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UNITED STATES

Form 10-Q

Commission file number 1-4682

Thomas & Betts Corporation

(901) 252-8000

      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.

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

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PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

THOMAS & BETTS CORPORATION AND SUBSIDIARIES

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

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THOMAS & BETTS CORPORATION AND SUBSIDIARIES

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

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THOMAS & BETTS CORPORATION AND SUBSIDIARIES

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

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THOMAS & BETTS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

      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.

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

      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.

      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

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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.

      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.

      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

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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.

      Total comprehensive income and its components are as follows:

      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.

      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.

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      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.

      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.

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

(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

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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.

      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.

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      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:

      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.

      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

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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.

      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

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$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.

      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.

      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.

      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

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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.

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Executive Overview

      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.

      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.

      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:

      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.

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      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.

      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.

      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.

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      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 (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.

      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

      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

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      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

      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.

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      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.

      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.

      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 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.

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