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, 2010 | ||
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
(State or other jurisdiction of incorporation or organization) |
22-1326940 (I.R.S. Employer Identification No.) |
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8155 T&B Boulevard
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Memphis, Tennessee
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38125 | |
(Address of principal
executive offices) |
(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.
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 25, 2010 | |
Common Stock, $.10 par value
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51,820,311 |
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, 2009. 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, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net sales
|
$ | 532,966 | $ | 485,075 | $ | 1,517,074 | $ | 1,405,906 | ||||||||
Cost of sales
|
363,276 | 337,485 | 1,047,743 | 988,965 | ||||||||||||
Gross profit
|
169,690 | 147,590 | 469,331 | 416,941 | ||||||||||||
Selling, general and administrative
|
98,772 | 91,957 | 293,797 | 277,605 | ||||||||||||
Earnings from operations
|
70,918 | 55,633 | 175,534 | 139,336 | ||||||||||||
Interest expense, net
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(9,042 | ) | (8,478 | ) | (26,315 | ) | (26,317 | ) | ||||||||
Other (expense) income, net
|
(975 | ) | (2,101 | ) | 90 | 1,649 | ||||||||||
Earnings before income taxes
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60,901 | 45,054 | 149,309 | 114,668 | ||||||||||||
Income tax provision
|
16,797 | 12,943 | 43,652 | 33,827 | ||||||||||||
Net earnings
|
$ | 44,104 | $ | 32,111 | $ | 105,657 | $ | 80,841 | ||||||||
Earnings per share:
|
||||||||||||||||
Basic
|
$ | 0.85 | $ | 0.62 | $ | 2.04 | $ | 1.54 | ||||||||
Diluted
|
$ | 0.84 | $ | 0.61 | $ | 2.00 | $ | 1.53 | ||||||||
Average shares outstanding:
|
||||||||||||||||
Basic
|
51,602 | 52,178 | 51,863 | 52,356 | ||||||||||||
Diluted
|
52,641 | 52,858 | 52,912 | 52,987 |
The accompanying Notes are an
integral part of these Consolidated Financial Statements.
3
Table of Contents
September 30, |
December 31, |
|||||||
2010 | 2009 | |||||||
ASSETS
|
||||||||
Current Assets
|
||||||||
Cash and cash equivalents
|
$ | 435,221 | $ | 478,613 | ||||
Restricted cash
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2,919 | 2,918 | ||||||
Receivables, net
|
271,678 | 197,640 | ||||||
Inventories
|
243,201 | 209,268 | ||||||
Deferred income taxes
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32,475 | 31,062 | ||||||
Prepaid income taxes
|
500 | 7,340 | ||||||
Other current assets
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18,635 | 17,142 | ||||||
Total Current Assets
|
1,004,629 | 943,983 | ||||||
Property, plant and equipment, net
|
313,176 | 296,820 | ||||||
Goodwill
|
942,434 | 902,053 | ||||||
Other intangible assets, net
|
292,937 | 243,930 | ||||||
Other assets
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64,798 | 66,621 | ||||||
Total Assets
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$ | 2,617,974 | $ | 2,453,407 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Current Liabilities
|
||||||||
Current maturities of long-term debt
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$ | 718 | $ | 522 | ||||
Accounts payable
|
171,702 | 149,556 | ||||||
Accrued liabilities
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138,268 | 113,654 | ||||||
Income taxes payable
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25,076 | 8,849 | ||||||
Total Current Liabilities
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335,764 | 272,581 | ||||||
Long-Term Liabilities
|
||||||||
Long-term debt, net of current maturities
|
639,103 | 638,014 | ||||||
Long-term benefit plan liabilities
|
123,410 | 122,573 | ||||||
Deferred income taxes
|
25,716 | 8,723 | ||||||
Other long-term liabilities
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63,095 | 70,307 | ||||||
Contingencies (Note 15)
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||||||||
Shareholders Equity
|
||||||||
Common stock
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5,098 | 5,179 | ||||||
Additional paid-in capital
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34,908 | 63,835 | ||||||
Retained earnings
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1,480,862 | 1,375,205 | ||||||
Accumulated other comprehensive income (loss)
|
(89,982 | ) | (103,010 | ) | ||||
Total Shareholders Equity
|
1,430,886 | 1,341,209 | ||||||
Total Liabilities and Shareholders Equity
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$ | 2,617,974 | $ | 2,453,407 | ||||
The accompanying Notes are an
integral part of these Consolidated Financial Statements.
4
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, | ||||||||
2010 | 2009 | |||||||
Cash Flows from Operating Activities:
|
||||||||
Net earnings
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$ | 105,657 | $ | 80,841 | ||||
Adjustments:
|
||||||||
Depreciation and amortization
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60,031 | 56,417 | ||||||
Share-based compensation expense
|
8,730 | 8,946 | ||||||
Deferred income taxes
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(6,491 | ) | (1,658 | ) | ||||
Incremental tax benefits from share-based payment arrangements
|
(942 | ) | (19 | ) | ||||
Changes in operating assets and liabilities, net:
|
||||||||
Receivables
|
(56,707 | ) | (7,863 | ) | ||||
Inventories
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(26,463 | ) | 51,878 | |||||
Accounts payable
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12,258 | (45,798 | ) | |||||
Accrued liabilities
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20,095 | (24,857 | ) | |||||
Income taxes payable
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21,885 | 7,065 | ||||||
Pension and other postretirement benefits
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8,914 | 22,376 | ||||||
Other
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(2,047 | ) | (1,901 | ) | ||||
Net cash provided by (used in) operating activities
|
144,920 | 145,427 | ||||||
Cash Flows from Investing Activities:
|
||||||||
Purchases of businesses, net of cash acquired
|
(98,910 | ) | | |||||
Purchases of property, plant and equipment
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(22,253 | ) | (32,250 | ) | ||||
Restricted cash used for change in control payments
|
(1 | ) | 5,054 | |||||
Other
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38 | 953 | ||||||
Net cash provided by (used in) investing activities
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(121,126 | ) | (26,243 | ) | ||||
Cash Flows from Financing Activities:
|
||||||||
Stock options exercised
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5,162 | 451 | ||||||
Repayment of debt and other borrowings
|
(36,092 | ) | (148,288 | ) | ||||
Revolving credit facility proceeds (repayments), net
|
| 95,000 | ||||||
Repurchase of common shares
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(42,853 | ) | (24,907 | ) | ||||
Incremental tax benefits from share-based payment arrangements
|
942 | 19 | ||||||
Net cash provided by (used in) financing activities
|
(72,841 | ) | (77,725 | ) | ||||
Effect of exchange-rate changes on cash and cash equivalents
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5,655 | 23,476 | ||||||
Net increase (decrease) in cash and cash equivalents
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(43,392 | ) | 64,935 | |||||
Cash and cash equivalents, beginning of period
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478,613 | 292,494 | ||||||
Cash and cash equivalents, end of period
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$ | 435,221 | $ | 357,429 | ||||
Cash payments for interest
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$ | 23,769 | $ | 26,527 | ||||
Cash payments for income taxes
|
$ | 27,031 | $ | 26,251 |
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, 2009. The results of
operations for the periods ended September 30, 2010 and
2009 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, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands, except per share data)
|
||||||||||||||||
Net earnings
|
$ | 44,104 | $ | 32,111 | $ | 105,657 | $ | 80,841 | ||||||||
Basic shares:
|
||||||||||||||||
Average shares outstanding
|
51,602 | 52,178 | 51,863 | 52,356 | ||||||||||||
Basic earnings per share
|
$ | 0.85 | $ | 0.62 | $ | 2.04 | $ | 1.54 | ||||||||
Diluted shares:
|
||||||||||||||||
Average shares outstanding
|
51,602 | 52,178 | 51,863 | 52,356 | ||||||||||||
Additional shares on the potential dilution from stock options
and nonvested restricted stock
|
1,039 | 680 | 1,049 | 631 | ||||||||||||
52,641 | 52,858 | 52,912 | 52,987 | |||||||||||||
Diluted earnings per share
|
$ | 0.84 | $ | 0.61 | $ | 2.00 | $ | 1.53 | ||||||||
The Corporation had stock options that were
out-of-the-money
that were excluded because of their anti-dilutive effect. Such
out-of-the
money options were associated with 1.8 million shares of
common stock for the third quarters of 2010 and 2009.
Out-of-the
money options were associated with 1.8 million shares of
common stock for the first nine months of 2010 and
1.9 million shares of common stock for the first nine
months of 2009.
3. | Acquisitions |
On April 1, 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 debt assumed by the
Corporation as part of this transaction was retired following
completion of the acquisition.
6
Table of Contents
PMA manufactures high-quality polyamide resin-based flexible
conduit and fittings used in a broad variety of industrial
applications to protect energy and data cables from external
forces such as vibration, heat, fire, cold and tensile stress.
The Corporation expects the PMA acquisition will broaden its
existing product portfolio and enhance cross-selling of
electrical products into markets served by PMA and the
Corporation.
The results of PMAs operations have been included in the
consolidated financial statements of the Corporation since the
April 1, 2010 acquisition date. Since the acquisition date,
PMAs net sales and net earnings, inclusive of purchase
accounting adjustments, were not significant relative to the
consolidated results.
Acquisition-related costs for the PMA acquisition (included in
selling, general and administrative expenses) were not
significant.
The following table summarizes fair values for the assets
acquired and liabilities assumed at the date of acquisition:
(In millions)
|
||||
Fair Value of Consideration:
|
||||
Cash paid, net of cash acquired
|
$ | 78 | ||
Recognized amounts of identifiable assets acquired and
liabilities assumed:
|
||||
Current assets (primarily receivables and inventories)
|
$ | 16 | ||
Property, plant and equipment
|
30 | |||
Identifiable intangible assets
|
60 | |||
Current liabilities
|
(6 | ) | ||
Debt assumed (subsequently retired)
|
(36 | ) | ||
Other long-term liabilities
|
(19 | ) | ||
Total identifiable net assets
|
45 | |||
Goodwill
|
33 | |||
Net cash paid
|
$ | 78 | ||
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
Corporations Electrical segment. Of the $60 million
of intangible assets, approximately $12 million has been
assigned to intangible assets with indefinite lives (consisting
of trade/brand names) and approximately $48 million has
been assigned to intangible assets with estimated lives up to
13 years (consisting primarily of customer relationships).
Goodwill is not deductible for tax purposes.
In late 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.
Related to a 2007 acquisition, the Corporation recorded a
restructuring accrual which included approximately
$14 million of severance costs and approximately
$8 million of lease cancellation costs. The accrual was
recorded as part of the Corporations purchase price
allocation of the acquired business. At December 31, 2009,
there was $3.5 million of remaining accrual. The
Corporation made payments against the accrual of
$0.4 million during the third quarter of 2010 and
7
Table of Contents
$1.6 million during the first nine months of 2010. At
September 30, 2010, the remaining restructuring accrual of
$1.9 million consisted of $0.3 million associated with
severance costs and $1.6 million related to lease
cancellation costs.
4. | Inventories |
The Corporations inventories at September 30, 2010
and December 31, 2009 were:
September 30, |
December 31, |
|||||||
2010 | 2009 | |||||||
(In thousands)
|
||||||||
Finished goods
|
$ | 117,034 | $ | 94,184 | ||||
Work-in-process
|
26,831 | 22,933 | ||||||
Raw materials
|
99,336 | 92,151 | ||||||
Total inventories
|
$ | 243,201 | $ | 209,268 | ||||
5. | Property, Plant and Equipment |
The Corporations property, plant and equipment at
September 30, 2010 and December 31, 2009 were:
September 30, |
December 31, |
|||||||
2010 | 2009 | |||||||
(In thousands)
|
||||||||
Land
|
$ | 32,076 | $ | 23,111 | ||||
Building
|
218,949 | 205,941 | ||||||
Machinery and equipment
|
730,842 | 714,303 | ||||||
Construction-in-progress
|
14,386 | 11,311 | ||||||
Property, plant and equipment, gross
|
996,253 | 954,666 | ||||||
Less: Accumulated depreciation
|
683,077 | 657,846 | ||||||
Property, plant and equipment, net
|
$ | 313,176 | $ | 296,820 | ||||
6. | Goodwill and Other Intangible Assets |
The following table reflects activity for goodwill by segment
during the third quarter of 2010:
Quarter Ended September 30, 2010 | ||||||||||||||||
Other |
||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||
Beginning of |
Currency |
End of |
||||||||||||||
Period | Additions | Translation | Period | |||||||||||||
(In thousands)
|
||||||||||||||||
Electrical
|
$ | 867,713 | $ | | $ | 9,296 | $ | 877,009 | ||||||||
Steel Structures
|
64,759 | | | 64,759 | ||||||||||||
HVAC
|
607 | | 59 | 666 | ||||||||||||
$ | 933,079 | $ | | $ | 9,355 | $ | 942,434 | |||||||||
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The following table reflects activity for goodwill by segment
during the first nine months of 2010:
Nine Months Ended September 30, 2010 | ||||||||||||||||
Other |
||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||
Beginning of |
Currency |
End of |
||||||||||||||
Period | Additions | Translation | Period | |||||||||||||
(In thousands)
|
||||||||||||||||
Electrical
|
$ | 836,582 | $ | 39,838 | $ | 589 | $ | 877,009 | ||||||||
Steel Structures
|
64,759 | | | 64,759 | ||||||||||||
HVAC
|
712 | | (46 | ) | 666 | |||||||||||
$ | 902,053 | $ | 39,838 | $ | 543 | $ | 942,434 | |||||||||
The following table reflects activity for other intangible
assets during the third quarter of 2010:
Quarter Ended September 30, 2010 | ||||||||||||||||||||
Other |
||||||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||||||
Beginning of |
Amortization |
Currency |
End of |
|||||||||||||||||
Period | Additions | Expense | Translation | Period | ||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Intangible assets subject to amortization
|
$ | 277,755 | $ | | $ | | $ | 4,857 | $ | 282,612 | ||||||||||
Accumulated amortization
|
(75,102 | ) | | (7,619 | ) | (405 | ) | (83,126 | ) | |||||||||||
202,653 | | (7,619 | ) | 4,452 | 199,486 | |||||||||||||||
Other intangible assets not subject to amortization
|
91,910 | | | 1,541 | 93,451 | |||||||||||||||
Total
|
$ | 294,563 | $ | | $ | (7,619 | ) | $ | 5,993 | $ | 292,937 | |||||||||
The following table reflects activity for other intangible
assets during the first nine months of 2010:
Nine Months Ended September 30, 2010 | ||||||||||||||||||||
Other |
||||||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||||||
Beginning of |
Amortization |
Currency |
End of |
|||||||||||||||||
Period | Additions | Expense | Translation | Period | ||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Intangible assets subject to amortization
|
$ | 227,920 | $ | 54,902 | $ | | $ | (210 | ) | $ | 282,612 | |||||||||
Accumulated amortization
|
(61,112 | ) | | (21,962 | ) | (52 | ) | (83,126 | ) | |||||||||||
166,808 | 54,902 | (21,962 | ) | (262 | ) | 199,486 | ||||||||||||||
Other intangible assets not subject to amortization
|
77,122 | 16,727 | | (398 | ) | 93,451 | ||||||||||||||
Total
|
$ | 243,930 | $ | 71,629 | $ | (21,962 | ) | $ | (660 | ) | $ | 292,937 | ||||||||
9
Table of Contents
7. | Income Taxes |
The Corporations income tax provision for the third
quarter of 2010 was $16.8 million, or an effective rate of
27.6% of pre-tax income, compared to a tax provision in the
third quarter of 2009 of $12.9 million, or an effective
rate of 28.7% of pre-tax income. The Corporations income
tax provision for the nine months ended September 30, 2010
was $43.7 million, or an effective rate of 29.2% of pre-tax
income, compared to a tax provision for the nine months ended
September 30, 2009 of $33.8 million, or an effective
rate of 29.5% of pre-tax income. The effective 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 assumed with the 2007 acquisition of Lamson &
Sessions. This benefit to the effective rate for the first nine
months of 2010 was partially offset by the first quarter
$0.3 million non-cash income tax charge recorded as a
result of the Health Care and Education Reconciliation Act which
was signed into law during the first quarter of 2010. The first
quarter charge relates to a reversal of deferred tax assets due
to the elimination, beginning in 2013, of the non-taxable
treatment for retiree drug subsidies the Corporation expects to
receive from the U.S. government. The effective 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.
The Corporation had net deferred tax assets totaling
$35.5 million as of September 30, 2010 and
$51.1 million as of December 31, 2009. 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,
2010, 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, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands)
|
||||||||||||||||
Net earnings
|
$ | 44,104 | $ | 32,111 | $ | 105,657 | $ | 80,841 | ||||||||
Net unrealized gains (losses) on cash flow hedge, net of tax
|
1,100 | (374 | ) | 1,829 | 4,934 | |||||||||||
Foreign currency translation adjustments
|
34,027 | 30,675 | 4,433 | 53,453 | ||||||||||||
Amortization of net prior service costs and net actuarial
losses, net of tax
|
2,104 | 2,984 | 6,766 | 8,991 | ||||||||||||
Comprehensive income
|
$ | 81,335 | $ | 65,396 | $ | 118,685 | $ | 148,219 | ||||||||
9. | Fair Value of Financial Instruments |
The Corporations financial instruments include cash and
cash equivalents, restricted cash, short-term receivables and
payables and debt. Financial instruments also include an
interest rate swap agreement, which is discussed further in
Note 10 below. The carrying amounts of the
Corporations financial instruments generally approximated
their fair values at September 30, 2010 and
December 31, 2009, except that, based on the borrowing
rates available to the Corporation under current market
conditions, the fair value of long-term debt (including current
maturities) was approximately $664 million at
September 30, 2010 and approximately $630 million at
December 31, 2009.
10
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10. | 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.
Interest
Rate Swap Agreement
During 2007, the Corporation entered into a forward-starting
interest rate swap for a notional amount of $390 million.
The notional amount reduces to $325 million on
December 15, 2010, $200 million on December 15,
2011 and $0 on October 1, 2012. The interest rate swap
hedges $390 million of the Corporations exposure to
changes in interest rates on borrowings under its
$750 million 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 $25.7 million as of
September 30, 2010 and $28.7 million as of
December 31, 2009. 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 credit
valuation adjustment (which was a reduction in the liability)
was $0.2 million as of September 30, 2010.
The Corporations balance of accumulated other
comprehensive income has been reduced by $15.8 million, net
of tax of $9.7 million, as of September 30, 2010 and
$17.6 million, net of tax of $10.8 million, as of
December 31, 2009 to reflect the above interest rate swap
liability.
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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 2010 and 2009:
Quarter Ended | Nine Months Ended | |||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In millions)
|
||||||||||||||||
Asset (liability) at beginning of period
|
$ | (27.5 | ) | $ | (31.1 | ) | $ | (28.7 | ) | $ | (39.7 | ) | ||||
Total gains or losses (realized/unrealized):
|
||||||||||||||||
Included in earnings
|
(4.6 | ) | (4.6 | ) | (13.6 | ) | (13.2 | ) | ||||||||
Included in other comprehensive income
|
1.9 | (0.6 | ) | 3.0 | 8.1 | |||||||||||
Settlements
|
4.5 | 4.6 | 13.6 | 13.1 | ||||||||||||
Asset (liability) at end of period
|
$ | (25.7 | ) | $ | (31.7 | ) | $ | (25.7 | ) | $ | (31.7 | ) | ||||
The ineffective portion of the swap reflected in interest
expense, net during the third quarter and the first nine months
of 2010 and 2009 was immaterial.
Forward
Foreign Exchange Contracts
The Corporation had no outstanding forward sale or purchase
contracts as of September 30, 2010 or December 31,
2009. 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
During the first nine months of 2010 and 2009, the Corporation
had no outstanding commodities futures contracts. 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.
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11. | Debt |
The Corporations long-term debt at September 30, 2010
and December 31, 2009 was:
September 30, |
December 31, |
|||||||
2010 | 2009 | |||||||
(In thousands)
|
||||||||
Senior credit
facility(a)
|
$ | 390,000 | $ | 390,000 | ||||
Unsecured notes:
|
||||||||
5.625% Senior Notes due 2021, net of
discount(b)
|
248,232 | 248,014 | ||||||
Other, including capital leases
|
1,589 | 522 | ||||||
Long-term debt (including current maturities)
|
639,821 | 638,536 | ||||||
Less current maturities
|
718 | 522 | ||||||
Long-term debt, net of current maturities
|
$ | 639,103 | $ | 638,014 | ||||
(a) | Interest is paid monthly. | |
(b) | Interest is paid semi-annually. |
As of September 30, 2010 and December 31, 2009, 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.
The Corporation has a revolving credit facility with total
availability of $750 million and a five-year term expiring
in October 2012. All borrowings and other extensions of credit
under the Corporations 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 revolving credit facility may be used for general operating
needs and for other general corporate purposes in compliance
with the terms of the facility. The Corporation pays an annual
commitment fee to maintain this facility of 10 basis
points. At September 30, 2010 and December 31, 2009,
$390 million was outstanding under this facility.
Fees to access the facility and letters of credit under the
facility 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 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. |
It 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 credit facility, amounted to $25.0 million at
September 30, 2010. The letters of credit relate primarily
to third-party insurance claims processing.
The Corporation has a EUR 10.0 million (approximately
US$13.5 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
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covenants similar to those contained in the $750 million
credit agreement and standard 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, 2010 and December 31, 2009. Outstanding
letters of credit, which reduced availability under the European
facility, amounted to EUR 0.6 million (approximately
US$0.9 million) at September 30, 2010.
The Corporation has a CAN 30.0 million (approximately
US$29.3 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
similar to those contained in the $750 million credit
agreement and standard events of default such as covenant
default and cross-default. This facility matures in
June 2011, and no borrowings were outstanding as of
September 30, 2010 and December 31, 2009.
As of September 30, 2010, the Corporations aggregate
availability of funds under its credit facilities is
$376.9 million, after deducting outstanding letters of
credit. The Corporation has the option, at the time of drawing
funds under any of the credit facilities, of selecting an
interest rate based on a number of benchmarks including LIBOR,
the federal funds rate, or the prime rate of the agent bank.
As of September 30, 2010, 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 $2.7 million of such
additional letters of credit that relate primarily to
environmental assurances, third-party insurance claims
processing, performance guarantees and acquisition obligations.
12. | Share-Based Payment Arrangements |
Share-based compensation expense, net of tax, of
$1.4 million was charged against income during the third
quarter of 2010 and $1.6 million was charged against income
during the third quarter of 2009. The Corporation also had
35,744 stock options exercised at a weighted average exercise
price of $21.50 per share and had 38,998 stock options forfeited
or expired during the third quarter of 2010.
Share-based compensation expense, net of tax, of
$5.4 million was charged against income during the first
nine months of 2010 and $5.5 million was charged against
income during the first nine months of 2009. During the first
nine months of 2010, the Corporation granted 7,268 stock options
with a weighted average exercise price of $39.84 per share and
an average grant date fair value of $15.39 per share. The
Corporation also had 253,074 stock options exercised at a
weighted average exercise price of $20.39 per share and had
64,700 stock options forfeited or expired during the first nine
months of 2010.
The first nine months of both 2010 and 2009 include compensation
expense, net of tax, of $0.3 million, which 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 2010, the Corporation granted non-employee members of the
Board of Directors a total of 11,061 shares of common stock
with a weighted average grant date fair value of $40.68.
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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, |
|||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands)
|
||||||||||||||||
Service cost
|
$ | 2,768 | $ | 3,062 | $ | 2 | $ | 1 | ||||||||
Interest cost
|
7,315 | 7,457 | 229 | 310 | ||||||||||||
Expected return on plan assets
|
(8,298 | ) | (6,595 | ) | | | ||||||||||
Plan net loss (gain)
|
3,094 | 3,776 | (31 | ) | (35 | ) | ||||||||||
Prior service cost (gain)
|
283 | 277 | (63 | ) | (63 | ) | ||||||||||
Transition obligation (asset)
|
(4 | ) | (3 | ) | 192 | 192 | ||||||||||
Curtailment and settlement loss
|
| | | | ||||||||||||
Net periodic benefit cost
|
$ | 5,158 | $ | 7,974 | $ | 329 | $ | 405 | ||||||||
Nine Month Ended | ||||||||||||||||
Other |
||||||||||||||||
Postretirement |
||||||||||||||||
Pension Benefits | Benefits | |||||||||||||||
September 30, |
September 30, |
September 30, |
September 30, |
|||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands)
|
||||||||||||||||
Service cost
|
$ | 8,045 | $ | 9,186 | $ | 4 | $ | 4 | ||||||||
Interest cost
|
21,745 | 22,370 | 688 | 929 | ||||||||||||
Expected return on plan assets
|
(24,692 | ) | (19,785 | ) | | | ||||||||||
Plan net loss (gain)
|
9,248 | 11,327 | (93 | ) | (104 | ) | ||||||||||
Prior service cost (gain)
|
847 | 830 | (189 | ) | (189 | ) | ||||||||||
Transition obligation (asset)
|
(12 | ) | (8 | ) | 575 | 575 | ||||||||||
Curtailment and settlement loss
|
1,213 | 1,300 | | | ||||||||||||
Net periodic benefit cost
|
$ | 16,394 | $ | 25,220 | $ | 985 | $ | 1,215 | ||||||||
Contributions to our qualified pension plans during the nine
months ended September 30, 2010 and 2009 were not
significant. We expect required contributions to our qualified
pension plans during the remainder of 2010 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.
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The Electrical segment designs, manufactures and markets
thousands of essential components used to manage the connection,
distribution, transmission and reliability of electrical
products in industrial, construction and utility applications.
The Steel Structures segment designs, manufactures and markets
highly engineered tubular 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, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands)
|
||||||||||||||||
Net Sales
|
||||||||||||||||
Electrical
|
$ | 453,905 | $ | 410,872 | $ | 1,280,991 | $ | 1,163,062 | ||||||||
Steel Structures
|
57,232 | 50,922 | 166,753 | 167,817 | ||||||||||||
HVAC
|
21,829 | 23,281 | 69,330 | 75,027 | ||||||||||||
Total
|
$ | 532,966 | $ | 485,075 | $ | 1,517,074 | $ | 1,405,906 | ||||||||
Segment Earnings
|
||||||||||||||||
Electrical
|
$ | 92,259 | $ | 78,267 | $ | 246,007 | $ | 194,480 | ||||||||
Steel Structures
|
11,092 | 10,082 | 29,027 | 36,630 | ||||||||||||
HVAC
|
2,868 | 3,221 | 9,466 | 11,505 | ||||||||||||
Segment earnings
|
106,219 | 91,570 | 284,500 | 242,615 | ||||||||||||
Corporate expense
|
(12,615 | ) | (14,908 | ) | (40,205 | ) | (37,916 | ) | ||||||||
Depreciation, amortization expense and share-based compensation
expense
|
(22,686 | ) | (21,029 | ) | (68,761 | ) | (65,363 | ) | ||||||||
Interest expense, net
|
(9,042 | ) | (8,478 | ) | (26,315 | ) | (26,317 | ) | ||||||||
Other (expense) income, net
|
(975 | ) | (2,101 | ) | 90 | 1,649 | ||||||||||
Earnings before income taxes
|
$ | 60,901 | $ | 45,054 | $ | 149,309 | $ | 114,668 | ||||||||
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 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.
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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, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
(In thousands)
|
||||||||||||||||
Balance at beginning of period
|
$ | 2,798 | $ | 3,032 | $ | 3,064 | $ | 3,112 | ||||||||
Liabilities accrued for warranties issued during the period
|
404 | 270 | 1,141 | 1,027 | ||||||||||||
Deductions for warranty claims paid during the period
|
(453 | ) | (325 | ) | (1,471 | ) | (1,076 | ) | ||||||||
Changes in liability for pre-existing warranties during the
period, including expirations
|
10 | (35 | ) | 25 | (121 | ) | ||||||||||
Balance at end of period
|
$ | 2,759 | $ | 2,942 | $ | 2,759 | $ | 2,942 | ||||||||
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 2008, our Board of Directors approved a share repurchase plan
that authorized us to buy up to 5,000,000 of our common shares.
In 2008, the Corporation repurchased, with available cash
resources, 2,425,000 common shares through open-market
transactions. During 2009, the Corporation repurchased, with
available cash resources, 1,000,000 common shares through
open-market transactions, including 500,000 shares during
the third quarter of 2009. The Corporation repurchased, with
available cash resources, 500,000 common shares through
open-market transactions during the third quarter of 2010 and
1,075,000 during the first nine months of 2010. This
authorization expired on October 22, 2010.
In September 2010, the Corporations Board of Directors
approved a share repurchase plan that authorizes the Corporation
to buy up to 3,000,000 of its common shares. The Corporation has
not repurchased any shares under this plan during the third
quarter. The timing of future repurchases, if any, will depend
upon a variety of factors, including market conditions. This
authorization expires on December 31, 2012.
17
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17. | Subsequent Events |
On October 1, 2010, the Corporation acquired Cable
Management Group, Ltd. (CMG), a leading global
manufacturer of cable protection systems specified in
industrial, infrastructure, and construction applications, for
£70 million (approximately $110 million). CMG
manufactures a broad range of metallic and non-metallic flexible
conduit and fitting systems used to protect critical power and
data systems from fire, dust, moisture, vibration and corrosion.
Management performed an evaluation of the Corporations
activities through the time of filing this Quarterly Report on
Form 10-Q
and has concluded that, other than the CMG acquisition discussed
above, there are no significant subsequent events requiring
recognition or disclosure in these consolidated financial
statements.
18
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Executive
Overview
Thomas & Betts Corporation is a leading designer and
manufacturer of essential components used to manage the
connection, distribution, transmission and reliability of
electrical products 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 approximately 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, 2009. 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 intangibles, are recorded at fair value. The initial recording of goodwill and other intangibles |
19
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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, 2010. |
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 primary asset in the associated product groups is less than the carrying amount of the assets, |
20
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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, 2010, 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 there is no assurance that we will not incur material environmental or occupational health and safety liabilities in the future. Moreover, expectations of remediation expenses could be affected by, and potentially significant expenditures could be required to comply with, environmental regulations and health and safety laws that may be adopted or imposed in the future. Future remediation technology advances could adversely impact expectations of remediation expenses. |
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Summary
of Consolidated Results
Quarter Ended September 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
% of Net |
% of Net |
|||||||||||||||
In Thousands | Sales | In Thousands | Sales | |||||||||||||
Net sales
|
$ | 532,966 | 100.0 | $ | 485,075 | 100.0 | ||||||||||
Cost of sales
|
363,276 | 68.2 | 337,485 | 69.6 | ||||||||||||
Gross profit
|
169,690 | 31.8 | 147,590 | 30.4 | ||||||||||||
Selling, general and administrative
|
98,772 | 18.5 | 91,957 | 18.9 | ||||||||||||
Earnings from operations
|
70,918 | 13.3 | 55,633 | 11.5 | ||||||||||||
Interest expense, net
|
(9,042 | ) | (1.7 | ) | (8,478 | ) | (1.8 | ) | ||||||||
Other (expense) income, net
|
(975 | ) | (0.2 | ) | (2,101 | ) | (0.4 | ) | ||||||||
Earnings before income taxes
|
60,901 | 11.4 | 45,054 | 9.3 | ||||||||||||
Income tax provision
|
16,797 | 3.1 | 12,943 | 2.7 | ||||||||||||
Net earnings
|
$ | 44,104 | 8.3 | $ | 32,111 | 6.6 | ||||||||||
Earnings per share:
|
||||||||||||||||
Basic
|
$ | 0.85 | $ | 0.62 | ||||||||||||
Diluted
|
$ | 0.84 | $ | 0.61 | ||||||||||||
Nine Months Ended September 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
% of Net |
% of Net |
|||||||||||||||
In Thousands | Sales | In Thousands | Sales | |||||||||||||
Net sales
|
$ | 1,517,074 | 100.0 | $ | 1,405,906 | 100.0 | ||||||||||
Cost of sales
|
1,047,743 | 69.1 | 988,965 | 70.3 | ||||||||||||
Gross profit
|
469,331 | 30.9 | 416,941 | 29.7 | ||||||||||||
Selling, general and administrative
|
293,797 | 19.3 | 277,605 | 19.8 | ||||||||||||
Earnings from operations
|
175,534 | 11.6 | 139,336 | 9.9 | ||||||||||||
Interest expense, net
|
(26,315 | ) | (1.8 | ) | (26,317 | ) | (1.8 | ) | ||||||||
Other (expense) income, net
|
90 | 0.0 | 1,649 | 0.1 | ||||||||||||
Earnings before income taxes
|
149,309 | 9.8 | 114,668 | 8.2 | ||||||||||||
Income tax provision
|
43,652 | 2.8 | 33,827 | 2.4 | ||||||||||||
Net earnings
|
$ | 105,657 | 7.0 | $ | 80,841 | 5.8 | ||||||||||
Earnings per share:
|
||||||||||||||||
Basic
|
$ | 2.04 | $ | 1.54 | ||||||||||||
Diluted
|
$ | 2.00 | $ | 1.53 | ||||||||||||
2010
Compared with 2009
Overview
Net sales in the third quarter and the first nine months of 2010
increased from the respective prior-year periods reflecting the
positive impact of first quarter and second quarter acquisitions
of JT Packard & Associates, Inc. and PMA AG, respectively,
and higher sales volumes in the Electrical segment and Steel
Structures segment. The increased sales volumes for the Steel
Structures segment
22
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were largely offset by lower selling prices reflecting lower
steel commodity costs and more competitive market conditions.
Earnings from operations in the third quarter and first nine
months of 2010 increased from the respective prior-year periods,
both in dollars and as a percent of sales. These improvements
reflect current year acquisitions, higher sales volumes,
previous actions to manage costs, headcount and capacity as well
as the impact of a weaker U.S. dollar. Results in the first
nine months of 2010 included a pre-tax charge of
$5.3 million ($0.06 per share) in the second quarter for
environmental remediation and pre-tax charges of
$3.2 million ($0.04 per share) in the first quarter for
facility consolidations related to our Electrical segment. The
third quarter and first nine months of 2009 included a pre-tax
charge of $4.0 million ($0.05 per share) for environmental
remediation.
Net earnings in the third quarter of 2010 were
$44.1 million, or $0.84 per diluted share, compared to
$32.1 million, or $0.61 per diluted share, in the
prior-year period. Net earnings in the first nine months of 2010
were $105.7 million, or $2.00 per diluted share, compared
to $80.8 million, or $1.53 per diluted share, in the
prior-year period. The third quarter and first nine months of
2010 included the favorable impact of the release of a
$1.5 million ($0.03 per share) tax reserve.
Net
Sales and Gross Profit
Net sales in the third quarter of 2010 were $533.0 million,
up $47.9 million, or 9.9%, from the prior-year period and
included approximately $28 million from acquisitions. For
the first nine months of 2010, net sales were $1.5 billion,
up $111.2 million, or 7.9%, from the prior-year period and
included approximately $63 million from acquisitions. The
year-over-year
sales increases also reflect higher sales volumes in our
Electrical and Steel Structures segments. The increased sales
volumes for the Steel Structures segment were largely offset as
a result of lower steel commodity costs and more competitive
market conditions. Foreign currency exchange positively impacted
sales by approximately $2 million in the third quarter of
2010 and approximately $35 million in the first nine months
of 2010 when compared to the corresponding prior-year periods.
This positive impact reflects a weaker U.S. dollar in the
current year.
Gross profit in the third quarter of 2010 was
$169.7 million, or 31.8% of net sales, compared to
$147.6 million, or 30.4% of net sales, in the third quarter
of 2009. Gross profit in the first nine months of 2010 was
$469.3 million, or 30.9% of net sales, compared to
$416.9 million, or 29.7% of net sales, in the first nine
months of 2009. The
year-over-year
increases in gross margin for both the third quarter and first
nine months of 2010 reflect the positive impact from the current
year acquisitions, higher production volumes, continued pricing
discipline, improved product mix and previous actions taken to
manage costs, headcount and capacity.
Selling,
General and Administrative
Selling, general and administrative (SG&A)
expense in the third quarter of 2010 was $98.8 million, or
18.5% of net sales, compared to $92.0 million, or 18.9% of
net sales, in the prior-year period. SG&A expense in the
first nine months of 2010 was $293.8 million, or 19.3% of
net sales, compared to $277.6 million, or 19.8% of net
sales, in the prior-year period. The first nine months of 2010
reflect a second quarter pre-tax $5.3 million environmental
remediation charge. The third quarter and first nine months of
2009 reflect a pre-tax $4.0 million environmental
remediation charge. SG&A as a percent of sales in the
current year periods reflects our continued overall efforts to
tightly manage expenses, lower
year-over-year
pension costs, and increased costs as a result of current year
acquisitions.
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Table of Contents
Income
Taxes
The effective tax rate in the third quarter of 2010 was 27.6%
compared to 28.7% in the third quarter of 2009. The effective
tax rate for the first nine months of 2010 was 29.2% compared to
29.5% in the first nine months of 2009. The decreased effective
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 assumed with the 2007 acquisition
of Lamson & Sessions. This benefit to the effective
rate for the first nine months of 2010 was partially offset by a
non-cash income tax charge during the first quarter of 2010 of
$0.3 million related to the impact of the Health Care and
Education Reconciliation Act, which was signed into law during
the first quarter of 2010. The first quarter charge relates to a
reversal of deferred tax assets due to the elimination,
beginning in 2013, of the non-taxable treatment for retiree drug
subsidies the Corporation expects to receive from the
U.S. government. The effective rate for both years also
reflects benefits from our Puerto Rican manufacturing operations.
Net
Earnings
Net earnings in the third quarter of 2010 were
$44.1 million, or $0.84 per diluted share, compared to
$32.1 million, or $0.61 per diluted share, in the
prior-year period. Net earnings in the first nine months of 2010
were $105.7 million, or $2.00 per diluted share, compared
to $80.8 million, or $1.53 per diluted share, in the
prior-year period. The third quarter and first nine months of
2010 included the favorable impact of the release of a
$1.5 million ($0.03 per share) tax reserve. The nine months
ended September 30, 2010 included a pre-tax
$5.3 million ($0.06 per share) environmental remediation
charge and $3.2 million ($0.04 per share) of first quarter,
pre-tax charges related to facility consolidation. The three and
nine months ended September 30, 2009 included a pre-tax
$4.0 million ($0.05 per share) environmental remediation
charge.
24
Table of Contents
Summary
of Segment Results
Net
Sales
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||
In |
% of Net |
In |
% of Net |
In |
% of Net |
In |
% of Net |
|||||||||||||||||||||||||
Thousands | Sales | Thousands | Sales | Thousands | Sales | Thousands | Sales | |||||||||||||||||||||||||
Electrical
|
$ | 453,905 | 85.2 | $ | 410,872 | 84.7 | $ | 1,280,991 | 84.4 | $ | 1,163,062 | 82.7 | ||||||||||||||||||||
Steel Structures
|
57,232 | 10.7 | 50,922 | 10.5 | 166,753 | 11.0 | 167,817 | 12.0 | ||||||||||||||||||||||||
HVAC
|
21,829 | 4.1 | 23,281 | 4.8 | 69,330 | 4.6 | 75,027 | 5.3 | ||||||||||||||||||||||||
$ | 532,966 | 100.0 | $ | 485,075 | 100.0 | $ | 1,517,074 | 100.0 | $ | 1,405,906 | 100.0 | |||||||||||||||||||||
Segment
Earnings
Quarter Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||
In |
% of Net |
In |
% of Net |
In |
% of Net |
In |
% of Net |
|||||||||||||||||||||||||
Thousands | Sales | Thousands | Sales | Thousands | Sales | Thousands | Sales | |||||||||||||||||||||||||
Electrical
|
$ | 92,259 | 20.3 | $ | 78,267 | 19.0 | $ | 246,007 | 19.2 | $ | 194,480 | 16.7 | ||||||||||||||||||||
Steel Structures
|
11,092 | 19.4 | 10,082 | 19.8 | 29,027 | 17.4 | 36,630 | 21.8 | ||||||||||||||||||||||||
HVAC
|
2,868 | 13.1 | 3,221 | 13.8 | 9,466 | 13.7 | 11,505 | 15.3 | ||||||||||||||||||||||||
Segment earnings
|
106,219 | 19.9 | 91,570 | 18.9 | 284,500 | 18.8 | 242,615 | 17.3 | ||||||||||||||||||||||||
Corporate expense
|
(12,615 | ) | (14,908 | ) | (40,205 | ) | (37,916 | ) | ||||||||||||||||||||||||
Depreciation, amortization expense and share-based compensation
expense
|
(22,686 | ) | (21,029 | ) | (68,761 | ) | (65,363 | ) | ||||||||||||||||||||||||
Interest expense, net
|
(9,042 | ) | (8,478 | ) | (26,315 | ) | (26,317 | ) | ||||||||||||||||||||||||
Other (expense) income, net
|
(975 | ) | (2,101 | ) | 90 | 1,649 | ||||||||||||||||||||||||||
Earnings before income taxes
|
$ | 60,901 | $ | 45,054 | $ | 149,309 | $ | 114,668 | ||||||||||||||||||||||||
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 segment earnings are significantly influenced by the
operating performance of our Electrical segment that accounted
for more than 80% of our consolidated net sales and consolidated
segment earnings during the periods presented.
Electrical
Segment
Electrical segment net sales in the third quarter of 2010 were
$453.9 million, up $43.0 million, or 10.5%, from the
third quarter of 2009. Electrical segment net sales in the first
nine months of 2010 were $1.3 billion, up
$117.9 million, or 10.1%, from the prior-year period.
Current year acquisitions contributed net sales of approximately
$28 million during the third quarter of 2010 and
approximately $63 million during the first nine months of
2010. Increased volumes also positively impacted
year-over-year
sales in both periods and reflect improved global industrial and
utility distribution demand, partially offset by weaker
construction demand. The weaker U.S. dollar had a
negligible positive impact on
year-over-year
third quarter 2010 net sales but positively impacted net
25
Table of Contents
sales for the first nine months of 2010 by approximately
$36 million versus the corresponding prior-year period. In
contrast to the prior year, during 2010 the Electrical segment
has experienced a more traditional seasonal increase in sales
during the second and third quarters reflecting the construction
season and expects a more traditional seasonal decrease in sales
from the third quarter to the fourth quarter of 2010.
Electrical segment earnings in the third quarter of 2010 were
$92.3 million, up $14.0 million, or 17.9%, from the
third quarter of 2009. Electrical segment earnings in the first
nine months of 2010 were $246.0 million, up
$51.5 million, or 26.5%, from the prior-year period. The
increase in
year-over-year
segment earnings compared to both prior-year periods reflects
the contribution from current year acquisitions, increased
production volumes, continued discipline around pricing, the
weaker U.S. dollar and previous actions taken to manage
costs, headcount and capacity. The first nine months of 2010
also reflect first quarter pre-tax charges of $3.2 million
for facility consolidations.
Steel
Structures Segment
Net sales in the third quarter of 2010 in our Steel Structures
segment were $57.2 million, up $6.3 million, or 12.4%,
from the third quarter of 2009 and increased slightly in the
first nine months of 2010, compared to the prior-year period, to
$166.8 million. Net sales increases over the corresponding
prior-year periods reflect the positive impact of higher
volumes, which were largely offset by the negative price impact
from lower
year-over-year
plate steel costs and more competitive market conditions.
Segment earnings in the third quarter of 2010 were
$11.1 million, up $1.0 million, or 10.0%, from the
third quarter of 2009. Segment earnings in the first nine months
of 2010 were $29.0 million, down $7.6 million, or
20.8%, compared to the unusually strong earnings performance in
the prior-year. Segment earnings in the third quarter of 2010
reflect a favorable project mix which is expected to moderate in
the fourth quarter of 2010.
HVAC
Segment
Net sales in the third quarter of 2010 in our HVAC segment were
$21.8 million, down $1.5 million, or 6.2%, from the
third quarter of 2009. Net sales in the first nine months of
2010 in our HVAC segment were $69.3 million, down
$5.7 million, or 7.6%, from the prior-year period. HVAC
segment earnings in the third quarter of 2010 were
$2.9 million, down $0.4 million, or 11.0%, from the
third quarter of 2009. HVAC segment earnings in the first nine
months of 2010 were $9.5 million, down $2.0 million,
or 17.7%, from the prior-year period. The
year-over-year
sales and earnings declines for both of the current year periods
reflect lower sales volumes resulting from weak commercial
construction markets.
Liquidity
and Capital Resources
We had cash and cash equivalents of $435.2 million and
$478.6 million at September 30, 2010 and
December 31, 2009, respectively.
26
Table of Contents
The following table reflects the primary category totals in our
Consolidated Statements of Cash Flows:
Nine Months Ended |
||||||||
September 30, | ||||||||
2010 | 2009 | |||||||
(In thousands)
|
||||||||
Net cash provided by (used in) operating activities
|
$ | 144,920 | $ | 145,427 | ||||
Net cash provided by (used in) investing activities
|
(121,126 | ) | (26,243 | ) | ||||
Net cash provided by (used in) financing activities
|
(72,841 | ) | (77,725 | ) | ||||
Effect of exchange-rate changes on cash
|
5,655 | 23,476 | ||||||
Net increase (decrease) in cash and cash equivalents
|
$ | (43,392 | ) | $ | 64,935 | |||
Operating
Activities
Cash provided by operating activities in the first nine months
of 2010 was primarily attributable to net earnings of
$105.7 million. The first nine months of 2010 included
depreciation and amortization of $60.0 million and
share-based compensation expense of $8.7 million. Net
changes in working capital (accounts receivable, inventories and
accounts payable), which negatively impacted cash in the first
nine months of 2010, were partially offset by higher accrued
liabilities, including benefit plan liabilities, and income
taxes payable.
Cash provided by operating activities in the first nine months
of 2009 was primarily attributable to net earnings of
$80.8 million. The first nine months of 2009 included
depreciation and amortization of $56.4 million and
share-based compensation expense of $8.9 million. Changes
in working capital (accounts receivable, inventories and
accounts payable) as well as accrued liabilities, including
benefit plan liabilities, negatively impacted cash in the first
nine months of 2009.
Investing
Activities
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 had
capital expenditures to support our ongoing business plans
totaling $22.3 million. Investing activities in the first
nine months of 2009 included capital expenditures to support our
ongoing business plans totaling $32.3 million. We expect
capital expenditures to be in the $40-$45 million range for
the full year 2010.
Financing
Activities
Financing activities in the first nine months of 2010 primarily
included 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.
Financing activities in the first nine months of 2009 primarily
included the repurchase of 1,000,000 common shares for
$24.9 million and repayments of $148.3 million of debt
using a combination of cash and $125.0 million in
borrowings under our $750 million revolving credit
facility. Net proceeds from borrowings under our revolving
credit facility were $95.0 million in the first nine months
of 2009.
27
Table of Contents
$750 million
Credit Facility
Our revolving credit facility has total availability of
$750 million and a five-year term expiring in October 2012.
All borrowings and other extensions of credit under our
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 revolving credit facility may be
used for general operating needs and for other general corporate
purposes in compliance with the terms of the facility. At
September 30, 2010 and December 31, 2009,
$390 million was outstanding under this facility.
In 2007, we entered into an interest rate swap to hedge our
exposure to changes in the London Interbank Offered Rate
(LIBOR) rate on $390 million of borrowings
under this facility. See Item 3. Quantitative and
Qualitative Disclosures about Market Risk.
Our revolving credit facility requires that we maintain:
| a maximum leverage ratio of 3.75 to 1.00; and | |
| a minimum interest coverage ratio of 3.00 to 1.00. |
It also contains customary covenants that could restrict our
ability to: incur additional indebtedness; grant liens; make
investments, loans, or guarantees; declare dividends; or
repurchase company stock. We do not expect these covenants to
restrict our liquidity, financial condition, or access to
capital resources in the foreseeable future.
Outstanding letters of credit, which reduced availability under
the credit facility, amounted to $25.0 million at
September 30, 2010. The letters of credit relate primarily
to third-party insurance claims processing.
Other
Credit Facilities
We have a EUR 10.0 million (approximately
US$13.5 million) committed revolving credit facility with a
European bank that has an indefinite maturity. Outstanding
letters of credit, which reduced availability under the European
facility, amounted to EUR 0.6 million (approximately
US$0.9 million) at September 30, 2010. This credit
facility contains standard covenants similar to those contained
in the $750 million credit agreement and standard events of
default such as covenant default and cross-default.
We have a CAN 30.0 million (approximately
US$29.3 million) committed revolving credit facility with a
Canadian bank that matures in June 2011. There were no
balances outstanding or letters of credit that reduced
availability under the Canadian facility at September 30,
2010. This credit facility contains standard covenants similar
to those contained in the $750 million credit agreement and
standard events of default such as covenant default and
cross-default.
Other
Letters of Credit
As of September 30, 2010, we also had letters of credit in
addition to those discussed above that do not reduce
availability under our credit facilities. We had
$2.7 million of such additional letters of credit that
relate primarily to environmental assurances, third-party
insurance claims processing, 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
28
Table of Contents
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, 2010, the aggregate availability of funds
under our credit facilities is $376.9 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, 2010, 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.
Fees to access the $750 million credit facility and letters
of credit under the facility are based on a pricing grid related
to our debt ratings with Moodys, S&P, and Fitch
during the term of the facility.
Debt
Securities
Thomas & Betts had the following unsecured debt
securities outstanding as of September 30, 2010:
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 2010 were not significant. We expect required
contributions to our qualified pension plans in 2010 to be
minimal.
Acquisitions
In late January 2010, we used existing cash resources to acquire
JT Packard & Associates, Inc., 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.
On April 1, 2010, we used existing cash resources to
acquire PMA AG, 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.
Other
In 2008, our Board of Directors approved a share repurchase plan
that authorized us to buy up to 5,000,000 of our common shares.
In 2008, we repurchased, with available cash resources,
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Table of Contents
2,425,000 common shares through open-market transactions. During
2009, we repurchased, with available cash resources, 1,000,000
common shares through open-market transactions, including
500,000 shares during the third quarter of 2009. We
repurchased, with available cash resources, 500,000 common
shares through open-market transactions during the third quarter
of 2010 and 1,075,000 during the first nine months of 2010. This
authorization expired on October 22, 2010.
In September 2010, the Corporations Board of Directors
approved a share repurchase plan that authorizes the Corporation
to buy up to 3,000,000 of its common shares. The Corporation has
not repurchased any shares under this plan during the third
quarter. The timing of future repurchases, if any, will depend
upon a variety of factors, including market conditions. This
authorization expires December 31, 2012.
We do not currently pay cash dividends. Future decisions
concerning the payment of cash dividends on our 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, 2010, we have $435.2 million in
cash and cash equivalents and $376.9 million of aggregate
availability under our credit facilities. We filed a universal
shelf registration statement with the Securities and Exchange
Commission on December 3, 2008, utilizing the well-known
seasoned issuer (WKSI) process. The registration statement
permits us to issue common stock, preferred stock and debt
securities. The registration statement is effective 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 in
addition to pursuing longer-term strategic initiatives such as
acquisitions and may borrow under existing credit facilities or
access the capital markets as needed for liquidity. Though
improved from levels seen early in 2009, credit markets remain
tight with limited availability of credit in select market
sectors. Our ability to satisfy our liquidity requirements has
not been adversely affected by the volatility in the credit
markets. We believe that we have sufficient liquidity to satisfy
both short-term and long-term requirements.
Off-Balance
Sheet Arrangements
As of September 30, 2010, 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 covered by this report, we have not experienced
any material changes since December 31, 2009 in market risk
that affect the quantitative and qualitative disclosures
presented in Item 7A. Quantitative and Qualitative
Disclosures About Market Risk in our 2009 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 our 2009 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 2009 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, 2010:
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 | ||||||||||||
October 2008 Plan (5,000,000 common shares authorized)
|
||||||||||||||||
September 7, 2010 to September 16, 2010
|
500,000 | $ | 40.53 | 500,000 | 500,000 | (a) | ||||||||||
Total for the quarter ended September 30, 2010
|
500,000 | $ | 40.53 | 500,000 | 500,000 | (a) | ||||||||||
September 2010 Plan (3,000,000 common shares authorized)
|
||||||||||||||||
Total for the quarter ended September 30, 2010
|
| $ | | | 3,000,000 | |||||||||||
(a) | This authorization expired on October 22, 2010. |
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 Registrant 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 29, 2010
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Table of Contents
EXHIBIT INDEX
Exhibit No. | Description of Exhibit | |||
10 | .1 | The Thomas & Betts Supplemental Executive Investment Plan as amended and restated effective September 1, 2010 (Filed as an Exhibit to the Registrants Current Report on Form 8-K dated September 1, 2010 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, 2010 and 2009, (ii) the Consolidated Balance Sheets as of September 30, 2010 and December 31, 2009, (iii) the Consolidated Statements of Cash Flows for the Nine months Ended September 30, 2010 and 2009 and (iv) the Notes to Consolidated Financial Statements, tagged as blocks of text |
* | 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 |
34