EXHIBIT 13
ANNUAL REPORT TO SHAREHOLDERS
PART I, ITEM 1 (page 31 of Annual Report)
9. Information Relating to Operations in Different
Geographic Areas
The Corporation is engaged in the design, manufacture, and
marketing of electrical and electronic connectors, components and
accessories. Operations are conducted in three principal areas:
Domestic, Europe and Other International locations. Transfers
between geographic areas are priced on a basis that yields an
appropriate rate of return based on assets employed, risk and
other factors.
Financial Information Relating to Operations in Different Geographic
Areas
In thousands 1994 1993 1992
Sales to Unaffiliated Customers:
Domestic $ 844,066 $761,053 $728,916
Europe 113,173 105,666 123,219
Other International 118,926 90,790 87,413
Total 1,076,165 $ 957,509 939,548
Sales or Transfers Between Geographic Areas:
Domestic 45,074 43,146 38,265
Europe 5,285 3,600 2,202
Other International 12,615 8,563 7,287
Total 62,974 55,309 47,754
*Earnings Before Income Taxes:
Domestic (6,789) 48,882 35,469
Europe (2,318) 923 3,468
Other International 11,178 12,307 13,863
Adjustments and eliminations (1,577) (2,170) 183
Earnings from continuing operations
before income taxes 494 59,942 52,983
Identifiable Assets:
Domestic 787,180 771,120 749,978
Europe 72,066 69,645 81,883
Other International 149,513 85,069 75,029
Corporate assets (principally
cash and investments) 205,147 131,631 130,596
Assets of discontinued operations - 81,098 82,241
Adjustments and eliminations (5,694) (5,381) (2,664)
Total $1,208,212 $1,133,182 $1,117,063
<FN>
* Fiscal 1994 Domestic, European, and other foreign earnings includes
a restructuring charge and write-down of previously vacated facilities
of $75.3, $12.2 and $2.2 million, respectively.
PART II, ITEM 5 (pages 20 and 33-35 of Annual Report)
DIVIDENDS AND RELATED SECURITY HOLDER MATTERS
In 1994, the Corporation declared cash dividends of $2.24
per share or $43 million. These dividends represented 64 percent
of net earnings compared to 75 percent of net earnings in 1993.
Debt covenants permit the Corporation to continue paying
dividends at the current rate, with increases allowed only if the
dividend payout does not exceed 50 percent of earnings. Thomas &
Betts has paid dividends for 61 consecutive years. The
Corporation's common stock is traded on the New York Stock
Exchange. Thomas & Betts had 19,605,000 shares of common stock
outstanding at January 1, 1995, held by 3,978 shareholders of
record.
QUARTERLY REVIEW
Dollars in thousands
(except per share data) 1994 1993 1992 1991 1990 1989
First Quarter
Net sales $248,262 $235,193 $231,439 $123,856 $128,304 $118,646
Gross profit 81,276 80,882 78,756 53,003 56,595 54,565
Earnings (loss) from continuing
operations 10,264 10,040 (2,427)(2) 11,608 12,416 13,789
Net Earnings 13,877 14,848(1) 132 (2) 14,294 15,500 15,440
Earnings (loss) per share -
continuing operations .54 .53 (.13)(2) .68 .73 .81
Earnings per share .73 .79(1) .01 (2) .84 .91 .91
Cash dividends declared per share .56 .56 .56 .53 .50 .46
Market price range 68-58 1/8 71 3/8 - 63 65 1/4 - 55 1/4 56 1/2 - 45 57 3/8 - 47 3/4 53 1/4 - 46
Second Quarter
Net sales $261,707 $234,061 $238,283 $117,571 $129,201 $119,627
Gross profit 88,913 79,871 83,253 49,549 55,873 55,002
Earnings (loss) from continuing
operations 12,772 9,362 13,157 10,255 11,924 13,093
Net Earnings 16,100 12,235 15,026 12,275 15,006 14,114
Earnings (loss) per share -
continuing operations .67 .50 .70 .60 .70 .77
Earnings per share .84 .65 .80 .72 .88 .83
Cash dividends declared per share .56 .56 .56 .56 .53 .50
Market price range 65 7/8-61 1/4 72-62 62 1/4-54 3/4 60 7/8-52 1/2 61 1/2-52 54 1/4-46
Third Quarter
Net sales $277,407 $240,918 $237,823 $113,346 $124,935 $113,365
Gross profit 92,747 82,128 86,598 47,435 55,004 51,939
Earnings (loss) from continuing
operations (40,715) 10,816 14,193 9,215 1,003(3) 11,286
Net Earnings 18,277 (4) 13,201 16,842 10,700 5,096(3) 12,084
Earnings (loss) per share -
continuing operations (2.11) .57 .76 .54 .06(3) .66
Earnings per share .94 (4) .70 .90 .63 .30(3) .71
Cash dividends declared per share .56 .56 .56 .56 .53 .50
Market price range 68 1/4-60 7/8 64 7/8-59 5/8 69-59 1/2 55 3/4-50 3/8 56-40 3/4 55 3/4-48 3/4
Fourth Quarter
Net sales $288,789 $247,337 $232,003 $116,785 $124,220 $118,843
Gross profit 102,365 86,051 85,424 46,655 52,847 51,224
Earnings (loss) from continuing
operations 19,566 13,371 15,657 9,434 11,467 10,397
Net Earnings 19,566 16,255 18,923 11,181 12,798 12,097
Earnings (loss) per share -
continuing operations 1.00 .71 .84 .56 .67 .62
Earnings per share 1.00 .86 1.01 .65 .75 .71
Cash dividends declared per share .56 .56 .56 .56 .53 .50
Market price range 71 1/4-65 1/8 62 5/8-57 69-62 1/4 58 1/8-50 5/8 47 1/4-40 1/4 52-47 1/8
<FN>
Restated to reflect Vitramon Division as a discontinued operation (sold July, 1994).
Includes the results of American Electric from January 2, 1992 (date acquired).
Per share amounts based on average shares outstanding in each quarter.
(1) Includes a one-time gain of $1,628 ($.09 per share) for the cumulative effect of change in accounting for income taxes.
(2) Includes a pre-tax charge of $15,000 ($.59 per share) for restructured operations.
(3) Includes a pre-tax charge of $9,000 ($.43 per share) for consolidating manufacturing facilities and reducing operating
expenses.
(4) Includes a pre-tax gain from the sale of Vitramon of $99,075, a pre-tax charge of $79,011 for restructuring, and a pre-
tax operating write-down of $10,632 for previously vacated facilities.
PART II, ITEM 6 (pages 34-35 of Annual Report)
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Thomas & Betts Corporation
Dollars and shares in thousands
(except per share data) 1994 1993 1992 1991 1990 1989
Operational Data
Net sales $1,076,165 $ 957,509 $ 939,548 $471,558 $506,660 $470,481
Costs and expenses:
Cost of sales 710,864 628,577 605,517 274,916 286,341 257,751
Marketing, general and administrative 229,897 211,430 201,818 118,028 124,553 120,441
Research and development 20,787 18,664 17,368 12,499 16,613 16,764
Amortization of intangibles 11,040 11,780 13,498 4,154 4,106 3,075
Provision for restructured operations 79,011 - 15,000 - 9,000 -
1,051,599 870,451 853,201 409,597 440,613 398,031
Earnings from operations 24,566 87,058 86,347 61,961 66,047 72,450
Other income (expense)--net (24,072) (27,116) (33,364) (6,496) (9,925) (1,590)
Earnings from continuing operations
before income taxes 494 59,942 52,983 55,465 56,122 70,860
Income taxes (1,393) 16,353 12,403 14,953 19,312 22,295
Earnings from continuing operations
before cumulative effect of change
in accounting for income taxes 1,887 43,589 40,580 40,512 36,810 48,565
Percent of sales 0.2% 4.6% 4.3% 8.6% 7.3% 10.3%
Earnings from discontinued operations
net of income tax expense 7,350 11,322 10,343 7,938 11,590 5,170
Gain on sale of discontinued operations,
net of income tax expense of $40,492 58,583 - - - - -
Earnings before cumulative effect of
change in accounting for income tax 67,820 54,911 50,923 48,450 48,400 53,735
Cumulative effect of change in accounting
for income taxes - 1,628 - - - -
Net earnings $ 67,820 (1)$ 56,539 $ 50,923 $ 48,450 $ 48,400 $ 53,735
Percent of sales 6.3% 5.9% 5.4% 10.3% 9.6% 11.4%
Return on average shareholders' equity 13.1% 12.0% 12.3% 13.6% 14.1% 16.5%
Financial Position (at year end):
Current assets $ 533,993 $ 489,091 $ 463,463 $334,889 $337,136 $331,636
Current liabilities $ 280,344 $ 205,465 $ 198,659 $152,426 $167,103 $158,895
Working capital $ 253,649 $ 283,626 $ 264,804 $182,463 $170,033 $172,741
Current ratio 1.9 to 1 2.4 to 1 2.3 to 1 2.2 to 1 2.0 to 1 2.1 to 1
Property, plant and equipment--net $ 275,525 $ 296,004 $ 296,138 $213,400 $206,283 $188,747
Long-term debt $ 319,519 $ 393,502 $ 420,345 $ 68,270 $ 48,763 $ 57,579
Shareholders' equity $ 553,043 $ 480,832 $ 463,062 $363,394 $350,590 $335,534
Total assets $1,208,212 $1,133,182 $1,117,063 $599,672 $585,527 $564,309
Common Stock Data:
Cash dividends declared $ 43,406 $ 42,220 $ 41,948 $ 37,708 $ 35,601 $ 33,330
Percent of net earnings 64% 75% 82% 78% 74% 62%
Per share:
Continuing operations $ .10 $ 2.31 $ 2.17 $ 2.38 $ 2.16 $ 2.86
Net earnings $ 3.51 (1)$ 3.00 $ 2.72 $ 2.84 $ 2.84 $ 3.16
Cash dividends declared $ 2.24 $ 2.24 $ 2.24 $ 2.21 $ 2.09 $ 1.96
Shareholders' equity $ 28.65 $ 25.48 $ 24.68 $ 21.27 $ 20.62 $ 19.72
Market price range 71 1/4-58 1/8 72 - 57 69 - 54 3/4 60 7/8 - 45 61 1/2-40 1/4 55 3/4-46
Other Data:
Capital expenditures $ 66,906 $ 38,555 $ 47,434 $ 40,292 $ 47,874 $ 44,901
Depreciation $ 46,558 $ 46,126 $ 41,233 $ 30,993 $ 30,782 $ 25,558
Employees 7,400 8,000 7,600 4,700 4,900 5,000
Average shares outstanding 19,304 18,837 18,717 17,053 17,030 16,998
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA (continued)
Thomas & Betts Corporation
Dollars and shares in thousands
(except per share data) 1988 1987 1986 1985 1984
Operational Data
Net sales $446,899 $380,773 $347,400 $318,000 $322,400
Costs and expenses:
Cost of sales 233,194 187,358 169,290 158,921 157,896
Marketing, general and administrative 118,257 110,806 99,795 90,591 85,418
Research and development 15,929 17,082 16,589 17,574 16,990
Amortization of intangibles 2,627 283 273 269 257
Provision for restructured operations - 4,995 - - -
370,007 320,524 285,947 267,355 260,561
Earnings from operations 76,892 60,249 61,453 50,645 61,839
Other income (expense)--net (889) 5,870 1,869 2,336 2,306
Earnings from continuing operations
before income taxes 76,003 66,119 63,322 52,981 64,145
Income taxes 24,267 23,229 25,322 19,581 25,145
Earnings from continuing operations
before cumulative effect of change in
accounting for income taxes 51,736 42,890 38,000 33,400 39,000
Percent of sales 11.6% 11.3% 10.9% 10.5% 12.1%
Earnings from discontinued operations
net of income tax expense 6,914 5,610 2,215 862 711
Gain on sale of discontinued operations,
net of income tax expense of $40,492 - - - - -
Earnings before cumulative effect of
change in accounting for income tax 58,650 48,500 40,215 34,262 39,711
Cumulative effect of change in accounting
for income taxes - - - - -
Net earnings $ 58,650 $ 48,500 $ 40,215 $ 34,262 $ 39,711
Percent of sales 13.1% 12.7% 11.6% 10.8% 12.3%
Return on average shareholders' equity 19.4% 17.8% 16.3% 15.0% 18.8%
Financial Position (at year end):
Current assets $294,675 $259,808 $240,843 $209,659 $212,012
Current liabilities $124,335 $ 88,582 $ 80,721 $ 65,626 $ 67,607
Working capital $170,340 $171,226 $160,122 $144,033 $144,405
Current ratio 2.4 to 1 2.9 to 1 3.0 to 1 3.2 to 1 3.1 to 1
Property, plant and equipment--net $165,630 $141,936 $114,358 $100,905 $ 82,446
Long-term debt $ 40,590 $ 19,441 $ 16,281 $ 13,625 $ 12,679
Shareholders' equity $314,819 $288,577 $257,627 $234,969 $220,483
Total assets $492,942 $410,087 $363,453 $319,827 $303,326
Common Stock Data:
Cash dividends declared $ 30,536 $ 26,739 $ 23,073 $ 20,665 $ 18,738
Percent of net earnings 52% 55% 57% 60% 47%
Per share:
Continuing operations $ 3.05 $ 2.54 $ 2.27 $ 2.00 $ 2.33
Net earnings $ 3.46 $ 2.88 $ 2.40 $ 2.05 $ 2.38
Cash dividends declared $ 1.80 $ 1.64 $ 1.48 $ 1.33 $ 1.21
Shareholders' equity $ 18.57 $ 17.07 $ 15.34 $ 14.08 $ 13.21
Market price range 60 3/4-45 3/8 67 3/4-41 1/2 49 3/4-37 43 1/4-33 1/2 38-28 1/4
Other Data:
Capital expenditures $ 53,899 $ 43,071 $ 27,832 $ 32,656 $ 19,779
Depreciation $ 24,156 $ 21,561 $ 16,764 $ 15,138 $ 14,513
Employees 4,700 4,200 4,100 3,900 3,900
Average shares outstanding 16,953 16,865 16,747 16,689 16,712
<FN>
Notes:
Includes results of American Electric from January 2, 1992 (date acquired).
Restated to include the results of Vitramon Division as a discontinued operation (sold July, 1994).
(1) Includes a pre-tax gain from the sale of Vitramon of $99,075, a pre-tax charge $79,011 for restructuring, and a pre-
tax operating write-down of $10,632 for previously vacated facilities.
/TABLE
PART II, ITEM 7 (pages 18, 19 and 20 of Annual Report)
FINANCIAL REVIEW
1994 vs. 1993
Net sales from continuing operations for the year 1994 were a
record $1.076 billion, up 12 percent from $958 million in 1993.
Net earnings for 1994 were up 20 percent to a record $67.8
million or $3.51 per share compared to $56.5 million, or $3.00
per share in 1993. Net earnings for 1994 included a pre-tax gain
of $99 million from the sale of Vitramon operations (which has
been accounted for as a discontinued operation), a $79 million
restructuring charge, and other facilities related operating
charges of $11 million. These actions all occurred in the third
quarter and were offsetting on an after-tax basis. Earnings from
continuing operations for 1994 were $1.9 million or $0.10 per
share compared to $43.6 million or $2.31 per share in 1993, with
1994 results including the restructuring and facilities related
operating charges and excluding the gain from the sale of
Vitramon.
The 12 percent increase in sales for 1994 was primarily the
result of additional sales volume, with overall pricing and
currency effects not being significant. Of the total volume
increase, half was attributable to 1994 business acquisitions.
North American electrical sales for 1994 were up 14 percent
over 1993, with half of the increase due to acquisitions.
Continued strength throughout the year in most electrical
markets, particularly the construction market, was a major factor
in the increase in sales of core products. Demand for heating
products was also strong, while sales to utility, lighting and
consumer markets were flat to down slightly from last year.
Electronics sales for 1994 were up 7 percent over 1993, with
strong results in the fourth quarter. Gains were experienced in
all North American markets and were due to increased volume,
while net gains in the Pacific Region were primarily due to
currency translation.
European sales improved for the first time in several years,
as the economy there began to recover. Sales were up 7 percent
over the prior year, with 14 percent volume growth and slightly
stronger currency offsetting the effects of lower pricing. Total
international sales from continuing operations represented 22
percent of consolidated sales in 1994 and 21 percent in 1993.
Consolidated gross margin on continuing operations was 33.9
percent, down from 34.4 percent in 1993 due to a $3.8 million
facilities related charge taken in the third quarter. Otherwise,
gross margin as a percent of sales would have remained the same
as 1993, with the positive effect of cost reductions in
Electronics and improved overhead absorption in Europe offsetting
certain price reductions made in non-U.S. markets. The
Corporation expects that increases in base commodity prices for
materials used in production will rise in 1995 to levels well
above those experienced in the past two years; however, these
increases are expected to be recovered through higher selling
prices and productivity improvements.
Marketing, general and administrative expenses for the year
included a $6.8 million facilities related charge taken in the
third quarter of 1994. Including that charge, these expenses
were 21.4 percent of sales compared to 22.1 percent in 1993, and
without the charge were 20.7 percent of sales. The reduction was
the result of administrative cost savings achieved in part by
consolidating headquarters and office operations into Memphis,
Tennessee. Research and development expense increased 11 percent
and represented 1.9 percent of sales in both 1994 and 1993.
Other expense was reduced by $3 million, due principally to
lower net interest expense on reduced borrowings made possible in
part by the sale of Vitramon. Partially offsetting lower net
interest expense was a $1.5 million foreign currency exchange
loss recorded in the fourth quarter on the Corporation's Mexico
operations as a result of the peso devaluation.
The Corporation's effective tax rate on continuing
operations for 1994 was a negative 282.0 percent compared to 27.3
percent for 1993. The negative tax rate in 1994 results
primarily from the tax benefits associated from continuing
operations (as Vitramon had no Puerto Rico operations). In
absolute dollar terms, however, this benefit decreased in 1994
compared to 1993 due to recent tax law changes. No further
significant reduction of Puerto Rican tax benefits are expected
to occur as a result of these changes. The effective tax rate on
earnings from discontinued operations exceeded the statutory tax
rate primarily due to higher tax rates which applied to
Vitramon's foreign operations. The effective tax rate on the
gain from the sale of discontinued operations exceeded the
statutory rate primarily as the result of state taxes on the
gain.
The Corporation's return on sales from continuing operations
was 0.2 percent in 1994 compared to 4.6 percent in 1993. Net
earnings as a percent of sales were 6.3 percent in 1994 and 5.9
percent in 1993. Return on average shareholders' equity was 13.1
percent compared to 12.0 percent in 1993.
1993 vs. 1992
Net sales for the year 1993 were $958 million, up 2 percent from
1992. Net earnings in 1993 of $56.5 million or $3.00 per share
increased 11 percent from 1992. Net earnings in 1993 included a
one-time gain of $1.6 million or $0.09 per share for the adoption
of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Earnings from continuing
operations in 1993 were $43.6 million, up 7 percent from 1992.
Earnings in 1992 included a pre-tax restructuring charge of $15
million, equal to $.59 per share, incurred primarily to combine
the operations of American Electric and the domestic Electrical
operations of the Corporation into one consolidated operation
headquartered in Memphis, Tennessee. Without these two items,
earnings from continuing operations in 1993 would have been down
16 percent.
Economic conditions remained weak in North America and grew
weaker in Europe and the Pacific Region. However, the
Corporation's overall volume in 1993 was up about 3 percent from
1992, with average selling prices remaining unchanged, and a 1
percent unfavorable net effect of exchange rate changes.
Electrical sales for 1993 were up 4 percent over 1992, due
primarily to growth in sales to construction and utility markets.
Electronics sales, including Pacific Region results, were up 5
percent in 1993 compared to 1992, with volume growth achieved
despite weak economic conditions. European sales were down 14
percent in 1993 with lower sales volumes due to poor economic
conditions in Europe and the double digit unfavorable impact of
weaker currencies.
Gross profit margin in 1993 was 34.4 percent, down from 35.6
percent in 1992. Lower margin resulted primarily from unabsorbed
overhead related to weakness in European and certain North
American markets, competitive pricing pressure, and increased
depreciation expense due to adoption of SFAS No. 109. Marketing,
general and administrative expense represented 22.1 percent of
sales in 1993 compared to 21.5 percent in 1992; expense dollars
increased 5 percent year over year. Research and development
expense represented 1.9 percent of sales in 1993, up from 1.8
percent in 1992.
Other expense in 1993 decreased $6.2 million compared to
1992 due to reduced interest expense, gain on sale of idle
property, and the absence of one-time bank service charges
incurred in 1992 in connection with the acquisition of American
Electric. The Corporation's effective tax rate on continuing
operations for 1993 was 27.3 percent, compared to 23.4 percent
for 1992. The 1993 higher rate was due mainly to the alternative
minimum tax credit carry forwards taken in 1992 and lower
relative tax exempt income in 1993. The effective tax rate on
earnings from discontinued operations exceeded the statutory tax
rate primarily due to higher tax rates which applied to
Vitramon's foreign operations. The Corporation's return on sales
from continuing operations was 4.6 percent in 1993 compared to
4.3 percent in 1992 (5.5 percent without the restructuring
charge). Return on average shareholders' equity was 12.0 percent
in 1993 compared to 12.3 percent in 1992.
Liquidity and Capital Resources
The Corporation's consolidated balance sheet account activity in
1994 was significant due to the disposition of Vitramon (see Note
4 to the consolidated financial statements), the establishment of
restructuring reserves, and the acquisitions made during the
year. Net changes in the operating assets and liabilities in the
1994 Consolidated Statement of Cash Flows have been adjusted to
show only the changes associated with continuing operations.
Receivables increased in line with the 1994 sales growth and to
support acquired product lines. Inventories also grew to support
increased business activity. While anticipated facility
restructurings called for some temporary increases in inventory,
it also allowed for $7.6 million in inventory disposals. The
higher level of payables at year-end reflects increased fourth
quarter manufacturing activity, including increases to support
acquired product lines, and an improvement in vendor terms. The
increase in deferred taxes is due principally to future tax
benefits associated with the restructuring and facilities related
charges.
In the three years 1992 through 1994, the Corporation
generated $350 million in cash from operating activities. The
Corporation believes it will continue to fund its capital and
operating needs with cash flows from operations, augmented by
borrowings available under its revolving credit facility,
anticipated increases in the facility, and from other sources.
In 1992, the Corporation established a $175 million medium-
term note program providing for the issuance of notes with
maturities ranging from 9 months to 30 years. To date, the
Corporation has not issued any notes pursuant to this program.
Restructuring
In the third quarter of 1994, after a thorough review of its
operations and changing market conditions, the Corporation
initiated several major actions to optimize operations and
improve future profitability. The approved actions resulted in a
$79 million restructuring charge, recorded in the third quarter,
to consolidate and realign manufacturing facilities, operations
and service processes, to provide for the discontinuance of
certain products, and to reduce its overhead structure. The
restructuring will impact the Corporation's operations in North
America (82% of the total charge), Europe (15%), and the Far East
(3%) and will include the closure of approximately 1.4 million
square feet of production and warehouse capacity. Concurrently,
the Corporation will add approximately 1.1 million square feet of
production and warehouse capacity.
The $79 million for restructuring includes non-cash charges
of $40 million related principally to impairment of carrying
values of plant, equipment, and inventory which will no longer be
used and which relate to facilities to be closed or realigned and
products to be discontinued. Approximately $25 million of the
non-cash charges is for property and equipment and $15 million
for inventories. In the fourth quarter of 1994, the Corporation
disposed of $16 million of these assets, $8 million of equipment
and $8 million of inventory. Of the $39 million of cash
charges, approximately $16 million has been provided for
severance benefits and other employee termination costs, $14
million for on-going carrying costs and environmental clean-up of
facilities to be closed, and $9 million for other related costs.
In the fourth quarter of 1994, $3.5 million of cash was spent,
principally for personnel relocation. An additional $22.5
million is expected to be spent of 1995 and $13 million of
spending related to environmental clean-up and carrying costs for
closed facilities is expected to be spent after 1995.
Capital spending of $25 million for projects relating to the
restructuring effort and $6 million of cash implementation
expenses are planned over the next two years. The Corporation
believes that these actions will result in depreciation,
amortization, labor and overhead savings of approximately $8
million in 1995 and over $20 million annually in subsequent
years.
In 1992, the Corporation provided $15 million for
restructuring operations, primarily to combine the operations of
American Electric (acquired January, 1992) and the domestic
Electrical operations of the Corporation into one consolidated
operation and to consolidate certain other unrelated facilities.
These actions have been completed and no significant unspent
amounts or obligations remain.
Divestitures
In July, the Corporation sold its multilayer ceramic chip
capacitor subsidiary, Vitramon, Incorporated, for $184 million in
cash ($144.7 million after tax payments) and realized a $58.6
million after-tax gain. The results of this discontinued
operation are more fully described in Note 4 to the consolidated
financial statements.
Acquisitions and Investments
During 1994, the Corporation made four acquisitions. Three were
purchases from Eaton Corporation involving primarily inventories
and equipment. In January certain circuit protection products
were purchased; in August, Commander Electrical Products, Inc.,
a Canadian metal outlet box and fittings business was purchased;
and in November a U.S. non-metallic electrical outlet box
business was purchased. Separately, in February the Corporation
purchased certain assets from Anford Inc. in Canada relating to
the manufacture and sale of cable tray. The total purchase price
of these acquisitions was $72.8 million. The Corporation has
also agreed to purchase the assets of Anchor Electric in the
first quarter of 1995 for approximately $3 million.
In August of 1994, the Corporation completed the purchase of
a minority interest (approximately 29%) in Leviton Manufacturing
Co., Inc., the leading U.S. manufacturer of wiring devices, for
cash of $25.6 million and common stock having a market value of
$25 million.
In January 1992, the Corporation acquired FL Industries
Holdings, Inc. ("American Electric") for $436.8 million,
consisting of $89.6 million (1,564,434 shares) of newly issued
common stock, $17.1 million in cash and $330.1 million to retire
certain long-term debt.
Other acquisitions accounted for as purchase transactions in
1993 and 1992 totaled $3 million and $13 million, respectively.
Capital Spending
Capital expenditures for continuing operations in 1994 totaled
$59 million, compared to $28 million in 1993 and $38 million in
1992. The largest portion of 1993 and 1994 capital funds was
used to expand manufacturing capacity, reduce costs, produce new
products, and increase efficiency in keeping with the
Corporation's strategic focus on core businesses and product
lines. In 1994, the Corporation began refurbishment of a newly
leased manufacturing facility in Jonesboro, Arkansas, completed a
second expansion of its Mississippi warehouse facility, completed
the refurbishment and equipment upgrade initiated in 1993 at a
newly leased facility in Nevada to provide additional warehouse
capacity in the West, and began construction of a new northeast
warehouse facility outside Montreal Canada. In 1992, the
Corporation completed the first expansion of its principal
warehouse facility in Mississippi, and completed a new
manufacturing facility in Singapore.
Environmental Matters
The Corporation believes it is substantially in compliance with
all applicable environmental laws and regulations. The
Corporation believes the costs of maintaining or coming into
compliance with such laws and regulations will not be material to
the Corporation's financial statements.
With the acquisition of American Electric in 1992, the
Corporation became the owner of certain manufacturing facilities
that were being remediated or could potentially require
remediation. As part of the acquisition, reserves were provided
and arrangements made with third parties to cover the costs of
compliance and remediation. In 1994 an additional $7 million was
provided for potential environmental remediation of a planned
facility closing, and recorded as part of the restructuring. The
Corporation paid $684,000, $862,000 and $240,000 for remediation
and corrective matters for the years 1994, 1993 and 1992,
respectively, with payments for Superfund related matters being
less than $150,000 in any year. It is the Corporation's policy
to accrue future remediation expenses to the extent known and
determinable.
Other Matters
The Corporation has a policy of managing its foreign currency and
interest rate risk by entering into foreign exchange contracts
and interest rate swap and cap agreements as explained in Note 1
of the consolidated financial statements and does not trade in
these instruments for speculative purposes.
The Corporation maintains a portfolio of marketable
securities and cash equivalents in Puerto Rico, which at year-end
1994 was valued at $102 million. Although these investments
represent currently available funds, a portion of these are held
to obtain favorable, partially tax-exempt status on earnings
generated in Puerto Rico.
In the first quarter of 1994, the Corporation adopted
Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," and No.
112, "Employer's Accounting for Postemployment Benefits." In the
first quarter of 1993, the Corporation adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes," and No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." The effects of adopting these
Standards were not significant.
Dividends and Related Security Holder Matters
In 1994, the Corporation declared cash dividends of $2.24 per
share or $43 million. These dividends represented 64 percent of
net earnings compared to 75 percent of net earnings in 1993.
Debt covenants permit the Corporation to continue paying
dividends at the current rate, with increases allowed only if the
dividend payout does not exceed 50 percent of earnings. Thomas &
Betts has paid dividends for 61 consecutive years. The
Corporation's common stock is traded on the New York Stock
Exchange. Thomas & Betts had 19,605,000 shares of common stock
outstanding at January 1, 1995, held by 3,978 shareholders of
record.
PART II, ITEM 8 (pages 18 through 29 of Annual Report)
CONSOLIDATED BALANCE SHEET
Thomas & Betts Corporation
January 1, January 2,
In thousands 1995 1994
Assets
Current Assets
Cash and cash equivalents $ 69,671 $ 72,509
Marketable securities 52,569 31,543
Receivables, less allowance for
doubtful accounts and cash
discounts of $4,556 in 1994
and $5,292 in 1993 168,077 165,162
Inventory 198,422 200,302
Deferred income taxes 40,059 13,884
Prepaid expenses 5,195 5,691
Total Current Assets 533,993 489,091
Property, Plant and Equipment
Land 9,549 13,274
Buildings 110,435 137,558
Machinery and equipment 427,115 420,443
547,099 571,275
Less accumulated depreciation 271,574 275,271
275,525 296,004
Intangible Assets-Net 323,228 311,059
Investments and Other Assets 75,466 37,028
Total Assets $1,208,212 $1,133,182
Liabilities and Shareholders' Equity
Current Liabilities
Short-term bank borrowings $ 15,355 $ 20,539
Current maturities of long-term debt 3,304 7,358
Accounts payable 118,052 81,571
Accrued liabilities 116,875 78,637
Income taxes 15,779 6,791
Dividends payable 10,979 10,569
Total Current Liabilities 280,344 205,465
Long-Term Liabilities
Long-term debt 319,519 393,502
Other long-term liabilities 40,408 28,615
Deferred income taxes 14,898 24,768
Shareholders' Equity
Common stock 9,822 9,463
Additional paid-in capital 169,291 125,400
Retained earnings 373,011 348,597
Unrealized gain on marketable securities 867 -
Foreign currency translation adjustment 2,661 961
Cost of treasury stock (2,609) (3,589)
Total Shareholders' Equity 553,043 480,832
Total Liabilities and Shareholders' Equity $1,208,212 $1,133,182
<FN>
See Notes to Consolidated Financial Statements
/TABLE
CONSOLIDATED STATEMENT OF EARNINGS
Thomas & Betts Corporation
In thousands
(except per share data) 1994 1993 1992
Net Sales $1,076,165 $957,509 $939,548
Costs and Expenses
Cost of sales 710,864 628,577 605,517
Marketing, general and administrative 229,897 211,430 201,818
Research and development 20,787 18,664 17,368
Amortization of intangibles 11,040 11,780 13,498
Provision for restructured operations 79,011 - 15,000
1,051,599 870,451 853,201
Earnings from operations 24,566 87,058 86,347
Other expense-net 24,072 27,116 33,364
Earnings from continuing operations
before income taxes 494 59,942 52,983
Income taxes (benefit) (1,393) 16,353 12,403
Earnings from continuing operations
before cumulative effect of change
in accounting for income taxes 1,887 43,589 40,580
Earnings from discontinued operations,
net of income tax expense of
$4,628 for 1994, $7,180 for 1993
and $6,429 for 1992 7,350 11,322 10,343
Gain on sale of discontinued
operations, net of income tax
expense of $40,492 58,583 - -
Earnings before cumulative effect
of change in accounting for
income taxes 67,820 54,911 50,923
Cumulative effect of change in
accounting for income taxes - 1,628 -
Net Earnings $ 67,820 $ 56,539 $ 50,923
Share Data
Earnings from continuing operations
before cumulative effect of change
in accounting for income taxes $0.10 $2.31 $2.17
Earnings from discontinued operations 0.38 0.60 0.55
Gain on sale of discontinued operations 3.03 - -
Earnings before cumulative effect
of change in accounting for
income taxes 3.51 2.91 2.72
Cumulative effect of change in
accounting for income taxes - 0.09 -
Earnings per share $3.51 $3.00 $2.72
Cash dividends declared per share $2.24 $2.24 $ 2.24
Average shares outstanding 19,304 18,837 18,717
<FN>
See Notes to Consolidated Financial Statements
/TABLE
CONSOLIDATED STATEMENT OF CASH FLOWS
Thomas & Betts Corporation
In thousands 1994 1993 1992
Cash Flows From Operating Activities
Earnings from continuing operations $ 1,887 $ 43,589 $ 40,580
Adjustments:
Depreciation and amortization 53,532 48,998 46,722
Provision for restructured operations 79,011 - -
Provision for facilities related operating charges 10,632 - -
Deferred income taxes (38,498) 6,108 (1,103)
Changes in operating assets and liabilities, net:
Receivables (13,617) (18,791) 1,888
Inventories (20,740) (5,321) 6,529
Accounts payable 38,637 17,286 5,890
Accrued liabilities 2,095 419 (8,139)
Income taxes payable 7,934 3,643 (4,069)
Cash from discontinued operations 7,606 18,766 16,068
Other 1,751 (6,132) 6,565
Net cash provided by operating activities 130,230 108,565 110,931
Cash Flows From Investing Activities
Proceeds from sale of Vitramon, net of tax 144,700 - -
Purchases of and investments in businesses (84,084) - (357,793)
Purchases of property, plant and equipment (59,109) (28,044) (38,232)
Net investments in discontinued operations (7,781) (10,473) (9,111)
Proceeds from sale of property, plant and equipment 6,057 10,481 28,824 (1)
Marketable securities acquired (30,509) (22,486) (37,131)
Proceeds from matured marketable securities 19,292 50,219 12,065
Other 1,733 (1,280) (1,299)
Net cash provided by (used in) investing activities (9,701) (1,583) (402,677)
Cash Flows From Financing Activities
Increase (decrease) in borrowings with original
maturities less than 90 days (9,543) 2,181 (5,046)
Proceeds from long-term debt and other borrowings 43,998 27,447 455,928
Repayment of long-term debt and other borrowings (119,942) (70,295) (140,213)
Stock options exercised 4,116 4,082 3,232
Cash dividends paid (42,996) (42,158) (41,007)
Net cash provided by (used in) financing activities (124,367) (78,743) 272,894
Effect of Exchange Rate Changes on Cash 1,000 2,506 893
Net increase (decrease) in cash and cash equivalents (2,838) 30,745 (17,959)
Cash and cash equivalents - beginning of year 72,509 41,764 59,723
Cash and cash equivalents - end of year $ 69,671 $ 72,509 $ 41,764
Cash payments for interest $ 27,027 $ 29,900 $ 27,575
Cash payments for taxes $ 70,561 $ 14,024 $ 25,447
Common stock issued for acquisitions $ 39,283 - $ 89,037
<FN>
(1) Includes $22.7 million received for the sale and partial leaseback of the Corporation's
principal executive office facility.
See Notes to Consolidated Financial Statements.
/TABLE
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Thomas & Betts Corporation
Unrecognized
Gain
Additional (Loss) on Cumulative
In thousands Common Stock Paid-In Retained Marketable Translation Treasury Stock
(except per share data) Shares Amount Capital Earnings Securities Adjustment Shares Amount
Balance at December 31, 1991 17,092 $ 8,547 $ 24,198 $ 325,303 $ - $ 5,905 (11) $ (559)
Net earnings - - - 50,923 - - - -
Dividends declared ($2.24 per share) - - - (41,948) - - - -
Stock options and
Business acquisitions 1,564 782 88,255 - - - - -
Translation adjustments, net of
taxes of $1,468 - - - - - (2,851) - -
Balance at December 31, 1992 18,806 9,403 119,050 334,278 - 3,054 (43) (2,723)
Net earnings - - - 56,539 - - - -
Dividends declared ($2.24 per share) - - - (42,220) - - - -
Stock options and incentive awards 120 60 6,350 - - - (10) (866)
Translation adjustments, net of
taxes of $1,059 - - - - - (2,093) - -
Balance at January 2, 1994 18,926 9,463 125,400 348,597 - 961 (53) (3,589)
Net earnings - - - 67,820 - - - -
Unrealized gain upon adoption of SFAS
115, net of taxes of $839 - - - - 1,556 - - -
Change since adoption, net of
taxes of ($344) - - - - (689) - - -
Dividends declared ($2.24 per share) - - - (43,406) - - - -
Stock options and incentive awards 95 47 4,920 - - - 14 980
Business acquisition and investments 623 312 38,971 - - - - -
Translation adjustments, net of
taxes of $915 - - - - - 1,700 (1) - -
Balance at January 1, 1995 $ 19,644 $9,822 $169,291 $373,011 $ 867 $ 2,661 (39) $(2,609)
Preferred Stock: Authorized 500,000 shares without par value. To date none of these shares have been issued.
Common Stock: Authorized 40,000,000 shares, par value $.50 per share.
<FN>
(1) Net of $1,950 transferred to gain on sale of investments in foreign entities.
See Notes to Consolidated Financial Statements
/TABLE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its domestic and foreign subsidiaries, all wholly
owned. All significant intercompany balances and transactions
have been eliminated in consolidation. The Corporation uses the
equity method of accounting for its 29 percent ownership interest
in Leviton Manufacturing Co., Inc.
Fiscal Year
Beginning in 1993 the Corporation prospectively changed its
financial reporting year from a calendar year to a fiscal year
consisting of 52 and 53 weeks ending on the Sunday closest to the
end of the calendar year. Results for 1994 and 1993 are for the
52 weeks ended January 1, 1995 and January 2, 1994, respectively.
Marketable Securities
Effective January 3, 1994, the Corporation adopted the Statement
of Financial Accounting Standards No. 115, and changed from
accounting for its marketable securities on an amortized cost
basis to a fair market value basis. See Note 7.
Foreign Exchange
The Corporation becomes exposed to exchange rate risk when its
U.S. and non-U.S. subsidiaries enter into transactions
denominated in currencies other than their functional currency.
The Corporation enters into foreign exchange contracts to hedge,
where possible, this risk. As exchange rates change, gains and
losses recorded on the exposed transactions are offset by those
on the hedging contracts. Both the exposed transactions and the
hedging contracts are marked to market monthly with gains and
losses included in earnings. A high correlation is maintained
between the transactions and the hedges to minimize currency
risk, and the high creditworthiness of the counterparties to the
hedging contracts (financial institutions having at least an A
credit rating) minimizes non-performance risk. The Corporation
does not enter into foreign exchange contracts for trading
purposes.
At January 1, 1995 and January 2, 1994, the Corporation had
outstanding contracts to sell $69.5 million and $36.4 million,
respectively, of principally Canadian and European currencies for
U.S. dollars and to buy the equivalent of $4.6 million and $5.6
million, respectively, of European currencies, all maturing
within 90 days. Additional contracts were held to sell 1.8
million pounds sterling at January 1, 1995 and January 2, 1994
and to buy 1.8 million pounds sterling at January 1, 1995, all
maturing in November 1995.
At January 1, 1995 the Corporation's Mexico operations had
an unhedged liability of 3.8 million U.S. dollars and Singapore
operations had an unhedged liability of 300 million Japanese yen.
Inventories
Inventories are stated at lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for most
domestic inventories, and the first-in, first-out (FIFO) method
for other inventories.
Inventories valued using the LIFO method represented
approximately 73 percent of total inventories at January 1, 1995
and 60 percent at January 2, 1994. The LIFO values of
inventories held at January 1, 1995 approximated their current
values.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Expenditures
for maintenance and repair are charged to costs and expenses as
incurred. Significant renewals and betterments that extend the
lives of assets are capitalized. Depreciation is computed
principally on the straight-line method over the estimated useful
lives of the assets which range principally from 10 to 30 years
for land improvements, 10 to 45 years for buildings, and 3 to 15
years for machinery and equipment.
Intangible Assets
Intangible assets consist principally of the excess of cost over
the fair value of net assets acquired in business combinations
accounted for as purchases. These assets are being amortized on
a straight-line basis over periods of 15 to 40 years. The
recoverability of goodwill is re-evaluated when business events
and circumstances warrant based on projections of related
undiscounted operating earnings.
As of January 1, 1995 and January 2, 1994 accumulated
amortization of intangible assets was $40,510,000 and
$29,336,000, respectively.
A reclassification of amortization of intangibles has been
made in all prior years' financial statements to conform to the
1994 presentation. This reclassification had no effect on
earnings in any year.
Income Taxes
Effective January 1, 1993, the Corporation changed from the
deferred method of accounting for income taxes under APB Opinion
No. 11, to the provisions of Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." Prior
years' financial statements have not been restated. SFAS 109
requires the asset and liability method of accounting for income
taxes. This method recognizes the expected future tax
consequences of temporary differences between the book and tax
bases of assets and liabilities.
Deferred taxes are not provided on undistributed net
earnings of foreign subsidiaries, approximately $13,000,000 at
January 1, 1995, to the extent that those earnings are expected
to be permanently reinvested in the subsidiaries. It is
estimated that taxes ultimately payable on the distribution of
these earnings would not be significant.
Interest Rate Swaps
The Corporation enters into interest rate swap and cap agreements
to reduce the impact of changes in interest rates on a portion of
its floating rate debt. The differential to be paid or received
under these agreements is accrued monthly consistent with the
terms of the agreements and market interest rates. These
agreements are with financial institutions having at least an A
credit rating, which minimizes non-performance risk.
Earnings per Share
Earnings per share is computed by dividing earnings by the
weighted average shares of common stock outstanding during the
year. The effect on earnings per share resulting from the
assumed exercise of outstanding options is not material.
Cash Flow Information
Cash equivalents consist of investments with maturities at date
of purchase of less than 90 days that have a low risk of change
in value due to interest rate changes. Foreign currency cash
flows have been converted to U.S. dollars at appropriately
weighted average exchange rates or the exchange rates in effect
at the time of the cash flows, where determinable.
2. Acquisitions
In 1994, the Corporation made three separate purchases of assets
from Eaton Corporation, primarily inventories and equipment. On
January 31, 1994, the Corporation purchased certain circuit
protection products in exchange for 223,716 shares of its common
stock with a market value of $14.3 million; on August 11, 1994,
it purchased all the stock of Commander Electrical Products,
Inc., a Canadian metal outlet box and fittings business for $51.2
million in cash; and on November 30, 1994, it purchased a U.S.
non-metallic electrical outlet box business for $4.4 million in
cash. Separately, on February 18, 1994, the Corporation
purchased certain assets from Anford Inc. in Canada relating to
the manufacture and sale of cable tray, for $2.9 million in cash.
All of these acquisitions were accounted for using the purchase
method of accounting, and therefore, the accompanying financial
statements include the results of these businesses since the
dates of acquisition. These businesses represented approximately
$54 million of sales reported by the Corporation in 1994.
On August 10, 1994, the Corporation completed the purchase
of a minority interest (approximately 29%) in Leviton
Manufacturing Co., Inc., the leading U.S. manufacturer of wiring
devices, for common stock with a market value of $25.0 million
and cash of $25.6 million. This investment is being accounted
for using the equity method of accounting.
On January 2, 1992, the Corporation acquired FL Industries
Holdings, Inc. ("American Electric") for $436.8 million,
consisting of $89.6 million (1,564,434 shares) of newly issued
common stock, $17.1 million in cash and $330.1 million to retire
certain long-term debt. The acquisition was accounted for using
the purchase method of accounting. Other acquisitions accounted
for as purchase transactions in 1993 and 1992 totaled $3 million
and $13 million, respectively.
3. Restructuring
In the third quarter of 1994, after a thorough review of its
operations and changing market conditions, the Corporation
initiated several major actions to optimize operations and improve
future profitability. The approved actions resulted in a $79
million restructuring charge, recorded in the third quarter, to
consolidate and realign manufacturing facilities, operations and
service processes, to provide for the discontinuance of certain
products, and to reduce its overhead structure. The restructuring
will impact the Corporation's operations in North America (82% of
the total charge), Europe (15%), and the Far East (3%) and will
include the closure of approximately 1.4 million square feet of
production and warehouse capacity. Concurrently, the Corporation
will add approximately 1.1 million square feet of production and
warehouse capacity.
The $79 million for restructuring includes non-cash charges of
$40 million related principally to impairment of carrying values of
plant, equipment, and inventory which will no longer be used and
which relate to facilities to be closed or realigned and products
to be discontinued. Approximately $25 million of the non-cash
charges is for property and equipment and $15 million for
inventories. In the fourth quarter of 1994, the Corporation
disposed of $16 million of these assets, $8 million of equipment
and $8 million of inventory. Of the $39 million of cash charges,
approximately $16 million has been provided for severance benefits
and other employee termination costs, $14 million for on-going
carrying costs and environmental clean-up of facilities to be
closed, and $9 million for other related costs. In the fourth
quarter of 1994, $3.5 million of cash was spent, principally for
personnel relocation. An additional $22.5 million is expected to
be spent in 1995 and $13 million of spending related to
environmental clean-up and carrying costs for closed facilities is
expected to be spent after 1995.
In 1992, the Corporation provided $15 million for
restructuring operations, primarily to combine the operations of
American Electric (acquired January 1992) and the domestic
Electrical operations of the Corporation into one consolidated
operation and to consolidate certain other unrelated facilities.
These actions have been completed and no significant unspent
amounts or obligations remain.
4. Discontinued Operations
In July 1994, the Corporation sold its multilayer ceramic chip
capacitor subsidiary, Vitramon, Incorporated, for $184 million in
cash ($145 million after tax payments) and realized a $58.6 million
gain after tax.
Summary operating results of discontinued operations,
excluding the above gain, are as follow:
In thousands 1994 1993 1992
Net sales $ 73,043 $118,394 $111,528
Gross Profit 22,947 36,882 33,904
Earnings before income taxes 11,978 18,502 16,772
Income taxes 4,628 7,180 6,429
Net earnings from
discontinued operations $ 7,350 $ 11,322 $ 10,343
The net assets of Vitramon are included in the January 2, 1994
Consolidated Balance Sheet and are summarized as follows:
In thousands
Current assets $37,354
Property, plant and equipment - net 42,799
Other assets 945
Current liabilities (10,710)
Deferred income taxes (1,376)
Other long-term liabilities (1,233)
Net assets $67,779
5. Income Taxes
The total pre-tax income and tax expense recorded by the
Corporation in 1994, 1993 and 1992 was as follows:
Pre-Tax Tax Tax
In thousands Income Expense Rate
1994
Continuing operations $ 494 $(1,393) (282.0)%
Discontinued operations 11,978 4,628 38.6
Sale of discontinued operations 99,075 40,492 40.9
Total 111,547 43,727 39.2
1993
Continuing operations 59,942 16,353 27.3
Discontinued operations 18,502 7,180 38.8
Total 78,444 23,533 30.0
1992
Continuing operations 52,983 12,403 23.4
Discontinued operations 16,772 6,429 38.3
Total $69,755 $18,832 27.0 %
The components of earnings from continuing operations before
income taxes are as follows:
In thousands 1994 1993 1992
Domestic $(1,301) $54,036 $44,834
Foreign 1,795 5,906 8,149
Total $ 494 $59,942 $52,983
The components of income tax expense on continuing operations
are as follows:
In thousands 1994 1993 1992
Current
Federal $28,962 $ 5,759 $8,259
Foreign 4,225 2,783 4,394
State and local 2,098 1,957 627
Total current 35,285 10,499 13,280
Deferred
Federal (36,599) 5,561 (1,519)
Foreign (79) 293 642
Total deferred (36,678) 5,854 (877)
Income taxes (benefit) $(1,393) $16,353 $12,403
The reconciliation between the Federal statutory tax rate and
the Corporation's effective tax rate on continuing operations is as
follows:
1994 1993 1992
Federal statutory tax rate 35.0% 35.0% 34.0%
Increase (reduction)
resulting from:
State tax--net of Federal
tax benefit 331.6 2.1 .8
Partially tax-exempt income (1,312.8) (18.0) (18.3)
Goodwill and other deductions 594.6 4.7 8.5
Losses providing no current
tax benefit - - 3.5
Taxes in excess of the U.S.
tax rate on foreign earnings - .8 .7
Alternative Minimum Tax - - (5.0)
Change in valuation allowance 24.7 1.4 -
Other 44.9 1.3 (.8)
Effective tax rate (282.0)% 27.3% 23.4%
The components of the Corporation's net deferred tax asset
(liability) were:
January 1, January 2,
In thousands 1995 1994
Deferred tax assets:
Restructuring reserves $22,794 $ -
Accrued employee benefits 12,494 8,241
Other accruals 15,862 11,435
Asset reserves 10,414 11,768
Foreign tax credits and loss carry forwards 8,969 10,602
Other 5,601 166
Valuation allowance (8,524) (10,602)
Net deferred tax assets 67,610 31,610
Deferred tax liabilities:
Property, plant and equipment (26,009) (30,859)
Pension benefits ( 4,174) (4,166)
Unremitted earnings of foreign subsidiaries ( 3,522) (3,375)
Other ( 8,744) (4,094)
Total deferred tax liabilities (42,449) (42,494)
Net deferred tax assest (liability) $25,161 $(10,884)
The net change in the valuation allowance for deferred tax
assets was a decrease of $2,078,000. The change resulted from an
increase of $122,000 relating to loss carry forwards recorded and
recovered in 1994 on continuing operations. Additionally, there
was a decrease of $2,200,000 related to discontinued operations.
Of the $8,969,000 of foreign tax credits and carry forwards
available, $204,000 will expire in 1997, and $1,189,000 will expire
in 1998.
Effective January 1, 1993, the Corporation adopted the
provisions of SFAS No. 109 "Accounting for Income Taxes." Prior
years were not restated. The cumulative effect of this change was
a credit to earnings of $1,628,000 in 1993. Under SFAS No. 109,
the value of certain assets and liabilities acquired in the January
2, 1992 acquisition of American Electric was adjusted to reflect
gross fair values rather than the net of tax values previously
recorded. This revaluation increases depreciation expense by $2.8
million each year and decreases tax expense by an offsetting amount
over the lives of the assets.
6. Long-Term Debt
The Corporation's long-term debt at January 1, 1995 and January 2,
1994 is as follows:
January 1, January 2,
In thousands 1995 1994
Revolving credit facility with
a weighted average interest
rate at January 1, 1995 of 6.18% (1) $ 85,000 $ 55,000
Other borrowings with
a weighted average interest
rate at January 1, 1995 of 6.78% (1) (2) 37,700 126,000
Notes payable:
5.10%, due February 23, 1996 20,000 20,000
8.25%, due January 2004 124,307 124,230
International borrowings with
a weighted average interest
rate at January 1, 1995, of 6.37%
due through 2005 31,910 45,676
Industrial revenue bonds with a
weighted average interest rate
at January 1, 1995 of 5.74%,
due from 2001-2005 18,405 22,505
Other 5,501 7,449
322,823 400,860
Less current portion 3,304 7,358
$319,519 $393,502
<FN>
(1) Several interest rate swaps and caps act to the benefit of the
Corporation if interest rates increase. The Corporation
receives interest on $25 million at the one-month LIBOR rate
in exchange for 7.092% through April 1997; interest on $25
million at the three-month LIBOR rate in exchange for 3.985%
through September 1995; and interest on $25 million at the
six-month LIBOR rate in exchange for 4.485% through December
1996.
(2) Committed credit available under the revolving credit facility
provides the ability to refinance this debt on a long-term
basis.
Principal payments on long-term debt due in the five years
subsequent to January 1, 1995, are $3,304,000, $36,127,000,
$122,964,000, $255,000 and $1,969,000, respectively.
In May 1993, the Corporation renegotiated its revolving term
credit facility. The facility was voluntarily reduced in size from
$300 million to $280 million. This revised facility makes funds
available for a term of four years from the renegotiation date.
The Corporation has the option, at the time of drawing funds under
the facility, of selecting an interest rate based on a number of
benchmarks including LIBOR, the certificate of deposit rate and the
prime rate of Morgan Guaranty Trust Company. This credit facility
includes covenants, among which are limitations on the amount of
future indebtedness and the maintenance of certain financial
ratios. Dividends are permitted to continue at the current rate
and may be increased, provided the dividend payout does not exceed
50 percent of earnings.
7. Fair Value of Financial Instruments
The estimated fair values of the Corporation's financial
instruments are as follow:
1994 1993
Carrying Fair Carrying Fair
In thousands Amount Value Amount Value
Cash and cash equivalents $ 69,671 $ 69,671 $ 72,509 $ 72,509
Marketable securities 52,569 52,569 31,543 34,343
Long-term debt (319,519) (314,814) (393,502) (405,602)
Interest rate swaps - 380 - (4,200)
Foreign currency contracts $ (290) $ (290) $ (312) $ (312)
The fair value of marketable securities was based on quoted
market prices. The fair value of long-term debt was based on
quoted market prices or on the current market rates available to
the Corporation for debt of the same remaining maturity. The fair
value of interest rate swap and cap agreements was based on the
current payments required to settle the agreements. Foreign
currency contracts are recorded at fair value, adjusted to reflect
changes in exchange rates.
Effective January 3, 1994, the Corporation adopted the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
This Statement required the Corporation to record certain of its
"available-for-sale" securities on a fair market value basis rather
than on an amortized cost basis. The impact of this change on the
Corporation's balance sheet as of the adoption date was to increase
marketable securities by $2.4 million, with an offsetting decrease
of $0.8 million to the current deferred income tax asset and an
increase of $1.6 million to shareholders' equity.
The cost basis and fair market value of these available-for-
sale securities at January 1, 1995 were:
Amortized Gross Gross Fair
Cost Unrealized Unrealized Market
In thousands Basis Gains Losses Value
Equity $ 1,268 $1,177 $ - $ 2,445
Mortgage-backed 49,739 1,797 (1,612) 49,924
Other 200 - - 200
Total $51,207 $2,974 $(1,612) 52,569
There were no sales of available-for-sale securities during
the year. The mortgage-backed securities held at January 1, 1995
have contractual maturities ranging from one to twenty-six years,
with two-thirds maturing after ten years.
8. Stock Option and Incentive Plans
The Corporation has stock option plans that provide for the
purchase of the Corporation's common stock by key employees of the
Corporation and its subsidiaries. Under the 1980, 1985 and 1990
stock option plans, no further options may be granted and remaining
options outstanding are exercisable at various dates until 1999.
In 1993, the shareholders of the Corporation approved the
Management Stock Ownership Plan (MSOP). This plan provides that
for each calendar year up to 1-1/4% of the issued and outstanding
Common Stock of the Corporation shall be available for issuance as
grants or awards. This plan provides for granting stock options at
a price equal to the fair market value on the date of grant, with a
term not to exceed ten years.
Following is a summary of the option transactions for the
years 1992, 1993 and 1994:
Average
Per Share
Shares Option Price
Balance at December 31, 1991 590,124 $50.54
Granted 147,300 59.94
Exercised (149,678) 43.23
Terminated (36,694) 57.44
Balance at December 31, 1992 551,052 54.58
Granted 151,625 69.55
Exercised (120,133) 51.81
Terminated (8,975) 66.41
Balance at January 2, 1994 573,569 58.94
Granted 290,125 64.53
Exercised (94,945) 55.39
Terminated (48,675) 65.29
Balance at January 1, 1995 720,074 61.15
Exercisable at
January 1, 1995 449,849 $59.11
At January 1, 1995, a total of 1,525,883 shares was reserved
for issuance under stock options already granted or available for
future grant.
The Corporation's MSOP and, prior to 1994, the 1988 Restricted
Stock Incentive Plan, provided for the issuance of common stock as
incentive compensation to key employees. The awards are subject to
certain restrictions, including one that provides for full vesting
if the recipient remains in the employ of the Corporation three
years after receipt of the award. The value of the awards is
deductible by the Corporation as compensation expense. Shares plus
cash payments for federal and state taxes awarded under these plans
were 28,166 shares plus $899,000 in 1994, 19,077 shares plus
$460,000 in 1993, and 17,315 shares plus $354,000 in 1992.
The Corporation has a Restricted Stock Plan for Nonemployee
Directors, under which each director receives 100 restricted shares
of common stock annually for a full year of service. These shares
remain restricted during the director's term. Shares issued under
this plan were 800 shares in 1994, 942 shares in 1993 and 1,000
shares in 1992.
9. Postretirement Benefits
The Corporation and its subsidiaries have several noncontributory
pension plans covering substantially all employees. These plans
generally provide pension benefits that are based on compensation
levels and years of service. Annual contributions to the plans are
made according to the established laws and regulations of the
applicable countries. Plan assets are primarily invested in equity
securities, fixed income securities, cash equivalents and real
estate.
Net periodic pension cost for 1994, 1993 and 1992 for the
Corporation's defined benefit pension plans for continuing
operations included the following components:
In thousands 1994 1993 1992
Service cost--benefits earned during
the period $ 5,150 $ 4,852 $ 4,797
Interest cost on projected benefit
obligation 9,617 9,119 8,821
Actual return on assets (2,346) ( 9,971) (9,438)
Net amortization and deferral (10,345) (2,398) (2,365)
Net periodic pension cost $ 2,076 $ 1,602 $ 1,815
Assumptions used in developing the net periodic pension cost
were:
U.S. Plans Non-U.S.Plans
1994 1993 1992 1994 1993 1992
Discount rate 7.5% 8.0% 8.5% 7.6% 8.2% 8.7%
Rate of increase in
compensation level 5.0% 5.5% 6.0% 5.1% 6.0% 6.6%
Expected long-term rate of
return on plan assets 8.5% 8.5% 8.5% 8.6% 8.9% 9.3%
Non-U.S. rates are weighted averages.
The following table sets forth the funded status of the
Corporation's defined benefit plans as of December 1, 1994 and 1993
and amounts recognized in the Corporation's balance sheet:
January 1, January 2,
In thousands 1995 1994
Actuarial present value of projected
benefits based on employment service
to date and present pay levels:
Vested employees $117,842 $119,800
Non-vested employees 4,302 5,216
Accumulated benefit obligation 122,144 125,016
Additional amounts related to
projected pay increases 10,145 10,359
Projected benefit obligation 132,289 135,375
Plan assets at fair value 136,592 147,278
Plan assets in excess of projected
benefit obligation 4,303 11,903
Unrecognized transition assets (7,698) (9,270)
Unrecognized net (gain), loss 5,231 (1,916)
Unrecognized prior service cost 1,732 2,635
Prepaid pension cost (included in
other assets in the balance sheet) $ 3,568 $ 3,352
The above table includes plans with accumulated benefit
obligations exceeding plan assets by $231,000 at January 1, 1995
and $3,258,000 at January 2, 1994.
The present value of projected benefits for U.S. plans for
December 1, 1994 was determined using a discount rate of 8.0% and
an assumed rate of increase in compensation of 5.5%.
In 1993, the Corporation implemented a non-qualified
supplemental pension plan covering certain key executives, which
provides for benefit payments in addition to those subject to the
limitations of income tax regulations. The projected benefit
obligation relating to this unfunded plan was $10,845,000 at
January 1, 1995 and $7,695,000 at January 2, 1994. Pension expense
for this plan was $2,096,000 in 1994 and $1,284,000 in 1993.
The Corporation also sponsors defined contribution 401(K)
savings plans for its U.S. employees where the Corporation's
contributions are based on a percentage of employee contributions.
The cost of these plans for continuing operations was $2,700,000 in
1994, $2,400,000 in 1993, and $2,100,000 in 1992.
Other pension costs for continuing operations, primarily for
non-U.S. defined contribution plans and plans of insignificant
size, amounted to $650,000 in 1994, $675,000 in 1993, and $625,000
in 1992.
Effective January 1, 1993, the Corporation adopted the
provisions of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This Statement
required changing from a cash to an accrual basis in accounting for
retiree health and life insurance costs.
The Corporation provides certain health care and life
insurance benefits to retired employees and certain active
employees who meet age and length of service requirements. The
Corporation is recognizing the estimated liability for these
benefits over the lives of the individuals covered. Adoption of
this Standard did not have a significant effect on earnings and
cash flows when compared to the "pay-as-you-go" method previously
used. The Corporation is not funding this liability.
The net periodic cost for postretirement health care and life
insurance benefits for continuing operations in 1994 and 1993
includes the following components:
In Thousands 1994 1993
Service cost-benefits earned during the period $ 135 $ 36
Interest cost on accumulated benefit 1,582 1,127
Net amortization 1,066 1,009
Net cost $2,783 $2,172
The following table shows the Corporation's accumulated
postretirement benefit obligation in total and the amount
recognized in the balance sheet at January 1, 1995 and January 2,
1994:
In thousands 1994 1993
Retirees $ 18,756 $ 18,545
Fully eligible active participants 661 525
Other active participants 1,832 2,171
Total 21,249 21,241
Unrecognized transition liability (17,945) (19,236)
Unrecognized net loss (1,045) (1,766)
Unrecognized prior service cost (244) -
Accrued postretirement benefit costs $ 2,015 $ 239
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8.0% in 1994 and
7.5% in 1993. An increase in the cost of covered health care
benefits of 14% for employees under age 65 and 10% for those over
65 was assumed for the first fiscal year and the rate was assumed
to decrease incrementally to 6.0% after fifteen years and to remain
at that level thereafter. A 1% increase in the health care cost
trend rate would increase the accumulated postretirement benefit
obligation by $1.2 million at January 1, 1995 and the net periodic
cost by $0.1 million for the year then ended.
Prior to adoption of SFAS No. 106, postretirement health care
and life insurance benefits paid were $2.1 million in 1992.
10. Commitments
The Corporation and its subsidiaries are parties to various leases
relating to plants, warehouses, office facilities, automobiles, and
other equipment, principally data processing. All leases expire
prior to the year 2022. Real estate taxes, insurance, and
maintenance expenses are normally obligations of the Corporation.
It is expected that in the normal course of business the majority
of the leases will be renewed or replaced by other leases. The
Corporation has certain capitalized leases consisting principally
of leases for buildings and equipment. Following is a summary of
assets capitalized under long-term leases:
January 1, January 2,
In thousands 1995 1994
Buildings $ 7,192 $ 7,192
Machinery and equipment 5,747 5,574
Total 12,939 12,766
Less accumulated depreciation (4,865) (3,494)
Assets under capital leases, net $ 8,074 $ 9,272
Future minimum payments under capital and noncancelable
operating leases of continuing operations consisted of the
following at January 1, 1995:
In thousands Capital Operating
1995 $1,564 $15,895
1996 1,018 7,661
1997 728 5,640
1998 694 4,448
1999 566 4,134
Thereafter 4,837 21,806
Total minimum lease payments 9,407 $59,584
Less amounts representing interest 3,108
Present value of future minimum lease payments $6,299
Rent expense for operating leases of continuing operations was
$22,130,000 in 1994 $21,033,000 in 1993, and $19,546,000 in 1992.
11. Other Financial Data
Other expense--net for continuing operations consists of the
following:
In thousands 1994 1993 1992
Investment income $ 6,103 $ 4,840 $ 5,874
Interest expense (26,852) (30,247) (33,405)
Net currency losses (2,829) (782) (1,354)
Other (494) (927) (4,479)
$(24,072) $(27,116) $(33,364)
Accrued liabilities include salaries, fringe benefits, and
other compensation amounting to $27,039,000 in 1994 and
$24,124,000 in 1993.
Inventories consisted of the following:
January 1, January 2,
In thousands 1995 1994
Finished goods $ 96,159 $ 97,795
Work in process 33,663 34,389
Raw materials 68,600 68,118
$198,422 $200,302
12. Information Relating to Operations in Different Geographic
Areas
The Corporation is engaged in the design, manufacture, and
marketing of electrical and electronic connectors, components and
accessories. Operations are conducted in three principal areas:
Domestic, Europe and Other International locations. Transfers
between geographic areas are priced on a basis that yields an
appropriate rate of return based on assets employed, risk and other
factors.
Financial Information Relating to Operations in Different
Geographic Areas
In thousands 1994 1993 1992
Sales to Unaffiliated Customers:
Domestic $844,066 $761,053 $ 728,916
Europe 113,173 105,666 123,219
Other International 118,926 90,790 87,413
Total $1,076,165 $957,509 939,548
Sales or Transfers Between
Geographic Areas:
Domestic 45,074 43,146 38,265
Europe 5,285 3,600 2,202
Other International 12,615 8,563 7,287
Total 62,974 55,309 47,754
*Earnings Before Income Taxes:
Domestic (6,789) 48,882 35,469
Europe (2,318) 923 3,468
Other International 11,178 12,307 13,863
Adjustments and eliminations (1,577) (2,170) 183
Earnings from continuing operations
before income taxes 494 59,942 52,983
Identifiable Assets:
Domestic 787,180 771,120 749,978
Europe 72,066 69,645 81,883
Other International 149,513 85,069 75,029
Corporate assets (principally
cash and investments) 205,147 131,631 130,596
Assets of discontinued operations - 81,098 82,241
Adjustments and eliminations (5,694) (5,381) (2,664)
Total $1,208,212 $1,133,182 $1,117,063
<FN>
*Fiscal 1994 Domestic, European, and other foreign earnings
includes a restructuring charge and write-down of previously-
vacated facilities of $75.3, $12.2 and $2.2 million respectively.