarter release of a tax reserve.
Net earnings in the third quarter and first nine months of 2010
also reflect $1.5 million ($0.03 per diluted share) and
$4.6 million ($0.09 per diluted share) of earnings from
discontinued operations, respectively.
Net
Sales and Gross Profit
Net sales in the third quarter of 2011 were $604.4 million,
up 16.6%, from the prior-year period. For the first nine months
of 2011, net sales were $1.7 billion, up 15.1% from the
prior-year period. Higher organic sales volumes in our
Electrical segment positively impacted
year-over-year
sales in both 2011 periods. The third quarter and first nine
months sales increase from the prior-year periods attributable
to the 2011 and 2010 acquisitions was approximately
$23 million and $66 million, respectively. A weaker
U.S. dollar positively impacted sales by approximately
$18 million and $41 million in the third quarter and
first nine months of 2011, respectively, when compared to the
prior-year periods. Price had a positive impact on
year-over-year
consolidated sales for the third quarter and first nine months
of 2011 primarily in our Electrical and Steel Structures
segments.
Gross profit in the third quarter of 2011 was
$191.5 million, or 31.7% of net sales, compared to
$166.1 million or 32.1% of net sales, in the third quarter
of 2010. Gross profit in the first nine
23
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months of 2011 was $525.0 million, or 31.0% of net sales,
compared to $458.5 million, or 31.2% of net sales, in the
first nine months of 2010. The
year-over-year
decreases in gross profit as a percentage of sales for both
periods reflects increased facility consolidation charges and
lower earnings in our Steel Structures segment due to project
mix and a more competitive pricing environment. Gross profit as
a percentage of sales in the third quarter of 2011 also reflects
the impact from acquisition accounting adjustments related to
the AmbiRad acquisition. Gross profit in both 2011 periods
benefited from the positive impact from acquisitions, actions
taken to manage costs and improved manufacturing leverage from
increased production volumes. Gross profit in the first nine
months of 2011 and 2010 included pre-tax charges for facility
consolidations of $5.1 million (first and second quarter)
and $3.2 million (first quarter), respectively.
Selling,
General and Administrative
Selling, general and administrative (SG&A)
expense in the third quarter of 2011 was $110.4 million, or
18.3% of net sales, compared to $97.5 million, or 18.8% of
net sales, in the prior-year period. SG&A expense as a
percentage of sales in the third quarter of 2011 reflects the
leverage impact of incremental sales volumes on our fixed cost
base. SG&A expense for the third quarter of 2011 also
reflects increased corporate costs associated with a revision of
an estimate for a legacy environmental remediation site.
SG&A expense in the first nine months of 2011 was
$313.7 million, or 18.5% of net sales, compared to
$289.9 million, or 19.7% of net sales, in the prior-year
period. SG&A expense as a percentage of sales in the first
nine months of 2011 reflects the leverage impact of incremental
sales volumes on our fixed cost base. In addition to the
increase in corporate costs in the third quarter of 2011 noted
above, SG&A expense in the first nine months of 2011
included a pre-tax benefit in the second quarter of
$4.8 million from legal settlements and pre-tax charges in
the first and second quarters of $1.2 million for facility
consolidations. SG&A expense in the first nine months of
2010 included second quarter pre-tax charges of
$5.3 million for environmental remediation.
Interest
Expense, Net
Interest expense, net was $8.5 million for the third
quarter of 2011 and $24.2 million for the first nine months
of 2011 compared to $9.0 million and $26.3 million in
the corresponding prior-year periods. The decreases in both
periods reflect lower average debt levels in the current year
periods in addition to increased interest income associated with
higher cash balances in the current year. Interest income
included in interest expense, net was $0.7 million for the
third quarter of 2011 and $0.5 million for the prior-year
period. Interest income included in interest expense, net was
$2.1 million for the first nine months of 2011 and
$1.8 million for the prior-year period.
Income
Taxes
The effective tax rate from continuing operations in the third
quarter of 2011 was 26.6% compared to 27.4% in the third quarter
of 2010. The effective tax rate from continuing operations for
the first nine months of 2011 was 28.7% compared to 29.0% in the
first nine months of 2010. The decrease in the effective tax
rate for the third quarter and first nine months of 2011
primarily reflects the impact of shifts in the estimated global
distribution of our current year annual pre-tax earnings. The
effective rate for both periods also reflects benefits from our
Puerto Rican manufacturing operations.
24
Table of Contents
Net
Earnings
Net earnings in the third quarter of 2011 were
$54.3 million, or $1.03 per diluted share, compared to net
earnings of $44.1 million, or $0.84 per diluted share, in
the third quarter of 2010. Net earnings in the third quarter of
2010 included the favorable impact of the release of a
$1.5 million ($0.03 per diluted share) tax reserve.
Net earnings in the first nine months of 2011 were
$133.3 million, or $2.51 per diluted share, compared to net
earnings of $105.7 million, or $2.00 per diluted share, in
the first nine months of 2010. Net earnings in the first nine
months of 2011 included first and second quarter net after-tax
facility consolidation charges of $2.3 million ($0.04 per
diluted share) and $2.0 million ($0.04 per diluted share),
respectively, and a net after-tax benefit from legal settlements
in the second quarter of $3.0 million ($0.06 per diluted
share). Net earnings in the first nine months of 2010 included
net after-tax facility consolidation charges in the first
quarter of $2.1 million ($0.04 per diluted share) and a net
after-tax environmental remediation charge in the second quarter
of $3.3 million ($0.06 per diluted share) in addition
to the third quarter release of a tax reserve.
Net earnings in the third quarter and first nine months of 2010
also reflect $1.5 million ($0.03 per diluted share)
and $4.6 million ($0.09 per diluted share) of earnings from
discontinued operations, respectively.
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Table of Contents
Summary
of Segment Results
Net
Sales
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
In |
% of Net |
In |
% of Net |
In |
% of Net |
In |
% of Net |
|||||||||||||||||||||||||
Thousands | Sales | Thousands | Sales | Thousands | Sales | Thousands | Sales | |||||||||||||||||||||||||
Electrical
|
$ | 500,693 | 82.8 | $ | 439,172 | 84.8 | $ | 1,427,992 | 84.3 | $ | 1,235,759 | 84.0 | ||||||||||||||||||||
Steel Structures
|
66,893 | 11.1 | 57,232 | 11.0 | 176,604 | 10.4 | 166,753 | 11.3 | ||||||||||||||||||||||||
HVAC
|
36,840 | 6.1 | 21,829 | 4.2 | 89,307 | 5.3 | 69,330 | 4.7 | ||||||||||||||||||||||||
$ | 604,426 | 100.0 | $ | 518,233 | 100.0 | $ | 1,693,903 | 100.0 | $ | 1,471,842 | 100.0 | |||||||||||||||||||||
Segment
Earnings
|
||||||||||||||||||||||||||||||||
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
In |
% of Net |
In |
% of Net |
In |
% of Net |
In |
% of Net |
|||||||||||||||||||||||||
Thousands | Sales | Thousands | Sales | Thousands | Sales | Thousands | Sales | |||||||||||||||||||||||||
Electrical
|
$ | 105,165 | 21.0 | $ | 89,588 | 20.4 | $ | 285,281 | 20.0 | $ | 237,786 | 19.2 | ||||||||||||||||||||
Steel Structures
|
10,497 | 15.7 | 11,092 | 19.4 | 19,078 | 10.8 | 29,027 | 17.4 | ||||||||||||||||||||||||
HVAC
|
3,024 | 8.2 | 2,868 | 13.1 | 10,047 | 11.2 | 9,466 | 13.7 | ||||||||||||||||||||||||
Segment earnings
|
118,686 | 19.6 | 103,548 | 20.0 | 314,406 | 18.6 | 276,279 | 18.8 | ||||||||||||||||||||||||
Corporate expense
|
(13,709 | ) | (12,615 | ) | (30,424 | ) | (40,205 | ) | ||||||||||||||||||||||||
Depreciation and amortization expense
|
(21,426 | ) | (20,054 | ) | (63,386 | ) | (58,775 | ) | ||||||||||||||||||||||||
Share-based compensation expense
|
(2,441 | ) | (2,212 | ) | (9,227 | ) | (8,647 | ) | ||||||||||||||||||||||||
Interest expense, net
|
(8,476 | ) | (9,042 | ) | (24,200 | ) | (26,315 | ) | ||||||||||||||||||||||||
Other (expense) income, net
|
1,387 | (975 | ) | (315 | ) | 90 | ||||||||||||||||||||||||||
Earnings before income taxes
|
$ | 74,021 | $ | 58,650 | $ | 186,854 | $ | 142,427 | ||||||||||||||||||||||||
We have three reportable segments: Electrical, Steel Structures
and HVAC. We evaluate our business segments primarily on the
basis of segment earnings, with segment earnings defined as
earnings before corporate expense, depreciation and amortization
expense, share-based compensation expense, interest, income
taxes and certain other items.
Our consolidated segment earnings are significantly influenced
by the operating performance of our Electrical segment that
accounts for a substantial portion of our consolidated net sales
and consolidated segment earnings during the periods presented.
26
Table of Contents
Electrical
Segment
Electrical segment net sales in the third quarter of 2011 were
$501.0 million, up $61.5 million, or 14.0%, from the
third quarter of 2010. Electrical segment net sales in the first
nine months of 2011 were $1.4 billion, up
$192.2 million, or 15.6%, from the prior-year period.
Increased volumes, primarily for our industrial and utility
distribution products, positively impacted
year-over-year
sales. The third quarter and first nine months sales increases
from the prior-year periods attributable to the 2010
acquisitions were approximately $11 million and
$54 million, respectively. Net sales benefited from a
weaker U.S. dollar, which positively impacted sales by
approximately $17 million in the third quarter of 2011 and
approximately $40 million in the first nine months of 2011.
Price increases, primarily to offset rising raw material costs,
positively impacted net sales when compared to the respective
prior-year periods.
Electrical segment earnings in the third quarter of 2011 were
$105.2 million, up $15.6 million, or 17.4%, from the
third quarter of 2010. Electrical segment earnings in the first
nine months of 2011 were $285.3 million, up
$47.5 million, or 20.0%, from the prior-year period.
Segment earnings as a percentage of sales increased to 21.0% in
the third quarter of 2011 compared to 20.4% in the prior-year
period. Segment earnings as a percentage of sales increased to
20.0% in the first nine months of 2011 compared to 19.2% in the
prior-year period.
Year-over-year
segment earnings for both periods reflect the contribution from
2010 acquisitions, improved product mix, manufacturing leverage
from increased volume, and the benefits of current- and
prior-year right-sizing actions. Segment earnings in the first
nine months of 2011 and 2010 also reflect pre-tax facility
consolidation charges of $4.8 million (first and second
quarter) and $3.2 million (first quarter), respectively.
Steel
Structures Segment
Net sales in the third quarter of 2011 in our Steel Structures
segment were $66.9 million, up $9.7 million, or 16.9%,
from the third quarter of 2010. Net sales in the first nine
months of 2011 were $176.6 million, up $9.9 million,
or 5.9%, from the prior-year period. The net sales increase in
the third quarter and first nine months of 2011 primarily
reflects the positive price impact from the pass-through of
higher
year-over-year
plate steel costs.
Steel Structures segment earnings in the third quarter of 2011
were $10.5 million, down $0.6 million, or 5.4%, from
the prior-year period. Segment earnings in the first nine months
of 2011 were $19.1 million, down $9.9 million, or
34.3%, from the prior-year period. The decrease in
year-over-year
segment earnings in dollars and as a percentage of sales in both
2011 periods reflects declines in project margins due to project
mix and a more competitive pricing environment.
HVAC
Segment
Net sales in the third quarter of 2011 in our HVAC segment were
$36.8 million, up $15.0 million, or 68.8%, from the
third quarter of 2010. Net sales in the first nine months of
2011 in our HVAC segment were $89.3 million, up
$20.0 million, or 28.8%, from the prior-year period. The
third quarter and first nine months sales increase from the
prior-year periods attributable to the July 2011 acquisition of
AmbiRad was approximately $12 million. Additionally,
increased volumes and favorable foreign currency positively
impacted
year-over-year
sales.
HVAC segment earnings in the third quarter of 2011 were
$3.0 million, up $0.2 million, or 5.4%, from the third
quarter of 2010. Segment earnings in the first nine months of
2011 were $10.0 million, up $0.6 million, or 6.1%,
from the prior-year period. Lower
year-over-year
segment earnings as a percentage of sales in both 2011 periods
reflect the acquisition accounting adjustments
27
Table of Contents
related to the AmbiRad acquisition partially offset by improved
mix and manufacturing leverage from increased volume. Segment
earnings in the first nine months of 2011 also reflect pre-tax
facility consolidation charges in the first and second quarter
of $1.5 million.
Liquidity
and Capital Resources
We had cash and cash equivalents of approximately
$465 million and $455 million at September 30,
2011 and December 31, 2010, respectively.
The following table reflects the primary category totals in our
Consolidated Statements of Cash Flows:
Nine Months Ended |
||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
(In thousands)
|
||||||||
Net cash provided by (used in) operating activities
|
$ | 71,384 | $ | 144,920 | ||||
Net cash provided by (used in) investing activities
|
(57,901 | ) | (121,126 | ) | ||||
Net cash provided by (used in) financing activities
|
2,679 | (72,841 | ) | |||||
Effect of exchange-rate changes on cash
|
(5,911 | ) | 5,655 | |||||
Net increase (decrease) in cash and cash equivalents
|
$ | 10,251 | $ | (43,392 | ) | |||
Operating
Activities
Operating activities in the first nine months of 2011 included
net earnings of $133.3 million, depreciation and
amortization of $63.4 million and share-based compensation
expense of $9.2 million, which were offset by a negative
net change in working capital (accounts receivable, inventories
and accounts payable), as well as accrued liabilities, of
$121.6 million. Additionally, operating activities for the
first nine months of 2011 reflect increased cash income taxes
resulting from the tax payment associated with the 2010
divestiture of the communications products business and payment
of an assessment from a Canada Revenue Agency audit.
Operating activities in the first nine months of 2010 included
net earnings of $105.7 million, depreciation and
amortization of $60.0 million and share-based compensation
expense of $8.7 million. A net change in working capital
(accounts receivable, inventories and accounts payable), which
negatively impacted cash in the first nine months of 2010, was
partially offset by higher accrued liabilities, including
benefit plan liabilities, and income taxes payable.
Investing
Activities
Investing activities in the first nine months of 2011 included
approximately $30 million to acquire AmbiRad. During the
first nine months of 2011, we had capital expenditures to
support our ongoing business plans totaling $30.8 million.
We expect capital expenditures to be in the $55-$60 million
range for the full year 2011. Investing activities in the first
nine months of 2010 included approximately $78 million to
acquire PMA (cash portion of the purchase price) and
approximately $21 million to acquire JT Packard. During the
first nine months of 2010, we also had capital expenditures to
support our ongoing business plans totaling $22.3 million.
28
Table of Contents
Financing
Activities
Financing activities in the first nine months of 2011 included
672,257 stock options exercised at a weighted average exercise
price of $35.55 per share totaling $23.9 million and the
repurchase of 500,000 common shares for $21.2 million.
Financing activities in the first nine months of 2010 included
253,074 stock options exercised at a weighted average exercise
price of $20.39 per share totaling $5.2 million, the
repurchase of 1,075,000 common shares for $42.9 million and
repayment of approximately $36 million to retire debt
assumed as part of the PMA acquisition.
Credit
Facilities
As of September 30, 2011 and December 31, 2010, the
Corporation had outstanding $250 million of
5.625% Senior Notes due 2021. The indentures underlying the
unsecured notes contain standard covenants such as restrictions
on mergers, liens on certain property, sale-leaseback of certain
property and funded debt for certain subsidiaries. The
indentures also include standard events of default such as
covenant default and cross-acceleration.
During the third quarter of 2011, the Corporation entered into a
new $500 million unsecured, senior credit facility
(new revolving credit facility) with a five year
term expiring in August 2016. At September 30, 2011, no
borrowings were outstanding under this facility. Under the new
revolving credit facility agreement, the Corporation will select
an interest rate at the time of its initial draw reflecting
LIBOR plus a margin based on the Corporations credit
rating or the highest rate based on several other benchmark
rates, including: (i) JPMorgan Chase Banks New York
Prime rate, (ii) the federal funds effective rate, or
(iii) an adjusted LIBOR rate.
All borrowings and other extensions of credit under the
Corporations new revolving credit facility are subject to
the satisfaction of customary conditions, including absence of
defaults and accuracy in material respects of representations
and warranties. The proceeds of any loans under the facility may
be used for general operating needs and for other general
corporate purposes in compliance with the terms of the facility
agreement. The Corporation pays an annual commitment fee to
maintain the facility of 20 basis points.
Fees to access the facility and letters of credit are based on a
pricing grid related to the Corporations debt ratings with
Moodys, S&P, and Fitch during the term of the
facility.
The Corporations new revolving credit facility requires
that it maintain:
| a maximum leverage ratio of 3.75 to 1.00; and | |
| a minimum interest coverage ratio of 3.00 to 1.00. |
The new revolving credit facility also contains customary
covenants that could restrict the Corporations ability to:
incur additional indebtedness; grant liens; make investments,
loans, or guarantees; declare dividends; or repurchase company
stock.
Outstanding letters of credit, which reduced availability under
the new revolving credit facility, amounted to $4.7 million
at September 30, 2011. The letters of credit relate
primarily to environmental assurances.
Concurrent to entering into the new revolving credit facility,
the Corporation amended its existing unsecured, senior credit
facility (existing revolving credit facility) to
reduce the total availability under this facility from
$750 million to the $325 million of debt outstanding
plus the letters of credit outstanding under the facility at the
time of the amendment. Letters of credit under this facility at
September 30, 2011 amounted to $17.6 million. The
letters of credit relate primarily
29
Table of Contents
to third-party insurance claims processing. As borrowings and
letters of credit under the facility are reduced, the amount of
the facility will decrease.
The amendment to the existing revolving credit facility
conformed all covenants and obligations to those found in the
new revolving credit facility, except those related to interest
on borrowings and fees, which remain unchanged. At
September 30, 2011 and December 31, 2010,
$325 million was outstanding under this facility. The
existing revolving credit facility has a five-year term expiring
October 2012.
Other
Credit Facilities
The Corporation has a EUR 10 million (approximately
US$13.6 million) committed revolving credit facility with a
European bank. The Corporation pays an annual commitment fee of
20 basis points on the undrawn balance to maintain this
facility. This credit facility contains standard covenants and
events of default such as covenant default and cross-default.
This facility has an indefinite maturity, and no borrowings were
outstanding as of September 30, 2011 and December 31,
2010. Outstanding letters of credit which reduced availability
under the European facility amounted to
EUR 0.9 million (approximately US$1.2 million) at
September 30, 2011.
The Corporation has a CAN 30 million (approximately
US$29.4 million) committed revolving credit facility with a
Canadian bank. The Corporation pays an annual commitment fee of
12.5 basis points on the undrawn balance to maintain this
facility. This credit facility contains standard covenants and
events of default such as covenant default and cross-default.
This facility matures in December 2011, and no borrowings were
outstanding as of September 30, 2011 and December 31,
2010.
Other
Letters of Credit
As of September 30, 2011, the Corporation also had letters
of credit in addition to those discussed above that do not
reduce availability under the Corporations credit
facilities. The Corporation had approximately $19 million
of such additional letters of credit that relate primarily to
environmental assurances, third-party insurance claims
processing, performance bonds, performance guarantees and
acquisition obligations.
Compliance
and Availability
We are in compliance with all covenants or other requirements
set forth in our credit facilities. However, if we fail to be in
compliance with the financial or other covenants of our credit
agreements, then the credit agreements could be terminated, any
outstanding borrowings under the agreements could be accelerated
and immediately due, and we could have difficulty obtaining
immediate credit availability to repay the accelerated
obligations and in obtaining credit facilities in the future. As
of September 30, 2011, the aggregate availability of funds
under our credit facilities is approximately $537 million,
after deducting outstanding letters of credit. Availability is
subject to the satisfaction of various covenants and conditions
to borrowing.
Credit
Ratings
As of September 30, 2011, we had investment grade credit
ratings from Standard & Poors (BBB rating),
Moodys Investor Service (Baa2 rating) and Fitch Ratings
(BBB rating) on our senior unsecured debt. Should these credit
ratings drop, repayment under our credit facilities and
securities will not be accelerated; however, our credit costs
may increase. Similarly, if our credit ratings improve, we could
potentially have a decrease in our credit costs. The maturity of
any of our debt securities does not accelerate in the event of a
credit downgrade.
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Debt
Securities
Thomas & Betts had the following unsecured debt
securities outstanding as of September 30, 2011:
Issue Date | Amount | Interest Rate | Interest Payable | Maturity Date | ||||
November 2009
|
$250.0 million | 5.625% | May 15 and November 15 | November 2021 |
The indentures underlying the unsecured debt securities contain
standard covenants such as restrictions on mergers, liens on
certain property, sale-leaseback of certain property and funded
debt for certain subsidiaries. The indentures also include
standard events of default such as covenant default and
cross-acceleration. We are in compliance with all covenants and
other requirements set forth in the indentures.
Qualified
Pension Plans
Contributions to our qualified pension plans during the first
nine months of 2011 were not significant. We expect required
contributions to our qualified pension plans in 2011 to be
minimal.
Acquisitions
In July 2011, the Corporation acquired AmbiRad, a leading
manufacturer of specialized commercial and industrial heating
and ventilation products, which are sold throughout Europe and
exported to other global markets, for approximately
$30 million.
In April 2010, the Corporation acquired PMA, a leading European
manufacturer of technologically advanced cable protection
systems, for approximately $114 million including cash used
in the acquisition of approximately $78 million and cash
used to retire debt assumed of approximately $36 million.
In January 2010, the Corporation acquired JT Packard, the
nations largest independent service provider for critical
power equipment used by industrial and commercial enterprises in
a broad array of markets, for approximately $21 million.
Other
In September 2010, the Corporations Board of Directors
approved a share repurchase plan that authorized the Corporation
to buy up to 3,000,000 of its common shares. To-date through
September 30, 2011, the Corporation repurchased, with
available cash resources, 1,000,000 common shares through
open-market transactions under this plan. During the third
quarter and first nine months of 2011, the Corporation
repurchased, with available cash resources, 500,000 common
shares through open-market transactions under this plan. The
timing of future repurchases, if any, will depend upon a variety
of factors, including market conditions. This authorization
expires in December 2012.
We do not currently pay cash dividends. Future decisions
concerning the payment of cash dividends on the common stock
will depend upon our results of operations, financial condition,
strategic investment opportunities, continued compliance with
credit facilities and other factors that the Board of Directors
may consider relevant.
As of September 30, 2011, we have approximately
$465 million in cash and cash equivalents and approximately
$537 million of aggregate availability under our credit
facilities. We renewed our effective universal shelf
registration statement with the Securities and Exchange
Commission on December 3, 2008, utilizing the well-known
seasoned issuer (WKSI) process. The registration permits us to
issue common stock, preferred stock and debt securities. The
registration is effective
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for a period of three years from the date of filing. We continue
to have cash requirements to, among other things, support
working capital and capital expenditure needs, service debt and
fund our retirement plans as required. We generally intend to
use available cash and internally generated funds to meet these
cash requirements and may borrow under existing credit
facilities or access the capital markets as needed for
liquidity. We believe that we have sufficient liquidity to
satisfy both short-term and long-term requirements.
Off-Balance
Sheet Arrangements
As of September 30, 2011, we did not have any off-balance
sheet arrangements.
Refer to Note 15 in the Notes to Consolidated Financial
Statements for information regarding our guarantee and
indemnification arrangements.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market
Risk and Financial Instruments
Thomas & Betts is exposed to market risk from changes
in interest rates, foreign exchange rates and raw material
prices, among others. At times, we may enter into various
derivative instruments to manage certain of these risks. We do
not enter into derivative instruments for speculative or trading
purposes.
For the period ended September 30, 2011, the Corporation
has not experienced any material changes since December 31,
2010 in market risk that affect the quantitative and qualitative
disclosures presented in our 2010 Annual Report on
Form 10-K.
Item 4. | Controls and Procedures |
(a) | Evaluation of Disclosure Controls and Procedures |
We have established disclosure controls and procedures to ensure
that material information relating to the Corporation is made
known to the Chief Executive Officer and Chief Financial Officer
who certify the Corporations financial reports.
Our Chief Executive Officer and Chief Financial Officer have
evaluated the Corporations disclosure controls and
procedures as of the end of the period covered by this report,
and they have concluded that these controls and procedures are
effective.
(b) | Changes in Internal Control over Financial Reporting |
There have been no significant changes in internal control over
financial reporting that occurred during the quarter covered by
this report that have materially affected or are reasonably
likely to materially affect the Corporations internal
control over financial reporting.
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Table of Contents
PART II.
OTHER INFORMATION
Item 1. | Legal Proceedings |
See Note 15, Contingencies, in the Notes to
Consolidated Financial Statements, which is incorporated herein
by reference. See also Item 3. Legal
Proceedings, in the Corporations 2010 Annual Report
on
Form 10-K,
which is incorporated herein by reference.
Item 1A. | Risk Factors |
There have been no material changes from the risk factors as
previously set forth in our 2010 Annual Report on
Form 10-K
under Item 1A. Risk Factors, which is
incorporated herein by reference.
Item 2. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
The following table reflects activity related to equity
securities purchased by the Corporation during the quarter ended
September 30, 2011:
Issuer
Purchases of Equity Securities
Total Number |
Maximum |
|||||||||||||||
of Common |
Number |
|||||||||||||||
Shares |
of Common |
|||||||||||||||
Total |
Average |
Purchased |
Shares that |
|||||||||||||
Number of |
Price Paid |
as Part of |
May Yet Be |
|||||||||||||
Common |
per |
Publicly |
Purchased |
|||||||||||||
Shares |
Common |
Announced |
Under |
|||||||||||||
Period | Purchased | Share | Plans | the Plans | ||||||||||||
September 2010 Plan (3,000,000 common shares authorized)
|
||||||||||||||||
September 8, 2011 to September 15, 2011
|
500,000 | $ | 42.29 | 500,000 | 2,000,000 | |||||||||||
Total for the quarter ended September 30, 2011
|
500,000 | $ | 42.29 | 500,000 | 2,000,000 | |||||||||||
Item 6. | Exhibits |
The Exhibit Index that follows the signature page of this
Report is incorporated herein by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Corporation has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
Thomas & Betts
Corporation
(Registrant)
(Registrant)
By: |
/s/ William
E. Weaver, Jr.
|
William E. Weaver, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: October 28, 2011
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EXHIBIT INDEX
Exhibit No. | Description of Exhibit | |||
10 | .1 | Third Amended and Restated Credit Agreement dated August 11, 2011, among Thomas & Betts Corporation, as Borrower, the Lenders party hereto, and Wells Fargo Bank, National Association, as Administrative Agent, and Bank of America, N.A., Regions Bank and SunTrust Bank as Co-Syndication Agents (filed as Exhibit 10.1 to Registrants Current Report on Form 8-K dated August 11, 2011 and incorporated herein by reference). | ||
10 | .2 | Credit Agreement dated August 11, 2011, among Thomas & Betts Corporation, as Borrower, the Lenders party hereto, and JPMorgan Chase Bank, N.A. as Administrative Agent, and Wells Fargo Bank, National Association and Bank of America, N.A. as Co-Syndication Agents (filed as Exhibit 10.2 to Registrants Current Report on Form 8-K dated August 11, 2011 and incorporated herein by reference). | ||
12 | Statement re Computation of Ratio of Earnings to Fixed Charges | |||
31 | .1 | Certification of Principal Executive Officer Under Securities Exchange Act Rules 13a-14(a) or 15d-14(a) | ||
31 | .2 | Certification of Principal Financial Officer Under Securities Exchange Act Rules 13a-14(a) or 15d-14(a) | ||
32 | .1 | Certification of Principal Executive Officer Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and furnished solely pursuant to 18 U.S.C. § 1350 and not filed as part of the Report or as a separate disclosure document | ||
32 | .2 | Certification of Principal Financial Officer Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and furnished solely pursuant to 18 U.S.C. §1350 and not filed as part of the Report or as a separate disclosure document | ||
101* | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Operations for the Quarter and Nine Months Ended September 30, 2011 and 2010, (ii) the Consolidated Balance Sheets as of September 30, 2011 and December 31, 2010, (iii) the Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010 and (iv) the Notes to Consolidated Financial Statements |
* | Pursuant to Rule 406T of Regulation S-T, the interactive data included in Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections |
36