<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 JULY 2, 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 (IRS Employer Identification No.)
Incorporation or Organization)
8155 T&B BOULEVARD 38125
MEMPHIS, TENNESSEE (Zip Code)
(Address of principal executive offices)
</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 AUGUST 18, 2000
(Title of each Class) 57,967,233
</TABLE>
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<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PAGE
Cautionary Statement Regarding Forward-Looking Statements............. 3-4
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets as of July 2, 2000 and
January 2, 2000........................................... 5
Condensed Consolidated Statements of Operations for the
Quarter and Six Months Ended July 2, 2000 and July 4,
1999...................................................... 6
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended July 2, 2000 and July 4, 1999................ 7
Notes to Condensed Consolidated Financial Statements........ 8-14
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition........................ 15-21
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 21
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 22
ITEM 4. Submission of Matters to a Vote of Security Holders......... 22
ITEM 6. Exhibits and Reports on Form 8-K............................ 22-23
</TABLE>
NOTE:
Thomas & Betts Corporation (the "Corporation" and the "Registrant") has
recorded certain special charges as of July 2, 2000. These charges have been
based upon the best information available to management at the time of this
report and involve extensive use of estimates and assumptions. Management is
reviewing 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. Since a portion of
the special charges currently 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 current quarter. Accordingly, the Corporation's financial
statements for the second fiscal quarter of 2000 will also 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.
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 special charges currently recorded in
the quarter ended July 2, 2000 is later determined to be attributable to such
prior periods, adjustments will be made in the relevant prior period and
eliminated in the current 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.
Page 2 of 24
<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;
- 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;
- Increased downward pressure on the selling prices for the Corporation's
products;
Page 3 of 24
<PAGE>
- 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;
- 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 24
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 2, JANUARY 2,
2000 2000
---------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 32,027 $ 70,354
Marketable securities..................................... 12,637 14,217
Receivables, net.......................................... 402,900 289,092
Receivable -- OEM sale.................................... 736,113 --
Inventories, net:
Finished goods.......................................... 206,056 210,200
Work-in-process......................................... 58,717 62,816
Raw materials........................................... 92,292 102,706
---------- ----------
357,065 375,722
Deferred income taxes..................................... 107,995 44,410
Prepaid expenses.......................................... 17,578 14,802
Net assets of discontinued operations..................... -- 494,406
---------- ----------
Total Current Assets........................................ 1,666,315 1,303,003
Property, plant and equipment............................... 896,335 881,477
Less accumulated depreciation............................. 413,746 382,436
---------- ----------
Property, plant and equipment, net...................... 482,589 499,041
Intangible assets, net...................................... 560,957 577,301
Investments in unconsolidated companies..................... 117,665 113,302
Other assets................................................ 40,965 38,061
---------- ----------
TOTAL ASSETS................................................ $2,868,491 $2,530,708
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable............................................. $ 54,188 $ 31,921
Current maturities of long-term debt...................... 1,890 2,515
Accounts payable.......................................... 211,837 209,983
Accrued liabilities....................................... 198,314 143,123
Income taxes.............................................. 65,301 1,917
Dividends payable......................................... 16,225 16,190
---------- ----------
Total Current Liabilities................................... 547,755 405,649
Long-term debt.............................................. 1,144,620 921,592
Other long-term liabilities................................. 90,858 88,785
Deferred income taxes....................................... 27,533 20,550
Shareholders' Equity:
Common stock.............................................. 5,797 5,782
Additional paid-in capital................................ 336,636 332,480
Retained earnings......................................... 766,047 795,208
Unearned compensation -- restricted stock................. (4,574) (3,439)
Accumulated other comprehensive income.................... (46,181) (35,899)
---------- ----------
Total Shareholders' Equity.................................. 1,057,725 1,094,132
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $2,868,491 $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 24
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------------- -------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales........................................... $291,429 $483,093 $754,301 $935,863
Costs and Expenses:
Cost of sales..................................... 404,692 332,881 723,358 644,432
Marketing, general and administrative............. 112,631 86,705 201,945 177,252
Research and development.......................... 6,337 7,126 12,520 14,272
Amortization of intangibles....................... 4,442 4,395 8,895 8,649
Provision (recovery) -- restructured operations... -- 10 (449) (391)
-------- -------- -------- --------
528,102 431,117 946,269 844,214
-------- -------- -------- --------
Earnings (loss) from operations..................... (236,673) 51,976 (191,968) 91,649
Income from unconsolidated companies................ 2,384 4,406 7,805 10,021
Interest expense -- net............................. 15,641 11,786 28,336 20,640
Other expense -- net................................ 1,586 1,380 5,458 3,308
-------- -------- -------- --------
Earnings (loss) from continuing operations before
income taxes...................................... (251,516) 43,216 (217,957) 77,722
Income tax (benefit) provision...................... (84,818) 8,340 (77,546) 16,324
-------- -------- -------- --------
Earnings (loss) from continuing operations.......... (166,698) 34,876 (140,411) 61,398
Earnings from discontinued operations, net.......... -- 8,830 9,577 16,801
Gain on sale of discontinued operations, net........ 134,089 -- 134,089 --
-------- -------- -------- --------
Net earnings (loss)................................. $(32,609) $ 43,706 $ 3,255 $ 78,199
======== ======== ======== ========
Basic earnings per share:
Earnings (loss) from continuing operations........ $ (2.87) $ 0.61 $ (2.42) $ 1.07
Earnings from discontinued operations............. -- 0.15 0.17 0.29
Gain on sale of discontinued operations........... 2.31 -- 2.31 --
-------- -------- -------- --------
Net earnings (loss)............................... $ (0.56) $ 0.76 $ 0.06 $ 1.36
======== ======== ======== ========
Diluted earnings per share:
Earnings (loss) from continuing operations........ $ (2.87) $ 0.60 $ (2.42) $ 1.06
Earnings from discontinued operations............. -- 0.15 0.17 0.29
Gain on sale of discontinued operations........... 2.31 -- 2.31 --
-------- -------- -------- --------
Net earnings (loss)............................... $ (0.56) $ 0.75 $ 0.06 $ 1.35
======== ======== ======== ========
Average shares outstanding:
Basic............................................. 57,962 57,657 57,917 57,617
======== ======== ======== ========
Diluted........................................... 57,962 57,893 57,917 57,830
======== ======== ======== ========
Cash dividends declared per share................... $ 0.28 $ 0.28 $ 0.56 $ 0.56
======== ======== ======== ========
</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 24
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JULY 2, JULY 4,
2000 1999
--------- --------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net earnings................................................ $ 3,255 $ 78,199
Gain on sale of discontinued operations..................... (134,089) --
Income from discontinued operations......................... (9,577) (16,801)
--------- --------
Earnings from continuing operations......................... (140,411) 61,398
Adjustments:
Depreciation and amortization............................. 60,206 39,076
Inventory reserve provisions.............................. 54,238 10,413
Provision (recovery) -- restructured operations........... (449) (391)
Undistributed earnings from unconsolidated companies...... (4,363) (7,979)
Deferred income taxes..................................... (56,057) 15,794
Changes in operating assets and liabilities, net:
Receivables, net of sale................................ (123,467) (70,673)
Inventories............................................. (49,338) (10,051)
Accounts payable........................................ 4,601 (5,509)
Accrued liabilities..................................... 9,449 16,467
Income taxes payable.................................... (40,831) (24,655)
Other................................................... 5,009 (38,007)
--------- --------
Net cash provided by (used in) operating activities......... (281,413) (14,117)
--------- --------
NET CASH FLOWS FROM DISCONTINUED OPERATIONS................. 53,226 43,667
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and investments in businesses.................. -- (13,080)
Purchases of property, plant and equipment.................. (44,040) (48,244)
Proceeds from sale of property, plant and equipment......... -- 5,099
Proceeds from the divestitures of businesses................ 11,475 --
Proceeds from matured marketable securities................. 1,197 23,466
--------- --------
Net cash used in investing activities....................... (31,368) (32,759)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in borrowings with original maturities
less than 90 days......................................... 26,454 (9,316)
Increase in commercial paper and other borrowings........... 222,849 47,401
Stock options exercised..................................... 4,171 4,740
Cash dividends paid......................................... (32,416) (31,808)
--------- --------
Net cash provided by financing activities................... 221,058 11,017
--------- --------
EFFECT OF EXCHANGE-RATE CHANGES ON CASH..................... 170 338
--------- --------
Net increase (decrease) in cash and cash equivalents........ (38,327) 8,146
Cash and cash equivalents at beginning of period............ 70,354 63,975
--------- --------
Cash and cash equivalents at end of period.................. $ 32,027 $ 72,121
========= ========
</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 24
<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 in the second fiscal quarter
of 2000 described in Note 6) necessary for the fair presentation of the
Corporation's financial position as of July 2, 2000. Certain reclassifications
have been made to these condensed consolidated financial statements for the
quarter and six months ended July 4, 1999, and the balance sheet as of
January 2, 2000, to conform to the fiscal 2000 presentation and are primarily
related to the Electronic 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 July 2, 2000 and July 4, 1999 are not necessarily
indicative of the operating results for the full year.
The Corporation has recorded certain special charges as of July 2, 2000.
These charges have been based upon the best information available to management
at the time of this report and involve extensive use of estimates and
assumptions. Management is reviewing 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.
Since a portion of the special charges currently 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 current quarter. Accordingly, the
Corporation's financial statements for the second fiscal quarter of 2000 will
also 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.
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 special charges currently recorded in
the quarter ended July 2, 2000 is later determined to be attributable to such
prior periods, adjustments will be made in the relevant prior period and
eliminated in the current 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
will be adjusted or additional special charges may be taken in future periods.
2. DISCONTINUED OPERATIONS
On July 2, 2000, the Corporation completed the sale of substantially all of
its global Electronic Original Equipment Manufacturers (Electronic OEM) business
to Tyco Group S.A.R.L. (previously announced on May 7, 2000) 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. The remainder of the purchase price is in escrow and will be
received upon completion of events as
Page 8 of 24
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
2. DISCONTINUED OPERATIONS (CONTINUED)
described in the purchase agreement. The results of the Electronic 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
$97.0 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 Electronic 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 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 ENDED
------------- -------------------
JULY 4, JULY 2, JULY 4,
1999 2000 1999
(IN THOUSANDS) ------------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $168,786 $195,504 $327,586
======== ======== ========
Earnings before income taxes............................... 15,216 16,954 28,590
Income tax expense......................................... 6,386 7,377 11,789
-------- -------- --------
Earnings from discontinued operations...................... $ 8,830 $ 9,577 $ 16,801
======== ======== ========
</TABLE>
Interest expense of $4.6 million, included in the gain on sale of
discontinued operations, and $4.3 million, included in earnings from
discontinued operations, for the quarter and six months ended July 2, 2000,
respectively, and $3.9 million and $7.8 million, respectively, for the quarter
and six months ended July 4, 1999, 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 (loss) by
the weighted-average number of shares of common stock outstanding during the
period. Diluted EPS for each period are computed by dividing net earnings by the
sum of (1) the weighted-average number of shares outstanding during the period
and (2) the dilutive effect of the assumed exercise of stock options using the
treasury stock method.
Page 9 of 24
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
3. EARNINGS PER SHARE ("EPS") (CONTINUED)
The exercise of stock options was not assumed for the quarter and the six
month period ended July 2, 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 SIX MONTHS ENDED
-------------------- --------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
(IN THOUSANDS EXCEPT PER SHARE DATA) --------- -------- --------- --------
<S> <C> <C> <C> <C>
NET EARNINGS:
Earnings (loss) from continuing operations........... $(166,698) $34,876 $(140,411) $61,398
Earnings from discontinued operations................ -- 8,830 9,577 16,801
Gain on sale of discontinued operations.............. 134,089 -- 134,089 --
--------- ------- --------- -------
Net earnings (loss).................................. $ (32,609) $43,706 $ 3,255 $78,199
========= ======= ========= =======
EARNINGS PER COMMON SHARE:
Weighted Average Shares:
Basic average shares outstanding..................... 57,962 57,657 57,917 57,617
Plus assumed exercise of stock options............... -- 236 -- 213
--------- ------- --------- -------
Diluted average shares outstanding................... 57,962 57,893 57,917 57,830
========= ======= ========= =======
Basic earnings per share:
Earnings (loss) from continuing operations......... $ (2.87) $ 0.61 $ (2.42) $ 1.07
Earnings from discontinued operations.............. -- 0.15 0.17 0.29
Gain on sale of discontinued operations............ 2.31 -- 2.31 --
--------- ------- --------- -------
Net earnings (loss).................................. $ (0.56) $ 0.76 $ 0.06 $ 1.36
========= ======= ========= =======
Diluted earnings per share:
Earnings (loss) from continuing operations......... $ (2.87) $ 0.60 $ (2.42) $ 1.06
Earnings from discontinued operations.............. -- 0.15 0.17 0.29
Gain on sale of discontinued operations............ 2.31 -- 2.31 --
--------- ------- --------- -------
Net earnings (loss).................................. $ (0.56) $ 0.75 $ 0.06 $ 1.35
========= ======= ========= =======
</TABLE>
4. COMPREHENSIVE INCOME
Total comprehensive income and its components are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
-------------------- --------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
(IN THOUSANDS) --------- -------- --------- --------
<S> <C> <C> <C> <C>
Net earnings (loss)................................. $ (32,609) $43,706 $ 3,255 $ 78,199
Foreign currency translation adjustments............ (2,893) (3,725) (10,034) (17,409)
Minimum pension liability adjustment................ -- -- -- (551)
Unrealized holding gains (losses) on securities..... (127) 5 (248) (7)
--------- ------- --------- --------
Comprehensive income (loss)......................... $ (35,629) $39,986 $ (7,027) $ 60,232
========= ======= ========= ========
</TABLE>
Page 10 of 24
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
5. 1998 RESTRUCTURING
During the third quarter of 1998, the Corporation recorded a pretax
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 July 2,
2000, the Corporation had realized a net reduction of approximately 308 jobs.
The remaining reserve of $5.4 million at January 2, 2000 was reduced to $4.7
million by July 2, 2000. Components of the remaining restructure reserves at
July 2, 2000 are comprised of $3.3 million for severance and employee-related
costs, $0.6 million for write-offs of property, plant and equipment and
$0.8 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
The Corporation recorded pre-tax charges totaling $223.9 million to
continuing operations in the second quarter of 2000. The principal adjustments
to the Corporation's continuing operations for the second quarter of 2000 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 related to customer invoice disputes
with respect 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 completion of the implementation of the new order
processing computer systems in late 1999, the Corporation experienced
significant disruptions, which have led to the Corporation's inability to
execute an effective collections process because of considerable uncertainty
with customer billing. The latter 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 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
Page 11 of 24
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
6. SPECIAL CHARGES (CONTINUED)
related to the broadband product line. In addition, the Corporation recorded a
$19.4 million charge representing an increase in reserves for 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 sales requirements. Additionally, a $19.5 million charge
was taken to reduce the carrying value of inventory to agree to 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.
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 of, 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 quarter totaling
approximately $19.6 million. The primary components of these adjustments were as
follows:
- An approximately $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 approximately $4.0 million charge relating to the write-off of goodwill
related 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. 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
Page 12 of 24
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
7. SEGMENT AND OTHER RELATED DISCLOSURES (CONTINUED)
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 SIX MONTHS ENDED
-------------------- --------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
(IN THOUSANDS) --------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Sales:
Electrical....................................... $ 196,354 $364,599 $ 554,530 $697,165
Communications................................... 39,304 67,234 87,101 128,117
Other............................................ 55,771 51,260 112,670 110,581
--------- -------- --------- --------
Total.......................................... $ 291,429 $483,093 $ 754,301 $935,863
========= ======== ========= ========
Segment Earnings (Loss):
Electrical....................................... $(192,766) $ 51,385 $(154,637) $ 92,141
Communications................................... (41,301) (484) (37,266) (3,138)
Other............................................ 3,062 5,369 10,242 11,009
--------- -------- --------- --------
Total.......................................... $(231,005) $ 56,270 $(181,661) $100,012
========= ======== ========= ========
</TABLE>
The following are reconciliations of the total of reportable segments to
continuing operations:
RECONCILIATION TO CONTINUING OPERATIONS
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
-------------------- --------------------
JULY 2, JULY 4, JULY 2, JULY 4,
2000 1999 2000 1999
(IN THOUSANDS) --------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Sales:
Total reportable segments........................ $ 235,658 $431,833 $ 641,631 $825,282
Other............................................ 55,771 51,260 112,670 110,581
--------- -------- --------- --------
Total.......................................... $ 291,429 $483,093 $ 754,301 $935,863
========= ======== ========= ========
Earnings Before Income Taxes:
Total reportable segment earnings (loss)......... $(234,067) $ 50,901 $(191,903) $ 89,003
Earnings on Other sales.......................... 3,062 5,369 10,242 11,009
Restructure charges.............................. -- -- 449 --
Interest expense -- net.......................... (15,641) (11,786) (28,336) (20,640)
Other............................................ (4,870) (1,268) (8,409) (1,650)
--------- -------- --------- --------
Total.......................................... $(251,516) $ 43,216 $(217,957) $ 77,722
========= ======== ========= ========
</TABLE>
Page 13 of 24
<PAGE>
THOMAS & BETTS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (CONTINUED)
8. 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. The
Corporation 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 and Mr. Jones
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.
Page 14 of 24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RECENT DEVELOPMENTS AND OUTLOOK FOR FISCAL 2000
SALE OF ELECTRONIC OEM BUSINESS
On May 7, 2000, the Corporation signed an agreement to sell substantially
all of its global Electronic OEM business to Tyco Group S.A.R.L. (the "OEM
Sale"). This sale was completed on July 2, 2000, for a purchase price of
$750 million in cash less assumed debt of approximately $13.9 million, subject
to adjustment. The OEM Sale was structured as nineteen separate transactions in
nineteen countries (fourteen stock sales and five asset sales). The Electronic
OEM segment encompasses connectors and components that transmit, store and
manage electronic signals in computers, automobiles, and such electronic devices
as cellular telephones. Customers include computer and cellular handset
manufacturers, automotive and industrial OEMs, and tier-one automotive
suppliers.
NEW MANAGEMENT TEAM
The Corporation has recently undergone significant organizational changes.
On August 9, 2000, the Corporation announced that Clyde R. Moore had resigned as
Chairman and Chief Executive Officer and T. Kevin Dunnigan had been elected
Chairman and Chief Executive Officer by the Board of Directors. Mr. Dunnigan had
previously served as the Corporation's Chairman from 1992 to May 2000 and its
Chief Executive Officer from 1985 to 1997. On July 5, 2000, John R. Mayo became
President and Chief Operating Officer of the Corporation. Mr. Mayo's appointment
followed the recent appointments of John P. Murphy as Chief Financial Officer
and Kenneth W. Fluke as Controller.
REVIEW OF PROCESSES, CONTROLS AND SYSTEMS
The Corporation's recently appointed chief financial officer has been
leading a review of processes, controls and systems in order to assure their
adequacy or, when appropriate, to implement improvements. An equally important
objective of the review is to improve performance in a number of areas,
especially accounts receivable and inventory management. Management has
identified a number of areas where improvements are required. The Corporation
has made progress during the second quarter in addressing accounts receivable
and inventory, but improvements in these areas will require time to implement
and refine, and other areas will undergo review throughout the year. Until the
review is completed and the required improvements 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 has recorded certain special
charges, as described in detail below, during the second quarter of 2000. These
charges have been based upon the best information available to management at the
time of this report and involve extensive use of estimates and assumptions.
Management is reviewing 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. Since a portion of
the special charges currently 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 current quarter. Accordingly, the Corporation's financial
statements for the second fiscal quarter of 2000 will also 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.
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
Page 15 of 24
<PAGE>
fiscal quarter of 2000 and fiscal periods prior to 1999. If a portion of the
special charges currently recorded in the quarter ended July 2, 2000 is later
determined to be attributable to such prior periods, adjustments will be made in
the relevant prior period and eliminated in the current quarter.
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 will be
adjusted or additional special charges may be taken in future periods.
STRATEGIC REVIEW
In addition to conducting the review described above, management is
assessing strategies and practices across all segments and functions.
Specifically, management is:
- Focusing on supporting the Corporation's strong market and product
leadership positions by establishing greater discipline and tighter
controls and emphasizing fundamental, sound practices across all its
businesses.
- Redirecting the Corporation's business-to-business e-commerce strategy to
focus on developing technology solutions that directly support the
e-commerce efforts of distributors and end-user customers and reduce the
overall cost of the supply chain.
THIRD QUARTER AND FISCAL YEAR 2000
The Corporation expects that third quarter and fiscal year 2000 financial
results will be significantly below the current analysts' estimates, excluding
the gain on the OEM Sale and the special charges reported in second quarter 2000
results.
SPECIAL CHARGES -- CONTINUING OPERATIONS
The Corporation recorded pretax charges totaling $223.9 million
($148.4 million after tax) to continuing operations in the second quarter of
2000. The principal adjustments to the Corporation's continuing operations for
the second quarter of 2000 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 related to customer invoice disputes
with respect 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 completion of the implementation of the new order
processing computer systems in late 1999, the Corporation experienced
significant disruptions, which have led to the Corporation's inability to
execute an effective collections process because of considerable uncertainty
with customer billing. The latter 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.
Page 16 of 24
<PAGE>
The Corporation is implementing a new strategy to address the collections
backlog caused by the disputed billings and a significant number of internal
processes are being changed to substantially reduce the volume of billing
disputes. Management's goal is to improve this area over the course of the next
five to six months.
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 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 broadband product line. In
addition, the Corporation recorded a $19.4 million charge representing an
increase in reserves for 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 sales requirements.
Additionally, a $19.5 million charge was taken to reduce the carrying value of
inventory to agree to physical counts and the Corporation's perpetual records.
The Corporation has formed a team comprised of internal staff and outside
experts to examine and enhance the policies and procedures related to inventory
management. Management believes solid progress is being made in this regard.
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.
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 of, 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 quarter totaling
approximately $19.6 million. The primary components of these adjustments were as
follows:
- An approximately $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 approximately $4.0 million charge relating to the write-off of goodwill
related 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 17 of 24
<PAGE>
RESULTS OF OPERATIONS
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 global Electronic OEM business. The net results for the current and prior
periods of the global Electronic OEM business are reflected in earnings from or
gain on the sale of discontinued operations.
The Corporation's financial results for the quarter ended July 2, 2000 were
substantially below those of the prior-year quarter, with a net loss of $(32.6)
million compared with a net income of $43.7 million in the same 1999 period.
Diluted earnings (loss) per share (EPS) was $(0.56), compared with 1999's
diluted EPS of $0.75. Results included a gain of $134.1 million on the OEM sale
and special pre-tax charges from continuing operations totaling $223.9 million.
Net earnings for the first half of 2000 were $3.3 million, a deterioration of
$74.9 million from the same period of 1999. Diluted EPS were $0.06, for the six
months ended July 2, 2000, compared with 1999's diluted EPS of $1.35.
NET SALES
Second-quarter net sales were $291.4 million, a decrease from 1999's $483.1
million. This $191.7 million decrease was mainly attributable to the special
charges recorded in the second quarter of 2000, which impacted sales by $141.9
million (See "SPECIAL CHARGES--CONTINUING OPERATIONS" above). The remaining
deterioration was primarily due to the impact of approximately $17.0 million of
previously divested product lines that were included in the 1999 period and
additional credits issued as the Corporation began to resolve the backlog of
outstanding customer invoice disputes. To a lesser extent, sales in the second
quarter were also negatively impacted by excessive inventory in the Electrical
distribution channel as a result of prior promotional programs.
Through six months, net sales were $754.3 million, a decrease from 1999's
$935.9 million. The deterioration versus 1999 is primarily attributable to the
second quarter charges described above.
GROSS PROFIT
The second quarter consolidated gross profit was $(113.3) million as
compared to $150.2 million in 1999. This $263.5 million deterioration is
primarily due to the special charge impact of $223.9 million from the items
described in "SPECIAL CHARGES--CONTINUING OPERATIONS" above. The remaining
deterioration is due to the additional credits as discussed above under "Net
Sales", poor pricing performance and, to a lesser extent, a weaker manufacturing
performance as the Corporation begins to better balance its inventory
requirements against sales requirements.
Through six months, the consolidated gross profit was $30.9 million and
$291.4 million in 2000 and 1999, respectively. The deterioration versus 1999 is
primarily attributable to the second quarter charges as discussed above.
MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES
Marketing, general and administrative expenses increased $25.9 million and
$24.7 million for the quarter and six months ended July 2, 2000, compared to the
same 1999 periods. Excluding the impact of the special charges, marketing,
general and administrative expenses would have been $111.8 million and
$201.1 million for the quarter and six months ended July 2, 2000, compared to
$86.7 million and $177.3 million for the same 1999 periods. The increase over
prior year periods is mainly due to increased spending levels in the sales and
marketing, advertising, distribution and management information systems
departments in the second quarter of 2000 as compared to last year. The increase
was also the result of recognizing severance agreements, primarily for
executives, during the second quarter of 2000.
Page 18 of 24
<PAGE>
EARNINGS (LOSS) FROM OPERATIONS
The quarter and six-month 2000 operating profit was $(236.7) million and
$(192.0) million. Excluding the impact of the special charges, the quarter and
six-month 2000 operating profit was (14.1) million and $30.6 million versus
1999's $52.0 million and $91.6 million. The deterioration in both the quarter
and six 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
Year-over-year interest expense increased to $15.6 million from
$11.8 million for the second quarter and to $28.3 million from $20.6 million for
the six months, primarily as a result of increased borrowings.
DISCONTINUED OPERATIONS
The OEM Sale 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 Electronic 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 earnings from continuing operations for 2000's
second quarter was (33.7)%. The effective tax rate on gain on sale of
discontinued operations for 2000's second quarter was 42.0%.
SEGMENT RESULTS
ELECTRICAL
Sales in the Electrical segment decreased $168.2 million to $196.4 million
for the quarter and $142.6 million to $554.5 million for the six months ended
July 2, 2000, respectively, compared to 1999 levels. Both periods were
negatively impacted by the special charges recorded in the second quarter of
2000, impacting Electrical sales by $130.2 million. The remaining deterioration
was primarily due to the impact of previously divested product lines that were
included in the 1999 period and additional credits issued as the Corporation
began to resolve the backlog of outstanding customer invoice disputes. To a
lesser extent sales in both periods were also negatively impacted by excessive
inventory in the distribution channel as a result of prior promotional programs.
Segment earnings decreased $244.2 million to $(192.8) million for the
quarter and $246.8 million to $154.6 million for the six months ended July 2,
2000, compared to 1999 levels. Both periods were negatively impacted by the
special charges recorded in the second quarter, which impacted segment earnings
by $179.7 million. The remaining deterioration in both periods is due to
additional credits, as described above, freight and warehousing costs increased
due to continued inefficiencies caused by the new order entry system and weaker
manufacturing performance due to excessive inventory in the
Page 19 of 24
<PAGE>
distribution channel as a result of prior promotional programs. Higher
marketing, general and administrative expenses were also a factor.
COMMUNICATIONS
Sales in the Communications segment decreased $27.9 million to
$39.3 million for the quarter and decreased $41.0 million to $87.1 million for
the six months ended July 2, 2000, respectively, compared to the 1999 periods.
Both periods were negatively impacted by the special charges recorded in the
second quarter, which impacted sales by $11.3 million. The remaining shortfall
for both periods is primarily due to the reduced sales impact in 2000 of
approximately $17.0 million of product lines divested in the third quarter of
1999 and first quarter of 2000.
Segment earnings decreased $40.8 million to $(41.3) million for the quarter
and decreased $34.1 million to $(37.3) million for the six months ended July 2,
2000, respectively. Both periods were negatively impacted by the special charges
recorded in the second quarter of 2000, which reduced earnings by
$39.3 million. The remaining second quarter shortfall is attributable to the
increased manufacturing costs associated with moving certain product lines to
Mexico.
OTHER
Other sales were up $4.5 million to $55.8 million and $2.1 million to
$112.7 million for the second quarter and the six month periods, respectively,
compared to the 1999 periods. The special charge recorded in the second quarter
negatively impacted sales by $0.4 million. The improvement was due to strong
performance in both the steel structures and mechanical products divisions.
Other earnings were down $2.3 million and $0.8 million for the second
quarter and six months respectively, to $3.1 million and $10.2 million. The
special charge recorded in the second quarter negatively impacted earnings by
$4.9 million for both periods. Strong sales improvements in both steel
structures and mechanical products divisions are primarily the reason for the
improvement before the special charges.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities used cash of $281.4 million through the first six
months of 2000. Net receivables increased $123.5 million through six months in
2000. The increase in receivables is primarily attributable to the re-purchase
of outstanding receivables sold under the asset securitization program. On
July 3, 2000, the Corporation received the majority of the proceeds from the OEM
Sale. The Corporation anticipates utilizing the proceeds to reduce outstanding
debt, fund capital expenditures, pay future dividends and fund operations.
The Corporation's inventory levels as of July 2, 2000, were $18.7 million
lower than year-end levels due primarily to increases in excess and obsolete
inventory reserves offset by higher quantities on hand.
Capital expenditures for the first six months of 2000 totaled $44.0 million,
just slightly less than the same period of 1999. Management expects capital
expenditures in the second half of 2000 to be approximately the same or lower
than the first half levels. 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 six months of 2000 totaled $32.4 million for dividends declared
in 1999's fourth quarter and 2000's first quarter.
As of July 2, 2000, marketable securities, cash and equivalents totaled
$44.7 million, compared with $84.6 million as of January 2, 2000. These amounts
do not include the proceeds of the OEM sale that were received on July 3, 2000.
Page 20 of 24
<PAGE>
The Corporation has four credit agreements with domestic and foreign banks
that provide for an aggregate commitment of $615 million. Two of these credit
agreements support the Corporation's commercial paper program. As of July 2,
2000, the Corporation had utilized $322.0 million of such credit agreements to
back outstanding commercial paper. Given the events as reported herein for the
period ended July 2, 2000, the Corporation may be unable to borrow under the
existing terms and provisions of its credit agreements and to sell accounts
receivable under its asset securitization program. Management is renegotiating
the terms of its credit agreements with two bank groups; however, no assurance
can be given that the bank groups will amend the existing credit agreements or
enter into new credit agreements with the Corporation.
Management plans to renegotiate the terms of the asset securitization
agreements with the trustees; however, no assurance can be given that the
trustee will amend the existing agreements or enter into new agreements with the
Corporation. As of July 2, 2000, the Corporation had re-purchased all
outstanding receivables that were previously sold under its asset securitization
program.
If the Corporation's short-term debt rating is lowered or placed on credit
watch with negative implication, the Corporation's $500 million commercial paper
program would no longer be available. At the time of filing, the Corporation has
no commercial paper outstanding and no amounts outstanding under the credit
agreements.
As a result of the second quarter 2000 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 the 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 July 2, 2000, the Corporation did not experience any
material changes in market risk disclosure that affect the quantitative and
qualitative disclosures presented in the 10-K.
Page 21 of 24
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information 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
The matters which were voted upon at the Registrant's Annual Meeting of
Shareholders held on May 3, 2000, and the results of the voting are set
forth below:
<TABLE>
<CAPTION>
1. NOMINEES FOR DIRECTOR FOR WITHHELD
------------------------ ---------- ----------
<S> <C> <C>
Ernest H. Drew....................................... 46,068,280 5,836,792
T. Kevin Dunnigan.................................... 46,052,266 5,852,806
Jeananne K. Hauswald................................. 46,067,994 5,837,078
Dean Jernigan........................................ 46,024,207 5,880,865
Ronald B. Kalich, Sr................................. 46,026,343 5,878,729
Robert A. Kenkel..................................... 46,053,310 5,851,762
Kenneth R. Masterson................................. 46,069,741 5,835,331
Clyde R. Moore....................................... 38,778,615 13,126,457
Jean-Paul Richard.................................... 46,071,379 5,833,693
Jerre L. Stead....................................... 46,050,157 5,854,915
William H. Waltrip................................... 46,052,802 5,852,270
</TABLE>
2. A proposal to ratify the appointment of KPMG LLP as independent public
accountants received 46,792,236 votes for and 4,968,004 votes against,
with 144,832 abstentions and no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
(10.1) Purchase Agreement dated as of May 7, 2000, between Tyco Group
S.A.R.L. and Registrant.
(10.2) First Amendment to Purchase Agreement dated as of July 2, 2000,
between Tyco Group S.A.R.L. and Registrant.
(10.3) First Amendment to Amended and Restated 364-Day Credit Agreement
dated as of June 27, 2000, among Registrant, the Banks listed on
the signature pages thereof, and Wachovia Bank, N.A., as Agent.
(10.4) Executive Retirement Plan as amended June 7, 2000.
(10.5) Severance Letter Agreement dated January 21, 2000.
(10.6) Severance Letter Agreement dated July 3, 2000.
(10.7) Severance Letter Agreement dated August 16, 2000.
(10.8) Waiver dated June 26, 2000, related to the Amended and Restated
364-Day Credit Agreement among Registrant, the Banks listed on the
signature pages thereof and Wachovia Bank N.A., as Agent.
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<PAGE>
(10.9) Waiver dated June 26, 2000, related to the Five-Year Credit
Agreement among Registrant, the Banks listed on the signature pages
thereof and Morgan Guaranty Trust Company of New York, as Agent.
(27.1) Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
On May 8, 2000, the Corporation filed a Current Report on Form 8-K, Items
5 and 7, announcing an agreement to sell its global Electronics OEM
business to Tyco Group S.A.R.L.
On June 20, 2000, the Corporation filed a Current Report on Form 8-K,
Items 5 and 7, announcing a second quarter earnings notice.
Page 23 of 24
<PAGE>
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.
<TABLE>
<S> <C>
THOMAS & BETTS CORPORATION
(Registrant)
DATE: August 21, 2000 /s/ JOHN P. MURPHY
--------------------------------- ------------------------------------------------
John P. Murphy
Senior Vice President -- Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL
ACCOUNTING OFFICER)
</TABLE>
Page 24 of 24
