UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

 

Commission file number 1-4682

Thomas & Betts Corporation

(Exact name of registrant as specified in its charter)

 

 

 

(901) 252-8000

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ     No o     

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o     No þ     

 

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 þ     No o     

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o     No o     

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

  þ     

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  Yes o     No þ     

 

As of June 30, 2009, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was $1,513,038,170 based on the closing price as reported on the New York Stock Exchange.

 

As of February 12, 2010, 52,618,389 shares of the registrant’s common stock were outstanding.

 

Documents Incorporated by Reference

 

Portions of the definitive Proxy Statement for the Annual Meeting of Shareholders will be filed within 120 days after the end of the fiscal year covered by this report and are incorporated by reference into Part III.

 

 

Thomas & Betts Corporation and Subsidiaries

 

TABLE OF CONTENTS

 

 

 

This Report includes “forward-looking comments and statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts regarding Thomas & Betts Corporation and are subject to risks and uncertainties in our operations, business, economic and political environment. — See Item 1A. “Risk Factors.” Forward-looking statements contain words such as:

 

 

These forward-looking statements are not guarantees of future performance. Many factors could affect our future financial condition or results of operations. Accordingly, actual results, performance or achievements may differ materially from those expressed or implied by the forward-looking statements contained in this Report. We undertake no obligation to revise any forward-looking statement included in this Report to reflect any future events or circumstances.

 

A reference in this Report to “we”, “our”, “us”, “Thomas & Betts” or the “Corporation” refers to Thomas & Betts Corporation and its consolidated subsidiaries.

 

 

Thomas & Betts Corporation is a leading designer and manufacturer of electrical components used in industrial, construction, utility and communications markets. We are also a leading producer of commercial heating and ventilation units and highly engineered steel structures used for utility transmission. We have operations in approximately 20 countries. Manufacturing, marketing and sales activities are concentrated primarily in North America and Europe. We pursue growth through market penetration, new product development and acquisitions.

 

We sell our products through the following channels:

 

 

Thomas & Betts was first established in 1898 as a sales agency for electrical wires and raceways, and was incorporated and began manufacturing products in New Jersey in 1917. We were reincorporated in Tennessee in 1996. Our corporate offices are maintained at 8155 T&B Boulevard, Memphis, Tennessee 38125, and the telephone number at that address is 901-252-8000.

 

Available Information

 

Our internet address is www.tnb.com where interested parties can find our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports. These materials are free of charge and are made available as soon as reasonably practicable after they are electronically filed with, or furnished to, the Securities and Exchange Commission (“SEC”). We will provide electronic or paper copies of our filings free of charge upon request.

 

General Segment Information

 

We classify our products into the following business segments based primarily on product lines. Our segments are:

 

 

The majority of our products, especially those sold in the Electrical segment, have region-specific standards and are sold mostly in North America or in other regions sharing North American electrical codes. No customer accounted for 10% or more of our consolidated net sales for 2009, 2008 or 2007.

 

Electrical Segment

 

Our Electrical segment’s markets include industrial MRO (maintenance, repair and operations) and OEM (original equipment manufacturers), construction, utility and communications markets. This segment’s sales are concentrated primarily in North America and Europe. The Electrical segment typically experiences modest seasonal increases in sales during the second and third

quarters reflecting the construction season. Net sales for the Electrical segment for the past three years were:

 

 

The Electrical segment designs, manufactures and markets thousands of different connectors, components and other products for industrial, construction, utility and communications applications. We have a market-leading position for many of our products. Products in the Electrical segment include:

 

 

These products are sold under a variety of well-known brand names, such as Carlon^®, Color-Keyed^®, Cyberex^®, Diamond^®, Elastimold^®, Emergi-Lite^®, Furse^®, Homac^®, Iberville^®, Joslyn Hi-Voltage^tm, Kindorf^®, Kold-N-Klose^®, Ocal^®, LRC^®, Red Dot^®, Snap-N-Seal^®, Sta-Kon^®, Steel City^®, Superstrut^® and Ty-Rap^®.

 

Demand for electrical products follows general economic conditions and is sensitive to activity in construction markets, industrial production levels and spending by utilities for replacement, expansion and efficiency improvement. The segment’s product lines are predominantly sold through major distributor chains, independent distributors and to retail home centers and hardware outlets. They are also sold directly to original equipment manufacturers, utilities, cable operators, and telecommunications and satellite TV companies. We have strong relationships with our distributors as a result of the breadth and quality of our product lines, our market-leading service programs, our strong history of product innovation, and the high degree of brand-name recognition for our products among end-users.

Steel Structures Segment

 

Our Steel Structures segment designs, manufactures and markets highly engineered steel transmission structures. These products are primarily sold to the following types of end-users:

 

 

These products are marketed primarily under the Meyer^® and Thomas & Betts^® brand names. Net sales for the Steel Structures segment for the past three years were:

 

 

HVAC Segment

 

Our HVAC segment designs, manufactures and markets heating, ventilation and air conditioning products for commercial and industrial buildings. Products in this segment include:

 

 

These products are sold primarily under the Reznor^® brand name through HVAC, mechanical and refrigeration distributors throughout North America and Europe. Demand for HVAC products tends to be higher when these regions are experiencing cold weather and, as a result, HVAC typically has higher sales in the first and fourth quarters. To reduce the impact of seasonality on operations, the segment offers an off-season sales promotional program with its distributors. Net sales for the HVAC segment for the past three years were:

 

 

Manufacturing and Distribution

 

We employ advanced processes for manufacturing quality products. Our manufacturing processes include high-speed stamping, precision molding, machining, plating, pressing, welding and automated assembly. Our internal processes utilize lean manufacturing techniques designed to reduce waste and improve operating efficiencies in our facilities. We also make extensive use of computer-aided design and computer-aided manufacturing (CAD/CAM) software and equipment to link product engineering with our manufacturing facilities. Additionally, we utilize other advanced equipment and techniques in the manufacturing and distribution process, including computer software for scheduling, material requirements planning, shop floor control, capacity planning, and the warehousing and shipment of products.

Our products have historically enjoyed a reputation for quality in the markets in which they are sold. To ensure we maintain these high quality standards, all facilities embrace quality programs, and approximately 80% meet either ISO 9001 2000 or ISO 9001 2008 standards as of December 31, 2009, with future certifications to be performed under ISO 9001 2008 standards as applicable. Additionally, we have implemented quality control processes in our design, manufacturing, delivery and other operations in order to further improve product quality and customer service levels.

 

Raw Materials

 

We purchase a wide variety of raw materials for the manufacture of our products including steel, aluminum, zinc, copper, resins and rubber compounds. Sources for raw materials and component parts are well established and, with the exception of steel and certain resins, are sufficiently numerous to avoid serious future interruptions of production in the event that current suppliers are unable to sufficiently meet our needs. However, we could encounter manufacturing disruptions in each of our segments from interruptions by steel and resins suppliers. In addition, we could encounter price increases that we may not be able to pass on to our customers.

 

Research and Development

 

We have a long-standing reputation for innovation and value based upon our ability to develop products that meet the needs of the marketplace. Each of our business segments maintain research, development and engineering capabilities intended to directly respond to specific market needs.

 

Research, development and engineering expenditures invested into new and improved products and processes are shown below. These expenditures are included in cost of sales in the Consolidated Statements of Operations.

 

 

Working Capital Practices

 

We maintain sufficient inventory to enable us to provide a high level of service to our customers. Our inventory levels, payment terms and return policies are in accordance with general practices associated with the industries in which we operate.

 

Patents and Trademarks

 

We own approximately 2,200 active patent registrations and applications worldwide. We have over 1,500 active trademarks and domain names worldwide, including: Thomas & Betts, T&B, T&B Access, Blackburn, Bowers, Canstrut, Carlon, Catamount, Color-Keyed, Commander, Cyberex, Deltec, Diamond, DuraGard, Elastimold, Emergi-Lite, E-Z-Code, Flex-Cuf, Furse, Hazlux, Homac, Iberville, Joslyn Hi-Voltage, Kindorf, Klik-It, Kold-N-Klose, Lehigh, LRC, Marr, Marrette, Meyer, Ocal, Red Dot, Reznor, Russellstoll, Sachs, Shamrock, Shield-Kon, Shrink-Kon, Signature Service, Site Light, Snap-N-Seal, Sta-Kon, Star Teck, Steel City, Superstrut, Ty-Duct, Ty-Rap and Union.

 

While we consider our patents, trademarks, and trade dress to be valuable assets, we do not believe that our competitive position is dependent solely on patent or trademark protection, or that any business segment or our operations as a whole is dependent on any individual patent or trademark. However, the Carlon, Color-Keyed, Elastimold, Iberville, Kindorf, Ocal, Sta-Kon, Steel City, Superstrut, and Ty-Rap trademarks are important to the Electrical segment; the Meyer

trademark is important to the Steel Structures segment; and the Reznor trademark is important to the HVAC segment. In addition, we do not consider any of our individual licenses, franchises or concessions to be material to our business as a whole or to any business segment.

 

Competition

 

Our ability to continue to meet customer needs by enhancing existing products and developing and manufacturing new products is critical to our prominence in our primary market, the electrical products industry. We have robust competition in all areas of our business, and the methods and levels of competition, such as price, service, warranty and product performance, vary among our markets. While no single company competes with us in all of our product lines, various companies compete with us in one or more product lines. Some of these competitors have substantially greater sales and assets and greater access to capital than we do. We believe Thomas & Betts is among the industry leaders in service to its customers.

 

Although we believe that we have specific technological and other advantages over some of our competitors, our competitors’ ability to develop new product offerings with competitive price and performance characteristics could lead to increased downward pressure on the selling prices for our products.

 

The abilities of our competitors to enhance their own products, coupled with any unforeseeable changes in customer demand for various products of Thomas & Betts, could affect our overall product mix, pricing, margins, plant utilization levels and asset valuations. We believe that industry consolidation could further increase competitive pressures.

 

Employees

 

As of December 31, 2009, we had approximately 8,500 full-time employees worldwide. Employees of our foreign subsidiaries comprise approximately 45% of all employees. Approximately 25% of our U.S. and approximately 30% of our worldwide employees are represented by trade unions. We believe our relationships with our employees and trade unions are good.

 

Compliance with Environmental Regulations

 

We are subject to federal, state, local and foreign environmental laws and regulations that govern the discharge of pollutants into the air, soil and water, as well as the handling and disposal of solid and hazardous wastes. We believe that we are in compliance, in all material respects, with applicable environmental laws and regulations and that the costs of maintaining such compliance will not be material to our financial position.

 

Financial Information About Foreign and U.S. Operations

 

Export sales originating in the U.S. were approximately $58 million in 2009, $64 million in 2008, and $62 million in 2007. For additional financial information about international and U.S. operations, please refer to Note 18 in the Notes to Consolidated Financial Statements.

 

There are many factors that could pose a material risk to our business, its operating results, its financial condition and its ability to execute its business plan, some of which are beyond our control. These factors include, but are not limited to:

 

Negative economic conditions could have a material adverse effect on our operating results and financial condition.

 

The success of Thomas & Betts’ business is directly linked to positive economic conditions in the countries where we sell our products. We do business in geographically diverse markets. In 2009, approximately one-third of our net sales were generated outside of the United States. Continued turmoil in the financial markets during 2009 has had an adverse effect on economic activity in the United States and other regions of the world in which we do business. The current economic environment has had an adverse effect on demand in our primary markets and a continued decline in economic activity could adversely affect demand for products in each of our business segments, thereby having a material adverse impact on our operating results and financial condition. Additionally, these conditions could also impair the ability of those with whom we do business to satisfy their obligations to us. Finally, a continued decline in economic activity could result in adverse changes to our current stock market-related fundamentals and current projected future operating results that are used to assess asset valuations (including goodwill and other intangible assets). Such revisions could lead to potentially significant financial impairment charges for these assets in future periods. Material adverse changes in economic (including the potential negative impact of higher interest rates and availability of credit on capital spending in the markets we serve) or industry conditions generally or in the specific markets served by Thomas & Betts could have a material adverse effect on our operating results and financial condition.

 

A significant reduction in the supply of commodity raw materials could materially disrupt our business and rising and volatile costs for commodity raw materials and energy could have a material adverse effect on our profitability.

 

In recent years, we have experienced rising and, at times, volatile costs for commodity raw materials (steel, aluminum, copper, zinc, resins and rubber compounds) and energy. Additionally, increased worldwide demand for steel has, at times, caused the availability of steel to be a concern and resin supply has been disrupted by natural disasters. Any significant accidents, labor disputes, fires, severe weather, floods or other difficulties encountered by our principal suppliers could result in production delays or the inability to fulfill orders on a timely basis. We may also not be able to fully offset in the future the effects of rising and at times volatile costs for commodity raw materials and energy through price increases for its products, productivity improvements or other cost reductions.

 

Significant changes in customer demand due to increased competition could have a material adverse effect on our operating results and financial condition.

 

As Thomas & Betts works to enhance its product offerings, its competitors will most likely continue to improve their products and will likely develop new offerings with competitive price and performance characteristics. Because of the intensity of the competition in the product areas and geographic markets that we serve, we could experience increased downward pressure on the selling prices for certain of our products.

 

Additionally, enhanced product offerings by competitors, coupled with any unforeseeable significant changes in customer demand for products of Thomas & Betts, could impact overall

product mix, pricing, margins, plant utilization levels and asset valuations, thereby having a material adverse impact on our operating results and financial condition.

 

Deterioration in the credit quality of several major customers could have a material adverse effect on our operating results and financial condition.

 

A significant asset included in our working capital is accounts receivable from customers. If customers responsible for a significant amount of accounts receivable become insolvent or otherwise unable to pay for products and services, or become unwilling or unable to make payments in a timely manner, our operating results and financial condition could be adversely affected. A significant deterioration in the economy could have an adverse effect on the servicing of these accounts receivable, which could result in longer payment cycles, increased collection costs and defaults in excess of management’s expectations. Although we are not dependent on any one customer for more than 10% of our sales, deterioration in the credit quality of several major customers at the same time could have a material adverse effect on operating results and financial condition.

 

Unforeseen adverse regulatory, environmental, monetary and other governmental policies could have a material adverse effect on our profitability.

 

Thomas & Betts is subject to governmental regulations and policies throughout the world. Unforeseen changes in these governmental regulations and policies could reduce our profitability. Namely, significant changes in monetary or fiscal policies in the U.S. and abroad could result in currency fluctuations, including fluctuations in the Canadian dollar, Euro and British pound, which, in turn, could have a negative impact on our net sales, costs and expenses. Furthermore, significant changes in any number of governmental policies could create trade restrictions, patent enforcement issues, adverse tax rate changes and changes to tax treatment of items such as tax credits, withholding taxes and transfer pricing. These changes might limit our ability to sell products in certain markets, and could have a material adverse effect on our business, operating results and financial condition.

 

In addition, our operations are subject to or could become subject to, international, federal, state and local laws and regulations governing environmental matters, including emissions and discharges of pollutants (including green house gases) into the air, soil and water and the generation and handling of waste. Thomas & Betts is also subject to laws relating to occupational health and safety. The operation of manufacturing plants involves a high level of susceptibility in these areas, and there is no assurance that we will not incur material environmental or occupational health and safety liabilities in the future. Moreover, expectations of remediation expenses could be affected by, and potentially significant expenditures could be required to comply with, environmental regulations and health and safety laws that may be adopted or imposed in the future. Future remediation technology advances could adversely impact expectations of remediation expenses.

 

Unfavorable litigation outcomes could have a material adverse effect on our profitability.

 

We are and may in the future be party to legal proceedings and claims, including those involving product liability, intellectual property and contractual disputes. Given the inherent uncertainty of litigation, we cannot offer any assurance that existing litigation or future adverse developments may not have a material adverse effect on our business, operating results and financial condition.

Inability to access capital markets may adversely impact our business.

 

Our ability to invest in our businesses and make strategic acquisitions may require access to capital markets. If we are unable to access the capital markets as needed, we could experience a material adverse impact on our business.

 

Our facilities or facilities of our customers could be susceptible to natural disasters.

 

Thomas & Betts has operations in approximately 20 countries and sells to customers throughout the world. Should a natural disaster such as a hurricane, tornado, earthquake or flood severely damage a major manufacturing, distribution or headquarters facility of Thomas & Betts, or damage a major facility of one or more of our significant customers or important suppliers, our business could be materially disrupted.

 

Possible inadequate insurance coverage.

 

In accordance with its risk management practices, Thomas & Betts continually reevaluates risks, their potential cost and the cost of minimizing them. To reduce the Corporation’s exposure to material risks, in certain circumstances, we purchase insurance. Certain risks are inherent in the manufacturing of our products and our insurance may not be adequate to cover potential claims against us involving our products. Thomas & Betts is also exposed to risks inherent in the packaging and distribution of products. Although we maintain liability insurance, we cannot assure that the coverage limits under these insurance programs will be adequate to protect Thomas & Betts against future claims, or that we will be able to obtain this insurance on acceptable terms in the future.

 

Terrorist Acts and Acts of War could adversely impact our business and operating results.

 

Terrorist acts and acts of war (wherever located around the world) may cause damage or disruption to our employees, facilities, suppliers, distributors or customers, which could significantly impact our net sales, costs and expenses and financial condition. The potential for future terrorist attacks, the national and international responses to terrorist attacks, and other acts of war or hostility have created many economic and political uncertainties, which could adversely impact our business and results of operations in ways that cannot presently be predicted. In addition, as a global company with headquarters and significant operations located in the United States, we may be impacted by actions against the United States. We are uninsured for losses and interruptions caused by acts of war and have policy limits for losses caused by terrorist acts.

 

 

None.

 

We have operations in approximately 20 countries and, as of December 31, 2009, occupy approximately 5.3 million square feet of manufacturing space. Our manufacturing locations by segment as of December 31, 2009 were as follows:

 

 

As of December 31, 2009, the Corporation has 2.4 million square feet of office, distribution, storage and other space. Included in this total are three owned primary distribution centers located in

Belgium (0.1 million square feet), Canada (0.3 million square feet) and Byhalia, Mississippi (0.9 million square feet). We also have principal sales offices, warehouses, storage and other facilities in approximately 0.9 million square feet of space, most of which is leased, and approximately 0.2 million square feet of leased space in Memphis, Tennessee, which includes our corporate headquarters.

 

 

We are involved in legal proceedings and litigation arising in the ordinary course of business. In those cases where we are the defendant, plaintiffs may seek to recover large and sometimes unspecified amounts or other types of relief and some matters may remain unresolved for several years. Such matters may be subject to many uncertainties and outcomes which are not predictable with certainty. We have provided for losses to the extent probable and estimable. The legal matters that have been recorded in our consolidated financial statements are based on gross assessments of expected settlement or expected outcome and do not reflect possible recovery from insurance companies or other parties. Additional losses, even though not anticipated, could have a material adverse effect on our financial position, results of operations or liquidity in any given period.

 

Environmental Matters

 

Owners and operators of sites containing hazardous substances, as well as generators of hazardous substances, are subject to broad and retroactive liability for investigatory and cleanup costs and damages arising out of past disposal activities. Such liability in many cases may be imposed regardless of fault or the legality of the original disposal activity. We have been notified by the United States Environmental Protection Agency or similar state environmental regulatory agencies or private parties that we, in many instances along with others, may currently be potentially responsible for the remediation of sites pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, similar federal and state environmental statutes, or common law theories. We, along with others, may be held jointly and severally liable for all costs relating to investigation and remediation of eight sites pursuant to these environmental laws.

 

We are the owner or operator, or former owner or operator, of various manufacturing locations that we are currently evaluating for the presence of contamination that may require remediation or are in process of remediation. These sites include former or inactive facilities or properties in Alabama; Connecticut; Indiana; Massachusetts; New Hampshire; New Jersey; Pennsylvania; Ohio and Oklahoma. The sites further include active manufacturing locations in Florida; New Jersey; New Mexico; and South Carolina.

 

In conjunction with the acquisitions of Lamson & Sessions Co., Joslyn Hi-Voltage, Power Solutions, Drilling Technical Supply SA, The Homac Manufacturing Company and Boreal Braidings Inc., we assumed responsibility for legacy environmental matters.

 

We have provided for environmental liabilities to the extent probable and estimable, but we are not able to predict the extent of our ultimate liability with respect to all of these pending or future environmental matters.

 

 

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 2009.

 

The following persons are executive officers of Thomas & Betts, and are elected by and serve at the discretion of the Board of Directors.

 

Dominic J. Pileggi, 58
Chairman and Chief Executive Officer

 

Mr. Pileggi was elected Chief Executive Officer in January 2004, and Chairman of the Board effective January 2006. Mr. Pileggi has held several executive positions with the Corporation, including President and Chief Operating Officer from 2003 to 2004, and Senior Vice President and Group President – Electrical from 2000 to 2003. He also held various executive positions with Thomas & Betts from 1979 to 1995. Mr. Pileggi was employed by Viasystems Group, Inc., as Executive Vice President from 1998 to 2000 and President – EMS Division of Viasystems in 2000. From 1995 to 1998, he also held various executive positions with Casco Plastic, Inc. and Jordan Telecommunications.

 

William E. Weaver, Jr., 46
Senior Vice President and Chief Financial Officer

 

Mr. Weaver was elected Chief Financial Officer in October 2009. Previously, he held the position of Vice President – Controller from November 2008 to 2009. Mr. Weaver was employed by First Horizon Home Loans/MetLife Home Loans from 2006 to 2008. Prior to that time, he was a partner with KPMG LLP from 2002 to 2006 and held various positions including partner with Arthur Andersen LLP from 1984 to 2002.

 

Charles L. Treadway, 44
Senior Vice President and Group President – Electrical

 

Mr. Treadway was elected Group President – Electrical in March 2009. Mr. Treadway was employed by Schneider Electric from 2006 to 2009 where he led the company’s Custom Sensors and Technology business. Prior to that time, he was President and Chief Executive Officer of Prettl International, a subsidiary of German-based Prettl GMBH from 2001 to 2005 and he was President of Groupo Teso Mexico, a division of Yale Security (Americas), Inc. from 1999 to 2001.

 

Imad Hajj, 49
Senior Vice President – Global Operations

 

Mr. Hajj was elected Senior Vice President – Global Operations in November 2008. Previously, he held several executive positions within the Corporation, including Vice President and Chief Development Officer 2006 to 2008. He also held the position of President – HVAC Division dating back to 2004. Between 1983 and 2004, Mr. Hajj held executive and managerial positions in manufacturing, supply chain, information technology and global electrical manufacturing operations. In addition, he has served as general manager of the Company’s European business.

 

J.N. Raines, 66
Vice President – General Counsel and Secretary

 

Mr. Raines was elected Vice President – General Counsel & Secretary in December 2001. Prior to that time, he was a partner of the law firm of Glankler Brown PLLC from 1976 to 2001. He has also served as an assistant United States attorney for the Western District of Tennessee and as a trial lawyer for the anti-trust division of the U.S. Department of Justice.

Stanley P. Locke, 50
Vice President – Business Development and Strategic Planning

 

Mr. Locke was elected Vice President – Business Development and Strategic Planning in November 2008. Previously, he held the positions of Vice President – Controller and Vice President – Corporate Controller from 2004 to 2008. Prior to that time, he held various positions in finance and corporate development with Sara Lee Corporation, beginning in 1985, as well as with a consulting advisory firm from 2003 to 2004.

 

NYSE Certifications

 

Our CEO certified to the New York Stock Exchange in 2009 that we were in compliance with the NYSE listing standards. Our CEO and CFO have executed the certification required by section 302 of the Sarbanes-Oxley Act of 2002, which is contained herein as an exhibit to this Form 10-K for the fiscal year ended December 31, 2009.

 

 

Market Information

 

Our common stock is traded on the New York Stock Exchange under the symbol TNB. The following table sets forth by quarter for the last two years the high and low sales prices of our common stock as reported by the NYSE.

 

At February 12, 2010, the closing price of our common stock on the NYSE was $34.58.

 

 

Holders

 

At February 12, 2010, we had 2,634 shareholders of record, not including shares held in security position listings, or “street name.”

 

Dividends

 

We do not currently pay cash dividends. Future decisions concerning the payment of cash dividends will depend upon our results of operations, financial condition, strategic investment opportunities, capital expenditure plans, terms of credit agreements, and other factors that the Board of Directors may consider relevant.

 

This graph shows, from the end of 2004 to the end of 2009, changes in the value of $100 invested in each of Thomas and Betts’ common stock, Standard & Poor’s (“S&P”) Midcap 400 Composite Index, S&P 500 Composite Index and a peer group consisting of five companies whose businesses are representative of our business segments. The companies in the peer group are: Amphenol Corporation, Cooper Industries, Ltd., Eaton Corporation, Hubbell Incorporated and Rockwell Automation Corporation.

 

In 2009, we are replacing our broad market index of the S&P 500 Composite Index with the S&P Midcap 400 Composite Index. This change provides a better comparison of Thomas & Betts with other companies of similar market capitalization levels. In 2009, we are presenting the information using both the old and new broad market indexes.

 

 

 

The Custom Peer Group has been weighted in accordance with each company’s market capitalization as of the beginning of each of the five years covered by the performance graph. The weighted return was calculated by summing the products obtained by multiplying (i) the percentage that each company’s market capitalization represents of the total market capitalization for all companies in the index by (ii) the total shareholder return for that company.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

In 2008, our Board of Directors approved a share repurchase plan that authorized us to buy 5,000,000 of our common shares. In 2008, we repurchased, with available cash resources, 2,425,000 common shares through open-market transactions. During 2009, we repurchased, with available cash resources, 1,000,000 common shares through open-market transactions. The timing of future repurchases, if any, will depend upon a variety of factors, including market conditions. This authorization expires in October 2010.

 

Issuer Purchases of Equity Securities

 

 

Thomas & Betts Corporation and Subsidiaries

 

 

Note: Selected financial data in 2008 and 2007 reflect acquisitions by the Corporation for consideration of approximately $90 million and $750 million, respectively. The Corporation funded certain of the 2008 and 2007 acquisitions using its revolving credit facility. Net earnings from continuing operations in 2008 reflects a pre-tax gain of approximately $170 million from the Corporation’s sale of its minority interest in Leviton Manufacturing Company.

 

Executive Overview

 

Introduction

 

Thomas & Betts Corporation is a leading designer and manufacturer of electrical components used in industrial, construction, utility and communications markets. We are also a leading producer of commercial heating and ventilation units and highly engineered steel structures used for utility transmission. We have operations in approximately 20 countries. Manufacturing, marketing and sales activities are concentrated primarily in North America and Europe.

 

Critical Accounting Policies

 

The preparation of financial statements contained in this report requires the use of estimates and assumptions to determine certain amounts reported as net sales, costs, expenses, assets or liabilities and certain amounts disclosed as contingent assets or liabilities. Actual results may differ from those estimates or assumptions. Our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements. We believe our critical accounting policies include the following:

 

 

We perform an annual impairment test of goodwill and indefinite-lived intangible assets. We perform our annual impairment assessment as of the beginning of the fourth quarter of each year, unless circumstances dictate more frequent interim assessments. In evaluating when an interim assessment of goodwill is necessary, we consider, among other things, the trading level of our common stock, changes in expected future cash flows and mergers and acquisitions involving companies in our industry. In evaluating when an interim assessment of indefinite-lived intangible assets is necessary, we review for significant events or significant changes in circumstances.

 

In conjunction with each test of goodwill we determine the fair value of each reporting unit and compare the fair value to the reporting unit’s carrying amount. A reporting unit is defined as an operating segment or one level below an operating segment. We determine the fair value of our reporting units using a combination of three valuation methods: market multiple approach; discounted cash flow approach; and comparable transactions approach. The market multiple approach provides indications of value based on market multiples for public companies involved in similar lines of business. The discounted cash flow approach calculates the present value of projected future cash flows using assumptions consistent with those of market participants. The comparable transactions approach provides indications of value based on an examination of recent transactions in which companies in similar lines of business were acquired. The fair values derived from these three valuation methods are then weighted to arrive at a single value for each reporting unit. Relative weights assigned to the three methods are based upon the availability, relevance and reliability of the underlying data. We then reconcile the total values for all reporting units to our market capitalization and evaluate the reasonableness of the implied control premium.

 

To the extent a reporting unit’s carrying amount exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired, and we must perform a second more detailed impairment assessment. The second impairment assessment involves allocating the reporting unit’s fair value to all of its recognized and unrecognized assets and liabilities in order to determine the implied fair value of the reporting unit’s goodwill as of the assessment date. The implied fair value of the reporting unit’s goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date.

 

Methods used to determine fair values for indefinite-lived intangible assets involve customary valuation techniques that are applicable to the particular class of intangible asset and apply inputs and assumptions that we believe a market participant would use.

 

 

 

Summary of Consolidated Results

 

 

Year 2009 Compared with 2008

 

Overview

 

Net sales in 2009 decreased significantly from 2008 primarily reflecting lower sales volumes on weaker global demand in our Electrical and HVAC segments. Additionally, during 2009, we did not experience the traditional seasonal summer increase in non-residential construction-related demand usually seen in our Electrical segment. A stronger U.S. dollar during 2009 also negatively impacted net sales in 2009. Although current year production volumes decreased significantly, gross profit as a percent of net sales in 2009 decreased only 1.4 percentage points.

 

Earnings from operations in dollars and as a percent of sales decreased from the prior year primarily as a result of lower sales and production volumes. Prior actions taken to reduce headcount and cut expenses, the impact of lower current year commodity costs, and our discipline in managing price muted the negative impact of lower sales volumes on 2009 earnings. Earnings from operations in 2009 included a charge related to a facility consolidation, a non-cash charge for intangible asset impairment, a charge for an estimate revision for an environmental remediation site and a benefit from a self-insurance reserves adjustment. Earnings from operations in 2008 included a non-cash charge for intangible asset impairment and a benefit from a favorable legal settlement.

 

During 2009, we refinanced certain long-term debt and recognized a loss on extinguishment of debt.

During 2008, we sold our minority interest in Leviton Manufacturing Company (“Leviton”) and recognized a pre-tax gain of $170 million.

 

Net earnings in 2009 were $107.9 million, or $2.04 per diluted share compared to net earnings of $265.3 million, or $4.64 per diluted share in 2008. Net earnings in 2009 included a net after-tax charge totaling $12.4 million ($0.23 per diluted share) and net earnings in 2008 included a net after-tax benefit totaling $74.9 million ($1.31 per diluted share). Net earnings in 2008 also included an $8.4 million ($0.15 pre diluted share) after-tax loss from discontinued operations that reflects a loss on sale in connection with the completion of planned divestitures of non-core businesses acquired as part of a 2007 acquisition.

 

Net Sales and Gross Profit

 

Net sales in 2009 were $1.9 billion, down 23.2% from 2008. The year-over-year sales decrease primarily reflects lower sales volumes on weaker global demand in our Electrical and HVAC segments. The stronger U.S. dollar negatively impacted sales by approximately $77 million in 2009 when compared to 2008.

 

Gross profit in 2009 was $569.9 million, or 30.0% of net sales, compared to $776.0 million, or 31.4% of net sales, in 2008. The year-over-year decrease as a percent of sales reflects the impact of lower production volumes. Actions taken in the second half of 2008 and during 2009 to lower overall manufacturing costs — headcount and expense cuts — helped mitigate the negative impact of lower production volumes. Lower current year commodity costs and our discipline in managing our price-cost relationship also benefited current year gross profit. Gross profit also reflected net charges totaling approximately $4 million related to a facility consolidation, which partially offset a benefit from a self-insurance reserve adjustment.

 

Selling, General and Administrative

 

Selling, general and administrative (“SG&A”) expense in 2009 was $372.9 million, or 19.6% of net sales, compared to $430.7 million, or 17.4% of net sales, in 2008. SG&A expense in 2009 reflects a $4 million environmental remediation charge. SG&A expense in 2008 reflects a favorable $12 million legal settlement.

 

Intangible Asset Impairment

 

During 2009, we recognized impairment of non-amortizing intangible assets in our Electrical segment of $4.6 million and in our HVAC segment of $1.2 million. During 2008, we recognized impairment of intangible assets of $32.7 million in our Electrical segment.

 

Interest Expense, Net

 

Interest expense, net was $35.5 million in 2009, down $7.9 million from 2008. The decrease reflects lower average debt outstanding during 2009 when compared to 2008. Interest income included in interest expense, net was $0.8 million in 2009 and $4.7 million in 2008. Interest expense was $36.3 million for 2009 and $48.1 million for 2008.

 

Loss on Extinguishment of Debt

 

During 2009, we issued $250 million of 5.625% senior notes due 2021 and used a portion of the net proceeds to retire $125 million of 7.25% notes due 2013. We recognized a loss on extinguishment of debt of $6.4 million during 2009 associated with the early repayment of the 2013 notes.

Gain on Sale of Equity Interest

 

During 2008, we sold our minority interest in Leviton for net proceeds of $280 million and recognized a pre-tax gain of $169.7 million.

 

Income Taxes

 

The effective tax rate in 2009 was 28.6% compared to 36.5% in 2008. The higher prior year effective rate for 2008 reflects the gain on sale of our minority interest in Leviton, the $32.7 million non-cash charge for impairment of intangible assets and a $14 million non-cash tax charge. The effective rate for both years reflects benefits from our Puerto Rican manufacturing operations.

 

Net Earnings

 

Net earnings in 2009 were $107.9 million, or $2.04 per diluted share compared to net earnings of $265.3 million, or $4.64 per diluted share in 2008. Net earnings in 2009 included a net after-tax charge totaling $12.4 million ($0.23 per diluted share) associated with debt refinancing, a facility consolidation, a non-cash charge for intangible asset impairment, a charge for an estimate revision for an environmental remediation site and a benefit from a self-insurance reserves adjustment. Net earnings in 2008 included a net after-tax benefit totaling $74.9 million ($1.31 per diluted share) associated with the gain on sale of Leviton, a non-cash charge for intangible asset impairment, an out-of-period non-cash tax charge and a benefit from a favorable legal settlement. Net earnings in 2008 also included an $8.4 million ($0.15 pre diluted share) after-tax loss from discontinued operations that reflects a loss on sale in connection with the completion of planned divestitures of non-core businesses acquired as part of a 2007 acquisition.

 

Year 2008 Compared with 2007

 

Overview

 

Thomas & Betts’ 2008 performance exceeded that of 2007, despite the economic turmoil that began to spread beyond the residential-related markets in the second half of the year. Net sales and gross profit in 2008 increased from 2007 by 16% and 17%, respectively. Electrical segment acquisitions completed in 2007 and early 2008 played a major role in the year-over-year increases in net sales and gross profit. Price increases in 2008 related to higher commodity and energy costs helped to offset lower underlying sales volumes in 2008. Gross profit in 2008 as a percent of net sales increased modestly over the prior year.

 

Earnings from operations in 2008 were negatively impacted by a $32.7 million non-cash charge in the fourth quarter for intangible asset impairment. Selling, general and administrative expense in 2008 as a percent of net sales remained flat with the prior year.

 

Interest expense, net increased year-over-year primarily as a result of funding required for acquisitions.

 

During 2008, we sold our minority interest in Leviton and recognized a pre-tax gain of $170 million.

 

Net earnings from continuing operations in 2008 were $273.7 million, or $4.79 per diluted share. Net earnings from continuing operations in 2007 were $183.7 million, or $3.13 per diluted share.

The 2008 $8.4 million loss from discontinued operations, net reflects a fourth quarter loss on sale in connection with the completion of planned divestures of non-core pipe businesses acquired as part of the 2007 acquisition of Lamson & Sessions Co.

 

Net earnings including discontinued operations in 2008 were $265.3 million, or $4.64 per diluted share. Net earnings including discontinued operations in 2007 were $183.2 million, or $3.12 per diluted share.

 

Net Sales and Gross Profit

 

Net sales in 2008 were $2.5 billion, up 15.8% from 2007. Acquisitions completed in 2007 and early 2008 accounted for $314 million of the year-over-year increase in net sales. Price increases in 2008 related to higher commodity and energy costs helped to offset lower underlying sales volumes in 2008. Favorable foreign currency exchange driven by strong Canadian and European currencies against a weaker U.S. dollar, primarily in the first half of the year, accounted for approximately $19 million of the sales increase.

 

Gross profit in 2008 was $776.0 million, or 31.4% of net sales, compared to $661.5 million, or 31.0% of net sales, in 2007. The year-over-year improvement in gross profit dollars and percent of net sales largely reflects the favorable impact of acquisitions.

 

Selling, General and Administrative

 

SG&A expense in 2008 was $430.7 million, or 17.4% of net sales, compared to $371.9 million, or 17.4% of net sales, in the prior year. The $59 million increase in SG&A expense largely reflects the impact of the acquisitions. SG&A expense in 2008 included $26.6 million of intangible asset amortization and a favorable $12 million legal settlement. SG&A expense in 2007 included $8.3 million of intangible asset amortization ($7 million of which related to the 2007 acquisitions), a $7 million charge for a legal settlement and $7 million in expenses for revised estimates for certain environmental site remediation.

 

Intangible Asset Impairment

 

During 2008, we recognized impairment of non-amortizing intangible assets of $32.7 million in our Electrical segment.

 

Interest Expense, Net

 

Interest expense, net was $43.4 million for 2008 up $19.9 million from the prior year primarily as a result of funding required for the acquisitions and lower interest income. Interest income included in interest expense, net was $4.7 million for 2008 compared to $10.6 million for 2007. Interest expense was $48.1 million for 2008 and $34.1 million for 2007.

 

Gain on Sale of Equity Interest

 

During 2008, we sold our minority interest in Leviton for net proceeds of $280 million and recognized a pre-tax gain of $169.7 million.

 

Income Taxes

 

The effective tax rate in 2008 was 36.5 percent compared to 30.4 percent in 2007. The higher 2008 rate reflects the impact on domestic pre-tax earnings of the $170 million gain on sale of our minority interest in Leviton and the $32.7 million non-cash charge for intangible asset impairment.

Additionally, the 2008 rate reflects an out-of-period, non-cash tax charge of $14 million. The effective rate for both years reflects benefits from our Puerto Rican manufacturing operations.

 

Net Earnings

 

Net earnings from continuing operations in 2008 were $273.7 million, or $4.79 per diluted share. Net earnings from continuing operations in 2007 were $183.7 million, or $3.13 per diluted share. Higher 2008 net earnings from continuing operations reflect the previously noted gain on sale of our minority interest in Leviton, a favorable legal settlement, a non-cash tax charge related to an adjustment of prior period deferred income taxes and a non-cash charge for intangible asset impairment (collectively, $1.31 per diluted share).

 

Loss from discontinued operations, net in 2008 was $8.4 million, or $0.15 per diluted share, in 2008 compared to $0.5 million, or $0.01 per diluted share, in 2007. Loss from discontinued operations, net in 2008 reflects an $8.1 million loss on sale in conjunction with the completion of planned divestures of non-core pipe businesses acquired as part of the 2007 acquisition of Lamson & Sessions Co.

 

Net earnings including discontinued operations in 2008 were $265.3 million, or $4.64 per diluted share. Net earnings including discontinued operations in 2007 were $183.2 million, or $3.12 per diluted share.

Summary of Segment Results

 

 

 

We have three reportable segments: Electrical, Steel Structures and HVAC. We evaluate our business segments primarily on the basis of segment earnings, with segment earnings defined as earnings before corporate expense, depreciation and amortization expense, share-based compensation expense, interest, income taxes and certain other items.

 

Our segment earnings are significantly influenced by the operating performance of our Electrical segment that accounted for more than 80% of our consolidated net sales and consolidated segment earnings during 2009, 2008, and 2007.

 

Electrical Segment

 

Year 2009 Compared with 2008

 

Electrical segment net sales in 2009 were $1.6 billion, down 26.1% from 2008. Decreased sales compared to 2008 reflect weaker demand for electrical products used in construction, industrial utility and communications markets. Virtually all product and geographic markets in the Electrical segment experienced significant year-over-year volume declines. During 2009, we did not experience the traditional seasonal summer increase in non-residential construction-related demand usually seen in our Electrical segment. The stronger U.S. dollar negatively impacted sales by approximately $75 million in 2009.

Electrical segment earnings in 2009 were $270.2 million, down 35.2% from 2008. Electrical segment earnings in 2009 included net charges totaling approximately $4 million related to a facility consolidation, which were partially offset an adjustment of self-insurance reserves. The decline in year-over-year segment earnings compared to 2008 reflects primarily the impact of lower sales and production volumes.

 

Year 2008 Compared with 2007

 

Electrical segment net sales in 2008 were $2.1 billion, up 19.1% from 2007. Acquisitions completed in 2007 and early 2008 accounted for $314 million of the year-over-year increase in net sales. Price increases in 2008 related to higher commodity and energy costs helped to offset lower underlying sales volumes in 2008. Favorable foreign currency exchange accounted for approximately $17 million of the sales increase.

 

Electrical segment earnings in 2008 were $416.7 million, up 18.1% from 2007. The improvement in year-over-year segment earnings largely reflects the favorable impact of acquisitions. Price increases in 2008 related to higher commodity and energy costs helped to offset the earnings impact of lower underlying sales volumes.

 

Steel Structures Segment

 

Year 2009 Compared with 2008

 

Net sales in 2009 in our Steel Structures segment were $234.5 million, up 1.3% from 2008. Relatively flat year-over-year net sales reflect an increase in volumes that were partially offset by price decreases from lower steel costs. Segment earnings in 2009 were $47.4 million, up 7.0% from 2008, primarily reflecting improved project mix.

 

Year 2008 Compared with 2007

 

Net sales in 2008 in our Steel Structures segment were $231.6 million, up 1.9% from 2007. Segment earnings in 2008 were $44.3 million, up 4.0% from 2007, primarily reflecting changes in project mix.

 

HVAC Segment

 

Year 2009 Compared with 2008

 

Net sales in 2009 in our HVAC segment were $109.9 million, down 21.0% from 2008. HVAC segment earnings in 2009 were $18.2 million, down 29.1% from 2008. The sales and earnings declines reflect volume declines resulting from weak commercial construction markets and the curtailment of maintenance and replacement spending in key end markets.

 

Year 2008 Compared with 2007

 

Net sales in 2008 in our HVAC segment were $139.1 million, down 2.7% from 2007. HVAC segment earnings in 2008 were $25.7 million, down 5.5% from 2007, primarily due to lower sales volumes.

 

Liquidity and Capital Resources

 

We had cash and cash equivalents of $478.6 million and $292.5 million at December 31, 2009 and 2008, respectively.

The following table reflects the primary category totals in our Consolidated Statements of Cash Flows.

 

 

Operating Activities

 

Cash provided by operating activities in 2009 was primarily attributable to net income of $107.9 million. Operating activities in 2009 included depreciation and amortization of $75.1 million, a non-cash charge for intangible asset impairment of $5.8 million, share-based compensation expense of $16.3 million and loss on extinguishment of debt of $6.4 million. Net changes in working capital (accounts receivable, inventories and accounts payable) and accrued liabilities positively impacted cash flows by $35.9 million in 2009. Funding to qualified pension plans of $51.7 million negatively impacted cash flows in 2009. Operating activities were also unfavorably impacted by change in control payments of $5.4 million related to the Lamson & Sessions Co. (“LMS”) acquisition.

 

Cash provided by operating activities in 2008 was primarily attributable to net income of $265.3 million. Net income in 2008 reflected the second quarter pre-tax gain on sale of our minority interest in Leviton of $169.7 million. Additionally, income taxes related to divestitures during 2008 negatively impacted cash flows by approximately $70 million. Operating activities in 2008 included depreciation and amortization of $80.4 million, a non-cash charge for intangible asset impairment of $32.7 million and share-based compensation expense of $19.4 million. Changes in working capital (accounts receivable, inventories and accounts payable) as well as accrued liabilities positively impacted cash flows by $36.8 million in 2008. Operating activities in 2008 were also unfavorably impacted by change in control payments related to the LMS acquisition of $13.6 million.

 

Cash provided by operating activities in 2007 was primarily attributable to net income of $183.2 million. Operating activities in 2007 included depreciation and amortization of $57.8 million and share-based compensation expense of $12.5 million. Changes in working capital (accounts receivable, inventories and accounts payable) as well as accrued liabilities had a negligible impact on cash flows in 2007. Operating activities in 2007 also reflected $8.8 million in merger-related transaction costs incurred by LMS that were subsequently paid by Thomas & Betts.

 

Investing Activities

 

During 2009, we had capital expenditures to support our ongoing business plans totaling $41.1 million. We expect capital expenditures to be in the mid-$40 million to low-$60 million range for the full year 2010. Investing activities in 2009 also reflect the release of restricted cash for change in control payments related to the LMS acquisition of $5.1 million.

 

Investing activities in 2008 included the sale of the held-for-sale operations and LMS headquarters building that were acquired as part of the LMS acquisition totaling approximately $65.4 million. Investing activities in 2008 also reflect the sale of our minority interest in Leviton for

net proceeds of $280 million. Two acquisitions totaling $91 million and capital expenditures totaling $42.1 million also impacted investing activities during 2008. Investing activities in 2008 also reflect release of restricted cash for change in control payments related to the LMS acquisition of $8.7 million.

 

Investing activities in 2007 included the acquisitions of LMS for approximately $450 million, the Joslyn Hi-Voltage and Power Solutions businesses from Danaher Corporation for approximately $280 million and Drilling Technical Supply SA for approximately $23 million. Capital expenditures totaling $40.7 million also impacted investing activities during 2007. Investing activities in 2007 also reflect establishment of restricted cash used for change in control payments related to the LMS acquisition of $16.7 million.

 

Financing Activities

 

Financing activities in 2009 included the repurchase of 1.0 million common shares for $25 million. During the fourth quarter of 2009, we issued $250 million of 5.625% senior notes due 2021 and used a portion of the net proceeds to retire $125 million of 7.25% notes due 2013 and repay $95 million of outstanding indebtedness on our revolving credit facility. In the first quarter of 2009, we repaid $148 million of debt using a combination of cash and borrowings under our revolving credit facility. Financing activities in 2009 resulted in no net change in the balance of our revolving credit facility from year-end 2008 to year-end 2009. During 2009, the Corporation reduced its total outstanding debt by approximately $26 million.

 

Financing activities in 2008 reflected cash used for the repurchase of approximately 5.2 million common shares for $161 million. Financing activities in 2008 also reflected repayment of $124 million of debt and net repayments on our revolving credit facility of $30 million.

 

Financing activities in 2007 reflected cash used for the repurchase of approximately 2.5 million common shares for $133 million. Financing activities in 2007 also reflected net proceeds on our revolving credit facility of $420 million and cash provided by stock option exercises of $25 million.

 

$750 million Credit Facility

 

We have a revolving credit facility with total availability of $750 million and a five-year term expiring in October 2012. All borrowings and other extensions of credit under our revolving credit facility are subject to the satisfaction of customary conditions, including absence of defaults and accuracy in material respects of representations and warranties. The proceeds of any loans under the revolving credit facility may be used for general operating needs and for other general corporate purposes in compliance with the terms of the facility. At December 31, 2009 and 2008, $390 million was outstanding under this facility.

 

In 2007, the Corporation entered into an interest rate swap to hedge its exposure to changes in the LIBOR rate on $390 million of borrowings under this facility. See Item 7A.

 

Fees to access the facility and letters of credit under the facility are based on a pricing grid related to our debt ratings with Moody’s, S&P, and Fitch during the term of the facility.

 

Our amended and restated revolving credit facility requires that we maintain:

 

 

It also contains customary covenants that could restrict our ability to: incur additional indebtedness; grant liens; make investments, loans, or guarantees; declare dividends; or repurchase

company stock. We do not expect these covenants to restrict our liquidity, financial condition, or access to capital resources in the foreseeable future.

 

Outstanding letters of credit, which reduced availability under the credit facility, amounted to $20.7 million at December 31, 2009. The letters of credit relate primarily to third-party insurance claims processing.

 

Other Credit Facilities

 

We have a EUR 10.0 million (approximately US$14.4 million) committed revolving credit facility with a European bank that has an indefinite maturity. There were no balances outstanding or letters of credit that reduced availability under the European facility at December 31, 2009. This credit facility contains standard covenants similar to those contained in the $750 million credit agreement and standard events of default such as covenant default and cross-default.

 

We have a CAN 30.0 million (approximately US$28.7 million) committed revolving credit facility with a Canadian bank that matures in 2011. There were no outstanding balances or letters of credit that reduced availability under the Canadian facility at December 31, 2009. This credit facility contains standard covenants similar to those contained in the $750 million credit agreement and standard events of default such as covenant default and cross-default.

 

Other Letters of Credit

 

As of December 31, 2009, we also had letters of credit in addition to those discussed above that do not reduce availability under our credit facilities. We had $11.4 million of such additional letters of credit that relate primarily to environmental assurances, third-party insurance claims processing, performance guarantees and acquisition obligations.

 

Compliance and Availability

 

We are in compliance with all covenants or other requirements set forth in our credit facilities. However, if we fail to be in compliance with the financial or other covenants of our credit agreements, then the credit agreements could be terminated, any outstanding borrowings under the agreements could be accelerated and immediately due, and we could have difficulty replacing those credit facilities or obtaining credit facilities in the future.

 

As of December 31, 2009, the aggregate availability of funds under our credit facilities is approximately $382.4 million, after deducting outstanding letters of credit. Availability is subject to the satisfaction of various covenants and conditions to borrowing.

 

Credit Ratings

 

As of December 31, 2009, we had investment grade credit ratings from Standard & Poor’s, Moody’s Investor Service and Fitch Ratings on our senior unsecured debt. Should these credit ratings drop, repayment under our credit facilities and securities will not be accelerated; however, our credit costs may increase. Similarly, if our credit ratings improve, we could potentially have a decrease in our credit costs. The maturity of any of our debt securities does not accelerate in the event of a credit downgrade.

Debt Securities

 

Thomas & Betts had the following unsecured debt securities outstanding as of December 31, 2009:

 

 

The indentures underlying the unsecured debt securities contain standard covenants such as restrictions on mergers, liens on certain property, sale-leaseback of certain property and funded debt for certain subsidiaries. The indentures also include standard events of default such as covenant default and cross-acceleration. We are in compliance with all covenants and other requirements set forth in the indentures.

 

Other

 

In 2007, our Board of Directors approved a share repurchase plan that authorized us to buy 3,000,000 of our common shares. In 2007, we repurchased, with available cash resources, 200,700 common shares through open-market transactions. During 2008, we repurchased, with available cash resources, the remaining 2,799,300 common shares authorized by this plan through open-market transactions.

 

In 2008, our Board of Directors approved a share repurchase plan that authorized us to buy an additional 5,000,000 of our common shares. In 2008, we repurchased, with available cash resources, 2,425,000 common shares through open-market transactions. During 2009, we repurchased, with available cash resources, 1,000,000 common shares through open-market transactions. The timing of future repurchases, if any, will depend upon a variety of factors, including market conditions. This authorization expires in October 2010.

 

We do not currently pay cash dividends. Future decisions concerning the payment of cash dividends on the common stock will depend upon our results of operations, financial condition, strategic investment opportunities, continued compliance with credit facilities and other factors that the Board of Directors may consider relevant.

 

As of December 31, 2009, we have $478.6 million in cash and cash equivalents and $382.4 million of aggregate availability under our credit facilities. We renewed our effective shelf registration with the Securities and Exchange Commission on December 3, 2008, utilizing the well-known seasoned issuer (WKSI) process. The registration permits us to issue common stock, preferred stock and debt securities. The registration is effective for a period of three years from the date of filing. We continue to have cash requirements to, among other things, support working capital and capital expenditure needs, service debt and fund our retirement plans as required. We generally intend to use available cash and internally generated funds to meet these cash requirements and may borrow under existing credit facilities or access the capital markets as needed for liquidity. During 2008, credit markets were materially disrupted, significantly limiting the availability of credit. Those conditions mitigated somewhat during 2009. To date, our liquidity has not been adversely affected by the current credit market. We believe that we have sufficient liquidity to satisfy both short-term and long-term requirements.

 

Off-Balance Sheet Arrangements

 

As of December 31, 2009, we did not have any off-balance sheet arrangements.

Refer to Note 19 in the Notes to Consolidated Financial Statements for information regarding our guarantee and indemnification arrangements.

 

Contractual Obligations

 

The following table reflects our total contractual cash obligations as of December 31, 2009:

 

 

 

Credit Risk

 

We continually evaluate the credit risk associated with our customers. Credit risk with respect to trade receivables is mitigated in part by the large number of customers comprising our customer base and their dispersion across many different industries and geographic areas. No customer receivable exceeds 10% of total accounts receivable as of December 31, 2009. See also Risk Factors.

 

Qualified Pension Plans

 

We have domestic and foreign qualified pension plans with domestic plans accounting for a substantial portion of total plan liabilities and assets. Our contributions to all qualified pension plans were $52 million in 2009, $2 million in 2008 and $2 million in 2007. We expect required contributions to our qualified pension plans in 2010 to be minimal. The following information indicates the funded status for our qualified pension plans:

All qualified pension plans:

 

 

Our qualified pension plan assets at December 31, 2009 and 2008, were included in the following asset categories:

 

 

The financial objectives of our investment policy is (1) to maximize returns in order to minimize contributions and long-term cost of funding pension liabilities, within reasonable and prudent levels of risk, (2) to match liability growth with the objective of fully funding benefits as they accrue and (3) to achieve annualized returns in excess of the policy benchmark. The Corporation’s asset allocation targets are 43% U.S. domestic equity securities, 15% international equity securities, 26% fixed income and high yield debt securities and 16% other, including alternative investments. As of December 31, 2009 and 2008, no pension plan assets were directly invested in Thomas & Betts Corporation common stock.

 

The long-term rates of return we use for our qualified pension plans take into account historical investment experience over a multi-year period, as well as mix of plan asset investment types, market conditions, investment practices of our Retirement Plans Committee and advice from investment professionals and actuarial advisors. The weighted-average long-term rates of return used to determine net periodic pension cost for all qualified pension plans are as follows:

 

 

Reflected in the rates above are domestic weighted-average long-term rates of return of 8.75% for 2009, 2008 and 2007.

 

The assumed discount rates we use for our qualified pension plans represent long-term high quality corporate bond rates commensurate with liability durations of our plans. Discount rates used to determine net periodic pension cost for all qualified pension plans are as follows:

 

Reflected in the rates above are domestic discount rates to determine net periodic pension cost of 6.25% in 2009 and 2008 and 5.75% in 2007.

 

Discount rates used to determine pension benefit obligations as of December 31, 2009 and 2008 for all qualified pension plans were 5.62% and 6.30%, respectively, and reflect domestic discount rates of 5.63% for 2009 and 6.25% for 2008.

 

The potential impact on the 2009 net periodic pension cost resulting from a hypothetical one-percentage-point change in the assumed weighted-average long-term rate of return while maintaining a constant discount rate would be approximately $3 million. The potential impact on the 2009 net periodic pension cost resulting from a hypothetical one-percentage-point increase in the assumed discount rate while maintaining a constant weighted-average long-term rate of return would be a decrease of approximately $5 million, and a hypothetical one-percentage-point decrease in the assumed discount rate while maintaining a constant weighted-average long-term rate of return would be an increase of approximately $6 million.

 

Effective January 1, 2008, substantially all domestic defined benefit pension plans were closed to new entrants.

 

During the fourth quarter of 2009, our Board of Directors approved a plan for the suspension of future pension plan benefit accruals after December 31, 2010 for the domestic non-bargaining plan participants under the Thomas & Betts Pension Plan.

 

For additional information regarding our qualified and non-qualified pension plans and other post-retirement plans, refer to Note 14 in the Notes to Consolidated Financial Statements.

 

Lamson & Sessions Co. (“LMS”) Restructuring and Integration Plan

 

The merger of Lamson & Sessions Co. into Thomas & Betts Corporation was completed in November 2007. Our senior management began assessing and formulating a restructuring and integration plan as of the acquisition date. Approval of the plan by our senior management and Board of Directors occurred during the first quarter of 2008. The objective of the restructuring and integration plan was to achieve operational efficiencies and eliminate duplicative operating costs resulting from the LMS acquisition. We also intended to achieve greater efficiency in sales, marketing, administration and other operational activities. We identified certain liabilities and other costs for restructuring and integration actions. Included in this amount are approximately $14 million of planned severance costs for involuntary termination of approximately 320 employees of LMS and approximately $8 million of lease cancellation costs associated with the closure of LMS distribution centers, which was recorded as part of our purchase price allocation of LMS. Severance and lease cancellation costs have been reflected in our consolidated balance sheets in accrued liabilities and reflect cash paid or to be paid for these actions. Integration costs were recognized as incurred and either expensed or capitalized, as appropriate. The amount recognized as integration expense during 2008 was approximately $3 million. The actions required by the plan began soon after the plan was approved, including the communication to affected employees of our intent to terminate as soon as possible.

 

We ceased operations at all LMS distribution centers during the second quarter of 2008, consolidating these activities into our existing distribution centers. As of December 31, 2009, substantially all employees planned for involuntary termination under the plan have been terminated. Payments associated with certain of the restructuring and integration actions taken are expected to extend beyond 2009 due to compliance with applicable regulations and other considerations. The cash payments necessary to fund the plan are expected to come from operations or available cash resources including restricted cash.

We decided at the time of acquisition to divest the rigid polyvinyl chloride (“PVC”) and high-density polyethylene (“HDPE”) conduit, duct and pressure pipe businesses, which were acquired as part of the LMS acquisition. The operations associated with these businesses since the date of acquisition were reflected as discontinued operations in our consolidated statements of operations. During 2008, we completed the divestiture of these discontinued operations. Results from discontinued operations for 2008 reflected net sales of approximately $164 million, loss before income taxes of $12.9 million, an income tax benefit of $4.5 million and net loss of $8.4 million.

 

 

Market Risk and Financial Instruments

 

Thomas & Betts is exposed to market risk from changes in interest rates, foreign exchange rates and raw material prices. At times, we may enter into various derivative instruments to manage certain of these risks. We do not enter into derivative instruments for speculative or trading purposes.

 

Interest Rate Risk

 

During the fourth quarter of 2007, we entered into a forward-starting amortizing interest rate swap for a notional amount of $390 million. The notional amount reduces to $325 million on December 15, 2010, $200 million on December 15, 2011 and $0 on October 1, 2012. The interest rate swap hedges $390 million of our exposure to changes in interest rates on borrowings under our $750 million credit facility. We have designated the receive variable/pay fixed interest rate swap as a cash flow hedge for accounting purposes. Under the interest rate swap, we receive one-month LIBOR and pay an underlying fixed rate of 4.86%. As of December 31, 2009, we recorded a swap liability of $28.7 million and a related contra equity amount, net of tax, of $17.6 million in accumulated other comprehensive income. We recognized a $0.1 million benefit to interest expense in 2009, a $0.1 million benefit to interest expense in 2008 and a $0.5 million charge in 2007 for the ineffective portion of the swap.

 

The following table reflects our interest rate sensitive derivative financial instruments as of December 31, 2009:

 

Forward Foreign Exchange Contracts

 

We had no outstanding forward sale or purchase contracts as of December 31, 2009 and 2008. During 2008 and 2007, we were a party to currency forward exchange contracts that amortized monthly. The contracts were not designated as a hedge for accounting purposes. These contracts were intended to reduce cash flow volatility from exchange rate risk related to a short-term intercompany financing transaction. Under the terms of the contracts, we sold U.S. dollars at current spot rates and purchased Canadian dollars at a fixed forward exchange rate. During 2008 and 2007, we recognized a mark-to-market loss of $0.7 million on these contracts and a mark-to-market gain

on these contracts of $0.7 million, respectively, that effectively matched foreign exchange gains on the short-term intercompany financing transaction.

 

Commodities Futures Contracts

 

During 2009, 2008 and 2007, we had no outstanding commodities futures contracts. We are exposed to risk from fluctuating prices for certain materials used to manufacture our products, such as: steel, aluminum, copper, zinc, resins and rubber compounds. At times, some of the risk associated with usage of aluminum, copper and zinc has been mitigated through the use of futures contracts that mitigate the price exposure to these commodities.

 

INDEX

 

 

 

Management is responsible for the preparation of the Corporation’s consolidated financial statements and related information appearing in this report. Management believes that the consolidated financial statements fairly reflect the form and substance of transactions and that the financial statements reasonably present the Corporation’s financial position and results of operations in conformity with U.S. generally accepted accounting principles. Management also has included in the Corporation’s financial statements amounts that are based on estimates and judgments which it believes are reasonable under the circumstances.

 

The independent registered public accounting firm, KPMG LLP, audits the Corporation’s consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States).

 

The Board of Directors of the Corporation has an Audit Committee composed of non-management Directors. The committee meets periodically with financial management, the internal auditors and the independent registered public accounting firm to review accounting, control, auditing and financial reporting matters.

 

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system is designed to provide reasonable assurance that externally published financial statements can be relied upon and have been prepared in accordance with U.S. generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Under the supervision of and with the participation of management, including our principal executive officer and principal financial officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment under the framework in Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2009. KPMG LLP, the independent registered public accounting firm that audited our consolidated financial statements, has issued an attestation report on our internal control over financial reporting as of December 31, 2009.

 

 

To the Board of Directors and Shareholders of

Thomas & Betts Corporation:

 

We have audited the accompanying consolidated balance sheets of Thomas & Betts Corporation and subsidiaries (the Corporation) as of December 31, 2009 and 2008, and the related consolidated statements of operations, cash flows, and shareholders’ equity and comprehensive income for each of the years in the three-year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Thomas & Betts Corporation and subsidiaries as of December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Thomas & Betts Corporation’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 16, 2010 expressed an unqualified opinion on the effectiveness of the Corporation’s internal control over financial reporting.

 

KPMG LLP

Memphis, Tennessee

February 16, 2010

 

To the Board of Directors and Shareholders of

Thomas & Betts Corporation:

 

We have audited Thomas and Betts Corporation’s (the Corporation) internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Corporation’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, Thomas and Betts Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Thomas & Betts Corporation and subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of operations, cash flows, and shareholders’ equity and comprehensive income for each of the years in the three-year period ended December 31, 2009, and our report dated February 16, 2010 expressed an unqualified opinion on those consolidated financial statements.

 

KPMG LLP

Memphis, Tennessee

February 16, 2010

Thomas & Betts Corporation and Subsidiaries

 

 

(In thousands, except per share data)

 

 

The accompanying Notes are an integral part of these Consolidated Financial Statements.

Thomas & Betts Corporation and Subsidiaries