<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 3, 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 OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8155 T&B BOULEVARD, MEMPHIS, TENNESSEE 38125
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 252-8000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.10 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. / /
As of March 8, 1999, 56,854,414 shares of the Registrant's Common Stock
were outstanding and the aggregate market value of the voting stock held by
non-affiliates of the Registrant (based on the average bid and asked prices of
such stock on the New York Stock Exchange composite tape) was $2,347,035,492.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year ended
January 3, 1999, are incorporated by reference into Parts I, II and IV.
Portions of the Proxy Statement for the Annual Meeting of Shareholders to
be held May 5, 1999, are incorporated by reference into Part III.
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Explanatory Note:
The Registrant is filing the Form 10-K/A to include additional disclosure in
Exhibit 13.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Corporation has duly caused this Report to
be signed on its behalf by the undersigned, hereunto duly authorized.
THOMAS & BETTS CORPORATION
(Registrant)
BY: /s/ FRED R. JONES
-----------------------------------------
Fred R. Jones
Vice President-Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Corporation in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ CLYDE R. MOORE* President, Chief Executive
- ---------------------------- Officer (PRINCIPAL EXECUTIVE
Clyde R. Moore OFFICER) and Director
/s/ FRED R. JONES Vice President-Chief June 7, 1999
- ---------------------------- Financial Officer (PRINCIPAL
Fred R. Jones FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER)
/s/ JERRY KRONENBERG* Vice President-General
- ---------------------------- Counsel and Secretary
Jerry Kronenberg
/s/ ERNEST H. DREW* Director
- ----------------------------
Ernest H. Drew
/s/ T. KEVIN DUNNIGAN* Chairman of the Board
- ----------------------------
(T. Kevin Dunnigan)
/s/ JEANANNE K. HAUSWALD* Director
- ----------------------------
Jeananne K. Hauswald
</TABLE>
Page 24 of 25
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<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ RONALD B. KALICH, SR.* Director
- ----------------------------
Ronald B. Kalich, Sr.
/s/ ROBERT A. KENKEL* Director
- ----------------------------
Robert A. Kenkel
/s/ KENNETH R. MASTERSON* Director
- ----------------------------
Kenneth R. Masterson
/s/ THOMAS C. MCDERMOTT* Director
- ----------------------------
Thomas C. McDermott
/s/ JEAN-PAUL RICHARD* Director
- ----------------------------
Jean-Paul Richard
/s/ JERRE L. STEAD* Director
- ----------------------------
Jerre L. Stead
/s/ WILLIAM H. WALTRIP* Director
- ----------------------------
William H. Waltrip
*By: /s/ FRED R. JONES June 7, 1999
----------------------------
Fred R. Jones
As attorney-in-fact for the above-
named officers and directors pursuant
to powers of attorney duly executed
by such persons.
</TABLE>
Page 25 of 25
<PAGE>
FINANCIAL HIGHLIGHTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
In thousands (except per share data) 1998 1997
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<S> <C> <C>
Net sales $2,230,351 $2,259,508
Special charges(1) $ 108,487 $ --
Net earnings (after special charges) $ 87,501 $ 162,278
Net earnings per common share:
Basic $ 1.54 $ 2.89
Diluted $ 1.54 $ 2.87
Average shares outstanding:
Basic 56,677 56,178
Diluted 56,990 56,551
Cash dividends declared per common share $ 1.12 $ 1.12
Shareholders' equity $1,015,105 $ 999,304
Capital expenditures $ 126,733 $ 118,926
Employees 19,330 17,829
Shareholders of record 4,374 5,051
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</TABLE>
<TABLE>
<CAPTION>
1998 1997
----------------------- --------
BEFORE AFTER
SPECIAL SPECIAL
CHARGES CHARGES
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<S> <C> <C> <C>
Net sales (in millions) $2,230 $2,230 $2,260
Net earnings (in millions) $164.5 $ 87.5 $162.3
Earnings per share:
Basic $ 2.90 $ 1.54 $ 2.89
Diluted $ 2.89 $ 1.54 $ 2.87
Return on average shareholders' equity 15.7% 8.7% 17.2%
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</TABLE>
(1) Special charges of $108.5 million pretax in 1998 consisted of
restructuring costs and other charges. Excluding those charges, earnings
per share would have been $2.90 basic and $2.89 diluted in 1998.
Amounts have been restated to include the July 2, 1998, acquisition of
Telecommunication Devices, Inc., accounted for as a pooling of interests,
except cash dividends per share, which reflect the Corporation's historical
per share amount.
[GRAPH 1] NET SALES
NET SALES DECREASED ONLY SLIGHTLY BUT WOULD ACTUALLY HAVE SHOWN AN INCREASE
HAD WE NOT CONTRIBUTED CERTAIN BUSINESS LINES TO A JOINT VENTURE AT YEAR-END
1997.
[GRAPH 2] NET EARNINGS
NET EARNINGS BEFORE THE SPECIAL CHARGE FOR PLANT CLOSINGS AND CONSOLIDATIONS
REACHED A RECORD LEVEL OF $164.5 MILLION.
[GRAPH 3] DILUTED EARNINGS PER SHARE
DILUTED EARNINGS PER SHARE BEFORE THE SPECIAL CHARGE MOVED TO A RECORD $2.89,
SLIGHTLY HIGHER THAN THE $2.87 IN 1997.
<PAGE>
SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Dollars and shares in thousands (except
per share data) 1998(a) 1997 1996(b) 1995(c) 1994(d) 1993(d)
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<S> <C> <C> <C> <C> <C> <C>
OPERATIONAL DATA
Net sales $2,230,351 $2,259,508 $2,134,387 $1,876,403 $1,677,249 $1,400,516
Costs and expenses
Cost of sales 1,581,215 1,567,286 1,525,121 1,339,305 1,202,930 986,153
Marketing, general and administrative 366,463 353,029 344,941 289,474 259,627 244,297
Research and development 48,690 52,977 47,482 44,083 40,543 37,176
Amortization of intangibles 17,364 17,355 15,323 11,314 12,345 13,072
Merger expense -- -- 30,558 -- -- --
Provision for restructured operations 62,096 -- 24,501 18,700 79,011 --
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2,075,828 1,990,647 1,987,926 1,702,876 1,594,456 1,280,698
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Earnings from operations 154,523 268,861 146,461 173,527 82,793 119,818
Other expense net 29,615 35,354 40,066 25,162 28,218 31,393
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Earnings from continuing operations
before income taxes 124,908 233,507 106,395 148,365 54,575 88,425
Income taxes 37,407 71,229 32,940 41,917 12,484 24,353
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Earnings from continuing operations
before cumulative effect of change
in accounting for income taxes 87,501 162,278 73,455 106,448 42,091 64,072
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Net earnings $ 87,501 $ 162,278 $ 73,455 $ 106,448 $ 108,024 $ 77,022
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Net return on sales 3.9% 7.2% 3.4% 5.7% 6.4% 5.5%
Return on average shareholders equity 8.7% 17.2% 8.4% 12.7% 14.4% 11.5%
FINANCIAL POSITION (AT YEAR END)
Current assets $1,058,402 $ 846,472 $ 997,863 $ 786,828 $ 759,452 $ 679,215
Current liabilities $ 587,549 $ 473,234 $ 515,740 $ 422,170 $ 364,711 $ 268,201
Working capital $ 470,853 $ 373,238 $ 482,123 $ 364,658 $ 394,741 $ 411,014
Current ratio 1.80 to 1 1.79 to 1 1.93 to 1 1.86 to 1 2.08 to 1 2.53 to 1
Property, plant and equipment net $ 631,022 $ 574,052 $ 543,237 $ 475,536 $ 398,507 $ 397,507
Long-term debt $ 790,963 $ 503,077 $ 645,096 $ 353,666 $ 354,552 $ 439,299
Shareholders equity $1,015,105 $ 999,304 $ 888,647 $ 870,096 $ 808,982 $ 692,407
Total assets $2,499,587 $2,094,288 $2,175,342 $1,706,003 $1,595,312 $1,466,162
COMMON STOCK DATA
Average shares outstanding
Basic 56,677 56,178 54,520 53,955 52,323 51,077
Diluted 56,990 56,551 54,973 54,183 52,621 51,488
Cash dividends declared $ 66,307 $ 66,752 $ 62,112 $ 63,880 $ 50,508 $ 42,928
Percent of net earnings 76% 41% 85% 60% 47% 56%
Per share
Earnings from continuing operations
Basic $ 1.54 $ 2.89 $ 1.35 $ 1.97 $ 0.80 $ 1.25
Diluted $ 1.54 $ 2.87 $ 1.34 $ 1.96 $ 0.80 $ 1.24
Net earnings
Basic $ 1.54 $ 2.89 $ 1.35 $ 1.97 $ 2.06 $ 1.51
Diluted $ 1.54 $ 2.87 $ 1.34 $ 1.96 $ 2.05 $ 1.50
Cash dividends declared $ 1.12 $ 1.12 $ 1.12 $ 1.12 $ 1.12 $ 1.12
Shareholders equity $ 17.88 $ 17.71 $ 16.23 $ 16.08 $ 15.25 $ 13.50
Market price range $64-33 11/16 $58 11/16-41 $45 7/8-34 3/4 $37 5/8-31 3/4 $35 5/8-29 1/8 $36-28 1/2
OTHER DATA
Capital expenditures $ 126,733 $ 118,926 $ 109,108 $ 132,838 $ 99,515 $ 59,860
Depreciation $ 77,969 $ 79,183 $ 77,098 $ 65,970 $ 64,192 $ 60,923
Employees at year end 19,330 17,829 15,523 13,406 12,308 12,608
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</TABLE>
Restated to include the results of Telecommunication Devices, Inc., acquired
July 2, 1998, and Augat Inc., acquired December 11, 1996, and accounted for
as poolings of interests, except cash dividends per share, which reflect the
Corporation's historical per share amount.
(a) Includes special charges of $108.5 million pretax ($1.36 basic and $1.35
diluted per share). Net sales excludes sales of businesses contributed to the
Exemplar/Thomas & Betts joint venture at the end of 1997.
(b) Includes special charges of $97.1 million pretax ($1.23 basic and $1.22
diluted per share).
(c) Includes special charges of $23.0 million pretax ($0.29 basic and diluted
per share).
(d) Net earnings for 1994 and 1993 included after-tax earnings from
discontinued operations (Vitramon, Inc.) of $7.4 million and $11.3 million,
respectively. Net earnings in 1994 also included a pretax gain from the sale
of Vitramon of $99.1 million, a pretax restructuring charge of $79.0 million
and a pretax operating write-down of $10.6 million for previously vacated
facilities.Those items offset each other on an after-tax basis. Net earnings
in 1993 also included a positive impact from a cumulative effect of change in
accounting for income taxes of $1.6 million ($0.03 basic and diluted per
share).
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
Thomas & Betts Corporation (Thomas & Betts or the Corporation) recorded net
sales in 1998 of $2,230.4 million. That compares with $2,259.5 million in
1997 and $2,134.4 million in 1996. Results for all three years were restated
for the 1998 acquisition of Telecommunication Devices, Inc. accounted for as
a pooling of interests. Four factors affect significantly the comparability
of 1998 net sales with those of 1997 and 1996. First, net sales for 1998 do
not include sales from businesses contributed at year-end 1997 to the
Exemplar/Thomas & Betts (ET&B) joint venture. Second, in 1998, the
Corporation did not have sales realized in 1996 and 1997 for a particular
automotive wiring harness program due to a previously announced and
anticipated discontinuation in the fall of 1997 of that auto platform by the
manufacturer. Third, in both 1998 and 1997, negative foreign currency
translations effectively reduced reported sales by 1.0% from the prior year.
Offsetting those three factors, the Corporation completed eight acquisitions
during 1998 that increased sales by 2.5% year over year. Sales in
1998 would have been 1.5% above sales in 1997 in the absence of those
comparability issues.
Results for 1998 include the contributions of nine acquisitions,
eight of which were accounted for using the purchase-accounting method. The
results of those eight acquisitions are included from the date that Thomas &
Betts acquired each company. Those eight acquisitions accounted for $58.8
million of 1998 sales and $0.03 of 1998's diluted EPS, and additional details
follow in the discussion of Liquidity and Capital Resources. Thomas & Betts
also acquired Telecommunication Devices, Inc. on July 2, 1998. That
acquisition was accounted for as a pooling of interests, and its results are
combined with those of Thomas & Betts for all periods presented herein.
Acquisitions completed during 1998 raised the percentage of sales
that Thomas & Betts realized outside the U.S. to 28.7%, compared with 1997's
24.7% and 1996's 24.4%. The Corporation has a goal of increasing its presence
outside of the U.S. over the next several years in an effort to achieve a
50%-domestic, 50%-non-domestic sales mix.
Net sales of $2,259.5 million for 1997 increased 5.9%, or $125.1
million from 1996. Sales growth from expanding the Corporation's existing
businesses, coupled with acquisitions, accounted for the majority of the
growth. For 1997, existing business volume grew 3.1%, with acquisitions (and
their sales growth subsequent to acquisition) adding another 4.1% to sales.
That growth was offset by unfavorable currency translation of 1.3%. The
acquisition of Augat Inc. in December 1996, the largest acquisition in the
Corporation's history, was accounted for as a pooling of interests and
resulted in Augat's financial results being combined with those of the
Corporation for all periods presented herein.
The Corporation views its business in three segments that are divided
along the lines of the end-user markets to which Thomas & Betts sells. The
Electrical segment includes sales of a broad package of electrical
connectors, components and accessories primarily fasteners, fittings,
connectors, boxes and covers, metal framing, grounding and lighting to
worldwide customers for use in industrial, commercial, residential and
utility installations, repairs and maintenance. Those sales grew 9.8% to
$1,079.8 million in 1998, following an increase of 18.8% in 1997 compared
with 1996. The rate of sales growth for the Electrical segment moderated in
1998 due to softening demand from the North American industry. Also,
weakening of the Canadian dollar and a summer-long construction-worker strike
in Canada, where Thomas & Betts typically records about 15% of Electrical
sales, dampened the growth rate. In both 1998 and 1997, volume gains
accounted for over one-half of the segments growth with several product-line
acquisitions and favorable pricing also contributing to the year-over-year
improvements.
The Electronic Original Equipment Manufacturer (OEM) segment produces
and markets electronic connectors and components for use in high-speed
professional electronics, mobile communications and automotive applications,
all involving miniaturization, surface-mounts, electromagnetic interference
and multiplexing. Reported sales of the Electronic OEM segment were $640.1
million in 1998, or 15.4% lower than 1997, following a 5.4% decrease in 1997
from 1996.
At year-end 1997, Thomas & Betts contributed certain businesses to
the ET&B joint venture. Sales of businesses contributed to that joint
venture, included in 1997 and 1996 segment sales, were excluded from segment
sales in 1998. Also, the Electronic OEM segment was credited with automotive
wiring harness sales to the aforementioned discontinued auto platform in 1996
and 1997. Weaker foreign currencies negatively affected Electronic OEM sales,
lowering sales by approximately 1%. In the absence of the impact of the
joint-venture deconsolidation, the discontinued product lines and
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
negative foreign currency translations, the underlying rate of change in 1998
over 1997 was a 1.9% decrease.
Volume increases in a number of product lines in 1998 were offset by
anticipated declines in certain automotive-related product lines. Pricing for
certain products sold to electronic OEMs declined moderately during 1998, as
a result of industry overcapacity as manufacturers of computing equipment
lowered inventory levels. In total, price declines lowered Electronic OEM
sales by 3.0% in 1998 from 1997.
During 1998, Thomas & Betts ramped up sales of products based on its
innovative Metallized Particle Interconnect-TM- (MPI-TM-) technology. The MPI
product line contributed $20.3 million to 1998's sales, up from $1.6 million
in its introductory year of 1997. As previously discussed, at year-end 1997
Thomas & Betts contributed assets, which generated 1997 sales of
approximately $86 million, to the ET&B joint venture. Under terms of the
joint-venture agreement, Thomas & Betts has a 49% ownership interest in ET&B,
and retains 100% interest in the income generated by the assets it
contributed plus a 49% interest in income generated by jointly developed
future business. The Corporation accounts for its investment in ET&B under
the equity method. The establishment of the joint venture did not change
segment earnings or consolidated net earnings from what they would have been
if the business was fully consolidated, but did reduce net sales, costs and
expenses by the amounts attributable to the contributed assets.
The Communications segment manufactures and sells a package of
drop-line hardware, connectors, fasteners, fiber optics, grounding and
accessories, for use in cable television (CATV), telecommunications and data
communications network applications. Communications sales of $261.1 million
were slightly lower, by 0.4%, than in 1997. In 1997, Communications sales
were $262.1 million, an increase of 3.3% over 1996. A new contract with a
major CATV provider boosted sales of amplifiers to offset slacking industry
demand for CATV hardware and connectors in 1998. That contract is expected to
continue through 2000 and to generate $70.0 million in sales over its
three-year life. Also during 1998, Thomas & Betts entered into an agreement
with IBMs Advanced Connectivity Systems (ACS) Division to design and supply
data communications connectors and hardware to ACS. That agreement resulted
in higher sales of those products in late 1998 and is expected to contribute
to segment sales growth in 1999 and beyond.
Sales that cannot be classified in the aforementioned segments
totaled $249.3 million in 1998, 3.1% lower than 1997, after having risen 1.5%
in 1997 over 1996. The Corporation de-emphasized reliance on diminishing
sales of steel structures for use as cellular telephone towers, and that move
significantly contributed to the 1998 decrease. Sales of steel structures
strengthened considerably during the course of 1998 as Thomas & Betts built
poles and towers for traditional utility-transmission-line use and for
wind-power generation projects. Unusually mild winter weather in both early
and late 1998 lowered sales of heating products for the year.
Expenses for 1998 include the cost of the Corporation's accelerated
cost-reduction program. Pretax special charges of $108.5 million were
recorded in the third quarter primarily for consolidating facilities and
product-line operations, terminating employees at affected locations,
downsizing administrative functions and writing down idle facilities. Those
charges had a negative after-tax impact of $77.0 million, or $1.35 per share,
on 1998 net earnings, and are discussed in detail in Note 4 to the financial
statements. The charges were recorded as $30.3 million of cost of sales,
$16.1 million of marketing, general and administrative expense and a
$62.1 million provision for restructured operations. In many cases individual
facilities involved in the cost-reduction effort manufacture product lines
for more than one of the Corporation's reportable segments, making it
impracticable to attribute special charges and associated project costs by
segment. Those restructuring costs are therefore managed by facility and
excluded from the measurement of segment results.
The cost-reduction program is comprised primarily of: (1) projects to
realign and relocate certain product-line manufacturing processes to enhance
cost efficiencies and (2) the streamlining of administrative functions.
Efforts include plant closings and relocations of manufacturing lines among
plants, and involve approximately 35 locations in the U.S. and
internationally. Significant plant closings or reductions in operations will
occur at the Corporation's manufacturing facilities in Hackettstown, NJ;
Tulsa, OK; Vidalia, GA; Bainbridge, GA; Garwood, NJ; and Lugano, Switzerland.
In addition, manufacture of the computer backplane cable product line in
Singapore will be discontinued. These specific plant closings or reductions
and product line discontinuations represent over one-half of the 1998
restructuring provision. Thomas & Betts expects that cost-reduction actions
will ultimately result in a net reduction of 400 jobs. The projects
comprising the entire restructuring program will be staged generally over
periods that began in the third and fourth quarters of 1998, and are expected
to be substantially completed by the end of 1999.
The special charges also entailed inventory write-downs totaling
$21.6 million, which primarily related to raw material and work-in-process
inventories at 30 plants affected by cost-reduction initiatives. These plants
are located in the U.S., U.K., Switzerland, Singapore and Japan.
Manufacturing operations at these locations are being relocated to Mexico,
Hungary and Malaysia. Because of the significant cost of freight and handling
for relocation of material and because of the limitation of storage capacity
at the plants to which production is being transferred, slower-moving
inventory will not be moved. In addition, certain raw materials and
work-in-process inventories will be obsoleted by changes in manufacturing
processes at the new locations. Further, the economic crisis in Southeast Asia
in late 1997 and 1998 caused a slowdown in demand in the Electronic OEM
segment, which operates in an environment characterized by rapidly changing
technology. These factors affected the viability of certain product offerings
within several product lines in 1998. The economic slowdown also caused
second-tier customers who normally purchase this older-technology inventory to
significantly reduce their purchases. The inventory affected had virtually no
scrap value and was fully written down. For the product line discontinuance
discussed above, reserves were established to mark inventory down to net
realizable value.
The costs related to idled facilities included in the special charges
primarily relate to the Corporation's leased corporate headquarters which was
vacated in 1994. That facility in Bridgewater, New Jersey, was subject to a
15-year lease commitment which began in 1992. The amount originally reserved
in 1994, which was not part of a restructuring initiated in 1994, amounted to
approximately $4 million and was expected to provide for lease costs to be
incurred until the facility could be fully sub-leased. The Corporation was
subsequently able to sub-lease a portion, but not all, of the facility. An
additional provision was made in 1996 based on the then-current rental
outlook. Recent activities revealed that newly completed office space in the
Bridgewater, New Jersey, area had adversely impacted the marketability of the
facility; accordingly, an additional provision of $8.8 million was made in
the 1998 special charges to reflect reduced expectations with regard to
sub-lease income through the primary lease's expiration in 2007. The
remaining $6.3 million of idled facility charges related to the write-off of
leasehold improvements at another vacated office facility ($1.7 million),
adjustments to the estimated net realizable value of 10 owned facilities
($3.0 million), and the related carrying costs expected to be incurred until
all of these facilities are disposed of ($1.6 million). Disposals are
currently expected to be accomplished over the next two years.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
In 1998, Thomas & Betts incurred $6.2 million of project expenses
related to the cost-reduction program, which were not accruable as part of
the 1998 special charges, as it began implementing those cost-reduction
plans. Those project expenses included primarily equipment and personnel
relocation costs. The Corporation expects that project expenses over the life
of the program, which will be substantially complete by the end of 1999, will
total $33.8 million. In addition to project expenses, the Corporation
anticipates related capital spending of $29.1 million over the life of the
cost-reduction program, $5.4 million of which was expended in 1998.
Expected savings are net of (1) the associated operating cost
increases expected to be incurred at the destination facilities and (2) in
1998 and 1999, the project expenses described above. On-going net savings
upon full implementation of the program are expected in the form of reduced
salaries and benefits ($21 million), manufacturing labor and benefits ($54
million) and depreciation expense ($1 million) offset by higher freight and
other overhead costs ($9 million). Actions implemented in 1998 saved Thomas &
Betts $1.0 million in the year, net of project expenses of $6.2 million. The
Corporation anticipates a net pretax benefit from the cost-reduction program
in 1999 of $26.0 million. The cost reduction run-rate is expected to reach
$50 million by the end of 1999, and that figure is expected to grow to $67.0
million in 2000.
Future revenues are not expected to be significantly affected,
since the cost-reduction programs are primarily intended to relocate rather
than discontinue operations. The Corporation expects the cumulative cash
outflows of the cost-reduction plans, less cash savings captured by the
plans, to reach approximately $21 million by the end of the second quarter of
1999. After that time, the cost-reduction plans are expected to generate
positive cash flow.
In 1996, the Corporation recorded $97.1 million in special charges,
related primarily to the acquisition and assimilation of Augat. (See Note 4
to the financial statements.) Included in those charges were merger expenses,
resulting from legal and financial-advisory fees and change-of-control
payments, and provisions for restructured operations related to the
integration of Augat and initiatives to optimize operations and to improve
future profitability. The charges were recorded in the statement of earnings
as follows: net sales, $2.4 million; cost of sales, $13.8 million; marketing,
general and administrative, $19.7 million; merger expense, $30.6 million;
provision for restructured operations, $24.5 million; and other expense,
$6.1 million.
CONSOLIDATED GROSS MARGIN WAS 29.1% IN 1998 COMPARED TO 29.3% IN 1997 AND
28.5% IN 1996. Excluding the special charges of $30.3 million in 1998 and
$16.2 million in 1996, gross margin was 30.5% in 1998 compared with 30.6% and
29.3% in 1997 and 1996. The 1998 gross margin reflected lower commodity costs
and savings from previous restructuring and cost-reduction efforts.
Marketing, general and administrative (MG&A) expense represented
16.4% of sales in 1998 (15.7% before special charges of $16.1 million). That
compares with 15.6% and 16.2% of sales in 1997 and 1996, respectively (15.1%
in 1996 if special charges of $22.1 million are excluded). In addition to the
special charge, 1998 MG&A expense as a percent of sales was up slightly due
to somewhat higher shipping and warehousing expense in 1998.
The Corporation spent 2.2% of sales on research and development (R&D)
during 1998 versus 2.3% in 1997 and 2.2% in 1996. Most R&D activity took
place in the Electronic OEM and Communications segments with efforts in 1998
focused on MPI; a new battery pack technology, lithium-polymer ion; and
fiber-optic components. Amortization expense rose in both years due to
additional amortization of goodwill related to acquisitions.
EARNINGS FROM OPERATIONS IN 1998 WERE $87.5 MILLION, DOWN 46% FROM
THE PRIOR YEAR DUE PRIMARILY TO A SPECIAL CHARGE OF $108.5 MILLION. Excluding
the special charge, operating earnings of $263.0 million were 2.2% lower
than 1997's $268.9 million. Some businesses that were consolidated in 1996
and 1997 were contributed to the ET&B joint venture at year-end 1997, and
earnings associated with those businesses were classified as earnings from
unconsolidated companies in 1998.
Income from unconsolidated companies includes equity income from the
Corporation's joint ventures and other equity investments. Those include the
ET&B joint venture, the investment in Leviton Manufacturing Co. and the
Elastimold offshore joint ventures. Income from unconsolidated companies for
1998 rose $12.3 million from 1997's level, to $26.2 million, due primarily to
the new ET&B joint venture.
Other expense-net includes interest expense, loss on sales of
accounts receivable, foreign-currency losses and index-put options partially
offset by investment income and foreign-exchange contract gains. Other
expense-net increased in 1998 from 1997's level due primarily to a full
year's losses on sales of accounts receivable under the Corporation's
asset-securitization program, which was initiated in December 1997. Other
expense-net in 1997 was higher than in 1996 due to the absence of the cost of
index-put options related to the Augat merger offset by greater interest
expense resulting from higher average debt levels.
The effective income tax rate for 1998 of 29.9% was 0.6 percentage
points below the rate for 1997 and 1.1 percentage points lower than the 1996
rate. The higher 1996 rate was due to non-deductible merger-related special
charges associated with the Augat acquisition. Thomas & Betts has been able
to maintain a tax rate below the statutory rate because of tax benefits
derived from operations in Puerto Rico and other proactive tax-saving
initiatives.
THOMAS AND BETTS HAD NET EARNINGS OF $87.5 MILLION, OR $1.54 PER
SHARE ON A DILUTED BASIS, IN 1998, COMPARED TO $162.3 MILLION, OR $2.87 PER
SHARE IN 1997 AND $73.5 MILLION, OR $1.34 PER SHARE ON A DILUTED BASIS, IN
1996. In the absence of special charges, Thomas & Betts had record net
earnings of $164.5 million, or $2.89 per share on a diluted basis, versus its
1997 performance of $162.3 million, or $2.87 per share, and 1996's earnings
of $139.1 million, or $2.53 per share, before the effect of 1996's special
charges.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
Comparing year-to-year results, excluding the impact of special charges in
all years, 1998 net earnings were 1.4% higher than 1997's earnings, which
were 16.7% above those in 1996.
The Corporation evaluates its business segments on the basis of
segment earnings, with segment earnings defined as earnings before interest,
taxes, restructure and special charges and certain other expenses. Earnings
of the Electrical segment rose 8.0% in 1998 over 1997 and 30.4% in 1997 over
1996, due to higher sales volumes overall and higher growth in sales to
commercial customers than to the more profitable industrial markets. Earnings
from the Electronic OEM segment were 5.6% lower in 1998 than in 1997 and
declined 0.5% in 1997 from 1996, reflecting lower sales but improved margins
within the segment. Communications earnings decreased 26.5% from 1997 and
were 0.2% lower in 1997 compared with 1996, as the mix of product sold in
1998 favored lower-margin product. Earnings related to all other sales rose
14.9% in 1998 versus 1997, compared with a 3.6% increase in 1997 versus 1996,
as a result of enhancements made in the manufacturing processes for steel
structures and unit heaters.
LIQUIDITY AND FINANCIAL RESOURCES
Cash provided by operating activities decreased in 1998 due to increased
investment in working capital. The year-over-year increase in accounts
receivable was primarily due to the acquisition of Kaufel Group Ltd. in late
1998 and to information and financial systems conversions. In December 1997,
the Corporation initiated a program to sell accounts receivable under an
asset-securitization program. The commencement of that program provided an
increase in cash of $145.2 million in 1997.
Purchases of property, plant and equipment of $126.7 million in 1998
increased 6.6% from 1997's level. Spending in 1997 of $118.9 million was up
9.0% from 1996. Projects in 1998, as well as 1997, included
restructuring-related spending to consolidate the operations of recent
acquisitions, expansion of production capabilities,efficiency-related
improvements and new systems software. Projects in 1996 included completion
of the Corporation's central distribution center, continued expansion of
Mexican operations and restructuring-related spending at Augat.
Thomas & Betts makes selective acquisitions to broaden its business
worldwide. The Corporation currently is evaluating several acquisition
possibilities and expects to do so from time to time in the future. The
Corporation may finance any such acquisitions that it consummates through the
issuance of private or public debt or equity, internally generated funds or a
combination of those sources. In January 1999, Thomas & Betts announced a
proposed stock-for-stock merger with AFC Cable Systems, Inc. (AFC). AFC is a
leading manufacturer and innovative marketer of cost-saving and labor-saving
electrical and communications products and systems for commercial and
industrial buildings, including armored cable, modular wiring systems and
other electrical products and devices used for transmitting power, voice and
data. That transaction is subject to approval by shareholders of both
companies and is expected to be completed within the first half of 1999.
Thomas & Betts completed nine acquisitions during 1998 for
approximately $168 million of cash, 1,461,000 shares of the Corporation's
common stock and $99 million of assumed debt. Those acquisitions and the
product lines acquired were: (1) in March, Pride Product Services, Inc.,
fiber protection sleeves and other fiber-optic consumables for
telecommunications applications; (2) in May, U.K.-based W.J. Furse & Co.,
Limited, grounding and lightning protection systems, spring steel fasteners
and electronic surge protection devices; (3) also in May, HitLock connectors
product line for non-metallic sheathed cable; (4) also in May, 700 and 709
IDC connector product lines from Lucent Technologies; (5) in June, Dark to
Light, Inc., electronic photo controls used in lighting products; (6) in
July, Telecommunication Devices, Inc. (TDI), mobile communications battery
packs; (7) also in July, Emery Fixtures, Inc., decorative light fixtures and
poles; (8) in September, CATV trap and filter manufacturing assets of Pico
Products, Inc.; and (9) in November, Kaufel Group Ltd., emergency lighting
products. All acquisitions, with the exception of TDI, were accounted for
using the purchase method, and in aggregate, gave rise to $64.5 million of
goodwill.
Thomas & Betts completed six acquisitions during 1997 for
approximately $19 million of cash, 793,560 shares of the Corporation's common
stock and $16 million of assumed debt. The largest of those was the July
acquisition of Diamond Communications Products, Inc., a manufacturer of drop
hardware for the worldwide communications industry. The six acquisitions
completed in 1997 represented $57.6 million of that year's sales.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
Thomas & Betts closed eight acquisitions in 1996, the two largest of
which were Augat and Amerace Corporation. In December 1996, the Corporation
exchanged approximately 12.8 million shares of common stock for all of the
outstanding common stock of Augat in a transaction valued at approximately
$570 million. In January 1996, the Corporation acquired all the outstanding
stock of Amerace for $213.0 million in cash.
Total debt increased $342.9 million in 1998 from 1997's level,
reflecting debt issued and assumed for the November acquisition of Kaufel and
for other acquisitions, and to fund increases in working capital. Debt
declined $168.5 million in 1997 from 1996's level, reflecting the application
of cash generated from operations and proceeds from the sale of accounts
receivable. Thomas & Betts maintains a commercial paper program, which is
backed by $500.0 million of revolving credit agreements. At year-end 1998,
$135.0 million of commercial paper was outstanding. Management believes that
its external financial resources and internally generated funds are
sufficient to meet the Corporation's capital needs over the next year,
excluding acquisitions or the need to fund additional restructuring activity.
Longer-term however, the Corporation expects to continue to finance future
acquisitions through the issuance of private or public debt, common stock,
other equity instruments, internally generated funds or a combination of
those sources.
Cash and marketable securities increased $8.9 million in 1998. Thomas
& Betts maintains a portfolio of marketable securities and cash equivalents
in Puerto Rico, which at year-end 1998 was valued at $49.3 million. Although
those investments represent currently available funds, they remain invested
until the Corporation can repatriate the investments free of tollgate tax.
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 year-end
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.
At year end, Thomas & Betts had completed 78% of the remediation
phase for all corporate replacement systems, and expects to complete software
programming and replacement no later than 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
had completed 72% of testing of its project to replace corporate systems and
to remediate plant systems and had implemented 65% of its remediated plant
systems by year-end 1998. 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 80% of the remediation phase and had completed 60% of the testing
of that equipment at year-end 1998. 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
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
its costs to modify existing software for Year-2000 compliance will
approximate $2 million, and to date, Thomas & Betts has spent approximately
50% of that amount on Year-2000 issues.
Thomas & Bett's 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
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.
MARKET RISK AND FINANCIAL INSTRUMENTS
Thomas & Betts is exposed to market risk from changes in foreign-exchange
rates, raw material commodity prices and interest rates. The Corporation may
enter into various hedging transactions to reduce those risks and allow
management to focus on core business issues and challenges. The Corporation
does not enter into foreign-currency or interest-rate transactions or
commodity-price contracts for speculative purposes.
Thomas & Betts primarily enters into forward-exchange contracts to
reduce the impact on earnings and cash flow from non-functional
currency-denominated assets, liabilities and transactions, predominantly
inter-company and third-party receivables and payables. Gains and losses
resulting from hedging instruments offset the losses and gains on the
underlying assets, liabilities and transactions being hedged. The
Corporation's forward-exchange contracts generally have maturity dates of less
than 90 days, and a high correlation is maintained between the hedges and the
underlying assets, liabilities or transactions to minimize currency risk. In
most cases, both the exposed transactions and the hedging contracts are
marked to market monthly with gains and losses included in earnings as other
income or expense.
Assuming a hypothetical 10% adverse change in all foreign currencies,
with the resulting functional currency gains and losses translated into U.S.
dollars at the spot rate, the loss in fair value of exchange contracts held
on January 3, 1999, would be $6.0 million. Those losses would be offset by
gains on the underlying assets, liabilities and transactions being hedged.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
Thomas & Betts will occasionally enter into interest-rate swaps to
reduce the impact of changes in interest rates on portions of its
floating-rate debt. During 1998, there were no interest-rate swaps
outstanding. As of January 3, 1999, the fair value of the Corporation's
long-term debt, estimated using quoted market prices or discounted future
cash flows based on the Corporation's current incremental borrowing rates for
similar types of borrowing arrangements, was $832.6 million. That fair value
exceeded the carrying value of debt at January 3, 1999, by $19.0 million.
Market risk, when determined by modeling the change in the net present value
of cash flows arising from using a hypothetical 10% adverse change in the
Corporation's weighted average end-of-year interest rate of 6.5%, resulted
in a $17.4 million increase in the fair value of the Corporation's debt at
January 3, 1999.
Thomas & Betts is exposed to risk from fluctuation in prices for
commodities used to manufacture its products, primarily copper, zinc,
aluminum, gold and silver. Some of that risk is hedged through the use of
futures and swap contracts that fix the price the Corporation will pay for
the commodity. The use of such commodity contracts effectively protects
Thomas & Betts against changes in the price of the commodity to the extent of
the notional amount under the contract. Since the maturities of those
contracts are highly correlated with the actual purchases of the commodities,
the reported cost of sales amounts reflect the commodities costs, including
the effects of commodity hedges.
As of January 3, 1999, the net unrealized loss on all commodity
contracts held was $3.2 million. A hypothetical 10% decrease in all commodity
market prices would result in an additional unrealized loss of $2.5 million.
The Corporation would normally record commodity contract losses only at the
time Thomas & Betts actually purchased the commodity, and the loss would be
reported as part of cost of sales. The Corporation's policy permits hedging
up to 100% of the anticipated commodity purchases for the following six
months, but limits hedging to no more than 80% of anticipated commodity
purchases for the period from six to 24 months subsequent to the measurement
date. The term of hedging contacts is generally not more than 18 months. The
Corporation therefore remains exposed to commodity price changes on a portion
of its material requirements.
NEW ACCOUNTING STATEMENTS
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities. Statement No.
133 will require the recognition at fair value of all derivatives as either
assets or liabilities in the Consolidated Balance Sheet. Under certain
conditions, a derivative can be designated as a hedge allowing the deferral
of fair value gains or losses until the offsetting gains or losses on the
hedged item are recognized. At times Thomas & Betts enters into derivative
instruments to hedge risks associated with foreign-currency and commodity
fluctuations. Statement No. 133 is effective for the first quarter of 2000.
Although the Corporation has not completed its final evaluation of the
effects of the new statement, it does not currently believe that adoption
will have a material effect on its future results of operations or financial
position.
ENVIRONMENTAL MATTERS
Thomas & Betts is committed to complying with all applicable laws and to
pursuing actions and practices that promote a safer, healthier environment.
The Corporation expended approximately $2 million, $3 million and $2 million
for environmental remediation and corrective matters for the years 1998, 1997
and 1996, respectively, with payments for Superfund-related matters being
less than $0.7 million in any year.
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 assessing the potential impact to the Company 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.
25
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
In thousands (except per share data) 1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $2,230,351 $2,259,508 $2,134,387
Costs and Expenses
Cost of sales 1,581,215 1,567,286 1,525,121
Marketing, general and administrative 366,463 353,029 344,941
Research and development 48,690 52,977 47,482
Amortization of intangibles 17,364 17,355 15,323
Merger expense -- -- 30,558
Provision for restructured operations 62,096 -- 24,501
- ----------------------------------------------------------------------------------
2,075,828 1,990,647 1,987,926
- ----------------------------------------------------------------------------------
Earnings from operations 154,523 268,861 146,461
Income from unconsolidated companies 26,172 13,909 7,920
Other expense -- net 55,787 49,263 47,986
- ----------------------------------------------------------------------------------
Earnings before income taxes 124,908 233,507 106,395
Income taxes 37,407 71,229 32,940
- ----------------------------------------------------------------------------------
Net Earnings $ 87,501 $ 162,278 $ 73,455
- ----------------------------------------------------------------------------------
Net Earnings Per Common Share:
Basic $ 1.54 $ 2.89 $ 1.35
Diluted $ 1.54 $ 2.87 $ 1.34
Average shares outstanding:
Basic 56,677 56,178 54,520
Diluted 56,990 56,551 54,973
Cash dividends declared per share $ 1.12 $ 1.12 $ 1.12
</TABLE>
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 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
<PAGE>
CONSOLIDATED BALANCE SHEETS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
JANUARY 3, December 28,
In thousands 1999 1997
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 64,028 $ 45,225
Marketable securities 42,478 52,382
Receivables -- net 404,784 293,722
Inventories 469,641 402,601
Deferred income taxes 61,829 43,452
Prepaid expenses 15,642 9,090
- --------------------------------------------------------------------------
Total Current Assets 1,058,402 846,472
Property, Plant and Equipment
Land 22,309 21,670
Buildings 232,380 219,832
Machinery and equipment 908,253 840,807
- --------------------------------------------------------------------------
1,162,942 1,082,309
Less accumulated depreciation 531,920 508,257
- --------------------------------------------------------------------------
631,022 574,052
Intangible assets -- net 621,487 506,225
Investments in unconsolidated companies 142,251 127,706
Other assets 46,425 39,833
- --------------------------------------------------------------------------
Total Assets $2,499,587 $2,094,288
- --------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 75,068 $ 37,383
Current maturities of long-term debt 22,589 5,256
Accounts payable 262,483 226,542
Accrued liabilities 155,815 142,974
Income taxes 55,674 45,678
Dividends payable 15,920 15,401
- --------------------------------------------------------------------------
Total Current Liabilities 587,549 473,234
Long-Term Liabilities
Long-term debt 790,963 503,077
Other long-term liabilities 93,788 92,206
Deferred income taxes 12,182 26,467
Shareholders' Equity
Common stock 5,678 317,143
Additional paid-in capital 322,018 --
Retained earnings 710,474 689,280
Unearned compensation -- restricted stock (4,534) (4,921)
Accumulated other comprehensive income (18,531) (2,198)
- --------------------------------------------------------------------------
Total Shareholders' Equity 1,015,105 999,304
- --------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $2,499,587 $2,094,288
- --------------------------------------------------------------------------
</TABLE>
Amounts have been restated to include the July 2, 1998, acquisition of
Telecommunication Devices, Inc., accounted for as a pooling of interests.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 87,501 $ 162,278 $ 73,455
Adjustments:
Depreciation and amortization 95,333 96,538 92,421
Provision for restructured operations 62,096 - 24,501
Accrued merger and other special charges 46,393 - 51,145
Undistributed earnings from unconsolidated companies (13,204) (11,278) (4,217)
Deferred income taxes (26,139) 19,771 (26,728)
Changes in operating assets and liabilities, net:
Receivables (60,145) 77,817 (65,781)
Inventories (50,477) (25,687) (29,844)
Accounts payable (11,677) 23,260 26,151
Accrued liabilities (38,487) (60,198) (30,556)
Income taxes payable 6,694 9,144 20,278
Other (9,459) 77 4,559
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 88,429 291,722 135,384
- -------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of and investments in businesses (169,349) (19,326) (256,390)
Purchases of property, plant and equipment (126,733) (118,926) (109,108)
Proceeds from sale of property, plant and equipment 5,337 6,098 37,535
Marketable securities acquired (38,781) (81,365) (26,636)
Proceeds from matured marketable securities 48,816 64,807 51,387
Other - (1,000) -
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (280,710) (149,712) (303,212)
- -------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Increase (decrease) in borrowings with original maturities
less than 90 days 22,602 432 (16,637)
Proceeds from long-term debt and other borrowings 256,560 170,730 386,437
Repayment of long-term debt and other borrowings (11,148) (354,394) (95,137)
Stock options exercised 10,553 25,945 12,812
Cash dividends paid (65,788) (62,648) (62,005)
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 212,779 (219,935) 225,470
Effect of exchange-rate changes on cash (1,695) (4,030) (6,805)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 18,803 (81,955) 50,837
Cash and cash equivalents - beginning of year 45,225 127,180 76,343
- -------------------------------------------------------------------------------------------------------
Cash and cash equivalents - end of year $ 64,028 $ 45,225 $ 127,180
- -------------------------------------------------------------------------------------------------------
Cash payments for interest $ 46,600 $ 55,088 $ 38,078
Cash payments for income taxes $ 46,050 $ 42,552 $ 31,408
</TABLE>
Except for cash dividends, amounts have been restated to include the July 2,
1998, acquisition of Telecommunication Devices, Inc., accounted for as a
pooling of interests.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Accumulated
Common Stock Other
------------------ Paid-In Retained Restricted Comprehensive Comprehensive
In thousands Shares Amount Capital Earnings Stock Income Income Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 54,119 $266,648 $ - $579,535 $ (478) $ 24,440 $ - $ 870,145
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings - - - 73,455 - - 73,455 73,455
Other comprehensive income:
Unrealized gain on securities
net of taxes of $7 - - - - - - 15 15
Cumulative translation
adjustment - - - - - - (8,626) (8,626)
Minimum pension liability
adjustment - - - - - - 646 646
- --------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income - - - - - (7,965) (7,965) -
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income - - - - - - 65,490 -
- --------------------------------------------------------------------------------------------------------------------------------
Dividends declared - - - (62,112) - - - (62,112)
Business acquisitions and
investments 58 1,949 - (39) - - - 1,910
Change in subsidiaries year end - - - (1,516) - - - (1,516)
Stock options and incentive
awards 587 16,263 - - - - - 16,263
Unearned compensation - - - - (1,533) - - (1,533)
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 29, 1996 54,764 284,860 - 589,323 (2,011) 16,475 - 888,647
- --------------------------------------------------------------------------------------------------------------------------------
Net earnings - - - 162,278 - - 162,278 162,278
Other comprehensive income:
Unrealized gain on securities
net of taxes of $30 - - - - - - (87) (87)
Cumulative translation
adjustment - - - - - - (18,586) (18,586)
- --------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income - - - - - (18,673) (18,673) -
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income - - - - - - 143,605 -
- --------------------------------------------------------------------------------------------------------------------------------
Dividend declared - - - (66,752) - - - (66,752)
Business acquisitions and
investments 62 3,610 - - - - - 3,610
Stock options and incentive
awards 910 25,945 - - - - - 25,945
Unearned compensation - - - - (2,910) - - (2,910)
Immaterial poolings of interest 731 2,728 - 4,431 - - - 7,159
- --------------------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1997 56,467 317,143 - 689,280 (4,921) (2,198) - 999,304
- --------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS - - - 87,501 - - 87,501 87,501
OTHER COMPREHENSIVE INCOME:
UNREALIZED GAIN ON SECURITIES
NET OF TAXES OF $67 - - - - - - 198 198
CUMULATIVE TRANSLATION
ADJUSTMENT - - - - - - (16,531) (16,531)
- --------------------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME - - - - - (16,333) (16,333) -
- --------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME - - - - - - 71,168 -
- --------------------------------------------------------------------------------------------------------------------------------
STOCK CONVERTED TO $0.10
PAR VALUE - (311,497) 311,497 - - - - -
DIVIDENDS DECLARED - - - (66,307) - - - (66,307)
STOCK OPTIONS AND INCENTIVE
AWARDS 307 31 10,522 - - - - 10,553
UNEARNED COMPENSATION - - - - 387 - - 387
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 3, 1999 56,774 $ 5,677 $322,019 $710,474 $(4,534) $(18,531) $ - $1,015,105
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts have been restated to include the July 2, 1998, acquisition of
Telecommunication Devices, inc., accounted for as a pooling interests.
Preferred Stock: Authorized 1,000,000 shares, par value $0.10 per share. None
issued to date, but 300,000 shares are reserved for the Corporation's
Shareholders' Rights Plan.
Common Stock: Authorized 250,000,000 shares, par value $0.10 per share.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
1. NATURE OF OPERATIONS
Thomas & Betts Corporation (Thomas & Betts or the Corporation) is a leading
manufacturer of connectors and components for worldwide electrical and
electronics markets. With international headquarters in Memphis, Tennessee,
Thomas & Betts operates 163 manufacturing and distribution facilities around
the globe in 24 countries. Thomas & Betts designs, manufactures and sells
components used in assembling, maintaining or repairing electrical,
electronic and communications systems. The Corporation's products include: (1)
electrical components and accessories for industrial, commercial, utility and
residential construction, renovation and maintenance applications and for
applications within other companies products, primarily in North America, but
also in Europe and other areas of the world; (2) electromechanical
components, connectors and subsystems for use in high-speed applications
involving miniaturization, surface-mounts, electromagnetic interference and
multiplexing that are sold to the information processing, mobile
communications and automotive industries in North America, Europe and Asia
for use within other manufacturers products; (3) electromechanical
components, subsystems and accessories used to maintain, construct and repair
cable television, telecommunications and data communications networks
worldwide; (4) transmission poles and towers primarily for North American
customers; and (5) heating units and accessories for North American and
European markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Corporation and its domestic and foreign subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. The Corporation uses the equity method of accounting for its
investments in 20-to-50-percent-owned companies. Under generally accepted
accounting principles (GAAP), there is a presumption that the equity method
should be used to account for those investments. If the Corporation were to
determine that it no longer had the ability to exercise significant influence
over the operating and financial policies of those companies, GAAP would
require the Corporation to use the cost method rather than the equity method
to account for those investments. The Corporation regularly monitors its
relationships with those companies.
USE OF ESTIMATES: The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FISCAL YEAR: The Corporation's fiscal year ends on the Sunday closest to the
end of the calendar year. Results for 1998 are for the 53 weeks ended January
3, 1999, and results for 1997 and 1996 are for the 52 weeks ended December
28, 1997, and December 29, 1996, respectively. In 1996, the Corporation's
Augat subsidiary changed the fiscal year of its European and Far Eastern
subsidiaries from November 30 to the Corporation's fiscal year end, thus
eliminating a one-month reporting lag. That change resulted in a charge
against retained earnings of $1.5 million in 1996.
REVENUE RECOGNITION: The Corporation records revenue at the time of shipment
of products to customers. Sales discounts, quantity rebates, allowances and
warranty costs are estimated based on experience and recorded in the period
the sale is recorded. Certain customers have a right to return goods under
certain circumstances and those returns, which are reasonably estimable, are
accrued for at the time of shipment.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of subsidiaries whose
functional currency is other than the U.S. dollar are translated at exchange
rates in effect at the end of the year, and their income and expense items
are translated at average monthly exchange rates. Exchange gains or losses
resulting from foreign currency translations, except those in highly
inflationary economies, are accumulated as part of a separate component of
shareholders' equity titled "Accumulated Other Comprehensive Income". The net
change in this amount due to foreign currency translation is identified as a
"cumulated translation adjustment" in determining comprehensive income. Also
included in the cumulated translation adjustment are the effects of exchange
rate changes on intercompany transactions of a long-term investment nature
and those transactions designated as hedges of net foreign investments.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK: When deemed
appropriate, the Corporation enters into forward-foreign- exchange contracts
to hedge foreign-currency-transaction exposures for periods consistent with
those committed exposures. Those financial instruments are with major
financial institutions and expose the Corporation to market and credit risks
and may at times be concentrated with certain counterparties. The
creditworthiness of counterparties is subject to continuing review and full
performance by those counterparties is anticipated. Foreign-exchange
contracts generally have maturities which do not exceed one year. The
Corporation maintains a high correlation between the transactions and the
hedges to minimize currency risk. In most cases, both the exposed
transactions and the hedging contracts are marked to market monthly with
gains and losses included in earnings as other income or expense. Gains and
losses on certain contracts that hedge specific foreign-currency-denominated
commitments are deferred and recognized in the period in which the
transaction is completed. Unrealized gains are reported as prepaid expenses
and unrealized losses are reported as accrued liabilities.
As of January 3, 1999, and December 28, 1997, the Corporation had
outstanding forward contracts of $60.5 million and $22.5 million,
respectively, for the sale or purchase of principally Canadian, Japanese and
European currencies, all maturing within 160 days. Deferred contract gains
and losses at January 3, 1999, and December 28, 1997, were not significant.
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
The Corporation is exposed to risk from fluctuating prices for
commodities used to manufacture its products: primarily copper, zinc,
aluminum, gold and silver. Some of that risk is hedged through the use of
futures and swap contracts that fix the price the Corporation will pay for
the commodity. Cost of sales reflects the commodity cost including the
effects of the commodity hedge. As of January 3, 1999, the Corporation had
$27.6 million of those contracts outstanding, maturing through June 2000. The
maturity of the contracts highly correlates with the actual purchases of the
commodity. The amounts paid or received are calculated based on the notional
amounts under the contracts. The use of such commodity contracts effectively
protects the Corporation against changes in the price of the commodity to the
extent of the notional amount under the contract. The fair value of commodity
contracts as of January 3, 1999, was a $3.2 million loss. That value will
change as commodity prices change and will be recorded only at the time the
underlying commodity is actually purchased.
Credit risk with respect to trade receivables is limited due to the
large number of customers comprising the Corporation's customer base and their
dispersion across many different industries and geographic areas.
The Corporation will, on occasion, enter into interest-rate swaps to
reduce the impact of changes in interest rates on portions of its
floating-rate debt. The rate differential paid or received under those
agreements is accrued monthly, consistent with the terms of the agreements
and market interest rates. Those agreements are with financial institutions
having at least a single-A credit rating, which minimizes non-performance
risk. As of January 3, 1999, the Corporation had no outstanding interest-rate
swaps.
Receivables Receivables are stated net of allowance for doubtful
accounts and returns and allowances of $23.6 million at January 3, 1999, and
$20.5 million at December 28, 1997.
The Corporation has an asset securitization program which permits the
Corporation to continually sell accounts receivable to a maximum purchasers'
investment of $175.0 million. The investment varies, based on the level of
eligible accounts receivable and restrictions on concentrations of
receivables. Sales under that program are accounted for as sales of assets
under the provisions of Statement of Financial Accounting Standards No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The sold accounts receivable are reflected as
reductions of the receivable balance in the accompanying consolidated balance
sheets. At January 3, 1999, and December 28, 1997, net receivables amounting
to $172.5 million and $145.2 million, respectively, had been sold under that
program. The discount rate on the receivables sold in December 1998 was
approximately 5.6%.
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for approximately 79% of the
Corporation's inventories and the first-in, first-out (FIFO) method for the
remainder of inventories. The LIFO value of inventories held at January 3,
1999, approximated their current cost.
Property, Plant and Equipment Property, plant and equipment are stated at
cost. Expenditures for maintenance and repair are charged to expense as
incurred. Significant renewals and betterments that extend the lives of
assets are capitalized. Depreciation is computed principally on the
straight-line method over the estimated useful lives of the assets, which
range principally from 10 to 25 years for land improvements, five to 45 years
for buildings, and three to 15 years for machinery and equipment.
Intangible Assets Intangible assets consist principally of the excess of cost
over the fair value of net assets (goodwill) acquired in business
combinations accounted for as purchases. Those assets are being amortized on
a straight-line basis over various periods not exceeding 40 years. Goodwill
is reevaluated when business events and circumstances indicate that the
carrying amount may not be recoverable. Reevaluation is based on projections
of related undiscounted future cash flows. As of January 3, 1999, and
December 28, 1997, accumulated amortization of intangible assets was $115.8
and $106.9 million, respectively.
Income Taxes The Corporation uses the asset and liability method of
accounting for income taxes. That method recognizes the expected future tax
consequences of temporary differences between the book and tax bases of
assets and liabilities, and provides a valuation allowance based on a
more-likely-than-not standard.
Undistributed earnings of foreign subsidiaries amounted to $145.9 million at
January 3, 1999. Those earnings are considered to be indefinitely reinvested,
and, accordingly, no provision for U.S. federal or state income taxes has
been provided thereon.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
SHAREHOLDERS' EQUITY: In May 1998, the Corporation's number of authorized
shares of common stock was increased from 80,000,000 to 250,000,000;
authorized preferred stock shares were increased from 500,000 to 1,000,000;
and both common stock and preferred stock par value were changed from no par
value to $0.10 par value. The accumulated other comprehensive income
component of shareholders' equity is primarily cumulative translation
adjustment.
Basic earnings per share are computed by dividing net earnings by the
weighted-average number of shares of common stock outstanding during the
year. Diluted earnings per share are computed by dividing net earnings by the
sum of (1) the weighted-average number of shares of common stock 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
basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
In thousands (except per share data) 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings $87,501 $162,278 $73,455
- ----------------------------------------------------------------------------
Basic
Average shares outstanding 56,677 56,178 54,520
Basic earnings per share $ 1.54 $ 2.89 $ 1.35
Diluted
Average shares outstanding 56,677 56,178 54,520
Plus additional shares from
the assumed exercise of
stock options 313 373 453
- ----------------------------------------------------------------------------
56,990 56,551 54,973
- ----------------------------------------------------------------------------
Diluted earnings per share $ 1.54 $ 2.87 $ 1.34
- ----------------------------------------------------------------------------
</TABLE>
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,
on an undiscounted basis, 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.
Under the requirements of Superfund and certain other laws, the Corporation
is potentially liable for the cost of clean-up at various contaminated sites
identified by the United States Environmental Protection Agency and other
agencies. The Corporation has been notified that it is named a potentially
responsible party ("PRP") at various sites for study and clean-up costs. In
some cases there are several named PRPs and in others there are hundreds. The
Corporation generally participates in the investigation or clean-up of
potentially contaminated sites through cost-sharing agreements with terms
which vary from site to site. Costs are typically allocated based upon the
volume and nature of the materials sent to the site. However, under Superfund
and certain other laws, as a PRP, the Corporation can be held jointly and
severally liable for all environmental costs associated with the site.
When the Corporation becomes aware of a potential liability at a
particular site, it conducts studies to estimate the amount of the liability.
If determinable, the Corporation accrues what it considers to be the most
accurate estimate of its liability at that site, taking into account the
other participants involved in the site and their ability to pay. The
Corporation has acquired facilities subject to environmental liability where,
in one case, the seller has committed to indemnify the Corporation for those
liabilities, and, in another, subject to an asset purchase agreement, the
seller assumed responsibility for paying its proportionate share of the
environmental clean-up costs.
The Corporation has and is in the process of further evaluating
properties acquired with the acquisitions of Amerace Corporation, Augat Inc.,
Diamond Communications, Inc., the Kaufel Group, Ltd. and Ocal, Inc. and may
have liability associated with contamination at those properties. As of
January 3, 1999 the Corporation estimated its future environmental costs as
$29 million and a provision for that liability is included in the
accompanying balance sheet. The Corporation is not able to predict with
certainty the extent of its ultimate liability with respect to any pending
or future environmental matters. However, the Corporation does not believe
that any liability with respect to the aforementioned environmental matters
will be material to its financial position or results of operation.
CASH FLOW INFORMATION: Cash equivalents consist of investments with maturities
at date of purchase of less than 90 days that have a low risk of change in
value due to interest-rate changes. Foreign-currency cash flows have been
converted to U.S. dollars at appropriately weighted-average exchange rates or
the exchange rates in effect at the time of the cash flows, where
determinable.
3. MERGERS, ACQUISITIONS AND DIVESTITURES
1998 - KAUFEL GROUP LTD.: On November 5, 1998, the Corporation purchased
Kaufel Group Ltd., an international company headquartered in Montreal,
Canada, specializing in the design, manufacture and distribution of emergency
and other lighting products and systems for the industrial and commercial
markets. The Corporation acquired all of the outstanding Class A shares and
Class B Subordinate Voting shares of Kaufel for a cash price of approximately
$100 million, and assumed approximately $60 million of outstanding debt. The
acquisition was accounted for using the purchase method, with the aggregate
purchase price allocated to the acquired assets based on their respective
fair values and the excess of approximately $28 million allocated to
goodwill. The purchase price has been allocated to the assets and liabilities
based on estimated fair values at the acquisition date. Adjustments, which
the Corporation does not expect to be material, may be made to such balances
upon the final determination of fair values. The goodwill is being amortized
on a straight-line basis over 40 years. For the 12 months ended August 31,
1998 (its latest fiscal year), Kaufel had sales of approximately $170
million. The Kaufel acquisition added $30.2 million to the Corporation's
sales in 1998.
1998 - OTHER ACQUISITIONS: During 1998, the Corporation completed eight
acquisitions in addition to Kaufel, for a total consideration of $107.0
million, consisting of $68.2 million of cash and $38.8 million of debt
assumed, and 1,461,000 of shares of the Corporation's common stock. Seven of
those acquisitions were accounted for using the purchase method of
accounting, with the aggregate purchase price allocated to the acquired
assets based on their respective fair values and the excess of approximately
$36.5 million allocated to goodwill. The goodwill is being amortized on a
straight-line basis over 40 years. Those seven acquisitions added $28.6
million to sales in 1998.
The acquisition of Telecommunication Devices, Inc. (TDI) on July 2,
1998, was accounted for as a pooling of interests, and the Corporation's
financial statements were restated to include the results of that acquisition
for all periods presented, except for dividends per share which reflect the
Corporation's historical per share amount. The Corporation acquired all of the
outstanding stock of TDI and affiliated companies for 1,461,000 shares of the
Corporation's common stock.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
Combined and separate results of Thomas & Betts and TDI during the
periods preceding the merger were:
<TABLE>
<CAPTION>
In millions Thomas & Betts TDI Combined
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Six months ended July 5, 1998 (unaudited)
Net sales $1,015 $ 83 $1,098
Net earnings $ 78 $ 1 $ 79
- -----------------------------------------------------------------------------
Fiscal year ended December 28, 1997
Net sales $2,115 $145 $2,260
Net earnings $ 155 $ 7 $ 162
- -----------------------------------------------------------------------------
Fiscal year ended December 29, 1996
Net sales $1,985 $149 $2,134
Net earnings $ 60 $ 13 $ 73
- -----------------------------------------------------------------------------
</TABLE>
1997 - ACQUISITIONS The Corporation completed six acquisitions during 1997
for a total consideration of $62.0 million, consisting of approximately
$19 million of cash and 793,560 shares of the Corporation's common stock. Two
of those acquisitions were accounted for as immaterial poolings of interests,
and the results of those acquisitions have been included in the Corporation's
results as of the beginning of 1997 without restating prior years results.
The remaining four acquisitions were accounted for under the purchase method
of accounting. The six acquisitions represented approximately $57.6 million
of sales reported by the Corporation in 1997. The excess of the purchase
price over the fair value of the acquired assets in the purchase acquisitions
was approximately $14.6 million and was recorded as goodwill.
1997 - EXEMPLAR/THOMAS & BETTS JOINT VENTURE On December 28, 1997, the
Corporation formed a joint venture with Exemplar Manufacturing Company, a
privately-owned business based in Ypsilanti, Michigan, to manufacture and
sell power distribution, battery cable and wiring systems to the U.S.
automotive industry. In exchange for a 49% interest in the ownership of the
joint venture, the Corporation contributed net assets with a carrying value
of approximately $41 million; no gain or loss was recognized as a result of
that transaction. The joint-venture agreement provides that each party
retains a 100% income interest in earnings generated by its respective
contributed business. Income from jointly developed business will be
allocated in accordance with the ownership percentages. Sales generated in
1997 by the assets contributed by the Corporation to this joint venture were
approximately $85.9 million.
1996 - AUGAT INC. On December 11, 1996, the Corporation acquired all of the
outstanding common stock of Augat Inc., in exchange for 12,821,337 shares of
the Corporation's common stock. In addition, options to acquire Augat common
stock were converted to options to acquire 791,400 shares of the Corporation's
common stock. The acquisition was accounted for as a pooling of interests,
and the Corporation's financial statements were restated to include the
results of Augat for all periods presented, except for dividends per share
which reflect the Corporation's historical per share amount.
In the fourth quarter of 1996, the Corporation recorded special
charges totaling $97.1 million. The charges provided for: (1) merger
expenses, including legal and financial advisory fees and change-of-control
payments; restructuring expenses related to both the Corporation's existing
operations and the operations of Augat (see also Note 4); (2) adjustments to
accounting estimates of Augat's liabilities, primarily environmental,
litigation, warranty and employee benefit accruals, and provisions for
inventory obsolescence; (3) the cost of index-put options purchased and held
through the mergers stock pricing period; and (4) other one-time expenses,
including certain termination benefits related to the Corporation's executive
retirement plan and previously idled facility charges. The charges were
recorded in the statement of earnings as follows: (1) net sales,
$2.4 million; (2) cost of sales, $13.8 million; (3) marketing, general and
administrative, $19.7 million; (4) merger expense, $30.6 million;
(5) provision for restructured operations, $24.5 million; and (6) other
expense, $6.1 million.
1996 - AMERACE CORPORATION On January 2, 1996, the Corporation acquired all
the outstanding stock of Amerace Corporation for $212.5 million in cash. That
acquisition was accounted for using the purchase method. The aggregate
purchase price was allocated to the acquired assets of Amerace based on their
respective fair values with the excess of approximately $150 million
allocated to goodwill. The goodwill is being amortized on a straight-line
basis over 40 years.
1996 - OTHER ACQUISITIONS The Corporation completed six acquisitions during
1996 in addition to Augat and Amerace for a total of approximately
$46 million, consisting of cash and 57,714 shares of the Corporation's common
stock. All were accounted for using the purchase method of accounting and
represented approximately $37 million of sales reported by the Corporation in
1996. The excess of the purchase price over the fair value of the acquired
assets for the six acquisitions was approximately $26 million, which was
recorded as goodwill.
LEVITON MANUFACTURING CO. On August 10, 1994, the Corporation completed the
purchase of a minority interest (29.1% of the outstanding common stock
representing 23.55% of the voting common stock) in Leviton Manufacturing Co.,
Inc., a leading U.S.
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
manufacturer of wiring devices, for approximately $51 million consisting of
cash and common stock. Leviton's chief executive officer opposed the
Corporation's acquisition. The chief executive officer, with his wife, owns
approximately 50.5% of Leviton's outstanding common stock (76.45% of Leviton's
voting common stock) through a voting trust (a majority sufficient for the
approval of all corporate actions that Leviton might undertake; however, the
majority is not sufficient to permit either federal income tax consolidation
or pooling of interests accounting treatment in a merger). The remainder of
the outstanding common stock, all of which is non-voting, is owned by
approximately 19 other Leviton family members. The opposition of the chief
executive officer to the Corporation's investment has resulted in litigation
between Leviton and the Corporation, consisting of the Corporation's
proceeding in Delaware in February 1995 to compel Leviton to make additional
financial and other information available to the Corporation, and of Leviton's
subsequent action against the Corporation and other parties in New York
seeking damages and other relief in connection with the transaction in which
the Corporation acquired its Leviton investment. The Corporation does not
have and has not sought representation on Leviton's board of directors, which
would be opposed by Leviton's chief executive officer, and does not receive
copies of Leviton's board minutes.
Notwithstanding the existence of an adversarial relationship with the
controlling shareholder of Leviton, the Corporation has developed
relationships with certain key members of Leviton management and believes
that those relationships and other factors support management's conclusion
that the Corporation has the ability to exercise significant influence over
Leviton's financial and operating policies. The Corporation owns more than 20%
of Leviton's voting stock, and there are no restrictions to the Corporation's
ability to exercise the attributes of ownership (situations have not arisen
to date in which the Corporation has had an opportunity to vote its Leviton
shares in a matter that would demonstrate significant influence over Leviton's
financial and operating policies). In addition, because the Corporation is a
non-family shareholder, the Corporation believes that it has a greater
ability than other shareholders to challenge actions by Leviton management
that the Corporation considers adverse to shareholders interests. Senior
management responsible for Leviton's day-to-day operations and operating and
financial policies has engaged in an ongoing dialogue over the past two and
one-half years with the Corporation, and they have acknowledged that the
Corporation's presence as a Leviton shareholder has influenced the manner in
which Leviton conducts business. Further, Leviton has taken certain actions
following discussions with the Corporation that have been consistent with the
Corporation's requests and suggestions. The Corporation's equity in the
earnings of Leviton has been typically less than 5% and of late never more
than 7% of the Corporation's net income before special charges, and typically
less than 7% and of late never more than 11% of the Corporation's net income
after special charges. Should the Corporation determine that it no longer has
the ability to influence the operating and financial policies of Leviton, the
Corporation, in compliance with GAAP, will adopt the cost method on a
prospective basis.
4. 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 through manufacturing relocations. Those
cost-reduction plans involved 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 were (in millions):
<TABLE>
<CAPTION>
Charges to
Original Reserves Remaining
Provision During 1998 Balance
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Severance and employee-related costs $ 26.6 $ 5.1 $21.5
Property, plant and equipment write-offs 25.7 7.0 18.7
Other facility exit costs 9.8 2.3 7.5
- -----------------------------------------------------------------------------------------
Provision for Restructured Operations 62.1 14.4 47.7
- -----------------------------------------------------------------------------------------
Inventory write-offs related
to restructuring 25.6(1) 14.4 11.2
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) - 5.7
- -----------------------------------------------------------------------------------------
Special Charges 46.4 16.6 29.8
- -----------------------------------------------------------------------------------------
Total $108.5 $31.0 $77.5
- -----------------------------------------------------------------------------------------
</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 year end, the
Corporation had realized a net reduction of approximately 125 jobs. The
property, plant and equipment write-offs reduced to fair value the carrying
amount of fixed assets that were not to be relocated in conjunction with
their associated manufacturing process. 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 million. The effect of suspending depreciation on
facilities idled in 1998 was $0.1 million of depreciation expense reduction.
34
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
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.
Charges 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.
Those previously idled facilities, which had carrying values of $10.2
million at the end of 1997 and $7.1 million at the end of 1998, are expected
to be sold, although in a few cases they may be donated or leased to third
parties. The Corporation expects to dispose of approximately half of those
properties during 1999 and most all of the remainder during 2000.
The cost-reduction programs commenced in 1998 are expected to be
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 until incurred. Such
costs, which were not included in the $108.5 million provision, amounted to
$6.2 million in 1998. Future revenues are not expected to be significantly
affected, since the cost-reduction programs are primarily intended to
relocate operations rather than discontinue operations.
During the fourth quarter of 1996, the Corporation recorded a
restructuring charge of $24.5 million relating to the integration of Augat
and initiatives affecting Augat's and other of the Corporation's operations.
Restructuring initiatives included the closure of Augat's corporate
headquarters facility in Mansfield, Massachusetts, and redundant non-U.S.
administrative facilities, as well as the rationalization of the combined
sales forces and manufacturing operations. These initiatives are now
substantially complete and did not require material changes to the initial
provision.
The following table summarizes the original 1996 restructuring provision
and subsequent activity (in millions):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Original 1997 1997 1998 1998
Provision Charges Ending Balance Charges Ending Balance
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Severance and employee-related costs $15.7 $14.6 $1.1 $1.1 -
Plant, property & equipment write-offs 6.6 0.7 5.9 5.9 -
Other facility exit costs 2.2 0.1 2.1 0.9 1.2
- --------------------------------------------------------------------------------------------------------
$24.5 $15.4 $9.1 $7.9 $1.2
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
Amounts remaining at the end of 1998 noted in the table above are expected to
be used primarily for idle facility carrying costs. Those reserves are
believed to be adequate to cover the estimated remaining costs associated
with that restructure. The Corporation evaluates the adequacy of those
reserves on a regular basis.
5. INCOME TAXES
The components of earnings before income taxes were:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- -------------------------------------------------
<S> <C> <C> <C>
Domestic $ 99,949 $184,252 $ 55,724
Foreign 24,959 49,255 50,671
- -------------------------------------------------
Total $124,908 $233,507 $106,395
- -------------------------------------------------
</TABLE>
The components of income tax expense were:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- -------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 44,149 $32,892 $ 33,923
Foreign 19,942 17,695 18,835
State and local 1,786 622 5,157
- -------------------------------------------------
Total current 65,877 51,209 57,915
- -------------------------------------------------
Deferred
Domestic (21,507) 19,408 (23,650)
Foreign (6,963) 612 (1,325)
- -------------------------------------------------
Total deferred (28,470) 20,020 (24,975)
- -------------------------------------------------
Income taxes $ 37,407 $71,229 $ 32,940
- -------------------------------------------------
</TABLE>
The reconciliation between the federal statutory tax rate and the
Corporation's effective tax rate was:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
Increase (reduction) resulting
from:
State tax -- net of federal tax benefit 0.3 0.4 2.3
Partially tax-exempt income (9.2) (6.3) (9.4)
Goodwill 3.4 2.0 4.5
Merger expenses - - 5.6
Non-taxable income of company
acquired in pooling of interests (0.6) (0.5) (3.1)
Change in valuation allowance - (1.9) (5.0)
Other 1.0 1.8 1.1
- ------------------------------------------------------------------------
Effective tax rate 29.9% 30.5% 31.0%
- ------------------------------------------------------------------------
</TABLE>
The components of the Corporation's net deferred tax assets were:
<TABLE>
<CAPTION>
JANUARY 3, December 28,
In thousands 1999 1997
- ----------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Special-charge-related reserves $ 34,611 $ 16,596
Accrued employee benefits 7,244 10,146
Other accruals 20,457 19,504
Asset reserves 11,429 14,845
Foreign tax credit and loss
carryforwards 18,628 7,644
Pension benefits 7,168 6,569
Other 20,557 4,611
Valuation allowance (2,769) (3,373)
- ----------------------------------------------------------------------
Net deferred tax assets 117,325 76,542
- ----------------------------------------------------------------------
Deferred tax liabilities
Property, plant and equipment (40,257) (36,885)
Other (27,421) (22,672)
- ----------------------------------------------------------------------
Total deferred tax liabilities (67,678) (59,557)
- ----------------------------------------------------------------------
Net deferred tax assets $ 49,647 $ 16,985
- ----------------------------------------------------------------------
</TABLE>
The valuation allowance for deferred tax assets was decreased by
$0.6 million in 1998 due to both the utilization and expiration of foreign
net operating loss carryforwards. The remaining valuation allowance at
January 3, 1999, related to foreign net operating loss carryforwards and
foreign tax credit carryforwards.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation's financial instruments include cash and cash equivalents,
marketable securities, short-term borrowings, long-term debt, commodity swaps
and foreign-currency contracts. The carrying amounts of those financial
instruments generally approximated their fair values at January 3, 1999, and
December 28, 1997, except that, based on the borrowing rates currently
available to the Corporation, the fair value of long-term debt was
approximately $832.6 million and $519.4 million at January 3, 1999, and
December 28, 1997, respectively.
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
The cost bases and fair market values of marketable securities at
January 3, 1999, and December 28, 1997, were:
<TABLE>
<CAPTION>
Amortized Gross Gross Fair
Cost Unrealized Unrealized Market
In thousands Basis Gains Losses Value
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January 3, 1999
Certificates of deposit $25,705 $ - $ - $25,705
Mortgage-backed 15,370 1,472 (69) 16,773
- ------------------------------------------------------------------------------------
Total $41,075 $1,472 $ (69) $42,478
- ------------------------------------------------------------------------------------
December 28, 1997
Certificates of deposit $27,447 $ - $ - $27,447
Mortgage-backed 22,588 1,281 (213) 23,656
Equity and other 1,074 234 (29) 1,279
- ------------------------------------------------------------------------------------
Total $51,109 $1,515 $(242) $52,382
- ------------------------------------------------------------------------------------
</TABLE>
The mortgage-backed securities and certificates of deposit held at
January 3, 1999, had expected maturities ranging from five to 21 years and 91
days to one year, respectively.
7. LONG-TERM DEBT
The Corporation's long-term debt at January 3, 1999, and December 28, 1997,
was:
<TABLE>
<CAPTION>
JANUARY 3, December 28,
In thousands 1999 1997
- ------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable with a weighted-average
interest rate at January 3, 1999,
of 7.0%, due through 2008 $448,418 $273,478
Commercial paper with a weighted-average
interest rate at January 3, 1999, of 6.11% 134,399 79,907
Other bank borrowings with a
weighted-average interest rate at
January 3, 1999, of 5.7% 131,900 104,573
Non-U.S. borrowings with a weighted-average
interest rate at January 3, 1999, of 6.28%,
due through 2008 71,858 20,352
Industrial revenue bonds with a weighted-average
interest rate at January 3, 1999, of 4.2%,
due through 2010 19,455 19,855
Other 7,522 10,168
- ------------------------------------------------------------------------------------
813,552 508,333
Less current portion 22,589 5,256
- ------------------------------------------------------------------------------------
Long-term debt $790,963 $503,077
- ------------------------------------------------------------------------------------
</TABLE>
Principal payments on long-term debt including capital leases in each
of the five years subsequent to January 3, 1999, are $22.6, $3.2, $17.8, $5.8
and $327.5 million, respectively.
The Corporation has committed borrowing facilities of approximately
$571 million. Those facilities include $500.0 million of revolving-credit
commitments with a group of banks that makes $300.0 million available through
June 30, 2003, and the remaining $200.0 million available through June 30,
1999. Under the $200.0- million facility, any committed borrowings
outstanding as of June 30, 1999, would mature on June 30, 2000. There were no
borrowings outstanding under those facilities as of January 3, 1999, or
December 28, 1997. The Corporation has the option, at the time of drawing
funds under such facilities, of selecting an interest rate based on a number
of benchmarks including LIBOR, the certificate of deposit rate or the prime
rate of the agent bank. The credit facilities include covenants, among which
are limitations on the amount of future indebtedness that are based on
certain financial ratios. The Corporation's commercial paper program is backed
by those credit facilities.
The Corporation also has a number of uncommitted credit facilities to
provide funding for both its domestic and international operations. In the
normal course of its business activities, the Corporation is required under
certain contracts to provide letters of credit that may be drawn in the event
the Corporation fails to perform under the contracts. Outstanding letters of
credit or similar financial instruments amounted to $52.9 million at
January 3, 1999.
In February and May 1998, the Corporation completed the sales of
$60.0 million of five-year 6.29% medium-term notes and $115.0 million of
10-year 6.63% medium-term notes, respectively. The net proceeds from those
sales were used to repay commercial paper issued by the Corporation within
the past year and other short-term borrowings.
On August 14, 1998, the Corporation filed a Registration Statement on
Form S-3 to register $600.0 million of the Corporation's debt securities,
common stock and preferred stock. Future proceeds from the sale of any
securities registered in that filing will be added to the general funds of
the Corporation and used for general corporate purposes.
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
8. STOCK OPTION AND INCENTIVE PLANS
The Corporation has stock option plans that provide for the purchase of the
Corporation's common stock by its key employees.
At January 3, 1999, a total of 3,506,862 shares was reserved for
issuance under stock options or restricted stock awards already granted or
available for future grants.
A summary of the options outstanding at January 3, 1999, follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ------------------------------
Weighted-Average
Range Of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$23.31-$33.03 699,527 4.5 years $31.03 698,781 $31.03
33.75- 45.75 871,413 7.1 years 41.86 457,487 39.96
49.66- 59.56 433,336 9.1 years 50.59 8,225 59.29
- ---------------------------------------------------------------------------------------------------------
$23.31-$59.56 2,004,276 6.6 years $39.97 1,164,493 $34.74
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The following is a summary of the option transactions for the years
1998, 1997 and 1996:
<TABLE>
<CAPTION>
Average
Per Share
Shares Option Price
- ------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1995 2,410,124 $28.45
Granted 375,063 37.36
Exercised (502,420) 23.90
Terminated (116,535) 31.85
- ------------------------------------------------------------
Balance at December 29, 1996 2,166,232 $30.71
- ------------------------------------------------------------
Granted 545,237 45.70
Exercised (801,132) 27.11
Terminated (61,592) 35.87
- ------------------------------------------------------------
Balance at December 28, 1997 1,848,745 $36.53
- ------------------------------------------------------------
Granted 471,661 50.16
Exercised (233,377) 31.83
Terminated (82,753) 44.14
- ------------------------------------------------------------
Balance at January 3, 1999 2,004,276 $39.97
- ------------------------------------------------------------
Exercisable at December 29, 1996 1,536,214 $28.95
Exercisable at December 28, 1997 1,074,759 $32.02
Exercisable at January 3, 1999 1,164,493 $34.74
- ------------------------------------------------------------
</TABLE>
The 1993 Management Stock Ownership Plan provides that, for each
calendar year, up to 1.25% of the outstanding common stock of the Corporation
will be available for issuance as grants or awards. That plan provides for
granting stock options at a price not less than the fair market value on the
date of grant with a term not to exceed 10 years. The plan also provides for
the issuance of restricted stock awards as incentive compensation to key
employees. The awards are subject to certain restrictions, including full
vesting if the recipient remains in the employ of the Corporation three years
after receiving the award. The value of the awards is recorded as
compensation expense. Restricted shares plus cash payments for federal and
state taxes awarded under that plan were 79,724 shares awarded in 1998;
127,641 shares awarded in 1997; and 63,844 shares plus $0.5 million awarded
in 1996.
The Corporation has a Restricted Stock Plan for Nonemployee Directors
under which each director receives 200 restricted shares of common stock
annually for a full year of service. Those shares remain restricted during
the directors' term. Shares issued under that plan were 2,000 in 1998; 2,000
in 1997; and 2,162 in 1996.
The Corporation continues to account for its stock-based employee
compensation plans in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees. Accordingly, no compensation
cost has been recognized for fixed stock-option plans. In accordance with
SFAS No. 123, Accounting for Stock-Based Compensation, a valuation using the
fair-value-based accounting method has been made for stock options issued in
1998, 1997 and 1996. That valuation was performed using the Black-Scholes
option-pricing model.
The Corporation's 10-year term options were valued assuming risk-free
interest rates of 5.5%, 6.25% and 5.25% on their respective issuance dates in
1998, 1997 and 1996, a dividend yield of 2.5%, an average expected-option
life of five years and volatility of 20%. The valuation determined a
per-share weighted-average fair value for 10-year options granted during
1998, 1997 and 1996 of $10.63, $10.36 and $8.03, respectively. Had those
options been accounted for using the fair-value method, they would have
resulted in additional compensation cost of $3.1 million, $2.4 million and
$1.1 million net of taxes for 1998, 1997 and 1996, respectively.
Had the Corporation adopted the fair-value-based accounting method
for stock options, net earnings would have been $84.4 million ($1.49 basic
earnings per share; $1.48 diluted earnings per share) in 1998; $159.7 million
($2.84 basic earnings per share; $2.82 diluted earnings per share) in 1997;
and $69.2 million ($1.27 basic earnings per share; $1.26 diluted earnings per
share) in 1996.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
9. POSTRETIREMENT BENEFITS
Pension Plans The Corporation and its subsidiaries have several
noncontributory pension plans covering substantially all employees. Those
plans generally provide pension benefits that are based on compensation
levels and years of service. Annual contributions to the plans are made
according to the established laws and regulations of the applicable
countries. Plan assets are primarily invested in equity securities, fixed
income securities and cash equivalents.
The Corporation maintains non-qualified supplemental pension plans
covering certain key executives, which provide for benefit payments that
exceed the limit for deductibility imposed by income tax regulations, and a
retirement plan for nonemployee directors (closed effective December 1997),
which provides benefits to those board members based on compensation and
years of service. The benefit obligation related to those unfunded plans was
$12.3 million at January 3, 1999, and $12.1 million at December 28, 1997.
Net periodic pension cost for 1998, 1997 and 1996 for the
Corporation's defined benefit pension plans included the following components:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned during
the period $ 10,542 $ 9,138 $ 8,654
Interest cost on projected benefit obligation 17,077 15,431 14,130
Expected return on plan assets (19,659) (17,001) (15,731)
Net amortization of unrecognized:
Prior service costs/(gains) 607 746 946
Transition amount (1,536) (1,539) (1,485)
Plan net losses 392 57 500
- -------------------------------------------------------------------------------------
Net periodic pension cost $ 7,423 $ 6,832 $ 7,014
- -------------------------------------------------------------------------------------
</TABLE>
Assumed weighted-average rates used in developing the net periodic
pension cost were:
<TABLE>
<CAPTION>
U.S. Plans Non-U.S. Plans
-------------------- --------------------
1998 1997 1996 1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount rate 7.3% 7.8% 7.5% 6.1% 6.3% 7.2%
Rate of increase in
compensation level 4.5% 4.5% 4.5% 3.8% 4.2% 4.8%
Expected long-term rate
of return on plan assets 9.5% 9.0% 9.0% 7.7% 7.7% 8.6%
- ----------------------------------------------------------------------------
</TABLE>
The following is information regarding the Corporation's 1998 and 1997
pension benefit obligation:
<TABLE>
<CAPTION>
In thousands 1998 1997
- ------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $233,150 $198,354
Service cost 10,542 9,138
Interest cost 17,077 15,431
Employee contributions 699 449
Plan amendments (465) (1,040)
Actuarial (gains)/losses 17,806 32,512
Foreign-exchange impact 196 (757)
Acquisitions 5,590 997
Curtailments (123) -
Settlements (1,643) -
Benefits paid (15,613) (21,934)
- ------------------------------------------------------------------------
Benefit obligation at end of year 267,216 233,150
- ------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year 210,875 196,718
Actual return on plan assets 19,143 24,188
Company contributions 8,908 11,334
Employee contributions 699 449
Foreign-exchange impact (72) (638)
Acquisitions 7,381 758
Settlements (1,643) -
Benefits paid (15,613) (21,934)
- ------------------------------------------------------------------------
Fair value of plan assets at end of year 229,678 210,875
- ------------------------------------------------------------------------
Funded status:
Plan assets in excess of (less than) benefit
obligation (37,538) (22,275)
Unrecognized:
Net transition asset (3,287) (4,809)
Plan net (gains)/losses 26,076 10,783
Prior service costs/(gains) 2,276 3,428
- ------------------------------------------------------------------------
Prepaid/(accrued) benefit costs $(12,473) $(12,873)
- ------------------------------------------------------------------------
</TABLE>
The present value of projected benefits for U.S. plans recorded at
January 3, 1999, and December 28, 1997, was determined using discount rates
of 7.0% and 7.25%, respectively, and an assumed rate of increase in
compensation of 4.5%.
The Corporation's recognized defined benefit pension cost for 1998 and
1997 included the following components:
<TABLE>
<CAPTION>
In thousands 1998 1997
- ---------------------------------------------------------------------------
<S> <C> <C>
Prepaid benefit costs $ 7,022 $ 2,418
Accrued benefit liability (19,669) (17,311)
Intangible asset 174 2,020
Net amount recognized $(12,473) $(12,873)
- ---------------------------------------------------------------------------
</TABLE>
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
Other Postretirement Benefit Plans The Corporation sponsors defined
contribution 401(k) savings plans for its U.S. employees for which the
Corporation's contributions are based on a percentage of employee
contributions. The cost of those plans for continuing operations was $6.1,
$5.0 and $4.5 million in 1998, 1997 and 1996, respectively.
The Corporation provides certain health-care and life insurance benefits
to certain retired employees and certain active employees who meet age and
length of service requirements. The Corporation is recognizing the estimated
liability for those benefits over the estimated lives of the individuals
covered, and is not funding that liability. The plan is closed to new
entrants. Plan net gains and losses are amortized over a five-year period.
The net periodic cost for postretirement health-care and life insurance
benefits in 1998, 1997 and 1996 included the following components:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 22 $ 37 $ 89
Interest cost on projected benefit
obligation 1,970 1,888 2,430
Net amortization of unrecognized:
Prior service costs (gains) 41 41 41
Plan net (gains)/losses (1,051) (2,161) (221)
Transition amount 1,009 1,009 $1,009
- ------------------------------------------------------------------------------
Net periodic pension cost $ 1,991 $ 814 $3,348
- ------------------------------------------------------------------------------
</TABLE>
The following is information regarding the Corporation's 1998 and 1997
postretirement benefit obligation:
<TABLE>
<CAPTION>
In thousands 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $26,333 $32,731
Service cost 22 37
Interest cost 1,970 1,888
Actuarial (gains)/losses 3,143 (4,996)
Benefits paid (3,126) (3,327)
- ------------------------------------------------------------------------------
Benefit obligation at end of year $28,342 $26,333
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
In thousands 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Total postretirement benefit obligation $28,342 $26,333
Unrecognized:
Net transition liability (13,909) (14,918)
Plan net (gains)/losses 3,283 7,478
Prior service costs/(gains) (80) (121)
- ------------------------------------------------------------------------------
Accrued benefits cost $17,636 $18,772
- ------------------------------------------------------------------------------
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.0% in 1998 and 7.25% in 1997. An
increase in the cost of covered health-care benefits of 8.3% was assumed for
1999, and graded down annually to 5.0% for 2005 and future years. A 1.0%
increase or 1.0% decrease in the health-care cost trend rate would increase
or decrease the accumulated postretirement benefit obligation by $1.4 million
and $1.3 million, respectively, at January 3, 1999, and increase or decrease
the net periodic cost by $0.1 million for the year then ended.
10. COMMITMENTS
The Corporation and its subsidiaries are parties to various leases relating
to plants, distribution facilities, office facilities, automobiles and other
equipment. Related real estate taxes, insurance and maintenance expenses are
normally obligations of the Corporation. It is expected that in the normal
course of business the majority of the leases will be renewed or replaced by
other leases. Capitalized leases are not significant.
Future minimum payments under noncancellable operating leases consisted
of the following at January 3, 1999:
<TABLE>
<CAPTION>
Future
Minimum
In thousands Payments
- -----------------------------------------------------------
<S> <C>
1999 $ 26,656
2000 20,773
2001 15,140
2002 12,450
2003 9,757
Thereafter 39,406
- -----------------------------------------------------------
Total minimum operating lease payments $124,182
- -----------------------------------------------------------
</TABLE>
Rent expense for operating leases was $32.5, $35.4 and $34.7 million in
1998, 1997 and 1996, respectively.
11. OTHER FINANCIAL DATA
Other expense -- net consisted of the following:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income $ 5,379 $ 7,246 $ 8,716
Interest expense (51,135) (52,041) (49,254)
Loss on sale of receivables (8,951) (1,754) -
Index put options - - (5,452)
Foreign-currency losses (707) (3,759) (2,065)
Foreign-exchange contract gains 2,395 2,071 1,077
Other (2,768) (1,026) (1,008)
- --------------------------------------------------------------------------------
Other expense -- net $(55,787) $(49,263) $(47,986)
- ------------------------------------------------------------------------------
</TABLE>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
The Corporation expenses the cost of advertising as it is incurred. Total
advertising expense was $22.4 million in 1998, $22.0 million in 1997 and
$18.1 million in 1996.
Accrued liabilities included salaries, fringe benefits and other
compensation amounting to $36.7 and $50.0 million in 1998 and 1997,
respectively.
Inventories consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, December 28,
In thousands 1999 1997
<S> <C> <C>
- ----------------------------------------------------------------------------
Finished goods $202,368 $157,136
Work in process 95,436 67,726
Raw materials 171,837 177,739
- ----------------------------------------------------------------------------
Total inventories $469,641 $402,601
- ----------------------------------------------------------------------------
</TABLE>
The Corporation conducts portions of its business through investments in
companies accounted for using the equity method. These companies are
primarily engaged in the design, manufacture and selling of components used in
assembling, maintaining or repairing electrical and electronic systems.
Summarized financial information for the Corporation's equity investees on a
combined basis was:
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net sales $ 1,230,392 $1,053,715 $ 813,932
Gross margin 361,730 297,345 220,518
Net income 60,004 42,005 19,857
Current assets 512,907 434,892
Non-current assets 161,249 123,496
Current liabilities 133,594 118,579
Non-current liabilities 165,791 164,320
- --------------------------------------------------------------------------------
</TABLE>
12. SEGMENT AND OTHER RELATED DISCLOSURES
The Corporation has three reportable segments: Electrical, Electronic
Original Equipment Manufacturer (Electronic OEM) and Communications. The
Electrical segment manufactures and sells a broad package of electrical
connectors, components and accessories primarily fasteners, connectors,
fittings, boxes and covers, metal framing, grounding materials and lighting
products for use in industrial, commercial and utility electrical
construction and maintenance applications. The Electronic OEM segment
manufactures and markets electronic cable assemblies, connectors and various
electronic components for use in high-speed automotive, computer and
mobile-communications applications involving miniaturization, surface-mounts,
electromagnetic interference and multiplexing. The Communications segment
produces and sells a package of drop-line hardware, connectors, fasteners,
fiber optics, grounding materials, cross-connect materials and various
electronic components for use in cable television, telecommunications and
data communications applications. Some business activities cannot be
classified in the aforementioned segments and are shown under Other. Those
businesses consist mainly of the manufacture and sale of steel structures for
electrical transmission and distribution, power-generation and
telecommunications applications and mechanical products, primarily heating
units, for heating and ventilation applications. 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
segments profit or loss performance based on earnings before interest, taxes,
loss on sale of accounts receivable, restructure and special charges and
certain other expenses. The significant accounting policies applied to the
segments to determine earnings are essentially those described in the summary
of significant accounting policies. The Corporation has no material
inter-segment sales. General corporate assets not allocated to segments are
principally cash, marketable securities, deferred income taxes and other
corporate assets.
<TABLE>
<CAPTION>
SEGMENT INFORMATION
In thousands 1998 1997(a) 1996(a)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Electrical $1,079,842 $ 983,594 $ 827,679
Electronic OEM 640,105 756,421(b) 799,528(b)
Communications 261,060 262,121 253,731
All other 249,344 257,372 253,449
- ---------------------------------------------------------------------------------
Total $2,230,351 $2,259,508 $ 2,134,387
- ---------------------------------------------------------------------------------
Segment Earnings
Electrical $ 181,806 $ 168,355 $ 129,155
Electronic OEM 66,071 70,006 70,332
Communications 17,224 23,440 23,477
Related to all other sales 23,659 20,590 19,865
- ---------------------------------------------------------------------------------
Total $ 288,760 $ 282,391 $ 242,829
- ---------------------------------------------------------------------------------
Total Assets
Electrical $1,285,240 $ 966,611 $ 1,032,659
Electronic OEM 550,350 536,010 568,369
Communications 249,485 223,448 196,601
Related to all other sales 240,222 220,593 159,399
- ---------------------------------------------------------------------------------
Total $2,325,297 $1,946,662 $1,957,028
- ---------------------------------------------------------------------------------
Capital Expenditures
Electrical $ 55,163 $ 50,752 $ 41,407
Electronic OEM 39,486 36,288 44,507
Communications 21,069 19,431 17,522
Related to all other sales 11,015 10,042 5,419
- ---------------------------------------------------------------------------------
Total $ 126,733 $ 116,513 $ 108,855
- ---------------------------------------------------------------------------------
Depreciation and Amortization
Electrical $ 45,470 $ 41,760 $ 42,490
Electronic OEM 34,790 29,858 29,270
Communications 15,134 15,988 13,046
Related to all other sales 9,898 8,261 7,434
- ---------------------------------------------------------------------------------
Total $ 95,292 $ 95,867 $ 92,240
- ---------------------------------------------------------------------------------
</TABLE>
(a) Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
(b) Includes sales of businesses contributed to the Exemplar/Thomas & Betts
joint venture at the end of 1997, amounting to $85.9 million and
$86.6 million in 1997 and 1996, respectively. In 1998, results of
operations from that investment were accounted for using the equity method.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
The following are reconciliations of the total of reportable segments to the
consolidated company:
<TABLE>
<CAPTION>
RECONCILIATION TO TOTAL COMPANY
In thousands 1998 1997(a) 1996(a)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
Total reportable segment net sales $ 1,981,007 $2,002,136(b) $1,880,938(b)
Other sales 249,344 257,372 253,449
- -----------------------------------------------------------------------------------------
Total $ 2,230,351 $2,259,508 $2,134,387
- -----------------------------------------------------------------------------------------
Earnings Before Income Taxes
Total reportable segment earnings $ 265,101 $ 261,801 $ 222,964
Earnings on other sales 23,659 20,590 19,865
Restructure and special charges (108,487) - (97,068)
Interest expense (51,135) (52,041) (49,254)
Loss on sale of receivables (8,951) (1,754) -
Interest income 5,379 7,246 8,716
Other (658) (2,335) 1,172
- -----------------------------------------------------------------------------------------
Total $ 124,908 $ 233,507 $ 106,395
- -----------------------------------------------------------------------------------------
Total Assets
Total from reportable segments 2,085,075 $1,726,069 $1,797,629
Related to all other sales 240,222 220,593 159,399
General corporate 174,290 147,626 218,314
- -----------------------------------------------------------------------------------------
Total $ 2,499,587 $2,094,288 $2,175,342
- -----------------------------------------------------------------------------------------
Capital Expenditures
Total from reportable segments 115,718 $ 106,471 $ 103,436
Related to all other sales 11,015 10,042 5,419
General corporate - 2,413 253
- -----------------------------------------------------------------------------------------
Total $ 126,733 $ 118,926 $ 109,108
- -----------------------------------------------------------------------------------------
Depreciation and Amortization
Total from reportable segments $ 85,394 $ 87,606 $ 84,806
Related to all other sales 9,898 8,261 7,434
General corporate 41 671 181
- -----------------------------------------------------------------------------------------
Total $ 95,333 $ 96,538 $ 92,421
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
(b) Includes sales of businesses contributed to the Exemplar/Thomas & Betts
joint venture at the end of 1997.
13. FINANCIAL INFORMATION RELATING TO OPERATIONS IN DIFFERENT GEOGRAPHIC AREAS
The Corporation conducts business in five principal areas: U.S., Europe,
Canada, Asia Pacific and Latin America.
<TABLE>
<CAPTION>
In thousands 1998 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales
(by external customer locations)
U.S. $1,590,259 $1,700,904(a) $1,612,531(a)
Canada 202,436 161,401 124,377
Europe 306,459 253,882 242,774
Asia Pacific 80,361 95,764 101,054
Other countries 37,346 40,203 49,670
Latin America 13,490 7,354 3,981
- -----------------------------------------------------------------------------------------
Total $2,230,351 $2,259,508 $2,134,387
- -----------------------------------------------------------------------------------------
Long-lived Assets
U.S. $1,063,864 $1,041,436 $ 997,108
Canada 176,257 81,599 77,802
Europe 129,659 58,918 53,132
Asia Pacific 39,042 35,110 42,937
Latin America 32,363 30,753 6,500
- -----------------------------------------------------------------------------------------
Total $1,441,185 $1,247,816 $1,177,479
- -----------------------------------------------------------------------------------------
</TABLE>
(a) Includes sales of businesses contributed to the Exemplar/Thomas & Betts
joint venture at the end of 1997.
14. SUBSEQUENT EVENTS
In January 1999, the Company 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 transaction, which is subject to the
approval of the shareholders of both companies, is expected to be completed in
the first half of 1999, and to be accounted for as a pooling of interests.
In February 1999, the Corporation completed the sale of $150.0 million
of 10-year 6.39% medium-term notes. The net proceeds from that sale were
added to the general funds of the Corporation and used for general corporate
purposes.
41
<PAGE>
COMPANY REPORT ON FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
TO THE SHAREHOLDERS OF
THOMAS & BETTS CORPORATION:
The accompanying financial statements, as well as all financial data in this
annual report, have been prepared by the Corporation in accordance with
generally accepted accounting principles consistently applied. As such, they
include certain amounts that are based on the Corporation's estimates and
judgments. The Corporation has systems of internal control that are designed
to provide reasonable assurance that the financial records are reliable for
preparing financial statements and maintaining accountability for assets, and
that assets are safeguarded against loss from unauthorized use or
disposition. Those systems are augmented by the positive attitude of
management in maintaining a sound control environment, communication of
established written policies and procedures, the maintenance of a qualified
internal auditing group, the selection and training of qualified personnel
and an organizational structure that provides appropriate delegation of
authority, segregation of duties and regular review of financial performance
by management. In addition to the systems of internal control, additional
safeguards are provided by the independent auditors and the Audit Committee
of the Board of Directors. The independent auditors, whose report is set
forth below, perform an objective, independent audit of the Corporation's
financial statements taken as a whole. The Audit Committee, composed entirely
of outside directors, meets periodically with the independent auditors,
director of internal audit and members of management to review matters
relating to the quality of financial reporting and internal accounting
control and to the nature, extent and results of audit efforts.
INDEPENDENT AUDITORS' REPORT
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
To the Shareholders and Board of Directors of
Thomas & Betts Corporation:
We have audited the accompanying consolidated balance sheets of Thomas &
Betts Corporation and subsidiaries as of January 3, 1999, and December 28,
1997, and the related consolidated statements of earnings, cash flows, and
shareholders equity for each of the years in the three-year period ended
January 3, 1999. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thomas &
Betts Corporation and subsidiaries at January 3, 1999, and December 28, 1997,
and the results of their operations and their cash flows for each of the
years in the three-year period ended January 3, 1999, in conformity with
generally accepted accounting principles.
KPMG LLP
Memphis, Tennessee
February 5, 1999
42
<PAGE>
QUARTERLY REVIEW
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
In thousands (except per share data) 1998(a) 1997(b) 1996(b)(c)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
First Quarter
Net sales $ 544,656 $ 549,287 $ 516,682
Gross profit 163,342 161,932 147,725
Net earnings 37,303 31,696 28,870
Earnings per common share
Basic .66 .57 .53
Diluted .65 .57 .53
Cash dividends declared per share .28 .28 .28
Market price range $ 64-44 5/8 $47 1/2-42 1/2 $39 1/2-35 15/16
- -----------------------------------------------------------------------------------------------
Second Quarter
Net sales $ 553,318 $ 581,153 $ 539,135
Gross profit 170,636 177,020 157,321
Net earnings 41,543 40,199 34,556
Earnings per common share
Basic .73 .72 .63
Diluted .73 .71 .63
Cash dividends declared per share .28 .28 .28
Market price range $61 3/4-45 7/8 $55 3/8-41 $ 40 1/4-37
- -----------------------------------------------------------------------------------------------
Third Quarter
Net sales $ 539,945 $ 553,956 $ 529,972
Gross profit 132,343 169,113 155,995
Net earnings (loss) (37,468) 42,232 36,793
Earnings (loss) per common share
Basic (.66) .75 .67
Diluted (.66) .74 .67
Cash dividends declared per share .28 .28 .28
Market price range $49 15/16-33 11/16 $58 11/16-51 9/16 $39 1/2-34 3/4
- -----------------------------------------------------------------------------------------------
Fourth Quarter
Net sales $592,432 $ 575,112 $ 548,598
Gross profit 182,815 184,158 148,225
Net earnings (loss) 46,124 48,151 (26,764)
Earnings (loss) per common share
Basic .81 .85 (.49)
Diluted .81 .85 (.49)
Cash dividends declared per share .28 .28 .28
Market price range $45 9/16-36 7/8 $55 13/16-43 15/16 $45 7/8-37 7/8
- ------------------
</TABLE>
Restated to include the results of Augat Inc., acquired December 11,
1996, and Telecommunication Devices, Inc., acquired July 2, 1998, and
accounted for as poolings of interests, except for cash dividends per share,
which reflect the Corporation's historical per share amount.
Basic per share amounts are based on average shares outstanding in each
quarter. Diluted per share amounts also reflect potential dilution from stock
options.
(a) 1998 includes special charges of $108.5 million pretax ($1.36 basic and
$1.35 diluted per share).
(b) Includes sales of businesses contributed to the Exemplar/Thomas & Betts
joint venture at the end of 1997, amounting to $85.9 million and $86.6
million in 1997 and 1996, respectively. In 1998, such investment was
accounted for using the equity method.
(c) 1996 includes special charges of $97.1 million pretax ($1.23 basic and
$1.22 diluted per share).
43
<PAGE>
ANNUAL MEETING
The annual meeting of shareholders will be held on Wednesday, May 5, 1999, at
10:00 a.m. at the Winegardner Auditorium, The Dixon Gallery and Gardens, 4339
Park Avenue, Memphis Tennessee.
ANNUAL REPORT ON FORM 10-K
A copy of the Corporation's Annual Report on Form 10-K (excluding exhibits),
filed with the Securities and Exchange Commission, is available free of
charge by writing to Renee W. Johansen, Director, Investor Relations, at
Corporate Headquarters. The Form 10-K, and other documents filed
electronically with the SEC, may be accessed via the Internet at www.sec.gov
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
First Chicago Trust Company, a division of Equiserve
P.O. Box 2534, Suite 4692
Jersey City, New Jersey 07303-2534
Fax (201) 222-4679
Telephone Response Center (800) 446-2617
(24 hours a day, 7 days a week)
Fax (201) 222-4892. TDD Service (201) 222-4955
Correspondence concerning change of address, dividends, lost stock
certificates and stock transfer requirements should be directed to the
address above. Inquiries regarding the Dividend Reinvestment Plan should be
directed to Corporate Headquarters at the address shown here.
DIVIDEND REINVESTMENT PLAN
First Chicago Trust Company, a division of Equiserve
Dividend Reinvestment Plan
P.O. Box 2598
Jersey City, New Jersey 07303-2598
Internet address: www.fctc.com
LISTED NEW YORK STOCK EXCHANGE
Trading symbol: TNB
CORPORATE HEADQUARTERS
Thomas & Betts Corporation
8155 T&B Boulevard
Memphis, Tennessee 38125
(901) 252-8000
INVESTOR INQUIRIES
Inquiries should be directed to the Investor Relations Department at Corporate
Headquarters. Investor information is also available on our website.
Visit us on the World Wide Web at www.tnb.com for investor information,
technical product background or a general overview of Thomas & Betts.
SAFE HARBOR NOTICE
Forward-looking statements made throughout this annual report are subject to
many uncertainties in the Corporation's operations and business environment.
Such uncertainties, which are discussed in the Corporation's Annual Report on
Form 10-K filed with the Securities and Exchange Commission, may cause actual
results of the Corporation to be materially different from any future results
expressed or implied by such forward-looking statements.
<PAGE>
OFFICERS
---------------------------
THOMAS & BETTS CORPORATION
CLYDE R. MOORE
President and
Chief Executive Officer
T. ROY BURTON
President -
Electronics/OEM Group
GREGORY M. LANGSTON
Group President - International
W. NEIL PARKER
President -
Electrical Components Group
GARY R. STEVENSON
President - Operations/
Administration Group
JOHN R. JANULIS
Vice President - Controller
FRED R. JONES
Vice President -
Chief Financial Officer
JERRY KRONENBERG
Vice President - General Counsel
and Corporate Secretary
DAVID D. MYLER
Vice President - Administration
THOMAS C. OVIATT
Treasurer
DIRECTORS
- -------------------------------------------------------------------------------
T. KEVIN DUNNIGAN
Chairman of the Board
of the Corporation
DIRECTOR SINCE 1975(2)(3)
ERNEST H. DREW
Former Chief Executive Officer,
Industries and Technology Group
Westinghouse Electric Corporation
(power generation and process control systems)
DIRECTOR SINCE 1989(2)(3)
JEANANNE K. HAUSWALD
Managing Partner,
Solo Management Group, L.L.C.
(corporate finance and investment management consulting)
DIRECTOR SINCE 1993(1)
THOMAS W. JONES
Co-Chairman and
Chief Executive Officer,
SSB Citi Asset Management Group of Travelers Group, Inc.
(financial services)
DIRECTOR SINCE 1992(1)
RONALD B. KALICH, SR.
President and
Chief Executive Officer,
Getz Bros. & Co., Inc.
(marketing and distribution)
DIRECTOR SINCE 1998(4)
ROBERT A. KENKEL
Former Chairman of the Board,
Chief Executive Officer and
Chief Operating Officer,
The Pullman Co.
(automotive, aerospace and
industrial companies)
DIRECTOR SINCE 1994(3)(4)
KENNETH R. MASTERSON
Executive Vice President,
General Counsel and Secretary,
FDX Corporation
(transportation services)
DIRECTOR SINCE 1995(2)
THOMAS C. MCDERMOTT
Chairman and Manager,
Forbes Products, L.L.C.
(custom vinyl business products)
DIRECTOR SINCE 1996(1)
CLYDE R. MOORE
President and
Chief Executive Officer
of the Corporation
DIRECTOR SINCE 1993(2)(3)
JEAN-PAUL RICHARD
Chairman and
Chief Executive Officer,
PROMACH, Inc.
(industrial food processing and packaging equipment)
DIRECTOR SINCE 1996(1)
JERRE L. STEAD
Chairman and
Chief Executive Officer,
Ingram Micro, Inc.
(distributor of technology
products and services)
DIRECTOR SINCE 1998(4)
WILLIAM H. WALTRIP
Former Chairman of the Board,
Bausch & Lomb Incorporated
(optical products), and
Chairman of the Board,
Technology Solutions Company
(computer technology services)
DIRECTOR SINCE 1983(3)(4)
(1) Audit Committee
(2) Corporate Governance Committee
(3) Executive Committee
(4) Human Resources Committee
(Left) Thomas & Betts Corporation commemorated its 100th
anniversary by ringing the New York Stock Exchange's (NYSE)
[PHOTO] opening bell. On hand were (left to right): Richard A.
Grasso, NYSE Chairman and CEO; Clyde R. Moore, Thomas & Betts
President and CEO; T. Kevin Dunnigan, Thomas & Betts
Chairman; and William R. Johnston, NYSE President.
(Below) Thomas & Betts directors Robert A. Kenkel and Ronald
B. Kalich, Sr. discuss trading in TNB shares with specialist
Bruce J. Wright of Robb Peck McCooey Specialist Corporation.
[PHOTO]
[LOGO] Printed on recycled paper.
Designed and produced by Corporate Reports Inc./Atlanta
45
