<PAGE>
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 4, 1999, OR
[ ] 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 22-1326940
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
8155 T & B Boulevard
Memphis, Tennessee 38125
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(901) 252-8000
(REGISTRANT'S 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 [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock - $0.10 Par Value Outstanding Shares at May 10, 1999
(TITLE OF EACH CLASS) 56,865,494
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THOMAS & BETTS CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
April 4, January 3,
1999 1999
----------- ----------
<S> <C> <C>
ASSETS (Unaudited) (Audited)
Current Assets:
Cash and cash equivalents $ 37,030 $ 64,028
Marketable securities 26,666 42,478
Receivables, net 443,663 404,784
Inventories:
Finished goods 212,458 202,368
Work-in-process 84,529 95,436
Raw materials 190,805 171,837
--------- ---------
487,792 469,641
Deferred income taxes 51,570 61,829
Prepaid expenses 23,975 15,642
--------- ---------
Total Current Assets 1,070,696 1,058,402
Property, plant and equipment 1,209,814 1,162,942
Less accumulated depreciation 571,130 531,920
--------- ---------
Property, plant and equipment - net 638,684 631,022
Intangible assets - net 620,589 621,487
Investments in unconsolidated companies 150,373 142,251
Other assets 51,415 46,425
--------- ---------
TOTAL ASSETS $2,531,757 $2,499,587
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 64,083 $ 75,068
Current maturities of long-term debt 23,041 22,589
Accounts payable 270,051 262,483
Accrued liabilities 151,057 155,815
Income taxes 30,701 55,674
Dividends payable 15,971 15,920
--------- ---------
Total Current Liabilities 554,904 587,549
Long-term debt 837,162 790,963
Other long-term liabilities 94,380 93,788
Deferred income taxes 21,003 12,182
Shareholders' Equity:
Common stock 5,686 5,678
Additional paid-in capital 325,459 322,018
Retained earnings 732,525 710,474
Unearned compensation - restricted stock ( 6,583) ( 4,534)
Accumulated other comprehensive income (32,779) (18,531)
--------- ---------
Total Shareholders' Equity 1,024,308 1,015,105
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,531,757 $2,499,587
--------- ---------
--------- ---------
</TABLE>
Note: Amounts have been restated to include the July 2, 1998 acquisition of
Telecommunication Devices Inc., accounted for as a pooling of interests.
See accompanying notes to consolidated financial statements.
2
<PAGE>
THOMAS & BETTS CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------
April 4, April 5,
1999 1998
--------- ---------
<S> <C> <C>
Net sales $601,518 $544,508
Costs and expenses:
Cost of sales 423,420 383,412
Marketing, general and administrative 102,034 85,330
Research and development 12,293 13,303
Amortization of intangibles 4,574 4,382
-------- --------
542,321 486,427
-------- --------
Earnings from operations 59,197 58,081
Income from unconsolidated companies 8,997 8,527
Other expense - net (14,718) (12,856)
-------- --------
Earnings before income taxes 53,476 53,752
Income taxes 15,506 16,449
------- --------
Net earnings $ 37,970 $ 37,303
--------- ---------
--------- ---------
Net earnings per share:
Basic $ 0.67 $ 0.66
--------- ---------
--------- ---------
Diluted $ 0.67 $ 0.65
--------- ---------
--------- ---------
Average shares outstanding:
Basic 56,798 56,539
--------- ---------
--------- ---------
Diluted 56,994 57,008
--------- ---------
--------- ---------
Cash dividends declared per share $ 0.28 $ 0.28
--------- ---------
--------- ---------
</TABLE>
Note: Amounts have been restated to include the July 2, 1998 acquisition of
Telecommunication Devices, Inc., accounted for as a pooling of interests,
except for cash dividends per share, which reflect the Corporation's
historical per share amount.
See accompanying notes to consolidated financial statements.
3
<PAGE>
THOMAS & BETTS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------
April 4, April 5,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 37,970 $ 37,303
Adjustments:
Depreciation and amortization 25,841 26,893
Undistributed earnings from unconsolidated
companies (8,997) (4,337)
Deferred income taxes 20,153 5,227
Changes in operating assets and liabilities, net:
Receivables (43,192) 9,694
Inventories (15,899) (27,259)
Accounts payable 6,958 (36,912)
Accrued liabilities (8,148) (11,894)
Income taxes payable (24,716) ( 7,264)
Other (13,073) ( 2,118)
-------- --------
Net cash used in operating activities (23,103) (10,667)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and investments in businesses, net of
$7,220 cash in 1999 (13,080) ( 1,098)
Purchases of property, plant and equipment (31,394) (34,584)
Proceeds from sale of property, plant
and equipment 160 -
Marketable securities acquired - (10,330)
Proceeds from matured marketable securities 15,794 11,020
-------- --------
Net cash used in investing activities (28,520) (34,992)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in borrowings with
original maturities less than 90 days (10,985) 5,568
Proceeds from long-term debt and other
borrowings 149,000 89,695
Repayment of long-term debt and other
borrowings (101,054) ( 7,137)
Stock options exercised 3,449 4,605
Cash dividends paid (15,868) (31,854)
-------- --------
Net cash provided by financing activities 24,542 60,877
-------- --------
EFFECT OF EXCHANGE-RATE CHANGES ON CASH 83 ( 189)
-------- --------
Net increase (decrease) in cash and cash
equivalents (26,998) 15,029
Cash and cash equivalents at beginning of period 64,028 45,226
-------- ---------
Cash and cash equivalents at end of period $ 37,030 $ 60,255
-------- ---------
-------- ---------
</TABLE>
Note: Amounts have been restated to include the July 2, 1998 acquisition of
Telecommunication Devices, Inc., accounted for as a pooling of interests.
See accompanying notes to consolidated financial statements.
4
<PAGE>
THOMAS & BETTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated financial
statements contain all adjustments (consisting of only normal recurring
accruals) necessary for the fair presentation of the financial position as of
April 4, 1999 and January 3, 1999, and the results of operations and cash
flows for the periods ended April 4, 1999 and April 5, 1998.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These consolidated
financial statements should be read in conjunction with the financial
statements and notes thereto included in the Corporation's Annual Report on
Form 10-K for the fiscal year ended January 3, 1999. The results of
operations for the periods ended April 4, 1999 and April 5, 1998 are not
necessarily indicative of the operating results for the full year.
2. EARNINGS PER SHARE ("EPS")
Basic EPS for each period are computed by dividing net earnings by the
weighted-average number of shares of common stock outstanding during the
period. Diluted EPS for each period are computed by dividing net earnings by
the sum of (1) the weighted-average number of shares outstanding during the
period and (2) the dilutive effect of the assumed exercise of stock options
using the treasury stock method.
The following is a reconciliation of the numerators and denominators of
the per share computations:
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------
April 4, April 5,
(In thousands except per share data) 1999 1998
-------- --------
<S> <C> <C>
Net earnings $37,970 $37,303
------- -------
Average shares outstanding 56,798 56,539
------- -------
Basic EPS $ 0.67 $ 0.66
------- -------
------- -------
Average shares outstanding 56,798 56,539
Plus assumed exercise of
stock options 196 469
------- -------
56,994 57,008
------- -------
Diluted EPS $ 0.67 $ 0.65
------- -------
------- -------
</TABLE>
5
<PAGE>
THOMAS & BETTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. COMPREHENSIVE INCOME
Total comprehensive income and its components are as follows:
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------
April 4, April 5,
(In thousands) 1999 1998
-------- --------
<S> <C> <C>
Net earnings $ 37,970 $37,303
Foreign currency translation adjustments (13,685) (1,760)
Minimum pension liability adjustment (551) -
Unrealized holding gains (losses)
on securities (12) -
-------- -------
Comprehensive income $ 23,722 $35,543
-------- -------
-------- -------
</TABLE>
4. ACQUISITIONS
The Corporation completed one acquisition during the first quarter of
1999 for total consideration of approximately $20.0 million in cash. The
acquisition was accounted for under the purchase method of accounting;
accordingly, its results of operations have been included in the consolidated
statement of earnings since the date of acquisition. The aggregate purchase
price has been allocated to the assets and liabilities based on estimated
fair values at the date of acquisition and the excess of approximately $5.9
million was allocated to goodwill. The goodwill is being amortized on a
straight-line basis over 40 years.
6
<PAGE>
5. RESTRUCTURING AND SPECIAL CHARGES
During the third quarter of 1998, the Corporation recorded pretax
restructuring and special charges of $108.5 million primarily related to a
program to reduce costs by consolidating several facilities and product-line
operations, terminating employees at affected locations, downsizing
administrative functions and writing down idle facilities. The charges were
comprised of a $62.1 million provision for restructuring operations and $46.4
million of other special charges, of which $30.3 million was charged to cost
of sales and $16.1 million to marketing, general and administrative expense.
The components of those charges and usage through April 4, 1999 were:
<TABLE>
<CAPTION>
CHARGES TO REMAINING
CHARGES TO RESERVES DURING BALANCE AT
ORIGINAL RESERVES FIRST QUARTER APRIL 4,
PROVISION DURING 1998 1999 1999
--------- ----------- --------------- ----------
<S> <C> <C> <C> <C>
Severance and employee related costs $ 26.6 $( 5.1) $( 3.4) $18.1
Property, plant and equipment write-offs 25.7 ( 7.0) ( 0.4) 18.3
Other facility exit costs 9.8 ( 2.3) ( 0.6) 6.9
--------- ----------- --------------- ----------
Provision for restructured operations 62.1 (14.4) ( 4.4) 43.3
--------- ----------- --------------- ----------
Inventory write-offs related to restructuring 25.6(1) (14.4) ( 4.6) 6.6
Costs related to previously idled facilities:
Write-downs 4.7(1) - - 4.7
Carrying costs 10.4(2) (2.2) - 8.2
Other 5.7(2) - ( 2.3) 3.4
--------- ----------- --------------- ----------
Special charge 46.4 (16.6) ( 6.9) 22.9
Total $108.5 $(31.0) $(11.3) $66.2
--------- ----------- --------------- ----------
--------- ----------- --------------- ----------
</TABLE>
Charged to (1) cost of sales, and (2) marketing, general and administrative
expense.
Severance and other employee-related costs involve actions that will
result in a net reduction of approximately 400 jobs, including administrative
positions at plants and corporate headquarters. As of April 4, 1999, the
Corporation had realized a net reduction of approximately 200 jobs. The
property, plant and equipment write-offs reduced to fair value the carrying
amount of fixed assets that were not relocated in conjunction with their
associated manufacturing processes. Assets written down as part of the
cost-reduction program remain classified as property, plant and equipment
until idled; the adjusted carrying value of the assets still in use was
approximately $33.0 million. The effect of suspending depreciation on
facilities idled was $0.1 million of depreciation expense reduction in the
first quarter of 1999.
Inventory write-offs primarily relate to items that became obsolete due
to modifications of manufacturing processes for product lines being
relocated; items not cost-effective to relocate; and, to a lesser degree,
inventory associated with discontinued products.
Costs related to previously idled and written-down facilities were based
on management's current estimates of costs necessary to ultimately dispose
of, and satisfy obligations related to, such facilities. The majority of
those are lease-related costs, which will generally be incurred ratably over
an eight-year period.
The cost-reduction programs commenced in 1998 are expected to be
substantially completed by year-end 1999, with disposal of idle facilities
anticipated by the end of 2000. Certain other costs, primarily relating to
the relocation of inventory, equipment and personnel, are not accruable
7
<PAGE>
until incurred. Such costs, which were not included in the $108.5 million
provision, amounted to $2.6 million in 1999. Future revenues are not expected
to be significantly affected, since the cost-reduction programs are primarily
intended to relocate operations rather than discontinue operations.
6. SEGMENT AND OTHER RELATED DISCLOSURES
The Corporation has three reportable segments: Electrical, Electronic
Original Equipment Manufacturer (Electronic OEM) and Communications. Some
business activities cannot be classified in the aforementioned segments and
are shown under "Other." The Corporation's reportable segments are based on
channels to market, and represent the primary mode used to assess allocation
of resources and performance. Management evaluates each segment's profit or
loss performance based on earnings before interest, taxes, loss on sale of
accounts receivable, restructure and special charges and foreign exchange
gains and losses.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------
SEGMENT INFORMATION April 4, April 5,
(In thousands) 1999 1998
--------- ----------
<S> <C> <C>
Net Sales:
Electrical $321,810 $260,980
Electronic OEM 158,016 171,300
Communications 62,393 68,241
All other 59,299 43,987
------- -------
Total $601,518 $544,508
------- -------
------- -------
Segment Earnings:
Electrical $ 47,781 $ 44,641
Electronic OEM 14,007 16,071
Communications 151 5,351
Related to all other sales 6,119 200
------- -------
Total $ 68,058 $ 66,263
------- -------
------- -------
</TABLE>
8
<PAGE>
The following are reconciliations of the total of reportable segments to
the consolidated Corporation:
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------
RECONCILIATION TO TOTAL CORPORATION April 4, April 5,
(In thousands) 1999 1998
-------- ---------
<S> <C> <C>
Net Sales:
Total reportable segment net sales $542,219 $500,521
Other sales 59,299 43,987
------- -------
Total $601,518 $544,508
------- -------
------- -------
Earnings Before Income Taxes:
Total reportable segment earnings $ 61,939 $ 66,063
Earnings on other sales 6,119 200
Interest expense (15,740) (10,927)
Loss on sale of receivables ( 2,265) ( 2,387)
Interest income 3,292 1,328
Foreign currency exchange gains (losses) 131 ( 525)
------- -------
Total $ 53,476 $ 53,752
------- -------
------- -------
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Thomas & Betts Corporation reported record first-quarter financial
results for the first quarter of 1999. For the quarter ended April 4, 1999,
the Corporation had net earnings of $38.0 million compared with $37.3 million
in the same 1998 period. Diluted earnings per share (EPS) were $0.67, two
cents above diluted EPS of $0.65 in 1998's first quarter, and basic EPS were
$0.67 versus $0.66 in the prior-year quarter.
First-quarter net sales grew 10.5% to $601.5 million from 1998's $544.5
million. Contributions from acquisitions over the past year, most
significantly Kaufel Group, Ltd., increased sales by 11.7%, helping to offset
lower year-over-year sales in the Electronic OEM and Communications segments.
On a geographic perspective, sales to European and Latin American
customers improved dramatically in the quarter. European sales rose 45.8%
from last year's quarter due to the addition of sales from electrical
acquisitions and higher electronic component sales volumes. Sales in Latin
America grew 143.1% year over year as a result of increased penetration of
core electrical and electronic markets. Sales in Canada were 31.9% higher
than 1998's first quarter as a result of the acquisition of Kaufel in late
1998. Sales to customers within the Asia/Pacific region declined 8.9% versus
the prior year as the year-over-year negative growth of that region's
economies overpowered additional sales from acquisitions.
The consolidated gross margin remained at 1998's level of 29.6%, while
the consolidated operating margin decreased to 9.8% from 10.7% as a result of
acquisition-related year-over-year increases in marketing, general and
administrative expenses as a percentage of sales.
9
<PAGE>
First-quarter income from unconsolidated companies increased 5.5% from
the prior-year as a result of continued strong equity income from the
Corporation's interest in unconsolidated companies in the Electrical segment.
Other expense-net was $1.8 million higher than last year primarily due to
higher acquisition-related interest expense. The Corporation's effective tax
rate for the first quarter was 29% which is the Corporation's projected
full-year 1999 effective rate, absent significant acquisitions or
divestitures. That rate compared with an effective rate of 30.6% in the 1998
quarter and was lower as Thomas & Betts continued to enjoy the benefits of
tax planning initiatives implemented during 1997 and 1998.
SEGMENT RESULTS
Sales of the Electrical segment increased 23.3% to $321.8 million for
the quarter, and segment earnings rose 7.0% to $47.8 million. Sales from
acquisitions, together with strong demand in utility markets, accounted for
the segment's sales growth. The segment's earnings growth was less than the
sales growth due to changes in the mix of products sold. Electrical sales
improved month-over-month throughout the quarter, and demand in Canada, where
the Corporation records 15% of its Electrical sales, also began to recover
late in the quarter in response to higher commodity prices that have fueled
an upturn of industrial and commercial construction in that country.
First-quarter sales of the Electronic OEM segment were $158.0 million,
7.8% lower than the 1998 period. First-quarter segment earnings were $14.0
million, or 12.8% lower compared with 1998's first-quarter results. Volume
decreases in components sold to computer and automotive manufacturers and
lower prices accounted for the decline. In the quarter the Corporation sold
$8.7 million of products based on its Metallized Particle Interconnect (MPI)
technology and shipped the first production quantities of its lithium-polymer
ion (LPI) battery packs.
Sales of the Communications segment were $62.4 million, 8.6% lower than
1998's first-quarter level. Uncertainty among U.S. telecommunications
customers as a result of industry mergers and depressed foreign economies
caused the decrease in segment sales. First-quarter segment earnings were
well below those of 1998's quarter with the decline due primarily to an
unfavorable shift of sales to lower-margin cable television amplifier
products and the lower sales to telecommunications customers.
Other sales in the first quarter totaled $59.3 million, 34.8% above
1998's first-quarter level. Sales of steel structures rose dramatically
year-over-year compared with weak prior-year sales as demand from traditional
utility customers' projects returned to more normal levels and sales of
wind-generation towers remained strong. Earnings on other sales increased to
$6.1 million, $5.9 million over 1998's quarter, due to more effective
capacity utilization and expense control in the manufacture of steel
structures and heating units.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $23.1 million through the
first three months of 1999. Accounts receivable rose $38.9 million from
year-end 1998 primarily as a result of:
- temporary increases associated with conversions of the Corporation's
various financial systems;
- payment of volume incentive discounts to customers for their 1998
purchases, reducing accruals for discounts which are recorded as
contra assets offsetting gross receivables;
- the acquisition of Ocal; and
- seasonal build-up of accounts receivable generated by the heating
business due to its annual pre-season sales program.
Inventory levels were $18.2 million higher than year-end levels due to
three factors:
- the acquisition of Ocal;
- ramp-up for a new product launch; and
- safety stock that the Corporation held to avoid customer service
disruptions as it moved product lines from one plant to another to
achieve lower manufacturing costs.
Accounts payable increased $7.6 million during the quarter, reflecting
additional purchases in support of higher sales and inventory levels.
Capital expenditures for the first quarter of 1999 totaled $31.4
million, a decrease of 9.2% versus the same period of 1998. The spending
decline primarily resulted from lower spending on information systems
compared with the prior year's high levels. Dividends paid during the three
months of 1999 totaled $15.9 million for dividends declared in the fourth
quarter of 1998.
As of April 4, 1999, marketable securities, cash and equivalents totaled
$63.7 million, compared with $106.5 million as of January 4, 1999. The cash
balance was reduced as a result of two factors:
- reduced cash balance requirements while still retaining the same tax
benefits related to funds held in Puerto Rico; and
- improved banking and cash management arrangements related to recent
acquisitions.
Thomas & Betts maintains a commercial paper program, which is backed by
$500 million of revolving-credit agreements. At April 4, 1999, $135 million
of commercial paper was outstanding. Management believes that its external
financial resources and internally generated funds are sufficient to meet the
Corporation's immediate short-term capital needs. Longer term, Thomas & Betts
will continue to finance future acquisitions through issuance of private or
public debt, common stock, other equity instruments, internally generated
funds or a combination of those sources.
11
<PAGE>
On January 5, 1999, the Corporation completed its acquisition of Ocal,
Inc., a manufacturer of PVC-coated conduit and components for use in
corrosive industrial environments, for cash of approximately $20 million.
Ocal's manufacturing facility is located in Mobile, AL.
In February 1999, the Corporation issued approximately $150 million
of 10-year medium-term notes at par with a coupon of 6.39%. The Corporation
used the proceeds from that sale to reduce borrowings under its commercial
paper program and under uncommitted lines of credit.
OTHER EVENTS
On January 27, 1999, the Corporation entered into an agreement to
acquire the outstanding common stock of AFC Cable Systems, Inc. (AFC) in a
stock-for-stock merger valued at approximately $490 million. AFC is a Rhode
Island-based manufacturer of electrical and communications products and
systems for commercial and industrial buildings. The Corporation is hopeful
that the transaction, which is currently pending before the SEC and is
subject to approval by the shareholders of both companies, will be completed
in the first half of 1999. It is expected to be accounted for as a pooling of
interests.
YEAR-2000 READINESS PROGRAM
Thomas & Betts is actively engaged in a corporate-wide program to ensure
its systems and products are Year-2000 compliant. The Year-2000 issue is the
result of computer programs being written using two digits rather than four
to define the applicable year. As a result, computer programs that have
time-sensitive software are at risk to recognize a date using "00" as the
year 1900 rather than the year 2000. Thomas & Betts is taking steps that it
believes will ensure no disruption to its operations. In 1997, the
Corporation began a worldwide-technology upgrade of its order-entry and
financial-reporting computer systems. As part of that project, Thomas & Betts
has completed an assessment of its Year-2000 issue and is modifying or
replacing portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter.
Thomas & Betts' plan to resolve the Year-2000 issue involves four
phases: assessment, remediation, testing and implementation. As of September
1998, Thomas & Betts had completed its assessment of all significant computer
systems that could be affected by the Year-2000 issue. The assessment
indicated that many of the Corporation's important information technology
systems could be affected, and that software used in certain manufacturing
equipment was at risk. Thomas & Betts is currently in the process of
correcting those systems and manufacturing equipment that present a risk.
12
<PAGE>
At April 4, 1999, Thomas & Betts had completed 94% of the remediation
phase for all non-compliant legacy programs, and expects to complete
remediation of these programs by July 1, 1999. After completing the
reprogramming and replacement of software, the Corporation's plans call for
testing and implementing its information technology systems. Thomas & Betts
has implemented core order entry, distribution, pricing, plant and financial
systems that are Year-2000 compliant. The Corporation expects to complete the
testing phase by July 1, 1999, with all remediated systems fully implemented
by September 1, 1999.
With respect to operating equipment, Thomas & Betts had completed an
assessment of equipment that could be affected by the Year-2000 issue, had
completed 75% of the remediation phase and had completed 75% of the testing
of that equipment at April 4, 1999. Once testing is completed, the operating
equipment will be ready for immediate use. Thomas & Betts expects to complete
its equipment remediation efforts by July 1, 1999, and testing and
implementing of all affected equipment by September 1, 1999.
Thomas & Betts has surveyed its important suppliers, vendors and
customers, either by mail or telephone, to assess their Year-2000 readiness.
To date, the Corporation is not aware of any problems within those groups
that would materially affect results of Thomas & Betts' operations.
The Corporation is utilizing both internal and external resources to
reprogram or replace, test and implement the software and operating equipment
for Year-2000 modifications. As part of the previously mentioned
worldwide-technology upgrade that began in 1997, the Corporation has been and
is installing new systems with greatly enhanced functionality that will also
solve potential Year-2000 problems in those areas. Management anticipates
that its costs to modify existing software for Year-2000 compliance will
approximate $2 million, and to date, Thomas & Betts has spent approximately
75% of that amount on Year-2000 issues.
Thomas & Betts' plans to complete Year-2000 modifications are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources and other factors. Estimates of the status of completion and the
expected completion dates are based on hours expended to date compared to
total expected hours. However, there can be no guarantee that those estimates
will be achieved, and actual results could differ materially from those
anticipated. Specific factors that might cause material differences include,
but are not limited to, the availability and cost of personnel training in
this area, and the ability to locate and correct all relevant computer codes
and similar uncertainties.
The Corporation has contingency plans to address situations that may
result if the Corporation is unable to achieve Year-2000 readiness of its
critical operating systems. Those contingency plans cover the critical order
processing and distribution systems, as well as plant operating systems. A
majority of those plans involve redundant systems. For example, the
Corporation is remediating existing systems in parallel with development of
Year-2000 compliant replacement systems for order processing and distribution.
In the event that the Corporation's actions to correct potential Year-
2000 issues are incomplete and its contingency plans fail, the incorrect
recognition of the year 2000 by time-sensitive software could result in a
13
<PAGE>
system failure or miscalculations causing disruptions of operations --
including, among other things, a temporary inability to process orders,
prepare invoices or engage in normal business activities. The Corporation
expects that any such disruption would be temporary and likely not material,
as any previously undetected root cause for such disruption could likely be
identified and fixed in a relatively short period of time. However, if both
the Corporation's Year-2000 solution and contingency plans fail for a
critical system for a prolonged period, the impact on the Corporation would
be material.
Despite assurances from outside parties of their timely readiness, the
Corporation cannot ensure that its suppliers, vendors and customers will
resolve all Year-2000 issues. Given the responses to date from its suppliers,
vendors and customers, Thomas & Betts believes it is unlikely that a large
number of them will experience significant problems due to unresolved
Year-2000 issues. Should such an event occur, the Corporation can adjust its
order processing cycle to accommodate manual orders from its customers while
those third parties resolve outstanding issues. Consequently, the failure by
some parties to complete their Year-2000 readiness process would not likely
have a material impact on the Corporation. In the event that a large number
of customers suffer Year- 2000 compliance issues over a prolonged period, the
impact on the Corporation would be material.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed-conversion rates between their existing sovereign
currencies and the euro, and began a three-and-one-half-year effort to fully
adopt the euro as their common legal currency.
Thomas & Betts is continuing to assess the potential impact on the
Corporation that may result from the euro conversion. In addition to tax and
accounting considerations, the Corporation is assessing the potential impact
from the euro conversion in a number of areas, including: (1) the technical
challenges to adapt information technology and other systems to accommodate
euro-denominated transactions; (2) the competitive impact of cross-border
price transparency, which may make it more difficult for businesses to charge
different prices for the same products on a country-by-country basis; (3)
the impact on currency exchange costs and currency exchange-rate risks; and
(4) the impact on existing contracts. Thomas & Betts cannot yet predict the
anticipated impact of the euro conversion on its operations.
14
<PAGE>
PART II. OTHER INFORMATION
THOMAS & BETTS CORPORATION
Item 5. Other Information
(a) Forward-Looking Statements May Prove Inaccurate
This document includes various forward-looking statements about Thomas
& Betts which are subject to risks and uncertainties. Forward-looking
statements include information concerning future results of operations
and cost savings. Statements that contain words such as "believes,"
"expects," "anticipates," "intends," "estimates" or similar
expressions are forward-looking statements. These forward-looking
statements are subject to risks and uncertainties, and many factors
could affect the future financial results of Thomas & Betts.
Accordingly, actual results may differ materially from those expressed
or implied by the forward-looking statements contained in this
document. For these statements, the Corporation claims the protection
of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
There are many important factors that could cause actual results to
differ materially from those in forward-looking statements, some of
which are beyond the control of Thomas & Betts. These factors include,
but are not limited to:
- Negative economic conditions in the countries where Thomas &
Betts sells its products which may affect performance;
- Materially adverse changes in economic or industry conditions
generally or in the specific markets served by Thomas & Betts,
and economic slowdown in the U.S. or economic slowdowns in Thomas
& Betts' major offshore markets, including Europe (particularly
Germany and the United Kingdom), Canada, Japan and Taiwan;
- Adverse regulatory, environmental, monetary or other governmental
policies in the U.S. and abroad which could result in currency
fluctuations -- including fluctuations in the Canadian dollar,
German mark, Japanese yen, Swiss franc and British pound --
which, in turn, could adversely affect Thomas & Betts' revenues
and cost of sales;
- Significant changes in any number of governmental policies
domestically and abroad which could create trade restrictions,
patent enforcement issues, adverse tax-rate changes and changes
to tax treatment of items such as tax credits, withholding taxes,
transfer pricing and other income and expense recognition for tax
purposes, including changes in taxation on income generated in
Puerto Rico;
15
<PAGE>
- Changes in environmental regulations, including emissions to air,
discharge to waters and the generation and handling of waste,
which could impact expectations of remediation expenses, and
potentially significant expenditures required to comply with
environmental regulations and policies that may be adopted or
imposed in the future;
- Rapid expansion through acquisitions and joint ventures which may
result in integration difficulties;
- Inflationary pressures which could raise interest rates and
consequently Thomas & Betts' cost of funds;
- Disagreements and changes in its relationships with its joint
venture partners and changes in financial results from its joint
ventures and other equity investments, including ventures in
Taiwan, Japan, Belgium, Egypt and the U.S.;
- Strain on management resources and on other resources because of
continued rapid growth of the Corporation;
- Undiscovered liabilities arising from acquired businesses;
- Future acquisitions which could result in potentially dilutive
issuances of equity securities, the incurrence of debt and
contingent liabilities and amortization expenses related to
goodwill and other intangible assets, which materially adversely
affect operating results and financial condition;
- Competition which may negatively affect financial performance;
- Increased downward pressure on the selling prices for Thomas &
Betts' products;
- Unforeseeable changes in customer demand for various products of
Thomas & Betts, which could affect Thomas & Betts' overall
product mix, margins, plant utilization levels and asset
valuations;
- Availability of raw materials (especially steel, copper, zinc,
aluminum, gold and plastic resins) and significant price
fluctuations in the cost of raw materials which could adversely
affect Thomas & Betts' financial results;
- Delayed cost-reduction initiatives or unforeseen difficulties in
completing cost-reduction actions, including disposal of idle
facilities, geographic shifts of production locations and closure
of redundant administrative facilities; and
- Failure of Year 2000 date-sensitive logic in computer programs
and equipment within Thomas & Betts or third parties with whom
Thomas & Betts does business which may disrupt business
activities and operations.
16
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this form:
(27.1) Financial Data Schedule (for SEC use only)
(27.2) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
On February 1, 1999, the Corporation filed a current report on
Form 8-K, Items 5 and 7, announcing that the Corporation had
entered into a definitive agreement to acquire AFC Cable
Systems, Inc. in a stock-for-stock merger.
On February 5, 1999, the Corporation filed a current report on
Form 8-K, Items 5 and 7, announcing the Corporation's financial
results for the fiscal year ended January 3, 1999.
On February 12, 1999, the Corporation filed a current report on
Form 8-K, Items 5 and 7, announcing that the Corporation's Board
of Directors amended the Bylaws of the Corporation and filing
certain documents in connection with the issuance of medium-term
notes.
17
<PAGE>
THOMAS & BETTS CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THOMAS & BETTS CORPORATION
(Registrant)
DATE: May 18, 1999 /s/Fred R. Jones
-------------- --------------------------------------
Fred R. Jones
Vice President-Chief Financial Officer
DATE: May 18, 1999 /s/Jerry Kronenberg
-------------- --------------------------------------------
Jerry Kronenberg
Vice President-General Counsel and Secretary
18
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
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<MULTIPLIER> 1,000
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