Thomas & Betts (TNB) 10-Q 2004 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

Form 10-Q

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1933
	For the quarterly period ended March 31, 2004
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from            to

Commission file number 1-4682

Thomas & Betts Corporation

(Exact name of registrant as specified in its charter)

Tennessee	22-1326940
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
8155 T&B Boulevard
Memphis, Tennessee	38125
(Address of principal executive offices)	(Zip Code)

(901) 252-8000

(Registrant’s telephone number, including area code)

      Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ     No o

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes þ     No o

      Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

	Outstanding Shares
Title of Each Class	at May 3, 2004
Common Stock, $.10 par value		58,754,796

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

			Page
PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements:
		Condensed Consolidated Statements of Operations for the Quarters Ended March 31, 2004 and March 30, 2003		2
		Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003		3
		Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2004 and March 30, 2003		4
		Notes to Condensed Consolidated Financial Statements		5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			15
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk			27
ITEM 4.	Controls and Procedures			28
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings			28
ITEM 5.	Other Information			28
ITEM 6.	Exhibits and Reports on Form 8-K			28
SIGNATURE				29
EXHIBIT INDEX				30
EX-12 Statement Re: Computation of Ratios
EX-31.1 Certification of Executive Officer
EX-31.2 Certification of Financial Officer
EX-32 Certification Pursuant to Section 1350

1

PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

		Quarter Ended
		March 31,			March 30,
		2004			2003
Net sales		$	352,988		$	311,482
Cost of sales			253,289			226,406
	Gross margin		99,699			85,076
Selling, general and administrative			73,014			72,932
	Earnings from operations		26,685			12,144
Income from unconsolidated companies			664			854
Interest expense, net			(7,614	)		(8,280	)
Other (expense) income, net			(135	)		(603	)
	Earnings before income taxes		19,600			4,115
Income tax provision (benefit)			3,988			(889	)
Net earnings		$	15,612		$	5,004
Earnings per share:
	Basic	$	0.27		$	0.09
	Diluted	$	0.27		$	0.09
Average shares outstanding:
	Basic		58,289			58,373
	Diluted		58,677			58,378

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

2

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

			March 31,			December 31,
			2004			2003
ASSETS
Current Assets
	Cash and cash equivalents		$	250,254		$	387,425
	Marketable securities			1,559			1,704
	Receivables, net			198,844			168,542
	Inventories:
		Finished goods		91,255			95,993
		Work-in-process		32,997			30,904
		Raw materials		68,523			63,346
	Total inventories			192,775			190,243
	Deferred income taxes			50,993			50,016
	Prepaid expenses			12,836			14,349
Total Current Assets				707,261			812,279
Property, plant and equipment
	Land			16,074			15,927
	Buildings			172,423			173,985
	Machinery and equipment			609,528			604,791
	Construction-in-progress			7,532			9,163
				805,557			803,866
	Less accumulated depreciation			(510,014	)		(500,156	)
Net property, plant and equipment				295,543			303,710
Goodwill				455,749			455,113
Investments in unconsolidated companies				122,308			121,732
Deferred income taxes				50,263			52,707
Other assets				40,305			37,084
Total Assets			$	1,671,429		$	1,782,625
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Current maturities of long-term debt		$	7,076		$	133,344
	Accounts payable			120,772			113,724
	Accrued liabilities			101,696			111,478
	Income taxes payable			6,361			6,414
Total Current Liabilities				235,905			364,960
Long-Term Liabilities
	Long-term debt			558,250			551,972
	Other long-term liabilities			130,188			134,266
Shareholders’ Equity
	Common stock			5,865			5,848
	Additional paid-in capital			349,145			345,646
	Retained earnings			452,600			436,988
	Unearned compensation-restricted stock			(3,273	)		(2,014	)
	Accumulated other comprehensive income			(57,251	)		(55,041	)
Total Shareholders’ Equity				747,086			731,427
Total Liabilities and Shareholders’ Equity			$	1,671,429		$	1,782,625

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

3

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

			Quarter Ended
			March 31,			March 30,
			2004			2003
Cash Flows from Operating Activities:
Net earnings			$	15,612		$	5,004
Adjustments:
	Depreciation and amortization			13,004			11,229
	Amortization of restricted stock			855			681
	Undistributed earnings from unconsolidated companies			(664	)		(854	)
	Mark-to-market adjustment for derivative instruments			(1,086	)		137
	Loss on sale of property, plant and equipment			169			240
	Deferred income taxes			1,644			(4,830	)
	Changes in operating assets and liabilities — net:
		Receivables		(31,617	)		(3,666	)
		Inventories		(3,350	)		(10,406	)
		Accounts payable		7,646			9,914
		Accrued liabilities		(9,453	)		(14,495	)
		Income taxes payable		24			(4,080	)
		Other		2,214			1,270
Net cash provided by (used in) operating activities				(5,002	)		(9,856	)
Cash Flows from Investing Activities:
	Purchases of property, plant and equipment			(5,527	)		(6,333	)
	Proceeds from sale of property, plant and equipment			—			48
	Marketable securities acquired			—			(30,754	)
	Proceeds from matured marketable securities			148			45,528
Net cash provided by (used in) investing activities				(5,379	)		8,489
Cash Flows from Financing Activities:
	Repayment of long-term debt and other borrowings			(126,505	)		(61,483	)
	Stock options exercised			745			—
Net cash provided by (used in) financing activities				(125,760	)		(61,483	)
Effect of exchange-rate changes on cash				(1,030	)		1,896
	Net increase (decrease) in cash and cash equivalents			(137,171	)		(60,954	)
	Cash and cash equivalents — beginning of period			387,425			177,994
	Cash and cash equivalents — end of period		$	250,254		$	117,040
Cash payments for interest			$	15,693		$	16,379
Cash payments for income taxes			$	2,826		$	7,506

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

4

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Basis of Presentation

      In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for the fair presentation of the financial position as of March 31, 2004 and December 31, 2003 and the results of operations and cash flows for the periods ended March 31, 2004 and March 30, 2003.

      Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP)have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation’s Annual Report on Form 10-K for the fiscal period ended December 31, 2003. The results of operations for the periods ended March 31, 2004 and March 30, 2003 are not necessarily indicative of the operating results for the full year.

      Certain reclassifications have been made to prior periods to conform to the current year presentation.

2. Basic and Diluted Earnings Per Share

      The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations:

		Quarter Ended
		March 31,		March 30,
		2004		2003
(In thousands, except per share data)
Net earnings		$	15,612	$	5,004
Basic:
	Average shares outstanding		58,289		58,373
	Basic earnings per share	$	0.27	$	0.09
Diluted shares:
	Average shares outstanding		58,289		58,373
	Additional shares from the assumed exercise of stock options and vesting of restricted stock		388		5
			58,677		58,378
Diluted earnings per share		$	0.27	$	0.09

      Out-of-the-money options for shares of Common Stock that were excluded because of their anti-dilutive effect totaled 2.0 million and 5.5 million shares for the first quarter of 2004 and 2003, respectively.

3. Stock-Based Compensation

      The Corporation applies the intrinsic-value-based method to account for its fixed-plan stock options. The following table illustrates the effect on net earnings and earnings per share if the

5

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Corporation had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.

			Quarter Ended
			March 31,			March 30,
			2004			2003
(In thousands, except per share data)
Net earnings, as reported			$	15,612		$	5,004
	Deduct total incremental stock-based compensation expense determined under fair-value-based method for all awards, net of related tax effects			(1,410	)		(1,089	)
	Proforma net earnings		$	14,202		$	3,915
	Earnings per share:
		Basic — as reported	$	0.27		$	0.09
		Basic — proforma	$	0.24		$	0.07
		Diluted — as reported	$	0.27		$	0.09
		Diluted — proforma	$	0.24		$	0.07

      A valuation using the fair-value-based accounting method has been made for applicable stock options granted as of March 31, 2004 and March 30, 2003. That valuation was performed using the Black-Scholes option-pricing model.

4. Income Taxes

      The Corporation’s income tax provision for the first quarter 2004 was $4.0 million or an effective rate of 20.3% compared to a tax benefit in the first quarter 2003 of $0.9 million. Both the 2004 and 2003 first quarters included tax benefits ($1.5 million and $2.0 million, respectively) related to specific tax exposure items resulting from the favorable completion of tax audits and a corresponding reduction in tax exposure.

      Realization of the deferred tax assets is dependent upon the Corporation’s ability to generate sufficient future taxable income and, if necessary, execution of its tax planning strategies. Management believes that it is more-likely-than-not that future taxable income and tax planning strategies, based on tax laws in effect as of March 31, 2004, will be sufficient to realize the recorded deferred tax assets, net of the existing valuation allowance at March 31, 2004. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Projected future taxable income is based on management’s forecast of the operating results of the Corporation, and there can be no assurance that such results will be achieved. Management periodically reviews such forecasts in comparison with actual results and expected trends.

      Management has identified certain tax planning strategies that it could utilize to avoid the loss carryforwards expiring prior to their realization. These tax planning strategies include

6

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

primarily sales of non-core assets. In the event management determines that sufficient future taxable income, in light of tax planning strategies, may not be generated to fully realize the net deferred tax assets, the Corporation will increase the valuation allowance by a charge to income tax expense in the period of such determination. Additionally, if events change in subsequent periods which indicate that a previously recorded valuation allowance is no longer needed, the Corporation will decrease the valuation allowance by providing an income tax benefit in the period of such determination.

5. Comprehensive Income

      Total comprehensive income and its components are as follows:

	Quarter Ended
	March 31,			March 30,
	2004			2003
(In thousands)
Net income	$	15,612		$	5,004
Foreign currency translation adjustments		(2,202	)		9,326
Unrealized gains (losses) on securities		(8	)		(51	)
Comprehensive income	$	13,402		$	14,279

6. Derivative Instruments

      The Corporation is exposed to market risk from changes in raw material prices, foreign-exchange rates, and interest rates. At times, the Corporation may enter into various derivative instruments to manage certain of those risks. The Corporation does not enter into derivative instruments for speculative or trading purposes.

Commodities Futures Contracts

      The Corporation is exposed to risk from fluctuating prices for certain materials used to manufacture its products, such as: steel, aluminum, zinc, copper, resins and rubber compounds. At times, some of the risk associated with usage of copper, zinc and aluminum is mitigated through the use of futures contracts that fix the price the Corporation will pay for a commodity. Commodities futures contracts utilized by the Corporation have not previously been designated as hedging instruments and do not qualify for hedge accounting treatment under the provisions of SFAS No. 133 and SFAS No. 138. Mark-to-market gains and losses for commodities futures, if any, are recorded in cost of sales. As of March 31, 2004, the Corporation had outstanding commodities futures contracts with a notional amount of $13.0 million and a market value of $2.2 million. As of December 31, 2003, the Corporation had outstanding commodities futures contracts with a notional amount of $12.2 million and a market value of $1.1 million. Cost of sales for the quarters ended March 31, 2004 and March 30, 2003 reflected a gain of $1.1 million and a loss of $0.1 million, respectively, related to the mark-to-market adjustments for commodities futures contracts.

7

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

Forward Foreign Exchange Contracts

      From time to time, the Corporation utilizes forward foreign exchange contracts for the sale or purchase of principally European currencies. Forward foreign exchange contracts utilized by the Corporation have not previously been designated as hedging instruments and do not qualify for hedge accounting treatment under the provisions of SFAS No. 133 and SFAS No. 138. Mark-to-market gains and losses for forward foreign exchange contracts, if any, are recorded in other expense, net. As of March 31, 2004, the Corporation had outstanding forward sale contracts with a notional amount of $10.9 million related to European currencies. As of December 31, 2003, the Corporation had outstanding forward sale contracts with a notional amount of $14.2 million related to European currencies. Other expense, net for the quarters ended March 31, 2004 and March 30, 2003 reflected no significant impact from mark-to-market adjustments for forward foreign exchange contracts.

Interest Rate Swap Agreements

      As of March 31, 2004, the Corporation had interest rate swap agreements totaling a notional amount of $250 million with approximately one-third maturing in each of the years 2008, 2009 and 2013. The interest rate swaps qualify for the short-cut method of accounting for a fair value hedge under SFAS No. 133. The amount to be paid or received under the interest rate swap agreements is recorded as a component of net interest expense. Net interest expense for the quarters ended March 31, 2004 and March 30, 2003 reflect a benefit of $1.7 million and $1.5 million, respectively, associated with these interest rate swap agreements.

      At March 31, 2004, the net in-the-money fair value of the interest swaps was $2.4 million, which is comprised of $4.5 million classified in other long-term assets and $2.1 million in other long-term liabilities. There was an off-setting $2.4 million net increase in the book value of the debt hedged. At December 31, 2003, the net out-of-the-money fair value of the interest rate swaps was $4.3 million, which is comprised of $4.9 million classified in other long-term liabilities and $0.6 million classified in other long-term assets, with an off-setting $4.3 million net decrease in the book value of the debt hedged.

8

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

7. Debt

      The Corporation’s long-term debt at March 31, 2004 and December 31, 2003 was:

		March 31,		December 31,
		2004		2003
(In thousands)
Unsecured notes
	Due in 2004; stated interest rate of 8.25%	$	—	$	124,997	(a)
	Due in 2006; stated interest rate of 6.50%(b)		151,690		151,927
	Due in 2013; stated interest rate of 7.25%(b)		122,861		120,062
Medium-term notes
	Due in 2008; stated interest rate of 6.63%(b)		117,026		115,216
	Due in 2009; stated interest rate of 6.39%(b)		152,415		150,276
Non-U.S. borrowings due through 2005			5,751		5,751
Industrial revenue bonds due through 2008			7,055		7,055
Other, including capital leases			8,528		10,032
Long-term debt (including current maturities)			565,326		685,316
Less current portion			7,076		133,344
Long-term debt		$	558,250	$	551,972

(a)  Paid in January 2004 from available cash resources.

(b)  See Note 6 regarding interest rate swap agreements.

      The Corporation has a $175 million committed revolving credit facility with a bank group which is secured by, among other things, accounts receivable, inventory and equipment located in the United States. The credit facility contains, among other things, conditions precedent for borrowing; covenants which, under certain conditions, could limit or restrict investments, disposition of collateral and payment of dividends; financial covenants regarding additional debt, liens, minimum liquidity and capital expenditures; and standard events of default. The Corporation pays an unused commitment fee of 62.5 basis points to maintain this facility. There were no borrowings outstanding under this facility as of March 31, 2004. Any borrowings outstanding as of June 2006 would mature on that date.

      Outstanding letters of credit which reduced availability under the credit facility amounted to $33.8 million at March 31, 2004. At times, the Corporation is required, under certain contracts, to provide letters of credit that may be drawn in the event the Corporation fails to perform under contracts entered into in the normal course of its business activities. Such performance related letters of credit totaled $0.9 million at March 31, 2004. The remaining letters of credit relate to third-party insurance claims processing, existing debt obligations and certain tax incentive programs.

      The Corporation has a CAD$45 million (approximately US$34 million) committed revolving credit facility with a Canadian bank which is secured by inventory and accounts receivable located in Canada. The Corporation pays an unused commitment fee of 27.5 basis

9

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

points to maintain this facility. This facility matures in September 2006 and there were no borrowings outstanding as of March 31, 2004.

      The Corporation has a EUR10 million (approximately US$12 million) committed revolving credit facility with a European bank which is secured by inventory and receivables located in Europe. The Corporation pays an unused commitment fee of 62.5 basis points to maintain this facility. This facility has an indefinite maturity and there were no borrowings outstanding as of March 31, 2004.

      As of March 31, 2004, the Corporation’s aggregate availability of funds under its credit facilities is approximately $166.6 million, net of outstanding letters of credit. Availability under the revolving credit facilities increases or decreases with fluctuations in the value of the underlying collateral and is subject to the satisfaction of various covenants and conditions to borrowing. The Corporation has the option, at the time of drawing funds under any of the credit facilities, of selecting an interest rate based on a number of benchmarks including LIBOR, the federal funds rate, or the prime rate of the agent bank. These are back up facilities which have not been utilized and the Corporation currently does not expect to utilize these facilities in the foreseeable future.

8. Assets Held for Sale

      Approximately $41 million of previously held for sale assets associated with certain product lines in the Communications segment were reclassified in the accompanying balance sheet as assets held and used as of March 30, 2003. This reflected the Corporation’s decision during second quarter 2003 to no longer actively pursue a sale of those assets. The previous cessation of depreciation on these assets during the first quarter of 2003 was $1.8 million. No reinstatement of previous depreciation is required for these assets and the Corporation began prospective depreciation in the second quarter 2003.

10

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

9. Pension and Post-retirement Benefits

      Net periodic cost for the Corporation’s defined benefit pension plans and for post-retirement health-care and life insurance benefits included the following components:

		Quarter Ended
								Post-retirement
		Pension Benefits						Benefits
		March 31,			March 30,			March 31,			March 30,
		2004			2003			2004			2003
(In thousands)
Service cost — benefits earned during the period		$	2,452		$	2,026		$	6		$	5
Interest cost on projected benefit obligation			4,606			5,418			230			256
Expected return on plan assets			(4,196	)		(4,155	)		—			—
Net amortization of unrecognized:
	Transition obligation (asset)		(2	)		(8	)		194			194
	Prior service cost (gain)		251			247			(59	)		(56	)
	Plan net loss (gain)		1,227			750			(36	)		(131	)
	Settlement loss		1,725			—			—			—
Net periodic pension cost		$	6,063		$	4,278		$	335		$	268

      The Corporation previously disclosed in its Annual Report on Form 10-K for the fiscal period ended December 31, 2003, that it expected to contribute $6 million to its qualified pension plans and approximately $2 million to its non-qualified pension plans in 2004. As of March 31, 2004, the Corporation had contributed approximately $1 million to its qualified pension plans and no contributions had been made to its non-qualified pension plans. The Corporation presently expects to contribute an additional $5 million to fund its qualified pension plans and $2 million to fund its non-qualified pension plans in 2004.

10. Segment Disclosures

      The Corporation has four reportable segments: Electrical, Steel Structures, Communications and HVAC. The Electrical segment designs, manufactures and markets thousands of different electrical connectors, components and other products for electrical applications. The Steel Structures segment designs, manufactures and markets tubular steel transmission and distribution poles and lattice steel transmission towers for North American power and telecommunications companies. The Communications segment designs, manufactures and markets components, subsystems and accessories used to construct, maintain and repair cable television (CATV) and telecommunications networks. The HVAC segment designs, manufactures and markets heating and ventilation products for commercial and industrial buildings.

      The Corporation’s reportable segments are based on a combination of product lines and channels to market, and represent the primary mode used to assess allocation of resources and

11

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

performance. The Corporation evaluates its business segments on the basis of segment earnings, with segment earnings defined as earnings from continuing operations before interest, taxes, asset impairments, restructuring charges and certain other charges. The Corporation has no material inter-segment sales.

		Quarter Ended
		March 31,			March 30,
		2004			2003
Net sales:
	Electrical	$	276,807		$	241,038
	Steel Structures		26,130			21,965
	Communications		20,882			22,267
	HVAC		29,169			26,212
	Total net sales	$	352,988		$	311,482
Segment earnings:
	Electrical	$	20,872		$	8,000
	Steel Structures		610			827
	Communications		3,295			2,690
	HVAC		2,572			1,481
	Total reportable segment earnings		27,349			12,998
Interest expense, net			(7,614	)		(8,280	)
Other (expense) income, net			(135	)		(603	)
Earnings before income taxes		$	19,600		$	4,115

11. Contingencies

Legal Proceedings

Kaiser Litigation

      By July 5, 2000, Kaiser Aluminum, its property insurers, 28 Kaiser injured workers, nearby businesses and 18,000 residents near the Kaiser facility in Louisiana certified as a class, filed product liability and business interruption cases against the Corporation and six other defendants in Louisiana state court seeking damages in excess of $550 million. These cases alleged that a Thomas & Betts cable tie mounting base failed thereby allowing bundled cables to come in contact with a 13.8 kv energized bus bar. This alleged electrical fault supposedly initiated a series of events culminating in an explosion, which leveled 600 acres of the Kaiser facility.

      A seven-week trial in the fall 2001 resulted in a jury verdict in favor of the Corporation. However, 13 months later, the trial court overturned that verdict in granting plaintiffs’ judgment notwithstanding the verdict motions. On December 17, 2002, the trial court judge found the Thomas & Betts’ product, an adhesive backed mounting base, to be unreasonably dangerous and therefore assigned 25% fault to T&B. The judge set the damages for the injured workers at

12

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

$20 million and the damages for Kaiser at $335 million. The Corporation’s 25% allocation is $88.8 million, plus legal interest. The Corporation has appealed this ruling. Management believes there are meritorious defenses to the claim and intends to contest the litigation vigorously.

      The appeal required a bond in the amount of $104 million (the judgment plus legal interest). Plaintiffs successfully moved the trial court to increase the bond to $156 million. Nonetheless, the Corporation’s liability insurers have secured the $156 million bond.

      The Corporation has not reflected a liability in its financial statements for the Kaiser litigation because management believes meritorious defenses exist for this claim and thus management does not believe a loss is probable. Further, until there are new developments in the case that would provide more concrete amounts, management cannot provide any better range of possible losses than zero to the amount of the judgment. The Corporation has insurance coverage in excess of the judgment.

Asbestos

      The Corporation and two subsidiaries, Amerace Corporation and L.E. Mason (Red Dot), acquired respectively in 1995 and 1999, are subject to asbestos lawsuits in Mississippi, New Jersey and three other states, related to either undefined and unidentified or historic products. In all cases, the Corporation is investigating these allegations. Amerace is one of hundreds of defendants and Red Dot and the Corporation are one of dozens of defendants. No product of Amerace, Red Dot or Thomas and Betts has been identified in these cases to date. The Corporation has been dismissed in two of the lawsuits. In the Amerace litigation, four lawsuits have already been dismissed. Potential exposure at this time, if any, cannot be estimated. Management believes, however, that there is no merit to these claims, that damages, if any, are remote and believes that a loss is not probable in any of these cases. Insurance coverage is available in connection with these claims.

Other Legal Matters

      The Corporation is also involved in legal proceedings and litigation arising in the ordinary course of business. In those cases where the Corporation is the defendant, plaintiffs may seek to recover large and sometimes unspecified amounts, or other types of relief and some matters may remain unresolved for several years. Such matters may be subject to many uncertainties and outcomes are not predictable with assurance. The Corporation has provided for losses to the extent probable and estimable; however, additional losses, even though not anticipated, could be material with respect to the Corporation’s financial position, results of operations or liquidity in any given period.

12. Recently Issued Accounting Standards

FIN 46 and FIN 46R

      In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” which was adopted by the Corporation in 2003 and the impact was not material. In December 2003, the FASB issued FIN 46R, a revision of FIN 46. FIN 46R

13

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

requires a business enterprise that has a controlling financial interest in a variable interest entity to include the assets, liabilities, and results of the activities of the variable interest entity in consolidated financial statements with those of the business enterprise. FIN 46R is effective for fiscal years beginning after December 15, 2003. The impact of adopting FIN 46R was not material to the Corporation’s consolidated financial statements.

14

Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

Introduction

      Thomas & Betts Corporation is a leading designer and manufacturer of connectors and components for electrical and communication markets. The Corporation is also a leading producer of steel structures, used primarily for utility power lines, and industrial heating units. It operates approximately 130 manufacturing, distribution and office facilities around the world in approximately 20 countries. Manufacturing, marketing and sales activities are concentrated primarily in North America and Europe.

      The Corporation sells its products (1) through electrical, telephone, cable, heating, ventilation and air-conditioning distributors; (2) directly to original equipment manufacturers and certain end users; and (3) through mass merchandisers, catalog merchandisers and home improvement centers. Thomas & Betts pursues growth through market penetration, new product development, and, at times, acquisitions.

2004 Outlook

      Management expects rising raw material costs — especially steel and copper — will be a challenge during the second quarter 2004 and throughout the remainder of 2004. There is also a possibility of limited availability of steel during these periods. Management expects that increased raw material costs of approximately $8-10 million per quarter will largely be offset through a combination of price increases and, to a lesser extent, productivity improvements. The Corporation is working closely with its steel suppliers to avoid any serious disruption to its operations.

      If positive sales trends experienced during the first quarter and during the month of April 2004, particularly in the Corporation’s core Electrical segment markets, continue throughout the second quarter 2004, management expects second quarter 2004 sales and earnings to meet, or exceed, the Corporation’s first quarter results. Management further expects that if such conditions continue, full year 2004 sales will exceed the prior year by the mid- to high-single digit range and expects full year 2004 earnings to show substantial year-over-year improvement.

Business Risks

      There are many factors that could pose a risk to the Corporation’s business and its ability to execute its business plan, some of which are beyond its control. These factors include, but are not limited to:

     •  Risks Related to Credit Quality of Customers

      Although the Corporation is not dependent on any one customer for more than 10% of its sales, deterioration in the credit quality of several major customers at the same time could have a material adverse effect on its results of operations and financial condition.

15

     •  Negative Economic Conditions May Adversely Affect Performance

      The success of Thomas & Betts’ business is directly linked to positive economic conditions in the countries where it sells its products. Material adverse changes in economic or industry conditions generally or in the specific markets served by Thomas & Betts could adversely affect the future results of the Corporation. Additionally, an economic slowdown in the U.S. or in Thomas & Betts’ major foreign markets, including Canada and Europe, could reduce the Corporation’s overall net sales. Thomas & Betts does business in geographically diverse markets. In fiscal year 2003, approximately 32% of Thomas & Betts’ net sales were generated outside of the United States. Because these influences are not always foreseeable, there can be no assurance that the business will not be affected by these occurrences.

     •  Changes in Customer Demand

      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. Although Thomas & Betts believes that it has specific technological and other advantages over certain of its competitors, because of the intensity of the competition in the product areas and geographic markets that it serves, Thomas & Betts could experience increased downward pressure on the selling prices for certain of its products.

      The activities of the Corporation’s competitors designed to enhance their own product offerings, coupled with any unforeseeable changes in customer demand for various products of Thomas & Betts, could affect the Corporation’s overall product mix, pricing, margins, plant utilization levels and asset valuations.

     •  Adverse Regulatory, Environmental, Monetary or Other Governmental Policies Which May Affect Profitability

      Thomas & Betts is subject to governmental regulations throughout the world. Unforeseen changes in these governmental regulations may reduce its 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 adversely affect Thomas & Betts’ 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, transfer pricing and other income and expense recognition for tax purposes, including changes in taxation on income generated in Puerto Rico. These changes might limit Thomas & Betts’ ability to sell its products in certain markets, and could negatively affect its business, operating results and financial condition.

      In addition, Thomas & Betts’ operations are subject to international, federal, state and local laws and regulations governing environmental matters, including emissions to air, discharge to waters 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 Thomas & Betts will not incur material costs or 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.

16

     •  Adequacy of Insurance

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

     •  Terrorist Acts and Acts of War

      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 terrorist attacks that took place in the United States on September 11, 2001 were unprecedented events that have created many economic and political uncertainties, some of which may materially harm our business and results of operations. 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 affect 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. However, our insurers have confirmed coverage for losses caused by terrorist acts within our policy limits.

Forward-looking Statements

      This Report includes forward-looking statements regarding the Corporation that are subject to risks and uncertainties in the Corporation’s operations, business, economic and political environment. Statements that contain words such as “achieve,” “guidance,” “believes,” “expects,” “anticipates,” “intends,” “estimates,” “continue,” “should,” “could,” “may,” “plan,” “possibility,” “project,” “predict,” “will” or similar expressions are forward-looking statements. Such statements are subject to risks and uncertainties, and many factors could affect the future financial results of the Corporation. Accordingly, actual results or achievements may differ materially from those expressed or implied by the forward-looking statements contained in this Report. We describe these risks and uncertainties under “Business Risks” in this Report and also in the section “Caution Regarding Forward-Looking Statements” contained in the Corporation’s Annual Report on Form 10-K for the fiscal period ended December 31, 2003. For those statements, the Corporation claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

First Quarter 2004 Compared with First Quarter 2003

Overview

      The Corporation’s first quarter 2004 earnings from operations were up significantly compared to the prior-year period. The earnings improvement reflects increased demand, particularly in the Corporation’s core Electrical segment markets, with the Corporation’s plants benefiting from

17

better absorption from the sales volume increase. Although the Corporation experienced rising raw material costs — especially steel and copper — during the first quarter 2004, the adverse impact on first quarter results was minimal. First quarter 2003 also reflected a benefit of $1.8 million from the cessation of depreciation on assets held for sale.

      In addition to the items noted above, the Corporation’s net earnings comparison reflects tax benefits in the first quarter of 2004 and 2003 ($1.5 million and $2.0 million, respectively) related to specific tax exposure items resulting from the favorable completion of tax audits and a corresponding reduction in tax exposure.

Consolidated Results

		Quarter Ended
		March 31, 2004						March 30, 2003
		In			% of Net			In			% of Net
		Millions			Sales			Millions			Sales
Net sales		$	353.0			100.0		$	311.5			100.0
Cost of sales			253.3			71.8			226.4			72.7
Gross profit			99.7			28.2			85.1			27.3
Selling, general and administrative			73.0			20.7			73.0			23.4
Earnings from operations			26.7			7.5			12.1			3.9
Income from unconsolidated companies			0.6			0.2			0.9			0.3
Interest expense, net			(7.6	)		(2.2	)		(8.3	)		(2.7	)
Other (expense) income, net			(0.1	)		—			(0.6	)		(0.2	)
Earnings before income taxes			19.6			5.5			4.1			1.3
Income tax provision (benefit)			4.0			1.1			(0.9	)		(0.3	)
Net earnings		$	15.6			4.4		$	5.0			1.6
Per share earnings:
	Basic	$	0.27					$	0.09
	Diluted	$	0.27					$	0.09

Net Sales and Gross Profit

      The Corporation’s first quarter 2004 net sales were up $41.5 million or 13.3% compared to the prior-year period. Favorable foreign currency accounted for approximately $14 million of the increase. The increase in sales was driven primarily by increased demand during 2004 in the Corporation’s core Electrical segment markets.

      The first quarter 2004 gross margin was 28.2% of net sales, compared to 27.3% in the prior-year period. The gross margin improvement reflects an increase in sales volume with the Corporation’s plants benefiting from better absorption. Rising raw material costs had a minimal impact on the Corporation’s first quarter 2004 results. The first quarter 2003 gross margin reflected a benefit of $1.8 million from the cessation of depreciation on assets held for sale.

18

Expenses

      First quarter 2004 selling, general and administrative (SG&A) expense was $73.0 million or 20.7% of net sales compared to $73.0 million or 23.4% of net sales in the prior-year period. The underlying improvement in SG&A expense as a percent of net sales reflects higher sales and the Corporation’s continued efforts to reduce and tightly control expenses.

Interest Expense — Net

      Net interest expense for the first quarter 2004 was down $0.7 million compared to the first quarter 2003 due largely to lower debt levels. Interest income included in net interest expense for the first quarter 2004 was relatively flat with the year-earlier period.

Income Taxes

      The Corporation’s income tax provision for the first quarter 2004 was $4.0 million or an effective tax rate of 20.3% compared to a tax benefit in the first quarter 2003 of $0.9 million. Both the 2004 and 2003 first quarters included tax benefits ($1.5 million and $2.0 million, respectively) related to specific tax exposure items resulting from the favorable completion of tax audits and a corresponding reduction in tax exposure.

Net Earnings

      Net earnings were $15.6 million, or $0.27 per basic and diluted share, in the first quarter 2004 compared to net earnings of $5.0 million, or $0.09 per basic and diluted share, in the first quarter 2003.

Segment Results

      The Corporation evaluates its business segments on the basis of segment earnings, with segment earnings defined as earnings from continuing operations before interest, taxes, asset impairments, restructuring charges and certain other charges.

      The Corporation’s segment earnings is significantly influenced by the operating performance of its Electrical segment that accounts for approximately three-fourths of the Corporation’s net sales and a majority of its segment earnings during each of the periods presented.

	Quarter Ended
	March 31, 2004				March 30, 2003
	In		% of Net		In		% of Net
Net Sales	Millions		Sales		Millions		Sales
Electrical	$	276.8		78.4	$	241.0		77.4
Steel Structures		26.1		7.4		22.0		7.1
Communications		20.9		5.9		22.3		7.1
HVAC		29.2		8.3		26.2		8.4
	$	353.0		100.0	$	311.5		100.0

19

	Quarter Ended
	March 31, 2004				March 30, 2003
	In		% of Net		In		% of Net
Segment Earnings	Millions		Sales		Millions		Sales
Electrical	$	20.8		7.5	$	8.0		3.3
Steel Structures		0.6		2.3		0.8		3.6
Communications		3.3		15.8		2.7		12.1
HVAC		2.6		8.9		1.5		5.7
	$	27.3		7.7	$	13.0		4.2

Electrical Segment

      First quarter 2004 net sales in the Corporation’s Electrical segment were up $35.8 million or 14.8% on a year-over-year basis. Favorable foreign currency accounted for approximately $13 million of the increase. The increase in sales primarily reflects increases in industrial spending and increased capital spending by utilities, particularly for underground distribution system maintenance and installations. Segment earnings in the first quarter 2004 were also significantly greater than in the first quarter 2003. These results reflect higher sales volumes, productivity improvements and reduced expenses.

Other Segments

      The Corporation’s Steel Structures segment net sales in the first quarter 2004 were higher than the first quarter 2003. Higher levels of capital investment by U.S. electrical utilities drove the sales increase. Segment earnings in the first quarter 2004 were basically flat compared to the first quarter 2003 primarily due to unfavorable project mix.

      The Corporation’s Communications segment net sales in the first quarter 2004 were lower than the first quarter 2003, reflecting continued weakness in CATV and telecom markets. Segment earnings in the first quarter 2004 were higher than in the first quarter 2003, reflecting the Corporation’s continued focus on tightly managing costs and improving manufacturing efficiencies. First quarter 2003 segment earnings also reflected a benefit of $1.8 million from the cessation of depreciation on assets held for sale.

      The Corporation’s HVAC segment first quarter 2004 net sales and earnings were up significantly from the first quarter 2003, reflecting an increase in industrial spending. In addition to benefiting from higher sales, the segment’s earnings improvement also reflects improved productivity and lower SG&A.

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. There can be no assurance that actual results will not differ from those estimates or assumptions. The Corporation’s significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements in the Corporation’s Annual Report on Form 10-K for the fiscal period ended December 31, 2003. Management believes the Corporation’s critical accounting policies include: Revenue Recognition; Inventory Valuation; Goodwill and Other Intangible Assets; Long-Lived Assets; Income Taxes; and Environmental Costs.

20

•  Revenue Recognition: The Corporation recognizes revenue when finished products are shipped to unaffiliated customers and both title and risks of ownership are transferred. Sales discounts, quantity and price rebates, and allowances are estimated based on contractual commitments and experience and recorded in the period as a reduction of revenue in which the sale is recognized. A number of distributors, primarily in the Electrical segment, have the right to return goods under certain circumstances and those returns, which are reasonably estimable, are accrued as a reduction of revenue at the time of shipment. Management analyzes historical returns and allowances, current economic trends and specific customer circumstances when evaluating the adequacy of accounts receivable related reserves and accruals.

•  Inventory Valuation: Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. To ensure inventories are carried at the lower of cost or market, the Corporation periodically evaluates the carrying value of its inventories. The Corporation also periodically performs an evaluation of inventory for excess and obsolete items. Such evaluations are based on management’s judgment and use of estimates. Such estimates incorporate inventory quantities on-hand, aging of the inventory, sales forecasts for particular product groupings, planned dispositions of product lines and overall industry trends.

•  Goodwill and Other Intangible Assets: The Corporation follows the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires a transitional and annual test of goodwill and indefinite lived assets associated with reporting units for indications of impairment. The Corporation performs its annual impairment assessment in the fourth quarter of each year, unless circumstances dictate more frequent assessments. Under the provisions of SFAS No. 142, each test of goodwill requires the Corporation to determine the fair value of each reporting unit, and compare the fair value to the reporting unit’s carrying amount. 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 the Corporation 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.

•  Long-Lived Assets: The Corporation follows the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 establishes accounting standards for the impairment of long-lived assets such as property, plant and equipment and intangible assets subject to amortization. For purposes of recognizing and measuring impairment of long-lived assets, the Corporation evaluates assets for associated product groups. The Corporation reviews long-lived assets to be held- and-used for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If the sum of the undiscounted expected future cash flows over the remaining useful life of the primary asset in the associated product groups is less than the carrying amount of the assets, the assets are considered to be impaired. Impairment losses are measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. When fair values are not available, the Corporation estimates fair value using the expected future cash flows

21

	discounted at a rate commensurate with the risks associated with the recovery of the assets. Assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
•	Income Taxes: The Corporation uses the asset and liability method of accounting for income taxes. This method recognizes the expected future tax consequences of temporary differences between book and tax bases of assets and liabilities and provides a valuation allowance based on a more-likely-than-not criteria. The Corporation has valuation allowances for deferred tax assets primarily associated with operating loss carryforwards, tax credit carryforwards and deferred state income tax assets. Realization of the deferred tax assets is dependent upon the Corporation’s ability to generate sufficient future taxable income and, if necessary, execution of its tax planning strategies. Management believes that it is more-likely-than-not that future taxable income, based on enacted tax law in effect as of March 31, 2004, will be sufficient to realize the recorded deferred tax assets net of existing valuation allowances. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies, which involve estimates and uncertainties, in making this assessment. Tax planning strategies include primarily sales of non-core assets. Projected future taxable income is based on management’s forecast of the operating results of the Corporation. Management periodically reviews such forecasts in comparison with actual results and expected trends. In the event management determines that sufficient future taxable income, in light of tax planning strategies, may not be generated to fully realize net deferred tax assets, the Corporation will increase valuation allowances by a charge to income tax expense in the period of such determination.
•	Environmental Costs: Environmental expenditures that relate to current operations are expensed or capitalized, as appropriate. Remediation costs that relate to an existing condition caused by past operations are accrued when it is probable that those costs will be incurred and can be reasonably estimated based on evaluations of current available facts related to each site.

Liquidity and Capital Resources

      The Corporation had cash and cash equivalents of $250.3 million and $387.4 million at March 31, 2004 and December 31, 2003, respectively.

      The following table reflects the primary category totals in the Corporation’s Consolidated Statements of Cash Flows.

	Quarter Ended
	March 31,			March 30,
	2004			2003
(In millions)
Net cash provided by (used in) operating activities	$	(5.0	)	$	(9.9	)
Net cash provided by (used in) in investing activities		(5.4	)		8.5
Net cash provided by (used in) financing activities		(125.8	)		(61.5	)
Effect of exchange-rate changes on cash		(1.0	)		1.9
Net increase (decrease) in cash and cash equivalents	$	(137.2	)	$	(61.0	)

22

Operating Activities

      Cash used in operating activities for the first quarter 2004 improved by $4.9 million compared with the first quarter 2003. First quarter 2004 reflected stronger net earnings and a significant increase in accounts receivable. The increase in accounts receivable was driven by mix and stronger sales volumes in the quarter.

Investing Activities

      The Corporation acquired no marketable securities during the first quarter 2004 as compared to $30.8 million acquired in the same period last year. The Corporation had proceeds from matured marketable securities of approximately $0.1 million during the first quarter 2004 as compared to $45.5 million of proceeds for the same period last year.

      During the first quarter 2004, the Corporation had capital expenditures totaling $5.5 million, as compared with $6.3 million in the same period last year. Management expects capital expenditures of approximately $30 million for the full year 2004.

Financing Activities

      Cash used in first quarter 2004 financing activities reflected debt repayments of $126.5 million. Of the total current debt at December 31, 2003, $125 million of senior unsecured notes payable were paid upon maturity in January 2004 from available cash resources. Cash used in first quarter 2003 financing activities reflected debt repayments of $61.5 million.

$175 million Credit Agreement

      The Corporation has a $175 million committed revolving credit facility with a bank group which is secured primarily by accounts receivable, inventory and equipment located in the United States. 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 federal funds rate, or the prime rate of the agent bank. The credit facility matures in June 2006. There were no borrowings outstanding under this facility as of March 31, 2004. The $175 million credit facility contains the following financial covenants:

      (a) Minimum Liquidity. During the term of the credit agreement, the Corporation must maintain liquidity (as defined in the credit agreement) of not less than $100,000,000, unless (1) the Corporation’s senior unsecured notes due in 2004 and 2006 have been paid in full, (2) the Fixed Charge Coverage Ratio (as defined in the credit agreement), determined as of the last day of the immediately preceding fiscal month, is greater than 1.15 to 1.00, and (3) the Interest Coverage Ratio (as defined in the credit agreement), determined as of the last day of the immediately preceding fiscal month, is greater than 1.30 to 1.00.

      (b) Minimum Consolidated Liquidity. During the term of the credit agreement, the Corporation must maintain Consolidated Liquidity (as defined in the credit agreement), of not less than $175,000,000, unless the Fixed Charge Coverage Ratio, determined as of the last day of the immediately succeeding fiscal quarter, and as of the last day of each fiscal quarter ending thereafter until such time as Consolidated Liquidity remains above $175,000,000 for two consecutive fiscal quarters, is greater than or equal to 1.00 to 1.00.

      (c) Consolidated Net Assets. Ten percent of the Corporation’s Consolidated Net Assets (as defined in the credit agreement) must at all times be greater than $52,500,000.

23

      (d) Consolidated Tangible Net Assets. Twelve and one-half percent of the Corporation’s Consolidated Tangible Net Assets (as defined in the credit agreement) must at all times be greater than $52,500,000.

      (e) Capital Expenditures. The Corporation’s capital expenditures may not exceed $60,000,000 in the aggregate during any fiscal year; provided, however, to the extent that amounts available for capital expenditures with respect to any fiscal year are not used, up to $10,000,000 of such amounts may be carried forward to increase the dollar limit for capital expenditures during the following fiscal year.

      The Corporation is in compliance with all of these financial covenants as of March 31, 2004. However, should the Corporation breach its covenants under the credit agreement it could adversely affect the Corporation’s ability to renew or obtain new credit facilities in the future.

      The credit agreement contains other significant terms such as, in general:

     Restricted Payments and Purchases.The Corporation may not declare or make any Restricted Payment or Purchase (as defined in the credit agreement); however, provided that the Corporation is in compliance with certain financial covenants, it can pay cash dividends or repurchase common stock. The Corporation is in compliance with such financial covenants. Also, the Corporation’s subsidiaries may make certain payments to the parent or certain subsidiaries of the Corporation.

     Liens.The Corporation may not create, assume or permit to exist any lien on any of the Corporation’s property, except for Permitted Liens (as defined in the credit agreement).

     Disposition of Assets.The Corporation may not dispose of any assets, property or business, except for the sale of inventory in the ordinary course of business, physical assets used in the ordinary course of business, and specific dispositions set forth in the credit agreement. For example, the Corporation may dispose of certain equipment if such equipment is replaced with equipment having a fair market value equal to or greater than the equipment disposed of, and the transaction meets the other requirements in the credit agreement, and the value of equipment securing the credit facility does not drop below $29.4 million.

      At times, the Corporation is required, under certain contracts, to provide letters of credit that may be drawn in the event the Corporation fails to perform under contracts entered into in the normal course of its business activities. Such performance related letters of credit totaled $0.9 million at March 31, 2004. The remaining letters of credit relate to third-party insurance claims processing, existing debt obligations and certain tax incentive programs. At March 31, 2004, outstanding letters of credit, or similar financial instruments which reduce the amount available under the $175 million credit facility totaled $33.8 million.

Other Credit Facilities

      The Corporation has a committed revolving credit facility with a Canadian bank with a borrowing capacity to CAD$45 million which matures in September 2006. As of March 31, 2004 the Corporation had availability of CAD$45 million (approximately US$34 million as of March 31, 2004). This facility is secured by inventory and accounts receivable located in Canada. There were no borrowings outstanding under this facility as of March 31, 2004.

      The Corporation has a EUR10 million committed revolving credit facility with a European bank which has an indefinite maturity. This facility is secured by inventory and receivables located in Europe. Availability under this facility is EUR10 million (approximately

24

US$12 million as of March 31, 2004). There were no borrowings outstanding under this facility as of March 31, 2004.

      These other credit facilities contain standard covenants which, under certain conditions, could limit or restrict the payment of dividends, investments, liens, debt and dispositions of collateral similar to those contained in the $175 million credit agreement. Also included are financial covenants regarding minimum liquidity and capital expenditures similar to those contained in the $175 million credit agreement. The credit facilities contain standard events of default such as covenant default and cross-default.

Compliance and Availability

      The Corporation is in compliance with all covenants or other requirements set forth in its credit facilities. The credit facilities do not contain provisions that cause the maturity of such debt to be accelerated in the event of a credit rating downgrade by either Standard & Poor’s (“S&P”) or Moody’s. However, a downgrade in the Corporation’s credit rating could adversely affect the Corporation’s ability to renew existing, or obtain access to new, credit facilities in the future and could increase the cost of such facilities.

      As of March 31, 2004, the Corporation’s aggregate availability of funds under its credit facilities is approximately $166.6 million, net of outstanding letters of credit. Availability under the revolving credit facilities increases or decreases with fluctuations in the value of the underlying collateral and is subject to the satisfaction of various covenants and conditions to borrowing. These are back up facilities which have not been utilized and the Corporation currently does not expect to utilize these facilities in the foreseeable future.

Off-Balance Sheet Arrangements

      As of March 31, 2004, the Corporation did not have any off-balance sheet arrangements.

Debt Securities

      The Corporation had the following senior unsecured debt securities outstanding as of March 31, 2004:

Date	Amount		Interest Rate			Interest Payable		Maturity Date
January 1996		$150 million		6.50	%		January 15 and July 15		January 2006
May 1998		$115 million(a)		6.63	%		May 1 and November 1		May 2008
February 1999		$150 million(a)		6.39	%		March 1 and September 1		February 2009
May 2003		$125 million(a)		7.25	%		June 1 and December 1		June 2013

(a)  The Corporation has entered into interest rate swaps associated with only portions of these underlying debt instruments. See “Item 3. Quantitative and Qualitative Disclosures About Market Risk — Interest Rate Risk.”

      The indentures underlying the 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. The Corporation is in compliance with all covenants and other requirements set forth in the indentures.

25

$125 Million Senior Unsecured Notes Due 2013

      The indentures supporting the Corporation’s long-term debt do not contain provisions that cause the maturity of such debt to be accelerated in the event of a credit rating downgrade by either S&P or Moody’s. However, unless Moody’s and S&P have both rated the $125 million senior unsecured notes due June 2013 (the “notes”) investment grade for a continuous period of at least 30 days, the indenture governing the notes will limit or restrict the Corporation’s ability and its subsidiaries’ ability to:

•  incur indebtedness or issue preferred stock of the subsidiaries;

•  make restricted payments, including dividends, the repurchase of common stock, other distributions and investments;

•  in the case of the subsidiaries, create or permit to exist dividend or payment restrictions with respect to the parent company; and

•  sell assets or subsidiary stock.

      If Moody’s and S&P have both rated the notes investment grade for a continuous period of at least 30 days, the above limitations will not apply to the notes, but the Corporation will continue to be subject to restrictions on its ability to enter into sale and leaseback transactions and on the ability of certain of its subsidiaries to incur indebtedness. If the notes are subsequently downgraded to, or otherwise become, non-investment grade, the indenture covenants previously released will not be reinstated.

Other

      As of March 31, 2004, the Corporation’s working capital (total current assets less total current liabilities) was $471.4 million or an increase of $24.0 million from December 31, 2003. The change in working capital reflects the previously mentioned increase in accounts receivable of $30.3 million due to mix and stronger sales volumes in the quarter.

      In 2001, the Corporation’s Board of Directors approved a change in the Corporation’s dividend payment practices and elected to retain its future earnings to fund the development and growth of its business. The Corporation does not presently anticipate declaring any cash dividends on the Corporation’s common stock in the foreseeable future. Future decisions concerning the payment of cash dividends on the Corporation’s common stock will depend upon its results of operations, financial condition, capital expenditure plans and other factors that the Board of Directors may consider relevant. The Corporation’s $125 million notes due 2013 contain provisions that currently limit the amount of cash dividends the Corporation is allowed to pay.

      In the short-term the Corporation expects to fund expenditures for capital requirements as well as other liquidity needs from a combination of cash generated from operations and existing cash balances. These sources should be sufficient to meet the Corporation’s operating needs in the short-term.

      Over the long-term, the Corporation expects to meet its liquidity needs with the same sources as its short-term needs plus external financial resources. From time to time the Corporation may access the public capital markets, if terms, rates and timing are acceptable. The Corporation has an effective shelf registration statement for $325 million of senior unsecured debt securities, common stock and preferred stock.

26

Recently Issued Accounting Standards

FIN 46 and FIN 46R

      In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” which was adopted by the Corporation in 2003 and the impact was not material. In December 2003, the FASB issued FIN 46R, a revision of FIN 46. FIN 46R requires a business enterprise that has a controlling financial interest in a variable interest entity to include the assets, liabilities, and results of the activities of the variable interest entity in consolidated financial statements with those of the business enterprise. FIN 46R is effective for fiscal years beginning after December 15, 2003. The impact of adopting FIN 46R was not material to the Corporation’s consolidated financial statements.

“Medicare Prescription Drug Improvement and Modernization Act of 2003.”

      On December 8, 2003, the President signed into law the Medicare Prescription Drug Improvement and Modernization Act of 2003, which expands Medicare, primarily by adding a prescription drug benefit for Medicare-eligibles starting in 2006. The new law provides employers currently sponsoring prescription drug programs for Medicare-eligibles with a range of options for coordinating with the new government-sponsored program to potentially reduce the employer’s program cost. Specific authoritative guidance from the federal government on the administrative mechanics of the government subsidy is pending.

      The Corporation provides certain health-care benefits to certain retired employees and active employees who are Medicare-eligible. For all but a small group of retired executives, health-care benefits provided to plan participants do not include a prescription drug program, and as a result, the new law will not have a material impact on the Corporation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

      The Corporation is exposed to market risk from changes in interest rates, raw material prices and foreign exchange rates. At times, the Corporation may enter into various derivative instruments to manage certain of these risks. The Corporation does not enter into derivative instruments for speculative or trading purposes.

      For the period ended March 31, 2004, the Corporation did not experience any material changes in market risk that affect the quantitative and qualitative disclosures presented in its Annual Report on Form 10-K for the fiscal period ended December 31, 2003 except for commodity risk discussed below.

     Commodity Risk

      The Corporation is exposed to risk from fluctuations in prices for raw materials (including steel, aluminum, zinc, copper, resins and rubber compounds) which are used to manufacture its products. Management expects rising raw material costs — especially steel and copper — will be a challenge during the second quarter 2004 and throughout the remainder of 2004. There is also a possibility of limited availability of steel during these periods. The Corporation does not currently use futures contracts to fix the price of steel and is working closely with its suppliers to avoid any serious disruption to its operations.

      At times, some of the risk associated with the usage of copper, zinc and aluminum is mitigated through the use of futures contracts that fix the price the Corporation will pay for a commodity. Outstanding contracts as of March 31, 2004 had a notional amount of $13.0 million

27

and a market value of $2.2 million. These contracts are for 2004 raw material requirements. As of December 31, 2003, the Corporation had recorded an asset of $1.1 million which represented unrealized gains associated with open commodity contracts. A hypothetical 10% decrease in underlying commodity market prices would result in an unrealized loss of $1.5 million.

Item 4. Controls and Procedures

      As of the end of the period covered by this Report, the Corporation carried out an evaluation, under the supervision and with the participation of the Corporation’s Disclosure Committee and senior management, including Dominic J. Pileggi, the Corporation’s Chief Executive Officer and Kenneth W. Fluke, the Corporation’s Chief Financial Officer, of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) or 15d-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Corporation’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Corporation (including its consolidated subsidiaries) required to be included in the Corporation’s periodic SEC filings.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

      See Note 11, “Contingencies,” in the Notes to Condensed Consolidated Financial Statements included herein.

Item 5. Other Information

      (a) See “Cautionary Statement Regarding Forward-Looking Statements” included in Part I, Item 2 hereof.

Item 6. Exhibits and Reports on Form 8-K

      (a) The following exhibits are filed as part of this Report:

12	Statement re Computation of Ratio of Earnings to Fixed Charges.
31.1	Certification of Principal Executive Officer Under Securities Exchange Act Rules 13a-15(e) and 15d-15(e).
31.2	Certification of Principal Financial Officer Under Securities Exchange Act Rules 13a-15(e) and 15d-15(e).
32	Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. § 1350.

      (b) Reports on Form 8-K

      On February 13, 2004, the Corporation filed a Current Report on Form 8-K, Items 5, 7 and 9, commenting on its financial results for the fiscal year ended December 31, 2003.

28

SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Corporation has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

THOMAS & BETTS CORPORATION

(Registrant)

By:  /s/ KENNETH W. FLUKE

Kenneth W. Fluke

Senior Vice President and

Chief Financial Officer

(principal financial officer and

principal accounting officer)

Date: May 6, 2004

29

EXHIBIT INDEX

12	Statement re Computation of Ratio of Earnings to Fixed Charges.
31.1	Certification of Principal Executive Officer Under Securities Exchange Act Rules 13a-15(e) and 15d-15(e).
31.2	Certification of Principal Financial Officer Under Securities Exchange Act Rules 13a-15(e) and 15d-15(e).
32	Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. § 1350.

30