Thomas & Betts 10Q 2005 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549-1004

FORM 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1933

		For the quarterly period ended June 30, 2005

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 August 2, 2005

Common Stock, $.10 par value		60,509,018

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS


			Page

PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements:
		Consolidated Statements of Operations for the Quarters and Six Months Ended June 30, 2005 and June 30, 2004		2
		Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004		3
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2005 and June 30, 2004		4
		Notes to Consolidated Financial Statements		5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk			26
ITEM 4.	Controls and Procedures			27
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings			28
ITEM 4.	Submission of Matters to a Vote of Security Holders			28
ITEM 5.	Other Information			28
ITEM 6.	Exhibits			28
SIGNATURE				29
EXHIBIT INDEX				30
Form of Restricted Stock Agreement Pursuant to Nonemployee Directors Equity Compensation Plan
Statement Re: Computation of Ratio of Earnings to Fixed Charges
Certification of Principal Executive Officer
Certification of Principal Financial Officer
Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b)

PART I. FINANCIAL INFORMATION


Item 1.	*Financial Statements*

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


			Quarter Ended						Six Months Ended

			June 30,			June 30,			June 30,			June 30,
			2005			2004			2005			2004

Net sales			$	418,090		$	368,973		$	810,276		$	721,961
Cost of sales				298,072			261,719			579,212			515,008

	Gross profit			120,018			107,254			231,064			206,953
Selling, general and administrative				73,628			71,634			142,978			144,648

	Earnings from operations			46,390			35,620			88,086			62,305
Income from unconsolidated companies				360			556			669			1,220
Interest expense, net				(6,868	)		(7,484	)		(14,028	)		(15,098	)
Other (expense) income, net				(1,338	)		(957	)		(1,805	)		(1,092	)

	Earnings before income taxes			38,544			27,735			72,922			47,335
Income tax provision				10,151			7,766			20,121			11,754

		Net earnings	$	28,393		$	19,969		$	52,801		$	35,581

Earnings per share:
	Basic		$	0.47		$	0.34		$	0.89		$	0.61

	Diluted		$	0.47		$	0.34		$	0.87		$	0.60

Average shares outstanding:
	Basic			59,919			58,544			59,610			58,419
	Diluted			60,800			59,200			60,556			58,944

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

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


			June 30,			December 31,
			2005			2004

ASSETS
Current Assets
	Cash and cash equivalents		$	369,783		$	336,059
	Marketable securities			1,450			1,658
	Receivables, net			217,514			172,745
	Inventories:
		Finished goods		98,447			106,402
		Work-in-process		29,824			28,947
		Raw materials		81,262			71,809

	Total inventories			209,533			207,158

	Deferred income taxes			48,864			46,874
	Prepaid expenses			8,635			14,401

Total Current Assets				855,779			778,895

Property, plant and equipment
	Land			15,388			15,261
	Buildings			175,650			171,683
	Machinery and equipment			610,343			608,482
	Construction-in-progress			17,076			10,219

				818,457			805,645
	Less accumulated depreciation			(542,821	)		(529,501	)

Net property, plant and equipment				275,636			276,144

Goodwill				459,556			463,264
Investments in unconsolidated companies				115,045			114,922
Deferred income taxes				32,278			33,481
Other assets				89,439			89,046

Total Assets			$	1,827,733		$	1,755,752


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
	Current maturities of long-term debt		$	152,903		$	2,830
	Accounts payable			131,451			120,336
	Accrued liabilities			97,952			100,692
	Income taxes payable			9,911			14,551

Total Current Liabilities				392,217			238,409

Long-Term Liabilities
	Long-term debt			394,272			543,085
	Other long-term liabilities			77,065			72,539
Contingencies (Note 11)				—			—
Shareholders’ Equity
	Common stock			6,034			5,935
	Additional paid-in capital			392,395			366,811
	Retained earnings			583,044			530,243
	Unearned compensation-restricted stock			(2,969	)		(1,811	)
	Accumulated other comprehensive income (loss)			(14,325	)		541

Total Shareholders’ Equity				964,179			901,719

Total Liabilities and Shareholders’ Equity			$	1,827,733		$	1,755,752

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

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


			Six Months Ended

			June 30,			June 30,
			2005			2004

Cash Flows from Operating Activities:
Net earnings			$	52,801		$	35,581
Adjustments:
	Depreciation and amortization			26,389			27,812
	Undistributed earnings from unconsolidated companies			(669	)		(1,220	)
	Mark-to-market adjustment for derivative instruments			1,506			178
	Loss on sale of property, plant and equipment			933			266
	Deferred income taxes			3,968			2,405
	Changes in operating assets and liabilities, net:
		Receivables		(47,522	)		(43,437	)
		Inventories		(184	)		(16,596	)
		Accounts payable		11,551			19,289
		Accrued liabilities		(6,385	)		(5,521	)
		Pension and post-retirement plans		7,496			(6,378	)
		Other		3,231			4,364

Net cash provided by (used in) operating activities				53,115			16,743

Cash Flows from Investing Activities:
	Purchases of businesses			(16,526	)		—
	Purchases of property, plant and equipment			(18,248	)		(11,002	)
	Proceeds from sale of property, plant and equipment			426			158
	Marketable securities acquired			—			(521	)
	Proceeds from matured marketable securities			188			309

Net cash provided by (used in) investing activities				(34,160	)		(11,056	)

Cash Flows from Financing Activities:
	Repayment of long-term debt and other borrowings			(1,027	)		(129,306	)
	Stock options exercised			18,598			6,205

Net cash provided by (used in) financing activities				17,571			(123,101	)

Effect of exchange-rate changes on cash				(2,802	)		(2,485	)

	Net increase (decrease) in cash and cash equivalents			33,724			(119,899	)
	Cash and cash equivalents, beginning of period			336,059			387,425

	Cash and cash equivalents, end of period		$	369,783		$	267,526

Cash payments for interest			$	19,117		$	24,794
Cash payments for income taxes			$	22,649		$	7,457

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

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)


1.	Basis of Presentation

In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary for the fair presentation of the Corporation’s financial position as of June 30, 2005, and December 31, 2004, and the results of operations and cash flows for the periods ended June 30, 2005 and 2004.

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 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 year ended December 31, 2004. The results of operations for the periods ended June 30, 2005 and 2004, 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				Six Months Ended

		June 30,		June 30,		June 30,		June 30,
		2005		2004		2005		2004

(In thousands, except per share data)
Net earnings		$	28,393	$	19,969	$	52,801	$	35,581

Basic shares:
	Average shares outstanding		59,919		58,544		59,610		58,419

	Basic earnings per share	$	0.47	$	0.34	$	0.89	$	0.61

Diluted shares:
	Average shares outstanding		59,919		58,544		59,610		58,419
	Additional shares from the assumed exercise of stock options and vesting of restricted stock		881		656		946		525

			60,800		59,200		60,556		58,944

Diluted earnings per share		$	0.47	$	0.34	$	0.87	$	0.60

Out-of-the-money options for the purchase of shares of Common Stock that were excluded because of their anti-dilutive effect totaled 1.0 million for the second quarter of 2005 and 1.8 million for the second quarter of 2004. Out-of-the money options for the purchase of shares of Common Stock that were excluded because of their anti-dilutive effect totaled 1.0 million for the first six months of 2005 and 2.0 million for the first six months of 2004.

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


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 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						Six Months Ended

			June 30,			June 30,			June 30,			June 30,
			2005			2004			2005			2004

(In thousands, except per share data)
Net earnings, as reported			$	28,393		$	19,969		$	52,801		$	35,581
	Deduct total incremental stock-based compensation expense determined under fair-value-based method for all awards, net of related tax effects(a)			(1,003	)		(1,002	)		(1,889	)		(2,412	)

	Pro forma net earnings		$	27,390		$	18,967		$	50,912		$	33,169

	Earnings per share:
		Basic — as reported	$	0.47		$	0.34		$	0.89		$	0.61

		Basic — pro forma	$	0.46		$	0.32		$	0.85		$	0.57

		Diluted — as reported	$	0.47		$	0.34		$	0.87		$	0.60

		Diluted — pro forma	$	0.45		$	0.32		$	0.84		$	0.56


(a)		Does not include restricted stock expense that is already reported in net earnings.

A valuation using the fair-value-based accounting method has been made for applicable stock options granted as of June 30, 2005 and 2004. That valuation was performed using the Black-Scholes option-pricing model.


4.	Income Taxes

The Corporation’s income tax provision for the second quarter 2005 was $10.2 million, or an effective rate of 26.3% of pre-tax income, compared to a tax provision in the second quarter 2004 of $7.8 million, or an effective rate of 28.0% of pre-tax income. The tax provision for the second quarter of 2005 included a tax benefit of $0.9 million resulting from the favorable completion of a tax audit.

The Corporation’s income tax provision for the first six months of 2005 was $20.1 million or an effective rate of 27.6% compared to a tax provision in the first six months of 2004 of $11.8 million, or an effective rate of 24.8% of pre-tax income. The first six months of 2005 and 2004 included a second quarter tax benefit of $0.9 million in 2005 and a first quarter tax benefit of $1.5 million in 2004 resulting from the favorable completion of tax audits.

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.

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

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 June 30, 2005, will be sufficient to realize the recorded deferred tax assets, net of the existing valuation allowance at June 30, 2005. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. 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 primarily sales of non-core assets. 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. 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 occur 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						Six Months Ended

	June 30,			June 30,			June 30,			June 30,
	2005			2004			2005			2004

(In thousands)
Net income	$	28,393		$	19,969		$	52,801		$	35,581
Foreign currency translation adjustments		(7,025	)		(3,893	)		(14,851	)		(6,095	)
Unrealized gains (losses) on securities		(3	)		(17	)		(15	)		(25	)

Comprehensive income	$	21,365		$	16,059		$	37,935		$	29,461


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

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

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 June 30, 2005, the Corporation had outstanding commodities futures contracts with a notional amount of $23.5 million and a market value of $0.3 million. As of December 31, 2004, the Corporation had outstanding commodities futures contracts with a notional amount of $16.6 million and a market value of $1.8 million. Cost of sales reflects a loss of $2.4 million for the quarter ended June 30, 2005 and a loss of $1.3 million for the quarter ended June 30, 2004 related to the mark-to-market adjustments for commodities futures contracts. Cost of sales reflects a loss of $1.5 million for the six months ended June 30, 2005 and a loss of $0.2 million for the six months ended June 30, 2004 related to the mark-to-market adjustments for commodities futures contracts.


	*Forward Foreign Exchange Contracts*

From time to time, the Corporation utilizes forward foreign exchange contracts for the sale or purchase of foreign currencies (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) income, net. As of June 30, 2005 and December 31, 2004, the Corporation had no outstanding forward sale contracts related to foreign currencies. Other (expense) income, net reflects a loss of $1.0 million for the quarter ended June 30, 2005 and no impact for the quarter ended June 30, 2004, from mark-to-market adjustments for forward foreign exchange contracts. Other (expense) income, net reflects a loss of $1.4 million for the six months ended June 30, 2005 and no impact for the six months ended June 30, 2004, from mark-to-market adjustments for forward foreign exchange contracts.


	*Interest Rate Swap Agreements*

As of December 31, 2004, the Corporation had interest rate swap agreements totaling a notional amount of $165.3 million with portions maturing in 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.

In June 2005, the Corporation terminated interest rate swap agreements totaling a notional amount of $84.0 million relating to the debt securities maturing in 2008 and 2009. The approximate $0.5 million paid by the Corporation from terminating its previous position will increase the future effective interest rate of the underlying debt instruments.

At June 30, 2005, the net out-of-the-money fair value of the interest rate swaps was $2.4 million, classified in other long-term liabilities, with an off-setting $2.4 million decrease in the book value of the debt hedged. At December 31, 2004, the net out-of-the-money fair value of the interest rate swaps was $4.0 million, classified in other long-term liabilities, with an offsetting $4.0 million decrease in the book value of the debt hedged. Interest expense, net reflects a benefit associated with these interest rate swap agreements of $0.1 million for the quarter ended June 30, 2005 and $1.5 million for the quarter ended June 30, 2004. Interest

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

expense, net reflects a benefit associated with interest rate swap agreements of $0.5 million for the six months ended June 30, 2005 and $3.2 million for the six months ended June 30, 2004.


7.	Debt

The Corporation’s long-term debt at June 30, 2005, and December 31, 2004, was:


		June 30,		December 31,
		2005		2004

(In thousands)
Unsecured notes
	6.50% Notes due 2006	$	150,506	$	150,980
	7.25% Notes due 2013(a)		122,552		121,303
Unsecured medium-term notes
	6.63% Medium-term notes due 2008(a)		114,618		114,787
	6.39% Medium-term notes due 2009(a)		149,809		149,919
Industrial revenue bonds due through 2008			4,880		4,880
Other, including capital leases			4,810		4,046

Long-term debt (including current maturities)			547,175		545,915
Less current portion			152,903		2,830

Long-term debt		$	394,272	$	543,085


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

In June 2005, the Corporation amended its $175 million committed revolving credit facility with a bank group to increase the borrowing capacity to $200 million. The amendment also removed collateral requirements and extended the previous June 2006 maturity date to June 2010. The Corporation pays an annual commitment fee of 20.0 basis points on the $200 million commitment to maintain this facility. The credit agreement contains customary covenants which could restrict the payment of dividends, investments, liens, and dispositions of assets if the Corporation fails to maintain its financial covenants and certain minimum levels of total availability under the facility. The amended facility will allow the Corporation more financial flexibility with regard to making acquisitions and adding additional or repaying existing debt.

Outstanding letters of credit, which reduced availability under the credit facility, amounted to $37.9 million at June 30, 2005. 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 $0.4 million at June 30, 2005. The remaining letters of credit relate to third-party insurance claims processing, existing debt obligations and certain tax incentive programs.

Also in June 2005, the Corporation terminated its previous CAD$45 million (approximately US $36 million) committed revolving credit facility with a Canadian bank.

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

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 annual unused commitment fee of 62.5 basis points on the undrawn balance to maintain this facility. This facility has an indefinite maturity and no borrowings were outstanding as of June 30, 2005.

As of June 30, 2005, the Corporation’s aggregate availability of funds under its credit facilities is approximately $174 million, after deducting outstanding letters of credit. 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.


8.	Acquisition

In January 2005, the Corporation purchased the net operating assets of Southern Monopole and Utilities Company for approximately $16 million. Southern Monopole manufactures steel poles used for electrical transmission and substations, cellular communications and lighting. An allocation of the purchase price to the assets and liabilities acquired has been performed in accordance with SFAS No. 141. Goodwill derived from the purchase price allocation is approximately $1 million and has been assigned to the Steel Structures segment.


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

		June 30,			June 30,			June 30,			June 30,
		2005			2004			2005			2004

(In thousands)
Service cost — benefits earned during the period		$	2,271		$	1,902		$	27		$	3
Interest cost on projected benefit obligation			5,168			4,510			264			263
Expected return on plan assets			(6,312	)		(4,752	)		—			—
Net amortization of unrecognized:
	Transition obligation (asset)		3			(2	)		189			189
	Prior service cost (gain)		264			255			(56	)		(58	)
	Plan net loss (gain)		1,575			708			78			23
	Curtailment and settlement losses		1,762			—			—			—

Net periodic pension cost		$	4,731		$	2,621		$	502		$	420

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


		Six Months Ended

								Post-Retirement
		Pension Benefits						Benefits

		June 30,			June 30,			June 30,			June 30,
		2005			2004			2005			2004

(In thousands)
Service cost — benefits earned during the period		$	4,921		$	4,354		$	33		$	9
Interest cost on projected benefit obligation			9,886			9,116			489			493
Expected return on plan assets			(11,872	)		(8,948	)		—			—
Net amortization of unrecognized:
	Transition obligation (asset)		(6	)		(4	)		383			383
	Prior service cost (gain)		531			506			(112	)		(117	)
	Plan net loss (gain)		2,609			1,935			109			(13	)
	Curtailment and settlement losses		1,762			1,725			—			—

Net periodic pension cost		$	7,831		$	8,684		$	902		$	755

Consistent with the disclosure in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, the Corporation continues to expect required contributions to its qualified pension plans to be minimal in 2005.


10.	Segment Disclosures

The Corporation has three reportable segments: Electrical, Steel Structures and HVAC. The Electrical segment designs, manufactures and markets thousands of different electrical connectors, components and other products for electrical, utility and communications applications. The Steel Structures segment designs, manufactures and markets tubular steel transmission and distribution poles and steel transmission towers for North American power and telecommunications companies. The HVAC segment designs, manufactures and markets heating and ventilation products for commercial and industrial buildings.

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

The Corporation’s reportable segments are based primarily on product lines and represent the primary mode used to assess allocation of resources and 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						Six Months Ended

		June 30,			June 30,			June 30,			June 30,
		2005			2004			2005			2004

(In thousands)
Net sales:
	Electrical	$	342,051		$	311,010		$	658,927		$	608,699
	Steel Structures		45,629			29,951			90,271			56,081
	HVAC		30,410			28,012			61,078			57,181

	Total net sales	$	418,090		$	368,973		$	810,276		$	721,961

Segment earnings:
	Electrical	$	37,368		$	32,514		$	70,407		$	56,681
	Steel Structures		7,192			2,571			12,507			3,181
	HVAC		2,190			1,091			5,841			3,663

	Total reportable segment earnings		46,750			36,176			88,755			63,525
Interest expense, net			(6,868	)		(7,484	)		(14,028	)		(15,098	)
Other (expense) income, net			(1,338	)		(957	)		(1,805	)		(1,092	)

Earnings before income taxes		$	38,544		$	27,735		$	72,922		$	47,335

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


11.	Contingencies


	*Legal Proceedings*


	Kaiser Litigation

In 2000, Kaiser Aluminum, its property insurers, 28 Kaiser injured workers, two nearby businesses and a class of 18,000 residents near the Kaiser facility in Louisiana, 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 Thomas & Betts. The judge set the damages for an injured worker at $20 million and the damages for Kaiser at $335 million. The judgment did not address damages for nearby businesses or 18,000 residents near the Kaiser facility. 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. 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 definitive amounts, management cannot provide any better range of possible losses than zero to the amount of the judgment. When evaluating the impact of the judgment on the Corporation’s liquidity, investors should note that the Corporation has insurance coverage in excess of the judgment.

The claims of one nearby business were resolved in 2001. The claims of the second nearby business were dismissed under summary judgement and a notice of appeal was filed. This appeal has been stayed due to the bankruptcy of Kaiser.

In the fourth quarter 2004, the Corporation and the class of 18,000 residents reached settlement for claims by the class members. The settlement extinguished the claims of all class members and included indemnity of the Corporation against future potential claims asserted by class members or those class members who opted out of the settlement process. Also in the fourth quarter 2004, the court approved the class settlement at a fairness hearing and a $3.75 million class settlement amount was paid by an insurer of the Corporation.

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED) — (Continued)


	Asbestos Cases

The Corporation and its subsidiary, Amerace Corporation, acquired in 1995, are subject to asbestos lawsuits in Mississippi, New Jersey and four 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 the Corporation is one of dozens of defendants in each case. No asbestos containing product of Amerace or Thomas & Betts has been identified in these cases to date. In the Amerace cases, twenty-two 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.

As discussed in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, the Corporation’s subsidiary, L.E. Mason (Red Dot), acquired in 1999, was previously subject to certain asbestos lawsuits. During the second quarter of 2005, the Corporation was dismissed, with no liability, from all such asbestos lawsuits in which it was named as a defendant.


	Other Legal Matters

The Corporation is also 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 assurance. We consider the gross probable liability when determining whether to accrue for a loss contingency for a legal matter. 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. 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.


	*Guarantee and Indemnification Arrangements*

The Corporation generally warrants its products against certain manufacturing and other defects. These product warranties are provided for specific periods of time and usage of the product depending on the nature of the product, the geographic location of its sale and other factors. The accrued product warranty costs are based primarily on historical experience of actual warranty claims as well as current information on repair costs.

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS (UNAUDITED) — (Continued)

The following table provides the changes in the Corporation’s accruals for estimated product warranties:


	Quarter Ended						Six Months Ended

	June 30,			June 30,			June 30,			June 30,
	2005			2004			2005			2004

(In thousands)
Balance at beginning of period	$	1,499		$	1,599		$	1,588		$	1,543
Liabilities accrued for warranties issued during the period		261			242			432			444
Deductions for warranty claims paid during the period		(337	)		(496	)		(677	)		(798	)
Changes in liability for pre-existing warranties during the period, including expirations		139			137			219			293

Balance at end of period	$	1,562		$	1,482		$	1,562		$	1,482


12.	Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment,” which requires that compensation costs relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments used. The Corporation intends to adopt SFAS No. 123(R) for the first quarter of fiscal 2006. The Corporation does not believe the impact of adopting SFAS No. 123(R) will be material.

In December 2004, the FASB issued Staff Position FAS 109-1, “Application of FASB Statement No. 109,Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004”. According to this Staff Position, companies that qualify for the recent tax law’s deduction for domestic production activities must account for it as a special deduction under FASB Statement No. 109 and reduce their tax expense in the period or periods the amounts are deductible on the tax return. As indicated in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, the Corporation has significant U.S. federal net operating loss carryforwards. Until these losses are fully utilized, the Corporation will not be able to claim a tax deduction on qualified production activities.

In December 2004, the FASB issued Staff Position FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004”. This Act provides for a special one-time deduction of 85% of certain foreign earnings that are repatriated to a U.S. taxpayer. Given the lack of clarification of certain provisions within the Act, this Staff Position allowed companies additional time to evaluate the financial statement implications of repatriating foreign earnings. The Corporation is in the process of evaluating how much, if any, of the undistributed earnings of foreign subsidiaries should be repatriated and the financial statement and cash flow implications of any decision. The range of possible amounts that we are considering for repatriation under this provision is between zero and the maximum amount of dividends eligible for the one time deduction under the Act. The related range of income tax effects of such repatriation cannot be reasonably estimated at this time. The Corporation is awaiting final guidance from the Internal Revenue Service and intends to complete its evaluation in late 2005.


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 electrical connectors and components used in industrial, commercial, communications, and utility markets. We are also a leading producer of highly engineered steel structures used for, among other things, utility transmission, and commercial heating units. We operate approximately 120 manufacturing, distribution and office facilities in approximately 20 countries around the world, although the majority of our facilities and sales are in North America and Europe.

Quarterly earnings typically reflect the first quarter being the lowest, second and third quarters benefiting from the normal construction season in our Electrical segment, and our fourth quarter favorably impacted by the winter season in our HVAC business.


	*2005 Outlook*

Based on our second quarter 2005 results, we have revised our 2005 guidance and now believe earnings per diluted share will be between $1.77 and $1.82 for the full year 2005. We expect mid-single-digit sales growth and double-digit earnings improvement in the second half of 2005 compared to the prior year. The key risks facing our company during the remainder of 2005 include higher prices and volatility in commodity markets, especially for steel and copper, and a potential slow down in market growth due to macro-economic factors, such as higher energy costs or rising interest rates.

Comparison of Periods in 2005 with Periods in 2004

Consolidated Results


		Quarter Ended

		June 30, 2005						June 30, 2004

		In			% of Net			In			% of Net
		Thousands			Sales			Thousands			Sales

Net sales		$	418,090			100.0		$	368,973			100.0
Cost of sales			298,072			71.3			261,719			70.9

Gross profit			120,018			28.7			107,254			29.1
Selling, general and administrative			73,628			17.6			71,634			19.4

Earnings from operations			46,390			11.1			35,620			9.7
Income from unconsolidated companies			360			0.1			556			0.1
Interest expense, net			(6,868	)		(1.7	)		(7,484	)		(2.0	)
Other (expense) income, net			(1,338	)		(0.3	)		(957	)		(0.3	)

Earnings before income taxes			38,544			9.2			27,735			7.5
Income tax provision			10,151			2.4			7,766			2.1

Net earnings		$	28,393			6.8		$	19,969			5.4

Per share earnings:
	Basic	$	0.47					$	0.34

	Diluted	$	0.47					$	0.34


		Six Months Ended

		June 30, 2005						June 30, 2004

		In			% of Net			In			% of Net
		Thousands			Sales			Thousands			Sales

Net sales		$	810,276			100.0		$	721,961			100.0
Cost of sales			579,212			71.5			515,008			71.3

Gross profit			231,064			28.5			206,953			28.7
Selling, general and administrative			142,978			17.6			144,648			20.1

Earnings from operations			88,086			10.9			62,305			8.6
Income from unconsolidated companies			669			0.1			1,220			0.2
Interest expense, net			(14,028	)		(1.8	)		(15,098	)		(2.1	)
Other (expense) income, net			(1,805	)		(0.2	)		(1,092	)		(0.2	)

Earnings before income taxes			72,922			9.0			47,335			6.5
Income tax provision			20,121			2.5			11,754			1.6

Net earnings		$	52,801			6.5		$	35,581			4.9

Per share earnings:
	Basic	$	0.89					$	0.61

	Diluted	$	0.87					$	0.60


	*Overview*

Net sales for the second quarter and the first six months of 2005 increased year-over-year reflecting a significant volume increase in the Steel Structures segment sales and a volume increase in the Electrical segment sales. Net sales increases in both periods reflect higher prices to offset raw material cost increases. Favorable foreign currency exchange also benefitted net sales. Earnings from operations for the second quarter and the first six months of 2005 were up significantly compared to the prior-year periods reflecting higher sales and improved productivity. Increased demand by utilities benefited both our Steel Structures and Electrical segments, while an increase primarily in industrial demand also had a positive impact on our Electrical segment.


	*Net Sales and Gross Profit*

Our second quarter 2005 net sales were $418.1 million, up $49.1 million, or 13.3%, from the prior-year period. Favorable foreign currency driven primarily by strong Canadian and European currencies against a weaker U.S. dollar accounted for approximately $8 million of the increase. For the first six months of 2005, net sales were $810.3 million, up $88.3 million, or 12.2%, from the prior-year period. Favorable foreign currency exchange accounted for approximately $15 million of the year-to-date increase. Higher sales volume and price realization to offset higher material costs contributed significantly to the sales improvement in both the quarter and year-to-date periods. In addition, our Steel Structures segment net sales benefited in the second quarter 2005 by $5 million and the for first six months of 2005 by $10 million from the January 2005 acquisition of Southern Monopole and Utilities Company.

The second quarter 2005 gross margin was 28.7% of net sales, compared to 29.1% in the prior-year period. For the first six months of 2005, gross margin was 28.5% of net sales, compared to 28.7% in the prior-year period. We experienced higher raw material costs, primarily steel, of approximately $13 million in second quarter of 2005 compared to the prior year and approximately $28 million for the first six months of 2005 compared to the prior year. These

higher costs were largely offset through higher selling prices for our products and, to a lesser extent, productivity improvements.


	*Expenses*

Second quarter 2005 selling, general and administrative (“SG&A”) expense was $73.6 million or 17.6% of net sales, compared to $71.6 million or 19.4% of net sales in the prior-year period. For the first six months of 2005, SG&A expense was $143.0 million or 17.6% of net sales, compared to $144.6 million or 20.0% of net sales in the prior year period. The improvement in SG&A expense as a percent of net sales reflects our continued focus on closely managing expenses and the effect of higher sales.


	*Interest Expense, Net*

Interest expense, net for the second quarter 2005 was $6.9 million, down from $7.5 million in the year-earlier period primarily due to higher interest income and lower debt levels. For the first six months of 2005, net interest expense was $14.0 million, down from $15.1 million in the prior year period. Interest income included in interest expense, net was $2.5 million for the second quarter 2005 and $0.8 million for the second quarter 2004. Interest income for the first six months of 2005 was $4.5 million compared to $1.8 million in the prior year period. The increase in interest income reflects higher interest rates and higher average balances of cash and cash equivalents during 2005 compared to 2004. Interest expense reflects the impact of interest rate swap agreements, which resulted in a benefit of $0.1 million for the second quarter 2005 and a benefit of $1.5 million for second quarter 2004. For the first six months of 2005, interest rate swap agreements resulted in a benefit of $0.5 million compared to a benefit of $3.2 million in the prior-year period.


	*Income Taxes*

The effective tax rate in the second quarter 2005 was 26.3% compared to 28.0% in the second quarter 2004. The second quarter 2005 reflects a $0.9 million tax benefit resulting from the favorable completion of a tax audit. For the first six months of 2005, the effective tax rate was 27.6% compared to 24.8% in year-earlier period. The first six months of 2005 and 2004 included a second quarter tax benefit of $0.9 million in 2005 and a first quarter tax benefit of $1.5 million in 2004 resulting from the favorable completion of tax audits.


	*Net Earnings*

Net earnings in the second quarter 2005 were $28.4 million, or $0.47 per basic and diluted share, compared to net earnings of $20.0 million, or $0.34 per basic and diluted share, in the second quarter 2004. For the first six months of 2005, net earnings were $52.8 million, or $0.89 per basic share and $0.87 per diluted share, compared to net earnings of $35.6 million, or $0.61 per basic share and $0.60 per diluted share, in the year-earlier period. Higher net earnings for the second quarter and first six months of 2005 reflect the favorable impact from higher net sales and operating earnings resulting from the factors discussed previously.

Segment Results

We evaluate our business segments primarily on the basis of segment earnings. Segment earnings are defined as earnings from continuing operations before interest, taxes, asset impairments, restructuring charges and certain other charges.

Our segment earnings are significantly influenced by the operating performance of our Electrical segment. This segment accounts for over three-fourths of our consolidated net sales and a majority of our consolidated segment earnings during each of the periods presented.

Net Sales


	Quarter Ended								Six Months Ended

	June 30, 2005				June 30, 2004				June 30, 2005				June 30, 2004

	In		% of Net		In		% of Net		In		% of Net		In		% of Net
	Thousands		Sales		Thousands		Sales		Thousands		Sales		Thousands		Sales

Electrical	$	342,051		81.8	$	311,010		84.3	$	658,927		81.3	$	608,699		84.3
Steel Structures		45,629		10.9		29,951		8.1		90,271		11.2		56,081		7.8
HVAC		30,410		7.3		28,012		7.6		61,078		7.5		57,181		7.9

	$	418,090		100.0	$	368,973		100.0	$	810,276		100.0	$	721,961		100.0

Segment Earnings


	Quarter Ended								Six Months Ended

	June 30, 2005				June 30, 2004				June 30, 2005				June 30, 2004

	In		% of Net		In		% of Net		In		% of Net		In		% of Net
	Thousands		Sales		Thousands		Sales		Thousands		Sales		Thousands		Sales

Electrical	$	37,368		10.9	$	32,514		10.5	$	70,407		10.7	$	56,681		9.3
Steel Structures		7,192		15.8		2,571		8.6		12,507		13.8		3,181		5.7
HVAC		2,190		7.2		1,091		3.9		5,841		9.6		3,663		6.4

	$	46,750		11.2	$	36,176		9.8	$	88,755		11.0	$	63,525		8.8


	*Electrical Segment*

Second quarter 2005 net sales in the Electrical segment were up $31.0 million, or 10.0%, on a year-over-year basis. Favorable foreign currency exchange accounted for approximately $8 million of the increase. For the first six months of 2005, net sales for the Electrical segment were up $50.2 million, or 8.3%, on a year-over-year basis. Foreign currency exchange accounted for approximately $13 million of the increase. Price realization to offset higher material costs and higher sales volume from modest improvements in utility and industrial markets contributed significantly to the sales growth.

Electrical segment earnings of $37.4 million in the second quarter of 2005 and $70.4 million for the first six months of 2005 were significantly higher compared to $32.5 million in the second quarter and $56.7 million for the first six months of the prior year. Higher sales and increased productivity contributed to the growth in segment earnings.


	*Other Segments*

Second quarter 2005 net sales in our Steel Structures segment were up $15.7 million, or 52.3% on a year-over-year basis. For the first six months of 2005, net sales for the Steel Structures segment were up $34.2 million, or 61.0%, on a year-over-year basis. The sales increase

reflects higher levels of capital investment by U.S. electrical utilities to expand or upgrade regional transmission grids. Additionally, net sales benefited in the second quarter 2005 by $5 million and for the first six months of 2005 by $10 million from the January 2005 acquisition of Southern Monopole and Utilities Company. Segment earnings of $7.2 million in the second quarter of 2005 and $12.5 million for the first six months of 2005 were significantly higher compared to $2.6 million in the second quarter and $3.2 million for the first six months of the prior year due primarily to the higher sales.

Second quarter 2005 net sales in the HVAC segment were up $2.4 million or 8.6% on a year-over-year basis. For the first six months of 2005, net sales for the HVAC segment were up $3.9 million, or 6.8%, on a year-over-year basis. Segment earnings of $2.2 million in the second quarter and $5.8 million for the first six months of 2005 were also higher compared to $1.1 million in the second quarter and $3.7 million for the first six months of the prior year. The earnings increase reflects continued cost reductions and on-going efficiency improvements.


	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. We cannot assure that actual results will not differ from those estimates or assumptions. Our significant accounting policies are described in Note 2 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. We believe that our critical accounting policies include: Revenue Recognition; Inventory Valuation; Goodwill and Other Intangible Assets; Long-Lived Assets; Income Taxes; and Environmental Costs.


	•	Revenue Recognition: We recognize 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. Quantity rebates are in the form of volume incentive discount plans, which include specific sales volume targets or year-over-year sales volume growth targets for specific customers. Certain distributors can take advantage of price rebates by subsequently reselling the Corporation’s products into targeted construction projects or markets. Following a distributor’s sale of an eligible product, the distributor submits a claim for a price rebate. The Corporation provides additional allowances for bad debts when circumstances dictate. 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: We follow the provisions of 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: We follow 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 annually or 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 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: We use 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 June 30, 2005, 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.


	Business Risks

There are many factors that could pose a risk to our business and our ability to execute our business plan, some of which are beyond our control. A description of these factors is included in the “Business Risks” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2004. These factors include, but are not limited to:


	•	Risks Related to Credit Quality of Customers

	•	Negative Economic Conditions May Adversely Affect Performance

	•	Availability of Steel Supply

	•	Changes in Customer Demand

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

	•	Adequacy of Insurance

	•	Terrorist Acts and Acts of War


	Forward-Looking Statements

This Report includes forward-looking statements regarding Thomas & Betts Corporation that are subject to uncertainties in our operations, business, economic and political environment. Statements that contain words such as “achieve,” “guidance,” “believes,” “expects,” “anticipates,” “intends,” “estimates,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” or similar expressions are forward-looking statements. These statements are subject to risks and uncertainties, and 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 the Report to reflect any future events or circumstances. For more information about these risks and uncertainties please see the section entitled, “Caution Regarding Forward-Looking Statements” contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004.

Liquidity and Capital Resources

We had cash and cash equivalents of $369.8 million at June 30, 2005 and $336.1 million at December 31, 2004.

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


	Six Months Ended

	June 30,			June 30,
	2005			2004
(In thousands)
Net cash provided by (used in) operating activities	$	53,115		$	16,743
Net cash provided by (used in) investing activities		(34,160	)		(11,056	)
Net cash provided by (used in) financing activities		17,571			(123,101	)
Effect of exchange-rate changes on cash		(2,802	)		(2,485	)

Net increase (decrease) in cash and cash equivalents	$	33,724		$	(119,899	)


	*Operating Activities*

Cash provided by operating activities during the first six months of 2005 of $53.1 million improved by $36.4 million compared with cash provided by operating activities of $16.7 million during the first six months of 2004. This improvement reflects stronger net earnings and sound inventory management during the first six months of 2005.

Contributions to the Corporation’s qualified pension plans during the first six months of 2005 have been minimal, compared with contributions of $5 million during the same period in the prior year. Payments associated with the Corporation’s non-qualified pension plans during the first six months of 2005 have been minimal, compared with payments of $4 million to fund withdrawals during the same period in the prior year.


	*Investing Activities*

Capital expenditures during the first six months of 2005 totaled $18.2 million compared to $11.0 million during the first six months of 2004. We expect capital expenditures to be approximately $35 million for the full year 2005, reflecting investment in our manufacturing facilities to enhance efficiencies, introduce new products, and lower costs.


	*Financing Activities*

Cash provided by financing activities during the first six months of 2005 reflects cash provided by stock options exercised of $18.6 million compared to $6.2 million during the first six months of 2004. Cash used in financing activities during the first six months of 2005 also reflects debt repayments of $1.0 million compared to $129.3 million during the first six months of 2004. In January 2004, $125 million of senior unsecured notes payable were paid upon maturity from available cash resources.


	$200 million Credit Agreement

In June 2005, we amended our $175 million committed revolving credit facility with a bank group to increase the borrowing capacity to $200 million. The amendment also removed collateral requirements and extended the June 2006 maturity date to June 2010. The credit agreement contains customary covenants which could restrict the payment of dividends,

investments, liens, and dispositions of assets if the Corporation fails to maintain its financial covenants and certain minimum levels of total availability under the facility. The amended facility will allow the Corporation more financial flexibility with regard to making acquisitions and adding additional or repaying existing debt. We have the option, at the time of drawing funds under the facility, of selecting an interest rate based on a number of benchmarks including the London Interbank Offered Rate (LIBOR), the federal funds rate, or the prime rate of the agent bank. The $200 million credit facility contains the following financial covenants:

Fixed Charge Coverage Ratio. The Corporation must maintain a ratio, as defined in the agreement, of no less than 2.50 to 1.00 as of the end of any fiscal quarter through March 31, 2006; 2.75 to 1.00 as of the end of any fiscal quarter ending June 30, 2006 through December 31, 2006; and 3.00 to 1.00 as of the end of any fiscal quarter ending March 31, 2007 and thereafter.

Leverage Ratio. The Corporation must maintain a ratio, as defined in the agreement, of no greater than 4.00 to 1.00 as of the end of any fiscal quarter through December 31, 2006; and 3.75 to 1.00 as of the end of any fiscal quarter ending March 31, 2007 and thereafter.

At times, we provide letters of credit that may be drawn in the event we fail to perform under contracts entered into in the normal course of our business activities. These performance related letters of credit totaled $0.4 million at June 30, 2005. The remaining letters of credit relate to third-party insurance claims processing, existing debt obligations and certain tax incentive programs. At June 30, 2005, outstanding letters of credit, or similar financial instruments that reduce the amount available under the $200 million credit facility totaled $37.9 million.


	Other Credit Facilities

In June 2005, we terminated our previous CAD$45 million (approximately US $36 million) committed revolving credit facility with a Canadian bank

We have a EUR10 million committed revolving credit facility with a European bank that has an indefinite maturity. This facility is secured by inventory and receivables located in Europe. Availability under this facility is EUR10 million (approximately US $12 million) as of June 30, 2005. This credit facility contains standard covenants similar to those contained in the $200 million credit agreement and standard events of default such as covenant default and cross-default.


	Compliance and Availability

We are in compliance with all covenants or other requirements set forth in our credit facilities.

As of June 30, 2005, the aggregate availability of funds under our credit facilities was approximately $174 million, after deducting outstanding letters of credit.


	Credit Ratings

As of June 30, 2005, we had a senior unsecured debt rating from Standard & Poor’s of BBB-, an investment grade credit rating. Moody’s Investor Service (“Moody’s”) assigned us a non-investment grade credit rating of Ba1. In November 2004, Moody’s revised our rating outlook upward to positive from stable. In July 2005, Moody’s placed Thomas & Betts under review for possible upgrade. If both Moody’s and Standard & Poor’s rate us as an investment

grade credit for a continuous period of at least 30 days, certain of the covenants on one of our indentures will terminate.

Should our credit ratings drop, repayment under our credit facilities and securities will not be accelerated; however, our credit costs may increase and access to capital markets may be more limited. Similarly, if our credit rating increases, we may have a decrease in our credit costs and access to broader capital markets.


	Off-Balance Sheet Arrangements

As of June 30, 2005, we did not have any off-balance sheet arrangements.


	Debt Securities

Thomas & Betts had the following senior unsecured debt securities outstanding as of June 30, 2005:

Face

Interest

Issue Date

Amount

Rate

Interest Payable

Maturity Date

January 1996

$150 million

6.50

January 15 and July 15

January 2006

May 1998

$115 million

6.63

May 1 and November 1

May 2008

February 1999

$150 million

6.39

March 1 and September 1

February 2009

May 2003

$125 million

7.25

%(a)

June 1 and December 1

June 2013


(a)		We have entered into an interest rate swap associated with only a portion of this underlying debt instrument. See “Item 3. Quantitative and Qualitative Disclosures About Market 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. We are in compliance with all covenants and other requirements set forth in the indentures.


	7.25% Notes Due 2013

The covenants contained in the indenture governing the 7.25% senior unsecured notes due 2013 limit or restrict our ability to:


	•	incur indebtedness or issue preferred stock of our subsidiaries;

	•	make restricted payments (as defined), including dividends, repurchase of common stock, or other distributions and investments;

	•	sell assets or subsidiary stock.

If Moody’s and Standard & Poor’s both rate these notes investment grade for at least 30 continuous days, then the above restrictive covenants will no longer apply. If these notes subsequently become non-investment grade, the indenture covenants previously released will not be reinstated. The indentures do not accelerate the maturity of the notes in the event of a credit downgrade.


	*Other*

In the short-term we expect 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 our operating needs in the short-term.

Over the long-term, we expect to meet our liquidity needs with a combination of cash generated from operations and existing cash balances plus either increased debt or equity issuances. From time to time, we may access the public capital markets if terms, rates and timing are acceptable. We have an effective shelf registration statement that will permit us to issue an aggregate of $325 million of senior unsecured debt securities, common stock and preferred stock.

Recently Issued Accounting Standards

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123(R), “Share-Based Payment,” which requires that compensation costs relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments used. The Corporation intends to adopt SFAS No. 123(R) during its first quarter of fiscal 2006. The Corporation does not believe the impact of adopting SFAS No. 123(R) will be material.

In December 2004, the FASB issued Staff Position FAS 109-1, “Application of FASB Statement No. 109,Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004”. According to this Staff Position, companies that qualify for the recent tax law’s deduction for domestic production activities must account for it as a special deduction under FASB Statement No. 109 and reduce their tax expense in the period or periods the amounts are deductible on the tax return. As indicated in Note 7 Notes to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, the Corporation has significant U.S. federal net operating loss carryforwards. Until these losses are fully utilized, the Corporation will not be able to claim a tax deduction on qualified production activities.


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*

We are exposed to market risk from changes in interest rates, raw material prices and foreign exchange rates. 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.

For the period ended June 30, 2005, we did not experience any material changes in market risk that affect the quantitative and qualitative disclosures presented in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, except for interest rate risk discussed below.

Interest Rate Risk

We are exposed to the impact of interest rate changes and use a combination of fixed and floating rate debt to manage this exposure. We use interest rate swaps, at certain times, to manage the impact of benchmark interest rate changes on the market value of our borrowings and to lower our overall borrowing costs.

As of December 31, 2004, we had interest rate swap agreements totaling a notional amount of $165.3 million with portions maturing in 2008, 2009, and 2013. In June 2005, we terminated interest rate swap agreements totaling a notional amount of $84.0 million relating to the debt securities maturing in 2008 and 2009. The approximate $0.5 million we paid to terminate our previous position will increase the future effective interest rate of the underlying debt instruments. Prior to June 2005, our fixed-to-floating ratio was approximately 70%/30%. After terminating our 2008 and 2009 interest swap agreements, our fixed-to-floating ratio as of June 30, 2005 was approximately 85%/15%.

As of June 30, 2005, we had one remaining interest rate swap agreement with a notional amount of $81.3 million, maturing June 1, 2013. Under this interest rate swap agreement, we received a fixed rate of 7.25% and paid weighted average variable rates of 6.62% during the second quarter 2005 and 6.41% during the first six months of 2005.


Item 4.	*Controls and Procedures*

As of the end of the period covered by this Report, we carried out an evaluation, under the supervision and with the participation of our Disclosure Committee and senior management, including Dominic J. Pileggi, Chief Executive Officer, and Kenneth W. Fluke, Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures are effective at June 30, 2005.

We had no significant changes in our internal controls over financial reporting during the quarter ended June 30, 2005.

PART II. OTHER INFORMATION


Item 1.	*Legal Proceedings*

See Note 11, “Contingencies,” in the Notes to Consolidated Financial Statements, which is incorporated herein by reference.


Item 4.	*Submission of Matters to a Vote of Security Holders*

The matters which were voted upon at the Registrant’s Annual Meeting of Shareholders held May 5, 2004, and the results of the voting are set forth below.


1.	Nominees for Director	For		Withheld

	Ernest H. Drew		48,110,323		6,635,327
	T. Kevin Dunnigan		53,055,055		1,590,595
	Jeananne K. Hauswald		53,340,337		1,305,313
	Dean Jernigan		53,935,791		709,859
	Ronald B. Kalich, Sr.		53,937,345		708,305
	Kenneth R. Masterson		53,935,891		709,759
	Dominic J. Pileggi		53,320,860		1,324,790
	Jean-Paul Richard		53,935,379		710,271
	David D. Stevens		53,888,192		757,458
	William H. Waltrip		53,285,987		1,359,663

2. For the proposal to ratify the appointment of KPMG LLP as the independent registered public accounting firm, received:


		For		53,602,274
		Against		990,466
		Abstentions		52,910
		Broker non-votes		0


Item 5.	*Other Information*

None.


Item 6.	*Exhibits*

The Exhibit Index that follows the signature page of this Report is incorporated herein by reference.

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)

Date: August 5, 2005

EXHIBIT INDEX


	3.1			Amended and Restated Charter of Thomas & Betts Corporation (Filed as Exhibit 3.1 to the Corporation’s 1999 Annual Report on Form 10-K and incorporated herein by reference.)
	3.2			Amended and Restated Bylaws of Thomas & Betts Corporation (Filed as Exhibit 3.2 to the Corporation’s 2003 Annual Report on Form 10-K and incorporated herein by reference.)
	4.1			Indenture dated as of January 15, 1992, between Thomas & Betts Corporation and First Trust of New York, as Trustee (Filed as Exhibit 4(a) to the Corporation’s 1991 Annual Report on Form 10-K and incorporated herein by reference.)
	4.2			Third Supplemental Indenture dated May 7, 1998, between Thomas & Betts Corporation and The Chase Manhattan Bank, as Trustee (Filed as Exhibit 4.1 to the Corporation’s Current Report on Form 8-K dated May 4, 1998, and incorporated herein by reference.)
	4.3			Indenture dated as of August 1, 1998, between Thomas & Betts Corporation and The Bank of New York, as Trustee (Filed as Exhibit 4.1 to the Corporation’s Current Report on Form 8-K dated February 3, 1999, and incorporated herein by reference.)
	4.4			Supplemental Indenture No. 1 dated February 10, 1999, between Thomas & Betts Corporation and The Bank of New York, as Trustee (Filed as Exhibit 4.2 to the Corporation’s Current Report on Form 8-K dated February 3, 1999, and incorporated herein by reference.)
	4.5			Supplemental Indenture No. 2 dated May 27, 2003, between Thomas & Betts Corporation and The Bank of New York, as Trustee (Filed as Exhibit 4.1 to the Corporation’s Current Report on Form 8-K dated May 27, 2003, and incorporated herein by reference.)
	10.1			Settlement Agreement and Release dated February 21, 2002, between Tyco Group S.A.R.L. and Thomas & Betts Corporation (Filed as Exhibit 10.14 to the Corporation’s 2001 Annual Report on Form 10-K and incorporated herein by reference.)
	10.2			Amended and Restated Credit Agreement dated as of June 14, 2005 among Thomas & Betts Corporation, as Borrower, The Guarantors Party Thereto, The Financial Institutions Party Thereto, Bank of America, N.A., Suntrust Bank and Regions Bank, as Co-Syndication Agents, LaSalle Bank, N.A., as Documentation Agent and Wachovia Bank, National Association, as Administrative Agent, Swing Bank and Issuing Bank (Filed as Exhibit 10.1 to the Corporation’s Current Report on Form 8-K dated June 14, 2005, and incorporated herein by reference.)
	10.3			Thomas & Betts Corporation 1993 Management Stock Ownership Plan, as amended through June 5, 2001, and Forms of Grant Agreement (Filed as Exhibit 10.3 to the Corporation’s second quarter 2001 Quarterly Report on Form 10-Q and incorporated herein by reference.)
	10.4			Pension Restoration Plan as amended, effective December 31, 2000 (Filed as Exhibit 10.1 to the Corporation’s third quarter 2001 Quarterly Report on Form 10-Q and incorporated herein by reference.)
	10.5			Retirement Plan for Non-employee Directors dated September 6, 1989, as amended December 3, 1997 (Filed as Exhibit 10.9 to the Corporation’s 1997 Annual Report on Form 10-K and incorporated herein by reference.)
	10.6			Deferred Fee Plan for Non-employee Directors as amended and restated effective May 6, 1998 (Filed as Exhibit 10.11 to the Corporation’s 1998 Annual Report on Form 10-K and incorporated herein by reference.)


10.7		Supplemental Executive Investment Plan (Filed as Exhibit 10.1 to the Corporation’s second quarter 2004 Quarterly Report on Form 10-Q and incorporated herein by reference.)
10.8		Restricted Stock Plan for Non-employee Directors as amended March 7, 2003 (Filed as Exhibit 10.7 to the Corporation’s 2003 Annual Report on Form 10-K and incorporated herein by reference.)
10.9		Non-employee Directors Stock Option Plan and Form of Stock Option Agreement, as amended March 9, 2001 (Filed as Exhibit 10.18 to the Corporation’s 2000 Annual Report on Form 10-K and incorporated herein by reference.)
10.1	0	Thomas & Betts Corporation 2001 Stock Incentive Plan (Filed as Exhibit 10.1 to the Corporation’s Registration Statement on Form S-8, No. 333-60074, filed May 2, 2001, and incorporated herein by reference.)
10.1	1	Form of Termination Protection Agreement (Filed as Exhibit 10.11 to the Corporation’s 2003 Annual Report on Form 10-K and incorporated herein by reference.)
10.1	2	Form of Termination Protection Agreement (Filed as Exhibit 10.12 to the Corporation’s 2003 Annual Report on Form 10-K and incorporated herein by reference.)
10.1	3	Retirement Agreement of T. Kevin Dunnigan dated December 2, 2003 (Filed as Exhibit 10 to the Corporation’s Current Report on Form 8-K dated December 4, 2003, and incorporated herein by reference.)
10.1	4	Letter Agreement amending the Retirement Agreement of T. Kevin Dunnigan (Filed as Exhibit 10.2 to the Corporation’s third quarter 2004 Quarterly Report on Form 10-Q and incorporated herein by reference.)
10.1	5	Nonemployee Directors Equity Compensation Plan (Filed as Exhibit 10.19 to the Corporation’s 2003 Annual Report on Form 10-K and incorporated herein by reference.)
10.1	6	Form of Non-Qualified Stock Option Agreement (Filed as Exhibit 10 to the Corporation’s Current Report on Form 8-K dated August 31, 2004, and incorporated herein by reference.)
10.1	7	Equity Compensation Plan (Filed as Exhibit 10.20 to the Corporation’s 2003 Annual Report on Form 10-K and incorporated herein by reference.)
10.1	8	Form of Restricted Stock Agreement (Filed as Exhibit 10.2 to the Corporation’s Current Report on Form 8-K dated February 2, 2005, and incorporated herein by reference.)
10.1	9	Form of Executive Incentive Stock Option Agreement (Filed as Exhibit 10.3 to the Corporation’s Current Report on Form 8-K dated February 2, 2005, and incorporated herein by reference.)
10.2	0	Form of Executive Nonqualified Stock Option Agreement (Filed as Exhibit 10.4 to the Corporation’s Current Report on Form 8-K dated February 2, 2005, and incorporated herein by reference.)
10.2	1	Management Incentive Plan (Filed as Exhibit 10.13 to the Corporation’s 2003 Annual Report on Form 10-K and incorporated herein by reference.)
10.2	2	Form of Thomas & Betts Corporation Indemnification Agreement (Filed as Exhibit 10.3 to the Corporation’s third quarter 2004 Quarterly Report on Form 10-Q and incorporated herein by reference.)
10.2	3	Health Benefits Continuation Agreement dated February 2, 2005 (Filed as Exhibit 10.1 to the Corporation’s Current Report on Form 8-K dated February 2, 2005, and incorporated herein by reference.)
10.2	4	Executive Retirement Plan, as amended February 4, 2004 (Filed as Exhibit 10.13 to the Corporation’s 2003 Annual Report on Form 10-K and incorporated herein by reference.)


10.2	5	Appendix A to Executive Retirement Plan, as amended June 1, 2005. (Filed as Exhibit 10.2 to the Corporation’s Current Report on Form 8-K dated June 1, 2005, and incorporated herein by reference.)
10.2	6	Termination Protection Agreement between Thomas & Betts Corporation and Stanley P. Locke dated June 1, 2005. (Filed as Exhibit 10.3 to the Corporation’s Current Report on Form 8-K dated June 1, 2005, and incorporated herein by reference.)
10.2	7	Separation Benefit Agreement and General Release between the Corporation and Connie C. Muscarella dated June 14, 2005. (Filed as Exhibit 10.2 to the Corporation’s Current Report on Form 8-K dated June 14, 2005, and incorporated herein by reference.)
10.2	8	Form of Restricted Stock Agreement Pursuant to Thomas & Betts Corporation Nonemployee Directors Equity Compensation Plan.
12		Statement re Computation of Ratio of Earnings to Fixed Charges.
31.1		Certification of Principal Executive Officer under Securities Exchange Act Rules 13a-14(a) or 15d-14(a).
31.2		Certification of Principal Financial Officer under Securities Exchange Act Rules 13a-14(a) or 15d-14(a).
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.

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	8th grade Avg

Thomas & Betts (TNB) Inactive 10-Q2005 Q2 Quarterly report

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