Amphenol - 10-Q quarterly report FY2013 Q3

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Amphenol Corporation

Index to Quarterly Report

on Form 10-Q

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(dollars in thousands, except per share data)

See accompanying notes to condensed consolidated financial statements.

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(dollars in thousands)

See accompanying notes to condensed consolidated financial statements.

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AMPHENOL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)

(dollars in thousands)

See accompanying notes to condensed consolidated financial statements.

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AMPHENOL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollars in thousands, except per share data)

Note 1—Basis of Presentation and Principles of Consolidation

The condensed consolidated balance sheets as of September 30, 2013 and December 31, 2012, the related condensed consolidated statements of income for the three and nine months ended September 30, 2013 and 2012, the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2013 and 2012, and the condensed consolidated statements of cash flow for the nine months ended September 30, 2013 and 2012 include the accounts of Amphenol Corporation and its subsidiaries (the “Company”).  All material intercompany balances and transactions have been eliminated in consolidation. The condensed consolidated financial statements included herein are unaudited.  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation in conformity with accounting principles generally accepted in the United States of America have been included.  The results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of the results to be expected for the full year.  These condensed consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 (the “2012 Annual Report”).

Note 2—New Accounting Pronouncements

In March 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity (“ASU 2013-05”), which clarifies preexisting guidance regarding the treatment of cumulative translation adjustments when a parent sells part or all of its investment in a foreign entity. ASU 2013-05 is effective for fiscal years beginning after December 15, 2013; however, early adoption is permitted.  The Company does not expect that the adoption of this update will have a significant effect on its financial statements.

In February 2013, the FASB issued ASU 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). The update requires disclosure of amounts reclassified out of accumulated other comprehensive income by component.  In addition, an entity is required to present either on the face of the Consolidated Statements of Income or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. ASU 2013-02 was effective prospectively for the Company for the first quarter of 2013. The adoption of this update did not have a significant effect on the Company’s financial statements.

Note 3—Inventories

Inventories consist of:

Note 4—Reportable Business Segments

The Company has two reportable business segments: (i) Interconnect Products and Assemblies and (ii) Cable Products. The Interconnect Products and Assemblies segment produces antennas, connectors and interconnect assemblies primarily for the communications, defense, commercial aerospace, industrial and automotive markets.  The Cable Products segment produces coaxial and flat ribbon cable and related products primarily for communication markets, including cable television. The accounting policies of the segments are the same as those for the Company as a whole. The Company evaluates the performance of business units on, among other things, profit or loss from operations before interest,

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Subsequent to the acquisition of Amphenol from Allied Signal Corporation (“Allied Signal”) in 1987 (Allied Signal merged with Honeywell International Inc. in December 1999 (“Honeywell”)), the Company and Honeywell were named jointly and severally liable as potentially responsible parties in connection with several environmental cleanup sites. The Company and Honeywell jointly consented to perform certain investigations and remediation and monitoring activities at two sites, the “Route 8” landfill and the “Richardson Hill Road” landfill, and they were jointly ordered to perform work at another site, the “Sidney” landfill. The costs incurred relating to these three sites are currently reimbursed by Honeywell based on an agreement (the “Honeywell Agreement”) entered into in connection with the acquisition in 1987. The environmental investigation, remediation and monitoring activities identified by the Company, including those referred to above, are covered under the Honeywell Agreement.  Management does not believe that the costs associated with resolution of these or any other environmental matters will have a material effect on the Company’s consolidated financial condition, results of operations or cash flows.

Note 8—Stock-Based Compensation

In May 2009, the Company adopted the 2009 Stock Purchase and Option Plan for Key Employees of Amphenol and its Subsidiaries (the “2009 Employee Option Plan”).  The Company continues to maintain the 2000 Stock Purchase and Option Plan for Key Employees of Amphenol and Subsidiaries (the “2000 Employee Option Plan”).  No additional stock options can be granted under the 2000 Employee Option Plan.  The 2009 Employee Option Plan authorizes the granting of additional stock options by a committee of the Company’s Board of Directors. As of September 30, 2013, there were 2,315,070 shares of common stock available for the granting of additional stock options under the 2009 Employee Option Plan. Options granted under the 2000 Employee Option Plan and the 2009 Employee Option Plan generally vest ratably over a period of five years and are generally exercisable over a period of ten years from the date of grant.

In 2004, the Company adopted the 2004 Stock Option Plan for Directors of Amphenol Corporation (the “2004 Directors Option Plan”).  The 2004 Directors Option Plan is administered by the Company’s Board of Directors.  As of September 30, 2013, there were 70,000 shares of common stock available for the granting of additional stock options under the 2004 Directors Option Plan, although no additional stock options are expected to be granted under this plan.  Options granted under the 2004 Directors Option Plan generally vest ratably over a period of three years and are generally exercisable over a period of ten years from the date of grant.

In May 2012, the Company adopted the 2012 Restricted Stock Plan for Directors of Amphenol Corporation (the “2012 Directors Restricted Stock Plan”). The 2012 Directors Restricted Stock Plan is administered by the Company’s Board of Directors.  As of September 30, 2013, the number of restricted shares available for grants under the 2012 Directors Restricted Stock Plan was 95,131.  Restricted shares granted under the 2012 Directors Restricted Stock Plan generally vest on the first anniversary of the grant date.  Grants under the 2012 Directors Restricted Stock Plan entitle the holder to receive shares of the Company’s common stock without payment.

The grant-date fair value of each option grant under the 2000 Employee Option Plan, the 2009 Employee Option Plan and the 2004 Directors Option Plan is estimated using the Black-Scholes option pricing model. The grant-date fair value of each restricted share grant is determined based on the closing share price of the Company’s stock on the date of the grant. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Use of a valuation model for option grants requires management to make certain assumptions with respect to selected model inputs. Expected share price volatility is calculated based on the historical volatility of the stock of the Company and implied volatility derived from related exchange traded options. The average expected life was based on the contractual term of the option and expected exercise and historical post-vesting termination experience. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The expected annual dividend per share is based on the Company’s dividend rate.

Stock-based compensation expense includes the estimated effects of forfeitures, which are adjusted over the requisite service period to the extent actual forfeitures differ or are expected to differ from such estimates.  Changes in estimated forfeitures are recognized in the period of change and impact the amount of expense to be recognized in future periods.  For the three months ended September 30, 2013, the Company’s income before income taxes and net income were reduced for stock-based compensation expense by $9,413 and $6,940, respectively, and these reductions were $26,584 and $19,432, respectively, for the nine months ended September 30, 2013.  For the three months ended September 30, 2012, the Company’s income before income taxes and net income were reduced for stock-based compensation expense by $8,066 and $5,885, respectively, and these reductions were $23,167 and $16,542, respectively, for the nine months ended September 30, 2012.  The expense incurred for stock-based compensation is included in selling, general and administrative expense in the accompanying Condensed Consolidated Statements of Income.

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Restricted Shares

Prior to the third quarter of 2013, the Company issued 17,045 restricted shares with a weighted-average fair value at grant date of $53.78 per share, all of which became fully vested in the second quarter of 2013.  Additionally, in the second quarter of 2013, the Company has issued 12,824 restricted shares with a weighted-average fair value at grant date of $78.00.  As of September 30, 2013, the total compensation cost related to non-vested restricted shares not yet recognized was approximately $645 with a weighted average expected amortization period of 0.65 years.

Note 9—Shareholders’ Equity

In January 2013, the Company’s Board of Directors authorized a stock repurchase program under which the Company may repurchase up to 10,000,000 shares of its common stock during the two year period ending January 31, 2015 (the “2013 Stock Repurchase Program”). The price and timing of any such purchases under the 2013 Stock Repurchase Program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, economic and market conditions and stock price.  During the nine months ended September 30, 2013, the Company repurchased 3,956,615 shares of its common stock for $296,975.  These treasury shares have been or will be retired by the Company and common stock and accumulated earnings were reduced accordingly.

Contingent upon declaration by the Board of Directors, the Company generally pays a quarterly dividend on its common stock.  In July 2013, the Board of Directors approved the third quarter 2013 dividend on the Company’s common stock in the amount of $0.20 per share.  This represented an increase in the quarterly dividend rate from $0.105 to $0.20 per share effective with the third quarter 2013 dividend to be paid on or about October 2, 2013 to holders of record of the Company’s Class A Common stock as of September 11, 2013.  For the three and nine months ended September 30, 2013, the Company paid dividends in the amount of $16,716 and $33,472, respectively, and declared dividends in the amount of $31,629 and $65,101, respectively.  For the three and nine months ended September 30, 2012, the Company paid dividends in the amount of $16,885 and $36,385, respectively, and declared dividends in the amount of $16,964 and $50,905, respectively.

Note 10—Benefit Plans and Other Postretirement Benefits

Amphenol Corporation and certain of its domestic subsidiaries have defined benefit pension plans (the “U.S. Plans”), which cover its U.S. employees and which represent the majority of the assets and benefit obligations of the aggregate defined benefit plans of the Company. The U.S. Plans’ benefits are generally based on years of service and compensation and are generally noncontributory.  Certain U.S. employees not covered by the U.S. Plans are covered by defined contribution plans.  Certain foreign subsidiaries have defined benefit plans covering their employees (the “International Plans” and, together with the U.S. Plans, the “Plans”). The following is a summary, based on the most recent actuarial valuations of the Company’s net cost for pension benefits, of the Plans and other postretirement benefits for the three and nine months ended September 30, 2013 and 2012.

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Note 12—Debt

Revolving Credit Facility

In July 2013, the Company amended its revolving credit facility (the “Revolving Credit Facility”) to (1) reduce borrowing costs, (2) extend the maturity date to July 2018 and (3) increase aggregate commitments under the Revolving Credit Facility by $500,000, thereby increasing the Revolving Credit Facility to $1,500,000.  At September 30, 2013, borrowings and availability under the Revolving Credit Facility were $683,800 and $816,200, respectively.  The interest rate on borrowings under the Revolving Credit Facility was at a spread over LIBOR. The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants.  At September 30, 2013, the Company was in compliance with the financial covenants under the Revolving Credit Facility.

Senior Notes

In November 2009, the Company issued $600,000 principal amount of unsecured 4.75% Senior Notes due November 2014 (the “4.75% Senior Notes”) at 99.813% of their face value. Net proceeds from the sale of the 4.75% Senior Notes were used to repay borrowings under the Revolving Credit Facility. Interest on the 4.75% Senior Notes is payable semi-annually on May 15 and November 15 of each year to the holders of record as of the immediately preceding May 1 and November 1. The Company may, at its option, redeem some or all of the 4.75% Senior Notes at any time by paying a make-whole premium, plus accrued and unpaid interest, if any, to the date of repurchase.  The 4.75% Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. The fair value of the 4.75% Senior Notes at September 30, 2013 was approximately $626,220 based on recent bid prices in an active market and are therefore classified as Level 1 in the fair value hierarchy.

In January 2012, the Company issued $500,000 principal amount of unsecured 4.00% Senior Notes due February 2022 (the “4.00% Senior Notes”) at 99.746% of their face value.  Net proceeds from the sale of the 4.00% Senior Notes before payment of fees and expenses related to the offering in the amount of $498,730 were used to repay borrowings under the Revolving Credit Facility.  Interest on the 4.00% Senior Notes is payable semi-annually on February 1 and August 1 of each year, to the holders of record as of the immediately preceding January 15 and July 15.  The Company may, at its option, redeem some or all of the 4.00% Senior Notes at any time by paying 100% of the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase, plus a make-whole premium (if redeemed prior to November 1, 2021). The 4.00% Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness.  The fair value of the 4.00% Senior Notes at September 30, 2013 was approximately $496,550 based on recent bid prices in an active market and are therefore classified as Level 1 in the fair value hierarchy.

Receivables Securitization Facility

A subsidiary of the Company has entered into a Receivables Securitization Facility with a financial institution whereby the subsidiary can sell an undivided interest of up to $100,000 in a designated pool of qualified accounts receivable (the “Receivables Securitization Facility”). The Company services, administers and collects the receivables on behalf of the purchaser. The Receivables Securitization Facility includes certain covenants and provides for various events of termination.   Transfers of receivables are reflected as debt issued in the Company’s Condensed Consolidated Statements of Cash Flow, and the value of the outstanding undivided interest held by investors at December 31, 2012 and September 30, 2013 is accounted for as a secured borrowing and is included in the Company’s Condensed Consolidated Balance Sheets as short-term debt.  At September 30, 2013, borrowings under the Receivables Securitization Facility were $84,500.  Fees incurred in connection with the Receivables Securitization Facility are included in interest expense.

In October 2013, the Company entered into a credit agreement among the Company, certain subsidiaries of the Company and a financial institution (the “Credit Agreement”).  The Credit Agreement provides for a $100,000 uncommitted and unsecured credit facility with the ability to borrow at a spread over LIBOR, which is renewable annually.   This Credit Agreement is intended to replace the Receivables Securitization Facility and as such, on September 30, 2013, the Company provided written notice to terminate the Receivables Securitization Facility effective on November 15, 2013.

The carrying value of borrowings under the Company’s Revolving Credit Facility and Receivables Securitization Facility approximated their fair value at September 30, 2013 due to their relative short-term maturities and market interest rates and are therefore classified as Level 2 in the fair value hierarchy.

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For the nine months ended September 30, 2013 and 2012, $(17) and $235 were recognized in accumulated other comprehensive income (loss) associated with foreign exchange rate forward contracts, respectively.  The amount reclassified from accumulated other comprehensive income (loss) to foreign exchange gain (loss) in the accompanying Condensed Consolidated Statements of Income during the nine month periods ended September 30, 2013 and 2012 was not material.

Note 15—Income Taxes

The provision for income taxes for the third quarter and the first nine months of 2013 was at an effective rate of 23.9%.  The provision for income taxes for the third quarter and the first nine months of 2012 was at an effective rate of 26.8%.  The lower effective rate in the third quarter and first nine months of 2013 included a tax benefit of $3,645, or $.02 per diluted common share, resulting primarily from the completion of prior audits.  The lower rate in the first nine months of 2013 included the third quarter tax benefit of $3,645 as well as a first quarter tax benefit of $11,300, or $.07 per diluted common share, resulting from the delay by the U.S. government in the reinstatement of certain federal income tax provisions for the year 2012 within the American Taxpayer Relief Act relating primarily to research and development credits and certain U.S. taxes on foreign income.  Such tax provisions were reinstated on January 2, 2013 with retroactive effect to 2012.  Excluding the effect of these benefits as well as the net impact of acquisition-related expenses, the effective tax rate in the third quarter and the first nine months of 2013 was 25.5% and 26.3%, respectively.

The Company is present in over sixty tax jurisdictions, and at any point in time has numerous audits underway at various stages of completion. With few exceptions, the Company is subject to income tax examinations by tax authorities for the years 2010 and after.  The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until the close of an audit. The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite the Company’s belief that the underlying tax positions are fully supportable. As of September 30, 2013, the amount of the liability for unrecognized tax benefits, which if recognized would impact the effective tax rate, was approximately $13,109, the majority of which is included in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.  Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and the closing of statutes of limitation. Based on information currently available, management anticipates that over the next twelve month period, audit activity could be completed and statutes of limitation may close relating to existing unrecognized tax benefits of approximately $2,221.

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Results of Operations

Three and nine months ended September 30, 2013 compared to the three and nine months ended September 30, 2012

Net sales were $1,153.1 in the third quarter of 2013 compared to $1,103.4 in the prior year quarter, an increase of 5% in U.S. dollars and 4% in local currencies. Sales were equal to the prior year organically (excluding the impact of foreign exchange and acquisitions).  Net sales for the first nine months of 2013 were $3,368.9 compared to $3,146.1 in the same period in 2012, an increase of 7% in both U.S. dollars and in local currencies and 3% organically over the prior year period.  Sales of interconnect products and assemblies (approximately 92% of sales) increased 3% in U.S. dollars and 2% in local currencies in the third quarter of 2013 compared to the same period in 2012 ($1,063.2 in 2013 versus $1,033.3 in 2012) and 6% in both U.S. dollars and in local currencies in the first nine months of 2013 compared to the same period in 2012 ($3,104.9 in 2013 versus $2,926.8 in 2012).  The sales growth was driven by increases in the commercial aerospace, automotive, industrial and information technology and data communications markets with contributions from both organic growth and the Company’s acquisition program, partially offset by a decrease in sales to the mobile device market.  Sales of cable products (approximately 8% of sales) increased 28% in U.S. dollars and 30% in local currencies in the third quarter of 2013 compared to the same period in 2012 ($89.9 in 2013 versus $70.1 in 2012) and 20% in U.S. dollars and 22% in local currencies in the first nine months of 2013 compared to the same period in 2012 ($264.1 in 2013 versus $219.3 in 2012) primarily due to a 2012 acquisition.  Cable product sales are primarily in the broadband market.

Geographically, sales in the United States in the third quarter and first nine months of 2013 increased approximately 3%  and 5%, respectively, compared to the same period in 2012 ($363.5 and $1,072.3 respectively, in 2013 versus $352.4 and $1,021.5, respectively, in 2012).  International sales for the third quarter and first nine months of 2013 increased approximately 5% and 8% in U.S. dollars, respectively, and 4% and 8% in local currencies, respectively, compared to the same period in 2012 ($789.6 and $2,296.7, respectively, in 2013 versus $751.0 and $2,124.6, respectively, in 2012). The comparatively weaker U.S. dollar for the third quarter and first nine months had the effect of increasing sales approximately $7.9 compared to foreign currency translation rates for the same periods in 2012.

The gross profit margin percentage was approximately 31.6% for the third quarter of 2013 and 31.5% for the first nine months of 2013, compared to 31.2% and 31.4% for the third quarter and first nine months of 2012, respectively.  The operating margin for the Interconnect Products and Assemblies segment increased approximately 30 basis points in both the third quarter and the first nine months of 2013 compared to the same periods in 2012, primarily reflecting the positive impact of higher volume and cost reduction actions.  The operating margins for the Cable Products segment increased approximately 140 basis points for the third quarter and increased approximately 20 basis points for the first nine months of 2013, compared to the same periods in 2012, primarily due to the positive impact of a 2012 acquisition.

As separately presented in the Condensed Consolidated Statements of Income, the Company incurred $2.5 of acquisition-related expenses in the third quarter and first nine months of 2013 in connection with 2013 acquisitions.  For the three and nine months ended September 30, 2013, these expenses had an impact on net income of $2.1, or $.01 per diluted common share.

Selling, general and administrative expenses increased to $136.8 and $403.5, or 11.9% and 12.0% of net sales the third quarter and first nine months of 2013, respectively, compared to $128.7 and $380.6, or 11.7% and 12.1% of net sales, for the same periods in 2012.  Administrative expenses were flat for the third quarter and increased approximately $6.1 for the first nine months of 2013 compared to the same periods in 2012.  The increase for the first nine months of 2013 primarily related to increases in employee related benefits, stock-based compensation expense and amortization of acquisition-related identified intangible assets and represented approximately 4.5% of sales for both the third quarter and first nine months of 2013 compared to 4.7% and 4.6% of sales for the same periods in 2012, respectively.  Research and development expenses increased approximately $3.2 and $8.2 for the third quarter and first nine months of 2013, respectively, compared to the same periods in 2012 reflecting increases in expenses for new product development and represented approximately 2.3% of sales for both the third quarter and first nine months of 2013 compared to 2.1% and 2.2% of sales for the same periods in 2012, respectively.  Selling and marketing expenses increased approximately $4.9 and $8.5 for the third quarter and first nine months of 2013, respectively, compared to the same periods in 2012 primarily related to the increase in sales volume and represented approximately 5.1% and 5.2% of sales for the third quarter and first nine months of 2013, respectively, compared to 4.9% and 5.3% of sales for the same periods in 2012, respectively.

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Interest expense for the third quarter and first nine months of 2013 was $16.0 and $47.1, respectively, compared to $15.2 and $44.0 for the same periods in 2012.  The increases are primarily attributable to higher average debt levels related to the Company’s stock repurchase program.

Other income, net, increased to $3.6 and $9.4 for the third quarter and first nine months of 2013, respectively, compared to $2.6 and $7.5 for the same periods in 2012, primarily related to higher interest income on higher levels of cash, cash equivalents and short-term investments.

The provision for income taxes for the third quarter and the first nine months of 2013 was at an effective rate of 23.9%.  The provision for income taxes for the third quarter and the first nine months of 2012 was at an effective rate of 26.8%.  The lower effective rate in the third quarter and first nine months of 2013 included a tax benefit of $3.6, or $.02 per diluted common share, resulting primarily from the completion of prior audits.  The lower rate in the first nine months of 2013 included the third quarter tax benefit of $3.6 as well as a first quarter tax benefit of $11.3, or $.07 per diluted common share, resulting from the delay by the U.S. government in the reinstatement of certain federal income tax provisions for the year 2012 within the American Taxpayer Relief Act relating primarily to research and development credits and certain U.S. taxes on foreign income.  Such tax provisions were reinstated on January 2, 2013 with retroactive effect to 2012.  Excluding the effect of these benefits as well as the net impact of acquisition-related expenses, the effective tax rate in the third quarter and the first nine months of 2013 was 25.5% and 26.3%, respectively.

The Company is present in over sixty tax jurisdictions, and at any point in time has numerous audits underway at various stages of completion. With few exceptions, the Company is subject to income tax examinations by tax authorities for the years 2010 and after.  The Company is generally not able to precisely estimate the ultimate settlement amounts or timing until the close of an audit.  The Company evaluates its tax positions and establishes liabilities for uncertain tax positions that may be challenged by local authorities and may not be fully sustained, despite the Company’s belief that the underlying tax positions are fully supportable. As of September 30, 2013, the amount of the liability for unrecognized tax benefits, which if recognized would impact the effective tax rate, was approximately $13.1, the majority of which is included in other long-term liabilities in the accompanying Condensed Consolidated Balance Sheets.  Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and the closing of statutes of limitation. Based on information currently available, management anticipates that over the next twelve month period, audit activity could be completed and statutes of limitation may close relating to existing unrecognized tax benefits of approximately $2.2.

Liquidity and Capital Resources

Cash flow provided by operating activities was $557.7 in the first nine months of 2013 compared to $467.6 in the same 2012 period.  The increase in cash flow provided by operating activities for the first nine months of 2013 compared to the same 2012 period is primarily due to an increase in net income and a lower increase in the components of working capital.  The components of working capital as presented on the accompanying Condensed Consolidated Statements of Cash Flow increased $24.2 in the first nine months of 2013 due primarily to a decrease in accounts payable of $25.5, and an increase in accounts receivable and other current assets of $11.5 and $10.9, respectively, which were partially offset by an increase in accrued liabilities of $21.5.  The components of working capital as presented on the accompanying Condensed Consolidated Statements of Cash Flow increased $44.8 in the first nine months of 2012 due primarily to an increase in accounts receivable, inventory and other current assets of $119.5, $35.7 and $15.1, respectively, which were partially offset by increases in accounts payable and accrued liabilities of $86.6 and $38.9, respectively.

The following describes the significant changes in the amounts as presented on the accompanying Condensed Consolidated Balance Sheets at September 30, 2013 compared to December 31, 2012. Accounts receivable increased $15.5 to $926.2 primarily due to an increase in sales volumes and by the impact of acquisitions.  Days sales outstanding were approximately 72 days at September 30, 2013 and December 31, 2012.  Inventories decreased $1.0 to $732.7.  Inventory days were approximately 84 days at September 30, 2013 and 83 days at December 31, 2012.  Land and depreciable assets, net, increased $24.4 to $441.8 primarily due to net capital expenditures of $103.7 offset by depreciation of $84.1.  Goodwill increased $39.7 to $1,972.4 primarily as a result of an acquisition and translation resulting from the comparatively weaker U.S. dollar at September 30, 2013 compared to December 31, 2012 (“Translation”).  Accounts payable decreased $15.5 to $481.0, primarily as a result of a slight decrease in payable days to approximately 55 days at September 30, 2013 compared to 56 days at December 31, 2012.  Total accrued expenses increased $35.5 to $327.2, primarily due to the accrual of dividends declared in September 2013 that were paid in October 2013 and an increase in other accrued expenses offset by lower accrued income taxes.  Other long-term liabilities increased $11.7 to $45.7 primarily due to an increase in deferred tax liabilities.

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For the first nine months of 2013, cash flow provided by operating activities of $557.7, net borrowings under credit facilities of $161.0 and proceeds from the exercise of stock options including tax benefits of $98.4 were used to fund purchases of treasury stock of $297.0, net purchases of short-term investments of $142.6, capital expenditures (net of disposals) of $103.7, acquisitions of $44.0, dividend payments of $33.5 and payments to shareholders of noncontrolling interests of $4.4, which resulted in an increase in cash and cash equivalents before the impact of Translation of $198.5.  For the first nine months of 2012, cash flow provided by operating activities of $467.6, proceeds from the 4.00% Senior Notes offering of $494.7 and proceeds from the exercise of stock options including tax benefits from stock-based payment arrangements of $91.3 were used to fund net repayments on credit facilities of $270.4, purchases of treasury stock of $229.4, acquisitions of $179.6, capital expenditures (net of disposals) of $92.3, dividend payments of $36.4, net purchases of short-term investments of $33.5, and payments to shareholders of noncontrolling interests of $4.7, which resulted in an increase in cash and cash equivalents of $210.5 before the impact of Translation.

In July 2013, the Company amended its revolving credit facility (the “Revolving Credit Facility”) to (1) reduce borrowing costs, (2) extend the maturity date to July 2018 and (3) increase aggregate commitments under the Revolving Credit Facility by $500.0, thereby increasing the Revolving Credit Facility to $1,500.0.  At September 30, 2013, borrowings and availability under the Revolving Credit Facility were $683.8 and $816.2, respectively.  The interest rate on borrowings under the Revolving Credit Facility was at a spread over LIBOR.  The Revolving Credit Facility requires payment of certain annual agency and commitment fees and requires that the Company satisfy certain financial covenants.  At September 30, 2013, the Company was in compliance with the financial covenants under the Revolving Credit Facility.

In November 2009, the Company issued $600.0 principal amount of unsecured 4.75% Senior Notes due November 2014 (the “4.75% Senior Notes”) at 99.813% of their face value. Net proceeds from the sale of the 4.75% Senior Notes were used to repay borrowings under the Company’s Revolving Credit Facility. Interest on the 4.75% Senior Notes is payable semi-annually on May 15 and November 15 of each year to the holders of record as of the immediately preceding May 1 and November 1. The Company may, at its option, redeem some or all of the 4.75% Senior Notes at any time by paying a make-whole premium, plus accrued and unpaid interest, if any, to the date of repurchase.  The 4.75% Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness. The fair value of the 4.75% Senior Notes at September 30, 2013 was approximately $626.2 based on recent bid prices.

In January 2012, the Company issued $500.0 principal amount of unsecured 4.00% Senior Notes due February 2022 (the “4.00% Senior Notes”) at 99.746% of their face value.  Net proceeds from the sale of the 4.00% Senior Notes before payment of fees and expenses related to the offering in the amount of $498.7 were used to repay borrowings under the Company’s Revolving Credit Facility.  Interest on the 4.00% Senior Notes is payable semi-annually on February 1 and August 1 of each year, to the holders of record as of the immediately preceding January 15 and July 15.  The Company may, at its option, redeem some or all of the 4.00% Senior Notes at any time by paying 100% of the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase, plus a make-whole premium (if redeemed prior to November 1, 2021). The 4.00% Senior Notes are unsecured and rank equally in right of payment with the Company’s other unsecured senior indebtedness.  The fair value of the 4.00% Senior Notes at September 30, 2013 was approximately $496.6 based on recent bid prices.

A subsidiary of the Company has entered into a Receivables Securitization Facility with a financial institution whereby the subsidiary can sell an undivided interest of up to $100.0 in a designated pool of qualified accounts receivable (the “Receivables Securitization Facility”). The Company services, administers and collects the receivables on behalf of the purchaser. The Receivables Securitization Facility includes certain covenants and provides for various events of termination.  Transfers of receivables are reflected as debt issued in the Company’s Condensed Consolidated Statements of Cash Flow, and the value of the outstanding undivided interest held by investors at December 31, 2012 and September 30, 2013 is accounted for as a secured borrowing and is included in the Company’s Condensed Consolidated Balance Sheets as short-term debt.  At September 30, 2013, borrowings under the Receivables Securitization Facility were $84.5. Fees incurred in connection with the Receivables Securitization Facility are included in interest expense.

In October 2013, the Company entered into a credit agreement among the Company, certain subsidiaries of the Company and a financial institution (the “Credit Agreement”).  The Credit Agreement provides for a $100.0 uncommitted and unsecured credit facility with the ability to borrow at a spread over LIBOR, which is renewable annually.  This credit facility is intended to replace the Receivables Securitization Facility and as such, on September 30, 2013, the Company provided written notice to terminate the Receivables Securitization Facility effective on November 15, 2013.

The carrying value of borrowings under the Company’s Revolving Credit Facility and Receivables Securitization Facility approximated their fair value at September 30, 2013.

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The Company’s primary ongoing cash requirements will be for operating and capital expenditures, product development activities, repurchases of its common stock, funding of pension obligations, dividends and debt service.  The Company may also use cash to fund all or part of the cost of acquisitions.  The Company generally pays a quarterly dividend on its common stock.  In July 2013, the Board of Directors approved the third quarter 2013 dividend on the Company’s common stock in the amount of $0.20 per share.  This represented an increase in the quarterly dividend rate from $0.105 to $0.20 per share effective with the third quarter 2013 dividend to be paid on or about October 2, 2013 to holders of record of the Company’s Class A Common stock as of September 11, 2013.  For the three and nine months ended September 30, 2013, the Company paid dividends in the amount of $16.7 and $33.5, respectively, and declared dividends in the amount of $31.6 and $65.1, respectively.  The Company’s debt service requirements consist primarily of principal and interest on the Senior Notes, the Revolving Credit Facility and the Receivables Securitization Facility.

The Company’s primary sources of liquidity are internally generated cash flow, the Company’s credit facilities, and cash, cash equivalents and short-term investments.  The Company expects that ongoing cash requirements will be funded from these sources; however, the Company’s sources of liquidity could be adversely affected by, among other things, a decrease in demand for the Company’s products, a deterioration in certain of the Company’s financial ratios or a deterioration in the quality of the Company’s accounts receivables.  However, management believes that the Company’s cash, cash equivalents and short-term investment position, ability to generate strong cash flow from operations, and availability under its credit facilities will allow it to meet its obligations for the next twelve months.

In January 2013, the Company’s Board of Directors authorized a stock repurchase program under which the Company may repurchase up to 10 million shares of its common stock during the two year period ending January 31, 2015 (the “2013 Stock Repurchase Program”). The price and timing of any such purchases under the 2013 Stock Repurchase Program will depend on factors such as levels of cash generation from operations, the volume of stock option exercises by employees, cash requirements for acquisitions, economic and market conditions and stock price.  During the nine months ended September 30, 2013, the Company repurchased 4.0 million shares of its common stock for approximately $297.0.  These treasury shares have been or will be retired by the Company and common stock and accumulated earnings were reduced accordingly.

For the three and nine months ended September 30, 2013, the Company made cash contributions to the U.S. defined benefit pension plans of $11.0 and $15.0, respectively and estimates that, based on current actuarial calculations, it will make aggregate cash contributions to its defined benefit pension plans in 2013 of approximately $21.0, the majority of which is to the U.S. defined benefit pension plans.  The timing and amount of cash contributions in subsequent years will depend on a number of factors, including the investment performance of the plan assets.

Environmental Matters

Certain operations of the Company are subject to environmental laws and regulations which govern the discharge of pollutants into the air and water, as well as the handling and disposal of solid and hazardous wastes. The Company believes that its operations are currently in substantial compliance with applicable environmental laws and regulations and that the costs of continuing compliance will not have a material effect on the Company’s financial condition, result of operations or cash flows.

Owners and occupiers of sites containing hazardous substances, as well as generators of hazardous substances, are subject to broad liability under various environmental laws and regulations, including expenditures for cleanup and monitoring costs and potential damages arising out of past disposal activities. Such liability in many cases may be imposed regardless of fault or the legality of the original disposal activity. The Company has performed remediation activities and is currently performing operations and maintenance and monitoring activities at three off-site disposal sites previously utilized by the Company’s facility in Sidney, New York, and others - the Richardson Hill Road landfill, the Route 8 landfill and the Sidney landfill.  Actions at the Richardson Hill Road and Sidney landfills were undertaken subsequent to designation as “Superfund” sites on the National Priorities List under the Comprehensive Environmental Response, Compensation and Liability Act of 1980. The Route 8 landfill was designated as a New York State Inactive Hazardous Waste Disposal Site, with remedial actions taken pursuant to Chapter 6, Section 375-1 of the New York Code of Rules and Regulations. In addition, the Company is currently performing monitoring activities at, and in proximity to, its manufacturing site in Sidney, New York. The Company is also engaged in remediating or monitoring environmental conditions at certain of its other manufacturing facilities and has been named as a potentially responsible party for cleanup costs at other off-site disposal sites.

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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.