UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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| þ | | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | FOR THE FISCAL YEAR ENDED DECEMBER 31, 20082009 |
| o | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission fileno.File Number 1-2958
Hubbell Incorporated
(Exact name of Registrantregistrant as specified in its charter)
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| State of Connecticut | | 06-0397030 |
(State or other jurisdiction of
incorporation or organization) | | (I.R.S. Employer
Identification Number)No.) |
584 Derby Milford Road,
Orange, ConnecticutCT
(Address of principal executive offices) | | 06477-402406477
(Zip Code) |
(203) 799-4100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each Class | | Name of Exchange on which Registered |
| |
| Class A Common — $.01 par value (20 votes per share) | | New York Stock Exchange |
| Class B Common — $.01 par value (1 vote per share) | | New York Stock Exchange |
| Series A Junior Participating Preferred Stock Purchase Rights | | New York Stock Exchange |
| Series B Junior Participating Preferred Stock Purchase Rights | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ
Indicate by check mark if 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 report), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ | | Accelerated filer o | | Non-accelerated filer o | | Smaller reporting Company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act). Yes o No þ
The approximate aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 20082009 was $2,071,927,017*$1,646,427,497*. The number of shares outstanding of the Class A Common Stock and Class B Common Stock as of February 12, 20092010 was 7,167,506 and 49,231,160,52,579,625, respectively.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the annual meeting of shareholders scheduled to be held on May 4, 2009,3, 2010, to be filed with the Securities and Exchange Commission (the “SEC”), are incorporated by reference in answer to Part III of thisForm 10-K.
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| * | | Calculated by excluding all shares held by Executive Officers and Directors of registrant and the Louie E. Roche Trust, the Harvey Hubbell Trust, the Harvey Hubbell Foundation and the registrant’s pension plans, without conceding that all such persons or entities are “affiliates” of registrant for purpose of the Federal Securities Laws. |
HUBBELL INCORPORATED
ANNUAL REPORT ONFORM 10-K
For the Year Ended December 31, 20082009
TABLE OF CONTENTS
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PART I
Hubbell Incorporated (herein referred to as “Hubbell”, the “Company”, the “registrant”, “we”, “our” or “us”, which references shall include its divisions and subsidiaries as the context may require) was founded as a proprietorship in 1888, and was incorporated in Connecticut in 1905. Hubbell is primarily engaged in the design, manufacture and sale of quality electrical and electronic products for a broad range of non-residential and residential construction, industrial and utility applications. Products are either sourced complete, manufactured or assembled by subsidiaries in the United States, Canada, Switzerland, Puerto Rico, Mexico, the People’s Republic of China, Italy, the United Kingdom (“UK”), Brazil and Australia. Hubbell also participates in joint ventures in Taiwan and the People’s Republic of China, and maintains sales offices in Singapore, the People’s Republic of China, Mexico, South Korea, and the Middle East.
During the first quarter of 2008, the Company realigned its internal organization and operating segments. This reorganization included combining the electrical products business (included in the Electrical segment) and the industrial technology business (previously its own reporting segment) into one operating segment. This combined operating segment is part of the Electrical reporting segment. Effective for the first quarter of 2008, theThe Company’s reporting segments consist of the Electrical segment (comprised of wiring, electrical systems products and lighting products) and the Power segment. Previously reported data has been restated to reflect this change.
In December 2008, a decision was made to further consolidate the businesses within the Electrical segment. The wiring products and electrical products businesses were combined to form the electrical systems business. The combination of these two businesses did not have an impact on the Company’s reporting segments.segment, as described below. See also Note 21 — Industry Segments and Geographic Area Information in the Notes to Consolidated Financial Statements.
In December 2008,On October 2, 2009, the Company purchased allcompleted the purchase of the outstanding common stock of The Varon Lighting Group, LLC,Burndy Americas (“Varon”Burndy®”) for approximately $55.6$355.2 million in cash. Varoncash (net of cash acquired). Burndy, headquartered in Manchester, New Hampshire, is a leading providerNorth American manufacturer of energy-efficient lighting fixturesconnectors, cable accessories and controls designed fortooling. Burndy’s connector portfolio consists of Hydenttm and Servit® compression and mechanical connectors; Implotm, Hyground® and Burndyweld® transmission and substation grounding connectors and Wejtaptm overhead line connectors. Burndy also sells cable accessories including Penetroxtm oxide inhibiting compounds and hydraulic, pneumatic and mechanical tooling including the indoorPatriot® family of battery tools and The Smart Cart® cable management systems. Burndy serves commercial and industrial lighting retrofitmarkets and relight market, as well as outdoor newutility customers primarily in the United States (with roughly 25% of its sales in Canada, Mexico and retrofit pedestrian-scale lighting applications. The company has manufacturing operations in California, Florida, and Wisconsin.Brazil). This acquisition has been added to the lightingelectrical systems business within the Electrical segment.
In September 2008,December 2009, the Company purchased alla product line for $0.6 million. This product line, comprised of the outstanding common stock of CDR Systems Corp. (“CDR”), for approximately $68.8 million in cash. CDR, based in Ormond Beach, Florida, with multiple facilities throughout North America, manufactures polymer concreteconductor bar and fiberglass enclosures serving a variety of end markets, including electric, gas and water utilities, cable television and telecommunications industries. This acquisitionfestoon systems, has been added to the Power segment.
In August 2008, the Company purchased all of the outstanding common stock of USCO Power Equipment Corporation (“USCO”) for approximately $26.1 million in cash. USCO, based in Leeds, Alabama, provides high quality transmission line and substation disconnect switches and accessories to the electric utility industry. This acquisition has been added to the Power segment.
In January 2008, the Company purchased all of the outstanding common stock of Kurt Versen, Inc. (“Kurt Versen”) for $100.2 million in cash. Located in Westwood, New Jersey, Kurt Versen manufactures premium specification-grade lighting fixtures for a full range of office, commercial, retail, government, entertainment, hospitality and institution applications. The acquisition enhances the Company’s position and array of offerings in the key spec-grade downlighting market. Kurt Versen has been added to the lightingelectrical systems business within the Electrical segment.
During 2008, the Company also purchased three product lines; a manufacturer of rough-in electrical products, added to the Electrical segment, a Canadian manufacturer of high voltage condenser bushings and a Brazilian supplier of preformed wire products which were both added to the Power segment. The aggregate cost of these acquisitions was approximately $16.7 million.
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The Company’s annual report onForm 10-K, quarterly reports onForm 10-Q, current reports onForm 8-K, and all amendments to those reports are also made available free of charge through the Investor Relations section of the Company’s website athttp://www.hubbell.com as soon as practicable after such material is electronically filed with, or furnished to, the SEC. These filings are also available for reading and copying at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at1-800-SEC-0330. In addition, the Company’s SEC filings can be accessed from the SEC’s homepage on the Internet athttp://www.sec.gov. The information contained on the Company’s web sitewebsite or connected to our web sitewebsite is not incorporated by reference into this Annual Report onForm 10-K and should not be considered part of this report.
ELECTRICAL SEGMENT
The Electrical segment (72%(70%, 75%72% and 76%75% of consolidated revenues in 2009, 2008 2007 and 2006,2007, respectively) is comprised of businesses that sell stock and custom products including standard and special application wiring device products, rough-in electrical products, and lighting fixtures and controls, andas well as other electrical equipment. The products are typically used in and around industrial, commercial and institutional facilities by electrical contractors, maintenance personnel, electricians and telecommunications companies. In addition, certain businesses design and manufacture a variety of high voltage test and measurement equipment, industrial controls and communication systems used in the non-residential and industrial markets. Many of these products may also be found in the oil and gas (onshore and offshore) and mining industries. Certain lighting fixtures, wiring devices and electrical products also have residential and utility applications.
These products are primarily sold through electrical and industrial distributors, home centers, some retail and hardware outlets, and lighting showrooms. Special application products are sold primarily through wholesale
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distributors to contractors, industrial customers and original equipment manufacturers (“OEMs”). High voltage products are sold primarily by direct sales to customers through its sales engineers. Hubbell maintains a sales and marketing organization to assist potential users with the application of certain products to their specific requirements, and with architects, engineers, industrial designers, OEMs and electrical contractors for the design of electrical systems to meet the specific requirements of industrial, non-residential and residential users. Hubbell is also represented by sales agents for its lighting fixtures and controls, electrical wiring devices, rough-in electrical products and high voltage products lines.
Hubbell Electrical Systems
Wiring Products
Hubbell designs, manufactures and sells wiring products which are supplied principally to industrial, non-residential and residential customers. These products, comprising several thousand catalog items, include items such as:
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| • Cable/cord reels | | • Pin & sleeve devices | | • Service poles |
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• Connectors | | • Marine products | | • Surge suppression devices |
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• Floor boxes/poke throughsConnectors | | • Mesh grips | | • Switches & dimmers |
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| • Floor boxes/poke throughs | | • Pin & sleeve devices | | • Switched enclosures |
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| • Ground fault devices | | • Occupancy/vacancy sensorsService poles | | • Switched enclosuresWiring accessories |
These products, sold under the Hubbell®, Kellems®, Bryant®, GotchaBurndy®, Dua-PullWejtaptm, Hydenttm, Servit®, Hyground®, Burndyweld®, and Circuit Guard® trademarks, are sold to industrial, non-residential, utility and residential markets. Hubbell also manufactures TVSS (transient voltage surge suppression) devices, under the Spikeshield® trademark, which are designed to protect electronic equipment such as personal computers and other supersensitive electronic equipment.
Hubbell also manufacturesand/or sells components designed for use in local and wide area networks and other telecommunications applications supporting high-speed data and voice signals.
Electrical Products
Hubbell designs and manufactures electrical products with various applications. These include commercial and industrial products, tooling and cable management products, products for harsh and hazardous locations and high voltage test and measurement equipment.
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Commercial Products
Hubbell manufacturesand/or sells outlet boxes, enclosures and fittings under the following trademarks:
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| | • | Raco®- steel and plastic boxes, covers, metallic and nonmetallic electrical fittings and floor boxes |
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| | • | Bell®- outlet boxes, a wide variety of electrical boxes, covers, combination devices, lampholders and lever switches with an emphasis on weather-resistant types suitable for outdoor applications |
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| | • | Wiegmann®- a full-line of fabricated steel electrical equipment enclosures such as rainproof and dust-tight panels, consoles and cabinets, wireway and electronic enclosures and a line of non-metallic electrical equipment enclosures |
Industrial Controls
Hubbell manufactures and sells a variety of heavy-duty electrical and radio control products which have broad application in the control of industrial equipment and processes. These products range from standard and specialized industrial control components to combinations of components that control industrial manufacturing processes.
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Tooling and Cable Management Products
Hubbell manufactures and sells a wide array of tooling products including hydraulic, mechanical and pneumatic tooling, as well as the Patriot® family of battery tools for various applications. The 2009 acquisition of Burndy expanded Hubbell’s array of cable management products, including hand carts and spool carriers. Hubbell’s cable management products are sold under the Gleason Reel® and The Smart Cart® tradenames.
Products for Harsh and Hazardous Locations
Hubbell’s special application products are intended to protect the electrical system from the environmentand/or the environment from the electrical system. Harsh and hazardous locations are those areas (as defined and classified by the National Electrical Code and other relevant standards) where a potential for fire and explosion exists due to the presence of flammable gasses, vapors, combustible dust and fibers. Such classified areas are typically found in refineries, offshore oil and gas platforms, petro-chemical plants, pipelines, dispensing facilities, grain elevators and related processing areas. These products are sold under a number of brand names and trademarks, such as Killark®, Disconextm, HostileLite®, Hawketm, GAI-Tronics®, FEMCO®, DACtm, and Elemectm, and include:
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| • Cable connectors, glands and fittings | | • Junction boxes, plugs, receptacles |
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| • Conduit raceway fittings | | • Land mobile radio peripherals |
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| • Electrical distribution equipment | | • Lighting fixtures |
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| • Electrical motor controls | | • Switches |
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| • Enclosures | | • Telephone systems |
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| • Intra-facility communications | | |
Other products manufactured and sold for use primarily in the mining industry under the trademark Austdactm include material handling, conveyer control and monitoring equipment, gas detection equipment, emergency warning lights and sounders.
High Voltage Test and Measurement Equipment
Hubbell manufactures and sells, under the Hipotronics®, Haefely® and Tettex® trademarks, a broad line of high voltage test and measurement systems to test materials and equipment used in the generation, transmission and distribution of electricity, and high voltage power supplies and electromagnetic compliance equipment for use in the electrical and electronic industries.
Lighting Products
Hubbell manufactures and sells lighting fixtures and controls for indoor and outdoor applications within three categories:
1) Commercial/Institutional and Industrial Outdoor, 2) Commercial/Institutional and Industrial Indoor, and 3) Residential.
A fast growing trend within all three of these categories is the adoption of light emitting diode (“LED”) technology as the light source. The Company has a broad array of LED-luminaire products within each category and the majority of the new product development efforts are oriented towards expanding those offerings.
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Commercial/Institutional and Industrial Outdoor products are sold under a number of brand names and trademarks, including Kim Lighting®, Architectural Area Lighting, Beacon Products, Hubbell Outdoor Lighting, SecuritytmSecurity™, SpauldingtmSpaulding™, WhitewaytmWhiteway™, Sportsliter®, Sterner®, Devine®, and Lightscaper® and include:
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• Bollards | | |
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• Canopy light fixtures | | • Pedestrian zone, path/egress, landscape, building and area lighting fixtures and poles |
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| • Decorative landscaping fixtures | | • Series fixtures |
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• Fixtures used to illuminate athletic and recreational fields
• Floodlights and poles | | • Signage fixtures
• Flood/step/wall mounted lighting |
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• Fixtures used to illuminate athletic and
recreational fieldsOccupancy/vacancy sensors | | |
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• Floodlights and poles | | |
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• Pedestrian zone, path/egress, landscape,
building and area lighting fixtures and poles | | |
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• Series fixtures | | |
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• Signage fixtures | | |
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• Flood/step/wall mounted lighting | | |
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| • Inverter power systems | | |
Commercial/Institutional and Industrial Indoor products are sold under the AleratmAlera™, Columbia Lighting®, Precision LightingtmLighting™, Paragon Lighting, Kurt Versen, Prescolite®, Dual-Lite®, CompasstmCompass™ Products, Hubbell Industrial Lighting, ChalmittmChalmit™, VictortmVictor™, Killark® and Thomas Research Products trademarks and include:
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• Architectural, and specification and commercial grade fluorescent fixtures | | |
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• Emergency lighting/exit signs | | |
| | • International Electrotechnical Commission lighting fixtures designed for hazardous, hostile corrosive applications |
| • Fluorescent high bay fixtures | | • Inverter power systems |
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| • High intensity discharge high bay and low bay fixtures | | |
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• International Electrotechnical Commission lighting fixtures designed for hazardous, hostile corrosive applications | | |
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• Inverter power systems | | |
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| • Recessed, surface mounted and track fixtures | | |
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• Specification grade light-emitting diodes (“LED”)LED fixtures
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Residential products are sold under the Progress Lighting®, Everlume®, HomeStyletm Lighting, and Thomasville Lighting® (a registered trademark of Thomasville Furniture Industries, Inc.) tradenames and include:
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| • Bath/vanity fixtures and fans | | • Linear fluorescent |
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| • Ceiling fans | | • Outdoor and landscape fixtures |
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| • Chandeliers, sconces, directionals | | • Residential LED fixtures |
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| • Close to ceiling fixtures | | • Track and recessed lighting |
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| • Dimmers and door chimes | | |
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• Linear fluorescent | | |
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• Outdoor and landscape fixtures | | |
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• Residential LED fixtures | | |
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• Track and recessed lighting | | |
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| • Under-cabinet lighting | | |
POWER SEGMENT
The Power segment (28%(30%, 25%28% and 24%25% of consolidated revenues in 2009, 2008 2007 and 2006,2007, respectively) consists of operations that design and manufacture various transmission, distribution, substation and telecommunications products primarily used by the utility industry. In addition, certain of these products are used in the civil construction and transportation industries. Products are sold to distributors and directly to users such as electric utilities, telecommunication companies, mining operations, industrial firms, construction and engineering firms. While Hubbell believes its sales in this area are not materially dependent upon any customer or group of customers, a decrease in purchases by public utilities does affect this category.
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Transmission and Distribution Products
Hubbell manufactures and sells a wide variety of electrical transmission, substation and distribution products. These products are sold under a number of brand names and trademarks, such as Ohio Brass®, Chance®, Anderson®, Fargo®, Hubbell®, Polycast®, Quazite®, Comcore®, Hot Box® and PCORE® and include:
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• Aluminum transformerTransformer equipment mounts
• Arresters | | |
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• Arresters | | Mechanical and compression electrical connectors and tools |
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| • Automatic line splices | | • Reclosers |
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• Cable elbow terminations and accessories | | |
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• High voltage condenser bushings | | |
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• Switches cutouts and sectionalizers | | |
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• Hot line taps
• Cutouts | | |
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• Mechanical and compression electrical connectors and tools | | |
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• Pole line and tower hardware | | |
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• Polymer concrete in-groundand fiberglass enclosures, equipment pads and special drain products | | |
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• Specialized insulated hot line tools | | |
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• Insulators | |
• Sectionalizers |
Hubbell also manufactures and sells under the Chance® trademarkand/or Atlas Systems, Inc® trademarks products that include:
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| | • | Line construction materials including power-installed foundation systems and earth anchors to secure overhead power and communications line poles, guyed and self-supporting towers, streetlight poles and pipelines. Additionally, helical pier foundation systems are used to support homes and buildings, and earth anchors are used in a variety of farm, home and construction projects including tie-back applications. |
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| | • | Pole line and tower hardware, including galvanized steel fixtures and extruded plastic materials used in overhead and underground line construction, connectors, fasteners, pole and cross arm accessories, insulator pins, mounting brackets and related components, and other accessories for making high voltage connections and linkages. |
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| | • | Construction tools and accessories for building overhead and underground power and telephone lines. |
Hubbell also manufactures and sells helical and resistance piering products under the Atlas Systems, Inc® trademark.
INFORMATION APPLICABLE TO ALL GENERAL CATEGORIES
International Operations
The Company has several operations located outside of the United States. These operations manufacture, assembleand/or market Hubbell products in the following countries and service the following segments:
Chalmit Lighting and Hawke International are located in the United Kingdom (“UK”). These operations manufactureand/or sell products withinboth the Electrical segment.
GAI-Tronics and GAI-Tronics S.r.l., located in the UK and Italy, respectively, manufactureand/or market specialized communication systems designed to withstand harsh and hazardous environments. These products are sold within the Electrical segment.
Hubbell Canada LP and Hubbell de Mexico, S.A. de C.V. market and sell a variety of products across most of the businessPower segments. Hubbell Canada LP also designs and manufactures electrical outlet boxes, metallic wall plates and related accessories.
Electro Composites (2008) ULC, based in Montreal, Quebec, Canada, manufactures high voltage condenser bushings and is included within the Power segment.
Hawke Asia Pacific, Pte. Ltd. based in Singapore markets products within the Electrical segment.
Haefely Test, AG based in Switzerland designs and manufactures high voltage test and instrumentation systems and is included within the Electrical segment.
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In Brazil, Hubbell manufactures, markets and sells under the Delmartm and IBRAPtm trademarks products used in the electric utility transmission and distribution industries. These products are sold primarily in Latin America and are included in the Power segment.
Austdac Pty. Limited, based in Australia, manufactures a variety of products used in harsh and hazardous applications including material handling, conveyor control and monitoring equipment, gas detection equipment, voice communications systems and emergency warning lights and sounders. Austdac distributes to various industries, but primarily to the coal mining industry. These products are sold within the Electrical segment.
Hubbell also manufactures lighting products, weatherproof outlet boxes and fittings, and power products in its factories in Juarez, Tijuana and Matamoros, Mexico.
The Company has a 50% interest in a joint venture located in Hong Kong. The principal objective of the joint venture is to manage the operations of its wholly-owned manufacturing company in the People’s Republic of China. This operation manufactures products for the Electrical segment.
As a percentage of total net sales, international shipments from foreign operations directly to third parties were 16% in 2009 and 2008, and 14% in 2007 and 13% in 2006 with the Switzerland, CanadianUK, Canada and United KingdomSwitzerland operations representing approximately 16%36%, 24% and 31%13%, respectively, of the 2008 total.2009 international net sales. See alsoNote 21-Industry Segments and Geographic Area Information in the Notes to Consolidated Financial Statements.
Raw Materials
Raw materials used in the manufacture of Hubbell products primarily include steel, aluminum, brass, copper, aluminum, bronze, plastics, phenolics, zinc, nickel, elastomers and petrochemicals. Hubbell also purchases certain electrical and electronic components, including solenoids, lighting ballasts, printed circuit boards, integrated circuit chips and cord sets, from a number of suppliers. Hubbell is not materially dependent upon any one supplier for raw materials used in the manufacture of its products and equipment, and at the present time, raw materials and components essential to its operation are in adequate supply. However, certain of these principal raw materials are sourced from a limited number of suppliers. See also Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
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Patents
Hubbell has approximately 1,2001,400 active United States and foreign patents covering many of its products, which expire at various times. While Hubbell deems these patents to be of value, it does not consider its business to be dependent upon patent protection. Hubbell also licenses products under patents owned by others, as may be needed, and grants licenses under certain of its patents.
Working Capital
Inventory, accounts receivable and accounts payable levels, payment terms and, where applicable, return policies are in accordance with the general practices of the electrical products industry and standard business procedures. See also Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Backlog
Backlog of orders believed to be firm at December 31, 20082009 was approximately $291.5$253.7 million compared to $246.4$291.5 million at December 31, 2007.2008. The increasedecrease in the backlog in 20082009 is attributable to increased order levelsbroad based weakness in the Electrical segment andmarkets that we serve, particularly the backlog associated with the 2008 acquisitions. A majority of the backlog is expected to be shipped in the current year.non-residential construction market. Although this backlog is important, the majority of Hubbell’s revenues result from sales of inventoried products or products that have short periods of manufacture.
Competition
Hubbell experiences substantial competition in all categories of its business, but does not compete with the same companies in all of its product categories. The number and size of competitors vary considerably depending
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on the product line. Hubbell cannot specify with precision the number of competitors in each product category or their relative market position. However, some of its competitors are larger companies with substantial financial and other resources. Hubbell considers product performance, reliability, quality and technological innovation as important factors relevant to all areas of its business, and considers its reputation as a manufacturer of quality products to be an important factor in its business. In addition, product price, service levels and other factors can affect Hubbell’s ability to compete.
Research, Development & Engineering
Research, development and engineering expenditures represent costs incurred in the experimental or laboratory sense aimed at discoveryand/or application of new knowledge in developing a new product or process, or in bringing about significant improvement in an existing product or process. Research, development and engineering expenses are recorded as a component of Cost of goods sold. Expenses for research, development and engineering were less than 1% of Cost of goods sold for each of the years 2009, 2008 2007 and 2006.2007.
Environment
The Company is subject to various federal, state and local government requirements relating to the protection of employee health and safety and the environment. The Company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and personal injury to its employees and its customers’ employees and that the handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental laws and regulations.
Like other companies engaged in similar businesses, the Company has incurred or acquired through business combination remedial response and voluntary cleanup costs for site contamination and is a party to product liability and other lawsuits and claims associated with environmental matters, including past production of product containing toxic substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue to arise in the future. However, considering past experience and reserves, the Company does not anticipate that these matters will have a material impact on earnings, capital expenditures, or competitive position. See also Note 16 — Commitments and Contingencies in the Notes to Consolidated Financial Statements.
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Employees
As of December 31, 2008,2009, Hubbell had approximately 13,00012,700 salaried and hourly employees of which approximately 7,9007,000 of these employees or 60%55% are located in the United States. Approximately 3,0002,700 of these U.S. employees are represented by twenty-two21 labor unions. Hubbell considers its labor relations to be satisfactory.
Our business, operating results, financial condition, and cash flows may be impacted by a number of factors including, but not limited to those set forth below. Any one of these factors could cause our actual results to vary materially from recent results or future anticipated results. See also Item 7. Management’s Discussion and Analysis — “Executive Overview of the Business”, “Outlook”, and “Results of Operations”.
We operate in markets that are subject to competitive pressures that could affect selling prices or demand for our products.
We compete on the basis of product performance, quality, serviceand/or price. Our competitive strategy is to design and manufacture high quality products at the lowest possible cost. Our competitors include companies that have greater sales and financial resources than our Company. Competition could affect future selling prices or demand for our products.
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A global recession and continued worldwide credit constraints could adversely affect us.
Recent global economic events, including concerns over the tightening oftight credit markets and failures or material business deterioration of financial institutions and other entities, have resulted in a heightenedcontinued concern regarding the global recession. If these conditions continue or worsen, we could experience additional declines in revenues, profitability and cash flow due to reduced orders, payment delays, supply chain disruptions or other factors caused by economic challenges faced by our customers, prospective customers and suppliers.
We source products and materials from various suppliers located in countries throughout the world. A disruption in the availability, price, or quality of these products could impact our operating results.
We use a variety of raw materials in the production of our products including steel, aluminum, brass, copper, aluminum, bronze, zinc, nickel and plastics. We have multiple sources of supply for these products and are not dependent on any single supplier. However, significant shortages of these materials or price increases could increase our operating costs and adversely impact the competitive positions of our products which would directly impact our results of operations.
We continue to increase the amount of product materials, components and finished goods whichthat are sourced from low cost countries including Mexico, the People’s Republic of China, and other countries in Asia. A political disruption or significant changes related to transportation toand/or from one of these countries could affect the availability of these materials and components which would directly impact our results of operations.
We rely on our suppliers in low cost countries to produce high quality materials, components and finished goods according to our specifications. Although we have quality control procedures in place, there is a risk that products may not meet our specifications which could impact theour ability to ship high quality products to our customers on a timely basis and this could adversely impact our results of operations.
We engage in acquisitions and strategic investments and may encounter difficulty in obtaining appropriate acquisitions and in integrating these businesses.
We have pursued and will continue to seek potential acquisitions and other strategic investments to complement and expand our existing businesses within our core markets. The rate and extent to which appropriate acquisitions become available may impact our growth rate. The success of these transactions will depend on our ability to integrate these businesses into our operations. We may encounter difficulties in integrating acquisitions into our operations and in managing strategic investments. Therefore, we may not realize the degree or timing of theexpected synergies and benefits anticipated when we first enter into a transaction.
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Our operating results may be impacted by actions related to our enterprise-wide business system initiative.system.
AtAs of the end of 2006, our implementation ofthe SAP software implementation had been completed throughout mostthe majority of our domestic businesses was substantially complete. We continuebusinesses. Since then, we have continued to work on standardization ofstandardizing business processes and betterimproving our understanding and utilization and understanding of the system. Based upon the complexity of this system, there is risk that we will continue to incur additional costs to enhance the system, perform process reengineering and perform future implementations at our remaining businesses and recentpost 2006 acquisitions. Any future reengineering or implementations could result in operating inefficiencies which could impact our operating results or our ability to perform necessary business transactions. These risks could adversely impact our operating results.
A deterioration in the credit quality of our customers could have a material adverse effect on our operating results and financial condition.
We have an extensive customer base of distributors and wholesalers, electric utilities, OEMs, electrical contractors, telecommunications companies, and retail and hardware outlets. We are not dependent on a single customer, however, our top 10 customers account for approximately 30%35% of our total accounts receivable. A deterioration in credit quality of several major customers could adversely affect our results of operations, financial condition and cash flows.
9
Inability to access capital markets may adversely affect our business.
Our ability to invest in our business and make strategic acquisitions may require access to the capital markets. If we are unable to access the capital markets, we could experience a material adverse affect on our business and financial results.
We have two classes of common stock with different voting rights, which results in a concentration of voting power of our common stock.
As of December 31, 2009, the holders of our Class A common stock (with 20 votes per share) held approximately 73% of the voting power represented by all outstanding shares of our common stock and approximately 12% of the Company’s total equity value, and the Hubbell Trust and Roche Trust collectively held approximately 49% of our Class A common stock. The holders of the Class A common stock thus are in a position to influence matters that are brought to a vote of the holders of our common stock, including, among others, the election of the board of directors, any amendments to our charter documents, and the approval of material transactions. In order to further the interests of our shareholders, the Company routinely reviews various alternatives to meet its capital structure objectives, including equity, reclassification and debt transactions.
We are subject to litigation and environmental regulations that may adversely impact our operating results.
We are, and may in the future be, a party to a number of legal proceedings and claims, including those involving product liability, patent and environmental matters, which could be significant. Given the inherent uncertainty of litigation, we can offer no assurance that a future adverse development related to existing litigation or any future litigation will not have a material adverse impact to our business. We are also subject to various laws and regulations relating to environmental protection and the discharge of materials into the environment, and we could incur substantial costs as a result of the noncompliance with or liability for clean up or other costs or damages under environmental laws. In addition, we could be affected by future laws or regulations, including those imposed in response to climate change concerns. Compliance with any future laws and regulations could result in an adverse affect on our business and financial results.
We face the potential harms of natural disasters, terrorism, acts of war, international conflicts or other disruptions to our operations.
Natural disasters, acts or threats of war or terrorism, international conflicts, and the actions taken by the United States and other governments in response to such events could cause damage to or disrupt our business operations, our suppliers or our customers, and could create political or economic instability, any of which could
9
have an adverse effect on our business. Although it is not possible to predict such events or their consequences, these events could decrease demand for our products, make it difficult or impossible for us to deliver products, or disrupt our supply chain.
| |
| Item 1B. | Unresolved Staff Comments |
None
10
Hubbell’s manufacturing and warehousing facilities, classified by segment, are located in the following areas. The Company believes its manufacturing and warehousing facilities are adequate to carry on its business activities.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Total Approximate Floor
| | | | | | | Total Approximate Floor
| |
| | | | | Number of Facilities | | Area in Square Feet | | | | | Number of Facilities | | Area in Square Feet | |
Segment | | Location | | Warehouses | | Manufacturing | | Owned | | Leased | | | Location | | Warehouses | | Manufacturing | | Owned | | Leased | |
| |
| Electrical segment | | Arkansas | | | 1 | | | | 1 | | | | 73,300 | | | | — | | | United States | | | 16 | | | | 25 | | | | 3,071,900 | | | | 1,796,000 | |
| | | Australia | | | | | | | 3 | | | | — | | | | 34,100 | | | Australia | | | | | | | 3 | | | | — | | | | 34,100 | |
| | | California | | | 2 | | | | 5 | | | | 138,000 | | | | 570,000 | | | Brazil | | | | | | | 1 | | | | 123,200 | | | | — | |
| | | Canada | | | 1 | | | | 1 | | | | 178,700 | | | | — | | | Canada | | | 3 | | | | 1 | | | | 178,700 | | | | 22,400 | |
| | | Connecticut | | | | | | | 1 | | | | 144,500 | | | | — | | | Italy | | | | | | | 1 | | | | — | | | | 8,200 | |
| | | Florida | | | 1 | | | | 2 | | | | — | | | | 64,800 | | | Mexico | | | 1 | | | | 3 | | | | 658,600 | | | | 43,300 | |
| | | Georgia | | | | | | | 1 | | | | 57,100 | | | | — | | | People’s Republic of China | | | | | | | 1 | | | | — | | | | 185,900 | |
| | | Illinois | | | 3 | | | | 2 | | | | 223,100 | | | | 398,500 | | | Puerto Rico | | | | | | | 1 | | | | 162,400 | | | | — | |
| | | Indiana | | | | | | | 1 | | | | 314,800 | | | | — | | | Singapore | | | 1 | | | | | | | | — | | | | 6,700 | |
| | | Italy | | | | | | | 1 | | | | — | | | | 8,200 | | | Switzerland | | | | | | | 1 | | | | — | | | | 73,800 | |
| | | Mexico | | | 1 | | | | 2 | | | | 595,900 | (1) | | | 43,300 | | | United Kingdom | | | | | | | 3 | | | | 133,600 | | | | 40,000 | |
| | | Missouri | | | 1 | | | | 1 | | | | 150,100 | | | | 44,000 | | |
| | | New Jersey | | | | | | | 1 | | | | — | | | | 116,300 | | |
| | | New York | | | | | | | 1 | | | | 92,200 | | | | — | | |
| | | North Carolina | | | 1 | | | | | | | | 424,800 | | | | 90,500 | | |
| | | Pennsylvania | | | 1 | | | | 1 | | | | 410,000 | | | | 105,000 | | |
| | | People’s Republic of China | | | | | | | 1 | | | | — | | | | 188,000 | | |
| | | Puerto Rico | | | | | | | 1 | | | | 162,400 | | | | — | | |
| | | South Carolina | | | 3 | | | | | | | | 327,200 | | | | 145,900 | | |
| | | Singapore | | | 1 | | | | | | | | — | | | | 6,700 | | |
| | | Switzerland | | | | | | | 1 | | | | — | | | | 73,800 | | |
| | | Texas | | | 2 | | | | 1 | | | | 81,200 | | | | 26,000 | | |
| | | United Kingdom | | | | | | | 3 | | | | 133,600 | | | | 40,000 | | |
| | | Virginia | | | | | | | 2 | | | | 328,000 | | | | 78,200 | | |
| | | Washington | | | | | | | 1 | | | | — | | | | 284,100 | | |
| | | Wisconsin | | | | | | | 3 | | | | 73,000 | | | | 66,600 | | |
| Power segment | | Alabama | | | | | | | 2 | | | | 473,500 | | | | — | | | United States | | | 2 | | | | 10 | | | | 2,212,900 | | | | 131,300 | |
| | | Brazil | | | | | | | 1 | | | | 103,000 | | | | — | | | Brazil | | | | | | | 1 | | | | 103,000 | | | | — | |
| | | California | | | 1 | | | | | | | | — | | | | 36,600 | | | Canada | | | | | | | 1 | | | | 30,000 | | | | — | |
| | | Canada | | | | | | | 1 | | | | 30,000 | | | | — | | | Mexico | | | | | | | 3 | | | | 203,600 | | | | 120,900 | |
| | | Florida | | | | | | | 2 | | | | 96,000 | | | | — | | |
| | | Iowa | | | | | | | 1 | | | | 30,000 | | | | — | | |
| | | Mexico | | | | | | | 3 | | | | 203,600 | (1) | | | 120,900 | | |
| | | Michigan | | | | | | | 1 | | | | — | | | | 13,700 | | |
| | | Missouri | | | 1 | | | | 1 | | | | 1,071,600 | | | | — | | |
| | | New York | | | | | | | 1 | | | | — | | | | 94,700 | | |
| | | Ohio | | | | | | | 1 | | | | 89,000 | | | | — | | |
| | | Oklahoma | | | | | | | 1 | | | | 25,000 | | | | — | | |
| | | South Carolina | | | | | | | 1 | | | | 360,000 | | | | — | | |
| | | Tennessee | | | | | | | 1 | | | | 92,800 | | | | — | | |
| | |
(1) | | Shared between Electrical and Power segments. |
11
| |
| Item 3. | Legal Proceedings |
As described in Note 16 — Commitments and Contingencies in the Notes to Consolidated Financial Statements, the Company is involved in various legal proceedings, including patent matters, as well as workers’ compensation, product liability and environmental matters, including, for each, past production of product containing toxic substances, which have arisen in the normal course of its operations and with respect to which the Company is self-insured for certain incidents at various amounts. Management believes, considering its past experience, insurance coverage and reserves, that the final outcome of such matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
| |
| Item 4. | Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders during the fourth quarter of 2008.2009.
10
Executive Officers of the Registrant
| | | | | | | | | |
Name. | | Age(1) | | Present Position | | Business Experience |
| |
| Timothy H. Powers | | | 6061 | | | Chairman of the
Board, President
and Chief
Executive Officer | | Chairman of the Board since September 15, 2004; President and Chief Executive Officer since July 1, 2001; Senior Vice President and Chief Financial Officer September 21, 1998 to June 30, 2001; previously Executive Vice President, Finance & Business Development, Americas Region, Asea Brown Boveri. |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| David G. Nord | | | 5152 | | | Senior Vice
President and Chief
Chief Financial
Officer | | Present position since September 19,
2005; previously Chief Financial
Officer of Hamilton Sundstrand Corporation, a United Technologies company, from April 2003 to September 2005, and Vice President, Controller of United Technologies Corporation from October 2000 to March 2003. |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Richard W. Davies | | | 6263 | | | Vice President,
General Counsel
and Secretary | | Present position since January 1, 1996; General Counsel since 1987; Secretary since 1982; Assistant Secretary 1980-1982; Assistant General Counsel 1974-1987. |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| James H. Biggart, Jr. | | | 5657 | | | Vice President and
Treasurer | | Present position since January 1, 1996; Treasurer since 1987; Assistant Treasurer 1986 - 1987;1986-1987; Director of Taxes 1984-1986. |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Darrin S. Wegman | | | 42 | | | Vice President and
Controller | | Present position since March 1, 2008; Vice President and Controller of the former Hubbell Industrial Technology segment/Hubbell Electrical Products March 2004-February 2008; Vice President and Controller of the former Hubbell Industrial Technology segment March 2002-March 2004; Controller of GAI-Tronics Corporation July 2000-February 2002. |
1211
| | | | | | | | | |
Name. | | Age(1) | | Present Position | | Business Experience |
| |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Darrin S. Wegman | | | 41 | | | Vice President and
Controller | | Present position since March 1, 2008; Vice President and Controller of the former Hubbell Industrial Technology segment/Hubbell Electrical Products March 2004-February 2008; Vice President and Controller of the former Hubbell Industrial Technology segment March 2002-March 2004; Controller ofGAI-Tronics Corporation July 2000-February 2002. |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| W. Robert Murphy | | | 5960 | | | Executive Vice President,
President, Marketing
and Sales | | Present position since October 1, 2007; Senior Group Vice President 2001-2007; Group Vice President 2000-2001; Senior Vice President Marketing and Sales (Wiring Systems) 1985-1999; and various sales positions (Wiring Systems)1975-1985. |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Scott H. Muse | | | 5152 | | | Group Vice
President (Lighting
(Lighting Products) | | Present position since April 27, 2002 (elected as an officer of the Company on December 3, 2002); previously President and Chief Executive Officer of Lighting Corporation of America, Inc. (“LCA”) 2000-2002, and President of Progress Lighting, Inc.1993-2000. |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| William T. Tolley | | | 5152 | | | Group Vice
President
(Power (Power Systems) | | Present position since December 23, 2008; Group Vice President (Wiring Systems) October 1, 2007-December 23, 2008; Senior Vice President of Operations and Administration (Wiring Systems) October 2005-October 2007; Director of Special Projects April 2005-October 2005; administrative leave November 2004-April 2005; Senior Vice President and Chief Financial Officer February 2002 - November 2004. |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Gary N. Amato | | | 5758 | | | Group Vice
President
(Electrical
Systems) | | Present position since December 23, 2008; Group Vice President (Electrical Products) October 2006-December 23, 2008; Vice President October 1997-September 2006; Vice President and General Manager of the Company’s Industrial Controls Divisions (ICD) 1989-1997; Marketing Manager, ICD, April 1988-March 1989. |
There are no family relationships between any of the above-named executive officers.
| | |
| (1) | | As of February 20, 2009.19, 2010. |
1312
PART II
| |
| Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The Company’s Class A and Class B Common Stock is principally traded on the New York Stock Exchange under the symbols “HUBA” and “HUBB”. The following tables provide information on market prices, dividends declared, number of common shareholders, and repurchases by the Company of shares of its Class A and Class B Common Stock.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Market Prices (Dollars Per Share)
| | Common A | | Common B | | | Common A | | Common B | |
Years Ended December 31, | | High | | Low | | High | | Low | | | High | | Low | | High | | Low | |
| |
| 2009 — Fourth quarter | | | | 45.89 | | | | 38.50 | | | | 48.05 | | | | 40.67 | |
| 2009 — Third quarter | | | | 40.49 | | | | 29.40 | | | | 43.03 | | | | 31.64 | |
| 2009 — Second quarter | | | | 34.00 | | | | 25.80 | | | | 36.58 | | | | 27.80 | |
| 2009 — First quarter | | | | 33.26 | | | | 21.84 | | | | 34.60 | | | | 22.15 | |
| 2008 — Fourth quarter | | | 41.31 | | | | 28.19 | | | | 36.64 | | | | 25.88 | | | | 41.31 | | | | 28.19 | | | | 36.64 | | | | 25.88 | |
| 2008 — Third quarter | | | 51.65 | | | | 38.75 | | | | 44.64 | | | | 33.57 | | | | 51.65 | | | | 38.75 | | | | 44.64 | | | | 33.57 | |
| 2008 — Second quarter | | | 53.75 | | | | 45.92 | | | | 48.63 | | | | 39.87 | | | | 53.75 | | | | 45.92 | | | | 48.63 | | | | 39.87 | |
| 2008 — First quarter | | | 54.00 | | | | 46.01 | | | | 50.56 | | | | 42.40 | | | | 54.00 | | | | 46.01 | | | | 50.56 | | | | 42.40 | |
| | | |
| 2007 — Fourth quarter | | | 61.15 | | | | 53.95 | | | | 58.11 | | | | 50.04 | | |
| 2007 — Third quarter | | | 59.76 | | | | 54.00 | | | | 58.15 | | | | 50.97 | | |
| 2007 — Second quarter | | | 56.67 | | | | 46.60 | | | | 57.10 | | | | 48.25 | | |
| 2007 — First quarter | | | 49.19 | | | | 43.60 | | | | 50.11 | | | | 43.39 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Dividends Declared (Dollars Per Share)
| | Common A | | Common B | | | Common A | | Common B | |
Years Ended December 31, | | 2008 | | 2007 | | 2008 | | 2007 | | | 2009 | | 2008 | | 2009 | | 2008 | |
| |
| First quarter | | | 0.33 | | | | 0.33 | | | | 0.33 | | | | 0.33 | | | | 0.35 | | | | 0.33 | | | | 0.35 | | | | 0.33 | |
| Second quarter | | | 0.35 | | | | 0.33 | | | | 0.35 | | | | 0.33 | | | | 0.35 | | | | 0.35 | | | | 0.35 | | | | 0.35 | |
| Third quarter | | | 0.35 | | | | 0.33 | | | | 0.35 | | | | 0.33 | | | | 0.35 | | | �� | 0.35 | | | | 0.35 | | | | 0.35 | |
| Fourth quarter | | | 0.35 | | | | 0.33 | | | | 0.35 | | | | 0.33 | | | | 0.35 | | | | 0.35 | | | | 0.35 | | | | 0.35 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Number of Common Shareholders of Record
| | | | | | | | | | | | | | | | | | | | | |
At December 31, | | 2008 | | 2007 | | 2006 | | 2005 | | 2004 | | 2009 | | 2008 | | 2007 | | 2006 | | 2005 | |
| |
| Class A | | | 551 | | | | 571 | | | | 617 | | | | 665 | | | | 717 | | | | 526 | | | | 551 | | | | 571 | | | | 617 | | | | 665 | |
| Class B | | | 3,055 | | | | 3,068 | | | | 3,243 | | | | 3,319 | | | | 3,515 | | | | 2,860 | | | | 3,055 | | | | 3,068 | | | | 3,243 | | | | 3,319 | |
In February 2010, the Company’s Board of Directors approved an increase in the common stock dividend rate from $0.35 to $0.36 per share per quarter. The increased quarterly dividend payment will commence with the dividend payment scheduled for April 9, 2010 to shareholders of record on March 8, 2010.
1413
Purchases of Equity Securities
In February 2007, the Board of Directors approved a new stock repurchase program and authorized the repurchase of up to $200 million of the Company’s Class A and Class B Common Stock to be completed over a two year period. The February 2007 program was completed in February 2008. In December 2007, the Board of Directors approved a new stock repurchase program and authorized the repurchase of up to $200 million of Class A and Class B Common Stock to be completed over a two year period. This program was implemented upon completionStock. In February 2010, the Board of Directors extended the February 2007 program. Stock repurchases are being completed through open market and privately negotiated transactions.
In August 2007, in connection with the Company’s previously announced stock repurchase program, the Company established a prearranged repurchase plan (“10b5-1 Plan”) intended to comply with the requirements ofRule 10b5-1 andRule 10b-18 under the Securities Exchange Act of 1934, as amended (“the Exchange Act”). Pursuant to the 10b5-1 Plan, a broker appointed by the Company had the authority to repurchase, without further direction from the Company, up to 750,000 shares of Class A Common Stock during the period which began on August 3, 2007 and expired on August 2, 2008, subject to conditions specified in the 10b5-1 Plan. The Company repurchased 473,142 shares of Class A Common Stock through the expiration dateterm of this plan.
During 2008, the Company repurchased approximately 2.0 million shares of its common stock for $96.6 million.program through February 20, 2011. As of December 31, 2008,2009, approximately $160 million remains available under the December 2007 Program.this program. Depending upon numerous factors, including market conditions and other factors, including alternative uses of cash, the Company also expects to continue tomay conduct discretionary repurchases inthrough open market and privately negotiated transactions during its normal trading windows. The Company has not repurchased any shares under this program since August 2008.
1514
Corporate Performance Graph
The following graph compares the total return to shareholders on the Company’s Class B Common Stock during the five years ended December 31, 2008,2009, with a cumulative total return on the (i) Standard & Poor’s MidCap 400 (“S&P MidCap 400”) and (ii) the Dow Jones U.S. Electrical Components & Equipment Index (“DJUSEC”). The Company is a member of the S&P MidCap 400. As of December 31, 2008,2009, the DJUSEC reflects a group of approximately thirty-fourtwenty-six company stocks in the electrical components and equipment market segment, and serves as the Company’s peer group. The comparison assumes $100 was invested on December 31, 20032004 in the Company’s Class B Common Stock and in each of the foregoing indices and assumes reinvestment of dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hubbell Inc., The S&P Midcap 400 Index
And The Dow Jones US Electrical Components & Equipment Index
| |
| * | $100 invested on12/31/0304 in stock or index-includingindex, including reinvestment of dividends. Fiscal year ending December 31. |
Copyright© 2009, Standard2010 S & Poor’s,P, a division of The McGraw-Hill Companies Inc. All rights reserved.
Copyright© 20092010 Dow Jones & Co. All rightrights reserved.
1615
| |
| Item 6. | Selected Financial Data |
The following summary should be read in conjunction with the consolidated financial statements and notes contained herein (dollars and shares in millions, except per share amounts).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | 2005 | | 2004 | | | 2009 | | 2008 | | 2007 | | 2006 | | 2005 | |
| |
OPERATIONS, years ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net sales | | $ | 2,704.4 | | | $ | 2,533.9 | | | $ | 2,414.3 | | | $ | 2,104.9 | | | $ | 1,993.0 | | | $ | 2,355.6 | | | $ | 2,704.4 | | | $ | 2,533.9 | | | $ | 2,414.3 | | | $ | 2,104.9 | |
| Gross profit | | $ | 803.4 | | | $ | 735.8 | | | $ | 656.8 | (1) | | $ | 595.0 | (1) | | $ | 561.9 | (1) | | $ | 725.9 | | | $ | 803.4 | | | $ | 735.8 | | | $ | 656.8 | (1) | | $ | 595.0 | (1) |
| Special charges, net | | $ | — | | | $ | — | | | $ | 7.3 | (1) | | $ | 10.3 | (1) | | $ | 15.4 | (1) | | $ | — | | | $ | — | | | $ | — | | | $ | 7.3 | (1) | | $ | 10.3 | (1) |
| Operating income | | $ | 346.0 | (3) | | $ | 299.4 | (3) | | $ | 233.9 | (3) | | $ | 226.8 | | | $ | 212.6 | | | $ | 294.7 | (2) | | $ | 346.0 | (2) | | $ | 299.4 | (2) | | $ | 233.9 | (2) | | $ | 226.8 | |
| Operating income as a % of sales | | | 12.8 | % | | | 11.8 | % | | | 9.7 | % | | | 10.8 | % | | | 10.7 | % | | | 12.5 | % | | | 12.8 | % | | | 11.8 | % | | | 9.7 | % | | | 10.8 | % |
| Net income | | $ | 222.7 | | | $ | 208.3 | (4) | | $ | 158.1 | | | $ | 165.1 | (4) | | $ | 154.7 | (4) | |
| Net income as a % of sales | | | 8.2 | % | | | 8.2 | % | | | 6.5 | % | | | 7.8 | % | | | 7.8 | % | |
| Net income to common shareholders’ average equity | | | 21.3 | % | | | 19.9 | % | | | 15.7 | % | | | 17.0 | % | | | 17.4 | % | |
| Earnings per share — Diluted | | $ | 3.94 | | | $ | 3.50 | | | $ | 2.59 | | | $ | 2.67 | | | $ | 2.51 | | |
| Net income attributable to Hubbell | | | $ | 180.1 | | | $ | 222.7 | | | $ | 208.3 | (3) | | $ | 158.1 | | | $ | 165.1 | (3) |
| Net income attributable to Hubbell as a % of sales | | | | 7.6 | % | | | 8.2 | % | | | 8.2 | % | | | 6.5 | % | | | 7.8 | % |
| Net income attributable to Hubbell to Hubbell shareholders’ average equity | | | | 15.6 | % | | | 21.3 | % | | | 19.9 | % | | | 15.7 | % | | | 17.0 | % |
| Earnings per share — diluted | | | $ | 3.15 | | | $ | 3.93 | (4) | | $ | 3.49 | (4) | | $ | 2.58 | (4) | | $ | 2.67 | |
| Cash dividends declared per common share | | $ | 1.38 | | | $ | 1.32 | | | $ | 1.32 | | | $ | 1.32 | | | $ | 1.32 | | | $ | 1.40 | | | $ | 1.38 | | | $ | 1.32 | | | $ | 1.32 | | | $ | 1.32 | |
| Average number of common shares outstanding — diluted | | | 56.5 | | | | 59.5 | | | | 61.1 | | | | 61.8 | | | | 61.6 | | | | 57.0 | | | | 56.5 | | | | 59.5 | | | | 61.1 | | | | 61.8 | |
| Cost of acquisitions, net of cash acquired | | $ | 267.4 | | | $ | 52.9 | | | $ | 145.7 | | | $ | 54.3 | | | $ | — | | | $ | 355.8 | | | $ | 267.4 | | | $ | 52.9 | | | $ | 145.7 | | | $ | 54.3 | |
FINANCIAL POSITION, at year-end | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Working capital | | $ | 494.1 | | | $ | 368.5 | | | $ | 432.1 | | | $ | 459.6 | | | $ | 483.1 | | | $ | 499.4 | | | $ | 494.1 | | | $ | 368.5 | | | $ | 432.1 | | | $ | 459.6 | |
| Total assets | | $ | 2,115.5 | | | $ | 1,863.4 | | | $ | 1,751.5 | | | $ | 1,667.0 | | | $ | 1,656.4 | | | $ | 2,464.5 | | | $ | 2,115.5 | | | $ | 1,863.4 | | | $ | 1,751.5 | | | $ | 1,667.0 | |
| Total debt | | $ | 497.4 | | | $ | 236.1 | | | $ | 220.2 | | | $ | 228.8 | | | $ | 299.0 | | | $ | 497.2 | | | $ | 497.4 | | | $ | 236.1 | | | $ | 220.2 | | | $ | 228.8 | |
Debt to total capitalization(5) | | | 33 | % | | | 18 | % | | | 18 | % | | | 19 | % | | | 24 | % | | | 28 | % | | | 33 | % | | | 18 | % | | | 18 | % | | | 19 | % |
| Common shareholders’ equity: | | | | | | | | | | | | | | | | | | | | | |
Hubbell shareholders’ equity:(6) | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 1,008.1 | (2) | | $ | 1,082.6 | (2) | | $ | 1,015.5 | (2) | | $ | 998.1 | | | $ | 944.3 | | | $ | 1,298.2 | | | $ | 1,008.1 | | | $ | 1,082.6 | | | $ | 1,015.5 | | | $ | 998.1 | |
| Per share | | $ | 17.84 | | | $ | 18.19 | | | $ | 16.62 | | | $ | 16.15 | | | $ | 15.33 | | | $ | 22.78 | | | $ | 17.84 | | | $ | 18.19 | | | $ | 16.62 | | | $ | 16.15 | |
NUMBER OF EMPLOYEES, at year-end | | | 13,000 | | | | 11,500 | | | | 12,000 | | | | 11,300 | | | | 11,400 | | | | 12,700 | | | | 13,000 | | | | 11,500 | | | | 12,000 | | | | 11,300 | |
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| (1) | | The Company recorded pretax special charges in 2004 through2005 and 2006. These special charges primarily related to a series of actions related to the consolidation of manufacturing, sales and administrative functions across our commercial and industrial lighting businesses. Also included were costs associated with the closure of a wiring products factory in Puerto Rico. These actions were significantly completed as of December 31, 2006. |
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| (2) | | Effective December 31,In 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment ofthe provisions under Financial Accounting Standards Board (“FASB”) Statements No. 87, 88, 106,Accounting Standards Codification (“ASC”) Topic 718 “Compensation-Stock Compensation” (“ASC 718”) using the modified prospective transition method and 132(R)”. Related adjustments to Shareholders’ equity resulted in a charge of $92.1 million, net of tax intherefore previously reported amounts were not restated. Operating income for the years 2009, 2008, a credit of $44.9 million, net of tax in 2007 and a charge2006 includes stock-based compensation expense of $36.8$10.3 million, net of tax in 2006.$12.5 million, $12.7 million and $11.8 million, respectively. |
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| (3) | | In 2008, 2007 and 2006, operating income includes stock-based compensation expense of $12.5 million, $12.7 million and $11.8 million, respectively. On January 1, 2006 the Company adopted the modified prospective transition method of SFAS No. 123(R) and therefore previously reported amounts have not been restated. |
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(4) | | In 2007, 2005, and 2004, the Company recorded tax benefits of $5.3 million $10.8 million and $10.2$10.8 million, respectively, in Provision for income taxes related to the completion of U.S. Internal Revenue Service (“IRS”) examinations for tax years through 2005. |
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| (4) | | Effective January 1, 2009, the Company adopted the provisions of ASC260-10-45-61A “Earnings Per Share” which requires that unvested share-based payment awards that contain the rights to nonforfeitable dividends be considered participating securities and therefore should be included in the earnings per share calculation pursuant to the two-class method. Retrospective application of this standard decreased diluted earnings per share by $.01 for the years ended December 31, 2008, 2007 and 2006. |
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| (5) | | Debt to total capitalization is defined as total debt as a percentage of the sum of total debt and Hubbell shareholders’ equity. |
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| (6) | | In 2006, the Company adopted certain provisions of ASC 715 “Compensation - Retirement Benefits” (“ASC 715”), which resulted in a non-cash charge to Hubbell shareholders’ equity of $36.8 million, net of tax. |
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| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
EXECUTIVE OVERVIEW OF THE BUSINESS
Our Company is primarily engaged in the design, manufacture and sale of quality electrical and electronic products for a broad range of non-residential and residential construction, industrial and utility applications. During the first quarter of 2008, the Company realigned its internal organization and operating segments. This reorganization included combining the electrical products business (included in the Electrical segment) and the industrial technology business (previously its own reporting segment) into one operating segment. This combined operating segment is part of the Electrical reporting segment. Effective in the first quarter of 2008, theThe Company’s reporting segments consist of the Electrical segment (comprised of wiring, electrical systems products and lighting products) and the Power segment. Previously reported data has been restated to reflect this change. Results for 2009, 2008 2007 and 20062007 by segment are included under “Segment Results” within this Management’s Discussion and Analysis.
In December 2008, a decision was made to further consolidate the businesses within the Electrical segment. The wiring products and electrical products businesses were combined to form the electrical systems business. The combination of these two businesses did not have an impact on the Company’s reporting segments.
In 2008,2009, we experienced broad based weakness in our served markets resulting in lower overall demand. Nevertheless, we continued to execute a business strategy with four primary areasfocused on:
Organic. While demand in 2009 decreased due to the recessionary market conditions, the Company remained focused on expanding market share through an emphasis on new product introductions and more effective utilization of focus: price realization, cost containment, productivitysales and revenue growth. Thesemarketing efforts resultedacross the organization.
Acquisitions. In 2009 and 2008, we invested $355.8 million and $267.4 million, respectively, on acquisitions. In 2009, these businesses contributed approximately $200 million in sales growth of 7% and operating margins increasing by 100 basis points compared to 2007.net sales.
In 2008, numerous price increases were implemented to offset significant commodity cost increases, steel in particular. In 2009, we experienced unprecedented volatility ina less volatile commodity environment compared to 2008 and continued to exercise pricing discipline. However, the combination of weaker overall demand and loweryear-over-year commodity costs steel and fuel in particular. During 2008, the cost of certain types of steel nearly doubled by the middle of the year. These increases were followed by a sharp decline as the year ended due to the dramatic events of the fourth quarter including the credit market crisis and rapid decline in overall market activity. We believe these cost increases were recovered through sellingmade price increases.realization progressively more challenging throughout 2009.
Global sourcing. We remained focused on expanding our global product and component sourcing and supplier cost reduction program. We continued to consolidate suppliers, utilize reverse auctions, and partner with vendors to shorten lead times, improve quality and delivery and reduce costs.
Freight and Logistics. Transporting our products from suppliers, to warehouses, and ultimately to our customers, is a major cost to our Company. In 2008,2009, we recognized opportunities to further reducereduced these costs and increaseincreased the effectiveness of our freight and logistics processes throughincluding capacity utilization and network optimization. These efforts resulted in a 40 basis point reduction in our freight and logistics expenses as a percentage of net sales.
We continued to leverageworked towards fully realizing the benefits of the SAPour enterprise-wide business system, including standardizing best practices in inventory management, production planning and scheduling to improve manufacturing throughput and reduce costs. In addition, value-engineering efforts and product transfers to lower cost locations contributed to our productivity improvements. We planThis continued emphasis on operational improvements has led to continue to reducefurther reductions in lead times and improveimproved service levels to our customers.
Working Capital Efficiency. Working capital efficiency is principally measured as the percentage of trade working capital (inventory plus accounts receivable, less accounts payable) divided by annual net sales. In 2008, tradeThe focus on improving our working capital as a percentageefficiency provided $126.9 million of net sales improved to 19.4% compared to 19.8%operating cash flow in 2007 primarily due to improvements in both inventory and accounts payable management.2009.
Transformation of business processes. We continued our long-term initiative of applying lean process improvement techniques throughout the enterprise, with particular emphasis on reducing supply chain complexity to eliminate waste and improve efficiency and reliability. We will continue to build on the shared services model that has been implemented in sourcing and logistics and apply those principles in other areas.
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Organic Growth. In 2008, we continued to maintain pricing discipline, particularly in light of the significant increases in commodity costs such as steel and oil, but also expanded market share through a greater emphasis on new product introductions and better leverage of sales and marketing efforts across the organization.
Acquisitions. In 2008, we invested a total of $267.4 million on seven acquisitions and their related costs. Three of these acquisitions were added to our Electrical segment, while the remaining four were added to our Power segment. These businesses are expected to contribute approximately $200 million in annual net sales.
OUTLOOK
During 2009In 2010, we anticipate significant recessionary conditionsour end market demand to be mixed. Hubbell’s largest served market, non-residential construction, is forecasted to decline by approximately twenty percent due to lower construction starts throughout the past year and a half and ongoing challenges in the U.S.availability of financing. The utility market for transmission and a slow down in overall global demand. Non-residential constructiondistribution products is expected to grow modestly. The growth should be down significantlydriven by the build out of new transmission lines from alternative energy sources such as wind, infrastructure spending to upgrade and modernize the grid that is supported by stimulus spending and a housing recovery. The industrial markets are likely to improve in 2010 with fewer new project starts.capacity utilization rates improving from 2009’s severely depressed levels. The residential market is forecasted to improve from historically low levels, but we remain cautious about the magnitude of the recovery being forecasted given the level of unemployment and high supply of existing inventory. The Federal stimulus plan is expected to continuegenerate orders in 2010, particularly in our Power and Lighting businesses, but the timing and magnitude are still difficult to decline by a comparable percentage to 2008 due to the effects of tighter mortgage standards, the overall disruption in the housing market, an oversupply of inventory and higher unemployment levels. Domestic utility markets are also expected to be lower in 2009 with capital spending on transmission projects being delayed and distribution investments being reduced due to the residential market decline. Industrial markets will be weaker in 2009 due to a slowdown in manufacturing production. Excluding any effects of fluctuations in foreign currency exchange rates, overall volumes are expected to be down low to mid-teens compared to 2008.estimate. The full yearyear-over-year impact of 2008 acquisitionsthe Burndy acquisition is expected to contribute approximately $100 millionsix percentage points of incremental net sales in 2010 compared to 2009. Overall, we expect approximately the same level of net sales in 2010 as in 2009.
We also plan to focus on gaining market share through new product introductions and will continue to exercise pricing discipline in line with the volatile commoditywork on productivity initiatives, including further plant rationalization, improving freight and logistics cost, changes. Finally, while we anticipate some benefit from the recently enacted Federal stimulus package, the timingbetter optimization of sourcing and magnitudemanagement of such benefits remain uncertain.
Based on expected lower net sales in 2009, the Company will continue to move forward with the successful productivity programs currently in place, including streamlining operations. Reducing costs across the Company will include further staff reductions in 2009 to appropriately size the Company for the economic environment.
While we are preparing for a decrease in net sales and earnings in 2009, our focus and strategy remain largely unchanged. Managing the cost price equation improvingto drive margin improvement in 2010. The incrementalyear-over-year productivity both factorysavings associated with the streamlining actions implemented during 2009 are expected to contribute approximately 100 basis points to margin. Additionally, we expect our 2010 tax rate to increase to approximately 32.5% due to a higher mix of domestic income and back office, and acquiring strategic businesses may position the companyabsence of certain one time items. We also expect the Burndy acquisition to meet its long term financial goals. be accretive to 2010 earnings.
In 2009, the Company expects2010, we anticipate generating free cash flow approximately equal to exceed net incomeincome. Finally, we will focus on continuing to integrate Burndy and plans to maintain a conservative balance sheet. We will also continue to be focused on trade working capital with a specific emphasis on inventory.pursuing additional opportunistic acquisitions.
RESULTS OF OPERATIONS
Our operations are classified into two segments: Electrical and Power. For a complete description of the Company’s segments, see Part I, Item 1.1 of this Annual Report onForm 10-K. Within these segments, Hubbell primarily serves customers in the non-residential and residential construction, industrial and utility markets.
The table below approximates percentages of our total 20082009 net sales generated by the markets indicated.
Hubbell’s Served Markets
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment | | Non-residential | | Residential | | Industrial | | Utility | | Other | | Total | | | Non-residential | | Residential | | Industrial | | Utility | | Total | |
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| Electrical | | | 52 | % | | | 12 | % | | | 28 | % | | | 3 | % | | | 5 | % | | | 100 | % | | | 51 | % | | | 10 | % | | | 34 | % | | | 5 | % | | | 100 | % |
| Power | | | 12 | % | | | 3 | % | | | 6 | % | | | 77 | % | | | 2 | % | | | 100 | % | | | 9 | % | | | 2 | % | | | 8 | % | | | 81 | % | | | 100 | % |
Hubbell Consolidated | | | 40 | % | | | 10 | % | | | 22 | % | | | 23 | % | | | 5 | % | | | 100 | % | | | 39 | % | | | 8 | % | | | 27 | % | | | 26 | % | | | 100 | % |
In 2008,2009, market conditions deteriorateddeclined in severalall of our served markets throughout the year.markets. Non-residential construction was positivedeclined significantly due to lower levels of construction activity and a lack of available financing for the year, howeverput-in-place spending slowed as we exited the year.projects. The residential market declined sharplycontinued its steep decline due to credit conditions, job losses and an over supply of housing inventory. The industrial market continueddeclined as well due to benefit from a strong worldwide oil and gas market and strong demand for high voltage instrumentation.lower factory utilization. The utility market grew modestly based ondeclined due to continued investmentweakness in the housing market as well as constrained capital spending due in part to lower electricity demand and transmission systems while distributionproject delays.
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was hampered by the residential weakness. During this period of changing market conditions our share of these served markets has remained relatively consistent compared to 2007.
Summary of Consolidated Results (in millions, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Year Ending December 31, | | | For the Year Ending December 31, | |
| | | | | % of Net
| | | | % of Net
| | | | % of Net
| | | | | % of Net
| | | | % of Net
| | | | % of Net
| |
| | | 2008 | | Sales | | 2007 | | Sales | | 2006 | | Sales | | | 2009 | | Sales | | 2008 | | Sales | | 2007 | | Sales | |
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| Net sales | | | 2,704.4 | | | | | | | $ | 2,533.9 | | | | | | | $ | 2,414.3 | | | | | | | $ | 2,355.6 | | | | | | | $ | 2,704.4 | | | | | | | $ | 2,533.9 | | | | | |
| Cost of goods sold | | | 1,901.0 | | | | | | | $ | 1,798.1 | | | | | | | | 1,757.5 | | | | | | | | 1,629.7 | | | | | | | | 1,901.0 | | | | | | | | 1,798.1 | | | | | |
| | | | | | | | | | | | | | | |
| Gross profit | | | 803.4 | | | | 29.7 | % | | | 735.8 | | | | 29.0 | % | | | 656.8 | | | | 27.2 | % | | | 725.9 | | | | 30.8 | % | | | 803.4 | | | | 29.7 | % | | | 735.8 | | | | 29.0 | % |
| Selling & administrative expenses | | | 457.4 | | | | 16.9 | % | | | 436.4 | | | | 17.2 | % | | | 415.6 | | | | 17.2 | % | |
| Special charges, net | | | — | | | | — | | | | — | | | | — | | | | 7.3 | | | | 0.3 | % | |
| Selling & administrative expense | | | | 431.2 | | | | 18.3 | % | | | 457.4 | | | | 16.9 | % | | | 436.4 | | | | 17.2 | % |
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| Operating income | | | 346.0 | | | | 12.8 | % | | | 299.4 | | | | 11.8 | % | | | 233.9 | | | | 9.7 | % | | | 294.7 | | | | 12.5 | % | | | 346.0 | | | | 12.8 | % | | | 299.4 | | | | 11.8 | % |
| Net income attributable to Hubbell | | | | 180.1 | | | | 7.6 | % | | | 222.7 | | | | 8.2 | % | | | 208.3 | | | | 8.2 | % |
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| Earnings per share — diluted | | $ | 3.94 | | | | | | | $ | 3.50 | | | | | | | $ | 2.59 | | | | | | | $ | 3.15 | | | | | | | $ | 3.93 | | | | | | | $ | 3.49 | | | | | |
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2009 Compared to 2008
Net Sales
Net sales for the year ended 2009 were $2.4 billion, a decrease of 13% over the year ended 2008. This decrease was due to a 17% volume decline and unfavorable currency translation partially offset by acquisitions and selling price increases. Acquisitions and selling price increases added approximately five and one percentage points, respectively, to net sales in 2009 compared to 2008. Currency translation decreased net sales in 2009 by two percentage points compared with 2008.
Gross Profit
The gross profit margin for 2009 increased to 30.8% compared to 29.7% in 2008. The increase was primarily due to productivity improvements, including lower freight and logistics costs, lower commodity costs and selling price increases partially offset by lower volume and unfavorable overhead absorption.
Selling & Administrative Expenses (“S&A”)
S&A expenses decreased 6% compared to 2008 primarily due to savings from streamlining actions partially offset by acquisition related expenses and higher pension costs. As a percentage of net sales, S&A expenses of 18.3% in 2009 were higher than the 16.9% reported in 2008 due to higher pension costs, acquisition related costs and volume declines in excess of cost reduction actions.
Operating Income
Operating income decreased 15% primarily due to lower net sales and gross profit partially offset by lower selling and administrative costs. Operating margin of 12.5% in 2009 decreased 30 basis points compared to 12.8% in 2008 as a result of the lower volume largely offset by productivity improvements and commodity cost decreases.
Total Other Expense, net
In 2009, interest expense increased compared to 2008 due to higher average long term debt in 2009 compared to 2008. The higher long term debt level was primarily due to the Company completing a $300 million bond offering in May 2008 to support strategic growth initiatives. In addition, interest income decreased compared to 2008 due to lower interest rates.
Income Taxes
The effective tax rate in 2009 was 30.7% compared to 29.9% in 2008. The effective tax rate for 2009 reflects a lower tax benefit from our foreign operations and an increase in uncertain tax positions offset by a lower state effective rate and an out of period adjustment related to certain deferred tax accounts of $4.9 million. Additional
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information related to our effective tax rate is included in Note 13 — Income Taxes in the Notes to the Consolidated Financial Statements.
Net Income and Earnings Per Share
Net income and earnings per diluted share in 2009 decreased 19% and 20%, respectively, compared to 2008 as a result of lower net sales and operating income in addition to higher net interest expense and a higher effective tax rate. In addition, the decrease in earnings per diluted share reflects an increase in average shares outstanding in 2009 compared to 2008 due to shares issued in the fourth quarter of 2009.
Segment Results
Electrical Segment
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| | | 2009 | | | 2008 | |
| | | (In millions) | |
| |
| Net Sales | | $ | 1,650.1 | | | $ | 1,958.2 | |
| Operating Income | | $ | 163.7 | | | $ | 227.3 | |
| Operating Margin | | | 9.9 | % | | | 11.6 | % |
Net sales in the Electrical segment decreased 16% in 2009 compared with 2008 due to broad-based market weakness. Acquisitions and selling price increases added approximately four and one percentage points, respectively, to net sales in 2009 compared to 2008. Currency translation decreased net sales in 2009 by two percentage points compared with 2008.
Within the segment, electrical systems products net sales decreased 18% in 2009 compared to 2008 due to lower market demand for both wiring and electrical products. Net sales at these businesses decreased 20% and 16%, respectively. Burndy added approximately four percentage points to electrical systems products net sales for the year, which was essentially offset by unfavorable foreign currency translation. Demand for high voltage test equipment was strong, resulting in a 15% increase in net sales in 2009 compared to 2008. Net sales of lighting products decreased 18% in 2009 compared to 2008 due to lower market demand partially offset by the 2008 acquisition of The Varon Lighting Group, LLC, (“Varon”) and price realization. Commercial and industrial lighting net sales decreased 17% including the impact of the 2008 Varon acquisition. Net sales of residential lighting products were lower by 24% as a result of the decline in the U.S. residential construction market.
Operating income in 2009 decreased 28% compared to 2008 primarily due to lower market demand. Productivity improvements, commodity cost declines and price realization offset inflationary cost increases and negative absorption due to inventory reductions. Operating margin in 2009 was lower than 2008 primarily due to lower absorption of manufacturing overhead resulting from significantly lower production volume, acquisition-related costs and higher S&A expenses as a percentage of net sales. S&A expenses, while higher as a percentage of net sales in 2009, decreased 8% compared to 2008. Within the segment, both electrical systems products and lighting products operating income and operating margin declined during 2009 as compared to 2008.
Power Segment
| | | | | | | | | |
| | | 2009 | | | 2008 | |
| | | (In millions) | |
| |
| Net Sales | | $ | 705.5 | | | $ | 746.2 | |
| Operating Income | | $ | 131.0 | | | $ | 118.7 | |
| Operating Margin | | | 18.6 | % | | | 15.9 | % |
Net sales for 2009 decreased by 5% compared to 2008 due to market weakness partially offset by acquisitions and price realization. Acquisitions and price realization added approximately eight and one percentage points, respectively, to net sales in 2009 compared to 2008. The lower market demand was due to the continued weakness in the housing market that resulted in lower demand for distribution products. In addition, demand slowed for transmission projects, particularly in the second half of 2009 as utility capital spending was constrained due to lower
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electricity demand. In addition, foreign currency translation decreased net sales in 2009 by one percentage point compared with 2008.
Operating income in 2009 increased 10% compared to 2008 while operating margin improved 270 basis points during the same period. The improvement in both operating profit and margin was due to the favorable impact of commodity cost decreases, productivity improvements and price increases partially offset by the impact of lower volume and inflationary cost increases.
2008 Compared to 2007
Net Sales
Net sales for the year ended 2008 were $2.7 billion, an increase of 7% over the year ended 2007. This increase was primarily due to acquisitions and selling price increases. Acquisitions and selling price increases added approximately four and three percentage points, respectively, to net sales in 2008 compared to 2007. Organic growth, primarily due to new products sales, was offset by the residential market decline. Currency translation had no material impact on net sales in 2008 compared with 2007.
Gross Profit
The gross profit margin for 2008 increased to 29.7% compared to 29.0% in 2007. The increase was primarily due to productivity improvements, including lower freight and logistics costs and the favorable impact of acquisitions. In addition, selling price increases more than offset rising commodity costs.
Selling & Administrative Expenses (“S&A”)
S&A expenses increased 5% compared to 2007 primarily due to the added S&A expenses of the businesses acquired and increased advertising. As a percentage of net sales, S&A expenses of 16.9% in 2008 were lower than the 17.2% reported in 2007 due to cost containment initiatives, including lower headcount, excluding acquisitions, as well as better leverage of fixed costs on higher sales.
Operating Income
Operating income increased 16% primarily due to higher net sales and gross profit partially offset by increased selling and administration costs. Operating margins of 12.8% in 2008 increased 100 basis points compared to 11.8% in 2007 as a result of increased sales and higher gross profit margins as well as leveraging of selling and administrative costs.
Total Other Expense, net
In 2008, interest expense increased compared to 2007 due to higher long term debt in 2008 compared to 2007. The higher long term debt level was primarily due to the Company completing a $300 million bond offering in May 2008 to support strategic growth initiatives. Other expense, net was impacted by net foreign currency transaction losses in 2008 compared to net foreign currency transaction gains in 2007.
Income Taxes
The effective tax rate in 2008 was 29.9% compared to 26.7% in 2007. The higheryear-over-year annual effective tax rate reflectsreflected a higher level of U.S. earnings in 2008 and non-recurring favorable adjustments impacting
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the 2007 rate related to the closing of an IRS examination of the Company’s 2004 and 2005 federal tax returns. Additional information related to our effective tax rate is included in Note 13 — Income Taxes in the Notes to the ConsolidateConsolidated Financial Statements.
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Net Income and Earnings Per Share
Net income and earnings per dilutivediluted share in 2008 increased 7% and 13%, respectively, compared to 2007 as a result of higher net sales and operating income, including the favorable impact of acquisitions, partially offset by higher net interest expense and a higher effective tax rate. In addition, the increase in earnings per dilutivediluted share reflects a reduction in average shares outstanding in 2008 compared to 2007 due to shares repurchased under our stock repurchase programs, net of employee stock option exercises.
Segment Results
Electrical Segment
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| | | (In millions) | |
| |
| Net Sales | | $ | 1,958.2 | | | $ | 1,897.3 | |
| Operating Income | | $ | 227.3 | | | $ | 202.1 | |
| Operating Margin | | | 11.6 | % | | | 10.7 | % |
Net sales in the Electrical segment increased 3% in 2008 compared with 2007 due to the favorable impact of the acquisition of Kurt Versen, acquisitionInc. (“Kurt Versen”) and selling price increases partially offset by weaker residential product sales. Within the segment, wiring product sales increased slightly in 2008 compared to 2007 due to selling price increases and market share gains partially due to increased demand for energy management controls and sensors offset by weaker overall industry market demand. Sales of electrical products increased by approximately 10% in 2008 compared to 2007 due to strong demand for harsh and hazardous and high voltage products and selling price increases. Sales of lighting products decreased slightly in 2008 compared to 2007 due to lower residential volume largely offset by acquisitions and selling price increases. Sales of residential lighting fixture products were lower by approximately 21% in 2008 compared to 2007 as a result of a decline in the U.S. residential construction market. Acquisitions and selling price increases added approximately three and two percentage points, respectively, to the segment’s net sales in 2008 compared to 2007.
Operating margins increased in 2008 compared to 2007 due to the favorable impact of the Kurt Versen acquisition, productivity improvements and selling price increases partially offset by residential volume declines and higher commodity costs. Wiring products operating margins were virtually flat in 2008 compared to 2007 due to selling price increases and productivity improvements offset by higher inflationary costs. Operating income and margins rose at electrical products in 2008 compared to 2007 due to selling price increases, a favorable product mix of higher margin harsh and hazardous products and strong performance from the high voltage businesses. Lighting product margins were unchanged in 2008 compared to 2007 due to lower margins for the residential business as a result of volume declines offset by improved margins in commercial and industrial lighting products. The improvement in commercial and industrial margins was due to acquisitions, selling price increases and productivity improvements, partially offset by commodity increases and volume decreases.
Power Segment
| | | | | | | | | |
| | | 2008 | | | 2007 | |
| | | (In millions) | |
| |
| Net Sales | | $ | 746.2 | | | $ | 636.6 | |
| Operating Income | | $ | 118.7 | | | $ | 97.3 | |
| Operating Margin | | | 15.9 | % | | | 15.3 | % |
Net sales in the Power segment in 2008 increased 17% compared to 2007 due to acquisitions, selling price increases and modest market share gains. The impact of the PCORE Electric Company, Inc. (“PCORE”) acquisition completed in the fourth quarter of 2007, combined with the four acquisitions that occurred in the second half of
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2008, added approximately eight percentage points to net sales in 2008 compared to 2007. In addition, we estimate that selling price increases added approximately four percentage points to net sales in 2008 compared to 2007. Operating income increased 22% in 2008 compared to 2007 due to increased sales and acquisitions. Operating
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margins increased in 2008 compared to 2007 due to productivity improvements and selling price increases offset by higher commodity and inflationary costs and the impact of acquisitions.
2007 Compared to 2006
Net Sales
Consolidated net sales for the year ended December 31, 2007 were $2.5 billion, an increase of 5% over the year ended December 31, 2006. The majority of the year-over-year increase was due to higher selling prices and several acquisitions, partially offset by lower residential product sales. We estimated that selling price increases and the impact of acquisitions accounted for approximately four percentage points and two percentage points, respectively, of the year-over-year increase in sales.
Gross Profit
The consolidated gross profit margin for 2007 increased to 29.0% compared to 27.2% in 2006. The increase was primarily due to selling price increases and productivity improvements, including lower freight and logistics costs and lower product costs from strategic sourcing initiatives. These improvements in 2007 compared to 2006 were partially offset by the negative impact of an unfavorable product sales mix due to lower sales of higher margin residential products.
Selling & Administrative Expenses
S&A expenses increased 5% compared to 2006. The increase was primarily due to S&A expenses of acquisitions and higher selling costs associated with increased sales. As a percentage of sales, S&A expenses in 2007 of 17.2% were unchanged from the comparable period of 2006. Numerous cost containment initiatives; primarily advertising and lower spending on the enterprise wide systems implementation of SAP were offset by expenses for certain strategic initiatives related to reorganizing operations, including office moves, severance costs associated with reductions in workforce and costs incurred to support new products sales.
Special Charges
Operating results in 2006 included pretax special charges related to our Lighting Business Integration and Rationalization Program (the “Program” or “Lighting Program”). The Lighting Program was approved following our acquisition of LCA in April 2002 and was undertaken to integrate and rationalize the combined lighting operations. This Program was substantially completed by the end of 2006. Any remaining costs in 2007 were reflected in S&A expense or Cost of goods sold in the Consolidated Statement of Income. At the end of 2006, one of the remaining actions within the Lighting Program was the completion of construction of a new lighting headquarters. The construction was completed in the early part of 2007. Cash capital expenditures of $13 million related to the headquarters were reflected in the 2007 Consolidated Statement of Cash Flow.
Operating Income
Operating income increased 28% primarily due to higher sales and gross profit partially offset by increased selling and administration costs. Operating margins of 11.8% in 2007 increased compared to 9.7% in 2006 as a result of increased sales and higher gross profit margins.
Other Income/Expense
Interest expense was $17.6 million in 2007 compared to $15.4 million in 2006. The increase was due to higher average outstanding commercial paper borrowings in 2007 compared to 2006. Investment income decreased in 2007 compared to 2006 due to lower average investment balances due to the funding of two acquisitions in 2006 and
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one in 2007 as well as a higher amount of share repurchases. Other expense, net in 2007 decreased $2.1 million compared to 2006 primarily due to net foreign currency transaction gains in 2007 compared to net foreign currency losses in 2006.
Income Taxes
Our effective tax rate was 26.7% in 2007 compared to 28.6% in 2006. In 2007, a favorable tax settlement was recognized in connection with the closing of an IRS examination of the Company’s 2004 and 2005 tax returns and this benefit reduced the effective tax rate by 1.9 percentage points in 2007. Additional information related to our effective tax rate is included in Note 13 — Income Taxes in the Notes to Consolidated Financial Statements.
Net Income and Earnings Per Share
Net income and earnings per dilutive share in 2007 increased 31.8% and 35.1%, respectively, compared to 2006 as a result of higher sales and gross profit, a lower tax rate and fewer diluted shares outstanding.
Segment Results
Electrical Segment
| | | | | | | | | |
| | | 2007 | | | 2006 | |
| | | (In millions) | |
| |
| Net Sales | | $ | 1,897.3 | | | $ | 1,840.6 | |
| Operating Income | | $ | 202.1 | | | $ | 158.1 | |
| Operating Margin | | | 10.7 | % | | | 8.6 | % |
Net sales in the Electrical segment increased by 3% in 2007 compared to 2006 due to higher sales of electrical and wiring products and selling price increases partially offset by lower sales of residential lighting fixtures. Overall for the segment, higher selling prices increased net sales by approximately three percentage points compared to 2006. Within the segment, sales of electrical products increased by approximately 14% in 2007 compared to 2006 due to strong demand for harsh and hazardous products, selling price increases and the impact of the Austdac Pty Ltd. acquisition in November 2006. Wiring products experienced 6% higher sales in 2007 compared to 2006 principally due to increased new product sales and higher selling prices. Sales of residential lighting fixture products were lower in 2007 by approximately 22% compared to the prior year as a result of a decline in the U.S. residential construction market.
Operating income and operating margin in the segment improved in 2007 compared to 2006 primarily due to selling price increases, productivity gains and lower costs, including employee benefits and SAP implementation cost reductions. We estimated that selling price increases exceeded commodity cost increases by nearly two percentage points in 2007 compared to 2006. In addition, productivity improvements including lower freight and logistics costs, strategic sourcing initiatives and completed actions within our Lighting Program benefited results in 2007. These improvements were partially offset by overall lower unit volume, specifically lower shipments of higher margin residential lighting fixture products and costs associated with a product quality issue within our wiring business.
Power Segment
| | | | | | | | | |
| | | 2007 | | | 2006 | |
| | | (In millions) | |
| |
| Net Sales | | $ | 636.6 | | | $ | 573.7 | |
| Operating Income | | $ | 97.3 | | | $ | 75.8 | |
| Operating Margin | | | 15.3 | % | | | 13.2 | % |
Power segment net sales increased 11% in 2007 compared to 2006 due to the impact of acquisitions and selling price increases. The acquisition of Hubbell Lenoir City, Inc. completed in the second quarter of 2006 as well as PCORE in the fourth quarter of 2007 accounted for approximately two-thirds of the sales increase in 2007
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compared to the same period in 2006. Price increases were implemented across most product lines throughout 2006 and into 2007 where costs had risen due to increased metal and energy costs. We estimated that price increases accounted for approximately five percentage points of the year-over-year sales increase. Operating income and margins increased in 2007 compared to 2006 as a result of acquisitions, selling price increases and productivity improvements including strategic sourcing, factory efficiencies and lean programs. The Hubbell Lenoir City, Inc. and PCORE acquisitions contributed approximately one-quarter of the operating income increase in 2007 compared to 2006. In addition, increased sales of higher margin new products and favorable product mix also contributed to the increase in operating margins in 2007 compared to 2006.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, | | | December 31, | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| | | (In millions) | | | (In millions) | |
| |
| Net cash provided by (used in): | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating activities | | $ | 319.2 | | | $ | 335.2 | | | $ | 139.9 | | | $ | 397.7 | | | $ | 319.2 | | | $ | 335.2 | |
| Investing activities | | | (306.4 | ) | | | (105.7 | ) | | | (66.7 | ) | | | (373.1 | ) | | | (306.4 | ) | | | (105.7 | ) |
| Financing activities | | | 93.7 | | | | (200.4 | ) | | | (139.6 | ) | | | 49.8 | | | | 93.7 | | | | (200.4 | ) |
| Effect of foreign currency exchange rate changes on cash and cash equivalents | | | (5.8 | ) | | | 3.1 | | | | 1.1 | | | | 5.9 | | | | (5.8 | ) | | | 3.1 | |
| | | | | | | | | | | | | | | |
| Net change in cash and cash equivalents | | $ | 100.7 | | | $ | 32.2 | | | $ | (65.3 | ) | | $ | 80.3 | | | $ | 100.7 | | | $ | 32.2 | |
| | | | | | | | | | | | | | | |
2009 Compared to 2008
Cash provided by operating activities for the year ended 2009 increased compared to 2008. This increase was primarily a result of lower working capital, the utilization of foreign tax credit carryforwards and the utilization of net operating losses acquired as part of the Burndy acquisition. These increases were partially offset by lower net income and higher contributions to defined benefit pension plans. Working capital in 2009 provided cash of $126.9 million compared to $22.1 million of cash provided in 2008. The effective management of working capital, particularly accounts receivable and inventory, provided cash of $85.5 million and $98.7 million, respectively. These sources of cash were partially offset by lower levels of current liabilities, specifically accounts payable.
Investing activities used cash of $373.1 million in 2009 compared to cash used of $306.4 million in 2008. The change is primarily due to a higher level of spending on acquisitions in 2009 as compared to 2008, slightly offset by lower spending on capital expenditures.
Financing activities provided cash of $49.8 million in 2009 compared to $93.7 million of cash provided in 2008. The 2009 financing activities include the net proceeds associated with the fourth quarter equity offering, offset by dividends paid. Financing activities in 2008 included the net proceeds associated with the $300 million debt offering completed in May 2008, partially offset by share repurchases, net commercial paper repayments and dividends paid.
2008 Compared to 2007
Cash provided by operating activities for the year ended 2008 decreased compared to 2007 primarily as a result of a lower benefit from working capital, partially offset by higher net income, lower contributions to defined benefit pension plans, and lower tax payments. As a result of higher net sales in 2008, working capital changes during 2008 resulted in cash provided of $22.1 million compared to cash provided of $94.1 million in 2007. Accounts receivable increased $3.7 million in 2008 compared to a decrease of $27.8 million in 2007 due to higher net sales. Inventory balances decreased in 2008 albeit at a lower level than 2007, due to continued improvements in inventory management. Current liabilities contributed $18.9 million to operating cash flow in 2008 primarily due to increased deferred revenues associated with cash received in advance from customers in the high voltage businesses.
Investing activities used cash of $306.4 million in 2008 compared to cash used of $105.7 million during 2007. Cash outlays to acquire new businesses increased $214.5 million in 2008 compared to 2007. Capital expenditures decreased $6.5 million in 2008 compared to 2007 as a result of the completion of the lighting headquarters in early 2007.
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Financing activities provided cash of $93.7 million in 2008 compared to a $200.4 million use of cash during 2007. This increase iswas the result of the $300 million debt offering completed during the second quarter of 2008 combined with a lower level of share repurchases. In 2008, the Company repurchased 2.0 million shares of common stock for $96.6 million as compared to 3.6 million shares repurchased in 2007 for $193.1 million. These increases were partially offset by a higher level of net commercial paper repayments and lower proceeds from exercises of stock options.
2007 Compared to 2006
Cash provided by operating activities in 2007 was $195.3 million higher than cash provided by operating activities in 2006 as a result of an increased focus in 2007 on working capital, specifically inventory and improved profitability. Inventory decreased $24.2 million in 2007 compared to a build of inventory of $86.3 million in 2006 primarily attributable to a better utilization of the SAP system, including standardizing best practices in inventory
24
management, production planning and scheduling. Accounts receivable balances decreased by $27.8 million in 2007 compared to an increase of $30.7 million in 2006 due to improved collection efforts related in part to better utilization of the SAP system. Current liability balances in 2007 were higher than in 2006 primarily as a result of an increase in deferred revenue in 2007 due to cash received in advance primarily related to the high voltage business and higher employee related compensation. However, contributions to defined benefit pension plans resulted in an increased use of cash of $20.7 million in 2007 compared to 2006.
Cash flows from investing activities used an additional $39 million of cash in 2007 compared to 2006. Purchases and maturities/sales of investments used net cash of $2.6 million in 2007 compared to $163.8 million of net cash proceeds in 2006. Investing activities include capital expenditures of $55.9 million in 2007 compared to $86.8 million in 2006. The $30.9 million decrease is primarily the result of completion of the new lighting headquarters in early 2007 and lower implementation costs associated with the enterprise-wide business system. Cash outlays to acquire new businesses decreased $92.8 million in 2007 compared to 2006.
Financing activities used $200.4 million of cash in 2007 compared to $139.6 million in 2006. During 2007, the Company repurchased approximately 3.6 million shares of its common stock for $193.1 million compared to 2.1 million shares repurchased in 2006 for $95.1 million. Net borrowings of short-term debt were $15.8 million in 2007 compared to net repayments of $8.9 million in 2006. Proceeds from stock options were $48.0 million in 2007 compared to $38.5 million in 2006.
Investments in the Business
We define investmentsInvestments in our business to include both normal expenditures required to maintain the operations of our equipment and facilities as well as expenditures in support of our strategic initiatives.
Capital expenditures were $49.4 million and $55.9 In 2009, we used cash of $29.4 million for the year ending December 31, 2008 and December 31, 2007, respectively. Additions to property, plant, and equipment were $48.9capital expenditures, a decrease of $20.0 million in 2008 compared to $55.1 million in 2007 as a result of lower investments made in buildings and equipment due to the completion of the new lighting headquarters in early 2007. In 2008 and 2007, we capitalized $0.5 million and $0.8 million of software, respectively (recorded in Intangible assets and other in the Consolidated Balance Sheet).from 2008.
In 2008,October 2009 we invested a totalcompleted the acquisition of $267.4Burndy for $355.2 million, on seven acquisitions, net of cash acquired. ThreeBurndy is a leading North American manufacturer of these acquisitions wereconnectors, cable accessories and tooling. This acquisition has been added to ourthe electrical systems business within the Electrical segment, while the remaining four were added to our Power segment. These businesses are expected to add approximately $200 million in annual net sales. These acquisitions are part of our core markets growth strategy. Additional information regarding business acquisitions is included in Note 3 — Business Acquisitions in the Notes to Consolidated Financial Statements.
In 2008, we spent a total of $96.6 million on the repurchase of common shares compared to $193.1 million spent in 2007. These repurchases were executed under Board of Director approved stock repurchase programs which authorized the repurchase of our Class A and Class B Common Stock up to certain dollar amounts. In FebruaryDecember 2007, the Board of Directors approved a stock repurchase program and authorized the repurchase of up to $200 million of the Company’s Class A and Class B Common Stock to be completed over a two year period.Stock. In December 2007,February 2010, the Board of Directors approved a new stock repurchaseextended the term of this program through February 20, 2011. As of December 31, 2009, approximately $160 million remains available under this program. Depending upon numerous factors, including market conditions and authorizedalternative uses of cash, the repurchase of up to $200 million of Class A and Class B Common Stock to be completed over a two year period. This program was implemented in February 2008 upon completion of the February 2007 program. StockCompany may conduct discretionary repurchases can be implemented through open market and privately negotiated transactions.transactions during its normal trading windows. The timing of such transactions depends on a variety of factors, including market conditions. As of December 31, 2008, approximately $160 million remains availableCompany has not repurchased any shares under the December 2007 Program.this program since August 2008.
Additional information with respect to future investments in the business can be found under “Outlook” within Management’s Discussion and Analysis.
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Capital Structure
Debt to Capital
Net debt, defined as total debt less cash and investments, is a non-GAAP measure that may not be comparable to definitions used by other companies. We consider net debt to be more appropriate than total debt for measuring our financial leverage as it better measures our ability to meet our funding needs.
| | | | | | | | | |
| | | December 31, | |
| | | 2008 | | | 2007 | |
| | | (In millions) | |
| |
| Total Debt | | $ | 497.4 | | | $ | 236.1 | |
| Total Shareholders’ Equity | | | 1,008.1 | | | | 1,082.6 | |
| | | | | | | | | |
| Total Capital | | $ | 1,505.5 | | | $ | 1,318.7 | |
| | | | | | | | | |
| Debt to Total Capital | | | 33 | % | | | 18 | % |
| | | | | | | | | |
| Cash and Investments | | $ | 213.3 | | | $ | 116.7 | |
| | | | | | | | | |
| Net Debt | | $ | 284.1 | | | $ | 119.4 | |
| | | | | | | | | |
Debt Structure
| | | | | | | | | |
| | | December 31, | |
| | | 2008 | | | 2007 | |
| | | (In millions) | |
| |
| Short-term debt | | $ | — | | | $ | 36.7 | |
| Long-term debt | | | 497.4 | | | | 199.4 | |
| | | | | | | | | |
| Total Debt | | $ | 497.4 | | | $ | 236.1 | |
| | | | | | | | | |
| | | | | | | | | |
| | | December 31, | |
| | | 2009 | | | 2008 | |
| | | (In millions) | |
| |
| Total Debt | | $ | 497.2 | | | $ | 497.4 | |
| Total Hubbell Shareholders’ Equity | | | 1,298.2 | | | | 1,008.1 | |
| | | | | | | | | |
| Total Capital | | $ | 1,795.4 | | | $ | 1,505.5 | |
| | | | | | | | | |
| Debt to Total Capital | | | 28 | % | | | 33 | % |
| Cash and Investments | | $ | 286.6 | | | $ | 213.3 | |
| | | | | | | | | |
| Net Debt | | $ | 210.6 | | | $ | 284.1 | |
| | | | | | | | | |
At December 31, 2007, Short-term2009 and 2008, the Company’s total debt in our Consolidated Balance Sheet consisted of $36.7 million of commercial paper. Commercial paper is used to help fund working capital needs, in particular inventory purchases.
At December 31, 2008 and 2007, Long-term debt in our Consolidated Balance Sheet consisted of $497.4 and $199.4 million, respectively,entirely of ten year senior notes issued in May 2002 and May 2008. These fixed ratefixed-rate notes, with amounts of $200 million and $300 million due in 2012 and 2018, respectively, are not callable and are only subject to accelerated payment prior to maturity if we failthe Company fails to meet certain non-financial covenants, all of which were met at December 31, 20082009 and 2007.2008. The most restrictive of these covenants limits our ability to enter into mortgages and sale-leasebacks of property having a net book value in excess of $5 million without the approval of the Notenote holders.
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Prior to the issuance of both of these notes, wethe Company entered into forward interest rate locks to hedge ourits exposure to fluctuations in treasury interest rates. The 2002 interest rate lock resulted in a $1.3 million loss, while the 2008 interest rate lock resulted in a $1.2 million gain. Both of these amounts have been recorded in Accumulated other comprehensive (loss) income,loss, net of tax, and are being amortized over the respective lives of the notes.
In October 2007, weMay 2009, the Company entered into a revised five year, $250 million revolving credit facility to replace the previousthree-year interest rate swap for an aggregate notional amount of $200 million to manage its exposure to changes in the fair value of its 6.375% $200 million fixed rate debt maturing in May 2012. Under the swap, the Company receives interest based on a fixed rate of 6.375% and pays interest based on a floating one month LIBOR rate plus a spread. The interest rate swap is designated as a fair value hedge under ASC 815 “Derivatives and Hedging” (“ASC 815”) and qualifies for the “short-cut” method; as such, no hedge ineffectiveness is recognized. The interest rate swap is recorded at fair value, with an offsetting amount recorded against the carrying value of the fixed-rate debt. For the year ended December 31, 2009, interest expense was reduced $1.2 million as a result of entering into the interest rate swap.
In September 2009, the Company entered into a line of credit agreement with Credit Suisse for approximately 30 million Swiss francs to support the issuance of letters of credit. The availability of credit under this facility is dependent upon the maintenance of compensating balances, which was scheduled to expire in October 2009. may be withdrawn. There are no annual commitment fees associated with this credit facility.
In March 2008, wethe Company exercised ourits option to expand thisits revolving credit facility from $250 million to $350 million. The expiration date of the newthis credit agreement is October 31, 2012. All other aspects of the original credit agreement remain unchanged. The interest rate applicable to borrowings under the credit agreement is either the prime rate or a surcharge over LIBOR. The covenants of the facility require that Hubbell shareholders’ equity be greater than $675 million and that total debt not exceed 55% of total capitalization (defined as total debt plus totalHubbell shareholders’ equity). We wereThe Company was in compliance with all debt covenants at December 31, 20082009 and 2007.2008. Annual commitment fee requirements to support availability of the credit facility were not material. This facility is used as a backup to our commercial paper program and was undrawn as of December 31, 20082009 and through the filing date of thisForm 10-K. Additional information related to our debt is included in Note 12 — Debt in the Notes to Consolidated Financial Statements.
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The Company maintains a 9.4 million pound sterling credit facility with HSBC Bank Plc. in the UK which is set for review on November 30, 2010. The Company also maintains a 3.0 million Brazilian real line of credit with Banco Real that expires in April 2010. There are no annual commitment fees associated with these credit agreements. These credit facilities were undrawn as of December 31, 2009.
In addition to the above credit commitments, the Company has an unsecured line of credit for $60 million to support issuance of its letters of credit. At December 31, 2009, the Company had approximately $32.5 million of letters of credit outstanding under this facility.
Although these facilities are not the principal source of our liquidity, we believe these facilities are capable of providing adequate financing at reasonable rates of interest. However, a significant deterioration in results of operations or cash flows, leading to deterioration in financial condition, could either increase our future borrowing costs or restrict our ability to sell commercial paper in the open market. We have not entered into any other guarantees, commitments or obligations that couldwe anticipate would give rise to unexpected cash requirements.
Liquidity
We measure liquidity on the basis of our ability to meet short-term and long-term operational funding needs, fund additional investments, including acquisitions, and make dividend payments to shareholders. Significant factors affecting the management of liquidity are cash flows from operating activities, capital expenditures, cash dividend payments, stock repurchases, access to bank lines of credit and our ability to attract long-term capital with satisfactory terms.
During October 2009, we issued 2,990,000 shares of Class B common stock. The Company received net proceeds of $122.0 million, which were used for general corporate purposes including the repayment of $66 million of commercial paper borrowings that were issued to fund the Burndy acquisition.
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Internal cash generation together with currently available cash and investments, available borrowing facilities and an ability to access credit lines, if needed, are expected to be sufficient to fund operations, the current rate of cash dividends, capital expenditures, and any increase in working capital that would be required to accommodate a higher level of business activity. We actively seek to expand by acquisition as well as through the growth of our current businesses. While a significant acquisition may require additional debtand/or equity financing, we believe that we would be able to obtain additional financing based on our favorable historical earnings performance and strong financial position.
The recent and unprecedented disruption in the current credit markets has had a significant adverse impact on a number of financial institutions. At this point in time, the Company’s liquidity has not been impacted by the current credit environment and management does not expect that it will be materially impacted in the near future. Management will continue to closely monitor the Company’s liquidity and the credit markets. However, management can notcannot predict with any certainty the impact to the Company of any further disruption in the credit environment.
Pension Funding Status
We have a number of funded and unfunded non-contributory U.S. and foreign defined benefit pension plans. Benefits under these plans are generally provided based on either years of service and final average pay or a specified dollar amount per year of service. The funded status of our qualified, defined benefit pension plans is dependant upon many factors including future returns on invested pension assets, the level of market interest rates, employee earnings and employee demographics.
Effective December 31, 2006, the Company adopted the provisions of SFAS No. 158 which required the Company to recognize the funded status of its defined benefit pension and postretirement plans as an asset or liability in its Consolidated Balance Sheet. In 2008, the Company recorded a total charge to equity through Accumulated other comprehensive (loss) income, net of tax, related to pension and postretirement plans of $92.1 million, of which $91.9 million is related to pensions. In 2007, the Company recorded a total credit to equity through Accumulated other comprehensive (loss) income, net of tax, related to pension and postretirement plans of $44.9 million, of which $42.0 million is related to pensions. Further details on the pretax impact of these items can be found in Note 11 — Retirement Benefits in the Notes to Consolidated Financial Statements.
Changes in the value of the defined benefit plan assets and liabilities will affect the amount of pension expense ultimately recognized. Although differences between actuarial assumptions and actual results are no longer deferred for balance sheet purposes, deferral is still required for pension expense purposes. Unrecognized gains and losses in excess of an annual calculated minimum amount (the greater of 10% of the projected benefit obligation or 10% of the market value of assets) are amortized and recognized in net periodic pension cost over ourthe average remaining service period of our active employees, which approximates11-1411-13 years. During 20082009 and 2007,2008, we recorded $1.3$7.3 million and $1.9$1.3 million, respectively, of pension expense related to the amortization of these unrecognized losses. We expect to record $7.2$5.2 million of expense related to unrecognized losses and prior service cost in 2009.2010.
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The actual return on our pension assets in 2008 as well as2009 substantially exceeded our expected return. However, the cumulative return over the past five and ten year periods has been slightly less than our expected return for the same periods. In addition, there has been a decline in long-term interest rates and a resulting increase in our pension liabilities. These lower than expected rates of return combined with declines in long-term interest rates have had a negative impact on the funded status of the plans. Consequently, we contributed approximately $27 million in 2009, $11 million in 2008 and $28 million in 2007 and $8 million in 2006 to both our foreign and domestic defined benefit pension plans. These contributions have improved the funded status of all of our plans. We expect to make additional contributions of approximately $4$5 million to our foreign plans during 2009.2010. Although not required under the Pension Protection Act of 2006, we may decide to make a voluntary contribution to the Company’s qualified U.S. defined benefit plans in 2009.2010. This level of funding is not expected to have any significant impact on our overall liquidity.
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Assumptions
The following assumptions were used to determine projected pension and other benefit obligations at the measurement date and the net periodic benefit costs for the year:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits | | | Pension Benefits | | Other Benefits | |
| | | 2008 | | 2007 | | 2008 | | 2007 | | | 2009 | | 2008 | | 2009 | | 2008 | |
| |
Weighted-average assumptions used to determine benefit obligations at December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate | | | 6.46 | % | | | 6.41 | % | | | 6.50 | % | | | 6.50 | % | | | 5.96 | % | | | 6.46 | % | | | 6.00 | % | | | 6.50 | % |
| Rate of compensation increase | | | 4.07 | % | | | 4.58 | % | | | 4.00 | % | | | 4.00 | % | | | 3.57 | % | | | 4.07 | % | | | 3.50 | % | | | 4.00 | % |
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate | | | 6.41 | % | | | 5.66 | % | | | 6.50 | % | | | 5.75 | % | | | 6.46 | % | | | 6.41 | % | | | 6.50 | % | | | 6.50 | % |
| Expected return on plan assets | | | 8.00 | % | | | 8.00 | % | | | N/A | | | | N/A | | | | 8.00 | % | | | 8.00 | % | | | N/A | | | | N/A | |
| Rate of compensation increase | | | 4.07 | % | | | 4.58 | % | | | 4.00 | % | | | 4.00 | % | | | 4.07 | % | | | 4.07 | % | | | 4.00 | % | | | 4.00 | % |
At the end of each year, we estimate the expected long-term rate of return on pension plan assets based on the strategic asset allocation for our plans. In making this determination, we utilize expected rates of return for each asset class based upon current market conditions and expected risk premiums for each asset class. A one percentage point change in the expected long-term rate of return on pension fund assets would have an impact of approximately $4.7$5.8 million on 20092010 pretax pension expense. The expected long-term rate of return is applied to the fair market value of pension fund assets to produce the expected return on fund assets that is included in pension expense. The difference between this expected return and the actual return on plan assets was recognized at December 31, 20082009 for balance sheet purposes, but continues to be deferred for expense purposes. The net deferral of past asset gains (losses) ultimately affects future pension expense through the amortization of gains (losses) with an offsetting adjustment to Shareholders’Hubbell shareholders’ equity through Accumulated other comprehensive (loss) income.loss.
At the end of each year, we determine the discount rate to be used to calculate the present value of pension plan liabilities. The discount rate is an estimate of the current interest rate at which the pension plans’ liabilities could effectively be settled. In estimating this rate, we look to rates of return on high-quality, fixed-income investments with maturities that closely match the expected funding period of our pension liability. The discount rate of 6.50%6.00% which we used to determine the projected benefit obligation for our U.S. pension plans at December 31, 20082009 was determined using the Citigroup Pension Discount Curve applied to our expected annual future pension benefit payments. A similar methodology was utilized for our international pension plans resulting in a discount rate of 5.7% and 5.25%, respectively, for our UK and Canadian plans. An increase of one percentage point in the discount rate would lower 20092010 pretax pension expense by approximately $6.1$4.2 million. A discount rate decline of one percentage point would increase pretax pension expense by approximately $7.0$7.5 million.
Other Post Employment Benefits (“OPEB”)
We hadThe Company also has a number of health care and life insurance benefit plans covering eligible employees who reached retirement age while working for the Company. These benefits were discontinued in 1991 for substantially all future retirees with the exception of the recently acquired Burndy business and certain operations in our Power segment which still maintain a limited retiree medical plan for their union employees. However, effectiveThe liability assumed related to the Burndy acquisition for its active and retired employees was $13.1 million. Effective January 1, 2010 the A.B. Chance division of the Power segment will cease to
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offer retiree medical benefits to all future union retirees. Furthermore, effective February 11, 2009, PCORE will also ceaseceased to offer retiree medical benefits to all future union retirees. These plans are not funded and, therefore, no assumed rate of return on assets is required. The discount rate of 6.50%6.00% used to determine the projected benefit obligation at December 31, 20082009 was based upon the Citigroup Pension Discount Curve as applied to our projected annual benefit payments for these plans. In 20082009 and 20072008 in accordance with SFAS No. 158ASC 715 we recorded (charges) credits to Accumulated other comprehensive (loss) incomeloss within Shareholders’Hubbell shareholders’ equity, net of tax, of $(0.2)$0.5 million and $2.9$(0.2) million, respectively, related to OPEB.
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Off-Balance Sheet Arrangements
Off-balance sheet arrangements are defined as any transaction, agreement or other contractual arrangement to which an entity that is not included in our consolidated results is a party, under which we, whether or not a party to the arrangement, have, or in the future may have: (1) an obligation under a direct or indirect guarantee or similar arrangement, (2) a retained or contingent interest in assets or (3) an obligation or liability, including a contingent obligation or liability, to the extent that it is not fully reflected in the financial statements.
We do not have any off-balance sheet arrangements as defined above which have or are likely to have a material effect on financial condition, results of operations or cash flows.
Contractual Obligations
A summary of our contractual obligations and commitments at December 31, 20082009 is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Payments due by period | | | | | Payments due by period | |
| | | | | Less than
| | | | | | More than
| | | | | Less than
| | | | | | More than
| |
Contractual Obligations | | Total | | 1 Year | | 1-3 Years | | 4-5 Years | | 5 Years | | | Total | | 1 Year | | 1-3 Years | | 4-5 Years | | 5 Years | |
| |
| Debt obligations | | $ | 500.0 | | | $ | — | | | $ | — | | | $ | 200.0 | | | $ | 300.0 | | | $ | 500.0 | | | $ | — | | | $ | 200.0 | | | | — | | | $ | 300.0 | |
| Expected interest payments | | | 209.7 | | | | 30.6 | | | | 61.2 | | | | 40.5 | | | | 77.4 | | | | 183.6 | | | | 30.6 | | | | 54.8 | | | | 35.7 | | | | 62.5 | |
| Operating lease obligations | | | 53.2 | | | | 13.0 | | | | 16.9 | | | | 8.0 | | | | 15.3 | | | | 52.6 | | | | 13.0 | | | | 14.9 | | | | 8.5 | | | | 16.2 | |
| Purchase obligations | | | 174.5 | | | | 165.7 | | | | 8.8 | | | | — | | | | — | | | | 219.8 | | | | 210.6 | | | | 9.2 | | | | — | | | | — | |
| Income tax payments | | | 3.5 | | | | 3.5 | | | | — | | | | — | | | | — | | | | 10.6 | | | | 10.6 | | | | — | | | | — | | | | — | |
| Obligations under customer incentive programs | | | 25.4 | | | | 25.4 | | | | — | | | | — | | | | — | | | | 23.5 | | | | 23.5 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | $ | 966.3 | | | $ | 238.2 | | | $ | 86.9 | | | $ | 248.5 | | | $ | 392.7 | | | $ | 990.1 | | | $ | 288.3 | | | $ | 278.9 | | | | 44.2 | | | $ | 378.7 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Our purchase obligations include amounts committed under legally enforceable contracts or purchase orders for goods and services with defined terms as to price, quantity, delivery and termination liability. These obligations primarily consist of inventory purchases made in the normal course of business to meet operational requirements, consulting arrangements and commitments for equipment purchases. Other long-term liabilities reflected in our Consolidated Balance Sheet at December 31, 20082009 have been excluded from the table above and primarily consist of costs associated with retirement benefits. See Note 11 — Retirement Benefits in the Notes to Consolidated Financial Statements for estimates of future benefit payments under our benefit plans. As of December 31, 2008,2009, we have $17.3$30.6 million of uncertain tax positions. The uncertain tax positions classified as current liabilities have been included in the income tax payments line in the table above. We are unable to make a reasonable estimate regarding settlement of the remainder of these uncertain tax positions and, as a result, they have been excluded from the table. See Note 13 — Income Taxes in the Notes to Consolidated Financial Statements.
Critical Accounting Estimates
Note 1 — Significant Accounting Policies of the Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of our financial statements.
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Use of Estimates
We are required to make assumptions and estimates and apply judgments in the preparation of our financial statements that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors deemed relevant by management. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in estimates and assumptions used by us could have a significant impact on our financial results. We believe that the following estimates are among our most critical in fully understanding and evaluating our reported financial results. These items utilize assumptions and estimates about the effect of future events that are inherently uncertain and are therefore based on our judgment.
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Revenue Recognition
We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101,ASC 605 “Revenue Recognition in Financial Statements” and the SEC revisions in SEC Staff Accounting Bulletin No. 104.Recognition” (“ASC 605”). Revenue is recognized when title to goods and risk of loss have passed to the customer, there is persuasive evidence of a purchase arrangement, delivery has occurred or services are rendered, the price is determinable and collectibility is reasonably assured. Revenue is typically recognized at the time of shipment. Further, certain of our businesses account for sales discounts and allowances based on sales volumes, specific programs and customer deductions, as is customary in electrical products markets. These items primarily relate to sales volume incentives, special pricing allowances, and returned goods. This requires us to estimate at the time of sale the amounts that should not be recorded as revenue as these amounts are not expected to be collected in cash from customers. We principally rely on historical experience, specific customer agreements, and anticipated future trends to estimate these amounts at the time of shipment. Also see Note 1 — Significant Accounting Policies of the Notes to Consolidated Financial Statements.
Inventory Valuation
We routinely evaluate the carrying value of our inventories to ensure they are carried at the lower of cost or market value. Such evaluation is based on our judgment and use of estimates, including sales forecasts, gross margins for particular product groupings, planned dispositions of product lines, technological events and overall industry trends. In addition, the evaluation is based on changes in inventory management practices which may influence the timing of exiting products and method of disposing of excess inventory.
Excess inventory is generally identified by comparing future expected inventory usage to actual on-hand quantities. Reserves are provided for on-hand inventory in excess of pre-defined usage forecasts. Forecast usage is primarily determined by projecting historical (actual) sales and inventory usage levels forward to future periods. Application of this reserve methodology can have the effect of increasing reserves during periods of declining demand and, conversely, reducing reserve requirements during periods of accelerating demand. This reserve methodology is applied based upon a current stratification of inventory, whether by commodity type, product family, part number, stock keeping unit, etc. As a result of our lean process improvement initiatives, we continue to develop improved information concerning demand patterns for inventory consumption. This improved information is introduced into the excess inventory reserve calculation as it becomes available and may impact required levels of reserves.
Customer Credit and Collections
We maintain allowances for doubtful accounts receivable in order to reflect the potential uncollectibility of receivables related to purchases of products on open credit. If the financial condition of our customers were to deteriorate, resulting in their inability to make required payments, we may be required to record additional allowances for doubtful accounts.
Capitalized Computer Software Costs
We capitalize certain costs of internally developed software in accordance with Statement of Position98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”ASC 350 “Intangibles — Goodwill and Other” (“ASC 350”). Capitalized costs include purchased materials and services, and payroll and payroll related costs. General and administrative,
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overhead, maintenance and training costs, as well as the cost of software that does not add functionality to the existing system, are expensed as incurred. The cost of internally developed software is amortized on a straight-line basis over appropriate periods, generally five years. The unamortized balance of internally developed software is included in Intangible assets and other in the Consolidated Balance Sheet.
Employee Benefits Costs and Funding
We sponsor domestic and foreign defined benefit pension, defined contribution and other postretirement plans. Major assumptions used in the accounting for these employee benefit plans include the discount rate, expected return on the pension fund assets, rate of increase in employee compensation levels and health care cost increase projections. These assumptions are determined based on Company data and appropriate market indicators, and are
29
evaluated each year as of the plans’ measurement date. Further discussion on the assumptions used in 20082009 and 20072008 are included above under “Pension Funding Status” and in Note 11 — Retirement Benefits in the Notes to Consolidated Financial Statements.
Taxes
We account for income taxes in accordance with SFAS No. 109, “Accounting for IncomeASC 740 “Income Taxes” and FASB Interpretation No. (“FIN”ASC 740”) 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”. SFAS No. 109ASC 740 requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. SFAS No. 109ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion or all of the deferred tax asset will not be realized. The factors used to assess the likelihood of realization of deferred tax assets are the forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income can affect the ultimate realization of net deferred tax assets.
We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. The IRS and other tax authorities routinely review our tax returns. These audits can involve complex issues, which may require an extended period of time to resolve. In accordance with FIN 48, effective January 1, 2007,ASC 740, the Company records uncertain tax positions only when it has determined that it is more-likely-than-not that a tax position will be sustained upon examination by taxing authorities based on the technical merits of the position. The Company uses the criteria established in FIN 48ASC 740 to determine whether an item meets the definition of more-likely-than-not. The Company’s policy is to recognize these uncertain tax benefitspositions when the more-likely-than-not threshold is met, when the statute of limitations has expired or upon settlement. In management’s opinion, adequate provision has been made for potential adjustments arising from any examinations.
Contingent Liabilities
We are subject to proceedings, lawsuits, and other claims or uncertainties related to environmental, legal, product and other matters. We routinely assess the likelihood of an adverse judgment or outcome to these matters, as well as the range of potential losses. A determination of the reserves required, if any, is made after careful analysis, including consultations with outside advisors, where applicable. The required reserves may change in the future due to new developments.
Valuation of Long-Lived Assets
Our long-lived assets include land, buildings, equipment, molds and dies, software, goodwill and other intangible assets. Long-lived assets, other than goodwill and indefinite-lived intangibles, are depreciated over their estimated useful lives. We review depreciable long-lived assets for impairment to assess recoverability from future operations using discountedundiscounted cash flows. For these assets, no impairment charges were recorded in 20082009 or 2007.2008.
Goodwill and indefinite-lived intangible assets are reviewed annually for impairment unless circumstances dictate the need for more frequent assessment underassessment. The Company performs its goodwill impairment testing as of April 1st of each year. The goodwill impairment testing requires judgment, including the provisionsidentification of SFAS No. 142, “Goodwillreporting units, assigning assets and Other Intangible Assets”. The identificationliabilities to reporting units, and measurementdetermining the fair value of impairment of goodwill involves the estimation ofeach reporting unit. Significant judgments required to estimate the fair value of reporting units.units include estimating future cash flows, determining appropriate discount rates and other assumptions. The Company uses internal discounted cash flow estimates to determine fair value. These cash flow estimates are derived from historical experience and future long-term business plans and the application of an appropriate discount rate. Changes in these estimates and assumptions could materially affect the determination of fair value ofand/or goodwill impairment for each reporting units are based on the best information availableunit.
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as of the date of the assessment, which primarily incorporates certain factors including our assumptions about operating results, business plans, income projections, anticipated future cash flows, and market data. Future cash flows can be affected by changes in industry or market conditions or the rate and extent to which anticipated synergies or cost savings are realized from newly acquired entities and therefore contain uncertainty. The identification and measurement of impairment of indefinite-lived intangible assets involves testing whichthat compares carrying values of assets to the estimated fair values of assets. When appropriate,These estimated fair values are determined using undiscounted cash flow estimates. If the carrying value of assetsthe indefinite-lived intangible exceeds the fair value, the carrying value will be reduced to the estimated fair values.value.
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Forward-Looking Statements
Some of the information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in thisForm 10-K and in the Annual Report attached hereto, which does not constitute part of thisForm 10-K, contain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These include statements about capital resources, performance and results of operations and are based on our reasonable current expectations. In addition, all statements regarding anticipated growth or improvement in operating results, anticipated market conditions and economic recovery are forward looking. Forward-looking statements may be identified by the use of words, such as “believe”, “expect”, “anticipate”, “intend”, “depend”, “should”, “plan”, “estimated”, “predict”, “could”, “may”, “subject to”, “continues”, “growing”, “prospective”, “forecast”, “projected”, “purport”, “might”, “if”, “contemplate”, “potential”, “pending,” “target”, “goals”, “scheduled”, “will likely be”, and similar words and phrases. Discussions of strategies, plans or intentions often contain forward-looking statements. Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include, but are not limited to:
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| | • | Changes in demand for our products, market conditions, product quality, or product availability adversely affecting sales levels. |
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| | • | Changes in markets or competition adversely affecting realization of price increases. |
| |
| | • | Failure to achieve projected levels of efficiencies, cost savings and cost reduction measures, including those expected as a result of our lean initiative and strategic sourcing plans. |
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| | • | The expected benefits and the timing of other actions in connection with our enterprise-wide business system. |
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| | • | Availability and costs of raw materials, purchased components, energy and freight. |
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| | • | Changes in expected or future levels of operating cash flow, indebtedness and capital spending. |
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| | • | General economic and business conditions in particular industries or markets. |
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| | • | The anticipated benefits from the recently enacted Federal stimulus package. |
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| | • | Regulatory issues, changes in tax laws or changes in geographic profit mix affecting tax rates and availability of tax incentives. |
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| | • | A major disruption in one of our manufacturing or distribution facilities or headquarters, including the impact of plant consolidations and relocations. |
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| | • | Changes in our relationships with, or the financial condition or performance of, key distributors and other customers, agents or business partners which could adversely affect our results of operations. |
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| | • | Impact of productivity improvements on lead times, quality and delivery of product. |
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| | • | Anticipated future contributions and assumptions including changes in interest rates and plan assets with respect to pensions. |
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| | • | Adjustments to product warranty accruals in response to claims incurred, historical experiences and known costs. |
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| | • | Unexpected costs or charges, certain of which might be outside of our control. |
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| | |
| | • | Changes in strategy, economic conditions or other conditions outside of our control affecting anticipated future global product sourcing levels. |
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| | • | Ability to carry out future acquisitions and strategic investments in our core businesses and costs relating to acquisitions andas well as the acquisition integrationrelated costs. |
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| • | Unanticipated difficulties integrating acquisitions as well as the realization of expected synergies and benefits anticipated when we first enter into a transaction. |
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| | |
| | • | Future repurchases of common stock under our common stock repurchase programs. |
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| | • | Changes in accounting principles, interpretations, or estimates. |
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| | • | The outcome of environmental, legal and tax contingencies or costs compared to amounts provided for such contingencies. |
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| | • | Adverse changes in foreign currency exchange rates and the potential use of hedging instruments to hedge the exposure to fluctuating rates of foreign currency exchange on inventory purchases. |
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| | • | Other factors described in our Securities and Exchange CommissionSEC filings, including the “Business”, “Risk Factors” and “Quantitative and Qualitative Disclosures about Market Risk” Sectionssections in this Annual Report onForm 10-K for the year ended December 31, 2008.2009. |
Any such forward-looking statements are not guarantees of future performanceperformances and actual results, developments and business decisions may differ from those contemplated by such forward-looking statements. The Company disclaims any duty to update any forward-looking statement, all of which are expressly qualified by the foregoing, other than as required by law.
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| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk |
In the operation of our business, we have various exposures to areas of risk related to factors within and outside the control of management. Significant areas of risk and our strategies to manage the exposure are discussed below.
We manufactureand/or assemble our products in the United States, Canada, Switzerland, Puerto Rico, Mexico, the People’s Republic of China, Italy, United Kingdom,UK, Brazil and Australia and sell products in those markets as well as through sales offices in Singapore, the People’s Republic of China, Mexico, South Korea and the Middle East. International shipments fromnon-U.S. subsidiaries as a percentage of the Company’s total net sales were 16% in 2009 and 2008 and 14% in 2007 and 13% in 2006.2007. The United KingdomUK operations represent 31%36%, Canada 24%, Switzerland 16%13%, and all other countries 29%27% of total 20082009 international sales. As such, our operating results could be affected by changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we sell our products. To manage this exposure, we closely monitor the working capital requirements of our international units. In 2008, we enteredunits and may enter into a seriesforward foreign exchange contracts. Further discussion of forward exchange contracts on behalf of our Canadian operationcan be found in Note 15 — Fair Value Measurements in the Notes to purchase U.S. dollars in order to hedge a portion of their exposure to fluctuating rates of exchange on anticipated inventory purchases. As of December 31, 2008 we had 18 outstanding contracts for $1.0 million each, which expire through December 2009.Consolidated Financial Statements.
Product purchases representing approximately 15%18% of our net sales are sourced from unaffiliated suppliers located outside the United States, primarily in the People’s Republic of China and other Asian countries, Europe and Brazil. We are actively seeking to expand this activity, particularly related to purchases from low cost areas of the world. Foreign sourcing of products may result in unexpected fluctuations in product cost or increased risk of business interruption due to lack of product or component availability due to any one of the following:
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| | • | Political or economic uncertainty in the source country |
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| | • | Fluctuations in the rate of exchange between the U.S. dollar and the currencies of the source countries |
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| | • | Increased logistical complexity including supply chain interruption or delay, port of departure or entry disruption and overall time to market |
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| | • | Loss of proprietary information |
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| | • | Product quality issues outside the control of the Company |
We have developed plans that address many of these risks. Such actions include careful selection of products to be outsourced and the suppliers selected; ensuring multiple sources of supply; limiting concentrations of activity by
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port, broker, freight forwarder, etc., processes related to quality control; and maintaining control over operations, technologies and manufacturing deemed to provide competitive advantage. Many of our businesses have a dependency on certain basic raw materials needed to produce their products including steel, aluminum, brass, copper, aluminum, bronze, plastics, phenols, zinc, nickel, elastomers and petrochemicals as well as purchased electrical and electronic components. Our financial results could be affected by the availability and changes in prices of these materials and components.
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Certain of these materials are sourced from a limited number of suppliers. These materials are also key source materials for many other companies in our industry and within the universe of industrial manufacturers in general. As such, in periods of rising demand for these materials, we may experience both (1) increased costs and (2)and/or limited supply. These conditions can potentially result in our inability to acquire these key materials on a timely basis to produce our products and satisfy our incoming sales orders. Similarly, the cost of these materials can rise suddenly and result in materially higher costs of producing our products. We believe we have adequate primary and secondary sources of supply for each of our key materials and that, in periods of rising prices, we expect to recover a majority of the increased cost in the form of higher selling prices. However, recoveries typically lag the effect of cost increases due to the nature of our markets.
Our financial results are subject to interest rate fluctuations to the extent there is a difference between the amount of our interest-earning assets and the amount of interest-bearing liabilities. The principal objectives of our investment management activities are to preserve capital while earning net investment income that is commensurate with acceptable levels of interest rate, default and liquidity risk taking into account our funding needs. As part of our investment management strategy, we may use derivative financial products such as interest rate hedges and interest rate swaps. Refer to further discussion under “Capital Structure” within this Management’s Discussion and Analysis.
From time to time or when required, we issue commercial paper, which exposes us to changes in interest rates. Our cash position includes amounts denominated in foreign currencies. We manage our worldwide cash requirements by considering available funds held by our subsidiaries and the cost effectiveness with which these funds can be accessed.
We continually evaluate risk retention and insurance levels for product liability, property damage and other potential exposures to risk. We devote significant effort to maintaining and improving safety and internal control programs, which are intended to reduce our exposure to certain risks. We determine the level of insurance coverage and the likelihood of a loss and believe that the current levels of risk retention are consistent with those of comparable companies in the industries in which we operate. There can be no assurance that we will not incur losses beyond the limits of our insurance. However, our liquidity, financial position and profitability are not expected to be materially affected by the levels of risk retention that we accept.
The following table presents cost information related to interest risk sensitive instruments by maturity at December 31, 20082009 (dollars in millions):
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| | | | | | | | | | | | | | | | | Fair Value
| | | | | | | | | | | | | | | | | Fair Value
|
| | | 2009 | | 2010 | | 2011 | | 2012 | | 2013 | | Thereafter | | Total | | 12/31/08 | | | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | Thereafter | | Total | | 12/31/09 |
| |
Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Available-for-sale investments | | $ | 6.4 | | | $ | 2.6 | | | $ | 2.1 | | | $ | 8.4 | | | $ | 1.2 | | | $ | 13.9 | | | $ | 34.6 | | | $ | 35.1 | | | $ | 2.6 | | | $ | 2.0 | | | $ | 4.4 | | | $ | 1.2 | | | $ | 4.5 | | | $ | 10.4 | | | $ | 25.1 | | | $ | 25.9 | |
| Avg. interest rate | | | 5.02 | % | | | 6.05 | % | | | 5.63 | % | | | 4.89 | % | | | 4.00 | % | | | 5.05 | % | | | — | | | | — | | | | 6.05 | % | | | 5.62 | % | | | 5.00 | % | | | 4.00 | % | | | 5.06 | % | | | 5.11 | % | | | — | | | | — | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt | | $ | — | | | $ | — | | | $ | — | | | $ | 199.6 | | | $ | — | | | $ | 297.8 | | | $ | 497.4 | | | $ | 484.7 | | | $ | — | | | $ | — | | | $ | 199.1 | | | $ | — | | | $ | — | | | $ | 298.1 | | | $ | 497.2 | | | $ | 539.6 | |
| Avg. interest rate | | | — | | | | — | | | | — | | | | 6.38 | % | | | — | | | | 5.95 | % | | | 6.12 | % | | | — | | | | — | | | | — | | | | 6.38 | % | | | — | | | | — | | | | 5.95 | % | | | 6.12 | % | | | — | |
All of the assets and liabilities above are fixed rate instruments. We use derivative financial instruments only if they are matched with a specific asset, liability, or proposed future transaction. We do not speculate or use leverage when trading a financial derivative product.
In May 2009, the Company entered into a three year interest rate swap to manage its exposure to changes in the fair value of its 6.375% $200 million fixed rate debt maturing in May 2012. As a result of this interest rate swap, the Company’s effective interest rate on its $200 million fixed rate debt was reduced to 5.10% for the year ended December 31, 2009. See Note 12 — Debt in the Notes to Consolidated Financial Statements.
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| |
| Item 8. | Financial Statements and Supplementary Data |
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
| | | | | |
| | | Form 10-K for
|
| | | 2008,2009, Page: |
| |
| | | 3635 | |
Consolidated Financial Statements | | | | |
| | | 3736 | |
| | | 3837 | |
| | | 3938 | |
| | | 4039 | |
| | | 4140 | |
| | | 4241 | |
Financial Statement Schedule | | | | |
| | | 8385 | |
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
3534
REPORT OF MANAGEMENT
HUBBELL INCORPORATED AND SUBSIDIARIES
Report on Management’s Responsibility for Financial Statements
Our management is responsible for the preparation, integrity and fair presentation of its published financial statements. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on informed judgments made by management.
We believe it is critical to provide investors and other users of our financial statements with information that is relevant, objective, understandable and timely, so that they can make informed decisions. As a result, we have established and we maintain systems and practices and internal control processes designed to provide reasonable, but not, absolute assurance that transactions are properly executed and recorded and that our policies and procedures are carried out appropriately. Management strives to recruit, train and retain high quality people to ensure that controls are designed, implemented and maintained in a high-quality, reliable manner.
Our independent registered public accounting firm audited our financial statements and the effectiveness of our internal control over financial reporting in accordance with Standards established by the Public Company Accounting Oversight Board (United States). Their report appears on the next page within this Annual Report onForm 10-K.
Our Board of Directors normally meets at least five times per year to provide oversight, to review corporate strategies and operations, and to assess management’s conduct of the business. The Audit Committee of our Board of Directors (which meets approximately nine times per year) is comprised of at least three individuals all of whom must be “independent” under current New York Stock Exchange listing standards and regulations adopted by the SEC under the federal securities laws. The Audit Committee meets regularly with our internal auditors and independent registered public accounting firm, as well as management to review, among other matters, accounting, auditing, internal controls and financial reporting issues and practices. Both the internal auditors and independent registered public accounting firm have full, unlimited access to the Audit Committee.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate systems of internal control over financial reporting as defined byRules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2008.2009. In making this assessment, management used the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2008.2009.
The effectiveness of our internal control over financial reporting as of December 31, 20082009 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm as stated in their report which is included on the next page within this Annual Report onForm 10-K.
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| | | |
 | |  |
| | | |
| | |
| Timothy H. Powers | | David G. Nord |
| Chairman of the Board, | | Senior Vice President and |
| President & Chief Executive Officer | | Chief Financial Officer |
3635
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Hubbell Incorporated:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Hubbell Incorporated and its subsidiaries (the “Company”) at December 31, 20082009 and 2007,2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20082009 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008,2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006, and the manner in which it accounts for defined benefit pension and other postretirement plans effective December 31, 2006.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Stamford, Connecticut
February 18, 20092010
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| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2009 | | | 2008 | | | 2007 | |
| | | (In millions, except
| |
| | | per share amounts) | |
| |
Net sales | | $ | 2,355.6 | | | $ | 2,704.4 | | | $ | 2,533.9 | |
| Cost of goods sold | | | 1,629.7 | | | | 1,901.0 | | | | 1,798.1 | |
| | | | | | | | | | | | | |
Gross profit | | | 725.9 | | | | 803.4 | | | | 735.8 | |
| Selling & administrative expenses | | | 431.2 | | | | 457.4 | | | | 436.4 | |
| | | | | | | | | | | | | |
Operating income | | | 294.7 | | | | 346.0 | | | | 299.4 | |
| | | | | | | | | | | | | |
| Investment income | | | 0.3 | | | | 2.8 | | | | 2.4 | |
| Interest expense | | | (30.9 | ) | | | (27.4 | ) | | | (17.6 | ) |
| Other expense, net | | | (2.5 | ) | | | (3.0 | ) | | | — | |
| | | | | | | | | | | | | |
Total other expense | | | (33.1 | ) | | | (27.6 | ) | | | (15.2 | ) |
| | | | | | | | | | | | | |
Income before income taxes | | | 261.6 | | | | 318.4 | | | | 284.2 | |
| Provision for income taxes | | | 80.3 | | | | 95.2 | | | | 75.9 | |
| | | | | | | | | | | | | |
Net income | | | 181.3 | | | | 223.2 | | | | 208.3 | |
| Less: Net income attributable to noncontrolling interest | | | 1.2 | | | | 0.5 | | | | — | |
| | | | | | | | | | | | | |
Net income attributable to Hubbell | | $ | 180.1 | | | $ | 222.7 | | | $ | 208.3 | |
| | | | | | | | | | | | | |
Earnings per share | | | | | | | | | | | | |
| Basic | | $ | 3.16 | | | $ | 3.96 | | | $ | 3.53 | |
| Diluted | | $ | 3.15 | | | $ | 3.93 | | | $ | 3.49 | |
See notes to consolidated financial statements.
37
CONSOLIDATED STATEMENT OF INCOME
| | | | | | | | | | | | | |
| | | Year Ended December 31 | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | (In millions except
| |
| | | per share amounts) | |
| |
Net sales | | $ | 2,704.4 | | | $ | 2,533.9 | | | $ | 2,414.3 | |
| Cost of goods sold | | | 1,901.0 | | | | 1,798.1 | | | | 1,757.5 | |
| | | | | | | | | | | | | |
Gross profit | | | 803.4 | | | | 735.8 | | | | 656.8 | |
| Selling & administrative expenses | | | 457.4 | | | | 436.4 | | | | 415.6 | |
| Special charges, net | | | — | | | | — | | | | 7.3 | |
| | | | | | | | | | | | | |
Operating income | | | 346.0 | | | | 299.4 | | | | 233.9 | |
| | | | | | | | | | | | | |
| Investment income | | | 2.8 | | | | 2.4 | | | | 5.1 | |
| Interest expense | | | (27.4 | ) | | | (17.6 | ) | | | (15.4 | ) |
| Other expense, net | | | (3.5 | ) | | | — | | | | (2.1 | ) |
| | | | | | | | | | | | | |
Total other expense | | | (28.1 | ) | | | (15.2 | ) | | | (12.4 | ) |
| | | | | | | | | | | | | |
Income before income taxes | | | 317.9 | | | | 284.2 | | | | 221.5 | |
| Provision for income taxes | | | 95.2 | | | | 75.9 | | | | 63.4 | |
| | | | | | | | | | | | | |
Net income | | $ | 222.7 | | | $ | 208.3 | | | $ | 158.1 | |
| | | | | | | | | | | | | |
Earnings per share | | | | | | | | | | | | |
| Basic | | $ | 3.97 | | | $ | 3.54 | | | $ | 2.62 | |
| | | | | | | | | | | | | |
| Diluted | | $ | 3.94 | | | $ | 3.50 | | | $ | 2.59 | |
| | | | | | | | | | | | | |
| Average number of common shares outstanding | | | | | | | | | | | | |
| Basic | | | 56.0 | | | | 58.8 | | | | 60.4 | |
| | | | | | | | | | | | | |
| Diluted | | | 56.5 | | | | 59.5 | | | | 61.1 | |
| | | | | | | | | | | | | |
| Cash dividends per common share | | $ | 1.38 | | | $ | 1.32 | | | $ | 1.32 | |
| | | | | | | | | | | | | |
| | | | | | | | | |
| | | At December 31, | |
| | | 2009 | | | 2008 | |
| | | (In millions, except share amounts) | |
| |
ASSETS |
Current Assets | | | | | | | | |
| Cash and cash equivalents | | $ | 258.5 | | | $ | 178.2 | |
| Accounts receivable, net | | | 310.1 | | | | 357.0 | |
| Inventories, net | | | 263.5 | | | | 335.2 | |
| Deferred taxes and other | | | 85.8 | | | | 48.7 | |
| | | | | | | | | |
| Total Current Assets | | | 917.9 | | | | 919.1 | |
Property, Plant, and Equipment, net | | | 368.8 | | | | 349.1 | |
Other Assets | | | | | | | | |
| Investments | | | 28.1 | | | | 35.1 | |
| Goodwill | | | 743.7 | | | | 584.6 | |
| Intangible assets and other | | | 406.0 | | | | 227.6 | |
| | | | | | | | | |
| Total Assets | | $ | 2,464.5 | | | $ | 2,115.5 | |
| | | | | | | | | |
| |
| LIABILITIES AND EQUITY |
Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 130.8 | | | $ | 168.3 | |
| Accrued salaries, wages and employee benefits | | | 62.8 | | | | 61.5 | |
| Accrued insurance | | | 49.3 | | | | 46.3 | |
| Dividends payable | | | 20.9 | | | | 19.7 | |
| Other accrued liabilities | | | 154.7 | | | | 129.2 | |
| | | | | | | | | |
| Total Current Liabilities | | | 418.5 | | | | 425.0 | |
Long-term Debt | | | 497.2 | | | | 497.4 | |
Other Non-Current Liabilities | | | 246.8 | | | | 182.0 | |
| | | | | | | | | |
| Total Liabilities | | | 1,162.5 | | | | 1,104.4 | |
| | | | | | | | | |
Commitments and Contingencies | | | | | | | | |
Hubbell Shareholders’ Equity | | | | | | | | |
| Common stock, par value $.01 | | | | | | | | |
| Class A — Authorized 50,000,000 shares, outstanding 7,167,506 and 7,165,075 shares | | | 0.1 | | | | 0.1 | |
| Class B — Authorized 150,000,000 shares, outstanding 52,493,487 and 49,102,167 shares | | | 0.5 | | | | 0.5 | |
| Additional paid-in capital | | | 158.4 | | | | 16.3 | |
| Retained earnings | | | 1,208.0 | | | | 1,108.0 | |
| Accumulated other comprehensive loss | | | (68.8 | ) | | | (116.8 | ) |
| | | | | | | | | |
| Total Hubbell Shareholders’ Equity | | | 1,298.2 | | | | 1,008.1 | |
| Noncontrolling interest | | | 3.8 | | | | 3.0 | |
| | | | | | | | | |
| Total Equity | | | 1,302.0 | | | | 1,011.1 | |
| | | | | | | | | |
| Total Liabilities and Equity | | $ | 2,464.5 | | | $ | 2,115.5 | |
| | | | | | | | | |
See notes to consolidated financial statements.
38
HUBBELL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSTATEMENT OF CASH FLOWS
| | | | | | | | | |
| | | At December 31, | |
| | | 2008 | | | 2007 | |
| | | (Dollars in millions) | |
| |
ASSETS |
Current Assets | | | | | | | | |
| Cash and cash equivalents | | $ | 178.2 | | | $ | 77.5 | |
| Accounts receivable, net | | | 357.0 | | | | 332.4 | |
| Inventories, net | | | 335.2 | | | | 322.9 | |
| Deferred taxes and other | | | 48.7 | | | | 55.2 | |
| | | | | | | | | |
| Total current assets | | | 919.1 | | | | 788.0 | |
Property, Plant, and Equipment, net | | | 349.1 | | | | 327.1 | |
Other Assets | | | | | | | | |
| Investments | | | 35.1 | | | | 39.2 | |
| Goodwill | | | 584.6 | | | | 466.6 | |
| Intangible assets and other | | | 227.6 | | | | 242.5 | |
| | | | | | | | | |
| Total Assets | | $ | 2,115.5 | | | $ | 1,863.4 | |
| | | | | | | | | |
| |
LIABILITIES AND SHAREHOLDERS’ EQUITY |
Current Liabilities | | | | | | | | |
| Short-term debt | | $ | — | | | $ | 36.7 | |
| Accounts payable | | | 168.3 | | | | 154.0 | |
| Accrued salaries, wages and employee benefits | | | 61.5 | | | | 58.6 | |
| Accrued insurance | | | 46.3 | | | | 46.7 | |
| Dividends payable | | | 19.7 | | | | 19.2 | |
| Other accrued liabilities | | | 129.2 | | | | 104.3 | |
| | | | | | | | | |
| Total current liabilities | | | 425.0 | | | | 419.5 | |
Long-term debt | | | 497.4 | | | | 199.4 | |
Other Non-Current Liabilities | | | 185.0 | | | | 161.9 | |
| | | | | | | | | |
| Total Liabilities | | | 1,107.4 | | | | 780.8 | |
| | | | | | | | | |
Commitments and Contingencies | | | | | | | | |
Common Shareholders’ Equity | | | | | | | | |
| Common Stock, par value $.01 | | | | | | | | |
| Class A — authorized 50,000,000 shares, outstanding 7,165,075 and 7,378,408 shares | | | 0.1 | | | | 0.1 | |
| Class B — authorized 150,000,000 shares, outstanding 49,102,167 and 50,549,566 shares | | | 0.5 | | | | 0.5 | |
| Additional paid-in capital | | | 16.3 | | | | 93.3 | |
| Retained earnings | | | 1,108.0 | | | | 962.7 | |
| Accumulated other comprehensive (loss) income | | | (116.8 | ) | | | 26.0 | |
| | | | | | | | | |
| Total Common Shareholders’ Equity | | | 1,008.1 | | | | 1,082.6 | |
| | | | | | | | | |
| Total Liabilities and Shareholders’ Equity | | $ | 2,115.5 | | | $ | 1,863.4 | |
| | | | | | | | | |
| | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2009 | | | 2008 | | | 2007 | |
| | | (In millions) | |
| |
Cash Flows from Operating Activities | | | | | | | | | | | | |
| Net income | | $ | 181.3 | | | $ | 223.2 | | | $ | 208.3 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | 70.6 | | | | 63.1 | | | | 60.2 | |
| Deferred income taxes | | | 32.3 | | | | 0.7 | | | | (3.7 | ) |
| Stock-based compensation | | | 10.3 | | | | 12.5 | | | | 12.7 | |
| Tax benefit on stock-based awards | | | (1.3 | ) | | | (0.8 | ) | | | (6.9 | ) |
| Loss (gain) on sale of assets | | | 0.5 | | | | 0.6 | | | | (0.7 | ) |
| Changes in assets and liabilities: | | | | | | | | | | | | |
| Decrease (increase) in accounts receivable | | | 85.5 | | | | (3.7 | ) | | | 27.8 | |
| Decrease in inventories | | | 98.7 | | | | 6.9 | | | | 24.2 | |
| (Decrease) increase in current liabilities | | | (57.3 | ) | | | 18.9 | | | | 42.1 | |
| Changes in other assets and liabilities, net | | | 9.7 | | | | 7.4 | | | | (3.1 | ) |
| Contributions to defined benefit pension plans | | | (27.4 | ) | | | (11.2 | ) | | | (28.4 | ) |
| Other, net | | | (5.2 | ) | | | 1.6 | | | | 2.7 | |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 397.7 | | | | 319.2 | | | | 335.2 | |
| | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | |
| Capital expenditures | | | (29.4 | ) | | | (49.4 | ) | | | (55.9 | ) |
| Acquisitions, net of cash acquired | | | (355.8 | ) | | | (267.4 | ) | | | (52.9 | ) |
Purchases ofavailable-for-sale investments | | | (5.2 | ) | | | (16.6 | ) | | | (41.2 | ) |
Proceeds fromavailable-for-sale investments | | | 14.7 | | | | 20.5 | | | | 38.6 | |
Proceeds fromheld-to-maturity investments | | | — | | | | 0.3 | | | | — | |
| Proceeds from disposition of assets | | | 0.6 | | | | 1.0 | | | | 5.1 | |
| Other, net | | | 2.0 | | | | 5.2 | | | | 0.6 | |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (373.1 | ) | | | (306.4 | ) | | | (105.7 | ) |
| | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | |
| Proceeds from stock issuance, net | | | 122.0 | | | | — | | | | — | |
| Commercial paper (repayments) borrowings, net | | | — | | | | (36.7 | ) | | | 20.9 | |
| Payment of other debt | | | — | | | | — | | | | (5.1 | ) |
| Issuance of long-term debt | | | — | | | | 297.7 | | | | — | |
| Debt issuance costs | | | — | | | | (2.7 | ) | | | — | |
| Payment of dividends | | | (78.9 | ) | | | (76.9 | ) | | | (78.4 | ) |
| Payment of dividends to noncontrolling interest | | | (0.4 | ) | | | — | | | | — | |
| Proceeds from exercise of stock options | | | 5.7 | | | | 8.1 | | | | 48.0 | |
| Tax benefit on stock-based awards | | | 1.3 | | | | 0.8 | | | | 6.9 | |
| Acquisition of common shares | | | — | | | | (96.6 | ) | | | (193.1 | ) |
| Other, net | | | 0.1 | | | | — | | | | 0.4 | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 49.8 | | | | 93.7 | | | | (200.4 | ) |
| | | | | | | | | | | | | |
| Effect of foreign currency exchange rate changes on cash and cash equivalents | | | 5.9 | | | | (5.8 | ) | | | 3.1 | |
| | | | | | | | | | | | | |
Increase in cash and cash equivalents | | | 80.3 | | | | 100.7 | | | | 32.2 | |
Cash and cash equivalents | | | | | | | | | | | | |
| Beginning of year | | | 178.2 | | | | 77.5 | | | | 45.3 | |
| | | | | | | | | | | | | |
| End of year | | $ | 258.5 | | | $ | 178.2 | | | $ | 77.5 | |
| | | | | | | | | | | | | |
See notes to consolidated financial statements.
39
HUBBELL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWSCHANGES IN EQUITY
| | | | | | | | | | | | | |
| | | Years Ended December 31, | |
| | | 2008 | | | 2007 | | | 2006 | |
| | | (Dollars in millions) | |
| |
Cash Flows From Operating Activities | | | | | | | | | | | | |
| Net income | | $ | 222.7 | | | $ | 208.3 | | | $ | 158.1 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | 63.1 | | | | 60.2 | | | | 55.4 | |
| Deferred income taxes | | | 0.7 | | | | (3.7 | ) | | | 11.4 | |
| Stock-based compensation | | | 12.5 | | | | 12.7 | | | | 11.8 | |
| Tax benefit on stock-based awards | | | (0.8 | ) | | | (6.9 | ) | | | (6.0 | ) |
| Loss (gain) on sale of assets | | | 0.6 | | | | (0.7 | ) | | | 0.9 | |
| Non-cash special charges | | | — | | | | — | | | | 3.1 | |
| Changes in assets and liabilities: | | | | | | | | | | | | |
| (Increase) decrease in accounts receivable | | | (3.7 | ) | | | 27.8 | | | | (30.7 | ) |
| Decrease (increase) in inventories | | | 6.9 | | | | 24.2 | | | | (86.3 | ) |
| Increase in current liabilities | | | 18.9 | | | | 42.1 | | | | 13.3 | |
| Changes in other assets and liabilities, net | | | 7.4 | | | | (3.1 | ) | | | 14.0 | |
| Contributions to defined benefit pension plans | | | (11.2 | ) | | | (28.4 | ) | | | (7.7 | ) |
| Other, net | | | 2.1 | | | | 2.7 | | | | 2.6 | |
| | | | | | | | | | | | | |
| Net cash provided by operating activities | | | 319.2 | | | | 335.2 | | | | 139.9 | |
| | | | | | | | | | | | | |
Cash Flows From Investing Activities | | | | | | | | | | | | |
| Capital expenditures | | | (49.4 | ) | | | (55.9 | ) | | | (86.8 | ) |
| Acquisitions, net of cash acquired | | | (267.4 | ) | | | (52.9 | ) | | | (145.7 | ) |
| Purchases of available-for-sale investments | | | (16.6 | ) | | | (41.2 | ) | | | (153.2 | ) |
| Proceeds from available-for-sale investments | | | 20.5 | | | | 38.6 | | | | 296.0 | |
| Purchases of held-to-maturity investments | | | — | | | | — | | | | (0.4 | ) |
| Proceeds from held-to-maturity investments | | | 0.3 | | | | — | | | | 21.4 | |
| Proceeds from disposition of assets | | | 1.0 | | | | 5.1 | | | | 0.6 | |
| Other, net | | | 5.2 | | | | 0.6 | | | | 1.4 | |
| | | | | | | | | | | | | |
| Net cash used in investing activities | | | (306.4 | ) | | | (105.7 | ) | | | (66.7 | ) |
| | | | | | | | | | | | | |
Cash Flows From Financing Activities | | | | | | | | | | | | |
| Commercial paper (repayments) borrowings, net | | | (36.7 | ) | | | 20.9 | | | | 15.8 | |
| Borrowings of other debt | | | — | | | | — | | | | 5.1 | |
| Payment of other debt | | | — | | | | (5.1 | ) | | | (29.8 | ) |
| Issuance of long-term debt | | | 297.7 | | | | — | | | | — | |
| Debt issuance costs | | | (2.7 | ) | | | — | | | | — | |
| Payment of dividends | | | (76.9 | ) | | | (78.4 | ) | | | (80.1 | ) |
| Proceeds from exercise of stock options | | | 8.1 | | | | 48.0 | | | | 38.5 | |
| Tax benefit on stock-based awards | | | 0.8 | | | | 6.9 | | | | 6.0 | |
| Acquisition of common shares | | | (96.6 | ) | | | (193.1 | ) | | | (95.1 | ) |
| Other, net | | | — | | | | 0.4 | | | | — | |
| | | | | | | | | | | | | |
| Net cash provided by (used in) financing activities | | | 93.7 | | | | (200.4 | ) | | | (139.6 | ) |
| | | | | | | | | | | | | |
| Effect of foreign currency exchange rate changes on cash and cash equivalents | | | (5.8 | ) | | | 3.1 | | | | 1.1 | |
| | | | | | | | | | | | | |
Increase (decrease) in cash and cash equivalents | | | 100.7 | | | | 32.2 | | | | (65.3 | ) |
Cash and cash equivalents | | | | | | | | | | | | |
| Beginning of year | | | 77.5 | | | | 45.3 | | | | 110.6 | |
| | | | | | | | | | | | | |
| End of year | | $ | 178.2 | | | $ | 77.5 | | | $ | 45.3 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Years Ended December 31, 2009, 2008 and 2007
| |
| | | (In millions, except per share amounts) | |
| | | | | | | | | | | | | | | Accumulated
| | | Total
| | | | |
| | | Class A
| | | Class B
| | | Additional
| | | | | | Other
| | | Hubbell
| | | | |
| | | Common
| | | Common
| | | Paid-In
| | | Retained
| | | Comprehensive
| | | Shareholders’
| | | Noncontrolling
| |
| | | Stock | | | Stock | | | Capital | | | Earnings | | | Income (Loss) | | | Equity | | | interest | |
| |
Balance at December 31, 2006 | | $ | 0.1 | | | $ | 0.5 | | | $ | 219.9 | | | $ | 827.4 | | | $ | (32.4 | ) | | $ | 1,015.5 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 208.3 | | | | | | | | 208.3 | | | | | |
| Adjustment to pension and other benefit plans, net of tax of $27.3 | | | | | | | | | | | | | | | | | | | 44.9 | | | | 44.9 | | | | | |
| Translation adjustments | | | | | | | | | | | | | | | | | | | 14.1 | | | | 14.1 | | | | | |
| Unrealized gain on investments, net of tax | | | | | | | | | | | | | | | | | | | 0.2 | | | | 0.2 | | | | | |
| Unrealized gain on cash flow hedge including $0.1 of amortization, net of tax | | | | | | | | | | | | | | | | | | | (0.8 | ) | | | (0.8 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 266.7 | | | | | |
| Adjustment to initially adopt accounting for uncertain tax positions | | | | | | | | | | | | | | | 4.7 | | | | | | | | 4.7 | | | | | |
| Stock-based compensation | | | | | | | | | | | 12.7 | | | | | | | | | | | | 12.7 | | | | | |
| Exercise of stock options | | | | | | | | | | | 48.0 | | | | | | | | | | | | 48.0 | | | | | |
| Income tax windfall from stock-based awards, net | | | | | | | | | | | 6.9 | | | | | | | | | | | | 6.9 | | | | | |
| Acquisition/surrender of common shares | | | | | | | | | | | (194.2 | ) | | | | | | | | | | | (194.2 | ) | | | | |
| Cash dividends declared ($1.32 per share) | | | | | | | | | | | | | | | (77.7 | ) | | | | | | | (77.7 | ) | | | | |
| Investment in noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | 2.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2007 | | $ | 0.1 | | | $ | 0.5 | | | $ | 93.3 | | | $ | 962.7 | | | $ | 26.0 | | | $ | 1,082.6 | | | $ | 2.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 222.7 | | | | | | | | 222.7 | | | | 0.5 | |
| Adjustment to pension and other benefit plans, net of tax of $54.9 | | | | | | | | | | | | | | | | | | | (92.1 | ) | | | (92.1 | ) | | | | |
| Translation adjustments | | | | | | | | | | | | | | | | | | | (53.7 | ) | | | (53.7 | ) | | | | |
| Unrealized gain on cash flow hedge including $0.1 of amortization, net of tax | | | | | | | | | | | | | | | | | | | 3.0 | | | | 3.0 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 79.9 | | | | | |
| Stock-based compensation | | | | | | | | | | | 12.5 | | | | | | | | | | | | 12.5 | | | | | |
| Exercise of stock options | | | | | | | | | | | 8.1 | | | | | | | | | | | | 8.1 | | | | | |
| Income tax shortfall from stock-based awards, net | | | | | | | | | | | (0.1 | ) | | | | | | | | | | | (0.1 | ) | | | | |
| Acquisition/surrender of common shares | | | | | | | | | | | (97.5 | ) | | | | | | | | | | | (97.5 | ) | | | | |
| Cash dividends declared ($1.38 per share) | | | | | | | | | | | | | | | (77.4 | ) | | | | | | | (77.4 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | $ | 0.1 | | | $ | 0.5 | | | $ | 16.3 | | | $ | 1,108.0 | | | $ | (116.8 | ) | | $ | 1,008.1 | | | $ | 3.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 180.1 | | | | | | | | 180.1 | | | | 1.2 | |
| Adjustment to pension and other benefit plans, net of tax of $8.6 | | | | | | | | | | | | | | | | | | | 14.3 | | | | 14.3 | | | | | |
| Translation adjustments | | | | | | | | | | | | | | | | | | | 35.3 | | | | 35.3 | | | | | |
| Unrealized gain on investments, net of tax | | | | | | | | | | | | | | | | | | | 0.3 | | | | 0.3 | | | | | |
| Unrealized loss on cash flow hedge including $0.1 of amortization, net of tax | | | | | | | | | | | | | | | | | | | (1.9 | ) | | | (1.9 | ) | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 228.1 | | | | | |
| Stock-based compensation | | | | | | | | | | | 10.3 | | | | | | | | | | | | 10.3 | | | | | |
| Exercise of stock options | | | | | | | | | | | 5.7 | | | | | | | | | | | | 5.7 | | | | | |
| Income tax windfall from stock-based awards, net | | | | | | | | | | | 0.6 | | | | | | | | | | | | 0.6 | | | | | |
| Issuance of shares related to director’s deferred compensation | | | | | | | | | | | 5.2 | | | | | | | | | | | | 5.2 | | | | | |
| Acquisition/surrender of common shares | | | | | | | | | | | (1.7 | ) | | | | | | | | | | | (1.7 | ) | | | | |
| Cash dividends declared ($1.40 per share) | | | | | | | | | | | | | | | (80.1 | ) | | | | | | | (80.1 | ) | | | | |
| Issuance of common stock, net | | | | | | | | | | | 122.0 | | | | | | | | | | | | 122.0 | | | | | |
| Dividends to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | (0.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2009 | | $ | 0.1 | | | $ | 0.5 | | | $ | 158.4 | | | $ | 1,208.0 | | | $ | (68.8 | ) | | $ | 1,298.2 | | | $ | 3.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See notes to consolidated financial statements.
40
HUBBELL INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | For the Three Years Ended December 31, 2008, 2007 and 2006
| |
| | | (in millions, except per share amounts) | |
| | | | | | | | | | | | | | | | | | Accumulated
| | | | |
| �� | | | | | | | | | | | | | | | | | Other
| | | | |
| | | Class A
| | | Class B
| | | Additional
| | | | | | | | | Comprehensive
| | | Total
| |
| | | Common
| | | Common
| | | Paid-In
| | | Retained
| | | Unearned
| | | Income
| | | Shareholders’
| |
| | | Stock | | | Stock | | | Capital | | | Earnings | | | Compensation | | | (Loss) | | | Equity | |
| |
Balance at December 31, 2005 | | $ | 0.1 | | | $ | 0.5 | | | $ | 267.2 | | | $ | 749.1 | | | $ | (8.0 | ) | | $ | (10.8 | ) | | $ | 998.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 158.1 | | | | | | | | | | | | 158.1 | |
| Minimum pension liability adjustment, net of related tax effect of $1.3 | | | | | | | | | | | | | | | | | | | | | | | 2.1 | | | | 2.1 | |
| Translation adjustments | | | | | | | | | | | | | | | | | | | | | | | 12.4 | | | | 12.4 | |
| Change in unrealized loss on investments, net of tax | | | | | | | | | | | | | | | | | | | | | | | 0.3 | | | | 0.3 | |
| Unrealized gain on cash flow hedge including $0.1 of amortization, net of tax | | | | | | | | | | | | | | | | | | | | | | | 0.4 | | | | 0.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 173.3 | |
| Benefit plan adjustment to initially apply SFAS No. 158, net of tax of $19.7 | | | | | | | | | | | | | | | | | | | | | | | (36.8 | ) | | | (36.8 | ) |
| Reversal of unearned compensation upon adoption of SFAS No. 123(R) | | | | | | | | | | | (8.0 | ) | | | | | | | 8.0 | | | | | | | | — | |
| Stock-based compensation | | | | | | | | | | | 11.9 | | | | | | | | | | | | | | | | 11.9 | |
| Exercise of stock options | | | | | | | | | | | 38.5 | | | | | | | | | | | | | | | | 38.5 | |
| Tax benefits from stock-based awards | | | | | | | | | | | 6.0 | | | | | | | | | | | | | | | | 6.0 | |
| Acquisition/surrender of common shares | | | | | | | | | | | (95.7 | ) | | | | | | | | | | | | | | | (95.7 | ) |
| Cash dividends declared ($1.32 per share) | | | | | | | | | | | | | | | (79.8 | ) | | | | | | | | | | | (79.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2006 | | $ | 0.1 | | | $ | 0.5 | | | $ | 219.9 | | | $ | 827.4 | | | $ | — | | | $ | (32.4 | ) | | $ | 1,015.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 208.3 | | | | | | | | | | | | 208.3 | |
| Adjustment to pension and other benefit plans, net of tax of $27.3 | | | | | | | | | | | | | | | | | | | | | | | 44.9 | | | | 44.9 | |
| Translation adjustments | | | | | | | | | | | | | | | | | | | | | | | 14.1 | | | | 14.1 | |
| Unrealized gain on investments, net of tax | | | | | | | | | | | | | | | | | | | | | | | 0.2 | | | | 0.2 | |
| Unrealized gain on cash flow hedge including $0.1 of amortization, net of tax | | | | | | | | | | | | | | | | | | | | | | | (0.8 | ) | | | (0.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 266.7 | |
| Adjustment to initially apply FIN 48 | | | | | | | | | | | | | | | 4.7 | | | | | | | | | | | | 4.7 | |
| Stock-based compensation | | | | | | | | | | | 12.7 | | | | | | | | | | | | | | | | 12.7 | |
| Exercise of stock options | | | | | | | | | | | 48.0 | | | | | | | | | | | | | | | | 48.0 | |
| Tax benefits from stock-based awards | | | | | | | | | | | 6.9 | | | | | | | | | | | | | | | | 6.9 | |
| Acquisition/surrender of common shares | | | | | | | | | | | (194.2 | ) | | | | | | | | | | | | | | | (194.2 | ) |
| Cash dividends declared ($1.32 per share) | | | | | | | | | | | | | | | (77.7 | ) | | | | | | | | | | | (77.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2007 | | $ | 0.1 | | | $ | 0.5 | | | $ | 93.3 | | | $ | 962.7 | | | $ | — | | | $ | 26.0 | | | $ | 1,082.6 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | | | | | | | | | | | | | 222.7 | | | | | | | | | | | | 222.7 | |
| Adjustment to pension and other benefit plans, net of tax of $54.9 | | | | | | | | | | | | | | | | | | | | | | | (92.1 | ) | | | (92.1 | ) |
| Translation adjustments | | | | | | | | | | | | | | | | | | | | | | | (53.7 | ) | | | (53.7 | ) |
| Unrealized gain on cash flow hedge including $0.1 of amortization, net of tax | | | | | | | | | | | | | | | | | | | | | | | 3.0 | | | | 3.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | | | | 79.9 | |
| Stock-based compensation | | | | | | | | | | | 12.5 | | | | | | | | | | | | | | | | 12.5 | |
| Exercise of stock options | | | | | | | | | | | 8.1 | | | | | | | | | | | | | | | | 8.1 | |
| Income tax shortfall from stock-based awards | | | | | | | | | | | (0.1 | ) | | | | | | | | | | | | | | | (0.1 | ) |
| Acquisition/surrender of common shares | | | | | | | | | | | (97.5 | ) | | | | | | | | | | | | | | | (97.5 | ) |
| Cash dividends declared ($1.38 per share) | | | | | | | | | | | | | | | (77.4 | ) | | | | | | | | | | | (77.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | $ | 0.1 | | | $ | 0.5 | | | $ | 16.3 | | | $ | 1,108.0 | | | $ | — | | | $ | (116.8 | ) | | $ | 1,008.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
See notes to consolidated financial statements.
41
HUBBELL INCORPORATED AND SUBSIDIARIES
| |
| Note 1 — | Note 1 — Significant Accounting Policies |
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
The Company has evaluated subsequent events through February 19, 2010, the date of issuance of the Consolidated Financial Statements, and has determined that it did not have any material recognizable subsequent events.
Reclassification and Out of Period Adjustment
Certain reclassifications have been made in prior year financial statements and notes to conform to the current year presentation.
During the year ended December 31, 2009, the Company recorded an immaterial out of period adjustment, predominately arising in years prior to 1999 related to certain deferred tax accounts, which decreased the Provision for income taxes by $4.9 million. The Company concluded that the adjustment was not material to prior periods and the cumulative effect was not material to the results for the year ended December 31, 2009.
Principles of Consolidation
The Consolidated Financial Statements include all subsidiaries; all significant intercompany balances and transactions have been eliminated. The Company participates in two joint ventures, one of which is accounted for using the equity method, the other has been consolidated in accordance with the provisions of FIN 46(R), “Consolidation of Variable Interest Entities”ASC 810 “Consolidation” (“ASC 810”). See Note 2 — Variable Interest Entities.
Certain reclassifications have been made in prior year financial statements and notes to conform to the current year presentation.
Use of Estimates
The preparation of financial statements in conformityaccordance with accounting principles generally accepted in the United States of AmericaGAAP requires management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements. Actual results could differ from the estimates that are used.
Revenue Recognition
Revenue is recognized when title to the goods sold and the risk of loss have passed to the customer, there is persuasive evidence of a purchase arrangement, delivery has occurred or services are rendered, the price is determinable and collectibility is reasonably assured. Revenue is typically recognized at the time of shipment as the Company’s shipping terms are generally FOB shipping point. The Company recognizes less than one percent of total annual consolidated net revenue from post shipment obligations and service contracts, primarily within the Electrical segment. Revenue is recognized under these contracts when the service is completed and all conditions of sale have been met. In addition, within the Electrical segment, certain businesses sell large and complex equipment which requires construction and assembly and has long lead times. It is customary in these businesses to require a portion of the selling price to be paid in advance of construction. These payments are treated as deferred revenue and are classified in Other accrued liabilities in the Consolidated Balance Sheet. Once the equipment is shipped to the customer and meets the revenue recognition criteria, the deferred revenue is recognized in the Consolidated Statement of Income.
Further, certain of our businesses account for sales discounts and allowances based on sales volumes, specific programs and customer deductions, as is customary in electrical products markets. These items primarily relate to sales volume incentives, special pricing allowances, and returned goods. Sales volume incentives represent rebates with specific sales volume targets for specific customers. Certain distributors qualify for price rebates by subsequently reselling the Company’s products into select channels of end users. Following a distributor’s sale
41
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of an eligible product, the distributor submits a claim for a price rebate. A number of distributors, primarily in the Electrical segment,Customers have a right to return goods under certain circumstances which are reasonably estimable by affected businesses and have historically ranged from1%-3% of gross sales. This requires
These arrangements require us to estimate at the time of sale the amounts that should not be recorded as revenue as these amounts are not expected to be collected in cash from customers. The Company principally relies on historical experience, specific customer agreements and anticipated future trends to estimate these amounts at the time of shipment.
Shipping and Handling Fees and Costs
The Company records shipping and handling costs as part of Cost of goods sold in the Consolidated Statement of Income. Any amounts billed to customers for reimbursement of shipping and handling are included in Net sales in the Consolidated Statement of Income.
42
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Foreign Currency Translation
The assets and liabilities of international subsidiaries are translated to U.S. dollars at exchange rates in effect at the end of the year, and income and expense items are translated at average exchange rates in effect during the year. The effects of exchange rate fluctuations on the translated amounts of foreign currency assets and liabilities are included as translation adjustments in Accumulated other comprehensive (loss) incomeloss within Shareholders’Hubbell shareholders’ equity. Gains and losses from foreign currency transactions are included in income.results of operations.
Cash and Cash Equivalents
Cash equivalents consist of investments with original maturities of three months or less. The carrying value of cash equivalents approximates fair value because of their short maturities.
Investments
The Company defines short-term investments as securities with original maturities of greater than three months but less than one year.year; all other investments are classified as long-term. Investments in debt and equity securities are classified by individual security as eitheravailable-for-sale,held-to-maturity or held-to-maturity. Municipaltrading investments. Ouravailable-for-sale investments, consisting of municipal bonds, and variable rate demand notes are classified as available-for-sale investments and are carried on the balance sheet at fair value with current period adjustments to carrying value recorded in Accumulated other comprehensive (loss) incomeloss within Shareholders’Hubbell shareholders’ equity, net of tax. Realized gains and losses are recorded in income in the period of sale. Other securities which the Company has the positive intent and ability to hold to maturity, are classified asheld-to-maturity and are carried on the balance sheet at amortized cost. The effects of amortizing these securities are recorded in current earnings. RealizedThe Company’s trading investments are carried on the balance sheet at fair value and consist primarily of debt and equity mutual funds. Unrealized gains and losses associated with these trading investments are recorded in incomereflected in the periodresults of sale.operations.
Accounts Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The allowance for doubtful accounts is based on an estimated amount of probable credit losses in existing accounts receivable. The allowance is calculated based upon a combination of historical write-off experience, fixed percentages applied to aging categories and specific identification based upon a review of past due balances and problem accounts. The allowance is reviewed on at least a quarterly basis. Account balances are charged off against the allowance when it is determined that internal collection efforts should no longer be pursued. The Company also maintains a reserve for credit memos, cash discounts and product returns which are principally calculated based upon historical experience, specific customer agreements, as well as anticipated future trends.
42
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inventories
Inventories are stated at the lower of cost or market value. The cost of substantially all domestic inventories (approximately 79%82% of total net inventory value) is determined utilizing thelast-in, first-out (LIFO) method of inventory accounting. The cost of foreign inventories and certain domestic inventories is determined utilizing average cost orfirst-in, first-out (FIFO) methods of inventory accounting.
Property, Plant, and Equipment
Property, plant and equipment values are stated at cost less accumulated depreciation. Maintenance and repair expenditures are charged to expense when incurred. Property, plant and equipment placed in service prior to January 1, 1999 are depreciated over their estimated useful lives, principally using accelerated methods. Assets placed in service subsequent to January 1, 1999 are depreciated over their estimated useful lives, using straight-line methods. Leasehold improvements are amortized over the shorter of their economic lives or the lease term. Gains and losses arising on the disposal of property, plant and equipment are included in Operating Income in the Consolidated Statement of Income.
43
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Capitalized Computer Software Costs
Qualifying costs of internal use software are capitalized in accordance with Statement of Position98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use”.ASC 350. Capitalized costs include purchased materials and services and payroll and payroll relatedpayroll-related costs. General and administrative, overhead, maintenance and training costs, as well as the cost of software that does not add functionality to existing systems, are expensed as incurred. The cost of internal use software is amortized on a straight-line basis over appropriate periods, generally five years. The unamortized balance of internal use software is included in Intangible assets and other in the Consolidated Balance Sheet.
Capitalized computer software costs, net of amortization, were $21.3$12.5 million and $28.1$21.3 million at December 31, 20082009 and 2007,2008, respectively. The Company recorded amortization expense of $10.9 million, $10.7 million and $10.9 million in 2009, 2008 and $9.1 million in 2008, 2007, and 2006, respectively, relating to capitalized computer software.
Goodwill and Other Intangible Assets
Goodwill represents costs in excess of fair values assigned to the underlying net assets of acquired companies. Indefinite-lived intangible assets and goodwill are subject to annual impairment testing using the specific guidance and criteria described in SFAS No. 142, “Goodwill and Other Intangible Assets”.ASC 350. The Company performs its goodwill impairment testing as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. This testing compares carrying values to estimated fair values and when appropriate, the carrying value of these assets will be reduced to estimated fair value. Fair values were calculated using a range of estimated future operating results and primarily utilized aThe Company uses internal discounted cash flow model. Inestimates to determine fair value. These cash flow estimates are derived from historical experience and future long-term business plans and the second quarterapplication of 2008, the Company performed its annualan appropriate discount rate. The Company’s 2009 goodwill impairment testing of goodwill. This testing resulted in fair values for each reporting unit exceeding the reporting unit’s carrying value, including goodwill. The Company performed its annual impairment testing of indefinite-lived intangible assets which resulted in no impairment. The Company’s policy is to perform its annual goodwill impairment assessment in the second quarter of each year unless circumstances dictate the need for more frequent assessments. Intangible assets with definite lives are being amortized over periods generally ranging from 5-30 years.
Other Long-Lived Assets
The Company evaluates the potential impairment of other long-lived assets when appropriate in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”ASC 360 “Property, Plant and Equipment” (“ASC 360”). If the carrying value of assets exceeds the sum of the estimated future undiscounted cash flows, the carrying value of the asset is written down to estimated fair value. The Company continually evaluates events and circumstances to determine if revisions to values or estimates of useful lives are warranted.
43
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Income Taxes
The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax authorities routinely review the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. The Company makes adequate provisions for best estimates of exposures on previously filed tax returns. Deferred income taxes are recognized for the tax consequence of differences between financial statement carrying amounts and the tax basis of assets and liabilities by applying the currently enacted statutory tax rates in accordance with SFAS No. 109, “Accounting for Income Taxes”.ASC 740. The effect of a change in statutory tax rates is recognized as income in the period that includes the enactment date. SFAS No. 109ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized. The Company uses factors to assess the likelihood of realization of deferred tax assets such as the forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets.
On January 1, 2007, the Company adopted the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109”. FIN 48In addition, ASC 740 prescribes a recognition threshold and
44
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
measurement attribute for the financial statement recognition and measurement of the tax position taken or expected to be taken in a tax return. For any amount of benefit to be recognized, it must be determined that it is more-likely-than-not that a tax position will be sustained upon examination by taxing authorities based on the technical merits of the position. The amount of benefit to be recognized is based on the Company’s assertion of the most likely outcome resulting from an examination, including resolution of any related appeals or litigation processes. At adoption, companiesCompanies are required to adjust their financial statements to reflect only those tax positions that are more-likely-than-not to be sustained. Details with respect to the impact on the Consolidated financial statementsFinancial Statements of these uncertain tax positions and the adoption in 2007 are included in Note 13 — Income Taxes.
Research, Development & Engineering
Research, development and engineering expenditures represent costs to discoverand/or apply new knowledge in developing a new product, process, or in bringing about a significant improvement to an existing product or process. Research, development and engineering expenses are recorded as a component of Cost of goods sold. Expenses for research, development and engineering were less than 1% of Cost of goods sold for each of the years 2009, 2008 2007 and 2006.2007.
Retirement Benefits
The Company maintains various defined benefit pension plans for some of its U.S. and foreign employees. Effective December 31, 2006, the Company adopted the provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)”. SFAS No. 158 requiredASC 715 requires the Company to recognize the funded status of its defined benefit pension and postretirement plans as an asset or liability in the Consolidated Balance Sheet. Gains or losses, prior service costs or credits, and transition assets or obligations that have not yet been included in net periodic benefit cost as of the end of the year of adoption are recognized as components of Accumulated other comprehensive (loss) income,loss, net of tax, within Shareholders’Hubbell shareholders’ equity. The Company’s policy is to fund pension costs within the ranges prescribed by applicable regulations. In addition to providing defined benefit pension benefits, the Company provides health care and life insurance benefits for some of its active and retired employees. The Company’s policy is to fund these benefits through insurance premiums or as actual expenditures are made. The Company accounts for these benefits in accordance with SFAS No. 106 “Employers’ Accounting for Postretirement Benefits Other Than Pensions”. See also Note 11 — Retirement Benefits.
Earnings Per Share
Effective January 1, 2009, the Company adopted the provisions of ASC 260-10-45-61A which requires that unvested share-based payment awards that contain nonforfeitable rights to dividends be considered participating securities. Participating securities are required to be included in the earnings per share calculation pursuant to the two-class method. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that would otherwise have been available to common shareholders. Basic earnings per share is calculated as net income available to common shareholders divided by the weighted average number of shares of common stock outstanding and earningsoutstanding. Earnings per diluted share is calculated as net income available to common
44
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
shareholders divided by the weighted average number of shares outstanding of common stock plus the incremental shares outstanding assuming the exercise of dilutive stock options, stock appreciation rights, restricted shares and restrictedperformance shares. See also Note 19 — Earnings Per Share.
Stock-Based Employee Compensation
On January 1, 2006, theThe Company adopted SFAS No. 123(R), “Share-Based Payment”. Themeasures stock-based employee compensation in accordance with ASC 718. This standard requires expensing the value of all share-based payments, including stock options and similar awards, based upon the award’s fair value measurement onover the grant date. SFAS No. 123(R) revises SFAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”). SFAS No. 123(R) is supplemented by SEC SAB No. 107, “Share-Based Payment”. SAB No. 107 expresses the SEC staff’s views regarding the interaction between SFAS No. 123(R) and certain rules and regulations including the valuation of share-based payment arrangements. The Company adopted the modified prospective transition method as outlined in SFAS No. 123(R).requisite service period. See also Note 18 — Stock-Based Compensation.
45
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Comprehensive Income
Comprehensive income is a measure of net income and all other changes in Shareholders’Hubbell shareholders’ equity of the Company that result from recognized transactions and other events of the period other than transactions with shareholders. See also the Consolidated Statement of Changes in Shareholders’ Equity and Note 20 — Accumulated Other Comprehensive (Loss) Income.other comprehensive loss.
Derivatives
To limit financial risk in the management of its assets, liabilities and debt, the Company may use derivative financial instruments such as: foreign currency hedges, commodity hedges, interest rate hedges and interest rate swaps. All derivative financial instruments are matched with an existing Company asset, liability or proposed transaction. Market value gains or losses on the derivative financial instrument are recognized in income when the effects of the related price changes of the underlying asset or liability are recognized in income. Prior to the 2002 and 2008 issuance of long term notes, the Company entered into forward interest rate locks to hedge its exposure to fluctuations in treasury rates. The 2002 interest rate lock resulted in a $1.3 million loss, while the 2008 interest rate lock resulted in a $1.2 million gain. These amounts were recorded in Accumulated other comprehensive (loss) income, net of tax, and are being amortized over the life of the respective notes.
During 2008 and 2007, the Company entered into a series of forward exchange contracts to purchase U.S. dollars in order to hedge its exposure to fluctuating rates of exchange on anticipated inventory purchases. These contracts, eachSee Note 15 — Fair Value Measurement for $1 million expire over the next 12 months through December 2009 and have been designated as cash flow hedges in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended.
As of December 31, 2008 and 2007, the Company had $1.3 million of unrealized cash flow hedge gains and $0.8 million of unrealized cash flow hedge losses, respectively, on foreign currency hedges and $0.3 million of net unamortized gains and $0.6 million of unamortized losses, respectively, on forward interest rate lock arrangements recorded in Accumulated other comprehensive (loss) income. In 2008 and 2007 there were $1.2 million in gains and $1.6 million of losses recorded in income, respectively, related to cash flow hedges.more information regarding our derivative instruments.
Recent Accounting Pronouncements
In September 2006,On July 1, 2009, the Financial Accounting Standards Board (“FASB”)FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 157, “Fair Value Measurements”168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, also known as FASB Accounting Standards Codification (“ASC”) 105, “Generally Accepted Accounting Principles” (“ASC 105”) (the “Codification”). SFAS No. 157 provides enhanced guidanceASC 105 establishes the exclusive authoritative reference for using fair value to measure assets and liabilities and expands disclosure with respect to fair value measurements. This statement was originally effectiveU.S. GAAP for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued a Staff Position(“FSP 157-2”) which allowed companies to elect a one year deferral of adoption of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair valueuse in the financial statements, on a non-recurring basis.except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The Company has adopted SFAS No. 157 as of January 1, 2008.FSP 157-2 will be applicable to the Company on January 1, 2009. The Company does not anticipate thatFSP 157-2 will have a material impact on its financial statements. See Note 15 — Fair Value Measurement.
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”. SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. The Company has adopted SFAS No. 159 effective January 1, 2008 and has elected not to measure any additional financial assets and liabilities at fair value.
In December 2007, the FASB issued SFAS No. 141(R) “Business Combinations”, which replaces SFAS No. 141. SFAS No. 141(R) establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial
46
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
statements to evaluate the nature and financial effects of the business combination. This statement will be applicable to the Company on January 1, 2009 and will be applied prospectively to business combinations completed after December 31, 2008.
In December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements — an amendment to ARB No. 51”. SFAS No. 160 establishesCodification supersedes all existing non-SEC accounting and reporting standards. Going forward, the FASB will not issue new standards thatin the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASU”), which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. We have included references to the Codification, as appropriate, in these financial statements.
The provisions of ASC 810 require the ownership interest in subsidiaries held by parties other than the parent be clearly identified and presented in the consolidated balance sheet within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of earnings;income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. This statement will be applicable to theThe Company onhas adopted these provisions effective January 1, 2009 and the2009. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. This statement will not have a material impact onrelated to the Company’s financial statements.noncontrolling interest have been applied retrospectively. See the Consolidated Financial Statements and Note 2 — Variable Interest Entities.
In March 2008, the FASB issued SFAS No. 161 “DisclosuresThe provisions of ASC 815 require enhanced disclosures, including interim period disclosures, about Derivative Instruments(a) how and Hedging Activities —why an amendment of SFAS 133”. SFAS No. 161 is intended to improve financial reporting aboutentity uses derivative instruments, (b) how derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects onrelated hedged items are accounted for under ASC 815 and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flowsflows. Expanded disclosures concerning where derivatives are
45
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reported on the balance sheet and where gains/losses are recognized in the results of operations are also required. The Company adopted the sellersenhanced disclosure requirements of credit derivatives. This statementASC 815 prospectively on January 1, 2009. See Note 15 — Fair Value Measurement.
ASC 860 “Transfers and Servicing” (“ASC 860”) improves the relevance and comparability of information that a reporting entity provides in its financial statements about transfers of financial assets. The provisions of ASC 860 will be applicable on January 1, 2009; however it will not have an impact on the Company’s financial statements.
In April 2008, the FASB issued FASB Staff Position (“FSP”)142-3 “Determination of the Useful Life of Intangible Assets”.FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill2010, and Other Intangible Assets”.FSP 142-3 will be applicable to the Company on January 1, 2009. For assets acquired after the effective date, the guidance will be applied prospectively and as such the effect is dependent upon business combinations at that time.to transfers of financial assets completed after December 31, 2009. The Company does not anticipate this standardthese provisions will have a material impact on its financial statements.
In May 2008,August 2009, the FASB issued SFAS No. 162 “The HierarchyASU2009-5, “Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value” (“ASU2009-5”). This update provides clarification of Generally Accepted Accounting Principles”. SFAS No. 162 identifies the sourcesfair value measurement of accounting principles andfinancial liabilities when a quoted price in an active market for an identical liability (level 1 input of the framework for selectingvaluation hierarchy) is not available. The Company adopted the principles to be usedprovisions of ASU2009-5 in the preparationfourth quarter of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. SFAS No. 162 is effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” This statement will not have an impact on the Company’s financial statements.2009. See Note 15 — Fair Value Measurement.
In May 2008,December 2009, the FASB issued SFAS No. 163 “AccountingASU2009-17, “Consolidations (Topic 810)” (“ASU2009-17”) which amends the consolidation guidance for Financial Guarantee Insurance Contracts —variable interest entities and also requires additional disclosures about a reporting entity’s involvement in variable interest entities. The update replaces the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling interest in a variable interest entity with an interpretation of FASB Statement No. 60”. SFAS No. 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation. SFAS No. 163 also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition of measurementapproach expected to be used to account for premium revenue and claim liabilities. This statement will not have an impact on the Company’s financial statements.
In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”)primarily qualitative. ASU03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”. FSPEITF 03-6-1 clarified that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Awards of this nature are considered participating securities and the two-class method of computing basic and earnings per dilutive share must be applied. FSPEITF 03-6-12009-17 will be applicable to the Company on January 1, 2009.2010. The Company has evaluated the new positionupdate and has determined that it will not have a material impact on the Company’s financial statements.
47
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In September 2008, the FASB issued FSPNo. FAS 133-1 andFIN 45-4, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161”. FSPNo. FAS 133-1 andFIN 45-4 is intended to improve disclosures about credit derivatives by requiring more information about the potential adverse effects of changes in credit risk on the financial position, financial performance, and cash flows of the sellers of credit derivatives. This statement will not have an impact on the Company’s financial statements.
In December 2008, the FASB issuedFSP 140-4 and FIN 46(R)-8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities”.FSP 140-4 and FIN 46(R)-8 is intended to improve disclosures about a company’s involvement with variable interest entities by requiring more information about the assumptions made in determining whether or not to consolidate a variable interest entity, the nature of restrictions on a variable interest entity’s assets, as well as the risks associated with an enterprise’s involvement with the variable interest entity.FSP 140-4 and FIN 46(R)-8 are effective December 15, 2008. This statement did not have an impact on the Company’s financial statements.
In December of 2008, the FASB issued FSP 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets”. FSP 132(R)-1 is intended to improve disclosures about a company’s postretirement benefit plan assets by requiring more information about how investment allocation decisions are made, major categories of plan assets, fair value assumptions and concentrations of risk. FSP 132(R)-1 will be applicable to the Company on January 1, 2009. The Company is currently evaluating the requirements of FSP 132(R)-1 and the impact that this statement will have on its financial statements.
Note 2 — Variable Interest Entities
FIN 46(R) provides a framework for identifying variable interest entities (“VIE”) and determining when a company should include the assets, liabilities, non-controlling interests and results of activities of a VIE in its consolidated financial statements. FIN 46(R) requires a VIE to be consolidated if a party with an ownership, contractual or other financial interest in the VIE (a “variable interest holder”) is obligated to absorb a majority of the risk of loss from the VIE’s activities, is entitled to receive a majority of the VIE’s residual returns (if no party absorbs a majority of the VIE’s losses), or both. A variable interest holder that consolidates the VIE is called the primary beneficiary.
| |
| Note 2 — | Variable Interest Entities |
The Company has a 50% interest in a joint venture in Hong Kong, established as Hubbell Asia Limited (“HAL”). The principal objective of HAL is to manage the operations of its wholly-owned manufacturing company in the People’s Republic of China. HAL commenced operations during the third quarter of 2008.
Under the provisions of FIN 46(R),ASC 810, HAL has been determined to beis considered a VIE, withvariable interest entity (“VIE”) and the Company beingis the primary beneficiary as it absorbs the majority of the risk of loss (and benefit of gains) from the VIE’s activities. The presentation and as a result the Company has consolidated HALdisclosure requirements related to HAL’s noncontrolling interest have been applied retrospectively for all periods presented in accordance with FIN 46(R). The consolidation of HAL did not have a material impact onASC 810. See also the Consolidated Financial Statements.
| |
| Note 3 — | Business Acquisitions |
The Company accounts for acquisitions in accordance with ASC 805, which includes provisions that were adopted effective January 1, 2009. The new provisions significantly changed the accounting for business acquisitions both during the period of the acquisition and in subsequent periods. Among the more significant changes in the accounting for acquisitions are the following; acquisition costs are expensed as incurred; restructuring costs associated with a business combination are expensed subsequent to the acquisition date; noncontrolling interests are valued at fair value at the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. In addition, the provisions require that pre-acquisition contingencies be recognized at fair value, assuming fair value can be determined or reasonably estimated. If fair value cannot be determined or reasonably estimated, the standard requires measurement based on the recognition and measurement criteria of ASC 450 “Contingencies” (“ASC 450”). These changes were effective on a prospective basis for any business combinations for which the acquisition date was on or after January 1, 2009.
In December 2008,On October 2, 2009, the Company purchased allcompleted the purchase of the outstanding common stock of VaronBurndy for approximately $55.6$355.2 million in cash. Varoncash (net of cash acquired of $33.6 million). Burndy is a leading providerNorth American manufacturer of energy-efficient lighting fixturesconnectors, cable accessories and controls designed for the indoortooling. Burndy serves commercial and industrial lighting retrofitmarkets and relight market, as well as outdoor newutility customers primarily in the United States (with roughly 25% of its sales in Canada, Mexico and retrofit pedestrian-scale lighting applications. The company has manufacturing operations in California, Florida, and Wisconsin.Brazil). This acquisition has been addedwas completed to the lighting business within the Electrical segment.
In September 2008, the Company purchased all of the outstanding common stock of CDR for approximately $68.8 million in cash. CDR, based in Ormond Beach, Florida, with multiple facilities throughout North America, manufactures polymer concrete and fiberglass enclosures serving a variety of end markets, including electric, gas and water utilities, cable television and telecommunications industries. This acquisition has been added to the Power segment.complement Hubbell’s
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HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In August 2008, the Company purchased all of the outstanding common stock of USCO for approximately $26.1 million in cash. USCO, based in Leeds, Alabama, provides high quality transmission line and substation disconnect switches and accessories to the electric utility industry. Thisexisting product offerings. The Burndy acquisition has been added to the Power segment.
In January 2008, the Company purchased all of the outstanding common stock of Kurt Versen for $100.2 million in cash. Located in Westwood, New Jersey, Kurt Versen manufactures premium specification-grade lighting fixtures for a full range of office, commercial, retail, government, entertainment, hospitality and institution applications. The acquisition enhances the Company’s position and array of offerings in the key spec-grade downlighting market. Kurt Versen has been added to the lightingelectrical systems business within the Electrical segment. As of December 31, 2009, the Company had not finalized the assignment of goodwill related to the Burndy acquisition to any specific reporting units.
In October 2007,As of December 31, 2009, the Company purchasedhad not yet finalized all of the outstanding common stock of PCORE for $50.1 millionworking capital adjustments with the seller. As a result, the purchase price allocation may change in cash. PCORE, located in LeRoy, New York, is a leading manufacturer of high voltage condenser bushings. These products are used infuture reporting periods, although the electric utility infrastructure. PCORE has been added to the Power segment.Company does not anticipate that these changes will be significant.
The following table summarizes selected financial data for the opening balance sheetpreliminary fair values of acquisitions completed in 2008 and 2007:
| | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | | | |
| | | | | | | | | | | | Kurt
| | | 2007 | |
| | | Varon | | | CDR | | | USCO | | | Versen | | | PCORE | |
| |
Purchase Price Allocations: | | | | | | | | | | | | | | | | | | | | |
| Current assets | | $ | 21.5 | | | $ | 9.1 | | | $ | 7.2 | | | $ | 13.4 | | | $ | 10.7 | |
| Other non-current assets | | | 3.3 | | | | 8.9 | | | | 3.8 | | | | 3.4 | | | | 5.6 | |
| Intangible assets | | | 12.4 | | | | 22.9 | | | | 10.2 | | | | 31.7 | | | | 15.1 | |
| Goodwill | | | 29.1 | | | | 32.2 | | | | 13.5 | | | | 57.1 | | | | 28.4 | |
| Current liabilities | | | (9.7 | ) | | | (4.3 | ) | | | (4.4 | ) | | | (3.0 | ) | | | (3.4 | ) |
| Non-current liabilities | | | (1.0 | ) | | | — | | | | (4.2 | ) | | | (2.4 | ) | | | (6.3 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Total Purchase price | | $ | 55.6 | | | $ | 68.8 | | | $ | 26.1 | | | $ | 100.2 | | | $ | 50.1 | |
| | | | | | | | | | | | | | | | | | | | | |
Intangible Assets: | | | | | | | | | | | | | | | | | | | | |
| Patents and trademarks | | $ | 2.8 | | | $ | 11.0 | | | $ | 1.3 | | | $ | 25.5 | | | $ | 6.1 | |
| Customer/Agent relationships | | | 5.5 | | | | 11.7 | | | | 8.6 | | | | 5.0 | | | | 7.4 | |
| Technology | | | 2.7 | | | | — | | | | — | | | | — | | | | 0.6 | |
| Other | | | 1.4 | | | | 0.2 | | | | 0.3 | | | | 1.2 | | | | 1.0 | |
| | | | | | | | | | | | | | | | | | | | | |
| Total Intangible assets | | $ | 12.4 | | | $ | 22.9 | | | $ | 10.2 | | | $ | 31.7 | | | $ | 15.1 | |
| | | | | | | | | | | | | | | | | | | | | |
Intangible Asset Amortization Period: | | | | | | | | | | | | | | | | | | | | |
| Patents and trademarks | | | 30 years | | | | 30 years | | | | 3 years | | | | 30 years | | | | 30 years | |
| Customer/Agent relationships | | | 10 years | | | | 10 years | | | | 20 years | | | | 15 years | | | | 20 years | |
| Technology | | | 5 years | | | | — | | | | — | | | | — | | | | 10 years | |
| Other | | | 4 years | | | | <1 year | | | | <1 year | | | | 10 years | | | | 6 years | |
| | | | | | | | | | | | | | | | | | | | | |
| Total weighted average | | | 13 years | | | | 20 years | | | | 17 years | | | | 27 years | | | | 23 years | |
| | | | | | | | | | | | | | | | | | | | | |
| Approximate percentage of goodwill deductible for tax purposes | | | 100 | % | | | 100 | % | | | 0 | % | | | 25 | % | | | 23 | % |
| | | | | | | | | | | | | | | | | | | | | |
Allocation of the purchase price to the assets acquired and liabilities assumed has not been finalized for CDRrelated to the Burndy acquisition (in millions):
| | | | | |
| | | October 2, 2009 | |
| | | Burndy | |
| |
Purchase Price Allocation: | | | | |
| Accounts receivable | | $ | 32.5 | |
| Inventory | | | 23.4 | |
| Deferred tax assets | | | 91.2 | |
| Property, plant and equipment | | | 40.7 | |
| Other assets | | | 11.1 | |
| Intangible assets | | | 134.4 | |
| Goodwill | | | 137.4 | |
| Deferred tax liabilities | | | (52.9 | ) |
| Liabilities related to contingencies | | | (11.8 | ) |
| Other liabilities | | | (50.8 | ) |
| | | | | |
| Total Purchase price | | $ | 355.2 | |
| | | | | |
Intangible Assets: | | | | |
| Indefinite lived tradenames and trademarks | | $ | 35.5 | |
| Patents | | | 2.5 | |
| Customer relationships | | | 94.3 | |
| Other | | | 2.1 | |
| | | | | |
| Total Intangible assets | | $ | 134.4 | |
| | | | | |
Intangible Asset Weighted Average Amortization Period: | | | | |
| Patents | | | 5 years | |
| Customer relationships | | | 20 years | |
| Other | | | 3 years | |
| | | | | |
| Total Weighted average | | | 19 years | |
| | | | | |
The fair values assigned to intangible assets were determined through the use of the income approach, specifically the relief from royalty method and Varon.the multi period excess earnings method. The purchase price allocation for these acquisitions will be finalized uponvaluation of tangible assets was derived using a combination of the completion of working capital adjustmentsincome approach, the market approach and the cost approach.
The fair value analyses. Final determinationof accounts receivable acquired is $32.5 million. The gross contractual amount due on these accounts receivable is $36.7 million, of which $4.2 million is expected to be uncollectible.
The Company assumed Burndy’s pre-exisiting contingent liabilities as part of the purchase price andacquisition. These contingent liabilities consisted of contingent consideration related to an acquisition Burndy completed in 2008 as well as environmental liabilities. The undiscounted fair valuesvalue related to be assignedthe contingent consideration liability is
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HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
may$5.6 million since it is highly probable that the required earning targets will be achieved. Additionally, the Burndy opening balance sheet includes a $6.2 million contingent liability related to environmental matters. The estimated fair value portion of this liability is $1.6 million, while the remaining $4.6 million liability was determined using the guidance prescribed under ASC 450, which requires the loss contingency to be probable and reasonably estimable.
The Burndy acquisition resulted in recognition of $137.4 million of goodwill, which is not deductible for tax purposes. This goodwill largely consists of expected synergies resulting from the acquisition. Key areas of potential cost savings include increased purchasing power for raw materials; manufacturing and supply chain work process improvements; and the elimination of redundant overhead costs. The Company also anticipates that the transaction will produce significant growth synergies as a result of the combined businesses’ broader product portfolio.
Acquisition related costs were $5.2 million for the year ended December 31, 2009. These costs were for legal, accounting, valuation and other professional services and were included in adjustmentsselling and administrative expenses in the Consolidated Statement of Income.
The Burndy acquisition contributed $44.9 million to net sales in the fourth quarter of 2009, while earnings were not material to the preliminary estimated valuesconsolidated results. Supplemental pro forma information has not been provided as the acquired operations were a component of a larger legal entity and amortization periods assigned at the date of acquisition.
During 2008, the Company also purchased three product lines, a manufacturer of rough-in electrical products, addedseparate historical financial statements were not prepared. Since stand-alone financial information prior to the Electrical segment, a Canadian manufactureracquisition is not readily available, compilation of high voltage condenser bushings and a Brazilian supplier of preformed wire products which were both added to the Power segment. The aggregate cost of these acquisitions was approximately $16.7 million, of which $1.7 million was allocated to goodwill.such data is impracticable.
In March 2007,December 2009, the Company purchased a small Brazilian manufacturing businessproduct line for $2.1$0.6 million. This acquisition wasproduct line, comprised of conductor bar and festoon systems, has been added to the Power segment and has been integrated intoelectrical systems business within the Company’s Brazilian operations.Electrical segment.
The Consolidated Financial Statements include the results of operations of the acquired businesses from their respective dates of acquisition. These acquisitions increased the Company’s net sales and earnings but, including related financing costs, did not materially impact earnings either on an aggregate or per share basis.
Note 4 — Receivables and Allowances
| |
| Note 4 — | Receivables and Allowances |
Receivables consist of the following components at December 31, (in millions):
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
| Trade accounts receivable | | $ | 363.3 | | | $ | 349.0 | | | $ | 325.5 | | | $ | 363.3 | |
| Non-trade receivables | | | 16.9 | | | | 8.3 | | | | 10.5 | | | | 16.9 | |
| | | | | | | | | | | |
| Accounts receivable, gross | | | 380.2 | | | | 357.3 | | | | 336.0 | | | | 380.2 | |
| Allowance for credit memos, returns, and cash discounts | | | (19.2 | ) | | | (21.2 | ) | | | (20.8 | ) | | | (19.2 | ) |
| Allowance for doubtful accounts | | | (4.0 | ) | | | (3.7 | ) | | | (5.1 | ) | | | (4.0 | ) |
| | | | | | | | | | | |
| Total allowances | | | (23.2 | ) | | | (24.9 | ) | | | (25.9 | ) | | | (23.2 | ) |
| | | | | | | | | | | |
| Accounts receivable, net | | $ | 357.0 | | | $ | 332.4 | | | $ | 310.1 | | | $ | 357.0 | |
| | | | | | | | | | | |
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HUBBELL INCORPORATED AND SUBSIDIARIES
Note 5NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Inventories(Continued)
Inventories are classified as follows at December 31, (in millions):
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
| Raw material | | $ | 108.6 | | | $ | 98.4 | | | $ | 88.0 | | | $ | 108.6 | |
| Work-in-process | | | 65.7 | | | | 59.6 | | | | 62.0 | | | | 65.7 | |
| Finished goods | | | 247.2 | | | | 238.5 | | | | 185.2 | | | | 247.2 | |
| | | | | | | | | | | |
| | | | 421.5 | | | | 396.5 | | | | 335.2 | | | | 421.5 | |
| Excess of FIFO over LIFO cost basis | | | (86.3 | ) | | | (73.6 | ) | | | (71.7 | ) | | | (86.3 | ) |
| | | | | | | | | | | |
| Total | | $ | 335.2 | | | $ | 322.9 | | | $ | 263.5 | | | $ | 335.2 | |
| | | | | | | | | | | |
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HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)During 2009, inventory quantities have been reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of 2009 purchases, the effect of which decreased cost of goods sold by approximately $11.8 million for the year ended December 31, 2009. Earnings per diluted share increased by approximately $0.13 for the year ended December 31, 2009 as a result of these LIFO liquidations.
Note 6 — Goodwill and Other Intangible Assets
| |
| Note 6 — | Goodwill and Other Intangible Assets |
Changes in the carrying amounts of goodwill for the years ended December 31, 20082009 and 2007,2008, by segment, were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Electrical | | Power | | Total | | | Segment | | | |
| | | Electrical | | Power | | Total | |
| Balance December 31, 2006 | | $ | 251.8 | | | $ | 184.9 | | | $ | 436.7 | | |
| | | | | | | | | |
| Acquisitions | | | 0.7 | | | | 23.2 | | | | 23.9 | | |
| Translation adjustments | | | 3.9 | | | | 2.1 | | | | 6.0 | | |
| | | | | | | | |
| Balance December 31, 2007 | | $ | 256.4 | | | $ | 210.2 | | | $ | 466.6 | | | $ | 256.4 | | | $ | 210.2 | | | $ | 466.6 | |
| | | | | | | | | | | | | | | |
| Acquisitions | | | 87.4 | | | | 53.8 | | | | 141.2 | | | | 87.4 | | | | 53.8 | | | | 141.2 | |
| Translation adjustments | | | (19.7 | ) | | | (3.5 | ) | | | (23.2 | ) | | | (19.7 | ) | | | (3.5 | ) | | | (23.2 | ) |
| | | | | | | | | | | | | | | |
| Balance December 31, 2008 | | $ | 324.1 | | | $ | 260.5 | | | $ | 584.6 | | | $ | 324.1 | | | $ | 260.5 | | | $ | 584.6 | |
| | | | | | | | | | | | | | | |
| Acquisitions | | | | 132.1 | | | | 14.2 | | | | 146.3 | |
| Translation adjustments | | | | 9.0 | | | | 3.8 | | | | 12.8 | |
| | | | | | | | | |
| Balance December 31, 2009 | | | $ | 465.2 | | | $ | 278.5 | | | $ | 743.7 | |
| | | | | | | | | |
In 2008 and 2007October 2009, the Company recorded additions tocompleted the purchase of Burndy. This acquisition resulted in $137.4 million of goodwill which has been included in connection withthe Electrical segment. In addition, the Company finalized the purchase accounting for acquisitions.related to the 2008 acquisitions of Varon and CDR Systems Corp. (“CDR”) in 2009. The 2008 acquisition amountsVaron adjustment has been reflected in the Electrical segment, primarily relate towhile the purchases of Kurt Versen and Varon as well as the consolidation of HAL under FIN 46(R). The 2008 acquisitionsCDR adjustment has been reflected in the Power segment relate tosegment. For more information regarding the acquisitions of CDR, USCO, a Canadian manufacturer of high voltage condenser bushings and $6.4 million of purchase accounting adjustments related to the 2007 PCORE acquisition. Included in 2007 acquisitions in the Power segment is $22.4 million of goodwill from the acquisitions of PCORE and a product line from a small Brazilian manufacturing business and $0.8 million related to a final adjustment ofBurndy acquisition, costs related to the 2006 Hubbell Lenoir City, Inc. acquisition. Included in 2007 acquisitions in the Electrical segment is a $0.7 million adjustment to goodwill relating to the 2006 acquisition of Austdac. See alsosee Note 3 — Business Acquisitions.
The Company has not recorded any goodwill impairments since the initial adoption of the standard in 2002.
49
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Identifiable intangible assets are recorded in Intangible assets and other in the Consolidated Balance Sheet. Identifiable intangible assets are comprised of the following (in millions):
| | | | | | | | | | | | | | | | | |
| | | December 31,
| | | December 31,
| |
| | | 2008 | | | 2007 | |
| | | | | | Accumulated
| | | | | | Accumulated
| |
| | | Gross Amount | | | Amortization | | | Gross Amount | | | Amortization | |
| |
Definite-lived: | | | | | | | | | | | | | | | | |
| Patents and trademarks | | $ | 84.4 | | | $ | (7.4 | ) | | $ | 44.3 | | | $ | (4.6 | ) |
| Other | | | 74.2 | | | | (12.0 | ) | | | 39.0 | | | | (8.6 | ) |
| | | | | | | | | | | | | | | | | |
| Total | | | 158.6 | | | | (19.4 | ) | | | 83.3 | | | | (13.2 | ) |
| | | | | | | | | | | | | | | | | |
Indefinite-lived: | | | | | | | | | | | | | | | | |
| Trademarks and other | | | 20.3 | | | | — | | | | 20.6 | | | | — | |
| | | | | | | | | | | | | | | | | |
| Totals | | $ | 178.9 | | | $ | (19.4 | ) | | $ | 103.9 | | | $ | (13.2 | ) |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | December 31,
| | | December 31,
| |
| | | 2009 | | | 2008 | |
| | | | | | Accumulated
| | | | | | Accumulated
| |
| | | Gross Amount | | | Amortization | | | Gross Amount | | | Amortization | |
| |
Definite-lived: | | | | | | | | | | | | | | | | |
| Patents, tradenames and trademarks | | $ | 83.0 | | | $ | (11.0 | ) | | $ | 84.4 | | | $ | (7.4 | ) |
| Customer/Agent relationships and other | | | 181.3 | | | | (22.0 | ) | | | 74.2 | | | | (12.0 | ) |
| | | | | | | | | | | | | | | | | |
| Total | | | 264.3 | | | | (33.0 | ) | | | 158.6 | | | | (19.4 | ) |
Indefinite-lived: | | | | | | | | | | | | | | | | |
| Tradenames and other | | | 56.2 | | | | — | | | | 20.3 | | | | — | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 320.5 | | | $ | (33.0 | ) | | $ | 178.9 | | | $ | (19.4 | ) |
| | | | | | | | | | | | | | | | | |
Other definite-lived intangibles consist primarily of customer/agent relationships and technology.
Amortization expense associated with these definite-lived intangible assets was $12.6 million, $7.8 million and $5.5 million in 2009, 2008 and $3.5 million in 2008, 2007, and 2006, respectively. Amortization expense associated with these intangible assets is expected to be $10.0 million in 2009, $9.9$15.2 million in 2010, $9.7$14.9 million in 2011, $8.9$14.3 million in 2012, and $8.3$13.9 million in 2013.
51
HUBBELL INCORPORATED AND SUBSIDIARIES2013 and $13.8 million in 2014.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 7 — Investments
At December 31, 2009 and December 31, 2008,available-for-sale investments consisted entirely of municipal bonds. At December 31, 2007, available-for-sale2009, trading investments consisted primarily of $33.0 million of municipal bondsdebt and $5.9 million of variable rate demand notes.equity mutual funds. In 2008, the Company had no securities that were classified as trading investments. These investments are stated at fair market value based on current quotes. At December 31, 2007, held-to-maturity investments consisted of Missouri state bonds. These held-to-maturity investments have been stated at amortized cost. There were no securities during 2008 and 2007 that were classified as trading investments.
The following table sets forth selected data with respect to the Company’s investments at December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| | | | | Gross
| | Gross
| | | | | | | | Gross
| | Gross
| | | | | | | | | Gross
| | Gross
| | | | | | | | Gross
| | Gross
| | | | | |
| | | Amortized
| | Unrealized
| | Unrealized
| | Fair
| | Carrying
| | Amortized
| | Unrealized
| | Unrealized
| | Fair
| | Carrying
| | | Amortized
| | Unrealized
| | Unrealized
| | Fair
| | Carrying
| | Amortized
| | Unrealized
| | Unrealized
| | Fair
| | Carrying
| |
| | | Cost | | Gains | | Losses | | Value | | Value | | Cost | | Gains | | Losses | | Value | | Value | | | Cost | | Gains | | Losses | | Value | | Value | | Cost | | Gains | | Losses | | Value | | Value | |
| |
Available-For-Sale Investments | | $ | 34.6 | | | $ | 0.6 | | | $ | (0.1 | ) | | $ | 35.1 | | | $ | 35.1 | | | $ | 38.5 | | | $ | 0.5 | | | $ | (0.1 | ) | | $ | 38.9 | | | $ | 38.9 | | | $ | 25.1 | | | $ | 0.9 | | | $ | (0.1 | ) | | $ | 25.9 | | | $ | 25.9 | | | $ | 34.6 | | | $ | 0.6 | | | $ | (0.1 | ) | | $ | 35.1 | | | $ | 35.1 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Held-To-Maturity Investments | | | — | | | | — | | | | — | | | | — | | | | — | | | | 0.3 | | | | — | | | | — | | | | 0.3 | | | | 0.3 | | |
Trading Investments | | | | 1.9 | | | | 0.3 | | | | — | | | | 2.2 | | | | 2.2 | | | | — | | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Investments | | $ | 34.6 | | | $ | 0.6 | | | $ | (0.1 | ) | | $ | 35.1 | | | $ | 35.1 | | | $ | 38.8 | | | $ | 0.5 | | | $ | (0.1 | ) | | $ | 39.2 | | | $ | 39.2 | | | $ | 27.0 | | | $ | 1.2 | | | $ | (0.1 | ) | | $ | 28.1 | | | $ | 28.1 | | | $ | 34.6 | | | $ | 0.6 | | | $ | (0.1 | ) | | $ | 35.1 | | | $ | 35.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contractual maturities ofavailable-for-sale and held-to-maturity investments at December 31, 20082009 were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| | | Amortized
| | Fair
| | | Amortized
| | Fair
| |
| | | Cost | | Value | | | Cost | | Value | |
| |
Available-For-Sale Investments | | | | | | | | | | | | | | | | |
| Due within 1 year | | $ | 6.4 | | | $ | 6.4 | | | $ | 2.6 | | | $ | 2.6 | |
| After 1 year but within 5 years | | | 14.3 | | | | 14.7 | | | | 12.1 | | | | 12.7 | |
| After 5 years but within 10 years | | | 6.7 | | | | 6.8 | | | | 5.0 | | | | 5.1 | |
| Due after 10 years | | | 7.2 | | | | 7.2 | | | | 5.4 | | | | 5.5 | |
| | | | | | | | | | | |
Total | | $ | 34.6 | | | $ | 35.1 | | | $ | 25.1 | | | $ | 25.9 | |
| | | | | | | | | | | |
50
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In 2009 and 2008, the net change recorded tototal net unrealized gains on recorded relating toavailable-for-sale securities waswere $0.3 million and less than $0.1 million. In 2007, the Company recorded credits of $0.2 million, torespectively. These net unrealized gains on available-for-sale securities which have been included in Accumulated other comprehensive (loss) income,loss, net of tax. Net unrealized gains relating to trading investments have been reflected in the results of operations. The cost basis used in computing the gain or loss on these securities was through specific identification. Realized gains and losses were immaterial in 2009, 2008 2007 and 2006.
52
HUBBELL INCORPORATED AND SUBSIDIARIES2007.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 8 — Property, Plant, and Equipment
| |
| Note 8 — | Property, Plant, and Equipment |
Property, plant, and equipment, carried at cost, is summarized as follows at December 31, (in millions):
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
| Land | | $ | 36.3 | | | $ | 33.2 | | | $ | 41.4 | | | $ | 36.3 | |
| Buildings and improvements | | | 212.8 | | | | 200.1 | | | | 227.8 | | | | 212.8 | |
| Machinery, tools and equipment | | | 611.5 | | | | 579.2 | | | | 620.0 | | | | 611.5 | |
| Construction-in-progress | | | 15.3 | | | | 18.7 | | | | 16.3 | | | | 15.3 | |
| | | | | | | | | | | |
| Gross property, plant, and equipment | | | 875.9 | | | | 831.2 | | | | 905.5 | | | | 875.9 | |
| Less accumulated depreciation | | | (526.8 | ) | | | (504.1 | ) | | | (536.7 | ) | | | (526.8 | ) |
| | | | | | | | | | | |
| Net property, plant, and equipment | | $ | 349.1 | | | $ | 327.1 | | | $ | 368.8 | | | $ | 349.1 | |
| | | | | | | | | | | |
Depreciable lives on buildings range between20-40 years. Depreciable lives on machinery, tools, and equipment range between 3-20 years. The Company recorded depreciation expense of $46.3 million, $43.9 million and $43.1 million for 2009, 2008 and $42.3 million for 2008, 2007, and 2006, respectively.
Note 9 — Other Accrued Liabilities
| |
| Note 9 — | Other Accrued Liabilities |
Other Accrued Liabilitiesaccrued liabilities consists of the following at December 31, (in millions):
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
| Deferred revenue | | $ | 39.2 | | | $ | 23.3 | | | $ | 44.1 | | | $ | 39.2 | |
| Customer program incentives | | | 25.4 | | | | 25.2 | | | | 23.5 | | | | 25.4 | |
| Accrued income taxes | | | 11.7 | | | | 1.8 | | |
| Other | | | 52.9 | | | | 54.0 | | | | 87.1 | | | | 64.6 | |
| | | | | | | | | | | |
| Total | | $ | 129.2 | | | $ | 104.3 | | | $ | 154.7 | | | $ | 129.2 | |
| | | | | | | | | | | |
Note 10 — Other Non-Current Liabilities
| |
| Note 10 — | Other Non-Current Liabilities |
Other Non-Current Liabilitiesnon-current liabilities consists of the following at December 31, (in millions):
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
| Pensions | | $ | 107.8 | | | $ | 47.5 | | | $ | 86.0 | | | $ | 107.8 | |
| Other postretirement benefits | | | 25.5 | | | | 30.1 | | | | 36.8 | | | | 25.5 | |
| Deferred tax liabilities | | | 9.7 | | | | 51.9 | | | | 83.2 | | | | 9.7 | |
| Other | | | 42.0 | | | | 32.4 | | | | 40.8 | | | | 39.0 | |
| | | | | | | | | | | |
| Total | | $ | 185.0 | | | $ | 161.9 | | | $ | 246.8 | | | $ | 182.0 | |
| | | | | | | | | | | |
Note 11 — Retirement Benefits
| |
| Note 11 — | Retirement Benefits |
The Company has funded and unfunded non-contributory U.S. and foreign defined benefit pension plans. Benefits under these plans are generally provided based on either years of service and final average pay or a specified dollar amount per year of service. The Company also maintains fiveseven defined contribution pension plans.
51
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Effective January 1, 2004, the defined benefit pension plan for U.S. salaried and non-collectively bargained hourly employees was closed to employees hired on or after January 1, 2004. Effective January 1, 2006, the defined benefit pension plan for the Hubbell Canada salaried employees was closed to existing employees who did not meet certain age and service requirements as well as all new employees hired on or after January 1, 2006. Effective
53
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
January 1, 2007 the defined benefit pension plan for Hubbell’s U.K.UK operations was closed to all new employees hired on or after January 1, 2007. These U.S., Canadian and U.K.UK employees are eligible instead for defined contribution plans. On December 3, 2002, the Company closed its Retirement Plan for Directors to all new directors appointed after that date. Effective December 31, 2007, benefits accrued under this plan for eligible active directors were converted to an actuarial lump sum equivalent and transferred to the Company’s Deferred Compensation Plan for Directors.
The Company also has a number of health care and life insurance benefit plans covering eligible employees who reached retirement age while working for the Company. These benefits were discontinued in 1991 for substantially all future retirees with the exception of Anderson Electrical Productsthe recently acquired Burndy business and certain operations in our Power segment which discontinued its plan for future retirees in 2004. The A.B. Chance and PCORE divisions of the Company have eliminated theirstill maintain a limited retiree medical plansplan for futuresome of their union retirees effectiveemployees. The liability assumed related to the Burndy acquisition for its active and retired employees was $13.1 million. Effective January 1, 2010 andthe A.B. Chance division of the Power segment will cease to offer retiree medical benefits to all future union retirees. Furthermore, effective February 11, 2009, respectively.PCORE ceased to offer retiree medical benefits to all future union retirees. The Company anticipates future cost-sharing changes for its active and discontinued plans that are consistent with past practices.
In connection with the acquisition of Burndy in October 2009, the Company acquired certain of its pension plans. These plans consisted of an unfunded domestic non-qualified restoration plan with no active participants and a closed and frozen Canadian defined benefit plan that is overfunded as of December 31, 2009. None of the acquisitions made in 2008 impacted the defined benefit pension or other benefit assets or liabilities. In connection with the acquisition of PCORE in October 2007, the Company acquired its pension plans and other post employment plans.
The Company uses a December 31 measurement date for all of its plans. No amendments made in 20082009 or 20072008 to the defined benefit pension plans had a significant impact on the total pension benefit obligation.
5452
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth the reconciliation of beginning and ending balances of the benefit obligations and the plan assets for the Company’s defined benefit pension and other benefit plans at December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits | | | Pension Benefits | | Other Benefits | |
| | | 2008 | | 2007 | | 2008 | | 2007 | | | 2009 | | 2008 | | 2009 | | 2008 | |
| |
Change in benefit obligation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Benefit obligation at beginning of year | | $ | 577.2 | | | $ | 591.4 | | | $ | 30.1 | | | $ | 33.6 | | | $ | 578.9 | | | $ | 577.2 | | | $ | 28.0 | | | $ | 30.1 | |
| Service cost | | | 14.6 | | | | 16.9 | | | | 0.2 | | | | 0.5 | | | | 12.2 | | | | 14.6 | | | | 0.6 | | | | 0.2 | |
| Interest cost | | | 35.8 | | | | 32.7 | | | | 1.7 | | | | 1.7 | | | | 36.9 | | | | 35.8 | | | | 1.7 | | | | 1.7 | |
| Plan participants’ contributions | | | 0.9 | | | | 0.9 | | | | — | | | | — | | | | 0.7 | | | | 0.9 | | | | — | | | | — | |
| Amendments | | | 0.2 | | | | — | | | | — | | | | — | | | | — | | | | 0.2 | | | | (0.7 | ) | | | — | |
| Curtailment and settlement gain | | | — | | | | — | | | | (1.8 | ) | | | — | | | | (0.5 | ) | | | — | | | | — | | | | (1.8 | ) |
| Special termination benefits | | | — | | | | — | | | | 0.1 | | | | 1.4 | | | | — | | | | — | | | | — | | | | 0.1 | |
| Actuarial loss (gain) | | | (4.1 | ) | | | (38.4 | ) | | | 0.3 | | | | (4.6 | ) | | | 37.5 | | | | (4.1 | ) | | | (0.3 | ) | | | 0.3 | |
| Acquisitions/Divestitures | | | — | | | | (1.5 | ) | | | — | | | | 0.3 | | | | 5.7 | | | | — | | | | 13.1 | | | | — | |
| Currency impact | | | (18.7 | ) | | | 2.6 | | | | — | | | | — | | | | 5.5 | | | | (18.7 | ) | | | — | | | | — | |
| Other | | | (0.1 | ) | | | — | | | | 0.3 | | | | (0.2 | ) | | | (0.1 | ) | | | (0.1 | ) | | | — | | | | 0.3 | |
| Benefits paid | | | (26.9 | ) | | | (27.4 | ) | | | (2.9 | ) | | | (2.6 | ) | | | (29.8 | ) | | | (26.9 | ) | | | (2.7 | ) | | | (2.9 | ) |
| | | | | | | | | | | | | | | | | | | |
| Benefit obligation at end of year | | $ | 578.9 | | | $ | 577.2 | | | $ | 28.0 | | | $ | 30.1 | | | $ | 647.0 | | | $ | 578.9 | | | $ | 39.7 | | | $ | 28.0 | |
| | | | | | | | | | | | | | | | | | | |
Change in plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | | $ | 609.1 | | | $ | 531.6 | | | $ | — | | | $ | — | | | | 472.7 | | | | 609.1 | | | | — | | | | — | |
| Actual return on plan assets | | | (108.6 | ) | | | 69.9 | | | | — | | | | — | | | | 89.1 | | | | (108.6 | ) | | | — | | | | — | |
| Acquisitions/Divestitures | | | — | | | | 0.4 | | | | — | | | | — | | | | 7.4 | | | | — | | | | — | | | | — | |
| Employer contributions | | | 14.1 | | | | 31.5 | | | | — | | | | — | | | | 30.0 | | | | 14.1 | | | | — | | | | — | |
| Plan participants’ contributions | | | 0.9 | | | | 0.9 | | | | — | | | | — | | | | 0.7 | | | | 0.9 | | | | — | | | | — | |
| Currency impact | | | (15.9 | ) | | | 2.2 | | | | — | | | | — | | | | 5.9 | | | | (15.9 | ) | | | — | | | | — | |
| Settlement loss and other | | | | (0.2 | ) | | | — | | | | — | | | | — | |
| Benefits paid | | | (26.9 | ) | | | (27.4 | ) | | | — | | | | — | | | | (29.8 | ) | | | (26.9 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | |
| Fair value of plan assets at end of year | | $ | 472.7 | | | $ | 609.1 | | | $ | — | | | $ | — | | | $ | 575.8 | | | $ | 472.7 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | |
Funded status | | $ | (106.2 | ) | | $ | 31.9 | | | $ | (28.0 | ) | | $ | (30.1 | ) | | $ | (71.2 | ) | | $ | (106.2 | ) | | $ | (39.7 | ) | | $ | (28.0 | ) |
| | | | | | | | | | | | | | | | | | | |
Amounts recognized in the consolidated balance sheet consist of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Prepaid pensions (included in Intangible assets and other) | | $ | 4.8 | | | $ | 82.6 | | | $ | — | | | $ | — | | | $ | 17.0 | | | $ | 4.8 | | | $ | — | | | $ | — | |
| Accrued benefit liability (short-term and long-term) | | | (111.0 | ) | | | (50.7 | ) | | | (28.0 | ) | | | (30.1 | ) | | | (88.2 | ) | | | (111.0 | ) | | | (39.7 | ) | | | (28.0 | ) |
| | | | | | | | | | | | | | | | | | | |
| Net amount recognized | | $ | (106.2 | ) | | $ | 31.9 | | | $ | (28.0 | ) | | $ | (30.1 | ) | | $ | (71.2 | ) | | $ | (106.2 | ) | | $ | (39.7 | ) | | $ | (28.0 | ) |
| | | | | | | | | | | | | | | | | | | |
Amounts recognized in Accumulated other comprehensive loss (income) consist of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net actuarial loss (gain) | | $ | 136.9 | | | $ | (9.9 | ) | | $ | (0.8 | ) | | $ | (1.1 | ) | | $ | 115.3 | | | $ | 136.9 | | | $ | (1.2 | ) | | $ | (0.8 | ) |
| Prior service cost (credit) | | | 1.9 | | | | 2.2 | | | | (2.0 | ) | | | (2.2 | ) | | | 1.5 | | | | 1.9 | | | | (2.5 | ) | | | (2.0 | ) |
| | | | | | | | | | | | | | | | | | | |
| Net amount recognized | | $ | 138.8 | | | $ | (7.7 | ) | | $ | (2.8 | ) | | $ | (3.3 | ) | | $ | 116.8 | | | $ | 138.8 | | | $ | (3.7 | ) | | $ | (2.8 | ) |
| | | | | | | | | | | | | | | | | | | |
5553
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The accumulated benefit obligation for all defined benefit pension plans was $529.8$595.2 million and $516.2$529.8 million at December 31, 20082009 and 2007,2008, respectively. Information with respect to plans with accumulated benefit obligations in excess of plan assets is as follows, (in millions):
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
| Projected benefit obligation | | $ | 499.8 | | | $ | 49.5 | | | $ | 73.5 | | | $ | 499.8 | |
| Accumulated benefit obligation | | $ | 461.8 | | | $ | 45.1 | | | $ | 67.5 | | | $ | 461.8 | |
| Fair value of plan assets | | $ | 388.7 | | | $ | 0.4 | | | $ | 11.0 | | | $ | 388.7 | |
The following table sets forth the components of pension and other benefits costbenefit costs for the years ended December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits | | | Pension Benefits | | Other Benefits | |
| | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | | 2009 | | 2008 | | 2007 | |
| |
Components of net periodic benefit cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Service cost | | $ | 14.6 | | | $ | 16.9 | | | $ | 17.9 | | | $ | 0.2 | | | $ | 0.5 | | | $ | 0.3 | | | $ | 12.2 | | | $ | 14.6 | | | $ | 16.9 | | | $ | 0.6 | | | $ | 0.2 | | | $ | 0.5 | |
| Interest cost | | | 35.8 | | | | 32.7 | | | | 30.9 | | | | 1.7 | | | | 1.7 | | | | 2.1 | | | | 36.9 | | | | 35.8 | | | | 32.7 | | | | 1.7 | | | | 1.7 | | | | 1.7 | |
| Expected return on plan assets | | | (47.5 | ) | | | (42.6 | ) | | | (37.5 | ) | | | — | | | | — | | | | — | | | | (37.2 | ) | | | (47.5 | ) | | | (42.6 | ) | | | — | | | | — | | | | — | |
| Amortization of prior service cost | | | 0.4 | | | | (0.3 | ) | | | (0.4 | ) | | | (0.2 | ) | | | (0.2 | ) | | | — | | | | 0.3 | | | | 0.4 | | | | (0.3 | ) | | | (0.2 | ) | | | (0.2 | ) | | | (0.2 | ) |
| Amortization of actuarial losses | | | 1.3 | | | | 1.9 | | | | 3.8 | | | | — | | | | 0.1 | | | | 0.3 | | | | 7.3 | | | | 1.3 | | | | 1.9 | | | | — | | | | — | | | | 0.1 | |
| Special termination benefits | | | — | | | | — | | | | — | | | | — | | | | — | | | | 0.4 | | |
| Curtailment and settlement losses | | | — | | | | (0.1 | ) | | | 0.7 | | | | (1.7 | ) | | | 1.4 | | | | — | | |
| Curtailment and settlement losses (gains) | | | | 0.1 | | | | — | | | | (0.1 | ) | | | — | | | | (1.7 | ) | | | 1.4 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net periodic benefit cost | | $ | 4.6 | | | $ | 8.5 | | | $ | 15.4 | | | $ | — | | | $ | 3.5 | | | $ | 3.1 | | | $ | 19.6 | | | $ | 4.6 | | | $ | 8.5 | | | $ | 2.1 | | | $ | — | | | $ | 3.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Changes recognized in accumulated other comprehensive income, before tax, (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current year net actuarial loss/(gain) | | $ | 148.9 | | | $ | (66.0 | ) | | | | | | $ | 0.3 | | | $ | (4.8 | ) | | | | | |
Changes recognized in other comprehensive loss (income), before tax, (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current year net actuarial (gain)/loss | | | $ | (14.8 | ) | | $ | 148.9 | | | | | | | $ | (0.3 | ) | | $ | 0.3 | | | | | |
| Current year prior service cost | | | 0.2 | | | | — | | | | | | | | — | | | | — | | | | | | | | — | | | | 0.2 | | | | | | | | (0.8 | ) | | | — | | | | | |
| Amortization of prior service cost | | | (0.4 | ) | | | 0.3 | | | | | | | | 0.2 | | | | 0.2 | | | | | | |
| Amortization of net actuarial (loss)/gain | | | (1.3 | ) | | | (1.9 | ) | | | | | | | — | | | | (0.1 | ) | | | | | |
| Amortization of prior service (cost)/credit | | | | (0.3 | ) | | | (0.4 | ) | | | | | | | 0.2 | | | | 0.2 | | | | | |
| Amortization of net actuarial loss | | | | (7.3 | ) | | | (1.3 | ) | | | | | | | — | | | | — | | | | | |
| Currency impact | | | (1.0 | ) | | | — | | | | | | | | — | | | | — | | | | | | | | — | | | | (1.0 | ) | | | | | | | — | | | | — | | | | | |
| Other adjustments | | | 0.1 | | | | 0.1 | | | | | | | | — | | | | — | | | | | | | | 0.4 | | | | 0.1 | | | | | | | | — | | | | — | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Total recognized in accumulated other comprehensive income | | | 146.5 | | | | (67.5 | ) | | | | | | | 0.5 | | | | (4.7 | ) | | | | | | | (22.0 | ) | | | 146.5 | | | | | | | | (0.9 | ) | | | 0.5 | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total recognized in net periodic pension cost and accumulated other comprehensive income | | $ | 151.1 | | | $ | (59.0 | ) | | | | | | $ | 0.5 | | | $ | (1.2 | ) | | | | | |
Total recognized in net periodic pension cost and other comprehensive loss (income) | | | $ | (2.4 | ) | | $ | 151.1 | | | | | | | $ | 1.2 | | | $ | 0.5 | | | | | |
| | | | | | | | | | | | | | | | | | | |
Amortization expected to be recognized through income during 2009 | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization expected to be recognized through income during 2010 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortization of prior service cost/(credit) | | $ | 0.3 | | | $ | 0.3 | | | | | | | $ | (0.2 | ) | | $ | (0.2 | ) | | | | | | $ | 0.3 | | | | | | | | | | | $ | (0.2 | ) | | | | | | | | |
| Amortization of net loss/(gains) | | | 6.9 | | | | 1.3 | | | | | | | | — | | | | — | | | | | | |
| Amortization of net loss | | | | 4.9 | | | | | | | | | | | | — | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total expected to be recognized through income during next fiscal year | | $ | 7.2 | | | $ | 1.6 | | | | | | | $ | (0.2 | ) | | $ | (0.2 | ) | | | | | | $ | 5.2 | | | | | | | | | | | $ | (0.2 | ) | | | | | | | | |
| | | | | | | | | | | | | | | |
In addition to the above, certain of the Company’s union employees participate in multi-employer defined benefit plans. The total Company cost of these plans was $0.8 million in 2009, $0.9 million in 2008 and $0.7 million in both 2007 and 2006.2007. In 2009 the Company requested a withdrawal calculation related to the closure of a facility. The
5654
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
preliminary net present value calculation of the liability provided by the plan was $0.9 million which has been recorded by the Company as an expense in 2009.
The Company also maintains fiveseven defined contribution pension plans (excluding an employer match for the 401(k) plan).plans. The total cost of these plans was $5.9 million in both 2009 and 2008 and $5.8 million in 2007, and $5.6 million in 2006.excluding the employer match for the 401(k) plan. This cost is not included in the above net periodic benefit cost for the defined benefit pension plans.
Assumptions
The following assumptions were used to determine the projected benefit obligations at the measurement date and the net periodic benefit cost for the year:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Other Benefits | | | Pension Benefits | | Other Benefits |
| | | 2008 | | 2007 | | 2006 | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | | 2009 | | 2008 | | 2007 |
| |
Weighted-average assumptions used to determine benefit obligations at December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate | | | 6.46 | % | | | 6.41 | % | | | 5.66 | % | | | 6.50 | % | | | 6.50 | % | | | 5.75 | % | | | 5.96 | % | | | 6.46 | % | | | 6.41 | % | | | 6.00 | % | | | 6.50 | % | | | 6.50 | % |
| Rate of compensation increase | | | 4.07 | % | | | 4.58 | % | | | 4.33 | % | | | 4.00 | % | | | 4.00 | % | | | 4.00 | % | | | 3.57 | % | | | 4.07 | % | | | 4.58 | % | | | 3.50 | % | | | 4.00 | % | | | 4.00 | % |
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Discount rate | | | 6.41 | % | | | 5.66 | % | | | 5.45 | % | | | 6.50 | % | | | 5.75 | % | | | 5.50 | % | | | 6.46 | % | | | 6.41 | % | | | 5.66 | % | | | 6.50 | % | | | 6.50 | % | | | 5.75 | % |
| Expected return on plan assets | | | 8.00 | % | | | 8.00 | % | | | 8.00 | % | | | N/A | | | | N/A | | | | N/A | | | | 8.00 | % | | | 8.00 | % | | | 8.00 | % | | | N/A | | | | N/A | | | | N/A | |
| Rate of compensation increase | | | 4.07 | % | | | 4.58 | % | | | 4.33 | % | | | 4.00 | % | | | 4.00 | % | | | 4.00 | % | | | 4.07 | % | | | 4.07 | % | | | 4.58 | % | | | 4.00 | % | | | 4.00 | % | | | 4.00 | % |
At the beginningend of each calendar year, the Company determines the appropriate expected return on assets for each plan based upon its strategic asset allocation (see discussion below). In making this determination, the Company utilizes expected returns for each asset class based upon current market conditions and expected risk premiums for each asset class.
The assumed health care cost trend rates used to determine the projected postretirement benefit obligation are as follows:
| | | | | | | | | | | | | | | | | | | | | | |
| | | Other Benefits | | | Other Benefits |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 |
| |
Assumed health care cost trend rates at December 31 | | | | | | | | | | | | | |
Assumed health care cost trend rates at December 31, | | | | | | | | | | |
| Health care cost trend assumed for next year | | | 8.0 | % | | | 9.0 | % | | | 9.0 | % | | | 8.0 | % | | | 8.0 | % | | | 9.0 | % |
| Rate to which the cost trend is assumed to decline | | | 5.0 | % | | | 5.0 | % | | | 5.0 | % | | | 5.0 | % | | | 5.0 | % | | | 5.0 | % |
| Year that the rate reaches the ultimate trend rate | | | 2015 | | | | 2015 | | | | 2015 | | | | 2015 | | | | 2015 | | | | 2015 | |
Assumed health care cost trend rates have a significant effect on the amounts reported for the postretirement benefit plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects (in millions):
| | | | | | | | | |
| | | One Percentage
| | One Percentage
|
| | | Point Increase | | Point Decrease |
| |
| Effect on total of service and interest cost | | $ | 0.1 | | | $ | (0.1 | ) |
| Effect on postretirement benefit obligation | | $ | 1.3 | | | $ | (1.2 | ) |
5755
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Plan Assets
The Company’s combined targeted and actual domestic and foreign pension plansplan weighted average asset allocation at December 31, 20082010, 2009 and 2007, and 2009 target allocation2008 by asset category are as follows:
| | | | | | | | | | | | | |
| | | Target
| | | Percentage of
| |
| | | Allocation
| | | Plan Assets | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
Asset Category | | | | | | | | | | | | |
| Equity Securities | | | 53 | % | | | 45 | % | | | 59 | % |
| Debt Securities & Cash | | | 27 | % | | | 37 | % | | | 26 | % |
| Alternative investments | | | 20 | % | | | 18 | % | | | 12 | % |
| Other | | | 0 | % | | | 0 | % | | | 3 | % |
| | | | | | | | | | | | | |
| Total | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | Target
| | | Percentage of
| |
| | | Allocation
| | | Plan Assets | |
| | | 2010 | | | 2009 | | | 2008 | |
| |
Asset Category | | | | | | | | | | | | |
| Equity securities | | | 47 | % | | | 50 | % | | | 45 | % |
| Debt securities & Cash | | | 34 | % | | | 32 | % | | | 37 | % |
| Alternative Investments | | | 19 | % | | | 18 | % | | | 18 | % |
| | | | | | | | | | | | | |
| Total | | | 100 | % | | | 100 | % | | | 100 | % |
| | | | | | | | | | | | | |
At the end of each year, the Company estimates the expected long-term rate of return on pension plan assets based on the strategic asset allocation for its plans. In making this determination, the Company utilizes expected rates of return for each asset class based upon current market conditions and expected risk premiums for each asset class. The Company has a written investment policypolicies and asset allocation guidelines for its domestic and foreign pension plans. In establishing these policies, the Company has considered that its various pension plans are a major retirement vehicle for most plan participants and has acted to discharge its fiduciary responsibilities with regard to the plans solely in the interest of such participants and their beneficiaries. The goal underlying the establishment of the investment policies is to provide that pension assets shall be invested in a prudent manner and so that, together with the expected contributions to the plans, the funds will be sufficient to meet the obligations of the plans as they become due. To achieve this result, the Company conducts a periodic strategic asset allocation study to form a basis for the allocation of pension assets between various asset categories. Specific policy benchmark percentages are assigned to each asset category with minimum and maximum ranges established for each. The assets are then tactically managed within these ranges. Equity securities include investments in large-cap, mid-cap and small-cap companies located inside and outside the United States. Fixed income securities include corporate bonds of companies from diversified industries, mortgage-backed securities and US Treasuries. Derivative investments include futures contracts used by the plan to adjust the level of its investments within an asset allocation category. All futures contracts are 100% supported by cash or cash equivalent investments. At no time may derivatives be utilized to leverage the asset portfolio.
Equity securities include Company common stock in the amounts of $15.9 million (3.2% of total domestic plan assets) and $10.9 million (2.6% of total domestic plan assets) and $18.5 million (3.4% of total domestic plan assets) at December 31, 2009 and 2008, respectively.
56
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of the Company’s pension plan assets at December 31, 2009, by asset category are as follows (in millions):
| | | | | | | | | | | | | | | | | |
| | | | | | Quoted Prices in
| | | Quoted Prices in
| | | | |
| | | | | | Active Markets
| | | Active Markets
| | | Significant
| |
| | | | | | for Identical
| | | for Similar Asset
| | | Unobservable
| |
Asset Category | | Total | | | Assets (Level 1) | | | (Level 2) | | | Inputs (Level 3) | |
| |
| Cash and cash equivalents | | $ | 25.2 | | | $ | 25.2 | | | $ | — | | | $ | — | |
| Equity securities: | | | | | | | | | | | | | | | | |
US Large-cap(a) | | | 109.1 | | | | 109.1 | | | | — | | | | — | |
US Mid-cap and Small-cap Growth(b) | | | 19.1 | | | | 19.1 | | | | — | | | | — | |
| International Large-cap | | | 62.7 | | | | 62.7 | | | | — | | | | — | |
| Emerging Markets | | | 43.9 | | | | 43.9 | | | | — | | | | — | |
| Fixed Income Securities: | | | | | | | | | | | | | | | | |
| US Treasuries | | | 60.3 | | | | 60.3 | | | | — | | | | — | |
Corporate Bonds(c) | | | 91.7 | | | | 91.7 | | | | — | | | | — | |
| Asset Backed Securities and Other | | | 7.2 | | | | 7.2 | | | | — | | | | — | |
| Derivatives: | | | | | | | | | | | | | | | | |
Equity Futures(d) | | | 51.6 | | | | — | | | | 51.6 | | | | — | |
| Fixed Income Futures | | | 0.3 | | | | — | | | | 0.3 | | | | — | |
| Alternative Investment Funds | | | 104.7 | | | | — | | | | — | | | | 104.7 | |
| | | | | | | | | | | | | | | | | |
| Total | | $ | 575.8 | | | $ | 419.2 | | | $ | 51.9 | | | $ | 104.7 | |
| | | | | | | | | | | | | | | | | |
| | |
| (a) | | Includes an actively managed portfolio of large-cap US stocks |
|
| (b) | | Includes $15.9 million of the Company’s common stock and an investment in actively managed mid-cap and small-cap US stocks |
|
| (c) | | Includes primarily investment grade bonds of US issuers from diverse industries |
|
| (d) | | Includes primarily large-cap US and foreign equity futures |
The fair value of the Company’s pension plan assets measured using significant unobservable inputs (Level 3) at December 31, 2009, by asset category are as follows (in millions):
| | | | | | | | | | | | | |
| | | Institutional
| | | Distressed
| | | | |
| | | Fund of
| | | Opportunities
| | | | |
| | | Hedge Funds | | | Fund | | | Total | |
| |
| Balance at December 31, 2008 | | $ | 77.2 | | | $ | 3.9 | | | $ | 81.1 | |
| Actual return on plan assets: | | | | | | | | | | | | |
| Relating to assets still held at the reporting date | | | 10.4 | | | | 0.5 | | | | 10.9 | |
| Purchases, sales and settlements, net | | | 11.3 | | | | 1.4 | | | | 12.7 | |
| | | | | | | | | | | | | |
| Balance at December 31, 2009 | | $ | 98.9 | | | $ | 5.8 | | | $ | 104.7 | |
| | | | | | | | | | | | | |
All of the alternative investments held by the Company’s pension plans consist of fund of fund products, the largest being an institutional fund of hedge funds (“IFHF”). The IFHF invests in investment funds managed by a diversified group of third-party investment managers who employ a variety of alternative investment strategies, including relative value, security selection, specialized credit and 2007, respectively.directional strategies. The objective of the IFHF is to achieve the desired capital appreciation with lower volatility than either traditional equity or fixed income markets. The plan also has a small investment in a distressed opportunity fund. This fund of funds product invests in distressed strategies including turnarounds,debt-for-control and active trading.
57
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s other postretirement benefits are unfunded. Therefore,unfunded; therefore, no asset information is reported.
Contributions
Although not required under the Pension Protection Act of 2006, the Company may decide to make a voluntary contribution to its qualified domestic defined benefit pension plans in 2009.2010. The Company expects to contribute approximately $4$5 million to its foreign plans in 2009.2010.
Estimated Future Benefit Payments
The following domestic and foreign benefit payments, which reflect future service, as appropriate, are expected to be paid, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Other Benefits | | | | | Other Benefits | |
| | | | | | | Medicare
| | | | | | | | | Medicare
| | | |
| | | | | | | Part D
| | | | | | | | | Part D
| | | |
| | | Pension Benefits | | Gross | | Subsidy | | Net | | | Pension Benefits | | Gross | | Subsidy | | Net | |
| |
| 2009 | | $ | 28.0 | | | $ | 2.7 | | | $ | 0.2 | | | $ | 2.5 | | |
| 2010 | | $ | 29.5 | | | $ | 2.7 | | | $ | 0.2 | | | $ | 2.5 | | | $ | 29.9 | | | $ | 3.1 | | | $ | 0.2 | | | $ | 2.9 | |
| 2011 | | $ | 31.1 | | | $ | 2.6 | | | $ | 0.2 | | | $ | 2.4 | | | $ | 31.5 | | | $ | 3.1 | | | $ | 0.2 | | | $ | 2.9 | |
| 2012 | | $ | 32.8 | | | $ | 2.6 | | | $ | 0.2 | | | $ | 2.4 | | | $ | 33.1 | | | $ | 3.1 | | | $ | 0.2 | | | $ | 2.9 | |
| 2013 | | $ | 35.2 | | | $ | 2.5 | | | $ | 0.2 | | | $ | 2.3 | | | $ | 35.7 | | | $ | 3.1 | | | $ | 0.2 | | | $ | 2.9 | |
| 2014-2018 | | $ | 199.3 | | | $ | 10.7 | | | $ | 0.8 | | | $ | 9.9 | | |
| 2014 | | | $ | 37.3 | | | $ | 3.0 | | | $ | 0.2 | | | $ | 2.8 | |
| 2015-2019 | | | $ | 210.4 | | | $ | 14.2 | | | $ | 0.8 | | | $ | 13.4 | |
58
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 12 — Debt
The following table sets forth the components of the Company’s debt structure at December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| | | Short-Term
| | Senior Notes
| | | | Short-Term
| | Senior Notes
| | | | | Short-Term
| | Senior Notes
| | | | Short-Term
| | Senior Notes
| | | |
| | | Debt | | (Long-Term) | | Total | | Debt | | (Long-Term) | | Total | | | Debt | | (Long-Term) | | Total | | Debt | | (Long-Term) | | Total | |
| |
| Balance at year end | | $ | — | | | $ | 497.4 | | | $ | 497.4 | | | $ | 36.7 | | | $ | 199.4 | | | $ | 236.1 | | | $ | — | | | $ | 497.2 | | | $ | 497.2 | | | $ | — | | | $ | 497.4 | | | $ | 497.4 | |
Highest aggregate
month-end balance | | | | | | | | | | $ | 497.4 | | | | | | | | | | | $ | 314.0 | | | | | | | | | | | $ | 563.5 | | | | | | | | | | | $ | 497.4 | |
| Average borrowings | | $ | 97.9 | | | $ | 373.2 | | | $ | 471.1 | | | $ | 64.2 | | | $ | 199.4 | | | $ | 263.6 | | | $ | 5.5 | | | $ | 496.8 | | | $ | 502.3 | | | $ | 97.9 | | | $ | 373.2 | | | $ | 471.1 | |
Weighted average
interest rate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| At year end | | | — | | | | 6.12 | % | | | 6.12 | % | | | 5.30 | % | | | 6.38 | % | | | 6.21 | % | | | — | | | | 6.12 | % | | | 6.12 | % | | | — | | | | 6.12 | % | | | 6.12 | % |
| Paid during the year | | | 3.38 | % | | | 6.21 | % | | | 5.62 | % | | | 5.25 | % | | | 6.38 | % | | | 6.10 | % | | | 0.26 | % | | | 6.12 | % | | | 5.85 | % | | | 3.38 | % | | | 6.21 | % | | | 5.62 | % |
At December 31, 2007,2009 and 2008, the Company had $36.7 million of debt reflected as Short-term debt in the Consolidated Balance Sheet. The 2007 Short-term debt consisted of commercial paper. At December 31, 2008$497.2 and 2007, the Company had $497.4 million and $199.4 million, respectively, of senior notes reflected as Long-term debt in the Consolidated Balance Sheet. Interest and fees paid related to total indebtedness totaled $29.8 million for 2009, $24.5 million for 2008 and $17.1 million for 2007 and $14.8 million in 2006.2007.
In May 2002, the Company issued ten year, non-callable notes due in 2012 at face value of $200 million and a fixed interest rate of 6.375%. In May 2008, the Company completed the sale of $300 million of long-term, senior, unsecured notes maturing in 2018 and bearing interest at the rate of 5.95%. The proceeds of the May 2008 debt offering, net of discount, were used to pay down commercial paper borrowings and for general corporate purposes.
Both of these notes are fixed rate indebtedness, are not callable and are only subject to accelerated payment prior to maturity if the Company fails to meet certain non-financial covenants, all of which were met at December 31, 20082009 and 2007.2008. The most restrictive of these covenants limits our ability to enter into mortgages
58
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and sale-leasebacks of property having a net book value in excess of $5 million without the approval of the Note holders.
Prior to the 2002 and 2008 issuance of the long term notes, the Company entered into forward interest rate locks to hedge its exposure to fluctuations in treasury rates. The 2002 interest rate lock resulted in a $1.3 million loss, while the 2008 interest rate lock resulted in a $1.2 million gain. These amounts were recorded in Accumulated other comprehensive (loss) income,loss, net of tax, and are being amortized over the life of the respective notes.
In October 2007,September 2009, the Company entered into a revised fiveline of credit agreement with Credit Suisse for approximately 30 million Swiss francs to support the issuance of letters of credit. The availability of credit under this facility is dependent upon the maintenance of compensating balances, which may be withdrawn. There are no annual commitment fees associated with this credit facility.
In May 2009, the Company entered into a three year $250 million revolving credit facility to replace the previousinterest rate swap for an aggregate notional amount of $200 million facility whichto manage its exposure to changes in the fair value of its 6.375% $200 million fixed rate debt maturing in May 2012. Under the swap, the Company receives interest based on a fixed rate of 6.375% and pays interest based on a floating one month LIBOR rate plus a spread. The interest rate swap is designated as a fair value hedge under ASC 815 and qualifies for the “short-cut” method; as such, no hedge ineffectiveness is recognized. The interest rate swap is recorded at fair value, with an offsetting amount recorded against the carrying value of the fixed-rate debt. For the year ended December 31, 2009, interest expense was scheduled to expire in October 2009. reduced $1.2 million as a result of entering into the interest rate swap.
In March 2008, the Company exercised its option to expand thisits credit facility by $100 million, bringing the total credit facility to $350 million. There have been no material changes fromThe expiration date of the previous facility other than the amount.credit agreement is October 31, 2012. The interest rate applicable to borrowings under the new credit agreement is either the prime rate or a surcharge over LIBOR. The expiration date of the new credit agreement is October 31, 2012. The covenants of the new facility require that Hubbell shareholders’ equity be greater than $675 million and that total debt not exceed 55% of total capitalization (defined as total debt plus totalHubbell shareholders’ equity). The Company iswas in compliance with all debt covenants at December 31, 20082009 and 2007.2008. Annual commitment fee requirements to support availability of the credit facility were not material. This facility is used as a backup to our commercial paper program and was undrawn as of December 31, 2009.
The Company also maintains a 4.79.4 million pound sterling credit agreementfacility with HSBC Bank Plc. in the UK which is set for review on November 30, 2010. The Company also maintains a 3.0 million Brazilian real line of credit with Banco Real that will expireexpires in December 2009. The interest rate applicable to borrowings under the credit agreement is a surcharge over LIBOR.April 2010. There are no annual commitment fees associated with thisthese credit agreement. Thisagreements. These credit agreement remainedfacilities were undrawn as of December 31, 2008.
59
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2009.
In addition to the above credit commitments, the Company has an unsecured line of credit for $60 million to support issuance of its letters of credit. At December 31, 2008,2009, the Company had approximately $53.9$32.5 million of letters of credit outstanding under this facility.
59
Note 13HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Income Taxes(Continued)
The following table sets forth selected data with respect to the Company’s income tax provisions for the years ended December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| |
| Income before income taxes: | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 213.6 | | | $ | 191.9 | | | $ | 151.1 | | | $ | 183.1 | | | $ | 213.6 | | | $ | 191.9 | |
| International | | | 104.3 | | | | 92.3 | | | | 70.4 | | | | 78.5 | | | | 104.8 | | | | 92.3 | |
| | | | | | | | | | | | | | | |
| Total | | $ | 317.9 | | | $ | 284.2 | | | $ | 221.5 | | | $ | 261.6 | | | $ | 318.4 | | | $ | 284.2 | |
| | | | | | | | | | | | | | | |
| Provision for income taxes — current: | | | | | | | | | | | | | | | | | | | | | | | | |
| Federal | | $ | 64.1 | | | $ | 60.6 | | | $ | 41.8 | | | $ | 25.3 | | | $ | 64.1 | | | $ | 60.6 | |
| State | | | 11.0 | | | | 7.7 | | | | 5.0 | | | | 7.2 | | | | 11.0 | | | | 7.7 | |
| International | | | 19.4 | | | | 11.3 | | | | 5.2 | | | | 15.5 | | | | 19.4 | | | | 11.3 | |
| | | | | | | | | | | | | | | |
| Total provision-current | | | 94.5 | | | | 79.6 | | | | 52.0 | | | | 48.0 | | | | 94.5 | | | | 79.6 | |
| | | | | | | | | | | | | | | |
| Provision for income taxes — deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
| Federal | | $ | 8.5 | | | $ | (8.4 | ) | | $ | 7.8 | | | $ | 29.5 | | | $ | 8.5 | | | $ | (8.4 | ) |
| State | | | (10.6 | ) | | | (0.7 | ) | | | 0.8 | | | | (0.2 | ) | | | (10.6 | ) | | | (0.7 | ) |
| International | | | 2.8 | | | | 5.4 | | | | 2.8 | | | | 3.0 | | | | 2.8 | | | | 5.4 | |
| | | | | | | | | | | | | | | |
| Total provision — deferred | | | 0.7 | | | | (3.7 | ) | | | 11.4 | | | | 32.3 | | | | 0.7 | | | | (3.7 | ) |
| | | | | | | | | | | | | | | |
| Total provision for income taxes | | $ | 95.2 | | | $ | 75.9 | | | $ | 63.4 | | | $ | 80.3 | | | $ | 95.2 | | | $ | 75.9 | |
| | | | | | | | | | | | | | | |
60
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statement purposes. The components of the deferred tax assets/(liabilities) at December 31, were as follows (in millions):
| | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | |
| |
Deferred tax assets: | | | | | | | | | | | | | | | | |
| Inventory | | $ | 8.1 | | | $ | 8.8 | | | $ | 6.4 | | | $ | 8.1 | |
| Income tax credits | | | 22.1 | | | | 4.8 | | | | 33.2 | | | | 22.1 | |
| Accrued liabilities | | | 14.5 | | | | 15.9 | | | | 18.0 | | | | 14.5 | |
| Pension | | | 42.2 | | | | — | | | | 34.4 | | | | 42.2 | |
| Postretirement and post employment benefits | | | 12.2 | | | | 10.0 | | | | 11.2 | | | | 12.2 | |
| Stock-based compensation | | | 9.4 | | | | 6.7 | | | | 10.2 | | | | 9.4 | |
| Net operating loss carryforwards | | | 1.7 | | | | 0.8 | | | | 50.0 | | | | 1.7 | |
| Miscellaneous other | | | 11.1 | | | | 13.5 | | | | 0.8 | | | | 11.1 | |
| | | | | | | | | | | |
| Gross deferred tax assets | | | 121.3 | | | | 60.5 | | | | 164.2 | | | | 121.3 | |
| Valuation allowance | | | (2.5 | ) | | | — | | | | (2.2 | ) | | | (2.5 | ) |
| | | | | | | | | | | |
| Total net deferred tax assets | | $ | 118.8 | | | $ | 60.5 | | | $ | 162.0 | | | $ | 118.8 | |
| | | | | | | | | | | |
Deferred tax liabilities: | | | | | | | | | | | | | | | | |
| Acquisition basis difference | | | 47.4 | | | | 30.1 | | | | 107.4 | | | | 47.4 | |
| Property, plant, and equipment | | | 44.5 | | | | 32.2 | | | | 29.5 | | | | 44.5 | |
| Pension | | | — | | | | 13.0 | | |
| | | | | | | | | | | |
| Total deferred tax liabilities | | $ | 91.9 | | | $ | 75.3 | | | $ | 136.9 | | | $ | 91.9 | |
| | | | | | | | | | | |
| Total net deferred tax asset/(liability) | | $ | 26.9 | | | $ | (14.8 | ) | | $ | 25.1 | | | $ | 26.9 | |
| | | | | | | | | | | |
Deferred taxes are reflected in the Consolidated Balance Sheet as follows (in millions): | | | | | | | | | | | | | | | | |
| Current tax assets (included in Deferred taxes and other) | | $ | 28.3 | | | $ | 34.8 | | | $ | 56.0 | | | $ | 28.3 | |
| Non-current tax assets (included in Intangible assets and other) | | | 8.3 | | | | 2.3 | | | | 52.3 | | | | 8.3 | |
| Non-current tax liabilities (included in Other Non-current liabilities) | | | (9.7 | ) | | | (51.9 | ) | | | (83.2 | ) | | | (9.7 | ) |
| | | | | | | | | | | |
| Total net deferred tax asset/(liability) | | $ | 26.9 | | | $ | (14.8 | ) | | $ | 25.1 | | | $ | 26.9 | |
| | | | | | | | | | | |
As of December 31, 2008,2009, the Company had $22.1a total of $33.2 million of Federal and State tax credit carryforwards, net of Federal benefit (including credit carryforwards of $19.9 million related to the Burndy acquisition) available to offset future income taxes, of which $0.3$0.8 million may be carried forward indefinitely while the remaining $21.8$32.4 million will begin to expire at various times beginning in 20092010 through 2024.2025. The Company has recorded a net valuation allowance of $2.5$2.2 million for the portion of the tax carryforward credits the Company anticipates will expire prior to utilization. Additionally, as of December 31, 2009, the Company had recorded tax benefits totaling $50.0 million (including $48.5 million related to the Burndy acquisition) for Federal and State net operating loss carryforwards (“NOLs”) totaling $1.7 million as of December 31, 2008. A portion of the. The tax benefit related to these NOLs relatehas been adjusted to reflect an “ownership change” pursuant to Internal Revenue Code Section 382, which imposes an annual limitation on the utilization of pre-acquisition operating losses. The Company expects to fully utilize allthe adjusted NOLs prior to their expiration.
At December 31, 2008,2009, income and withholding taxes have not been provided on approximately $225.1$301.8 million of undistributed international earnings that are permanently reinvested in international operations. If such earnings were not indefinitely reinvested, a tax liability of approximately $38.2$47.3 million would be recognized.
Cash payments of income taxes were $53.4 million in 2009, $68.8 million in 2008 and $79.7 million in 2007 and $51.4 million in 2006.2007.
61
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. During 2008, the IRS commenced an examination of the Company’s U.S. income tax returns for the years ended December 31, 2006 and 2007 (“06/07 Exam”). The 06/07 Exam remains on-going as of December 31, 2008.2009. The Company expects to finalize the 06/07 exam during 2010. With few exceptions, the Company is no longer subject to state, local, ornon-U.S. income tax examinations by tax authorities for years prior to 2002.
The following tax years, by major jurisdiction, are still subject to examination by taxing authorities:
| | | | | |
Jurisdiction | | Open Years | |
| |
| United States | | | 2006-20082006-2009 | |
| Canada | | | 2005-20082006-2009 | |
United KingdomUK | | | 2007-20082008-2009 | |
The Company adopted the provisions of FIN 48 on January 1, 2007. As a result of the implementationadopting certain provisions of FIN 48,ASC 740 on January 1, 2007, the Company recognized a $4.7 million decrease in the liability for unrecognized tax benefits, whichbenefits. This adjustment was accounted forrecorded as an increase to the January 1, 2007 balance of retained earnings. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | | 2009 | | 2008 | | 2007 | |
| |
| Unrecognized tax benefits at beginning of year | | $ | 8.7 | | | $ | 24.2 | | | $ | 17.3 | | | $ | 8.7 | | | $ | 24.2 | |
| Additions based on tax positions relating to the current year | | | 4.5 | | | | 2.8 | | | | 3.0 | | | | 4.5 | | | | 2.8 | |
| Reductions based on expiration of statute of limitations | | | (0.4 | ) | | | (1.3 | ) | | | (1.4 | ) | | | (0.4 | ) | | | (1.3 | ) |
| Additions (Reductions) to tax positions relating to previous years | | | 4.7 | | | | (13.8 | ) | |
| Additions (reductions) to tax positions relating to previous years | | | | 11.8 | | | | 4.7 | | | | (13.8 | ) |
| Settlements | | | (0.2 | ) | | | (3.2 | ) | | | (0.1 | ) | | | (0.2 | ) | | | (3.2 | ) |
| | | | | | | | | | | | | |
| Total unrecognized tax benefits | | $ | 17.3 | | | $ | 8.7 | | | $ | 30.6 | | | $ | 17.3 | | | $ | 8.7 | |
| | | | | | | | | | | | | |
Included in the balance at December 31, 20082009 are $13.5$17.8 million of tax positions which, if in the future are determined to be recognizable, would affect the annual effective income tax rate. Additionally, there are $1.2$2.4 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the applicable taxing authority to an earlier period. The Company has classified the amount of unrecognized tax positions that are expected to settle within the next 12 months as a current liability.
The Company’s policy is to record interest and penalties associated with the underpayment of income taxes within Provision for income taxes in the Consolidated Statement of Income. DuringIn each of the year ended December 31,years 2009 and 2008, the Company did not incur any material expenses forrecognized approximately $0.8 million of expense related to interest and penalties. During the year ended December 31,In 2007, the Company incurred interest expenserecorded a credit of $0.4$2.7 million related to the completion of an IRS examination of the Company’s 2004interest and 2005 tax returns.penalties. The Company has $1.8had $2.6 million and $1.0$1.8 million accrued for the payment of interest and penalties as of December 31, 20082009 and December 31, 2007,2008, respectively.
62
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The consolidated effective income tax rate varied from the United States federal statutory income tax rate for the years ended December 31, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| |
| Federal statutory income tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % |
| State income taxes, net of federal benefit | | | 2.7 | | | | 1.8 | | | | 1.7 | | | | 2.0 | | | | 2.7 | | | | 1.8 | |
| Foreign income taxes | | | (3.9 | ) | | | (5.4 | ) | | | (5.5 | ) | | | (3.1 | ) | | | (3.9 | ) | | | (5.4 | ) |
| State tax credits and loss carryforwards | | | (2.0 | ) | | | — | | | | — | | | | (0.1 | ) | | | (2.0 | ) | | | — | |
| IRS audit settlement | | | — | | | | (1.9 | ) | | | — | | | | — | | | | — | | | | (1.9 | ) |
| Out of period adjustment | | | | (1.9 | ) | | | — | | | | — | |
| Other, net | | | (1.9 | ) | | | (2.8 | ) | | | (2.6 | ) | | | (1.2 | ) | | | (1.9 | ) | | | (2.8 | ) |
| | | | | | | | | | | | | | | |
| Consolidated effective income tax rate | | | 29.9 | % | | | 26.7 | % | | | 28.6 | % | | | 30.7 | % | | | 29.9 | % | | | 26.7 | % |
| | | | | | | | | | | | | | | |
62
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)During the year ended December 31, 2009, the Company recorded an immaterial out of period adjustment, predominately arising in years prior to 1999 related to certain deferred tax accounts, which decreased the provision for income tax by $4.9 million. The Company concluded that the adjustment was not material to prior periods and the cumulative effect was not material to the results for the year ended December 31, 2009.
The 2007 consolidated effective income tax rate reflects the impact of a tax benefitsbenefit of $5.3 million recorded in connection with the completion of an IRS examination of the Company’s 2004 and 2005 tax returns.
Note 14 — Financial Instruments
| |
| Note 14 — | Financial Instruments |
Concentrations of Credit Risk: Financial instruments which potentially subject the Company to concentrations of credit risk consist of trade receivables, cash and cash equivalents and short-term investments. The Company grants credit terms in the normal course of business to its customers. Due to the diversity of its product lines, the Company has an extensive customer base including electrical distributors and wholesalers, electric utilities, equipment manufacturers, electrical contractors, telecommunication companies and retail and hardware outlets. No single customer accounted for more than 10% of total sales in any year during the three years ended December 31, 2008.2009. However, the Company’s top 10 customers accounted for approximately 30%35% of the accounts receivable balance at December 31, 2008.2009. As part of its ongoing procedures, the Company monitors the credit worthiness of its customers. Bad debt write-offs have historically been minimal. The Company places its cash and cash equivalents with financial institutions and limits the amount of exposure to any one institution.
Fair Value: The carrying amounts reported in the Consolidated Balance Sheet for cash and cash equivalents, short-term and long-term investments, receivables, bank borrowings, accounts payable and accruals approximate their fair values given the immediate or short-term nature of these items. See also Note 7 — Investments.Investments and Note 15 — Fair Value Measurement.
The fair value of the senior notes classified as long-term debt was determined by reference to quoted market prices of securities with similar characteristics and approximated $484.7$539.6 million and $213.8$484.7 million at December 31, 20082009 and 2007,2008, respectively.
Note 15 — Fair Value Measurement
| |
| Note 15 — | Fair Value Measurement |
In September 2006, the FASB issued SFAS No. 157,ASC 820 “Fair Value Measurements”. SFAS No. 157Measurements and Disclosures” (“ASC 820”), provides enhanced guidance for using fair value to measure assets and liabilities and expands disclosure with respect to fair value measurements. This statement was originally effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issuedFSP 157-2 which allowed companiesCompany elected to elect a one year deferral ofdefer adoption of SFAS No. 157ASC 820 until January 1, 2009 for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a non-recurring basis. The Company adopted SFAS No. 157 as of January 1, 2008, with the exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial liabilities. Non-recurring nonfinancial assets and nonfinancial liabilities for which the Company has not applied the provisions of SFAS No. 157 include those measured at fair value in goodwill impairment testing, indefinite-lived intangibles measured at fair value for impairment testing, asset retirement obligations initially measured at fair value,
63
long-livedHUBBELL INCORPORATED AND SUBSIDIARIES
asset impairment assessments as well as those initially measured at fair value in a business combination.
SFAS No. 157NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows.follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly.indirectly and Level 3 inputs are unobservable inputs infor which little or no market data exists, therefore requiring a company to develop its own assumptions.
As ofThe following table shows, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at December 31, 2009 and 2008 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Quoted Prices in
| | | Quoted Prices in
| | | | | | Quoted Prices in
| | | Quoted Prices in
| |
| | | | | | Active Markets
| | | Active Markets
| | | | | | Active Markets
| | | Active Markets for
| |
| | | December 31,
| | | for Identical
| | | for Similar Assets
| | | December 31,
| | | for Identical
| | | Similar Assets
| |
Asset (Liability) | | 2009 | | | Assets (Level 1) | | | (Level 2) | | | 2008 | | | Assets (Level 1) | | | (Level 2) | |
| |
| Long term investments | | $ | 26.5 | | | $ | 26.5 | | | $ | — | | | $ | 35.1 | | | $ | 35.1 | | | $ | — | |
| Deferred compensation plan assets | | | 1.6 | | | | 1.6 | | | | — | | | | — | | | | — | | | | — | |
| Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | |
| Forward exchange contracts | | | (1.1 | ) | | | — | | | | (1.1 | ) | | | 1.9 | | | | — | | | | 1.9 | |
| Interest rate swap | | | (0.5 | ) | | | — | | | | (0.5 | ) | | | — | | | | — | | | | — | |
| Deferred compensation plan liabilities | | | (1.6 | ) | | | (1.6 | ) | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 24.9 | | | $ | 26.5 | | | $ | (1.6 | ) | | $ | 37.0 | | | $ | 35.1 | | | $ | 1.9 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
At December 31, 2009 and December 31, 2008, the only Company did not have any financial assets or liabilities that fell within the Level 3 hierarchy.
Long-term Investments
At December 31, 2009 and liabilities impacted by SFAS No. 157 were2008, long-term investments (specifically available-for-sale securities)included $25.9 million and forward exchange contracts.$35.1 million, respectively, of municipal bonds classified asavailable-for-sale securities. The Company also had $0.6 million of trading securities reflected as long-term investments as of December 31, 2009. These investments are carried on the balance sheet at fair value. Unrealized gains and losses associated withavailable-for-sale securities are reflected in Accumulated other comprehensive loss, net of tax, while unrealized gains and losses associated with trading securities are reflected in the results of operations.
Deferred compensation plan assets and liabilities
The Company maintains a non-qualified deferred compensation plan into which certain members of management are eligible to defer a maximum of 50% of their incentive bonus. The amounts deferred under this plan are credited with earnings or losses based upon changes in values of notional investments elected by the plan participant. The fair value of our deferred compensation liability is equal to the fair value of the employee notional investment accounts as of December 31, 2009.
The Company has deferred compensation plan assets consisting of trading securities which exactly mirror the plan participants’ investment elections. These trading securities are comprised of various debt and equity mutual fund investments. Unrealized gains and losses associated with these trading securities are reflected in the results of operations. These gains and losses are offset by the changes recorded related to the underlying fair value of the deferred compensation plan liability.
6364
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivatives
To limit financial risk in the management of its assets, liabilities and debt, the Company may use derivative financial instruments such as: foreign currency hedges, commodity hedges, interest rate hedges and interest rate swaps. All derivative financial instruments are matched with an existing Company asset, liability or proposed transaction. Market value gains or losses on the derivative financial instrument are recognized in income when the effects of the related price changes of the underlying asset or liability are recognized in income.
The fair value measurementsvalues of derivative instruments in the Consolidated Balance Sheet are as follows (in millions):
| | | | | | | | | | | | | |
| | | Asset/(Liability) Derivatives | |
| | | | | | Fair Value | |
| | | | | | December 31,
| | | December 31,
| |
Derivatives designated as hedges in accordance with ASC 815 | | Balance Sheet Location | | | 2009 | | | 2008 | |
| |
| Forward exchange contracts designated as cash flow hedges | | | Deferred taxes and other | | | $ | — | | | $ | 1.9 | |
| Forward exchange contracts designated as cash flow hedges | | | Other accrued liabilities | | | | (1.1 | ) | | | — | |
| Interest rate swap designated as a fair value hedge | | | Other non-current liabilities | | | | (0.5 | ) | | | — | |
| | | | | | | | | | | | | |
| | | | | | | $ | (1.6 | ) | | $ | 1.9 | |
| | | | | | | | | | | | | |
Forward exchange contracts
In 2009 and 2008, the Company entered into a series of forward exchange contracts to purchase U.S. dollars in order to hedge its exposure to fluctuating rates of exchange on anticipated inventory purchases. As of December 31, 2009, the Company has 18 individual forward exchange contracts, 12 at $1.0 million and 6 at $0.5 million, which have various expiration dates through December 2010 and June 2010, respectively. These contracts have been designated as cash flow hedges in accordance with ASC 815.
The following table summarizes the amounts and location of gains/(losses) recognized in Accumulated other comprehensive loss and reclassified into income related to these financial assets are summarized as follows:forward exchange contracts (in millions):
| | | | | | | | | | | | | |
| | | | | | Quoted Prices
| | | Quoted Prices
| |
| | | | | | in Active Markets
| | | in Active Markets
| |
| | | | | | for Identical
| | | for Similar Assets
| |
| | | December 31, 2008 | | | Assets (Level 1) | | | (Level 2) | |
| |
| Available-for-sale securities | | $ | 35.1 | | | $ | 35.1 | | | $ | — | |
| Forward exchange contracts | | | 1.9 | | | | — | | | | 1.9 | |
| | | | | | | | | | | | | |
| Total | | $ | 37.0 | | | $ | 35.1 | | | $ | 1.9 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Gain/(Loss) Recognized in
| | | | | | |
Accumulated Other
| | Gain/(Loss) Reclassified from Accumulated Other Comprehensive
|
| Comprehensive Loss | | Loss into Income (Effective Portion) |
| | | | | | | Year Ended
| | Year Ended
|
December 31,
| | December 31,
| | Location of Gain/(Loss) Reclassified
| | December 31,
| | December 31,
|
2009 | | 2008 | | into Income (Effective Portion) | | 2009 | | 2008 |
| |
| $ | (0.7 | ) | | $ | 1.3 | | | Cost of goods sold | | $ | 0.4 | | | $ | 0.9 | |
There was no hedge ineffectiveness with respect to the forward exchange cash flow hedges during 2009 and 2008.
Interest Rate Swaps
In May 2009, the Company entered into a three year interest rate swap for an aggregate notional amount of $200 million to manage its exposure to changes in the fair value of its 6.375% $200 million fixed rate debt maturing in May 2012. Under the swap, the Company receives interest based on a fixed rate of 6.375% and pays interest based on a floating one month LIBOR rate plus a spread. The interest rate swap is designated as a fair value hedge under ASC 815 and qualifies for the “short-cut” method; as such, no hedge ineffectiveness is recognized. The interest rate swap is recorded at fair value, with an offsetting amount recorded against the carrying value of the fixed-rate debt. During 2009, interest expense was reduced $1.2 million as a result of entering into the interest rate swap.
65
HUBBELL INCORPORATED AND SUBSIDIARIES
Note 16NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Commitments and Contingencies(Continued)
Interest Rate Locks
Prior to the 2002 and 2008 issuance of long-term notes, the Company entered into forward interest rate locks to hedge its exposure to fluctuations in treasury rates. The 2002 interest rate lock resulted in a $1.3 million loss while the 2008 interest rate lock resulted in a $1.2 million gain. These amounts were recorded in Accumulated other comprehensive loss, net of tax, and are being amortized over the life of the respective notes. The amortization associated with these interest rate locks is reflected in Interest expense in the Consolidated Statement of Income. As of December 31, 2009 and 2008, there were $0.4 million and $0.3 million, respectively, of net unamortized gains remaining.
Long-term Debt
The total carrying value of long-term debt as of December 31, 2009 was $497.2 million, net of unamortized discount and a basis adjustment related to a fair value hedge. As of December 31, 2009, the estimated fair value of the long-term debt was $539.6 million based on quoted market prices.
| |
| Note 16 — | Commitments and Contingencies |
Environmental and Legal
The Company is subject to environmental laws and regulations which may require that it investigate and remediate the effects of potential contamination associated with past and present operations. The Company is also subject to various legal proceedings and claims, including those relating to patent matters, as well as workers’ compensation, product liability and environmental matters, including, for each, past production of product containing toxic substances, which have arisen in the normal course of its operations or have been acquired through business combinations. The Company is self-insured for certain of these incidents at various amounts. Estimates of future liability with respect to such matters are based on an evaluation of currently available facts. Liabilities are recorded when it is probable that costs will be incurred and can be reasonably estimated. Given the nature of matters involved, it is possible that liabilities will be incurred in excess of amounts currently recorded. However, based upon available information, including the Company’s past experience, insurance coverage and reserves, management believes that the ultimate liability with respect to these matters will not have a material effect on the consolidated financial position, results of operations or cash flows of the Company.
The Company accounts for conditional asset retirement obligations in accordance with SFAS No. 143, “Accounting for AssetASC 410 “Asset Retirement and Environmental Obligations” (“ASC 410”). FIN 47, “Accounting for Conditional Asset Retirement Obligations” clarifies the termASC 410 defines “conditional asset retirement obligation” as used in SFAS No. 143 to refer to a legal obligation to perform an asset retirement activity in which the timingand/or method of settlement are conditional on a future event that may or may not be within the control of the Company. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The Company identified other legal obligations related to environmental clean up for which a settlement date could not be determined. Management does not believe theseThese items were not material to the Company’s results of operations, financial position or cash flows as of December 31, 2009, 2008 2007 and 2006.2007. The Company continues to monitor and revalue its liability as necessary and, as of December 31, 20082009 the liability continues to be immaterial.
Leases
Total rental expense under operating leases was $22.2 million in 2009, $22.4 million in 2008, and $20.2 million in 2007 and $19.0 million in 2006.2007. The minimum annual rentals on non-cancelable, long-term, operating leases in effect at December 31, 20082009 are expected to approximate $13.0 million in 2009, $10.4 million in 2010, $6.5$8.8 million in 2011, $4.2$6.1 million in 2012, $4.7 million in 2013, $3.8 million in 20132014 and $15.3$16.2 million thereafter. The Company accounts for its leases in accordance with SFAS No. 13, “Accounting for Leases”ASC 840 “Leases”. The Company’s leases consist of operating leases primarily for buildings or equipment. The terms for building leases typically range from 5-25 years with 5-10 year renewal periods.
6466
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 17 — Capital Stock
Activity in the Company’s common shares outstanding is set forth below for the three years ended December 31, 2008,2009, (in thousands):
| | | | | | | | | | | | | | | | | |
| | | Common Stock | | | Common Stock | |
| | | Class A | | Class B | | | Class A | | Class B | |
| |
Outstanding at December 31, 2005 | | | 9,128 | | | | 51,963 | | |
| | | | | | | |
| Exercise of stock options | | | — | | | | 1,223 | | |
| Shares issued under compensation arrangements | | | — | | | | 2 | | |
| Non-vested shares issued under compensation arrangements | | | — | | | | 94 | | |
| Acquisition/surrender of shares | | | (951 | ) | | | (1,281 | ) | |
| | | | | | | |
Outstanding at December 31, 2006 | | | 8,177 | | | | 52,001 | | | | 8,177 | | | | 52,001 | |
| | | | | | | | | | | |
| Exercise of stock options/ stock appreciation rights | | | — | | | | 1,356 | | |
| Exercise of stock options/stock appreciation rights | | | | — | | | | 1,356 | |
| Shares issued under compensation arrangements | | | — | | | | 2 | | | | — | | | | 2 | |
| Non-vested shares issued under compensation arrangements | | | — | | | | 108 | | |
| Non-vested shares issued under compensation arrangements, net of forfeitures | | | | — | | | | 101 | |
| Acquisition/surrender of shares | | | (799 | ) | | | (2,917 | ) | | | (799 | ) | | | (2,910 | ) |
| | | | | | | | | | | |
Outstanding at December 31, 2007 | | | 7,378 | | | | 50,550 | | | | 7,378 | | | | 50,550 | |
| | | | | | | | | | | |
| Exercise of stock options | | | — | | | | 258 | | | | — | | | | 258 | |
| Shares issued under compensation arrangements | | | — | | | | 2 | | | | — | | | | 2 | |
| Non-vested shares issued under compensation arrangements | | | — | | | | 189 | | |
| Non-vested shares issued under compensation arrangements, net of forfeitures | | | | — | | | | 175 | |
| Acquisition/surrender of shares | | | (213 | ) | | | (1,897 | ) | | | (213 | ) | | | (1,883 | ) |
| | | | | | | | | | | |
Outstanding at December 31, 2008 | | | 7,165 | | | | 49,102 | | | | 7,165 | | | | 49,102 | |
| Shares issued as part of equity offering | | | | — | | | | 2,990 | |
| Exercise of stock options/stock appreciation rights | | | | — | | | | 194 | |
| Shares issued under compensation arrangements | | | | 2 | | | | 155 | |
| Non-vested shares issued under compensation arrangements, net of forfeitures | | | | — | | | | 87 | |
| Acquisition/surrender of shares | | | | — | | | | (35 | ) |
| | | | | | | | | | | |
Outstanding at December 31, 2009 | | | | 7,167 | | | | 52,493 | |
| | | | | | | |
During October 2009, the Company issued 2,990,000 shares of Class B common stock. The Company received net proceeds of $122.0 million, which were used for general corporate purposes including the repayment of $66 million of commercial paper borrowings that were issued to fund the Burndy acquisition.
Repurchased shares are retired when acquired and the purchase price is charged against par value and additional paid-in capital. Shares may be repurchased through the Company’s stock repurchase program, acquired by the Company from employees under the Hubbell Incorporated Stock Option Plan for Key Employees (“Option(the “Option Plan”) or surrendered to the Company by employees in settlement of their tax liability on vesting of restricted shares under the Hubbell Incorporated 2005 Incentive Award Plan, (“the(the “ Award Plan”). Voting rights per share: Class A Common — twenty; Class B Common — one. In addition, the Company has 5.9 million authorized shares of preferred stock; no preferred shares are outstanding.
The Company has an amended and restated Rights Agreement under which holders of Class A Common Stock have Class A Rights and holders of Class B Common Stock have Class B Rights (collectively, “Rights”). These Rights become exercisable after a specified period of time only if a person or group of affiliated persons acquires beneficial ownership of 20 percent or more of the outstanding Class A Common Stock of the Company or announces or commences a tender or exchange offer that would result in the offeror acquiring beneficial ownership of 20 percent or more of the outstanding Class A Common Stock of the Company. Each Class A Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock (“Series A Preferred Stock”), without par value, at a price of $175.00 per one one-thousandth of a share. Similarly, each Class B Right entitles the holder to purchase one one-thousandth of a share of Series B Junior Participating Preferred Stock (“Series B Preferred Stock”), without par value, at a price of $175.00 per one one-thousandthone-
67
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
thousandth of a share. The Rights may be redeemed by the Company for one cent per Right prior to the day a person or group of affiliated persons acquires 20 percent or more of the outstanding Class A Common Stock of the Company. The Rights Agreement was amended and restated in December 2008 to extend the expiration date from December 31, 2008 to December 31, 2018 and to conform with current practice. No other substantive
65
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
amendments were made. The Rights will expire in December 31, 2018 (the “Final Expiration Date”), unless the Final Expiration Date is advanced or extended or unless the Rights are earlier redeemed or exchanged by the Company.
Shares of Series A Preferred Stock or Series B Preferred Stock purchasable upon exercise of the Rights will not be redeemable. Each share of Series A Preferred Stock or Series B Preferred Stock will be entitled, when, as and if declared, to a minimum preferential quarterly dividend payment of $10.00 per share but will be entitled to an aggregate dividend of 1,000 times the dividend declared per share of Common Stock. In the event of liquidation, the holders of the Series A Preferred Stock or Series B Preferred Stock will be entitled to a minimum preferential liquidation payment of $100 per share (plus any accrued but unpaid dividends) but will be entitled to an aggregate payment of 1,000 times the payment made per share of Class A Common Stock or Class B Common Stock, respectively. Each share of Series A Preferred Stock will have 20,000 votes and each share of Series B Preferred Stock will have 1,000 votes, voting together with the Common Stock. Finally, in the event of any merger, consolidation, transfer of assets or earning power or other transaction in which shares of Common Stock are converted or exchanged, each share of Series A Preferred Stock or Series B Preferred Stock will be entitled to receive 1,000 times the amount received per share of Common Stock. These rights are protected by customary antidilution provisions.
Upon the occurrence of certain events or transactions specified in the Rights Agreement, each holder of a Right will have the right to receive, upon exercise, that number of shares of the Company’s common stock or the acquiring company’s shares having a market value equal to twice the exercise price.
Shares of the Company’s common stock were reserved at December 31, 20082009 as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Common Stock | | Preferred
| | | Common Stock | | Preferred
| |
| | | Class A | | Class B | | Stock | | | Class A | | Class B | | Stock | |
| |
| Exercise of outstanding stock options | | | — | | | | 2,777 | | | | — | | | | — | | | | 2,501 | | | | — | |
| Future grant of stock-based compensation | | | — | | | | 3,104 | | | | — | | | | — | | | | 2,690 | | | | — | |
| Exercise of stock purchase rights | | | — | | | | — | | | | 56 | | | | — | | | | — | | | | 60 | |
| Shares reserved under other equity compensation plans | | | 2 | | | | 295 | | | | — | | | | — | | | | 140 | | | | — | |
| | | | | | | | | | | | | | | |
| Total | | | 2 | | | | 6,176 | | | | 56 | | | | — | | | | 5,331 | | | | 60 | |
| | | | | | | | | | | | | | | |
Note 18 — Stock-Based Compensation
| |
| Note 18 — | Stock-Based Compensation |
As of December 31, 2008,2009, the Company had various stock-based awards outstanding which were issued to executives and other key employees. These awards have been accounted for using SFAS No. 123(R) which was adopted on January 1, 2006.under ASC 718. The Company recognizes the cost of these awards on a straight-line attribution basis over their respective vesting periods, net of estimated forfeitures. The Company adopted the modified prospective transition method as outlined in SFAS No. 123(R).
SFAS No. 123(R)ASC 718 requires that share-based compensation expense be recognized over the period from the grant date to the date on which the award is no longer contingent on the employee providing additional service (the “substantive vesting period”). In periods prior to the adoption of SFAS No. 123(R),ASC 718, share-based compensation expense was recorded for retirement-eligible employees over the awards’ stated vesting period. With the adoption of SFAS No. 123(R),ASC 718, the Company continues to follow the stated vesting period for the unvested portions of awards granted prior to adoption of SFAS No. 123(R)ASC 718 and follows the substantive vesting period for awards granted after the adoption of SFAS No. 123(R).ASC 718.
The Company’s long-term incentive program for awarding stock-based compensation uses a combination of restricted stock, stock appreciation rights (“SARs”), and performance shares onof the Company’s Class B Common Stock pursuant to the Award Plan. Under the Company’s Award Plan, the Company may authorize up to 5.9 million shares of Class B Common Stock in settlement of restricted stock, performance shares, SARs or any post-2004
6668
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
grants of stock options. The Company issues new shares for settlement of any stock-based awards. In 2008,2009, the Company issued stock-based awards using a combination of restricted stock, SARs and performance shares.
In 2009, 2008 2007 and 2006,2007, the Company recorded $10.3 million, $12.5 million, $12.7 million, and $11.9$12.7 million of stock-based compensation costs, respectively. Of the total 2009 expense, $9.8 million was recorded to S&A expense and $0.5 million was recorded to Cost of goods sold. In 2008 expense,and 2007, $12.1 million and $11.9 million, respectively, was recorded to S&A expense and $0.4 million was recorded to Cost of goods sold. In 2007 and 2006, $11.9 million and $11.3 million, respectively, was recorded to S&A expense and $0.8 million and $0.5 million, respectively was recorded to Cost of goods sold. Stock-based compensation costs capitalized to inventory were $0.1 million in 2009, 2008 2007 and 2006.2007. The Company recorded income tax benefits of approximately $3.9 million, $4.7 million, and $4.8 million in 2009, 2008, and $4.5 million in 2008, 2007 and 2006 respectively, related to stock-based compensation. At December 31, 2008,2009, these benefits are recorded as either a deferred tax asset in Deferred taxes and other or in Other accrued liabilities in the Consolidated Balance Sheet. As of December 31, 2008,2009, there was $20.6$17.2 million, pretax, of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized through 2011.2012.
Each of the compensation arrangements is discussed below.
Restricted Stock
The restrictedStock Issued to Employees
Restricted stock granted to date is not transferable and is subject to forfeiture in the event of the recipient’s termination of employment prior to vesting. The restricted stock will generally vestvests in one-third increments annually for three years on each anniversary of the date of grant or completely upon a change in control or termination of employment by reason of death or disability. Recipients are entitled to receive dividends and voting rights on their non-vested restricted stock. The fair values are measured using the average between the high and low trading prices of the Company’s Class B Common Stock on the most recent trading day immediately preceding the grant date (“measurement date”).
Stock Issued to Non-employee Directors
In 2009 and 2008, each non-employee director received a grant of 750 shares of Class B Common Stock. In 2006 and 2007, each non-employee director received a grant of 350 shares of Class B Common Stock. These grants were made on the date of the annual meeting of shareholders and vested or will vest at the following year’s annual meeting of shareholders, upon a change of control or termination of employment by reason of death. These shares will be subject to forfeiture if the director’s service terminates prior to the date of the next regularly scheduled annual meeting of shareholders to be held in the following calendar year. InDuring the years 2009, 2008 and 2007, the Company issued a total ofto non-employee directors 6,000 shares, 6,750 shares to non-employee members of its Board of Directors.and 3,150 shares, respectively.
Activity related to both employee and non-employee restricted stock for the year ended December 31, 20082009 is as follows (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | |
| | | | | Weighted
| | | | | Weighted
| |
| | | Shares | | Average Value/Share | | | Shares | | Average Value/Share | |
| |
| Non-vested restricted stock at December 31, 2007 | | | 206 | | | $ | 52.99 | | |
| Non-vested restricted stock at December 31, 2008 | | | | 278 | | | $ | 38.02 | |
| Shares granted | | | 189 | | | | 29.92 | | | | 111 | | | $ | 46.23 | |
| Shares vested | | | (103 | ) | | | 52.02 | | | | (116 | ) | | $ | 41.92 | |
| Shares forfeited | | | (14 | ) | | | 46.41 | | | | (24 | ) | | $ | 38.37 | |
| | | | | | | | | | | |
| Non-vested restricted stock at December 31, 2008 | | | 278 | | | $ | 38.02 | | |
| Non-vested restricted stock at December 31, 2009 | | | | 249 | | | $ | 39.82 | |
| | | | | | | | | |
The weighted average fair value per share of restricted stock granted during the years 2009, 2008 and 2007 was $46.23, $29.92 and 2006 was $29.92, $54.52, and $52.82, respectively.
6769
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Appreciation Rights
The SARs granted to date entitle the recipient to the difference between the fair market value of the Company’s Class B Common Stock on the date of exercise and the grant price as determined using the average between the high and the low trading prices of the Company’s Class B Common Stock on the measurement date. This amount is payable in shares of the Company’s Class B Common Stock. SARs vest and become exercisable in three equal installments during the first three years following their grant date and expire ten years from the grant date.
Activity related to SARs for the year ended December 31, 20082009 is as follows (in thousands, except exercise amounts):
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Weighted
| | | | |
| | | | | | Weighted
| | | Average
| | | | |
| | | | | | Average
| | | Remaining
| | | Aggregate
| |
| | | Number of
| | | Exercise
| | | Contractual
| | | Intrinsic
| |
| | | Rights | | | Price | | | Term | | | Value | |
| |
| Non-vested SARs at December 31, 2007 | | | 916 | | | $ | 53.16 | | | | | | | | | |
| SARs granted | | | 821 | | | | 29.28 | | | | | | | | | |
| SARs vested | | | (386 | ) | | | 52.51 | | | | | | | | | |
| SARs forfeited | | | (147 | ) | | | 46.69 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Non-vested SARs at December 31, 2008 | | | 1,204 | | | $ | 37.87 | | | | 9.5 years | | | $ | 2.7 | |
| | | | | | | | | | | | | | | | | |
| Exercisable SARs at December 31, 2008 | | | 857 | | | $ | 51.58 | | | | 7.6 years | | | $ | — | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | Weighted
| | | | |
| | | | | | | | | Average
| | | | |
| | | | | | Weighted
| | | Remaining
| | | Aggregate
| |
| | | Number of
| | | Average
| | | Contractual
| | | Intrinsic
| |
| | | Rights | | | Exercise Price | | | Term | | | Value | |
| |
| Outstanding at December 31, 2008 | | | 2,061 | | | $ | 43.57 | | | | | | | | | |
| Granted | | | 369 | | | | 46.96 | | | | | | | | | |
| Exercised | | | (14 | ) | | | 29.28 | | | | | | | | | |
| Forfeited | | | (30 | ) | | | 52.14 | | | | | | | | | |
| Cancelled | | | (64 | ) | | | 36.88 | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Outstanding at December 31, 2009 | | | 2,322 | | | $ | 44.27 | | | | 8.0 years | | | $ | 13,220 | |
| | | | | | | | | | | | | | | | | |
| Exercisable at December 31, 2009 | | | 1,326 | | | $ | 48.14 | | | | 7.1 years | | | $ | 4,132 | |
| | | | | | | | | | | | | | | | | |
During 2008 thereThe aggregated intrinsic value of SARs exercised during 2009 was $0.2 million. There were no SARs exercised in 2007 approximately 5,000 SARs were exercised. Theduring 2008 and the aggregate intrinsic value of the SARs exercised in 2007 was not material. There were no SARs exercised in 2006.
The fair value of the SARs was measured using the Black-Scholes option pricing model. The following table summarizes the related assumptions used to determine the fair value of the SARs granted during the periods ended December 31, 2009, 2008 2007 and 2006.2007. Expected volatilities are based on historical volatilities of the Company’s stock and other factors. The expected term of SARs granted is based upon historical trends of stock option and SARs behavior as well as future projections. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of award.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Weighted Avg.
| | | | | | | | | | | Weighted Avg.
| |
| | | | | | | | | | | Grant Date
| | | | | | | | | | | Grant Date
| |
| | | Dividend
| | Expected
| | Risk Free
| | Expected
| | Fair Value
| | | Dividend
| | Expected
| | Risk Free
| | Expected
| | Fair Value
| |
| | | Yield | | Volatility | | Interest Rate | | Term | | of 1 SAR | | | Yield | | Volatility | | Interest Rate | | Term | | of 1 SAR | |
| |
| 2009 | | | | 3.2 | % | | | 26.5 | % | | | 3.0 | % | | | 7 Years | | | $ | 9.83 | |
| 2008 | | | 3.3 | % | | | 26.7 | % | | | 3.2 | % | | | 7 Years | | | $ | 6.27 | | | | 3.3 | % | | | 26.7 | % | | | 3.2 | % | | | 7 Years | | | $ | 6.27 | |
| 2007 | | | 2.6 | % | | | 23.5 | % | | | 3.5 | % | | | 6 Years | | | $ | 11.40 | | | | 2.6 | % | | | 23.5 | % | | | 3.5 | % | | | 6 Years | | | $ | 11.40 | |
| 2006 | | | 2.9 | % | | | 23.5 | % | | | 4.3 | % | | | 6 Years | | | $ | 11.47 | | |
Performance Shares
Performance shares represent the right to receive a share of the Company’s Class B Common Stock after a three year vesting period subject to the achievement of certain performance criteria established by the Company’s Compensation Committee.
In 2005,December 2009, 2008 and 2007, the Company granted 35,178 performance shares in the amount of 34,592, 54,594 and 30,292, respectively. The 2009 and 2008 grants’ performance conditions are subject to the achievement of certain market-based criteria. The criteria were based upon the Company’s average growth in earnings per dilutive share compared to a peer group of electrical and electronic equipment companies over a three year period. In 2008, 2007 and 2006, no stock-based compensation was recorded related to this award due to the fact that thegrant includes both performance criteria was deemed not probable of being met at the end of the vesting period.
68
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In February and December 2007, the Company granted 34,783 and 30,292 performance shares, respectively. The grants’ performance conditions include both performance-based and market-based criteria established by the Company’s Compensation Committee.criteria. Performance at target will result in vesting and issuance of the number of performance shares granted, equal to 100% payout. Performance below or above target can result in issuance in the range of 0%-200% of the number of shares granted.
70
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In 2008February 2007, the Company granted 34,783 performance shares, with both performance and 2007, stock-based compensation of $0.1 and $0.9 million, respectively, was recordedmarket-based criteria. The performance period related to the performanceFebruary 2007 grant was from January 1, 2007 through December 31, 2009. There were 31,018 of these shares, granted in 2007.
net of forfeitures, outstanding as of December 31, 2009. In December 2008,February 2010, the Company granted 54,594 performancepaid out 41,123 shares subject to the achievement of certain market-based criteria. Performance at target will result in vesting and issuance of the number of performance shares granted. Performance below or above target can result in issuance in the range of 50% - 200% of the number of shares granted. In 2008 there was no stock based compensation recorded related to this award asgrant. This payout is based upon achieving 82% and 183% of the service inception date begins on January 1, 2009.performance and market-based criteria, respectively.
The fair value of the December 2007 performance shares was calculated separately for the performance criteria and the market-based criteria. The fair valuesvalue of the performance criteria of $45.52 per share and $50.94 per share for the February and December 2007 grants, respectively, weregrant, was measured using the average between the high and low trading prices of the Company’s Class B Common Stock on the measurement date, discounted for the non-payment of dividends during the requisite period. The fair value of the market-based criteria for boththe December 2007, 2008 and 2008 were2009 awards was determined based upon a lattice model. The following table summarizes the related assumptions used to determine the fair values of the performance shares with respect to the market-based criteria. Expected volatilities are based on historical volatilities of the Company’s stock over a three year period. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the expected term of award.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Risk
| | | | | | | Stock Price on
| | | | | | | | | | Weighted Avg.
| |
| | | Stock Price on
| | | | | | Free
| | | | Weighted Avg.
| | | Measurement
| | Dividend
| | Expected
| | Risk Free
| | Expected
| | Grant Date
| |
| | | Measurement
| | Dividend
| | Expected
| | Interest
| | Expected
| | Grant Date
| | | Date | | Yield | | Volatility | | Interest Rate | | Term | | Fair Value | |
| | | Date | | Yield | | Volatility | | Rate | | Term | | Fair Value | |
| | |
| February 2007 | | $ | 48.23 | | | | 2.7 | % | | | 21.3 | % | | | 4.8 | % | | | 3 Years | | | $ | 55.20 | | |
| December 2009 | | | $ | 46.96 | | | | 3.0 | % | | | 38.6 | % | | | 1.4 | % | | | 3 Years | | | $ | 61.81 | |
| December 2008 | | | $ | 29.28 | | | | 4.8 | % | | | 25.9 | % | | | 1.3 | % | | | 3 Years | | | $ | 35.26 | |
| December 2007 | | $ | 54.56 | | | | 2.4 | % | | | 21.1 | % | | | 2.9 | % | | | 3 Years | | | $ | 63.69 | | | $ | 54.56 | | | | 2.4 | % | | | 21.1 | % | | | 2.9 | % | | | 3 Years | | | $ | 63.69 | |
| December 2008 | | $ | 29.28 | | | | 4.8 | % | | | 25.9 | % | | | 1.3 | % | | | 3 Years | | | $ | 35.26 | | |
Terminations of employment priorTotal stock-based compensation expense recorded related to vesting resultedperformance share awards was $1.7 million, $0.1 million and $0.9 million in 2009, 2008, and 2007, respectively. There has been no stock based compensation recorded related to the forfeiture of 16,856December 2009 performance shares in 2008.award as the service inception date for this particular award begins on January 1, 2010.
Stock Option Awards
ThePrior to 2005, the Company granted options to officers and other key employees to purchase the Company’s Class B Common Stock in previous years. Options issued in 2004 and 2003 were partially vested on January 1, 2006, the effective date of SFAS No. 123(R).Stock. All options granted had an exercise price equal to the average between the high and low trading prices of the Company’s Class B Common Stock on the measurement date. These option awards generally vest annually over a three-year period and expire ten years after ten years.grant date. Exercises of existing stock option grants are expected to be settled in the Company’s Class B Common Stock as authorized in the Option Plan.
69
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock option activity for the year ended December 31, 20082009 is set forth below (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Weighted
| | | | | | | | | Weighted
| | | |
| | | | | | | Average
| | | | | | | | | Average
| | | |
| | | | | | | Remaining
| | Aggregate
| | | | | | | Remaining
| | Aggregate
| |
| | | Number of
| | Weighted Average
| | Contractual
| | Intrinsic
| | | Number of
| | Weighted Average
| | Contractual
| | Intrinsic
| |
| | | Shares | | Exercise Price | | Term | | Value | | | Shares | | Exercise Price | | Term | | Value | |
| |
Outstanding at December 31, 2007 | | | 3,180 | | | $ | 39.73 | | | | | | | | | | |
Outstanding at December 31, 2008 | | | | 2,777 | | | $ | 39.82 | | | | | | | | | |
| Exercised | | | (259 | ) | | | 37.15 | | | | | | | | | | | | (191 | ) | | | 29.82 | | | | | | | | | |
| Forfeited | | | — | | | | — | | | | | | | | | | |
| Canceled | | | (144 | ) | | | 42.71 | | | | | | | | | | | | (85 | ) | | | 43.89 | | | | | | | | | |
| | | | | | | | | | | |
Outstanding at December 31, 2008 | | | 2,777 | | | $ | 39.82 | | | | 4.5 years | | | $ | 2.8 | | |
Outstanding at December 31, 2009 | | | | 2,501 | | | $ | 40.44 | | | | 3.6 years | | | $ | 8,470 | |
| | | | | | | | | | | | | | | | | | | |
Exercisable at December 31, 2008 | | | 2,777 | | | $ | 39.82 | | | | 4.5 years | | | $ | 2.8 | | |
Exercisable at December 31, 2009 | | | | 2,501 | | | $ | 40.44 | | | | 3.6 years | | | $ | 8,470 | |
| | | | | | | | | | | | | | | | | | | |
The aggregate intrinsic value of stock option exercises during 2009, 2008 and 2007 and 2006 was $2.5 million, $2.2 million and $19.9 million, and $16.9 million, respectively.
Cash received from option exercises werewas $5.7 million, $8.1 million and $48.0 million for 2009, 2008 and $38.5 million for 2008, 2007, and 2006, respectively.
71
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recorded a realized tax benefitbenefits from equity-based awards of $1.3 million, $0.8 million $6.9 million and $6.0$6.9 million for the periods ended December 31, 2009, 2008 2007 and 2006,2007, respectively, which have been included in Cash Flows From Financing Activities in the Consolidated Statement of Cash Flows as prescribed by SFAS No. 123(R).ASC 718.
| |
| Note 19 — | Earnings Per Share |
The
Effective January 1, 2009, the Company elected to adopt the shortcut method for determining the initial pool of excess tax benefits available to absorb tax deficiencies related to stock-based compensation subsequent to the adoption of SFAS No. 123(R) in accordance withadopted the provisions of FASB Staff Position No. 123(R)-3, “Transition Election RelatedASC 260-10-45-61A which requires that unvested share-based payment awards that contain nonforfeitable rights to Accountingdividends be considered participating securities. Participating securities are required to be included in the earnings per share calculation pursuant to thetwo-class method. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that would otherwise have been available to common shareholders. Unvested restricted stock granted by the Company is considered a participating security since it contains a non-forfeitable right to dividends. The retrospective application of this standard has decreased both basic and diluted earnings per share by $0.01 for Tax Effect of Share-Based Payment Awards”. The shortcut method included simplified procedures to establish the beginning balanceeach of the pool of excess tax benefits (the “APIC Tax Pool”)years ended December 31, 2008 and to determine the subsequent effect on the APIC Tax Pool and Consolidated Statement of Cash Flows of the effects of employee stock-based compensation awards.
Note 19 — Earnings Per Share2007.
The following table sets forth the computation of earnings per share under the two-class method for the three years ended December 31, (in millions, except per share amounts):
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
| Net Income | | $ | 222.7 | | | $ | 208.3 | | | $ | 158.1 | |
| | | | | | | | | | | | | |
| Weighted average number of common shares outstanding during the period | | | 56.0 | | | | 58.8 | | | | 60.4 | |
| Potential dilutive shares | | | 0.5 | | | | 0.7 | | | | 0.7 | |
| | | | | | | | | | | | | |
| Average number of shares outstanding (diluted) | | | 56.5 | | | | 59.5 | | | | 61.1 | |
| | | | | | | | | | | | | |
| Earnings per share: | | | | | | | | | | | | |
| Basic | | $ | 3.97 | | | $ | 3.54 | | | $ | 2.62 | |
| | | | | | | | | | | | | |
| Diluted | | $ | 3.94 | | | $ | 3.50 | | | $ | 2.59 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
| Earnings per basic share: | | | | | | | | | | | | |
| Net income attributable to Hubbell | | $ | 180.1 | | | $ | 222.7 | | | $ | 208.3 | |
| Less: Distributed and undistributed earnings allocated to participating securities | | | 0.8 | | | | 0.8 | | | | 0.6 | |
| | | | | | | | | | | | | |
| Net income available to common shareholders | | | 179.3 | | | | 221.9 | | | | 207.7 | |
| Average number of common shares outstanding | | | 56.8 | | | | 56.2 | | | | 59.0 | |
| | | | | | | | | | | | | |
| | | $ | 3.16 | | | $ | 3.96 | | | $ | 3.53 | |
| | | | | | | | | | | | | |
| Earnings per diluted share: | | | | | | | | | | | | |
| Net income attributable to Hubbell | | $ | 180.1 | | | $ | 222.7 | | | $ | 208.3 | |
| Less: Distributed and undistributed earnings allocated to participating securities | | | 0.8 | | | | 0.8 | | | | 0.6 | |
| | | | | | | | | | | | | |
| Net income available to common shareholders | | | 179.3 | | | | 221.9 | | | | 207.7 | |
| Average number of common shares outstanding | | | 56.8 | | | | 56.2 | | | | 59.0 | |
| Potential dilutive shares | | | 0.2 | | | | 0.3 | | | | 0.5 | |
| | | | | | | | | | | | | |
| Average number of diluted shares outstanding | | | 57.0 | | | | 56.5 | | | | 59.5 | |
| | | | | | | | | | | | | |
| | | $ | 3.15 | | | $ | 3.93 | | | $ | 3.49 | |
| | | | | | | | | | | | | |
| Anti-dilutive securities excluded from the calculation of earnings per diluted share: | | | | | | | | | | | | |
| Stock options performance shares and restricted stock | | | 1.5 | | | | 1.6 | | | | 0.4 | |
| Stock appreciation rights | | | 2.3 | | | | 1.3 | | | | 1.3 | |
Certain stock-based awards were not included in the full year computation of earnings per dilutive share because the effect would be anti-dilutive. Anti-dilutive stock options and restricted shares excluded from the
7072
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
computation of earnings per dilutive share were 1.6 million, 0.4 million, and 0.7 million, at December 31, 2008, 2007 and 2006, respectively. Additionally, the Company had 1.3 million, 1.3 million and 1.0 million of stock appreciation rights, respectively, which were also excluded as the effect would be anti-dilutive at December 31, 2008, 2007 and 2006.
Note 20 — Accumulated Other Comprehensive (Loss) Income
| |
| Note 20 — | Accumulated Other Comprehensive Income (Loss) |
The following table reflects the accumulated balances of other comprehensive income (loss) income (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Accumulated
| | | | | | | | | | | Accumulated
| |
| | | Pension/
| | Cumulative
| | Unrealized Gain
| | Cash Flow
| | Other
| | | Pension/
| | Cumulative
| | Unrealized Gain
| | Cash Flow
| | Other
| |
| | | OPEB
| | Translation
| | (Loss) on
| | Hedging
| | Comprehensive
| | | OPEB
| | Translation
| | (Loss) on
| | Hedging
| | Comprehensive
| |
| | | Adjustment | | Adjustment | | Investments | | Gain (Loss) | | Income (Loss) | | | Adjustment | | Adjustment | | Investments | | Gain (Loss) | | Income (Loss) | |
| | |
| Balance at December 31, 2005 | | | (4.1 | ) | | | (5.4 | ) | | | (0.3 | ) | | | (1.0 | ) | | | (10.8 | ) | |
| 2006 activity | | | (34.7 | ) | | | 12.4 | | | | 0.3 | | | | 0.4 | | | | (21.6 | ) | |
| | | | | | | | | | | | |
| Balance at December 31, 2006 | | | (38.8 | ) | | | 7.0 | | | | — | | | | (0.6 | ) | | | (32.4 | ) | | $ | (38.8 | ) | | $ | 7.0 | | | $ | — | | | $ | (0.6 | ) | | $ | (32.4 | ) |
| 2007 activity | | | 44.9 | | | | 14.1 | | | | 0.2 | | | | (0.8 | ) | | | 58.4 | | | | 44.9 | | | | 14.1 | | | | 0.2 | | | | (0.8 | ) | | | 58.4 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2007 | | | 6.1 | | | | 21.1 | | | | 0.2 | | | | (1.4 | ) | | | 26.0 | | | | 6.1 | | | | 21.1 | | | | 0.2 | | | | (1.4 | ) | | | 26.0 | |
| 2008 activity | | | (92.1 | ) | | | (53.7 | ) | | | — | | | | 3.0 | | | | (142.8 | ) | | | (92.1 | ) | | | (53.7 | ) | | | — | | | | 3.0 | | | | (142.8 | ) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2008 | | $ | (86.0 | ) | | $ | (32.6 | ) | | $ | 0.2 | | | $ | 1.6 | | | $ | (116.8 | ) | | | (86.0 | ) | | | (32.6 | ) | | | 0.2 | | | | 1.6 | | | | (116.8 | ) |
| 2009 activity | | | | 14.3 | | | | 35.3 | | | | 0.3 | | | | (1.9 | ) | | | 48.0 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2009 | | | $ | (71.7 | ) | | $ | 2.7 | | | $ | 0.5 | | | $ | (0.3 | ) | | $ | (68.8 | ) |
| | | | | | | | | | | | | |
The pension liability adjustment for 2006 includes the reversal of a minimum pension liability of $2.1 million and a charge of $36.8 million related to the adoption of SFAS No. 158.
Note 21 — Industry Segments and Geographic Area Information
| |
| Note 21 — | Industry Segments and Geographic Area Information |
Nature of Operations
Hubbell Incorporated was founded as a proprietorship in 1888, and was incorporated in Connecticut in 1905. Hubbell designs, manufactures and sells quality electrical and electronic products for a broad range of non-residential and residential construction, industrial and utility applications. Products are either sourced complete, manufactured or assembled by subsidiaries in the United States, Canada, Switzerland, Puerto Rico, the People’s Republic of China, Mexico, Italy, the United Kingdom,UK, Brazil and Australia. Hubbell also participates in joint ventures in Taiwan and the People’s Republic of China, and maintains sales offices in Singapore, the People’s Republic of China, Mexico, South Korea and the Middle East.
During the first quarter of 2008, the Company realigned its internal organization and operating segments. This reorganization included combining the electrical products business (included in the Electrical segment) and the industrial technology business (previously its own reporting segment) into one operating segment. This combined operating segment is part of the Electrical reporting segment. Effective for the first quarter of 2008, the Company’s reporting segments consist of the Electrical segment and the Power segment. Previously reported data has been restated to reflect this change.
In December 2008, a decision was made to further consolidate the businesses within the Electrical segment. The wiring products and electrical products businesses were combined to form the electrical systems business. The combination of these two businesses did not have an impact on the Company’s reporting segments.
The Electrical segment is comprised of businesses that sell stock and custom products including standard and special application wiring device products, rough-in electrical products and lighting fixtures and controls, and other electrical equipment. The products are typically used in and around industrial, commercial and institutional facilities by electrical contractors, maintenance personnel, electricians, and telecommunications companies. In addition, certain businesses design and manufacture a variety of high voltage test and measurement equipment,
71
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
industrial controls and communication systems used in the non-residential and industrial markets. Many of these products may also be found in the oil and gas (onshore and offshore) and mining industries. Certain lighting fixtures, wiring devices and electrical products also have residential and utility applications. These products are primarily sold through electrical and industrial distributors, home centers, some retail and hardware outlets, and lighting showrooms. Special application products are sold primarily through wholesale distributors to contractors, industrial customers and OEMs. High voltage products are also sold direct to customers through its sales engineers.
The Power segment consists of operations that design and manufacture various transmission, distribution, substation and telecommunications products primarily used by the utility industry. In addition, certain of these products are used in the civil construction and transportation industries. Products are sold to distributors and directly to users such as electric utilities, telecommunication companies, mining operations, industrial firms, construction and engineering firms.
Financial Information
Financial information by industry segment and geographic area for the three years ended December 31, 2008,2009, is summarized below (in millions). When reading the data the following items should be noted:
| | |
| | • | Net sales comprise sales to unaffiliated customers — inter-segment and inter-area sales are not significant. |
73
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| | |
| | • | Segment operating income consists of net sales less operating expenses, including total corporate expenses, which are generally allocated to each segment on the basis of the segment’s percentage of consolidated net sales. Interest expense and investment income and other expense, net have not been allocated to segments. |
| |
| | • | General corporate assets not allocated to segments are principally cash, prepaid pensions, investments and deferred taxes. |
Industry Segment Data
| | | | | | | | | | | | | |
| | | 2009 | | | 2008 | | | 2007 | |
| |
Net Sales: | | | | | | | | | | | | |
| Electrical | | $ | 1,650.1 | | | $ | 1,958.2 | | | $ | 1,897.3 | |
| Power | | | 705.5 | | | | 746.2 | | | | 636.6 | |
| | | | | | | | | | | | | |
| Total | | $ | 2,355.6 | | | $ | 2,704.4 | | | $ | 2,533.9 | |
| | | | | | | | | | | | | |
Operating Income: | | | | | | | | | | | | |
| Electrical | | $ | 163.7 | | | $ | 227.3 | | | $ | 202.1 | |
| Power | | | 131.0 | | | | 118.7 | | | | 97.3 | |
| | | | | | | | | | | | | |
| Operating income | | | 294.7 | | | | 346.0 | | | | 299.4 | |
| Interest expense | | | (30.9 | ) | | | (27.4 | ) | | | (17.6 | ) |
| Investment and other (expense) income, net | | | (2.2 | ) | | | (0.2 | ) | | | 2.4 | |
| | | | | | | | | | | | | |
| Income before income taxes | | $ | 261.6 | | | $ | 318.4 | | | $ | 284.2 | |
| | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | |
| Electrical | | $ | 1,607.9 | | | $ | 1,252.0 | | | $ | 1,106.7 | |
| Power | | | 587.7 | | | | 636.7 | | | | 510.0 | |
| General Corporate | | | 268.9 | | | | 226.8 | | | | 246.7 | |
| | | | | | | | | | | | | |
| Total | | $ | 2,464.5 | | | $ | 2,115.5 | | | $ | 1,863.4 | |
| | | | | | | | | | | | | |
Capital Expenditures: | | | | | | | | | | | | |
| Electrical | | $ | 13.9 | | | $ | 31.7 | | | $ | 38.5 | |
| Power | | | 10.5 | | | | 12.1 | | | | 13.6 | |
| General Corporate | | | 5.0 | | | | 5.6 | | | | 3.8 | |
| | | | | | | | | | | | | |
| Total | | $ | 29.4 | | | $ | 49.4 | | | $ | 55.9 | |
| | | | | | | | | | | | | |
Depreciation and Amortization: | | | | | | | | | | | | |
| Electrical | | $ | 48.1 | | | $ | 42.7 | | | $ | 41.8 | |
| Power | | | 22.5 | | | | 20.4 | | | | 18.4 | |
| | | | | | | | | | | | | |
| Total | | $ | 70.6 | | | $ | 63.1 | | | $ | 60.2 | |
| | | | | | | | | | | | | |
7274
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Industry Segment Data
| | | | | | | | | | | | | |
| | | 2008 | | | 2007 | | | 2006 | |
| |
Net Sales: | | | | | | | | | | | | |
| Electrical | | $ | 1,958.2 | | | $ | 1,897.3 | | | $ | 1,840.6 | |
| Power | | | 746.2 | | | | 636.6 | | | | 573.7 | |
| | | | | | | | | | | | | |
| Total | | $ | 2,704.4 | | | $ | 2,533.9 | | | $ | 2,414.3 | |
| | | | | | | | | | | | | |
Operating Income: | | | | | | | | | | | | |
| Electrical | | $ | 227.3 | | | $ | 202.1 | | | $ | 165.6 | |
| Special charges, net | | | — | | | | — | | | | (7.5 | ) |
| | | | | | | | | | | | | |
| Total Electrical | | | 227.3 | | | | 202.1 | | | | 158.1 | |
| Power | | | 118.7 | | | | 97.3 | | | | 75.8 | |
| | | | | | | | | | | | | |
| Operating income | | | 346.0 | | | | 299.4 | | | | 233.9 | |
| Interest expense | | | (27.4 | ) | | | (17.6 | ) | | | (15.4 | ) |
| Investment and other (expense) income, net | | | (0.7 | ) | | | 2.4 | | | | 3.0 | |
| | | | | | | | | | | | | |
| Income before income taxes | | $ | 317.9 | | | $ | 284.2 | | | $ | 221.5 | |
| | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | |
| Electrical | | $ | 1,252.0 | | | $ | 1,106.7 | | | $ | 1,103.2 | |
| Power | | | 636.7 | | | | 510.0 | | | | 478.5 | |
| General Corporate | | | 226.8 | | | | 246.7 | | | | 169.8 | |
| | | | | | | | | | | | | |
| Total | | $ | 2,115.5 | | | $ | 1,863.4 | | | $ | 1,751.5 | |
| | | | | | | | | | | | | |
Capital Expenditures: | | | | | | | | | | | | |
| Electrical | | $ | 31.7 | | | $ | 38.5 | | | $ | 59.7 | |
| Power | | | 12.1 | | | | 13.6 | | | | 16.2 | |
| General Corporate | | | 5.6 | | | | 3.8 | | | | 10.9 | |
| | | | | | | | | | | | | |
| Total | | $ | 49.4 | | | $ | 55.9 | | | $ | 86.8 | |
| | | | | | | | | | | | | |
Depreciation and Amortization: | | | | | | | | | | | | |
| Electrical | | $ | 42.7 | | | $ | 41.8 | | | $ | 40.3 | |
| Power | | | 20.4 | | | | 18.4 | | | | 15.1 | |
| | | | | | | | | | | | | |
| Total | | $ | 63.1 | | | $ | 60.2 | | | $ | 55.4 | |
| | | | | | | | | | | | | |
73
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Geographic Area Data
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2008 | | 2007 | | 2006 | | | 2009 | | 2008 | | 2007 | |
| |
Net Sales: | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 2,283.5 | | | $ | 2,175.9 | | | $ | 2,109.2 | | | $ | 1,981.0 | | | $ | 2,283.5 | | | $ | 2,175.9 | |
| International | | | 420.9 | | | | 358.0 | | | | 305.1 | | | | 374.6 | | | | 420.9 | | | | 358.0 | |
| | | | | | | | | | | | | | | |
| Total | | $ | 2,704.4 | | | $ | 2,533.9 | | | $ | 2,414.3 | | | $ | 2,355.6 | | | $ | 2,704.4 | | | $ | 2,533.9 | |
| | | | | | | | | | | | | | | |
Operating Income: | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 269.9 | | | $ | 250.3 | | | $ | 207.4 | | | $ | 227.6 | | | $ | 269.9 | | | $ | 250.3 | |
| Special charges, net | | | — | | | | — | | | | (7.5 | ) | |
| International | | | 76.1 | | | | 49.1 | | | | 34.0 | | | | 67.1 | | | | 76.1 | | | | 49.1 | |
| | | | | | | | | | | | | | | |
| Total | | $ | 346.0 | | | $ | 299.4 | | | $ | 233.9 | | | $ | 294.7 | | | $ | 346.0 | | | $ | 299.4 | |
| | | | | | | | | | | | | | | |
Property, Plant, and Equipment, net: | | | | | | | | | | | | | | | | | | | | | | | | |
| United States | | $ | 291.1 | | | $ | 277.6 | | | $ | 269.9 | | | $ | 298.0 | | | $ | 291.1 | | | $ | 277.6 | |
| International | | | 58.0 | | | | 49.5 | | | | 48.6 | | | | 70.8 | | | | 58.0 | | | | 49.5 | |
| | | | | | | | | | | | | | | |
| Total | | $ | 349.1 | | | $ | 327.1 | | | $ | 318.5 | | | $ | 368.8 | | | $ | 349.1 | | | $ | 327.1 | |
| | | | | | | | | | | | | | | |
On a geographic basis, the Company defines “international” as operations based outside of the United States and its possessions. Sales of international units were 16%, 14% and 13%As a percentage of total net sales, international shipments from foreign operations directly to third parties were 16% in both 2009 and 2008 2007 and 2006, respectively,14% in 2007, with the CanadianUK, Canada and United KingdomSwitzerland operations representing approximately 55% collectively36%, 24% and 13%, respectively, of the 2008 total.2009 total international net sales. Long-lived assets of international subsidiaries were 19%, 17% in 2008 and 15% of the consolidated total in 2009, 2008 and 2007, and 2006,respectively, with the Mexican, CanadianMexico, Canada and United KingdomUK operations representing approximately 59%52%, 13% and 12%9%, respectively, of the 20082009 total. Export sales directly to customers or through electric wholesalers from United States operations were $183.3 million in 2009, $184.9 million in 2008 and $145.8 million in 2007 and $131.2 million in 2006.2007.
Note 22 — Guarantees
The Company accrues for costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely costcosts to be incurred isare accrued based on an evaluation of currently available facts and, where no amount within a range of estimates is more likely, the minimum is accrued.
The Company records a liability equal to the fair value of guarantees in the Consolidated Balance Sheet in accordance with FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”ASC 460 “Guarantees”. As of December 31, 2008 and 2007,2009, the fair value and maximum potential payment related to the Company’s guarantees were not material. The Company may enter into various hedging instruments which are subject to disclosure in accordance with FIN 45. As of December 31, 2008, the Company had 18 individual forward exchange contracts outstanding each for the purchase of $1.0 million U.S. dollars which expire through December 2009. These contracts were entered into in order to hedge the exposure to fluctuating rates of exchange on anticipated inventory purchases. These contracts have been designated as cash flow hedges in accordance with SFAS No. 133, as amended.
The Company offers a product warranty which covers defects on most of its products. These warranties primarily apply to products that are properly used for their intended purpose, installed correctly, and properly maintained. The Company generally accrues estimated warranty costs at the time of sale. Estimated warranty expenses are based upon historical information such as past experience, product failure rates, or the number of units to be repaired or replaced. Adjustments are made to the product warranty accrual as claims are incurred or as historical experience indicates. The product warranty accrual is reviewed for reasonableness on a quarterly basis and is adjusted as additional information regarding expected warranty costs becomes known.
7475
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
adjusted as additional information regarding expected warranty costs become known. Changes in the accrual for product warranties in 20082009 are set forth below (in millions):
| | | | | | | | | |
| Balance at December 31, 2007 | | $ | 6.1 | | |
| Current year provision | | | 3.0 | | |
| Balance at December 31, 2008 | | | $ | 6.6 | |
| Provision | | | | 10.1 | |
| Purchase accounting adjustments | | | | 5.6 | |
| Expenditures/other | | | (2.5 | ) | | | (13.3 | ) |
| | | | | | | |
| Balance at December 31, 2008 | | $ | 6.6 | | |
| Balance at December 31, 2009 | | | $ | 9.0 | |
| | | | | | | |
Note 23 — Quarterly Financial Data (Unaudited)
| |
| Note 23 — | Quarterly Financial Data (Unaudited) |
The table below sets forth summarized quarterly financial data for the years ended December 31, 20082009 and 20072008 (in millions, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | First
| | Second
| | Third
| | Fourth
| | | First
| | Second
| | Third
| | Fourth
| |
| | | Quarter | | Quarter | | Quarter | | Quarter | | | Quarter | | Quarter | | Quarter | | Quarter | |
| |
2009 | | | | | | | | | | | | | | | | | |
| Net Sales | | | $ | 585.6 | | | $ | 584.2 | | | $ | 593.9 | | | $ | 591.9 | |
| Gross Profit | | | $ | 167.0 | | | $ | 174.2 | | | $ | 192.9 | | | $ | 191.8 | |
| Net Income attributable to Hubbell | | | $ | 33.8 | | | $ | 39.4 | | | $ | 57.3 | | | $ | 49.6 | (1) |
| Earnings Per Share — Basic | | | $ | 0.60 | | | $ | 0.70 | | | $ | 1.01 | | | $ | 0.85 | |
| Earnings Per Share — Diluted | | | $ | 0.60 | | | $ | 0.70 | | | $ | 1.01 | | | $ | 0.84 | |
| | | | | | | | | | | | | | | | | | |
2008 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Sales | | $ | 627.9 | | | $ | 689.6 | | | $ | 734.8 | | | $ | 652.1 | | | $ | 627.9 | | | $ | 689.6 | | | $ | 734.8 | | | $ | 652.1 | |
| Gross Profit | | $ | 187.4 | | | $ | 209.9 | | | $ | 220.2 | | | $ | 185.9 | | | $ | 187.4 | | | $ | 209.9 | | | $ | 220.2 | | | $ | 185.9 | |
| Net Income | | $ | 48.4 | | | $ | 61.5 | | | $ | 66.5 | | | $ | 46.3 | | |
| Earnings Per Share — Basic | | $ | 0.86 | | | $ | 1.10 | | | $ | 1.19 | | | $ | 0.83 | | |
| Earnings Per Share — Diluted | | $ | 0.85 | | | $ | 1.09 | | | $ | 1.18 | | | $ | 0.82 | | |
| | | | | | | | | | | | | | | | | | |
2007 | | | | | | | | | | | | | | | | | |
| Net Sales | | $ | 625.7 | | | $ | 640.8 | | | $ | 652.7 | | | $ | 614.7 | | |
| Gross Profit | | $ | 173.0 | | | $ | 187.3 | | | $ | 194.6 | | | $ | 180.9 | | |
| Net Income | | $ | 41.7 | | | $ | 53.3 | | | $ | 65.3 | | | $ | 48.0 | (1) | |
| Earnings Per Share — Basic | | $ | 0.70 | | | $ | 0.90 | | | $ | 1.12 | | | $ | 0.83 | | |
| Earnings Per Share — Diluted | | $ | 0.69 | | | $ | 0.89 | | | $ | 1.10 | | | $ | 0.82 | | |
| Net Income attributable to Hubbell | | | $ | 48.4 | | | $ | 61.5 | | | $ | 66.5 | | | $ | 46.3 | |
Earnings Per Share — Basic(2) | | | $ | 0.85 | | | $ | 1.10 | | | $ | 1.18 | | | $ | 0.83 | |
Earnings Per Share — Diluted(2) | | | $ | 0.85 | | | $ | 1.09 | | | $ | 1.18 | | | $ | 0.82 | |
| | |
| (1) | | Net Income in theThe fourth quarter of 2007 included an2009 includes a $4.9 million out of period adjustment which decreased Provision for income tax benefittaxes. See Note 13 — Income Taxes. |
|
| (2) | | Adjusted to reflect the retrospective application of $5.3 million related to the completion of IRS examinations for tax years 2004 and 2005.ASC260-10-45-61A |
7576
| |
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
| |
| Item 9A. | Controls and Procedures |
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
The Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Exchange ActRules 13a-15(e) and15d-15(e), as of the end of the period covered by this report onForm 10-K. Based upon that evaluation, each of the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information (including from consolidated subsidiaries) required to be included in Exchange Act reports.at a reasonable assurance level. Management’s annual report on internal control over financial reporting and the independent registered public accounting firm’s audit report on the effectiveness of our internal control over financial reporting are included in the financial statements for the year endedas of December 31, 2008 which2009 are included in Item 8 of this Annual Report onForm 10-K.
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| |
| Item 9B. | Other Information |
Not applicable.
PART III
| |
| Item 10. | Directors and Executive Officers of the Registrant(1) |
The Company’s Chief Executive Officer made the annual certification required by Section 303A.12 of the NYSE Company Manual on May 5, 2008. The Company has filed with the SEC as exhibits to thisForm 10-K the Sarbanes-Oxley Act Section 302 Certifications of its Chief Executive Officer and Chief Financial Officer relating to the quality of its public disclosure.
(1) Certain of the information required by this item regarding executive officers is included in Part I, Item 4 of thisForm10-K and the remaining required information is incorporated by reference to the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 4, 2009.3, 2010.
7677
| |
| Item 11. | Executive Compensation(2) |
| |
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
Equity Compensation Plan Information
The following table provides information as of December 31, 20082009 with respect to the Company’s common stock that may be issued under the Company’s equity compensation plans (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | A | | B | | C | | | | | | | C | |
| | | | | Weighted Average
| | Number of Securities Remaining
| | | A | | B | | Number of Securities Remaining
| |
| | | Number of Securities to be
| | Exercise Price of
| | Available for Future Issuance
| | | Number of Securities to be
| | Weighted Average
| | Available for Future Issuance
| |
| | | Issued upon Exercise of
| | Outstanding
| | Under Equity Compensation
| | | Issued upon Exercise of
| | Exercise Price of
| | Under Equity Compensation
| |
| | | Outstanding Options,
| | Options,
| | Plans (Excluding Securities
| | | Outstanding Options,
| | Outstanding Options,
| | Plans (Excluding Securities
| |
Plan Category | | Warrants and Rights | | Warrants and Rights | | Reflected in Column A) | | | Warrants and Rights | | Warrants and Rights | | Reflected in Column A) | |
| |
| Equity Compensation Plans Approved by Shareholders(a) | | | 3,272 | (c) | | $ | 39.74 | | | | 3,104 | (c) | | | 5,046 | (c)(d) | | $ | 42.28 | (e) | | | 2,690 | (c) |
| Equity Compensation Plans Not Requiring Shareholder Approval(b) | | | — | | | | — | | | | 2 | (d) | | | — | | | | — | | | | 140 | (c) |
| | | | — | | | | — | | | | 295 | (c) | | | | | | | |
| | | | | | | | | |
| Total | | | 3,272 | | | $ | 39.74 | | | | 3,401 | | | | 5,046 | | | $ | 42.28 | | | | 2,830 | |
| | | | | | | | | | | | | | | |
| | |
| (a) | | The Company’s (1) Stock Option Plan for Key Employees, and (2) 2005 Incentive Award Plan. |
| |
| (b) | | The Company’s Deferred Compensation Plan for Directors. |
| |
| (c) | | Class B Common Stock |
| |
| (d) | | Class A Common StockIncludes 223 performance share awards assuming a maximum payout target. The Company does not anticipate that the maximum payout target will be achieved for these awards. |
|
| (e) | | Weighted average exercise price excludes performance share awards included in column A. |
The remaining information required by this item is incorporated by reference to the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 4, 2009.3, 2010.
| |
| Item 13. | Certain Relationships and Related Transactions(2) |
| |
| Item 14. | Principal Accountant Fees and Services(2) |
| | |
| (2) | | The information required by this item is incorporated by reference to the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 4, 2009.3, 2010. |
7778
PART IV
| |
| Item 15. | Exhibits and Financial Statement Schedule |
| |
| 1. | Financial Statements and Schedule |
Financial statements and schedule listed in the Index to Financial Statements and Schedule are filed as part of this Annual Report onForm 10-K.
| | | |
Number | | Description |
| |
| 3a | | Restated Certificate of Incorporation, as amended and restated as of September 23, 2003. Exhibit 3a of the registrant’s report onForm 10-Q for the third quarter (ended September 30), 2003, and filed on November 10, 2003, is incorporated by reference. |
| 3b | | By-Laws, Hubbell Incorporated, as amended on December 2, 2008. Exhibit 3.1 of the registrant’s report onForm 8-K dated and filed December 4, 2008, is incorporated by reference. |
| 4b | | Senior Indenture, dated as of September 15, 1995, between Hubbell Incorporated and JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank and Chemical Bank), as trustee. Exhibit 4a of the registrant’s registration statement onForm S-4 filed June 18, 2002, is incorporated by reference. |
| 4c | | Specimen Certificate of 6.375% Notes due 2012. Exhibit 4b of the registrant’s registration statement onForm S-4 filed June 18, 2002, is incorporated by reference. |
| 4d | | Specimen Certificate of registered 6.375% Notes due 2012. Exhibit 4c of the registrant’s registration statement onForm S-4 filed June 18, 2002, is incorporated by reference. |
| 4e | | Registration Rights Agreement, dated as of May 15, 2002, among Hubbell Incorporated and J.P. Morgan Securities, Inc., BNY Capital Markets, Inc., Deutsche Bank Securities Inc., First Union Securities, Inc., Morgan Stanley & Co. Incorporated and Salomon Smith Barney Inc. as the Initial Purchasers. Exhibit 4d of the registrant’s registration statement onForm S-4 filed June 18, 2002, is incorporated by reference. |
| 4f | | First Supplemental Indenture, dated as of June 2, 2008, between Hubbell Incorporated and The Bank of New York Trust Company, N.A. (as successor to JPMorgan Chase Bank, N.A., The Chase Manhattan Bank and Chemical Bank), as trustee, including the form of 5.95% Senior Notes due 2018. Exhibit 4.2 of the registrant’s report onForm 8-K filed on June 2, 2008, is incorporated by reference. |
| 4g | | Amended and Restated Rights Agreement, dated as of December 17, 2008, between Hubbell Incorporated and Mellon Investor Services LLC (successor to ChaseMellon Shareholder Services, L.L.C.), as Rights Agent. Exhibit 4.1 of the registrant’s report onForm 8-K filed on December 17, 2008, is incorporated by reference. |
| 10a† | | Hubbell Incorporated Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2005. Exhibit 10a of the registrant’s report onForm 10-Q for the third quarter (ended September 30), 2007, filed October 26, 2007, is incorporated by reference. |
| 10b(1)† | | Hubbell Incorporated Stock Option Plan for Key Employees, as amended and restated effective May 5, 2003.(i) Exhibit 10b(1) of the registrant’s report onForm 10-Q for the second quarter (ended June 30), 2003, filed August 12, 2003, is incorporated by reference; (ii) Amendment, dated June 9, 2004, filed as Exhibit 10ee of the registrant’s report onForm 10-Q for the second quarter (ended June 30), 2004, filed August 5, 2004, is incorporated by reference. |
| 10b(2)† | | Amendment, dated September 21, 2006, to the Hubbell Incorporated Stock Option Plan for Key Employees. Exhibit 10.1 of the registrant’s report onForm 10-Q for the third quarter (ended September 30), 2006, filed on November 7, 2006 is incorporated by reference. |
| 10f | | Hubbell Incorporated Deferred Compensation Plan for Directors, as amended and restated effective January 1, 2005, as amended December 4, 2007. Exhibit 10f of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
10f(1)* | | Amendment, dated December 10, 2008, to the Hubbell Incorporated Deferred Compensation Plan for Directors. Exhibit 10f(1) of the registrant’s report onForm 10-K for the year 2008, filed on February 20, 2009, is incorporated by reference. |
7879
| | | |
Number | | Description |
| |
| 10h† | | Hubbell Incorporated Key Man Supplemental Medical Insurance, as amended and restated effective January 1, 2005. Exhibit 10h of the registrant’s report onForm 10-Q for the third quarter (ended September 30), 2007, filed October 26, 2007, is incorporated by reference. |
| 10i | | Hubbell Incorporated Retirement Plan for Directors, as amended and restated effective January 1, 2005. Exhibit 10i of the registrant’s report onForm 10-Q for the third quarter (ended September 30), 2007, filed October 26, 2007, is incorporated by reference. |
| 10o† | | Hubbell Incorporated Policy for Providing Severance Payments to Key Managers, as amended and restated effective September 12, 2007. Exhibit 10o of the registrant’s report onForm 10-Q for the third quarter (ended September 30), 2007, filed on October 26, 2007, is incorporated by reference. |
| 10p† | | Hubbell Incorporated Senior Executive Incentive Compensation Plan, effective January 1, 1996. Exhibit C of the registrant’s proxy statement, dated March 22, 1996 and filed on March 27, 1996, is incorporated by reference. |
| 10.1† | | Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and Timothy H. Powers. Exhibit 10.1 of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
10.3† | | Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and Scott H. Muse. Exhibit 10.3 of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10u† | | Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and Richard W. Davies. Exhibit 10.u of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10v† | | Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and James H. Biggart. Exhibit 10.v of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10w† | | Hubbell Incorporated Top Hat Restoration Plan, as amended and restated effective January 1, 2005. Exhibit 10w of the registrant’s report onForm 10-Q for the third quarter (ended September 30), 2007 filed October 26, 2007, is incorporated by reference. |
| 10z† | | Hubbell Incorporated Incentive Compensation Plan, adopted effective January 1, 2002. Exhibit 10z of the registrant’s report onForm 10-K for the year 2001, filed on March 19, 2002, is incorporated by reference. |
| 10aa† | | Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and W. Robert Murphy. Exhibit 10.aa of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10cc† | | Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and Gary N. Amato. Exhibit 10.cc of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10.9† | | Grantor Trust for Senior Management Plans Trust Agreement, dated as of March 14, 2005, between Hubbell Incorporated and The Bank of New York, as Trustee. Exhibit 10.9 of the registrant’s report onForm 8-K dated and filed March 15, 2005, is incorporated by reference. |
| 10.9.1† | | First Amendment, dated as of January 1, 2005, to the Hubbell Incorporated Grantor Trust for Senior Management Plans Trust Agreement. Exhibit 10.9.1 of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10.9.2† | | Second Amendment, dated June 3, 2009, to the Grantor Trust for Senior Management Plans Trust Agreement. Exhibit 10.9.2 of the registrant’s report onForm 10-Q for the second quarter (ended June 30), 2009 filed on July 24, 2009, is incorporated by reference. |
| 10.10† | | Grantor Trust for Non-Employee Director Plans Trust Agreement, dated as of March 14, 2005, between Hubbell Incorporated and The Bank of New York. Exhibit 10.10 of the registrant’s report onForm 8-K dated and filed March 15, 2005, is incorporated by reference. |
| 10.10.1† | | First Amendment, dated as of January 1, 2005, to the Hubbell Incorporated Grantor Trust for Non-Employee Director Plans Trust Agreement. Exhibit 10.10.1 of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10.ee† | | Hubbell Incorporated 2005 Incentive Award Plan. Exhibit B of the registrant’s proxy statement, dated as of March 16, 2005, is incorporated by reference. |
7980
| | | |
Number | | Description |
| |
| 10.ee(1)† | | Amendment, dated September 21, 2006, to the Hubbell Incorporated 2005 Incentive Award Plan. Exhibit 10.2 of the registrant’s report onForm 10-Q for the third quarter (ended September 30), 2006, filed on November 7, 2006 is incorporated by reference. |
| 10.ff† | | Letter Agreement, dated September 2005, between Hubbell Incorporated and David G. Nord. Exhibit 99.1 of the registrant’s report onForm 8-K dated and filed September 6, 2005, is incorporated by reference. |
| 10.gg† | | Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and David G. Nord. Exhibit 10.gg of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10.ii | | Credit Agreement, dated as of October 31, 2007 Among Hubbell Incorporated, Hubbell Cayman Limited, Hubbell Investments Limited, The Lenders Party hereto, Bank of America, N.A., Citibank, N.A., U.S. Bank National Association, and Wachovia Bank National Association as Syndication Agents, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Securities Inc. as Sole Lead Arranger and Bookrunner (the “Credit Agreement”). Exhibit 10.ii of the registrant’s report onForm 8-K dated and filed November 5, 2007 is incorporated by reference. |
| 10.ii(1) | | Amendment No. 1, dated as of October 31, 2007, to the Credit Agreement described in Exhibit No. 10.ii above. Exhibit 10.1 of the registrant’s report onForm 10-Q for the first quarter (ended March 31), 2008, dated and filed April 25, 2008, is incorporated by reference. |
| 10.jj† | | Hubbell Incorporated Executive Deferred Compensation Plan, effective January 1, 2008. Exhibit 10.jj of the registrant’s report onForm 10-Q for the third quarter (ended September 30), 2007, filed on October 26, 2007, is incorporated by reference. |
| 10.kk† | | Hubbell Incorporated Supplemental Management Retirement Plan, effective September 12, 2007. Exhibit 10.ll of the registrant’s report onForm 10-Q for the third quarter (ended September 30), 2007, filed on October 26, 2007, is incorporated by reference. |
10.ll† | | Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and William Tolley. Exhibit 10.ll of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10.mm† | | Trust Agreement, dated as of January 1, 2008, by and between Hubbell Incorporated and T. Rowe Price Trust Company, as Trustee. Exhibit 10.mm of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10.nn† | | Amendment, dated February 15, 2008, to Hubbell Incorporated Amended and Restated Supplemental Executive Retirement Plan. Exhibit 10.nn of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10.oo† | | Amendment, dated February 15, 2008, to Amended and Restated Continuity Agreement for James H. Biggart. Exhibit 10.oo of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10.pp† | | Amendment, dated February 15, 2008, to Amended and Restated Continuity Agreement for Timothy H. Powers. Exhibit 10.pp of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10.qq† | | Amendment dated February 15, 2008, to Amended and Restated Continuity Agreement for Richard W. Davies. Exhibit 10.qq of the registrant’s report onForm 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. |
| 10.rr† | | Continuity Agreement, dated as of July 1, 2008, between Hubbell Incorporated and Darrin S. Wegman. Exhibit 10.rr of the registrant’s report onForm 10-Q for the second quarter (ended June 30), 2008, filed July 28, 2008, is incorporated by reference. |
| 10.ss† | | Amendment, dated as of July 24, 2008, to Amended and Restated Continuity Agreement for Gary N. Amato. Exhibit 10.ss of the registrant’s report ofForm 10-Q for the second quarter (ended June 30), 2008, filed July 28, 2008, is incorporated by reference. |
| 21* | | Listing of significant subsidiaries. |
| 23* | | Consent of PricewaterhouseCoopers LLP. |
8081
| | | |
Number | | Description |
| |
| 31.1* | | Certification of Chief Executive Officer Pursuant to Item 601(b) (31) ofRegulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2* | | Certification of Chief Financial Officer Pursuant to Item 601(b) (31) ofRegulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1* | | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2* | | Certification of Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | |
| † | | This exhibit constitutes a management contract, compensatory plan, or arrangement |
| |
| * | | Filed hereunder |
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Hubbell Incorporated
Darrin S. Wegman
Vice President and
Controller
(Also signing as Chief Accounting Officer)
David G. Nord
Senior Vice President and
Chief Financial Officer
Date: February 20, 200919, 2010
81
83
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | |
| | | | | Title | | Date |
| |
| | | | | | | |
| By | | /s/ T. H. Powers
T. H. Powers | | Chairman of the Board, President and Chief Executive Officer and Director | | 2/20/0919/10 |
| | | | | | | |
| By | | /s/ D. G. Nord
D. G. Nord | | Senior Vice President and Chief Financial Officer | | 2/20/0919/10 |
| | | | | | | |
| By | | /s/ D. S. Wegman
D. S. Wegman | | Vice President, Controller | | 2/20/0919/10 |
| | | | | | | |
| By | | /s/ E. R. Brooks
E. R. Brooks | | Director | | 2/20/0919/10 |
| | | | | | | |
| By | | /s/ G. W. Edwards, Jr
G. W. Edwards, Jr | | Director | | 2/20/0919/10 |
| | | | | | |
| By | | /s/ L. J. Good
L. J. Good | | Director | | 2/19/10 |
| | | | | | | |
| By | | /s/ A. J. Guzzi
A. J. Guzzi | | Director | | 2/20/0919/10 |
| | | | | | | |
| By | | /s/ J. S. Hoffman
J. S. Hoffman | | Director | | 2/20/0919/10 |
| | | | | | | |
| By | | /s/ A. McnallyMcNally IV
A. McNally IV | | Director | | 2/20/09 |
| | | | | | |
By | | /s/ D. J. Meyer
D. J. Meyer | | Director | | 2/20/0919/10 |
| | | | | | | |
| By | | /s/ G. J. Ratcliffe
G. J. Ratcliffe | | Director | | 2/20/0919/10 |
| | | | | | |
| By | | /s/ C. A. Rodriguez
C. A. Rodriguez | | Director | | 2/19/10 |
| | | | | | | |
| By | | /s/ R. J. Swift
R. J. Swift | | Director | | 2/20/0919/10 |
| | | | | | | |
| By | | /s/ D. S. Van Riper
D. S. Van Riper | | Director | | 2/20/0919/10 |
8284
Schedule II
HUBBELL INCORPORATED AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 2006, 2007, 2008 AND 20082009
Reserves deducted in the balance sheet from the assets to which they apply (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Additions/
| | | | | | | | | | | Additions/
| | | | | | | |
| | | | | (Reversals)
| | | | | | | | | | | (Reversals)
| | | | | | | |
| | | Balance at
| | Charged to
| | Acquisitions/
| | | | Balance
| | | Balance at
| | Charged to
| | Acquisitions/
| | | | Balance
| |
| | | Beginning
| | Costs and
| | Disposition
| | | | at End
| | | Beginning
| | Costs and
| | Dispositions
| | | | at End
| |
| | | of Year | | Expenses | | of Businesses | | Deductions | | of Year | | | of Year | | Expenses | | of Businesses | | Deductions | | of Year | |
| |
| Allowances for doubtful accounts receivable: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year 2006 | | $ | 4.2 | | | $ | 0.4 | | | $ | 0.1 | | | $ | (1.5 | ) | | $ | 3.2 | | |
| Year 2007 | | $ | 3.2 | | | $ | 1.5 | | | $ | — | | | $ | (1.0 | ) | | $ | 3.7 | | | $ | 3.2 | | | $ | 1.5 | | | $ | — | | | $ | (1.0 | ) | | $ | 3.7 | |
| Year 2008 | | $ | 3.7 | | | $ | 2.2 | | | $ | 0.4 | | | $ | (2.3 | ) | | $ | 4.0 | | | $ | 3.7 | | | $ | 2.2 | | | $ | 0.4 | | | $ | (2.3 | ) | | $ | 4.0 | |
| Year 2009 | | | $ | 4.0 | | | $ | 2.1 | | | $ | — | | | $ | (1.0 | ) | | $ | 5.1 | |
| Allowance for credit memos and returns: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year 2006 | | $ | 16.0 | | | $ | 118.6 | | | $ | 0.1 | | | $ | (115.9 | ) | | $ | 18.8 | | |
| Year 2007 | | $ | 18.8 | | | $ | 123.2 | | | $ | — | | | $ | (123.1 | ) | | $ | 18.9 | | | $ | 18.8 | | | $ | 123.2 | | | $ | — | | | $ | (123.1 | ) | | $ | 18.9 | |
| Year 2008 | | $ | 18.9 | | | $ | 106.3 | | | $ | 0.2 | | | $ | (108.6 | ) | | $ | 16.8 | | | $ | 18.9 | | | $ | 106.3 | | | $ | 0.2 | | | $ | (108.6 | ) | | $ | 16.8 | |
| Year 2009 | | | $ | 16.8 | | | $ | 85.4 | | | $ | — | | | $ | (83.6 | ) | | $ | 18.6 | |
| Allowances for excess/obsolete inventory: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year 2006 | | $ | 16.5 | | | $ | 6.4 | * | | $ | 0.2 | | | $ | (2.2 | ) | | $ | 20.9 | | |
| Year 2007 | | $ | 20.9 | | | $ | 9.5 | | | $ | 0.5 | | | $ | (3.3 | ) | | $ | 27.6 | | | $ | 20.9 | | | $ | 9.5 | | | $ | 0.5 | | | $ | (3.3 | ) | | $ | 27.6 | |
| Year 2008 | | $ | 27.6 | | | $ | 9.1 | | | $ | 1.2 | | | $ | (4.8 | ) | | $ | 33.1 | | | $ | 27.6 | | | $ | 9.1 | | | $ | 1.2 | | | $ | (4.8 | ) | | $ | 33.1 | |
| Year 2009 | | | $ | 33.1 | | | $ | 12.0 | | | $ | — | | | $ | (8.2 | ) | | $ | 36.9 | |
| Valuation allowance on deferred tax assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year 2006 | | $ | 0.6 | | | $ | (0.6 | ) | | $ | — | | | $ | — | | | $ | — | | |
| Year 2007 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Year 2008 | | $ | — | | | $ | 2.5 | | | $ | — | | | $ | — | | | $ | 2.5 | | | $ | — | | | $ | 2.5 | | | $ | — | | | $ | — | | | $ | 2.5 | |
| Year 2009 | | | $ | 2.5 | | | $ | — | | | $ | — | | | $ | (0.3 | ) | | $ | 2.2 | |
| | |
* | | Includes the cost of product line discontinuances of $0.2 million in 2006. |
8385
