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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q
(Mark One)
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||
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended June 30, 2011 | ||
or
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||
o
|
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.) |
|
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. (Check one):
Large accelerated
filer þ
|
Accelerated filer o | |
Non-accelerated
filer o
|
Smaller reporting company o | |
(Do not check if a smaller reporting company)
|
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
Outstanding Shares |
||
Title of Each Class | at July 25, 2011 | |
Common Stock, $.10 par value
|
52,538,637 |
Thomas &
Betts Corporation and Subsidiaries
TABLE OF
CONTENTS
1
Table of Contents
CAUTION
REGARDING FORWARD-LOOKING STATEMENTS
This Report includes forward-looking comments and
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are
not historical facts regarding Thomas & Betts
Corporation and are subject to risks and uncertainties in our
operations, business, economic and political environment. For
further explanation of these risks and uncertainties, see
Item 1A. Risk Factors in our
Form 10-K
for the year ended December 31, 2010. Forward looking
statements contain words such as:
achieve
|
anticipates | intends | ||
should
|
expects | predict | ||
could
|
might | will | ||
may
|
believes |
other similar expressions
|
These forward-looking statements are not guarantees of future
performance. Many factors could affect our future financial
condition or results of operations. Accordingly, actual results,
performance or achievements may differ materially from those
expressed or implied by the forward-looking statements contained
in this Report. We undertake no obligation to revise any
forward-looking statement included in this Report to reflect any
future events or circumstances.
A reference in this Report to we, our,
us, Thomas & Betts or the
Corporation refers to Thomas & Betts
Corporation and its consolidated subsidiaries.
2
Table of Contents
PART I.
FINANCIAL INFORMATION
Item 1. | Financial Statements |
Thomas &
Betts Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
Quarter Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net sales
|
$ | 566,342 | $ | 499,980 | $ | 1,089,477 | $ | 953,609 | ||||||||
Cost of sales
|
396,419 | 342,185 | 755,951 | 661,214 | ||||||||||||
Gross profit
|
169,923 | 157,795 | 333,526 | 292,395 | ||||||||||||
Selling, general and administrative
|
99,166 | 103,931 | 203,267 | 192,410 | ||||||||||||
Earnings from operations
|
70,757 | 53,864 | 130,259 | 99,985 | ||||||||||||
Interest expense, net
|
(7,959 | ) | (8,902 | ) | (15,724 | ) | (17,273 | ) | ||||||||
Other (expense) income, net
|
(717 | ) | 935 | (1,702 | ) | 1,065 | ||||||||||
Earnings from continuing operations before income taxes
|
62,081 | 45,897 | 112,833 | 83,777 | ||||||||||||
Income tax provision
|
18,624 | 13,703 | 33,850 | 25,268 | ||||||||||||
Net earnings from continuing operations
|
43,457 | 32,194 | 78,983 | 58,509 | ||||||||||||
Earnings from discontinued operations, net
|
| 1,407 | | 3,044 | ||||||||||||
Net earnings
|
$ | 43,457 | $ | 33,601 | $ | 78,983 | $ | 61,553 | ||||||||
Basic earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 0.84 | $ | 0.62 | $ | 1.53 | $ | 1.13 | ||||||||
Discontinued operations
|
| 0.03 | | 0.05 | ||||||||||||
Net earnings
|
$ | 0.84 | $ | 0.65 | $ | 1.53 | $ | 1.18 | ||||||||
Diluted earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 0.82 | $ | 0.61 | $ | 1.49 | $ | 1.10 | ||||||||
Discontinued operations
|
| 0.02 | | 0.06 | ||||||||||||
Net earnings
|
$ | 0.82 | $ | 0.63 | $ | 1.49 | $ | 1.16 | ||||||||
Average shares outstanding:
|
||||||||||||||||
Basic
|
51,950 | 51,965 | 51,734 | 51,989 | ||||||||||||
Diluted
|
53,289 | 53,041 | 53,096 | 53,039 |
The accompanying Notes are an
integral part of these Consolidated Financial Statements.
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Table of Contents
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
ASSETS
|
||||||||
Current Assets
|
||||||||
Cash and cash equivalents
|
$ | 460,463 | $ | 455,198 | ||||
Restricted cash
|
359 | 358 | ||||||
Receivables, net
|
306,964 | 230,203 | ||||||
Inventories
|
278,364 | 220,250 | ||||||
Deferred income taxes
|
33,496 | 32,745 | ||||||
Other current assets
|
17,862 | 18,341 | ||||||
Total Current Assets
|
1,097,508 | 957,095 | ||||||
Property, plant and equipment, net
|
307,489 | 305,796 | ||||||
Goodwill
|
976,724 | 967,889 | ||||||
Other intangible assets, net
|
330,507 | 340,544 | ||||||
Other assets
|
55,724 | 61,069 | ||||||
Total Assets
|
$ | 2,767,952 | $ | 2,632,393 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Current Liabilities
|
||||||||
Current maturities of long-term debt
|
$ | 331 | $ | 322 | ||||
Accounts payable
|
197,187 | 190,839 | ||||||
Accrued liabilities
|
138,900 | 126,241 | ||||||
Income taxes payable
|
9,744 | 26,263 | ||||||
Total Current Liabilities
|
346,162 | 343,665 | ||||||
Long-Term Liabilities
|
||||||||
Long-term debt, net of current maturities
|
574,060 | 574,090 | ||||||
Long-term benefit plan liabilities
|
136,219 | 141,998 | ||||||
Deferred income taxes
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41,618 | 41,405 | ||||||
Other long-term liabilities
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57,604 | 64,453 | ||||||
Contingencies (Note 15)
|
||||||||
Shareholders Equity
|
||||||||
Common stock
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5,163 | 5,095 | ||||||
Additional paid-in capital
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66,093 | 34,384 | ||||||
Retained earnings
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1,599,828 | 1,520,845 | ||||||
Accumulated other comprehensive income (loss)
|
(58,795 | ) | (93,542 | ) | ||||
Total Shareholders Equity
|
1,612,289 | 1,466,782 | ||||||
Total Liabilities and Shareholders Equity
|
$ | 2,767,952 | $ | 2,632,393 | ||||
The accompanying Notes are an
integral part of these Consolidated Financial Statements.
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Table of Contents
Thomas &
Betts Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended |
||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Cash Flows from Operating Activities:
|
||||||||
Net earnings
|
$ | 78,983 | $ | 61,553 | ||||
Adjustments:
|
||||||||
Depreciation and amortization
|
41,960 | 39,585 | ||||||
Share-based compensation expense
|
6,786 | 6,490 | ||||||
Deferred income taxes
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3,849 | (6,600 | ) | |||||
Incremental tax benefits from share-based payment arrangements
|
(2,047 | ) | (821 | ) | ||||
Changes in operating assets and liabilities, net:
|
||||||||
Receivables
|
(71,466 | ) | (57,271 | ) | ||||
Inventories
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(55,419 | ) | (21,782 | ) | ||||
Accounts payable
|
3,764 | 18,117 | ||||||
Accrued liabilities
|
10,941 | 16,386 | ||||||
Income taxes payable
|
(15,191 | ) | 16,342 | |||||
Other
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(5,516 | ) | 5,454 | |||||
Net cash provided by (used in) operating activities
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(3,356 | ) | 77,453 | |||||
Cash Flows from Investing Activities:
|
||||||||
Purchases of businesses, net of cash acquired
|
| (99,511 | ) | |||||
Purchases of property, plant and equipment
|
(23,256 | ) | (13,706 | ) | ||||
Other
|
(104 | ) | 26 | |||||
Net cash provided by (used in) investing activities
|
(23,360 | ) | (113,191 | ) | ||||
Cash Flows from Financing Activities:
|
||||||||
Stock options exercised
|
23,433 | 4,393 | ||||||
Repurchase of common shares
|
| (22,580 | ) | |||||
Repayment of debt and other borrowings
|
(159 | ) | (35,646 | ) | ||||
Incremental tax benefits from share-based payment arrangements
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2,047 | 821 | ||||||
Net cash provided by (used in) financing activities
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25,321 | (53,012 | ) | |||||
Effect of exchange-rate changes on cash and cash equivalents
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6,660 | (4,236 | ) | |||||
Net increase (decrease) in cash and cash equivalents
|
5,265 | (92,986 | ) | |||||
Cash and cash equivalents, beginning of period
|
455,198 | 478,613 | ||||||
Cash and cash equivalents, end of period
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$ | 460,463 | $ | 385,627 | ||||
Cash payments for interest
|
$ | 16,613 | $ | 18,057 | ||||
Cash payments for income taxes
|
$ | 46,611 | $ | 19,037 |
The accompanying Notes are an
integral part of these Consolidated Financial Statements.
5
Table of Contents
Thomas &
Betts Corporation and Subsidiaries
(Unaudited)
1. | Basis of Presentation |
The financial information presented as of any date other than
December 31 has been prepared from the books and records without
audit. Financial information as of December 31 has been derived
from the Corporations audited consolidated financial
statements, but does not include all disclosures required by
U.S. generally accepted accounting principles. In the
opinion of management, all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation
of the financial information for the periods indicated have been
included. These consolidated financial statements should be read
in conjunction with the consolidated financial statements and
notes included in the Corporations Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010. The results of
operations for the periods ended June 30, 2011 and 2010 are
not necessarily indicative of the operating results for the full
year.
2. | Basic and Diluted Earnings Per Share |
The following is a reconciliation of the basic and diluted
earnings per share computations:
Quarter Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands, except per share data)
|
||||||||||||||||
Net earnings from continuing operations
|
$ | 43,457 | $ | 32,194 | $ | 78,983 | $ | 58,509 | ||||||||
Earnings from discontinued operations, net
|
| 1,407 | | 3,044 | ||||||||||||
Net earnings
|
$ | 43,457 | $ | 33,601 | $ | 78,983 | $ | 61,553 | ||||||||
Basic shares:
|
||||||||||||||||
Average shares outstanding
|
51,950 | 51,965 | 51,734 | 51,989 | ||||||||||||
Basic earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 0.84 | $ | 0.62 | $ | 1.53 | $ | 1.13 | ||||||||
Discontinued operations
|
| 0.03 | | 0.05 | ||||||||||||
Net earnings
|
$ | 0.84 | $ | 0.65 | $ | 1.53 | $ | 1.18 | ||||||||
Diluted shares:
|
||||||||||||||||
Average shares outstanding
|
51,950 | 51,965 | 51,734 | 51,989 | ||||||||||||
Additional shares on the potential dilution from stock options,
nonvested restricted stock and performance units
|
1,339 | 1,076 | 1,362 | 1,050 | ||||||||||||
53,289 | 53,041 | 53,096 | 53,039 | |||||||||||||
Diluted earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 0.82 | $ | 0.61 | $ | 1.49 | $ | 1.10 | ||||||||
Discontinued operations
|
| 0.02 | | 0.06 | ||||||||||||
Net earnings
|
$ | 0.82 | $ | 0.63 | $ | 1.49 | $ | 1.16 | ||||||||
The Corporation had stock options that were
out-of-the-money
which were excluded because of their anti-dilutive effect. Such
out-of-the
money stock options were associated with 0.2 million shares
of common stock for the second quarter of 2011 and
1.8 million shares of common stock for the second quarter
of 2010.
Out-of-the
money stock options were associated with 0.3 million shares
6
Table of Contents
of common stock for the first six months of 2011 and
1.8 million shares of common stock for the first six months
of 2010.
3. | Acquisitions & Divestitures |
In April 2010, the Corporation acquired PMA AG
(PMA), a leading European manufacturer of
technologically advanced cable protection systems, for
approximately $114 million. The purchase price consisted of
cash of approximately $78 million and debt assumed of
approximately $36 million. The purchase price allocation
resulted in goodwill of approximately $33 million and other
intangible assets of approximately $60 million, all of
which was assigned to the Companys Electrical segment. The
results of these operations have been included in the
consolidated financial statements of the Corporation since the
acquisition date.
In January 2010, the Corporation acquired JT Packard &
Associates, Inc. (JT Packard), the nations
largest independent service provider for critical power
equipment used by industrial and commercial enterprises in a
broad array of markets, for approximately $21 million. The
purchase price allocation resulted in goodwill of approximately
$6 million and other intangible assets of approximately
$11 million, all of which was assigned to the
Corporations Electrical segment. The results of these
operations have been included in the consolidated financial
statements of the Corporation since the acquisition date.
During 2010, the Corporation divested of its non-strategic
communications products business. The operations associated with
this business have been reflected as discontinued operations in
the Corporations consolidated statements of operations.
Discontinued operations in the second quarter of 2010 reflected
net sales of approximately $15 million, earnings before
income taxes of $2.1 million and net earnings of
$1.4 million from the divested communications product
business. Discontinued operations in the first six months of
2010 reflected net sales of approximately $30 million,
earnings before income taxes of $4.6 million and net
earnings of $3.0 million from the divested communications
product business.
4. | Inventories |
The Corporations inventories at June 30, 2011 and
December 31, 2010 were:
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(In thousands)
|
||||||||
Finished goods
|
$ | 123,935 | $ | 106,998 | ||||
Work-in-process
|
32,846 | 23,636 | ||||||
Raw materials
|
121,583 | 89,616 | ||||||
Total inventories
|
$ | 278,364 | $ | 220,250 | ||||
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5. | Property, Plant and Equipment |
The Corporations property, plant and equipment at
June 30, 2011 and December 31, 2010 were:
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(In thousands)
|
||||||||
Land
|
$ | 34,404 | $ | 32,775 | ||||
Building
|
206,559 | 201,866 | ||||||
Machinery and equipment
|
678,499 | 663,642 | ||||||
Construction-in-progress
|
19,046 | 12,412 | ||||||
Gross property, plant and equipment
|
938,508 | 910,695 | ||||||
Less: Accumulated depreciation
|
631,019 | 604,899 | ||||||
Net property, plant and equipment
|
$ | 307,489 | $ | 305,796 | ||||
6. | Goodwill and Other Intangible Assets |
The following table reflects activity for goodwill by segment
during the second quarter of 2011:
Quarter Ended June 30, 2011 | ||||||||||||||||
Other |
||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||
Beginning of |
Currency |
End of |
||||||||||||||
Period | Additions | Translation | Period | |||||||||||||
(In thousands)
|
||||||||||||||||
Electrical
|
$ | 912,188 | $ | | $ | (925 | ) | $ | 911,263 | |||||||
Steel Structures
|
64,759 | | | 64,759 | ||||||||||||
HVAC
|
693 | | 9 | 702 | ||||||||||||
$ | 977,640 | $ | | $ | (916 | ) | $ | 976,724 | ||||||||
The following table reflects activity for goodwill by segment
during the first six months of 2011:
Six Months Ended June 30, 2011 | ||||||||||||||||
Other |
||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||
Beginning of |
Currency |
End of |
||||||||||||||
Period | Additions | Translation | Period | |||||||||||||
(In thousands)
|
||||||||||||||||
Electrical
|
$ | 902,478 | $ | | $ | 8,785 | $ | 911,263 | ||||||||
Steel Structures
|
64,759 | | | 64,759 | ||||||||||||
HVAC
|
652 | | 50 | 702 | ||||||||||||
$ | 967,889 | $ | | $ | 8,835 | $ | 976,724 | |||||||||
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The following table reflects activity for other intangible
assets during the second quarter of 2011:
Quarter Ended June 30, 2011 | ||||||||||||||||||||
Other |
||||||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||||||
Beginning of |
Amortization |
Currency |
End of |
|||||||||||||||||
Period | Additions | Expense | Translation | Period | ||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Intangible assets subject to amortization
|
$ | 333,268 | $ | | $ | | $ | 566 | $ | 333,834 | ||||||||||
Accumulated amortization
|
(100,322 | ) | | (8,399 | ) | (6 | ) | (108,727 | ) | |||||||||||
232,946 | | (8,399 | ) | 560 | 225,107 | |||||||||||||||
Other intangible assets not subject to amortization
|
105,182 | | | 218 | 105,400 | |||||||||||||||
Total
|
$ | 338,128 | $ | | $ | (8,399 | ) | $ | 778 | $ | 330,507 | |||||||||
The following table reflects activity for other intangible
assets during the first six months of 2011:
Six Months Ended June 30, 2011 | ||||||||||||||||||||
Other |
||||||||||||||||||||
Balance at |
Primarily |
Balance at |
||||||||||||||||||
Beginning of |
Amortization |
Currency |
End of |
|||||||||||||||||
Period | Additions | Expense | Translation | Period | ||||||||||||||||
(In thousands)
|
||||||||||||||||||||
Intangible assets subject to amortization
|
$ | 328,177 | $ | | $ | | $ | 5,657 | $ | 333,834 | ||||||||||
Accumulated amortization
|
(91,370 | ) | | (16,852 | ) | (505 | ) | (108,727 | ) | |||||||||||
236,807 | | (16,852 | ) | 5,152 | 225,107 | |||||||||||||||
Other intangible assets not subject to amortization
|
103,737 | | | 1,663 | 105,400 | |||||||||||||||
Total
|
$ | 340,544 | $ | | $ | (16,852 | ) | $ | 6,815 | $ | 330,507 | |||||||||
7. | Income Taxes |
The Corporations income tax provision for the second
quarter of 2011 was $18.6 million, or an effective rate of
30.0% of pre-tax income, compared to a tax provision in the
second quarter of 2010 of $13.7 million, or an effective
rate of 29.9% of pre-tax income. The Corporations income
tax provision for the six months ended June 30, 2011 was
$33.9 million, or an effective rate of 30.0% of pre-tax
income, compared to a tax provision for the six months ended
June 30, 2010 of $25.3 million, or an effective rate
of 30.2% of pre-tax income. The effective rate for each period
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.
9
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During the first quarter of 2011, the Corporation concluded a
Canada Revenue Agency audit of the Corporations Canadian
income tax returns for the tax years 2005 2009,
resulting in an $8.2 million assessment, including
interest. Substantially all of this assessment was paid during
the second quarter of 2011. The Canadian tax assessment is
offset by an expected recovery of U.S. federal and state
income taxes of $7.4 million, resulting from the
Corporations petition for tax relief under the competent
authority administrative process.
The Corporation had net deferred tax assets totaling
$2.7 million as of June 30, 2011 and
$12.4 million as of December 31, 2010. Realization of
the deferred tax assets is dependent upon the Corporations
ability to generate sufficient future taxable income. Management
believes that it is more-likely-than-not that future taxable
income, based on tax laws in effect as of June 30, 2011,
will be sufficient to realize the recorded deferred tax assets,
net of any valuation allowance.
8. | Comprehensive Income |
Total comprehensive income and its components are as follows:
Quarter Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands)
|
||||||||||||||||
Net earnings
|
$ | 43,457 | $ | 33,601 | $ | 78,983 | $ | 61,553 | ||||||||
Net unrealized gains (losses) on cash flow hedge, net of tax
|
1,853 | 665 | 3,972 | 729 | ||||||||||||
Foreign currency translation adjustments
|
(1,939 | ) | (22,050 | ) | 28,105 | (29,594 | ) | |||||||||
Amortization of net prior service costs and net actuarial
losses, net of tax
|
1,268 | 2,103 | 2,670 | 4,662 | ||||||||||||
Comprehensive income
|
$ | 44,639 | $ | 14,319 | $ | 113,730 | $ | 37,350 | ||||||||
9. | Fair Value of Financial Instruments |
The Corporations financial instruments include cash and
cash equivalents, restricted cash, marketable securities,
short-term receivables and payables, and debt. Financial
instruments also include an interest rate swap agreement, which
is discussed further in Note 10 below. The carrying amounts
of the Corporations financial instruments generally
approximated their fair values at June 30, 2011 and
December 31, 2010, 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 $596 million at June 30,
2011 and $588 million at December 31, 2010.
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
amortizing interest rate swap for a notional amount of
$390 million. The notional amount reduced to
$325 million in December 2010, and reduces to
$200 million in December 2011 and $0 in October 2012. The
interest rate swap hedges the Corporations exposure to
changes in interest rates on borrowings under its
$750 million
10
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revolving credit facility. The Corporation has designated the
receive variable/pay fixed interest rate swap as a cash flow
hedge for accounting purposes. Under the interest rate swap, the
Corporation receives one-month London Interbank Offered Rate
(LIBOR) and pays an underlying fixed rate of 4.86%.
For derivative instruments that are designated and qualify as
cash flow hedges, the effective portion of the gain or loss on
the derivative is reported as a component of accumulated other
comprehensive income (loss) and reclassified into earnings in
the applicable periods during which the hedged transaction
affects earnings. Gains or losses on the derivative representing
hedge ineffectiveness are recognized in current period earnings.
The Corporation values the interest rate swap at fair value.
Fair value is the price received to transfer an asset or paid to
transfer a liability in an orderly transaction between market
participants at the measurement date. Measuring fair value
involves a hierarchy of valuation inputs used to measure fair
value. This hierarchy prioritizes the inputs into three broad
levels as follows: Level 1 inputs are quoted prices
(unadjusted) in active markets for identical assets or
liabilities; Level 2 inputs are quoted prices for similar
assets and liabilities in active markets or inputs that are
observable for the asset or liability, either directly or
indirectly; and, Level 3 inputs are unobservable inputs in
which little or no market data exists, therefore requiring a
company to develop its own valuation assumptions.
The Corporations interest rate swap was reflected in the
Corporations consolidated balance sheet in other long-term
liabilities at its fair value of $14.8 million as of
June 30, 2011 and $21.3 million as of
December 31, 2010. This swap is measured at fair value at
the end of each reporting period. The Corporations fair
value estimate was determined using significant unobservable
inputs and assumptions (Level 3) and, in addition, the
liability valuation reflects the Corporations credit
standing. The valuation technique utilized by the Corporation to
calculate the swap fair value is the income approach. Using
inputs for current market expectations of LIBOR rates,
Eurodollar futures prices, treasury yields and interest rate
swap spreads, this approach compares the present value of a
constructed zero coupon yield curve and the present value of an
extrapolated forecast of future interest rates. This determined
value is then reduced by a credit valuation adjustment that
takes into effect the current credit risk of the interest rate
swap counterparty or the Corporation, as applicable.
The Corporations balance of accumulated other
comprehensive income has been reduced by $9.1 million, net
of tax of $5.6 million, as of June 30, 2011 and
$13.1 million, net of tax of $8.0 million, as of
December 31, 2010 to reflect the above interest rate swap
liability.
The following is a reconciliation associated with the interest
rate swap of the fair value activity using Level 3 inputs
during the second quarter and first six months of 2011 and 2010:
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions)
|
||||||||||||||||
Asset (liability) at beginning of period
|
$ | (17.8 | ) | $ | (28.6 | ) | $ | (21.3 | ) | $ | (28.7 | ) | ||||
Total realized/unrealized gains or losses:
|
||||||||||||||||
Included in earnings
|
(3.9 | ) | (4.5 | ) | (7.6 | ) | (9.0 | ) | ||||||||
Increase (decrease) in fair value included in comprehensive
income
|
3.1 | 1.0 | 6.5 | 1.1 | ||||||||||||
Settlements
|
3.8 | 4.6 | 7.6 | 9.1 | ||||||||||||
Asset (liability) at end of period
|
$ | (14.8 | ) | $ | (27.5 | ) | $ | (14.8 | ) | $ | (27.5 | ) | ||||
11
Table of Contents
The ineffective portion of the swap reflected in interest
expense, net during the second quarter and the first six months
of 2011 and 2010 was immaterial.
Forward
Foreign Exchange Contracts
The Corporation had no outstanding forward sale or purchase
contracts as of June 30, 2011 or December 31, 2010.
The Corporation is exposed to the effects of changes in exchange
rates primarily from the Canadian dollar and European
currencies. From time to time, the Corporation utilizes forward
foreign exchange contracts for the sale or purchase of foreign
currencies to mitigate this risk.
Commodities
Futures Contracts
The Corporation had no outstanding commodities futures contracts
as of June 30, 2011 or December 31, 2010. The
Corporation is exposed to risk from fluctuating prices for
certain materials used to manufacture its products, such as:
steel, aluminum, copper, zinc, resins and rubber compounds. At
times, some of the risk associated with usage of aluminum,
copper and zinc has been mitigated through the use of futures
contracts that mitigate the price exposure to these commodities.
11. | Debt |
The Corporations long-term debt at June 30, 2011 and
December 31, 2010 was:
June 30, |
December 31, |
|||||||
2011 | 2010 | |||||||
(In thousands)
|
||||||||
Senior credit
facility(a)
|
$ | 325,000 | $ | 325,000 | ||||
Unsecured notes:
|
||||||||
5.625% Senior Notes due
2021(b)
|
248,438 | 248,301 | ||||||
Other, including capital leases
|
953 | 1,111 | ||||||
Long-term debt (including current maturities)
|
574,391 | 574,412 | ||||||
Less current maturities
|
331 | 322 | ||||||
Long-term debt, net of current maturities
|
$ | 574,060 | $ | 574,090 | ||||
(a) | Interest is paid monthly. | |
(b) | Interest is paid semi-annually. |
As of June 30, 2011 and December 31, 2010, the
Corporation had outstanding $250 million of
5.625% Senior Notes due 2021. The indentures underlying the
unsecured notes contain standard covenants such as restrictions
on mergers, liens on certain property, sale-leaseback of certain
property and funded debt for certain subsidiaries. The
indentures also include standard events of default such as
covenant default and cross-acceleration.
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 June 30, 2011 and December 31, 2010,
$325 million was outstanding under this facility.
12
Table of Contents
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 $22.3 million at
June 30, 2011. The letters of credit relate primarily to
third-party insurance claims processing.
The Corporation has a EUR 10 million (approximately
US$14.2 million) committed revolving credit facility with a
European bank. The Corporation pays an annual commitment fee of
20 basis points on the undrawn balance to maintain this
facility. This credit facility contains standard covenants
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 June 30,
2011 and December 31, 2010. Outstanding letters of credit
which reduced availability under the European facility amounted
to EUR 0.9 million (approximately US$1.2 million)
at June 30, 2011.
The Corporation has a CAN 30 million (approximately
US$30.3 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 December
2011, and no borrowings were outstanding as of June 30,
2011 and December 31, 2010.
As of June 30, 2011, the Corporations aggregate
availability of funds under its credit facilities is
approximately $446 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 June 30, 2011, the Corporation also had letters of
credit in addition to those discussed above that do not reduce
availability under the Corporations credit facilities. The
Corporation had $19.2 million of such additional letters of
credit that relate primarily to environmental assurances,
third-party insurance claims processing, performance bonds,
performance guarantees and acquisition obligations.
12. | Share-Based Payment Arrangements |
Share-based compensation expense, net of tax, of
$1.9 million and $1.8 million was charged against
income during the second quarter of 2011 and 2010, respectively.
Share-based compensation expense, net of tax, of
$4.2 million and $4.0 million was charged against
income during the first six months of 2011 and 2010,
respectively.
During the second quarter and first six months of 2011, the
Corporation granted 4,367 nonvested shares (restricted stock)
with a weighted average grant date fair value of $52.66 per
share. During the second quarter of 2011, the Corporation had
143,039 stock options exercised at a
13
Table of Contents
weighted average exercise price of $34.36 per share and had
2,884 stock options forfeited or expired. During the first six
months of 2011, the Corporation had 654,078 stock options
exercised at a weighted average exercise price of $35.82 per
share and had 14,481 stock options forfeited or expired.
Compensation expense, net of tax, of $0.3 million was
charged to selling, general and administrative expense as of the
grant date for stock awards under the Corporations
Non-Employee Directors Equity Compensation Plan during both the
second quarter of 2011 and second quarter of 2010. The
Corporation granted non-employee members of the Board of
Directors a total of 8,082 shares of common stock with a
weighted average grant date fair value of $55.66 during the
second quarter of 2011.
13. | Pension and Other Postretirement Benefits |
Net periodic cost for the Corporations pension and other
postretirement benefits included the following components:
Quarter Ended | ||||||||||||||||
Other |
||||||||||||||||
Postretirement |
||||||||||||||||
Pension Benefits | Benefits | |||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands)
|
||||||||||||||||
Service cost
|
$ | 1,027 | $ | 2,389 | $ | 3 | $ | | ||||||||
Interest cost
|
7,358 | 7,213 | 193 | 204 | ||||||||||||
Expected return on plan assets
|
(8,627 | ) | (8,186 | ) | | | ||||||||||
Plan net loss (gain)
|
1,615 | 3,309 | (4 | ) | (136 | ) | ||||||||||
Prior service cost (gain)
|
175 | 282 | (63 | ) | (63 | ) | ||||||||||
Transition obligation (asset)
|
(5 | ) | (4 | ) | 191 | 191 | ||||||||||
Curtailment/settlement loss (gain)
|
995 | 1,014 | | | ||||||||||||
Net periodic benefit cost
|
$ | 2,538 | $ | 6,017 | $ | 320 | $ | 196 | ||||||||
Six Months Ended | ||||||||||||||||
Other |
||||||||||||||||
Postretirement |
||||||||||||||||
Pension Benefits | Benefits | |||||||||||||||
June 30, |
June 30, |
June 30, |
June 30, |
|||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands)
|
||||||||||||||||
Service cost
|
$ | 2,066 | $ | 5,277 | $ | 3 | $ | 2 | ||||||||
Interest cost
|
14,702 | 14,430 | 396 | 459 | ||||||||||||
Expected return on plan assets
|
(17,151 | ) | (16,394 | ) | | | ||||||||||
Plan net loss (gain)
|
3,211 | 6,154 | 54 | (62 | ) | |||||||||||
Prior service cost (gain)
|
458 | 564 | (126 | ) | (126 | ) | ||||||||||
Transition obligation (asset)
|
(10 | ) | (8 | ) | 383 | 383 | ||||||||||
Curtailment/settlement loss (gain)
|
995 | 1,213 | | | ||||||||||||
Net periodic benefit cost
|
$ | 4,271 | $ | 11,236 | $ | 710 | $ | 656 | ||||||||
14
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Contributions to our qualified pension plans during the six
months ended June 30, 2011 and 2010 were not significant.
We expect required contributions to our qualified pension plans
during the remainder of 2011 to be minimal.
14. | Segment Disclosures |
The Corporation has three reportable
segments: Electrical, Steel Structures and HVAC. The
Corporations reportable segments are based primarily on
product lines and represent the primary mode used to assess
allocation of resources and performance. The Corporation
evaluates its business segments primarily on the basis of
segment earnings, with segment earnings defined as earnings
before corporate expense, depreciation and amortization expense,
share-based compensation expense, interest, income taxes and
certain other items. Corporate expense includes legal, finance
and administrative costs. The Corporation has no material
inter-segment sales.
The Electrical segment designs, manufactures and markets
thousands of different electrical connectors, components and
other products for industrial, construction and utility
applications. The Steel Structures segment designs, manufactures
and markets highly engineered steel transmission structures. The
HVAC segment designs, manufactures and markets heating and
ventilation products for commercial and industrial buildings.
The Corporations U.S. Electrical and International
Electrical operating segments have been aggregated in the
Electrical reporting segment since they have similar economic
characteristics as well as similar products and services,
production processes, types of customers and methods used for
distributing their products.
Quarter Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands)
|
||||||||||||||||
Net Sales
|
||||||||||||||||
Electrical
|
$ | 483,779 | $ | 429,341 | $ | 927,299 | $ | 796,587 | ||||||||
Steel Structures
|
58,766 | 49,624 | 109,711 | 109,521 | ||||||||||||
HVAC
|
23,797 | 21,015 | 52,467 | 47,501 | ||||||||||||
Total
|
$ | 566,342 | $ | 499,980 | $ | 1,089,477 | $ | 953,609 | ||||||||
Segment Earnings
|
||||||||||||||||
Electrical
|
$ | 93,180 | $ | 84,310 | $ | 180,116 | $ | 148,198 | ||||||||
Steel Structures
|
4,289 | 8,045 | 8,581 | 17,935 | ||||||||||||
HVAC
|
2,461 | 2,307 | 7,023 | 6,598 | ||||||||||||
Segment earnings
|
99,930 | 94,662 | 195,720 | 172,731 | ||||||||||||
Corporate expense
|
(5,206 | ) | (17,703 | ) | (16,715 | ) | (27,590 | ) | ||||||||
Depreciation and amortization expense
|
(20,923 | ) | (20,261 | ) | (41,960 | ) | (38,721 | ) | ||||||||
Share-based compensation expense
|
(3,044 | ) | (2,834 | ) | (6,786 | ) | (6,435 | ) | ||||||||
Interest expense, net
|
(7,959 | ) | (8,902 | ) | (15,724 | ) | (17,273 | ) | ||||||||
Other (expense) income, net
|
(717 | ) | 935 | (1,702 | ) | 1,065 | ||||||||||
Earnings before income taxes
|
$ | 62,081 | $ | 45,897 | $ | 112,833 | $ | 83,777 | ||||||||
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
15
Table of Contents
predictable with assurance. The Corporation has provided for
losses to the extent probable and estimable. The legal matters
that have been recorded in the Corporations consolidated
financial statements are based on gross assessments of expected
settlement or expected outcome and do not reflect possible
recovery from insurance companies or other parties. Additional
losses, even though not anticipated, could have a material
adverse effect on the Corporations financial position,
results of operations or liquidity in any given period.
Guarantee
and Indemnification Arrangements
The Corporation generally warrants its products against certain
manufacturing and other defects. These product warranties are
provided for specific periods of time and usage of the product
depending on the nature of the product, the geographic location
of its sale and other factors. The accrued product warranty
costs are based primarily on historical experience of actual
warranty claims as well as current information on repair costs.
The following table provides the changes in the
Corporations accruals for estimated product warranties:
Quarter Ended |
Six Months Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In thousands)
|
||||||||||||||||
Balance at beginning of period
|
$ | 2,707 | $ | 2,747 | $ | 2,574 | $ | 3,064 | ||||||||
Liabilities accrued for warranties issued during the period
|
1,136 | 343 | 1,591 | 737 | ||||||||||||
Warranty claims paid during the period
|
(724 | ) | (304 | ) | (982 | ) | (1,018 | ) | ||||||||
Changes in liability for pre-existing warranties during the
period, including expirations
|
(12 | ) | 12 | (76 | ) | 15 | ||||||||||
Balance at end of period
|
$ | 3,107 | $ | 2,798 | $ | 3,107 | $ | 2,798 | ||||||||
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. | Recently Issued Accounting Standards |
In June 2011, the FASB issued Accounting Standards Update
No. 2011-05,
Comprehensive Income (Topic 220): Presentation of
Comprehensive Income. This standard eliminates the option
to report other comprehensive income and its components in the
statement of changes in equity and instead requires that such
information be presented in either (1) a single continuous
statement of comprehensive income, or (2) in two separate
but consecutive statements. This new guidance is effective
beginning in 2012 and must be applied retrospectively. This
standard concerns financial statement presentation only and will
not have a material impact on the consolidated financial
position or results of operations.
17. | Subsequent Events |
On July 1, 2011, the Corporation acquired the AmbiRad Group
(AmbiRad), a leading global manufacturer of
specialized commercial and industrial heating and ventilation
products, for £18 million (approximately
US$30 million). AmbiRad manufactures natural gas-fired
radiant heaters used in open-air applications such as
manufacturing facilities, warehouses, sports facilities and dock
areas.
16
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Executive
Overview
Thomas & Betts Corporation is a global leader in the
design, manufacture, and marketing of essential components used
to manage the connection, distribution, transmission and
reliability of electrical power in industrial, construction and
utility applications. We are also a leading producer of
commercial heating and ventilation units used in commercial and
industrial buildings and highly engineered steel structures used
for utility transmission. We have operations in over 20
countries. Manufacturing, marketing and sales activities are
concentrated primarily in North America and Europe.
Critical
Accounting Policies
The preparation of financial statements contained in this report
requires the use of estimates and assumptions to determine
certain amounts reported as net sales, costs, expenses, assets
or liabilities and certain amounts disclosed as contingent
assets or liabilities. Actual results may differ from those
estimates or assumptions. Our significant accounting policies
are described in Note 2 of the Notes to Consolidated
Financial Statements in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010. We believe our
critical accounting policies include the following:
| Revenue Recognition: We recognize revenue when products are shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed or determinable. We recognize revenue for service agreements over the applicable service periods. Sales discounts, quantity and price rebates, and allowances are estimated based on contractual commitments and experience and recorded as a reduction of revenue in the period in which the sale is recognized. Quantity rebates are in the form of volume incentive discount plans, which include specific sales volume targets or year-over-year sales volume growth targets for specific customers. Certain distributors can take advantage of price rebates by subsequently reselling our products into targeted construction projects or markets. Following a distributors sale of an eligible product, the distributor submits a claim for a price rebate. A number of distributors, primarily in our Electrical segment, have the right to return goods under certain circumstances and those returns, which are reasonably estimable, are accrued as a reduction of revenue at the time of shipment. We analyze historical returns and allowances, current economic trends and specific customer circumstances when evaluating the adequacy of accounts receivable related reserves and accruals. We provide allowances for doubtful accounts when credit losses are both probable and estimable. | |
| Inventory Valuation: Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. To ensure inventories are carried at the lower of cost or market, we periodically evaluate the carrying value of our inventories. We also periodically perform an evaluation of inventory for excess and obsolete items. Such evaluations are based on managements judgment and use of estimates. Such estimates incorporate inventory quantities on-hand, aging of the inventory, sales history and forecasts for particular product groupings, planned dispositions of product lines and overall industry trends. | |
| Goodwill and Other Intangible Assets: We apply the acquisition (purchase) method of accounting for all business combinations. Under this method, all assets and liabilities acquired in a business combination, including goodwill, indefinite-lived intangibles and other intangibles, are recorded at fair value. The purchase price allocation requires subjective |
17
Table of Contents
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 June 30, 2011. |
In conjunction with each test of goodwill we determine the fair
value of each reporting unit and compare the fair value to the
reporting units carrying amount. A reporting unit is
defined as an operating segment or one level below an operating
segment. We determine the fair value of our reporting units
using a combination of three valuation methods: market multiple
approach; discounted cash flow approach; and comparable
transactions approach. The market multiple approach provides
indications of value based on market multiples for public
companies involved in similar lines of business. The discounted
cash flow approach calculates the present value of projected
future cash flows using appropriate discount rates. The
comparable transactions approach provides indications of value
based on an examination of recent transactions in which
companies in similar lines of business were acquired. The fair
values derived from these three valuation methods are then
weighted to arrive at a single value for each reporting unit.
Relative weights assigned to the three methods are based upon
the availability, relevance and reliability of the underlying
data. We then reconcile the total values for all reporting units
to our market capitalization and evaluate the reasonableness of
the implied control premium.
To the extent a reporting units carrying amount exceeds
its fair value, an indication exists that the reporting
units goodwill may be impaired, and we must perform a
second more detailed impairment assessment. The second
impairment assessment involves allocating the reporting
units fair value to all of its recognized and unrecognized
assets and liabilities in order to determine the implied fair
value of the reporting units goodwill as of the assessment
date. The implied fair value of the reporting units
goodwill is then compared to the carrying amount of goodwill to
quantify an impairment charge as of the assessment date.
Methods used to determine fair values for indefinite-lived
intangible assets involve customary valuation techniques that
are applicable to the particular class of intangible asset and
apply inputs and assumptions that we believe a market
participant would use.
| Long-Lived Assets: We review long-lived assets to be held-and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Indications of impairment require significant judgment by management. For purposes of recognizing and measuring impairment of long-lived assets, we evaluate assets at the lowest level of identifiable cash flows for associated product groups. If the sum of the undiscounted expected future cash flows over the remaining useful life of the primary asset in the associated product groups is less than the carrying amount of the assets, |
18
Table of Contents
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 June 30, 2011, will be sufficient to realize the recorded deferred tax assets net of existing valuation allowances. | |
| Environmental Costs: Environmental expenditures that relate to current operations are expensed or capitalized, as appropriate. Remediation costs that relate to an existing condition caused by past operations are accrued when it is probable that those costs will be incurred and can be reasonably estimated based on evaluations of currently available facts related to each site. The operation of manufacturing plants involves a high level of susceptibility in these areas, and requires subjective judgments by management in assessing environmental or occupational health and safety liabilities. |
19
Table of Contents
Summary
of Consolidated Results
Quarter Ended June 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
% of Net |
% of Net |
|||||||||||||||
In Thousands | Sales | In Thousands | Sales | |||||||||||||
Net sales
|
$ | 566,342 | 100.0 | $ | 499,980 | 100.0 | ||||||||||
Cost of sales
|
396,419 | 70.0 | 342,185 | 68.4 | ||||||||||||
Gross profit
|
169,923 | 30.0 | 157,795 | 31.6 | ||||||||||||
Selling, general and administrative
|
99,166 | 17.5 | 103,931 | 20.8 | ||||||||||||
Earnings from operations
|
70,757 | 12.5 | 53,864 | 10.8 | ||||||||||||
Interest expense, net
|
(7,959 | ) | (1.4 | ) | (8,902 | ) | (1.8 | ) | ||||||||
Other (expense) income, net
|
(717 | ) | (0.1 | ) | 935 | 0.2 | ||||||||||
Earnings from continuing operations before income taxes
|
62,081 | 11.0 | 45,897 | 9.2 | ||||||||||||
Income tax provision
|
18,624 | 3.3 | 13,703 | 2.7 | ||||||||||||
Net earnings from continuing operations
|
43,457 | 7.7 | 32,194 | 6.5 | ||||||||||||
Earnings from discontinued operations, net
|
| | 1,407 | 0.2 | ||||||||||||
Net earnings
|
$ | 43,457 | 7.7 | $ | 33,601 | 6.7 | ||||||||||
Basis earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 0.84 | $ | 0.62 | ||||||||||||
Discontinued operations
|
| 0.03 | ||||||||||||||
Net earnings
|
$ | 0.84 | $ | 0.65 | ||||||||||||
Diluted earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 0.82 | $ | 0.61 | ||||||||||||
Discontinued operations
|
| 0.02 | ||||||||||||||
Net earnings
|
$ | 0.82 | $ | 0.63 | ||||||||||||
Six Months Ended June 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
% of Net |
% of Net |
|||||||||||||||
In Thousands | Sales | In Thousands | Sales | |||||||||||||
Net sales
|
$ | 1,089,477 | 100.0 | $ | 953,609 | 100.0 | ||||||||||
Cost of sales
|
755,951 | 69.4 | 661,214 | 69.3 | ||||||||||||
Gross profit
|
333,526 | 30.6 | 292,395 | 30.7 | ||||||||||||
Selling, general and administrative
|
203,267 | 18.6 | 192,410 | 20.2 | ||||||||||||
Earnings from operations
|
130,259 | 12.0 | 99,985 | 10.5 | ||||||||||||
Interest expense, net
|
(15,724 | ) | (1.4 | ) | (17,273 | ) | (1.8 | ) | ||||||||
Other (expense) income, net
|
(1,702 | ) | (0.2 | ) | 1,065 | 0.1 | ||||||||||
Earnings from continuing operations before income taxes
|
112,833 | 10.4 | 83,777 | 8.8 | ||||||||||||
Income tax provision
|
33,850 | 3.1 | 25,268 | 2.7 | ||||||||||||
Net earnings from continuing operations
|
78,983 | 7.3 | 58,509 | 6.1 | ||||||||||||
Earnings from discontinued operations, net
|
| | 3,044 | 0.3 | ||||||||||||
Net earnings
|
$ | 78,983 | 7.3 | $ | 61,553 | 6.4 | ||||||||||
Basis earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 1.53 | $ | 1.13 | ||||||||||||
Discontinued operations
|
| 0.05 | ||||||||||||||
Net earnings
|
$ | 1.53 | $ | 1.18 | ||||||||||||
Diluted earnings per share:
|
||||||||||||||||
Continuing operations
|
$ | 1.49 | $ | 1.10 | ||||||||||||
Discontinued operations
|
| 0.06 | ||||||||||||||
Net earnings
|
$ | 1.49 | $ | 1.16 | ||||||||||||
20
Table of Contents
2011
Compared with 2010
Overview
Net sales in the second quarter and the first six months of 2011
increased from the prior-year periods primarily reflecting
higher organic sales volumes in our Electrical segment, the
positive impact of the 2010 acquisitions of JT Packard (January
2010), PMA AG (PMA) (April 2010) and Cable
Management Group, Ltd. (CMG) (October 2010), and the
positive impact from a weaker U.S. dollar.
Earnings from operations, both in dollars and as a percent of
sales, increased from the respective prior-year periods. These
improvements reflect the impact of increased organic sales
volumes in our Electrical segment, improved manufacturing
leverage from increased production volumes in our Electrical
segment, and the impact of the 2010 acquisitions, which were
partially offset by lower segment earnings in our Steel
Structures segment. Results in the second quarter and first six
months of 2011 included charges related to facility
consolidations and a benefit from legal settlements. The second
quarter and first six months of 2010 included a charge for
environmental remediation and the first six months of 2010
included facility consolidation charges.
Net earnings in the second quarter of 2011 were
$43.5 million ($0.82 per diluted share) compared to net
earnings of $33.6 million ($0.63 per diluted share) in the
second quarter of 2010. Net earnings in the first six months of
2011 were $79.0 million ($1.49 per diluted share) compared
to net earnings of $61.6 million ($1.16 per diluted share)
in the prior-year period.
Net earnings in the second quarter of 2011 included net
after-tax facility consolidation charges of $2.0 million
($0.04 per diluted share) and a net after-tax benefit from legal
settlements of $3.0 million ($0.06 per diluted share). Net
earnings in the second quarter of 2010 included a net after-tax
environmental remediation charge of $3.3 million ($0.06 per
diluted share).
Net earnings in the first six months of 2011 included net
after-tax facility consolidation charges of $4.3 million
($0.08 per diluted share) in addition to the second quarter
benefit from legal settlements. Net earnings in the first six
months of 2010 included net after-tax facility consolidation
charges of $2.1 million ($0.04 per diluted share) in
addition to the second quarter environmental remediation charge.
Net earnings in the second quarter and first six months of 2010
also reflect $1.4 million ($0.02 per diluted share) and
$3.0 million ($0.06 per diluted share) of earnings from
discontinued operations, respectively.
Net
Sales and Gross Profit
Net sales in the second quarter of 2011 were
$566.3 million, up 13.3%, from the prior-year period. For
the first six months of 2011, net sales were $1.1 billion,
up 14.2% from the prior-year period. Higher organic sales
volumes in our Electrical segment positively impacted
year-over-year
sales in both 2011 periods. The second quarter and first six
months sales increases from the prior-year periods attributable
to the 2010 acquisitions was approximately $11 million and
$43 million, respectively. A weaker U.S. dollar
positively impacted sales by approximately $18 million and
$23 million in the second quarter and first six months of
2011, respectively, when compared to the prior-year periods.
Price had a positive impact on
year-over-year
consolidated sales for the second quarter and first six months
of 2011 primarily in our Electrical and Steel Structures
segments.
Gross profit in the second quarter of 2011 was
$169.9 million, or 30.0% of net sales, compared to
$157.8 million, or 31.6% of net sales, in the second
quarter of 2010. Gross profit in the first six months of 2011
was $333.5 million, or 30.6% of net sales, compared to
$292.4 million, or 30.7% of
21
Table of Contents
net sales, in the first six months of 2010. The
year-over-year
decreases in gross profit as a percentage of sales reflects the
positive impact from the 2010 acquisitions, actions taken to
manage costs and improved manufacturing leverage from increased
production volumes, which were offset by facility consolidation
charges and lower earnings in our Steel Structures segment due
to project mix and highly competitive market conditions. There
was a significant decline in the profitability of our Steel
Structures segment during the second quarter of 2011. Gross
profit in the second quarter of 2011 included pre-tax charges
for facility consolidations of $2.7 million. Gross profit
in the first six months of 2011 and 2010 included pre-tax
charges for facility consolidations of $5.1 million and
$3.2 million, respectively.
Selling,
General and Administrative
Selling, general and administrative (SG&A)
expense in the second quarter of 2011 was $99.2 million, or
17.5% of net sales, compared to $103.9 million, or 20.8% of
net sales, in the prior year period. SG&A expense in the
first six months of 2011 was $203.3 million, or 18.6% of
net sales, compared to $192.4 million, or 20.2% of net
sales, in the prior-year period. SG&A in the second quarter
and first six months of 2011 included a pre-tax benefit of
$4.8 million from legal settlements. SG&A in the
second quarter and first six months of 2011 also included
pre-tax charges of $0.4 million and $1.2 million,
respectively, for facility consolidations. SG&A in the
second quarter and first six months of 2010 included pre-tax
charges of $5.3 million for environmental remediation
charges.
Interest
Expense, Net
Interest expense, net was $8.0 million for the second
quarter of 2011 and $15.7 million for the first six months
of 2011 compared to $8.9 million and $17.3 million in
the corresponding prior-year periods. The decreases in both
periods reflect lower average debt levels in the current year
periods in addition to increased interest income associated with
higher cash balances in the current year. Interest income
included in interest expense, net was $0.7 million for the
second quarter of 2011 and $0.3 million for the prior year
period. Interest income included in interest expense, net was
$1.4 million for the first six months of 2011 and
$1.3 million for the prior year period.
Income
Taxes
The effective tax rate from continuing operations in the second
quarter of 2011 was 30.0% compared to 29.9% in the second
quarter of 2010. The effective tax rate from continuing
operations for the first six months of 2011 was 30.0% compared
to 30.2% in the first six months of 2010. The effective rate for
both periods reflects benefits from our Puerto Rican
manufacturing operations.
Net
Earnings
Net earnings in the second quarter of 2011 were
$43.5 million, or $0.82 per diluted share, compared to net
earnings of $33.6 million, or $0.63 per diluted share, in
the second quarter of 2010. Net earnings in the first six months
of 2011 were $79.0 million, or $1.49 per diluted share,
compared to net earnings of $61.6 million, or $1.16 per
diluted share, in the first six months of 2010.
Net earnings in the second quarter of 2011 included a net
after-tax facility consolidation charge of $2.0 million
($0.04 per diluted share) and a net after-tax benefit from legal
settlements of $3.0 million ($0.06 per diluted share). Net
earnings in the second quarter of 2010 included a net after-tax
environmental remediation charge of $3.3 million ($0.06 per
diluted share).
22
Table of Contents
Net earnings in the first six months of 2011 included net
after-tax facility consolidation charges of $4.3 million
($0.08 per diluted share) in addition to the second quarter
benefit from legal settlements. Net earnings in the first six
months of 2010 included a net after-tax facility consolidation
charge of $2.1 million ($0.04 per diluted share) in the
first quarter of 2010 in addition to the second quarter
environmental remediation charge.
Net earnings in the second quarter and first six months of 2010
also reflect $1.4 million ($0.02 per diluted share) and
$3.0 million ($0.06 per diluted share) of earnings from
discontinued operations, respectively.
23
Table of Contents
Summary
of Segment Results
Net
Sales
Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
In |
% of Net |
In |
% of Net |
In |
% of Net |
In |
% of Net |
|||||||||||||||||||||||||
Thousands | Sales | Thousands | Sales | Thousands | Sales | Thousands | Sales | |||||||||||||||||||||||||
Electrical
|
$ | 483,779 | 85.4 | $ | 429,341 | 85.9 | $ | 927,299 | 85.1 | $ | 796,587 | 83.5 | ||||||||||||||||||||
Steel Structures
|
58,766 | 10.4 | 49,624 | 9.9 | 109,711 | 10.1 | 109,521 | 11.5 | ||||||||||||||||||||||||
HVAC
|
23,797 | 4.2 | 21,015 | 4.2 | 52,467 | 4.8 | 47,501 | 5.0 | ||||||||||||||||||||||||
$ | 566,342 | 100.0 | $ | 499,980 | 100.0 | $ | 1,089,477 | 100.0 | $ | 953,609 | 100.0 | |||||||||||||||||||||
Segment
Earnings
|
||||||||||||||||||||||||||||||||
Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||
In |
% of Net |
In |
% of Net |
In |
% of Net |
In |
% of Net |
|||||||||||||||||||||||||
Thousands | Sales | Thousands | Sales | Thousands | Sales | Thousands | Sales | |||||||||||||||||||||||||
Electrical
|
$ | 93,180 | 19.3 | $ | 84,310 | 19.6 | $ | 180,116 | 19.4 | $ | 148,198 | 18.6 | ||||||||||||||||||||
Steel Structures
|
4,289 | 7.3 | 8,045 | 16.2 | 8,581 | 7.8 | 17,935 | 16.4 | ||||||||||||||||||||||||
HVAC
|
2,461 | 10.3 | 2,307 | 11.0 | 7,023 | 13.4 | 6,598 | 13.9 | ||||||||||||||||||||||||
Segment earnings
|
99,930 | 17.6 | 94,662 | 18.9 | 195,720 | 18.0 | 172,731 | 18.1 | ||||||||||||||||||||||||
Corporate expense
|
(5,206 | ) | (17,703 | ) | (16,715 | ) | (27,590 | ) | ||||||||||||||||||||||||
Depreciation and amortization expense
|
(20,923 | ) | (20,261 | ) | (41,960 | ) | (38,721 | ) | ||||||||||||||||||||||||
Share-based compensation expense
|
(3,044 | ) | (2,834 | ) | (6,786 | ) | (6,435 | ) | ||||||||||||||||||||||||
Interest expense, net
|
(7,959 | ) | (8,902 | ) | (15,724 | ) | (17,273 | ) | ||||||||||||||||||||||||
Other (expense) income, net
|
(717 | ) | 935 | (1,702 | ) | 1,065 | ||||||||||||||||||||||||||
Earnings before income taxes
|
$ | 62,081 | $ | 45,897 | $ | 112,833 | $ | 83,777 | ||||||||||||||||||||||||
We have three reportable segments: Electrical, Steel Structures
and HVAC. We evaluate our business segments primarily on the
basis of segment earnings, with segment earnings defined as
earnings before corporate expense, depreciation and amortization
expense, share-based compensation expense, interest, income
taxes and certain other items.
Our consolidated segment earnings are significantly influenced
by the operating performance of our Electrical segment that
accounts for a substantial portion of our consolidated net sales
and consolidated segment earnings during the periods presented.
24
Table of Contents
Electrical
Segment
Electrical segment net sales in the second quarter of 2011 were
$483.8 million, up $54.4 million, or 12.7%, from the
second quarter of 2010. Electrical segment net sales in the
first six months of 2011 were $927.3 million, up
$130.7 million, or 16.4%, from the prior-year period.
Increased volumes for our industrial products, and to a lesser
extent, utility distribution products positively impacted
year-over-year
sales. The second quarter and first six months sales increases
from the prior-year periods attributable to the 2010
acquisitions were approximately $11 million and
$43 million, respectively. Net sales benefitted from a
weaker U.S. dollar, which positively impacted sales by
approximately $17 million in the second quarter of 2011 and
approximately $23 million in the first six months of 2011.
Price positively impacted sales when compared to the respective
prior-year periods.
Electrical segment earnings in the second quarter of 2011 were
$93.2 million, up $8.9 million, or 10.5%, from the
second quarter of 2010. Electrical segment earnings in the first
six months of 2011 were $180.1 million, up
$31.9 million, or 21.5%, from the prior-year period.
Segment earnings as a percent of sales decreased modestly to
19.3% in the second quarter of 2011 compared to 19.6% in the
prior year period. Segment earnings as a percent of sales
increased to 19.4% in the first six months of 2011 compared to
18.6% in the prior-year period.
Year-over-year
segment earnings for both periods reflect the contribution from
2010 acquisitions, changes in product mix and manufacturing
leverage from increased volume, which were offset by charges for
facility consolidations. Segment earnings reflect pre-tax
facility consolidation charges of $2.3 million in the
second quarter of 2011. Segment earnings reflect pre-tax
facility consolidation charges of $4.8 million in the first
six months of 2011 and $3.2 million in the prior-year
period.
Steel
Structures Segment
Net sales in the second quarter of 2011 in our Steel Structures
segment were $58.8 million, up $9.1 million, or 18.4%,
from the second quarter of 2010. Net sales in the first six
months of 2011 were $109.7 million, up $0.2 million,
or 0.2%, from the prior-year period. The net sales increase in
the second quarter of 2011 reflects increased sales volumes
along with the positive price impact from higher
year-over-year
plate steel costs. Net sales in the first six months of 2011
were flat compared to the corresponding prior-year period
reflecting a modest positive impact from higher
year-over-year
plate steel costs offset by decreased sales volumes.
Steel Structures segment earnings in the second quarter of 2011
were $4.3 million, down $3.8 million, or 46.7%, from
the prior-year period. Segment earnings in the first six months
of 2011 were $8.6 million, down $9.4 million, or
52.2%, from the prior-year period. The decrease in
year-over-year
segment earnings in dollars and as a percentage of sales in both
2011 periods reflects declines in project margins due to project
mix and a highly competitive transmission environment.
HVAC
Segment
Net sales in the second quarter of 2011 in our HVAC segment were
$23.8 million, up $2.8 million, or 13.2%, from the
second quarter of 2010. Net sales in the first six months of
2011 in our HVAC segment were $52.5 million, up
$5.0 million, or 10.5%, from the prior-year period. The
increases in sales for the second quarter and first six months
of 2011 over the prior-year periods primarily reflect higher
volumes.
HVAC segment earnings in the second quarter of 2011 were
$2.5 million, up $0.2 million, or 6.7%, from the
second quarter of 2010. Segment earnings in the first six months
of 2011 were $7.0 million, up $0.4 million, or 6.4%,
from the prior-year period. Lower
year-over-year
segment
25
Table of Contents
earnings as a percentage of sales in both 2011 periods reflect
improved mix and manufacturing leverage from increased volume,
which were offset by facility consolidation charges. Segment
earnings in the second quarter of 2011 and first six months of
2011 reflect pre-tax facility consolidation charges of
$0.8 million and $1.5 million, respectively.
Liquidity
and Capital Resources
We had cash and cash equivalents of $460.5 million and
$455.2 million at June 30, 2011 and December 31,
2010, respectively.
The following table reflects the primary category totals in our
Consolidated Statements of Cash Flows:
Six Months Ended |
||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
(In thousands)
|
||||||||
Net cash provided by (used in) operating activities
|
$ | (3,356 | ) | $ | 77,453 | |||
Net cash provided by (used in) investing activities
|
(23,360 | ) | (113,191 | ) | ||||
Net cash provided by (used in) financing activities
|
25,321 | (53,012 | ) | |||||
Effect of exchange-rate changes on cash
|
6,660 | (4,236 | ) | |||||
Net increase (decrease) in cash and cash equivalents
|
$ | 5,265 | $ | (92,986 | ) | |||
Operating
Activities
Operating activities in the first six months of 2011 included
net earnings of $79.0 million, depreciation and
amortization of $42.0 million and share-based compensation
expense of $6.8 million, which were offset by a negative
net change in working capital (accounts receivable, inventories
and accounts payable), as well as accrued liabilities, of
$112.2 million. The net working capital change reflects
both an intentional build in inventory to maintain service
levels as we complete certain in-process facility consolidations
as well as a significant advance purchase of plate steel related
to a Steel Structures project expected to be delivered in the
third quarter of 2011. The net working capital change also
reflects an increase in working capital associated with the
summer seasonal increase in construction activity. Additionally,
operating activities for the first six months of 2011 reflect
increased cash income taxes resulting from the tax payment
associated with the 2010 divestiture of the communications
products business and payment of an assessment from a Canada
Revenue Agency audit.
Operating activities in the first six months of 2010 included
net earnings of $61.6 million, depreciation and
amortization of $39.6 million and share-based compensation
expense of $6.5 million. A net change in working capital
(accounts receivable, inventories and accounts payable), which
negatively impacted cash in the first six months of 2010, was
partially offset by higher accrued liabilities and income taxes
payable.
Investing
Activities
Investing activities in the first six months of 2011 included
capital expenditures to support our ongoing business plans
totaling $23.3 million. We expect capital expenditures to
be in the
$60-$65 million
range for the full year 2011, which includes a capacity
expansion in our Steel Structures segment. Investing activities
in the first six months of 2010 included approximately
$78 million to acquire PMA (cash portion of the purchase
price) and approximately $21 million to
26
Table of Contents
acquire JT Packard. During the first six months of 2010, we also
had capital expenditures to support our ongoing business plans
totaling $13.7 million.
Financing
Activities
Financing activities in the first six months of 2011 included
654,078 stock options exercised at a weighted average exercise
price of $35.82 per share totaling $23.4 million. Financing
activities in the first six months of 2010 included 217,330
stock options exercised at a weighted average exercise price of
$20.20 per share totaling $4.4 million, the repurchase of
575,000 common shares for $22.6 million and repayment of
approximately $36 million to retire debt assumed as part of
the PMA acquisition.
$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
June 30, 2011 and December 31, 2010, $325 million
was outstanding under this facility.
We have a $325 million interest rate swap to hedge our
exposure to changes in the London Interbank Offered Rate
(LIBOR) rate on borrowings under this facility. See
Item 3. Quantitative and Qualitative Disclosures
about Market Risk.
Fees to access the 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.
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 $22.3 million at
June 30, 2011. The letters of credit relate primarily to
third-party insurance claims processing.
Other
Credit Facilities
We have a EUR 10 million (approximately
US$14.2 million) committed revolving credit facility with a
European bank. 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 has an indefinite
maturity, and no borrowings were outstanding as of June 30,
2011 and December 31, 2010. Outstanding letters of credit
which reduced availability under the European facility amounted
to EUR 0.9 million (approximately US$1.2 million)
at June 30, 2011.
27
Table of Contents
We have a CAN 30 million (approximately
US$30.3 million) committed revolving credit facility with a
Canadian bank. 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 December
2011, and no borrowings were outstanding as of June 30,
2011 and December 31, 2010.
Other
Letters of Credit
As of June 30, 2011, we also had letters of credit in
addition to those discussed above that do not reduce
availability under our credit facilities. We had
$19.2 million of such additional letters of credit that
relate primarily to environmental assurances, third-party
insurance claims processing, performance bonds, performance
guarantees and acquisition obligations.
Compliance
and Availability
We are in compliance with all covenants or other requirements
set forth in our credit facilities. However, if we fail to be in
compliance with the financial or other covenants of our credit
agreements, then the credit agreements could be terminated, any
outstanding borrowings under the agreements could be accelerated
and immediately due, and we could have difficulty obtaining
immediate credit availability to repay the accelerated
obligations and in obtaining credit facilities in the future. As
of June 30, 2011, the aggregate availability of funds under
our credit facilities is approximately $446 million, after
deducting outstanding letters of credit. Availability is subject
to the satisfaction of various covenants and conditions to
borrowing.
Credit
Ratings
As of June 30, 2011, we had investment grade credit ratings
from Standard & Poors (BBB rating), Moodys
Investor Service (Baa2 rating) and Fitch Ratings (BBB rating) on
our senior unsecured debt. Should these credit ratings drop,
repayment under our credit facilities and securities will not be
accelerated; however, our credit costs may increase. Similarly,
if our credit ratings improve, we could potentially have a
decrease in our credit costs. The maturity of any of our debt
securities does not accelerate in the event of a credit
downgrade.
Debt
Securities
Thomas & Betts had the following unsecured debt
securities outstanding as of June 30, 2011:
Issue Date | Amount | Interest Rate | Interest Payable | Maturity Date | ||||
November 2009
|
$250.0 million | 5.625% | May 15 and November 15 | November 2021 |
The indentures underlying the unsecured debt securities contain
standard covenants such as restrictions on mergers, liens on
certain property, sale-leaseback of certain property and funded
debt for certain subsidiaries. The indentures also include
standard events of default such as covenant default and
cross-acceleration. We are in compliance with all covenants and
other requirements set forth in the indentures.
Qualified
Pension Plans
Contributions to our qualified pension plans during the first
six months of 2011 were not significant. We expect required
contributions to our qualified pension plans in 2011 to be
minimal.
28
Table of Contents
Acquisitions
In January 2010, the Corporation acquired JT Packard, the
nations largest independent service provider for critical
power equipment used by industrial and commercial enterprises in
a broad array of markets, for approximately $21 million.
In April 2010, the Corporation acquired PMA, a leading European
manufacturer of technologically advanced cable protection
systems, for approximately $114 million including cash used
in the acquisition of approximately $78 million and cash
used to retire debt assumed of approximately $36 million.
Other
We do not currently pay cash dividends. Future decisions
concerning the payment of cash dividends on the common stock
will depend upon our results of operations, financial condition,
strategic investment opportunities, continued compliance with
credit facilities and other factors that the Board of Directors
may consider relevant.
As of June 30, 2011, we have approximately
$460 million in cash and cash equivalents and approximately
$446 million of aggregate availability under our credit
facilities. We renewed our effective universal shelf
registration statement with the Securities and Exchange
Commission on December 3, 2008, utilizing the well-known
seasoned issuer (WKSI) process. The registration permits us to
issue common stock, preferred stock and debt securities. The
registration is effective for a period of three years from the
date of filing. We continue to have cash requirements to, among
other things, support working capital and capital expenditure
needs, service debt and fund our retirement plans as required.
We generally intend to use available cash and internally
generated funds to meet these cash requirements and may borrow
under existing credit facilities or access the capital markets
as needed for liquidity. We believe that we have sufficient
liquidity to satisfy both short-term and long-term requirements.
Off-Balance
Sheet Arrangements
As of June 30, 2011, we did not have any off-balance sheet
arrangements.
Refer to Note 15 in the Notes to Consolidated Financial
Statements for information regarding our guarantee and
indemnification arrangements.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market
Risk and Financial Instruments
Thomas & Betts is exposed to market risk from changes
in interest rates, foreign exchange rates and raw material
prices, among others. At times, we may enter into various
derivative instruments to manage certain of these risks. We do
not enter into derivative instruments for speculative or trading
purposes.
For the period ended June 30, 2011, the Corporation has not
experienced any material changes since December 31, 2010 in
market risk that affect the quantitative and qualitative
disclosures presented in our 2010 Annual Report on
Form 10-K.
Item 4. | Controls and Procedures |
(a) | Evaluation of Disclosure Controls and Procedures |
We have established disclosure controls and procedures to ensure
that material information relating to the Corporation is made
known to the Chief Executive Officer and Chief Financial Officer
who certify the Corporations financial reports.
Our Chief Executive Officer and Chief Financial Officer have
evaluated the Corporations disclosure controls and
procedures as of the end of the period covered by this report,
and they have concluded that these controls and procedures are
effective.
(b) | Changes in Internal Control over Financial Reporting |
There have been no significant changes in internal control over
financial reporting that occurred during the quarter covered by
this report that have materially affected or are reasonably
likely to materially affect the Corporations internal
control over financial reporting.
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Table of Contents
PART II.
OTHER INFORMATION
Item 1. | Legal Proceedings |
See Note 15, Contingencies, in the Notes to
Consolidated Financial Statements, which is incorporated herein
by reference. See also Item 3. Legal
Proceedings, in the Corporations 2010 Annual Report
on
Form 10-K,
which is incorporated herein by reference.
Item 1A. | Risk Factors |
There have been no material changes from the risk factors as
previously set forth in our 2010 Annual Report on
Form 10-K
under Item 1A. Risk Factors, which is
incorporated herein by reference.
Item 2. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
The following table reflects activity related to equity
securities purchased by the Corporation during the quarter ended
June 30, 2011:
Issuer
Purchases of Equity Securities
Total Number |
Maximum |
|||||||||||||||
of Common |
Number |
|||||||||||||||
Shares |
of Common |
|||||||||||||||
Total |
Average |
Purchased |
Shares that |
|||||||||||||
Number of |
Price Paid |
as Part of |
May Yet Be |
|||||||||||||
Common |
per |
Publicly |
Purchased |
|||||||||||||
Shares |
Common |
Announced |
Under |
|||||||||||||
Period | Purchased | Share | Plans | the Plans | ||||||||||||
September 2010 Plan (3,000,000 common shares authorized)
|
||||||||||||||||
Total for the quarter ended
June 30, 2011 |
| $ | | | 2,500,000 |
Item 6. | Exhibits |
The Exhibit Index that follows the signature page of this
Report is incorporated herein by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Corporation has duly caused this Report to be signed
on its behalf by the undersigned thereunto duly authorized.
Thomas & Betts
Corporation
(Registrant)
(Registrant)
By: |
/s/ William
E. Weaver, Jr.
|
William E. Weaver, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: July 29, 2011
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EXHIBIT INDEX
Exhibit No. | Description of Exhibit | |||
10 | .1 | First Amendment to the Termination Protection Agreement for Charles L. Treadway (Filed as Exhibit 10.1 to Registrants Current Report on Form 8-K dated May 3, 2011 and incorporated herein by reference) | ||
12 | Statement re Computation of Ratio of Earnings to Fixed Charges | |||
31 | .1 | Certification of Principal Executive Officer Under Securities Exchange Act Rules 13a-14(a) or 15d-14(a) | ||
31 | .2 | Certification of Principal Financial Officer Under Securities Exchange Act Rules 13a-14(a) or 15d-14(a) | ||
32 | .1 | Certification of Principal Executive Officer Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and furnished solely pursuant to 18 U.S.C. § 1350 and not filed as part of the Report or as a separate disclosure document | ||
32 | .2 | Certification of Principal Financial Officer Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and furnished solely pursuant to 18 U.S.C. §1350 and not filed as part of the Report or as a separate disclosure document | ||
101* | Interactive data files pursuant to Rule 405 of Regulation S-T: (i) the Consolidated Statements of Operations for the Quarter and Six Months Ended June 30, 2011 and 2010, (ii) the Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010, (iii) the Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010 and (iv) the Notes to Consolidated Financial Statements |
* | Pursuant to Rule 406T of Regulation S-T, the interactive data included in Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections |
33