<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 1-4682
------------------------
THOMAS & BETTS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
(901) 252-8000
(Registrant's telephone number, including area code)
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK--$0.10 PAR VALUE OUTSTANDING SHARES AT NOVEMBER 13, 2000
(Title of each Class) 57,999,633
</TABLE>
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<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
Cautionary Statement Regarding Forward-Looking Statements................ 3-4
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets as of October 1, 2000
and January 2, 2000....................................... 5
Condensed Consolidated Statements of Operations for the
Quarter and Nine Months Ended October 1, 2000 and October
3, 1999................................................... 6
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended October 1, 2000 and October 3, 1999.......... 7
Notes to Condensed Consolidated Financial Statements........ 8
ITEM 2 Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 17
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 24
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 25
ITEM 4. Submission of Matters to a Vote of Security Holders......... 25
ITEM 6. Exhibits and Reports on Form 8-K............................ 25
</TABLE>
NOTE:
Thomas & Betts Corporation (the "Corporation" and the "Registrant") recorded
certain special charges as of July 2, 2000. These charges were based upon the
best information available to management and involved extensive use of estimates
and assumptions. Management is continuing to review with the Corporation's
independent auditors the amounts and the attribution of the special charges to
the appropriate reporting periods. While this review has not been completed,
management, after consultation with the Corporation's independent auditors, has
determined that the Corporation's financial statements for fiscal year 1999 will
be restated. Until such time as the Corporation issues such restated financial
statements, the previously issued fiscal 1999 financial statements should not be
relied upon.
Since a portion of the special charges recorded in the quarter ended
July 2, 2000 will be attributable to fiscal 1999, such adjustments will be made
in fiscal 1999 and eliminated in the second quarter of 2000. Accordingly, the
Corporation's financial statements for the second fiscal quarter of 2000 will
also be restated. As a result of the restatement of the second fiscal quarter of
2000, the Corporation's financial statements for the nine month period ended
October 1, 2000 will also be restated. In addition, the net sales and pre-tax
income for the nine month period of 2000 reflect a reduction of $5.9 million for
a correction of second quarter 2000 net sales.
Upon completion of this review, and after consultation with its independent
auditors and the Audit Committee of the Board of Directors, the Corporation may
restate its financial statements for the first fiscal quarter of 2000 and fiscal
periods prior to 1999. If a portion of the charges recorded in a given quarter
of 2000 is later determined to be attributable to such prior periods,
adjustments will be made in the relevant prior period and eliminated in the
respective quarter.
The reasons for, and financial impact of, these adjustments are described in
Note 6 to the condensed consolidated financial statements set forth herein and
in the Management's Discussion and Analysis of Results of Operations and
Financial Condition. Although management is not aware at this time of any
additional special charges that will be required in the future, it is possible
that as management continues its review or as new information becomes available
and estimation techniques undergo refinement, the special charges taken thus far
may be adjusted or additional special charges may be taken in future periods.
Page 2 of 26
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This document includes various forward-looking statements regarding the
Corporation which are subject to risks and uncertainties. Forward-looking
statements include information concerning future results of operations and
financial condition. Statements that contain words such as "believes,"
"expects," "anticipates," "intends," "estimates," "continue," "should," "could,"
"may," "plan," "project," "predict," "will" or similar expressions are
forward-looking statements. These forward-looking statements are subject to
risks and uncertainties, and many factors could affect the future financial
results of the Corporation. Accordingly, actual results may differ materially
from those expressed or implied by the forward-looking statements contained in
this document. For those statements, the Corporation claims the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995.
There are many factors that could cause actual results to differ materially
from those in forward-looking statements, some of which are beyond the control
of the Corporation. These factors include, but are not limited to:
- Economic slowdown in the U.S. or economic slowdowns in the Corporation's
other main markets, including Western Europe, the United Kingdom and
Canada;
- The ability of the management team to improve the operating performance of
existing lines of business as the Corporation transitions to the new
organizational design and eliminates the previous matrix management
structure;
- Unforeseen difficulties in the implementation, enhancement and maintenance
of operating and accounting systems and controls;
- Effects of significant changes in monetary or fiscal policies in the U.S.
and abroad which could result in currency fluctuations--including
fluctuations in the Canadian dollar, Euro and British pound;
- Significant changes in any number of governmental policies domestically
and abroad which could create trade restrictions, patent enforcement
issues, adverse tax-rate changes and changes to tax treatment of items
such as tax credits, withholding taxes, transfer pricing and other income
and expense recognition for tax purposes, including changes in taxation on
income generated in Puerto Rico;
- Changes in environmental regulations, policies and projected remediation
technology advances that could impact expectations of remediation
expenses;
- Unforeseen difficulties arising from past and future acquisitions and
dispositions of businesses;
- Inflationary pressures which could raise interest rates and consequently
the Corporation's cost of funds;
- Changes in its relationships with its joint venture partners and changes
in financial results from its joint ventures;
- Undiscovered liabilities arising from acquired businesses;
- Unexpected liabilities arising from divestitures, including specifically
the sale of the Corporation's Electronics OEM business in the second
quarter of 2000;
- Future acquisitions which could result in potentially dilutive issuances
of equity securities, the incurrence of debt and contingent liabilities
and amortization expenses related to goodwill and other intangible assets,
which materially adversely affect operating results and financial
condition;
Page 3 of 26
<PAGE>
- Increased downward pressure on the selling prices for the Corporation's
products;
- Changes in customer demand for various products of Thomas & Betts that
could affect its overall product mix, margins, plant utilization levels
and asset valuations;
- Availability and pricing of commodities and raw materials needed for
production of the Corporation's products including steel, copper, zinc,
aluminum, gold, resins and rubber compounds;
- A downgrade or a negative implication credit watch by credit agencies of
the Corporation's debt ratings;
- Unexpected inability to satisfy conditions to borrowing under the
Corporation's credit agreements;
- Failure or disruption of computer programs and equipment within the
Corporation or third parties with whom the Corporation does business which
may disrupt business activities and operations; and
- Other adjustments, if any, required after completion of management's
continuing review of the Corporation's processes, controls and systems.
The Corporation undertakes no obligation to revise the forward-looking
statements included in this report to reflect any future events or
circumstances. The Corporation's actual results, performance or achievements
could differ materially from the results expressed in, or implied by, these
forward-looking statements.
Page 4 of 26
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 1, JANUARY 2,
2000 2000
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 159,531 $ 70,354
Marketable securities..................................... 12,515 14,217
Receivables--net.......................................... 371,878 289,092
Receivable--OEM sale...................................... 35,000 --
Inventories--net:
Finished goods.......................................... 200,564 210,200
Work-in-process......................................... 58,756 62,816
Raw materials........................................... 82,045 102,706
----------- -----------
341,365 375,722
Deferred income taxes..................................... 86,753 44,410
Prepaid expenses.......................................... 16,267 14,802
Net assets of discontinued operations..................... -- 494,406
----------- -----------
Total Current Assets........................................ 1,023,309 1,303,003
Property, plant and equipment............................... 899,990 881,477
Less accumulated depreciation............................. 415,961 382,436
----------- -----------
Property, plant and equipment--net...................... 484,029 499,041
Intangible assets--net...................................... 551,287 577,301
Investments in unconsolidated companies..................... 120,590 113,302
Other assets................................................ 42,234 38,061
----------- -----------
TOTAL ASSETS $ 2,221,449 $ 2,530,708
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable............................................. $ 5,352 $ 31,921
Current maturities of long-term debt...................... 1,950 2,515
Accounts payable.......................................... 196,729 209,983
Accrued liabilities....................................... 177,827 143,123
Income taxes.............................................. 29,166 1,917
Dividends payable......................................... 16,238 16,190
----------- -----------
Total Current Liabilities................................... 427,262 405,649
Long-term debt.............................................. 672,801 921,592
Other long-term liabilities................................. 90,509 88,785
Deferred income taxes....................................... 27,811 20,550
Shareholders' Equity:
Common stock.............................................. 5,799 5,782
Additional paid-in capital................................ 337,133 332,480
Retained earnings......................................... 726,430 795,208
Unearned compensation--restricted stock................... (3,520) (3,439)
Accumulated other comprehensive income.................... (62,776) (35,899)
----------- -----------
Total Shareholders' Equity.................................. 1,003,066 1,094,132
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,221,449 $ 2,530,708
=========== ===========
</TABLE>
--------------------------
Note: Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
See accompanying notes to condensed consolidated financial statements.
Page 5 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
----------------------- -----------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales............................................ $419,471 $460,216 $1,167,833 $1,396,079
Costs and Expenses:
Cost of sales...................................... 322,854 351,212 1,046,212 995,644
Marketing, general and administrative.............. 108,259 89,674 310,204 266,926
Research and development........................... 5,383 6,625 17,903 20,897
Amortization of intangibles........................ 4,647 4,011 13,542 12,660
Provision (recovery)--restructured operations...... -- (5,170) (449) (5,561)
-------- -------- ---------- ----------
441,143 446,352 1,387,412 1,290,566
-------- -------- ---------- ----------
Earnings (loss) from operations...................... (21,672) 13,864 (219,579) 105,513
Income from unconsolidated companies................. 2,684 4,328 10,489 14,349
Interest expense--net................................ 11,736 11,671 40,072 32,311
Other expense (income)--net.......................... (3,263) (8,315) 2,195 (5,007)
-------- -------- ---------- ----------
Earnings (loss) from continuing operations before
income taxes....................................... (27,461) 14,836 (251,357) 92,558
Income tax (benefit) provision....................... (8,238) (27,529) (87,566) (11,205)
-------- -------- ---------- ----------
Earnings (loss) from continuing operations........... (19,223) 42,365 (163,791) 103,763
Earnings from discontinued operations, net........... -- 4,565 9,577 21,366
Gain on sale of discontinued operations, net......... -- -- 134,089 --
-------- -------- ---------- ----------
Net earnings (loss).................................. $(19,223) $ 46,930 $ (20,125) $ 125,129
======== ======== ========== ==========
Basic earnings per share:
Earnings (loss) from continuing operations......... $ (0.33) 0.73 $ (2.83) $ 1.80
Earnings from discontinued operations.............. -- 0.08 0.17 0.37
Gain on sale of discontinued operations............ -- -- 2.31 --
-------- -------- ---------- ----------
Net earnings (loss)................................ $ (0.33) $ 0.81 $ (0.35) $ 2.17
======== ======== ========== ==========
Diluted earnings per share:
Earnings (loss) from continuing operations......... $ (0.33) $ 0.73 $ (2.83) $ 1.79
Earnings from discontinued operations.............. -- 0.08 0.17 0.37
Gain on sale of discontinued operations............ -- -- 2.31 --
-------- -------- ---------- ----------
Net earnings (loss).............................. $ (0.33) $ 0.81 $ (0.35) $ 2.16
======== ======== ========== ==========
Average shares outstanding:
Basic.............................................. 57,974 57,718 57,935 57,651
======== ======== ========== ==========
Diluted............................................ 57,974 58,017 57,935 57,891
======== ======== ========== ==========
Cash dividends declared per share.................... $ 0.28 $ 0.28 $ 0.84 $ 0.84
======== ======== ========== ==========
</TABLE>
--------------------------
Note: Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
See accompanying notes to condensed consolidated financial statements.
Page 6 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------
OCTOBER 1, OCTOBER 3,
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings (loss)......................................... $ (20,125) $125,129
Gain on sale of discontinued operations..................... (134,089) --
Income from discontinued operations......................... (9,577) (21,366)
--------- --------
Earnings (loss) from continuing operations.................. (163,791) 103,763
Adjustments:
Depreciation and amortization............................. 79,607 58,431
Inventory reserve provisions.............................. 54,238 29,976
Provision (recovery)--restructured operations............. (449) (5,561)
Undistributed earnings from unconsolidated companies...... (7,288) (10,532)
Deferred income taxes..................................... (34,549) 13,478
Changes in operating assets and liabilities, net:
Receivables, net of sale................................ (93,132) (58,649)
Inventories............................................. (34,410) (14,709)
Accounts payable........................................ (12,279) 12,536
Accrued liabilities..................................... (11,513) (9,768)
Income taxes payable.................................... (77,019) (51,625)
Other................................................... 2,322 (24,220)
--------- --------
Net cash provided by (used in) operating activities......... (298,263) 43,120
--------- --------
NET CASH FLOWS FROM DISCONTINUED OPERATIONS................. 53,226 22,593
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and investments in businesses.................. -- (17,049)
Purchases of property, plant and equipment.................. (58,114) (57,427)
Proceeds from sale of property, plant and equipment......... -- 5,099
Proceeds from OEM sale...................................... 701,113 --
Proceeds from the divestitures of product lines............. 7,261 16,390
Proceeds from matured marketable securities................. 1,439 26,105
--------- --------
Net cash provided by (used in) investing activities......... 651,699 (26,882)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in borrowings with original maturities
less than 90 days......................................... (21,532) (14,779)
Increase (decrease) in commercial paper and other
borrowings................................................ (249,958) 24,993
Stock options exercised..................................... 4,670 6,098
Cash dividends paid......................................... (48,605) (48,688)
--------- --------
Net cash provided by (used in) financing activities......... (315,425) (32,376)
--------- --------
EFFECT OF EXCHANGE-RATE CHANGES ON CASH..................... (2,060) (970)
--------- --------
Net increase (decrease) in cash and cash equivalents........ 89,177 5,485
Cash and cash equivalents at beginning of period............ 70,354 63,974
--------- --------
Cash and cash equivalents at end of period.................. $ 159,531 $ 69,459
========= ========
</TABLE>
--------------------------
Note: Certain prior-year amounts have been reclassified to conform to the
current-year presentation.
See accompanying notes to condensed consolidated financial statements.
Page 7 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying condensed consolidated
financial statements contain all adjustments (which consist of normal recurring
adjustments with the exception of those adjustments described in Note 6)
necessary for the fair presentation of the Corporation's financial position and
results of operation as of and for the quarter ended October 1, 2000. Certain
reclassifications have been made to these condensed consolidated financial
statements for the quarter and nine months ended October 3, 1999, and the
balance sheet as of January 2, 2000, to conform to the fiscal 2000 presentation
and are related to the Electronics OEM business being reclassified as a
discontinued operation (See Note 2). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
The results of operations for the periods ended October 1, 2000 and October 3,
1999 are not necessarily indicative of the operating results for the full year.
The Corporation recorded certain special charges as of July 2, 2000. These
charges were based upon the best information available to management and
involved extensive use of estimates and assumptions. Management is continuing to
review with the Corporation's independent auditors the amounts and the
attribution of the special charges to the appropriate reporting periods. While
this review has not been completed, management, after consultation with the
Corporation's independent auditors, has determined that the Corporation's
financial statements for fiscal year 1999 will be restated. Until such time as
the Corporation issues such restated financial statements, the previously issued
fiscal 1999 financial statements should not be relied upon.
Since a portion of the special charges recorded in the quarter ended
July 2, 2000 will be attributable to fiscal 1999, such adjustments will be made
in fiscal 1999 and eliminated in the second quarter of 2000. Accordingly, the
Corporation's financial statements for the second fiscal quarter of 2000 will
also be restated. As a result of the restatement of the second fiscal quarter of
2000, the Corporation's financial statements for the nine month period ended
October 1, 2000 will also be restated. In addition, the net sales and pre-tax
income for the nine month period of 2000 reflect a reduction of $5.9 million for
a correction of second quarter net 2000 sales.
Upon completion of this review, and after consultation with its independent
auditors and the Audit Committee of the Board of Directors, the Corporation may
restate its financial statements for the first fiscal quarter of 2000 and fiscal
periods prior to 1999. If a portion of the charges currently recorded in a given
quarter of 2000 is later determined to be attributed to such prior periods,
adjustments will be made in the relevant prior period and eliminated in the
respective quarter.
The reasons for, and financial impact of, these adjustments are described in
Note 6 and in the Management's Discussion and Analysis of Results of Operations
and Financial Condition. Although management is not aware at this time of any
additional special charges that will be required in the future, it is possible
that as management continues its review or as new information becomes available
and estimation techniques undergo refinement, the special charges taken thus far
may be adjusted or additional special charges may be taken in future periods.
The independent auditors' Statements on Auditing Standards No. 71 review
procedures on the Corporation's interim financial statements for the first three
fiscal quarters of 2000 are incomplete, pending their consideration of the
matters discussed in the preceeding five paragraphs.
Page 8 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. DISCONTINUED OPERATIONS
On July 2, 2000, the Corporation completed the sale of substantially all of
its global Electronics Original Equipment Manufacturers (Electronics OEM)
business to Tyco Group S.A.R.L. for $750 million in cash, subject to adjustment,
with a portion of the proceeds deferred. The cash purchase price was reduced by
approximately $13.9 million for debt assumed by Tyco. The transaction closed on
Sunday, July 2, 2000 and wire transfer funds of approximately $686 million were
credited to the Corporation's account on Monday, July 3, 2000 with the remaining
$50 million of the funds held in escrow. During the third quarter of 2000,
$15 million of funds in escrow were released to the Corporation. The remaining
escrowed amounts will be distributed upon completion of events as described in
the purchase agreement (See Note 9 "Contingencies"). The results of the
Electronics OEM business have been reported separately as discontinued
operations. The results of discontinued operations do not reflect any allocated
corporate overhead expenses for centralized administration, finance and
information technology departments.
The sale resulted in a pre-tax gain of $231.1 million, which, reduced by
$97 million of income taxes, produced a gain on sale of discontinued operations
of $134.1 million. The gain includes $14.7 million of losses, net of
$3.3 million of tax benefit, resulting from the operations of the Electronics
OEM business from April 3, 2000, to the closing date. Excluding the impact of
the $14.7 million of losses, the pre-tax gain would have been $249.1 million.
The $14.7 million of losses were impacted by $31.3 million of pre-tax special
charges. The nature of these charges are similar to the special charges recorded
in continuing operations (see Note 6) and were taken to provide for
uncollectable accounts receivable, to increase reserves for excess and obsolete
inventory, to write-down investments in unconsolidated companies, to reconcile
intercompany and other miscellaneous accounts and to write-down property, plant
and equipment.
Net sales and earnings from discontinued operations are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS NINE MONTHS ENDED
OCTOBER 3, ENDED OCTOBER 3,
1999 JULY 2, 2000 1999
(IN THOUSANDS) ------------- ------------ -----------------
<S> <C> <C> <C>
Net sales.......................................... $174,940 $195,504 $502,526
======== ======== ========
Earnings before income taxes....................... 5,943 16,954 34,533
Income tax expense................................. 1,378 7,377 13,167
-------- -------- --------
Earnings from discontinued operations.............. $ 4,565 $ 9,577 $ 21,366
======== ======== ========
</TABLE>
Included in earnings from discontinued operations is interest expense of
$4.3 million for the six months ended July 2, 2000, and $4.1 million and
$11.9 million, respectively, for the quarter and nine months ended October 3,
1999, which was allocated to discontinued operations based upon the ratio of
invested capital of discontinued operations to consolidated invested capital.
3. EARNINGS PER SHARE ("EPS")
Basic EPS for each period are computed by dividing net earnings by the
weighted-average number of shares of common stock outstanding during the period.
Diluted EPS for each period are computed by dividing net earnings by the sum of
(1) the weighted-average number of shares outstanding during
Page 9 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. EARNINGS PER SHARE ("EPS") (CONTINUED)
the period and (2) the dilutive effect of the assumed exercise of stock options
using the treasury stock method.
The exercise of stock options was not assumed for the quarter and the
nine-month period ended October 1, 2000, as the effect would have been
anti-dilutive. The following is a reconciliation of the numerators and
denominators of the per share computations:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
----------------------- -----------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
(IN THOUSANDS EXCEPT PER SHARE DATA) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET EARNINGS:
Earnings (loss) from continuing operations.......... $(19,223) $42,365 $(163,791) $103,763
Earnings from discontinued operations, net.......... -- 4,565 9,577 21,366
Gain on sale of discontinued operations, net........ -- -- 134,089 --
-------- ------- --------- --------
Net earnings (loss)................................. $(19,223) $46,930 $ (20,125) $125,129
======== ======= ========= ========
EARNINGS PER COMMON SHARE:
Weighted Average Shares:
Basic average shares outstanding.................... 57,974 57,718 57,935 57,651
Plus assumed exercise of stock options.............. -- 299 -- 240
-------- ------- --------- --------
Diluted average shares outstanding.................. 57,974 58,017 57,935 57,891
======== ======= ========= ========
Basic earnings per share:
Earnings (loss) from continuing operations........ $ (0.33) $ 0.73 $ (2.83) $ 1.80
Earnings from discontinued operations............. -- 0.08 0.17 0.37
Gain on sale of discontinued operations........... -- -- 2.31 --
-------- ------- --------- --------
Net earnings (loss)................................. $ (0.33) $ 0.81 $ (0.35) $ 2.17
======== ======= ========= ========
Diluted earnings per share:
Earnings (loss) from continuing operations........ $ (0.33) $ 0.73 $ (2.83) $ 1.79
Earnings from discontinued operations............. -- 0.08 0.17 0.37
Gain on sale of discontinued operations........... -- -- 2.31 --
-------- ------- --------- --------
Net earnings (loss)................................. $ (0.33) $ 0.81 $ (0.35) $ 2.16
======== ======= ========= ========
</TABLE>
Page 10 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. COMPREHENSIVE INCOME
Total comprehensive income and its components are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
----------------------- -----------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
(IN THOUSANDS) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net earnings (loss).................................. $(19,223) $46,930 $(20,125) $125,129
Foreign currency translation adjustments............. (16,674) 8,799 (26,708) (8,610)
Minimum pension liability adjustment................. -- -- -- (551)
Unrealized holding gains (losses) on securities...... 79 (193) (169) (200)
-------- ------- -------- --------
Comprehensive income (loss).......................... $(35,818) $55,536 $(47,002) $115,768
======== ======= ======== ========
</TABLE>
5. RESTRUCTURING
During the third quarter of 1998, the Corporation recorded a pre-tax
restructuring charge of $62.1 million related to a program to reduce costs by
consolidating several facilities and product-line operations, terminating
employees at affected locations, downsizing administrative functions and writing
down idle facilities. Severance and other employee-related costs involve actions
that will result in a net reduction of approximately 325 jobs, including
administrative positions at plants and corporate headquarters. As of October 1,
2000, the Corporation had realized a net reduction of 308 jobs. The remaining
reserve of $4.8 million at January 2, 2000 was reduced to $3.9 million by
October 1, 2000. Components of the remaining restructuring reserves at
October 1, 2000 are comprised of $3.2 million for severance and employee-related
costs and $0.7 million related to other facility exit costs. Management believes
the remaining reserves are adequate to cover the estimated costs of completing
the plan. It is anticipated that the plan will be completed by the end of 2000.
6. SPECIAL CHARGES
During the second quarter of 2000, the Corporation recorded pre-tax charges
totaling $223.9 million ($148.4 million after tax) to continuing operations. The
principal adjustments to the Corporation's continuing operations for these
charges may be categorized as follows:
ACCOUNTS RECEIVABLE
The Corporation recorded charges of approximately $102.5 million in the
second quarter to provide for estimated uncollectable accounts receivable.
Substantially all of this charge is reflected as a reduction to net sales.
Approximately $69.5 million of this charge is for customer invoice disputes
related to pricing and shipment accuracy, product returns and other reasons.
Given the nature, number and age of these unresolved invoice disputes,
management believes that these items are largely uncollectable and, accordingly,
are included as part of the charge.
The other significant portion of the accounts receivable charge relates to
unpaid invoices. This charge is being taken in part because of the aging of
these outstanding invoices and also because of the confusion and disruption
caused by the Corporation's implementation of new financial, pricing and order
processing systems. After implementation of the new order processing computer
systems in late 1999, the Corporation experienced significant problems, which
have led to the Corporation's inability to
Page 11 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. SPECIAL CHARGES (CONTINUED)
execute an effective collections process because of considerable uncertainty
with customer billing. This uncertainty led to many customer payment deductions
and an increase in aged receivables which greatly hinders the Corporation's
ability to effectively analyze the nature of aged invoices between doubtful
accounts and disputed billings. The Corporation has recorded the charge as a
direct reduction to accounts receivable and net sales under the belief that the
aging increase is primarily due to disputed billings.
INVENTORY
The Corporation recorded charges of approximately $60.6 million in the
second quarter to reduce inventory and increase cost of sales. Approximately
$21.7 million of this charge related to write-downs for specifically
identifiable slow-moving, excess and obsolete inventory, of which the primary
components related to the premise wire ($8.6 million) and trap and filter
($3.3 million) product lines, while $6.1 million related to the previous
disposition of the Broadband product line. In addition, the Corporation recorded
a $19.4 million charge representing an increase in reserves for slow-moving,
excess, and obsolete inventory based on management's evaluation of current
inventory aging and usage and its new strategy to reduce levels of a slow-moving
inventory. Management believes that this new strategy will help the Corporation
better match production with its sales requirements. Additionally, a
$19.5 million charge was taken to reduce the carrying value of inventory to
agree with physical counts and the Corporation's perpetual records.
REVENUE RECOGNITION
The Corporation reversed $31.7 million of net sales that were previously
recognized as revenue and a net of $14.4 million of cost of sales, resulting in
a net pre-tax charge of $17.3 million. These sales related to special
promotional programs targeted at a select group of the Corporation's largest
volume accounts. Based on a review of the terms and conditions of the
promotions, management believes these transactions are more appropriately
characterized as consignment sales and are now being treated accordingly. Of the
$31.7 million of net sales reversed in the second quarter special charges,
$24 million of goods were returned in the third quarter with no impact on
results of operations because the Corporation had previously provided for these
amounts.
PROPERTY, PLANT AND EQUIPMENT
The Corporation recorded a charge of $23.9 million to reduce property, plant
and equipment. A charge of $19.6 million was taken primarily to reflect the
write-off, or increased depreciation on, assets previously classified as
construction in progress. This charge also includes approximately $1.7 million
for the premise wire and trap and filter product lines and $2.6 million mainly
representing the write-off of miscellaneous plant assets.
Page 12 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
6. SPECIAL CHARGES (CONTINUED)
OTHER ADJUSTMENTS
The Corporation recorded other special charges during the second quarter
totaling approximately $19.6 million. The primary components of these
adjustments were as follows:
- An approximate $7.1 million charge related to freight costs which included
an under-estimation of the cost of freight during the period of the new
order entry system (TOPS) implementation.
- An approximate $4 million charge relating to the write-off of goodwill
with respect to the trap and filter and Patriot product lines.
- Other adjustments of $8.5 million, including approximately $7.1 million
related to the reconciliation of intercompany and other miscellaneous
accounts which arose, in part, because of problems associated with the
implementation of new financial and order entry computer systems and the
transfer of assets between plants.
7. ONE-TIME ITEMS AND OTHER CHARGES AND CREDITS
During the third quarter of 1999, the Corporation recorded certain on-time
and other charges and credits. A substantial portion of the net charges related
to the third quarter of 1999, with the remaining balance relating to the first
quarter of 1999. Items that comprise the net charges are as follows:
<TABLE>
<CAPTION>
PRE-TAX AFTER TAX
------------------- -------------------
THIRD NINE THIRD NINE
QUARTER MONTHS QUARTER MONTHS
1999 1999 1999 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Tax refunds and reduction in taxes payable.................. $ -- $ -- $ 30.7 $ 30.7
Acquisition and divestiture income.......................... 8.6 8.6 5.0 5.0
Inventory adjustments....................................... (7.1) (9.5) (4.4) (5.9)
Other adjustments........................................... (48.1) (51.6) (32.0) (34.2)
------ ------ ------ ------
Total net charge............................................ $(46.6) $(52.5) $ (0.7) $ (4.4)
====== ====== ====== ======
Portion relating to Discontinued Operations................. $(20.7) $(23.7) $(13.9) $(15.9)
====== ====== ====== ======
Portion relating to Continuing Operations................... $(25.9) $(28.8) $ 13.2 $ 11.5
====== ====== ====== ======
</TABLE>
The net charges reflected a $30.7 million benefit from tax refunds and
changes in tax reserves resulting from favorable completion of several tax
audits during the period and a favorable worldwide reassessment of tax
exposures.
Acquisition and divestiture income reflected $12.5 million of income
associated with an acquisition termination fee, net of related costs, and costs
associated with another unconsummated acquisition.
Inventory adjustments reflect unfavorable adjustments resulting from
physical inventory counts taken during the period. The inventory adjustments
related to the Electronics EOM business.
Page 13 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. ONE-TIME ITEMS AND OTHER CHARGES AND CREDITS (CONTINUED)
Other adjustments included:
- Unfavorable adjustments of $23 million in the quarter and nine months for
receivables, sales and sales promotion issues.
- Unfavorable adjustments of $18.5 million in the quarter and $19.8 million
in the nine months for inventory and cost of sales issues.
- Reduction of restructuring and special charge reserves established in 1996
of $6.4 million in the quarter and $7.9 million in the nine months.
- The remaining balance relates to negative net adjustments to revise
various estimates and correct certain accounting errors.
8. SEGMENT AND OTHER RELATED DISCLOSURES
The Corporation has two reportable segments: Electrical and Communications.
Previously, the Corporation reported an Electronics OEM segment. Substantially
all of this previously reported segment is now reflected as a discontinued
operation and has been removed from the segment disclosures. Some business
activities cannot be classified in the aforementioned segments and are shown
under "Other." The Corporation's reportable segments are based on product lines,
and represent the primary mode used to assess allocation of resources and
performance. Management evaluates each segment's profit or loss performance
based on earnings before interest, taxes, loss on sale of accounts receivable,
foreign exchange gains and losses and acquisition/disposition-related
transaction expenses.
SEGMENT INFORMATION
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
----------------------- -----------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
(IN THOUSANDS) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales:
Electrical..................................... $319,918 $336,032 $ 868,509 $1,033,197
Communications................................. 45,471 74,904 132,572 203,021
Other.......................................... 54,082 49,280 166,752 159,861
-------- -------- ---------- ----------
Total........................................ $419,471 $460,216 $1,167,833 $1,396,079
======== ======== ========== ==========
Segment Earnings (Loss):
Electrical..................................... $(16,967) $ 35,078 $ (177,543) $ 126,828
Communications................................. (6,087) (10,161) (43,353) (13,299)
Other.......................................... 2,873 684 13,115 11,693
-------- -------- ---------- ----------
Total........................................ $(20,181) $ 25,601 $ (207,781) $ 125,222
======== ======== ========== ==========
</TABLE>
Page 14 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. SEGMENT AND OTHER RELATED DISCLOSURES (CONTINUED)
The following are reconciliations of the total of reportable segments to
continuing operations:
RECONCILIATION TO CONTINUING OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
----------------------- -----------------------
OCTOBER 1, OCTOBER 3, OCTOBER 1, OCTOBER 3,
2000 1999 2000 1999
(IN THOUSANDS) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales:
Total reportable segments.................... $365,389 $410,936 $1,001,081 $1,236,218
Other........................................ 54,082 49,280 166,752 159,861
-------- -------- ---------- ----------
Total.................................... $419,471 $460,216 $1,167,833 $1,396,079
======== ======== ========== ==========
Earnings Before Income Taxes:
Total reportable segment earnings (loss)..... $(23,054) $ 24,917 $ (220,896) $ 113,529
Earnings on Other sales...................... 2,873 684 13,115 11,693
Restructure charges.......................... -- 5,170 449 5,561
Interest expense--net........................ (11,736) (11,671) (40,072) (32,311)
Other........................................ 4,456 (4,264) (3,953) (5,914)
-------- -------- ---------- ----------
Total.................................... $(27,461) $ 14,836 $ (251,357) $ 92,558
======== ======== ========== ==========
</TABLE>
9. CONTINGENCIES
On February 16, 2000, certain shareholders of the Corporation filed a
purported class-action suit in the United States District Court for the Western
District of Tennessee against the Corporation, Clyde R. Moore and Fred R. Jones.
The complaint alleges fraud and violations of Section 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder. The
plaintiffs allege that purchasers of the Corporation's common stock between
April 28, 1999, and December 14, 1999, were damaged when the market value of the
stock dropped by nearly 29 percent on December 15, 1999. The plaintiffs allege
generally that the defendants artificially inflated the market value of the
Corporation's common stock by a series of misleading statements or by failing to
disclose certain adverse information. An unspecified amount of damages is
sought. On July 12, 2000, the Corporation filed a Motion to Dismiss the suit,
together with a memorandum of law in support of the motion to dismiss. After the
motion was fully briefed, but before argument, plaintiffs requested and were
granted leave to file a further amended pleading adding claims based on the
Corporation's announcement of additional accounting charges on August 21, 2000.
A further amended complaint was subsequently filed expanding the alleged
plaintiff class to include all purchasers of the Corporation's securities from
April 28, 1999 to August 21, 2000. The time for defendants to answer or move has
been extended on consent of counsel pending consolidation with the additional
actions described below.
On August 28, 2000, another shareholder filed a purported class-action suit
in the United States District Court for the Western District of Tennessee
against the Corporation, Clyde R. Moore, T. Kevin Dunnigan, Fred R. Jones and
John P. Murphy. The complaint alleges fraud and violation of Section 10(b) and
20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5
thereunder. The plaintiffs allege that purchasers of the Corporation's common
stock between
Page 15 of 26
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. CONTINGENCIES (CONTINUED)
February 15, 2000 and August 21, 2000 were damaged when the market value of the
stock dropped by nearly 26% on June 20, 2000, and fell another 8% on
August 22, 2000. The plaintiffs allege generally that the defendants
artificially inflated the market value of the Corporation's common stock by a
series of materially false and misleading statements or by failing to disclose
certain adverse information. An unspecified amount of damages is sought. Three
additional complaints alleging essentially identical claims were subsequently
filed against the same defendants in the same court by plaintiffs represented by
the same counsel who filed the August 28 action.
All five actions are expected to be consolidated and a further amended
pleading incorporating all of the claims filed. Counsel are currently
negotiating the terms of the consolidation. Defendants will not be required to
answer or move against the actions until after the consolidation and further
amendment has been completed. At this time, the Corporation is investigating the
allegations and is unable to predict the outcome of this litigation and its
ultimate effect, if any, on the financial condition of the Corporation. However,
management believes that there are meritorious defenses to the claims and
intends to vigorously defend against the allegations. Mr. Moore, Mr. Dunnigan,
Mr. Jones and Mr. Murphy may be entitled to indemnification by the Corporation.
The Corporation is also involved in legal proceedings and litigation arising
in the ordinary course of business. In those cases where the Corporation is the
defendant, plaintiffs may seek to recover large and sometimes unspecified
amounts, and some matters may remain unresolved for several years. It is not
practical to estimate a range of possible loss for the Corporation's litigation
matters, and losses, even though not anticipated, could be material with respect
to earnings in any given period.
On November 1, 2000, pursuant to the Purchase Agreement between TYCO Group
SARL and the Corporation, dated May 7, 2000, as amended, TYCO delivered to the
Corporation its proposed calculation of the Statement of Closing Working Capital
and Statement of Closing Long-term Tangible Assets for the Electronics OEM
business (collectively, the "TYCO Statement Calculation"). Under the terms of
the Purchase Agreement, the purchase price to the Corporation on the closing
date could be adjusted if the Closing Working Capital or the Closing Long-term
Tangible Assets, which will be amounts agreed to by TYCO and the Corporation, or
as determined by an agreed upon third party, are less than the Base Working
Capital or the Base Long-term Tangible Assets, as defined in the Purchase
Agreement (Base Working Capital and Base Long-term Tangible Assets collectively
referred to herein as "Agreed Amounts"). The TYCO Statement Calculation
delivered to the Corporation is substantially below the Agreed Amounts.
Management is reviewing the TYCO Statement Calculation and expects to
dispute substantially all of the items presented. If TYCO rejects the
Corporation's calculations and the parties cannot reach agreement on the closing
statements, the matter will be determined by the third party. At this time, the
Corporation is unable to predict whether the purchase price on the closing date
will be adjusted and its ultimate effect, if any, on the financial position or
results of operations of the Corporation. While management believes that the
TYCO Statement Calculation is incorrect and intends to vigorously dispute it,
the impact on the Corporation would be material in the event the TYCO Statement
Calculation is determined to be correct.
Page 16 of 26
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RECENT DEVELOPMENTS AND OUTLOOK FOR FISCAL 2000
REVIEW OF PROCESSES, CONTROLS AND SYSTEMS
During the third quarter 2000, the Corporation's new management team
continued to review processes, controls and systems in order to assure their
adequacy and when appropriate, began implementing improvements. Management has
identified a number of areas where improvements are required and made progress
during the second and third quarters in addressing two key areas: accounts
receivable and inventory. As part of this process, the Corporation retained a
nationally recognized firm to manage its claims and collections functions until
such time that the backlog of claims is eliminated and management has
established appropriate internal processes to ensure the Corporation can remain
current in managing its collections efforts. The Corporation has made progress
in correcting technical systems issues that adversely impacted its pricing and
invoicing systems during the past several quarters. These system problems were
responsible, in part, for the large number of deductions and associated problems
that have plagued the Corporation's accounts receivable collection efforts.
The Corporation is also on track with a program to analyze and correct
deficiencies in its inventory management and control processes that led to the
substantial charge in the second quarter 2000. (See "Second Quarter 2000 Special
Charges" below) Using a combination of internal resources and third-party
consultants, the Corporation is completing a thorough review of global inventory
levels and processes. The Corporation is now refining and implementing new
controls procedures over inventory accounting. Management currently expects to
have the new inventory control processes in place near the end of the first
quarter or beginning of the second quarter next year.
In addition to eliminating promotional programs based on steep price
discounting, management is in the process of comprehensively revising and
simplifying the Corporation's pricing policies so that prices will more
accurately reflect costs. As part of this process, field sales personnel no
longer have the power to set prices or offer price concessions. The Corporation
is also revising the incentives offered in its Signature Service preferred
customer program to ensure that the program supports profitable sales, and is
establishing tighter guidelines for volume-related discount programs effective
in 2001.
To address the Corporation's higher than historical freight costs, primarily
as a result of overly generous shipping policies, the new management team is
revising the Corporation's freight policies to make them comparable to, and
competitive with, the Corporation's electrical components industry peers. As
part of this effort, the Corporation has begun to consolidate shipments to
customers in several key regional markets. Consolidating customer shipments
reduces costs and simplifies the customer's receipt of materials. While
management believes that it will have revised freight policies, and procedures
to ensure compliance with these policies, in place by the end of the first
quarter of 2001, it will take several months to see evidence of the change in
the Corporation's operating performance.
The Corporation is also exploring alternatives to make its distribution and
warehouse operations more cost effective. Distribution costs were high due to
inefficient and excessive warehouse capacity. Improvements in all of the areas
discussed above will require time to fully implement and refine, while other
areas continue to undergo review throughout the year. Until the review is
completed and the required improvements fully implemented and refined, the
Corporation's results of operations and financial position may continue to be
impacted by the Corporation's existing processes, systems and controls.
As a result of this review, the Corporation recorded certain special charges
in the second quarter of 2000. These charges were based upon the best
information available to management and involve extensive use of estimates and
assumptions. Management is continuing to review with the Corporation's
Page 17 of 26
<PAGE>
independent auditors the amounts and the attribution of the special charges to
the appropriate reporting periods. While this review has not been completed,
management, after consultation with the Corporation's independent auditors, has
determined that the Corporation's financial statements for fiscal year 1999 will
be restated. Until such time as the Corporation issues such restated financial
statements, the previously issued fiscal 1999 financial statements should not be
relied upon.
Since a portion of the special charges recorded in the second quarter will
be attributable to fiscal 1999, such adjustments will be made in fiscal 1999 and
eliminated in the second quarter of 2000. Accordingly, the Corporation's
financial statements for the second fiscal quarter of 2000 will also be
restated. As a result of the restatement of the second fiscal quarter of 2000,
the Corporation's financial statements for the nine month period ended
October 1, 2000 will also be restated. In addition, the net sales and pre-tax
income for the nine month period of 2000 reflect a reduction of $5.9 million for
a correction of second quarter 2000 net sales.
Upon completion of this review, and after consultation with its independent
auditors and the Audit Committee of the Board of Directors, the Corporation may
restate its financial statements for the first fiscal quarter of 2000 and fiscal
periods prior to 1999. If a portion of the charges recorded in a given quarter
of 2000 is later determined to be attributable to prior periods, adjustments
will be made in the relevant prior period and eliminated in the respective
quarter.
The independent auditors' Statements on Auditing Standards No. 71 review
procedures on the Corporation's interim financial statements for the first three
fiscal quarters of 2000 are incomplete, pending their consideration of the
matters discussed in the preceeding paragraphs.
FOURTH QUARTER 2000
The Corporation expects that fourth quarter and fiscal year 2000 financial
results will be significantly below the current analysts' estimates, excluding
the gain on the Electronics OEM sale and the special charges reported in the
second quarter. Since mid-year 2000, the Corporation has not commented on
earnings estimates put forth by the investment community.
SECOND QUARTER 2000 SPECIAL CHARGES
During the second quarter of 2000, the Corporation recorded pre-tax charges
totaling $223.9 million ($148.4 million after taxes) to continuing operations.
The principal adjustments to the Corporation's continuing operations for these
charges may be categorized as follows:
ACCOUNTS RECEIVABLE
The Corporation recorded charges of approximately $102.5 million in the
second quarter to provide for estimated uncollectable accounts receivable.
Substantially all of this charge is reflected as a reduction to net sales.
Approximately $69.5 million of this charge is for customer invoice disputes
related to pricing and shipment accuracy, product returns and other reasons.
Given the nature, number and age of these unresolved invoice disputes,
management believes that these items are largely uncollectable and, accordingly,
are included as part of the charge.
The other significant portion of the accounts receivable charge relates to
unpaid invoices. This charge is being taken in part because of the aging of
these outstanding invoices and also because of the confusion and disruption
caused by the Corporation's implementation of new financial, pricing and order
processing systems. After implementation of the new order processing computer
systems in late 1999, the Corporation experienced significant problems, which
have led to the Corporation's inability to execute an effective collections
process because of considerable uncertainty with customer billing. This
uncertainty led to many customer payment deductions and an increase in aged
receivables which greatly hinders the Corporation's ability to effectively
analyze the nature of aged invoices between doubtful
Page 18 of 26
<PAGE>
accounts and disputed billings. The Corporation has recorded the charge as a
direct reduction to accounts receivable and net sales under the belief that the
aging increase is primarily due to disputed billings.
INVENTORY
The Corporation recorded charges of approximately $60.6 million in the
second quarter to reduce inventory and increase cost of sales. Approximately
$21.7 million of this charge related to write-downs for specifically
identifiable slow-moving, excess and obsolete inventory, of which the primary
components related to the premise wire ($8.6 million) and trap and filter
($3.3 million) product lines, while $6.1 million related to the previous
disposition of the Broadband product line. In addition, the Corporation recorded
a $19.4 million charge representing an increase in reserves for slow-moving,
excess, and obsolete inventory based on management's evaluation of current
inventory aging and usage and its new strategy to reduce levels of slow-moving
inventory. Management believes that this new strategy will help the Corporation
better match production with its sales requirements. Additionally, a
$19.5 million charge was taken to reduce the carrying value of inventory to
agree with physical counts and the Corporation's perpetual records.
REVENUE RECOGNITION
The Corporation reversed $31.7 million of net sales that were previously
recognized as revenue and a net of $14.4 million of cost of sales, resulting in
a net pre-tax charge of $17.3 million. These sales related to special
promotional programs targeted at a select group of the Corporation's largest
volume accounts. Based on a review of the terms and conditions of the
promotions, management believes these transactions are more appropriately
characterized as consignment sales and are now being treated accordingly. Of the
$31.7 million of net sales reversed in the second quarter special charges,
$24 million of goods were returned in the third quarter with no impact on
results of operations because the Corporation had previously provided for these
amounts.
PROPERTY, PLANT AND EQUIPMENT
The Corporation recorded a charge of $23.9 million to reduce property, plant
and equipment. A charge of $19.6 million was taken primarily to reflect the
write-off, or increased depreciation on, assets previously classified as
construction in progress. This charge also includes approximately $1.7 million
for the premise wire and trap and filter product lines and $2.6 million mainly
representing the write-off of miscellaneous plant assets.
OTHER ADJUSTMENTS
The Corporation recorded other special charges during the second quarter
totaling approximately $19.6 million. The primary components of these
adjustments were as follows:
- An approximate $7.1 million charge related to freight costs which included
an under-estimation of the cost of freight during the period of the new
order entry system (TOPS) implementation.
- An approximate $4 million charge relating to the write-off of goodwill
with respect to the trap and filter and Patriot product lines.
- Other adjustments of $8.5 million, including approximately $7.1 million
related to the reconciliation of intercompany and other miscellaneous
accounts which arose, in part, because of problems associated with the
implementation of new financial and order entry computer systems and the
transfer of assets between plants.
Page 19 of 26
<PAGE>
THIRD QUARTER 1999 ONE-TIME ITEMS AND OTHER CHARGES AND CREDITS
During the third quarter of 1999, the Corporation recorded certain on-time
and other charges and credits. A substantial portion of the net charges related
to the third quarter of 1999, with the remaining balance relating to the first
quarter of 1999. Items that comprise the net charges are as follows:
<TABLE>
<CAPTION>
PRE-TAX AFTER TAX
------------------- -------------------
THIRD NINE THIRD NINE
QUARTER MONTHS QUARTER MONTHS
1999 1999 1999 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Tax refunds and reduction in taxes payable.................. $ -- $ -- $ 30.7 $ 30.7
Acquisition and divestiture income.......................... 8.6 8.6 5.0 5.0
Inventory adjustments....................................... (7.1) (9.5) (4.4) (5.9)
Other adjustments........................................... (48.1) (51.6) (32.0) (34.2)
------ ------ ------ ------
Total net charge............................................ $(46.6) $(52.5) $ (0.7) $ (4.4)
====== ====== ====== ======
Portion relating to Discontinued Operations................. $(20.7) $(23.7) $(13.9) $(15.9)
====== ====== ====== ======
Portion relating to Continuing Operations................... $(25.9) $(28.8) $ 13.2 $ 11.5
====== ====== ====== ======
</TABLE>
The net charges reflected a $30.7 million benefit from tax refunds and
changes in tax reserves resulting from favorable completion of several tax
audits during the period and a favorable worldwide reassessment of tax
exposures.
Acquisition and divestiture income reflected $12.5 million of income
associated with an acquisition termination fee, net of related costs, and costs
associated with another unconsummated acquisition.
Inventory adjustments reflect unfavorable adjustments resulting from
physical inventory counts taken during the period. The inventory adjustments
related to the Electronics EOM business.
Other adjustments included:
- Unfavorable adjustments of $23 million in the quarter and nine months for
receivables, sales and sales promotion issues.
- Unfavorable adjustments of $18.5 million in the quarter and $19.8 million
in the nine months for inventory and cost of sales issues.
- Reduction of restructuring and special charge reserves established in 1996
of $6.4 million in the quarter and $7.9 million in the nine months.
- The remaining balance relates to negative net adjustments to revise
various estimates and correct certain accounting errors.
RESULTS OF OPERATIONS
As stated above under "Recent Developments and Outlook for Fiscal
2000--Review of Processes, Controls and Systems," the Corporation's financial
statements for the nine month period ended October 1, 2000 will be restated as a
result of the restatement of the second fiscal quarter of 2000 financial
statements. The comparisons stated below may differ substantially from those
made after the restated financial statements are issued.
The OEM sale has been accounted for as a discontinued operation in
accordance with Accounting Principles Board Opinion No. 30. Accordingly, results
from continuing operations for the current and prior periods exclude the impact
of the Electronic OEM business. The net results for the current and prior
periods of the Electronic OEM business are reflected in earnings from, or gain
on, the sale of discontinued operations.
Page 20 of 26
<PAGE>
The Corporation's financial results for the quarter ended October 1, 2000
were substantially below those of the prior-year quarter, with a net loss of
$(19.2) million compared with a net income of $46.9 million in the same 1999
period. Diluted earnings per share (EPS) were $(0.33), compared with 1999's
diluted EPS of $0.81. Net loss for the first nine months of 2000 was $(20.1)
million compared to net earnings of $125.1 million in the same period of 1999.
Diluted EPS were $(0.35), for the nine months ended October 1, 2000, compared
with 1999's diluted EPS of $2.16.
NET SALES
Third-quarter net sales were $419.5 million, a decrease from 1999's
$460.2 million. This $40.7 million decrease was mainly attributable to the
reduced sales impact in 2000 of Communications product lines divested in 1999
and 2000. Sales in the third quarter of 2000 were also negatively impacted by a
decrease in the third quarter of 2000 of traditional Electrical quarter-end
promotional sales incentives that in the prior year resulted in significantly
larger sales volumes at discounted sales prices and excessive inventory in the
distribution channel as a result of prior promotional programs.
Through nine months, net sales were $1,167.8 million, a decrease from 1999's
$1,396.1 million. The deterioration versus 1999 is primarily attributable to the
special charges (See "Second Quarter 2000 Special Charges" above), the reduced
sales impact in 2000 of Communications product lines divested in 1999 and 2000
and declines in the on-going Electrical business during 2000.
GROSS PROFIT
The third-quarter consolidated gross margin was $96.6 million as compared to
$109 million in 1999. The prior gross margin was significantly influenced by the
third quarter 1999 adjustments discussed in "One-Time Items and Other Charges
and Credits." Due to certain excess inventories stemming from lower sales
volumes noted above and significant product returns during the quarter from
electrical distributor stocks, the third quarter 2000 gross margin reflects a
reduction in manufacturing volumes and the resulting negative impacts of
unabsorbed fixed costs. The Corporation also expects a reduction in
manufacturing volumes to continue in the fourth quarter of 2000, and could
extend into the first half of 2000, as management continues its efforts to
better balance inventory levels with market demands.
Through nine months, the consolidated gross profit was $121.6 million and
$400.4 million in 2000 and 1999, respectively. The deterioration versus 1999 is
primarily attributable to the second quarter charges as discussed above, as well
as negative impacts of unabsorbed fixed costs.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
Marketing, general and administrative ("MG&A") expenses increased
$18.6 million and $43.3 million for the quarter and nine months ended
October 1, 2000, compared to the same 1999 periods. Contributing to the third
quarter increase is approximately $6 million in executive severance cost and
increased spending levels in distribution, management information systems, and
sales, marketing and advertising. Marketing, general and administrative expense
continues to be high at both the corporate and business segment level, due in
part to overhead which remained following the sale of the Corporation's
Electronics OEM business in the second quarter. Management is developing plans
that, when fully implemented, will substantially reduce future costs at the
corporate and business unit level, thereby making the Corporation's expense
profile competitive with that of its peers in the electrical components
industry.
EARNINGS FROM OPERATIONS
The quarter and nine-month 2000 loss from operations was $(21.7) million and
$(219.6) million. Excluding the impact of the second quarter 2000 special
charges, the nine-month 2000 operating profit
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was $4.3 million versus 1999's $105.5 million. The deterioration in the nine
months is due to the lower gross profit and higher marketing, general and
administrative expenses as described above. (See "Marketing, General and
Administrative Expenses" above.)
INTEREST EXPENSE--NET
Interest expense during the third quarter of 2000 did not change
significantly from the prior year third quarter (which excludes $4.1 million of
interest expense allocated to discontinued operations). Year-to-date interest
expense increased $7.8 million, primarily as a result of increased borrowings
during the first half of the year which were retired during the third quarter.
DISCONTINUED OPERATIONS
The OEM sale in the second quarter of 2000 resulted in a pre-tax gain of
$231.1 million which, reduced by $97.0 million of income taxes, produced a gain
on sale of discontinued operations of $134.1 million. The gain includes
$14.7 million of losses, net of $3.3 million of tax benefit, resulting from the
operations of the Electronics OEM business from April 3, 2000, to the closing
date. Excluding the impact of the $14.7 million of losses, the pre-tax gain
would have been $249.1 million. The $14.7 million of losses were impacted by
$31.3 million of pre-tax special charges. The nature of these charges are
similar to the special charges recorded in continuing operations during the
second fiscal quarter and were taken to provide for uncollectable accounts
receivable, to increase reserves for excess obsolete inventory, to write-down
investments in unconsolidated companies, to reconcile intercompany and other
miscellaneous accounts and to write-down property, plant and equipment.
INCOME TAXES
The effective tax rate on the loss from continuing operations for 2000's
third quarter was (30.0)%. The effective tax rate on gain on sale of
discontinued operations for 2000's second quarter was 42.0%. The effective
income tax rate for the prior year was significantly influenced by the third
quarter 1999 adjustments discussed in "One-Time Items and Other Charges and
Credits."
SEGMENT RESULTS
ELECTRICAL
Sales in the Electrical segment decreased $16.1 million to $319.9 million
for the quarter, and $164.7 million to $868.5 million for the nine months ended
October 1, 2000, respectively, compared to 1999 levels. Sales for the third
quarter of 2000 reflect a decrease in traditional Electrical quarter-end
promotional sales incentives that in the prior year resulted in significantly
larger sales volumes at discounted prices. Sales for the nine months ended were
also negatively impacted by the special charges recorded in the second quarter
of 2000, impacting Electrical sales by $130.2 million.
Segment earnings decreased $52.0 million to $(17.0) million for the quarter
and decreased $304.4 million to $(177.5) million for the nine months ended
October 1, 2000, compared to 1999 levels. Earnings for the nine months ended
October 1, 2000, were negatively impacted by the special charges recorded in the
second quarter, which impacted segment earnings by $179.7 million. Due to
certain excess inventories stemming from lower sales volumes noted above and
significant product returns during the quarter from electrical distributor
stocks, the third quarter gross margin reflects a reduction in manufacturing
volumes and the resulting negative impacts of unabsorbed fixed costs. The
Corporation also expects a reduction in manufacturing volumes to continue in the
fourth quarter of 2000.
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COMMUNICATIONS
Sales in the Communications segment decreased $29.4 million to
$45.5 million for the quarter and decreased $70.4 million to $132.6 million for
the nine months ended October 1, 2000, respectively, compared to the 1999
periods. Sales for the nine months ended were negatively impacted by the special
charges recorded in the second quarter, which impacted sales by $11.3 million.
The remaining reduction for both periods is primarily due to the reduced sales
impact in 2000 of product lines divested in 1999 and 2000.
Segment losses improved $4.1 million to $(6.1) million for the quarter,
including a $4 million write-down of a receivable, and increased $30.1 million
to $(43.4) million for the nine months ended October 1, 2000, respectively.
Segment loss for the nine months ended was negatively impacted by the special
charges recorded in the second quarter of 2000, which reduced earnings by
$39.3 million. The remaining year-to-date shortfall is attributable to the
increased manufacturing costs associated with moving certain product lines to
Mexico during the second quarter.
OTHER
Other sales were up $4.8 million to $54.1 million and up $6.9 million to
$166.8 million for the third quarter and the nine-month periods, respectively,
compared to the 1999 periods. The special charge recorded in the second quarter
negatively impacted sales by $0.4 million. The remaining year-to-date
improvement was due to strong performance in both the steel structures and
mechanical products divisions.
Other earnings were up $2.2 million and $1.4 million for the third quarter
and nine months, respectively, to $2.9 million and $13.1 million. The special
charge recorded in the second quarter negatively impacted earnings by
$4.9 million for the nine months.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of $298.3 million through the first nine
months of 2000. Net receivables increased $82.8 million through nine months in
2000. The increase in receivables is primarily attributable to the re-purchase
of $150 million of receivables previously sold under the Corporation's asset
securitization program during 2000.
The Corporation's inventory levels as of October 1, 2000, were
$34.4 million lower than year-end levels due primarily to increases in excess
and obsolete inventory reserves during the second quarter offset by higher
quantities on hand.
Capital expenditures for the first nine months of 2000 totaled $58.1
million, which approximated the 1999 amount. Management expects capital
expenditures in the fourth quarter of 2000 to be approximately the same or lower
than previous quarters of 2000. The Corporation received $11.5 million of
proceeds in the first quarter of 2000 from the sale of certain product lines.
Dividends paid during the nine months of 2000 totaled $48.6 million for
dividends declared in 1999's fourth quarter and 2000's first two quarters.
The OEM sale at the end of the second quarter produced proceeds of
$686 million in the third quarter. These proceeds were used to pay down domestic
debt of approximately $440 million and international debt of approximately
$80 million during the third quarter, including the 7.15% senior debentures due
2008 issued by one of the Corporation's Canadian subsidiaries. The remainder of
the proceeds was used for short-term investments, operations and dividends.
As of October 1, 2000, marketable securities and cash and equivalents
increased $87.5 million through the first nine months of 2000, primarily due to
investing a portion of the proceeds from the OEM sale.
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The Corporation has three committed credit agreements with domestic and
foreign banks. During the third quarter, the Corporation reduced the aggregate
commitment of those agreements from $615 million to $420 million and amended
certain covenant provisions, fees and rates contained in the three credit
agreements. Two of the credit agreements support the Corporation's commercial
paper program. The Corporation's short-term debt rating is currently on credit
watch with negative implications. If the Corporation's short-term debt rating is
lowered, the Corporation's $400 million commercial paper program would no longer
be available. As of October 1, 2000, the Corporation has no commercial paper
outstanding and $5 million outstanding under the credit agreements. The
Corporation terminated its asset securitization program during the third
quarter.
As a result of the events described herein, the Corporation may not be able
to access the public capital markets on acceptable terms or rates or in a timely
manner. For the reasons discussed above, management expects future borrowings
will be at higher rates and on more stringent terms. Management believes that
external financial resources, cash generated from operations and the cash
proceeds from the OEM sale will be sufficient to meet the Corporation's
operating needs for the remainder of fiscal 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities." Statement
No. 133 requires 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 the Corporation enters into derivative instruments
to hedge risks associated with commodity fluctuations. Statement No. 133, as
amended, is effective for the first quarter of 2001. Management does not believe
that adoption will have a material effect on the Corporation's future results of
operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance for revenue recognition under certain
circumstances. The accounting and disclosures prescribed by SAB 101 will be
effective for the fourth quarter of fiscal year 2000. The Corporation is
currently evaluating the impact that the application of SAB 101, as well as
certain related Emerging Issues Task Force topics, will have on its financial
position or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended October 1, 2000, the Corporation did not experience any
material changes in market risk disclosure that affect the quantitative and
qualitative disclosures presented in its Form 10-K for the period ended
January 2, 2000.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information regarding pending litigation set forth in footnote 8,
"Contingencies" of the financial statements included in Part I of this report is
incorporated by reference into Part II of this report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
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<CAPTION>
<S> <C>
(10.1) Amendment No. 2, dated as of September 25, 2000, to
Five-Year Credit Agreement dated July 1, 1999 among the
Registrant, the Banks listed on the signature pages thereof,
and Morgan Guaranty Trust Company of New York, as Agent.
(10.2) Second Amended and Restated 364-Day Credit Agreement dated
September 25, 2000 among Registrant, the Banks listed on the
signature pages thereof, and Wachovia Bank, N.A., as Agent.
(10.3) Amendment No. 1 to Rights Agreement dated September 6, 2000
between the Registrant and the Rights Agent.
(10.4) Severance Letter Agreement dated September 18, 2000.
(27.1) Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K
On July 17, 2000, the Corporation filed a Current Report on Form 8-K, Item
2, announcing the completion of the sale of its global Electronics OEM
business to Tyco Group S.A.R.L.
On August 9, 2000, the Corporation filed a Current Report on Form 8-K, Items
5 and 7, announcing the resignation of its chairman and chief executive
officer and the appointment of its new chairman and chief executive officer.
On August 22, 2000, the Corporation filed as Current Report on Form 8-K,
Items 5 and 7, announcing the financial results for the quarter ended
July 2, 2000 and the restatement of certain previously issued financial
statements.
On September 11, 2000, the Corporation filed a Current Report on Form 8-K,
Items 5 and 7, disclosing that a shareholder class-action suit had been
filed against the Corporation, Clyde R. Moore, Fred R. Jones, T. Kevin
Dunnigan and John P. Murphy, and reporting that the Registrant's Board of
Directors extended the term of the Registrant's Shareholder Rights Plan to
December 15, 2003.
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THOMAS & BETTS CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
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<S> <C>
THOMAS & BETTS CORPORATION
(Registrant)
DATE: November 15, 2000 /s/ JOHN P. MURPHY
-------------------------------------------
John P. Murphy
Senior Vice President--Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER)
</TABLE>
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