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:
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.
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.
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:
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.
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.
The Company has several operations located outside of the United States. These operations manufacture, assembleand/or market Hubbell products and service both the Electrical and Power segments.
Raw materials used in the manufacture of Hubbell products primarily include steel, aluminum, brass, copper, 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.
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
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 measuringa useful measure of our financial leverage as it better measures ourfor evaluating the Company’s ability to meet ourits funding needs.
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 dependantdependent upon many factors including future returns on invested pension assets, the level of market interest rates, employee earnings and employee demographics.
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 the average remaining service period of our active employees, which approximates11-13 years. During 20092010 and 2008,2009, we recorded $7.3$5.4 million and $1.3$7.3 million, respectively, of pension expense related to the amortization of these unrecognized losses. We expect to record $5.2$8.3 million of expense related to unrecognized losses and prior service cost in 2010.2011.
$6.2 million on 20102011 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, 20092010 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 Hubbell shareholders’ equity through Accumulated other comprehensive 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 6.00%5.40% which we used to determine the projected benefit obligation for our U.S. pension plans at December 31, 20092010 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%5.30% and 5.25%5.00%, respectively, for our UK and Canadian plans. An increase of one percentage point in the discount rate would lower 20102011 pretax pension expense by approximately $4.2$6.4 million. A discount rate decline of one percentage point would increase pretax pension expense by approximately $7.5$8.2 million.
Other Post Employment Benefits (“OPEB”)
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 werehave been 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. The 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 offer retiree medical benefits to all future union retirees. Furthermore, effective February 11, 2009, PCORE ceased 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 6.00%5.40% used to determine the projected benefit obligation at December 31, 20092010 was based upon the Citigroup Pension Discount Curve as applied to our projected annual benefit payments for these plans.payments. In 20092010 and 20082009 in accordance with ASC 715the accounting guidance for retirement benefits we recorded (charges) credits to Accumulated other comprehensive loss within Hubbell shareholders’ equity, net of tax, of $0.5$2.8 million and $(0.2)$0.5 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 our financial condition, results of operations or cash flows.
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Contractual Obligations
A summary of our contractual obligations and commitments at December 31, 20092010 is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Payments due by period | | | | | Payments due by period | |
| | | | Less than
| | | | | | More than
| | | | | Less than
| | | | | | More than
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Contractual Obligations | | Total | | 1 Year | | 1-3 Years | | 4-5 Years | | 5 Years | | | Total | | 1 Year | | 1-3 Years | | 4-5 Years | | 5 Years | |
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Debt obligations | | $ | 500.0 | | | $ | — | | | $ | 200.0 | | | | — | | | $ | 300.0 | | | $ | 601.8 | | | $ | 1.8 | | | $ | — | | | $ | — | | | $ | 600.0 | |
Expected interest payments | | | 183.6 | | | | 30.6 | | | | 54.8 | | | | 35.7 | | | | 62.5 | | | | 260.8 | | | | 28.7 | | | | 57.5 | | | | 57.5 | | | | 117.1 | |
Operating lease obligations | | | 52.6 | | | | 13.0 | | | | 14.9 | | | | 8.5 | | | | 16.2 | | | | 65.6 | | | | 13.5 | | | | 19.3 | | | | 11.6 | | | | 21.2 | |
Retirement and other benefits | | | | 437.9 | | | | 34.5 | | | | 75.1 | | | | 83.5 | | | | 244.8 | |
Purchase obligations | | | 219.8 | | | | 210.6 | | | | 9.2 | | | | — | | | | — | | | | 186.2 | | | | 180.4 | | | | 5.8 | | | | — | | | | — | |
Income tax payments | | | 10.6 | | | | 10.6 | | | | — | | | | — | | | | — | | | | 6.3 | | | | 6.3 | | | | — | | | | — | | | | — | |
Obligations under customer incentive programs | | | 23.5 | | | | 23.5 | | | | — | | | | — | | | | — | | | | 31.2 | | | | 31.2 | | | | — | | | | — | | | | — | |
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Total | | $ | 990.1 | | | $ | 288.3 | | | $ | 278.9 | | | | 44.2 | | | $ | 378.7 | | | $ | 1,589.8 | | | $ | 296.4 | | | $ | 157.7 | | | $ | 152.6 | | | $ | 983.1 | |
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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. OtherAs of December 31, 2010, we have $25.2 million of uncertain tax positions included in long-term liabilities reflected in our Consolidated Balance Sheet at December 31, 2009 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, 2009, we have $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.Sheet. 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 1312 — 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.
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 significantmaterial 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 ASC 605 “Revenue Recognition” (“ASC 605”).the revenue recognition accounting guidance. 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 collectibilitycollectability 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 the electrical products markets.industry. 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
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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 ofChanges in these estimates may necessitate future adjustments to 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 uncollectibilityuncollectability 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 ASC 350 “Intangibles — Goodwill and Other” (“ASC 350”). Capitalized costs include purchased materials and services, and payroll and payroll related costs. General and administrative, 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
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evaluated each year as of the plans’ measurement date. Further discussion on the assumptions used in 20092010 and 20082009 are included above under “Pension Funding Status” and in Note 1110 — Retirement Benefits in the Notes to Consolidated Financial Statements.
Taxes
We account for income taxes in accordance with ASC 740 “Income Taxes” (“ASC 740”). ASC 740the accounting guidance for income taxes which 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. ASC 740 also requires thatAdditionally, deferred tax assets are required to 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 IRSInternal Revenue Service (“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 ASC 740, theThe 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 ASC 740the accounting guidance to determine whether an item meets the definition of more-likely-than-not. The Company’s policy is to recognize these uncertain tax positions 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. See also Note 12 — Income Taxes in the Notes to Consolidated Financial Statements.
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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 fromwhenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If such a change in circumstances occurs, the related estimated future operations using undiscounted cash flows. For theseflows expected to result from the use of the asset and its eventual disposition is compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, we record an impairment charge. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of impaired assets nois determined using expected cash flow estimates, quoted market prices when available and appraisals as appropriate. We did not record any material impairment charges were recordedrelated to long-lived assets in 2010, 2009 orand 2008.
Goodwill and indefinite-lived intangible assets are reviewed annually for impairment unless circumstances dictate the need for more frequent assessment. The Company performs itsWe perform our goodwill impairment testing as of April 1st of each year. The goodwill impairment testing requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. The Company usesWe use 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 valueand/or goodwill impairment for each reporting unit. We have not recorded any goodwill impairments since the initial adoption of the accounting guidance in 2002.
The identification and measurement of impairment of indefinite-lived intangible assets involves testing that compares carrying values of assets to the estimated fair values of assets. These estimated fair values are determined using undiscounted cash flow estimates. If the carrying value of the indefinite-lived intangible exceeds the fair value, the carrying value will be reduced to the estimated fair value. We did not record any impairments related to indefinite-lived intangible assets in 2010, 2009 and 2008.
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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
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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. |
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| • | 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 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 as well as the acquisition related 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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| • | Political unrest in foreign countries. |
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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 SEC filings, including the “Business”, “Risk Factors” and “Quantitative and Qualitative Disclosures about Market Risk” sections in this Annual Report onForm 10-K for the year ended December 31, 2009.2010. |
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Any such forward-looking statements are not guarantees of future performances 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, 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 countries in the Middle East. International shipmentsHubbell also participates in joint ventures in Taiwan and China. Shipments fromnon-U.S. subsidiaries as a percentage of the Company’s total net sales were 17% in 2010 and 16% in both 2009 and 2008 and 14% in 2007.2008. The UKCanada operations represent 36%29%, Canada 24%UK 20%, Switzerland 13%18%, and all other countries 27%33% of total 20092010 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 and may enter into forward foreign exchange contracts. Further discussion of forward exchange contracts can be found in Note 1514 — Fair Value MeasurementsMeasurement in the Notes to Consolidated Financial Statements.
Product purchases representing approximately 18%15% 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 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, 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 increased costsand/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.
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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, 20092010 (dollars in millions):
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| | 2010 | | 2011 | | 2012 | | 2013 | | 2014 | | Thereafter | | Total | | 12/31/09 | | 2011 | | 2012 | | 2013 | | 2014 | | 2015 | | Thereafter | | Total | | 12/31/10 |
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Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Available-for-sale investments | | $ | 2.6 | | | $ | 2.0 | | | $ | 4.4 | | | $ | 1.2 | | | $ | 4.5 | | | $ | 10.4 | | | $ | 25.1 | | | $ | 25.9 | | | $ | 8.8 | | | $ | 3.0 | | | $ | 2.9 | | | $ | 7.9 | | | $ | 3.8 | | | $ | 9.3 | | | $ | 35.7 | | | $ | 36.4 | |
Avg. interest rate | | | 6.05 | % | | | 5.62 | % | | | 5.00 | % | | | 4.00 | % | | | 5.06 | % | | | 5.11 | % | | | — | | | | — | | | | 3.67 | % | | | 5.00 | % | | | 4.58 | % | | | 5.03 | % | | | 5.00 | % | | | 4.98 | % | | | — | | | | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | $ | — | | | $ | — | | | $ | 199.1 | | | $ | — | | | $ | — | | | $ | 298.1 | | | $ | 497.2 | | | $ | 539.6 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 595.9 | | | $ | 595.9 | | | $ | 619.7 | |
Avg. interest rate | | | — | | | | — | | | | 6.38 | % | | | — | | | | — | | | | 5.95 | % | | | 6.12 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4.79 | % | | | 4.79 | % | | | |
Short-term debt | | | $ | 1.8 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 1.8 | | | $ | 1.8 | |
Avg. interest rate | | | | 14.12 | % | | | — | | | | — | | | | — | | | | — | | | | — | | | | 14.12 | % | | | |
All of the assets and liabilities above are fixed rate instruments. instruments except for the short-term debt. The short-term debt consists of a revolving credit facility with HSBC Bank which is used to fund our Brazilian operations. Interest rates for this facility are calculated using the Brazilian Interbank overnight money rate plus twenty five basis points.
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 also Note 126 — Investments and Note 11 — Debt in the Notes to Consolidated Financial Statements.
33
| |
Item 8. | Financial Statements and Supplementary Data |
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
| | | | |
| | Form 10-K for
|
| | 2009,2010, Page: |
|
| | | 35 | |
Consolidated Financial Statements | | | | |
| | | 36 | |
| | | 37 | |
| | | 38 | |
| | | 39 | |
| | | 40 | |
| | | 41 | |
Financial Statement Schedule | | | | |
| | | 85 | |
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
34
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 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. InternalOur 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, 2009.2010. 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 at a reasonable assurance level as of December 31, 2009.2010.
The effectiveness of our internal control over financial reporting as of December 31, 20092010 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.
| | |
| | |
| | |
| | |
Timothy H. Powers | | David G. Nord |
Chairman of the Board, | | Senior Vice President and |
President & Chief Executive Officer | | Chief Financial Officer |
35
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, 20092010 and 2008,2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 20092010 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, 2009,2010, 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.
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, 201016, 2011
36
HUBBELL INCORPORATED AND SUBSIDIARIES
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | Year Ended December 31, | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
| | (In millions, except
| | | (In millions, except
| |
| | per share amounts) | | | per share amounts) | |
|
Net sales | | $ | 2,355.6 | | | $ | 2,704.4 | | | $ | 2,533.9 | | | $ | 2,541.2 | | | $ | 2,355.6 | | | $ | 2,704.4 | |
Cost of goods sold | | | 1,629.7 | | | | 1,901.0 | | | | 1,798.1 | | | | 1,712.5 | | | | 1,629.7 | | | | 1,901.0 | |
| | | | | | | | | | | | | | |
Gross profit | | | 725.9 | | | | 803.4 | | | | 735.8 | | | | 828.7 | | | | 725.9 | | | | 803.4 | |
Selling & administrative expenses | | | 431.2 | | | | 457.4 | | | | 436.4 | | | | 460.9 | | | | 431.2 | | | | 457.4 | |
| | | | | | | | | | | | | | |
Operating income | | | 294.7 | | | | 346.0 | | | | 299.4 | | | | 367.8 | | | | 294.7 | | | | 346.0 | |
| | | | | | | | | | | | | | |
Investment income | | | 0.3 | | | | 2.8 | | | | 2.4 | | | | 0.1 | | | | 0.3 | | | | 2.8 | |
Loss on extinguishment of debt | | | | (14.7 | ) | | | — | | | | — | |
Interest expense | | | (30.9 | ) | | | (27.4 | ) | | | (17.6 | ) | | | (31.1 | ) | | | (30.9 | ) | | | (27.4 | ) |
Other expense, net | | | (2.5 | ) | | | (3.0 | ) | | | — | | | | (1.7 | ) | | | (2.5 | ) | | | (3.0 | ) |
| | | | | | | | | | | | | | |
Total other expense | | | (33.1 | ) | | | (27.6 | ) | | | (15.2 | ) | | | (47.4 | ) | | | (33.1 | ) | | | (27.6 | ) |
| | | | | | | | | | | | | | |
Income before income taxes | | | 261.6 | | | | 318.4 | | | | 284.2 | | | | 320.4 | | | | 261.6 | | | | 318.4 | |
Provision for income taxes | | | 80.3 | | | | 95.2 | | | | 75.9 | | | | 101.6 | | | | 80.3 | | | | 95.2 | |
| | | | | | | | | | | | | | |
Net income | | | 181.3 | | | | 223.2 | | | | 208.3 | | | | 218.8 | | | | 181.3 | | | | 223.2 | |
Less: Net income attributable to noncontrolling interest | | | 1.2 | | | | 0.5 | | | | — | | | | 1.6 | | | | 1.2 | | | | 0.5 | |
| | | | | | | | | | | | | | |
Net income attributable to Hubbell | | $ | 180.1 | | | $ | 222.7 | | | $ | 208.3 | | | $ | 217.2 | | | $ | 180.1 | | | $ | 222.7 | |
| | | | | | | | | | | | | | |
Earnings per share | | | | | | | | | | | | | | | | | | | | | | | | |
Basic | | $ | 3.16 | | | $ | 3.96 | | | $ | 3.53 | | | $ | 3.61 | | | $ | 3.16 | | | $ | 3.96 | |
Diluted | | $ | 3.15 | | | $ | 3.93 | | | $ | 3.49 | | | $ | 3.59 | | | $ | 3.15 | | | $ | 3.93 | |
See notes to consolidated financial statements.
37
HUBBELL INCORPORATED AND SUBSIDIARIES
| | | | | | | | | | | | | | | | |
| | At December 31, | | | At December 31, | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
| | (In millions, except share amounts) | | | (In millions, except share amounts) | |
|
ASSETS | ASSETS | ASSETS |
Current Assets | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 258.5 | | | $ | 178.2 | | | $ | 520.7 | | | $ | 258.5 | |
Short-term investments | | | | 8.8 | | | | 2.6 | |
Accounts receivable, net | | | 310.1 | | | | 357.0 | | | | 341.8 | | | | 310.1 | |
Inventories, net | | | 263.5 | | | | 335.2 | | | | 298.4 | | | | 263.5 | |
Deferred taxes and other | | | 85.8 | | | | 48.7 | | | | 56.4 | | | | 76.6 | |
| | | | | | | | | | |
Total Current Assets | | | 917.9 | | | | 919.1 | | | | 1,226.1 | | | | 911.3 | |
Property, Plant, and Equipment, net | | | 368.8 | | | | 349.1 | | | | 358.3 | | | | 368.8 | |
Other Assets | | | | | | | | | | | | | | | | |
Investments | | | 28.1 | | | | 35.1 | | | | 30.2 | | | | 25.5 | |
Goodwill | | | 743.7 | | | | 584.6 | | | | 724.0 | | | | 724.2 | |
Intangible assets and other | | | 406.0 | | | | 227.6 | | | | 367.2 | | | | 373.0 | |
| | | | | | | | | | |
Total Assets | | $ | 2,464.5 | | | $ | 2,115.5 | | | $ | 2,705.8 | | | $ | 2,402.8 | |
| | | | | | | | | | |
| LIABILITIES AND EQUITY | Current Liabilities | | | | | | | | | | | | | | | | |
Short-term debt | | | $ | 1.8 | | | $ | — | |
Accounts payable | | $ | 130.8 | | | $ | 168.3 | | | | 160.8 | | | | 130.8 | |
Accrued salaries, wages and employee benefits | | | 62.8 | | | | 61.5 | | | | 70.4 | | | | 62.8 | |
Accrued insurance | | | 49.3 | | | | 46.3 | | | | 48.5 | | | | 49.3 | |
Dividends payable | | | 20.9 | | | | 19.7 | | | | 21.9 | | | | 20.9 | |
Other accrued liabilities | | | 154.7 | | | | 129.2 | | | | 141.6 | | | | 154.7 | |
| | | | | | | | | | |
Total Current Liabilities | | | 418.5 | | | | 425.0 | | | | 445.0 | | | | 418.5 | |
Long-term Debt | | | 497.2 | | | | 497.4 | | | | 595.9 | | | | 497.2 | |
Other Non-Current Liabilities | | | 246.8 | | | | 182.0 | | | | 201.4 | | | | 185.1 | |
| | | | | | | | | | |
Total Liabilities | | | 1,162.5 | | | | 1,104.4 | | | | 1,242.3 | | | | 1,100.8 | |
| | | | | | |
Commitments and Contingencies | | | | | | | | | |
Commitments and Contingencies (see Note 15) | | | | | | | | | |
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 | | |
Class A — Authorized 50,000,000 shares, outstanding 7,167,506 and | | | | | | | | | |
7,167,506 shares | | | | 0.1 | | | | 0.1 | |
Class B — Authorized 150,000,000 shares, outstanding 53,529,136 and | | | | | | | | | |
52,493,487 shares | | | | 0.5 | | | | 0.5 | |
Additional paid-in capital | | | 158.4 | | | | 16.3 | | | | 201.3 | | | | 158.4 | |
Retained earnings | | | 1,208.0 | | | | 1,108.0 | | | | 1,338.6 | | | | 1,208.0 | |
Accumulated other comprehensive loss | | | (68.8 | ) | | | (116.8 | ) | | | (81.3 | ) | | | (68.8 | ) |
| | | | | | | | | | |
Total Hubbell Shareholders’ Equity | | | 1,298.2 | | | | 1,008.1 | | | | 1,459.2 | | | | 1,298.2 | |
Noncontrolling interest | | | 3.8 | | | | 3.0 | | | | 4.3 | | | | 3.8 | |
| | | | | | | | | | |
Total Equity | | | 1,302.0 | | | | 1,011.1 | | | | 1,463.5 | | | | 1,302.0 | |
| | | | | | | | | | |
Total Liabilities and Equity | | $ | 2,464.5 | | | $ | 2,115.5 | | | $ | 2,705.8 | | | $ | 2,402.8 | |
| | | | | | | | | | |
See notes to consolidated financial statements.
38
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | Year Ended December 31, | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
| | (In millions) | | | (In millions) | |
|
Cash Flows from Operating Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | $ | 181.3 | | | $ | 223.2 | | | $ | 208.3 | | | $ | 218.8 | | | $ | 181.3 | | | $ | 223.2 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Depreciation and amortization | | | 70.6 | | | | 63.1 | | | | 60.2 | | �� | | 72.5 | | | | 70.6 | | | | 63.1 | |
Deferred income taxes | | | 32.3 | | | | 0.7 | | | | (3.7 | ) | | | 25.0 | | | | 32.3 | | | | 0.7 | |
Stock-based compensation | | | 10.3 | | | | 12.5 | | | | 12.7 | | | | 11.4 | | | | 10.3 | | | | 12.5 | |
Tax benefit on stock-based awards | | | (1.3 | ) | | | (0.8 | ) | | | (6.9 | ) | | | (9.7 | ) | | | (1.3 | ) | | | (0.8 | ) |
Loss (gain) on sale of assets | | | 0.5 | | | | 0.6 | | | | (0.7 | ) | |
Gain on sale of assets | | | | 1.3 | | | | 0.5 | | | | 0.6 | |
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 | | |
(Increase) decrease in accounts receivable | | | | (26.1 | ) | | | 85.5 | | | | (3.7 | ) |
(Increase) decrease in inventories | | | | (32.6 | ) | | | 98.7 | | | | 6.9 | |
Increase (decrease) in current liabilities | | | | 19.8 | | | | (57.3 | ) | | | 18.9 | |
Changes in other assets and liabilities, net | | | 9.7 | | | | 7.4 | | | | (3.1 | ) | | | 9.7 | | | | 9.7 | | | | 7.4 | |
Contributions to defined benefit pension plans | | | (27.4 | ) | | | (11.2 | ) | | | (28.4 | ) | | | (23.7 | ) | | | (27.4 | ) | | | (11.2 | ) |
Other, net | | | (5.2 | ) | | | 1.6 | | | | 2.7 | | | | (0.2 | ) | | | (5.2 | ) | | | 1.6 | |
| | | | | | | | | | | | | | |
Net cash provided by operating activities | | | 397.7 | | | | 319.2 | | | | 335.2 | | | | 266.2 | | | | 397.7 | | | | 319.2 | |
| | | | | | | | | | | | | | |
Cash Flows from Investing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | (29.4 | ) | | | (49.4 | ) | | | (55.9 | ) | | | (47.3 | ) | | | (29.4 | ) | | | (49.4 | ) |
Acquisitions, net of cash acquired | | | (355.8 | ) | | | (267.4 | ) | | | (52.9 | ) | | | — | | | | (355.8 | ) | | | (267.4 | ) |
Purchases ofavailable-for-sale investments | | | (5.2 | ) | | | (16.6 | ) | | | (41.2 | ) | | | (25.4 | ) | | | (5.2 | ) | | | (16.6 | ) |
Proceeds fromavailable-for-sale investments | | | 14.7 | | | | 20.5 | | | | 38.6 | | | | 14.9 | | | | 14.7 | | | | 20.5 | |
Proceeds fromheld-to-maturity investments | | | — | | | | 0.3 | | | | — | | |
Proceeds from disposition of assets | | | 0.6 | | | | 1.0 | | | | 5.1 | | | | 1.9 | | | | 0.6 | | | | 1.0 | |
Other, net | | | 2.0 | | | | 5.2 | | | | 0.6 | | | | 1.2 | | | | 2.0 | | | | 5.5 | |
| | | | | | | | | | | | | | |
Net cash used in investing activities | | | (373.1 | ) | | | (306.4 | ) | | | (105.7 | ) | | | (54.7 | ) | | | (373.1 | ) | | | (306.4 | ) |
| | | | | | | | | | | | | | |
Cash Flows from Financing Activities | | | | | | | | | | | | | | | | | | | | | | | | |
Proceeds from stock issuance, net | | | 122.0 | | | | — | | | | — | | | | — | | | | 122.0 | | | | — | |
Commercial paper (repayments) borrowings, net | | | — | | | | (36.7 | ) | | | 20.9 | | |
Payment of other debt | | | — | | | | — | | | | (5.1 | ) | |
Issuance of long-term debt | | | — | | | | 297.7 | | | | — | | |
Commercial paper repayments | | | | — | | | | — | | | | (36.7 | ) |
Issuance of short-term debt | | | | 3.4 | | | | — | | | | — | |
Payment of short-term debt | | | | (1.7 | ) | | | — | | | | — | |
Issuance of long-term debt, net | | | | 297.5 | | | | — | | | | 297.7 | |
Payment of long-term debt | | | | (200.0 | ) | | | — | | | | — | |
Debt issuance costs | | | — | | | | (2.7 | ) | | | — | | | | (2.7 | ) | | | — | | | | (2.7 | ) |
Payment of dividends | | | (78.9 | ) | | | (76.9 | ) | | | (78.4 | ) | | | (85.6 | ) | | | (78.9 | ) | | | (76.9 | ) |
Payment of dividends to noncontrolling interest | | | (0.4 | ) | | | — | | | | — | | | | (1.1 | ) | | | (0.4 | ) | | | — | |
Proceeds from exercise of stock options | | | 5.7 | | | | 8.1 | | | | 48.0 | | | | 49.3 | | | | 5.7 | | | | 8.1 | |
Tax benefit on stock-based awards | | | 1.3 | | | | 0.8 | | | | 6.9 | | | | 9.7 | | | | 1.3 | | | | 0.8 | |
Acquisition of common shares | | | — | | | | (96.6 | ) | | | (193.1 | ) | | | (23.3 | ) | | | — | | | | (96.6 | ) |
Other, net | | | 0.1 | | | | — | | | | 0.4 | | | | — | | | | 0.1 | | | | — | |
| | | | | | | | | | | | | | |
Net cash provided by (used in) financing activities | | | 49.8 | | | | 93.7 | | | | (200.4 | ) | |
Net cash provided by financing activities | | | | 45.5 | | | | 49.8 | | | | 93.7 | |
| | | | | | | | | | | | | | |
Effect of foreign currency exchange rate changes on cash and cash equivalents | | | 5.9 | | | | (5.8 | ) | | | 3.1 | | | | 5.2 | | | | 5.9 | | | | (5.8 | ) |
| | | | | | | | | | | | | | |
Increase in cash and cash equivalents | | | 80.3 | | | | 100.7 | | | | 32.2 | | | | 262.2 | | | | 80.3 | | | | 100.7 | |
Cash and cash equivalents | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning of year | | | 178.2 | | | | 77.5 | | | | 45.3 | | | | 258.5 | | | | 178.2 | | | | 77.5 | |
| | | | | | | | | | | | | | |
End of year | | $ | 258.5 | | | $ | 178.2 | | | $ | 77.5 | | | $ | 520.7 | | | $ | 258.5 | | | $ | 178.2 | |
| | | | | | | | | | | | | | |
See notes to consolidated financial statements.
39
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Years Ended December 31, 2009, 2008 and 2007
| | | For the Three Years Ended December 31, 2010, 2009 and 2008
| |
| | (In millions, except per share amounts) | | | (In millions, except per share amounts) | |
| | | | | | | | | | Accumulated
| | Total
| | | | | | | | | | | | | Accumulated
| | Total
| | | |
| | Class A
| | Class B
| | Additional
| | | | Other
| | Hubbell
| | | | | Class A
| | Class B
| | Additional
| | | | Other
| | Hubbell
| | | |
| | Common
| | Common
| | Paid-In
| | Retained
| | Comprehensive
| | Shareholders’
| | Noncontrolling
| | | Common
| | Common
| | Paid-In
| | Retained
| | Comprehensive
| | Shareholders’
| | Noncontrolling
| |
| | Stock | | Stock | | Capital | | Earnings | | Income (Loss) | | Equity | | interest | | | 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 | | | $ | 0.1 | | | $ | 0.5 | | | $ | 93.3 | | | $ | 962.7 | | | $ | 26.0 | | | $ | 1,082.6 | | | $ | 2.5 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | 222.7 | | | | | | | | 222.7 | | | | 0.5 | | | | | | | | | | | | | | | | 222.7 | | | | | | | | 222.7 | | | | 0.5 | |
Adjustment to pension and other benefit plans, net of tax of $54.9 | | | | | | | | | | | | | | | | | | | (92.1 | ) | | | (92.1 | ) | | | | | | | | | | | | | | | | | | | | | | | (92.1 | ) | | | (92.1 | ) | | | | |
Translation adjustments | | | | | | | | | | | | | | | | | | | (53.7 | ) | | | (53.7 | ) | | | | | | | | | | | | | | | | | | | | | | | (53.7 | ) | | | (53.7 | ) | | | | |
Unrealized gain on cash flow hedge including $0.1 of amortization, net of tax | | | | | | | | | | | | | | | | | | | 3.0 | | | | 3.0 | | | | | | |
Unrealized gain on cash flow hedge, net of tax of $1.2 | | | | | | | | | | | | | | | | | | | | 3.0 | | | | 3.0 | | | | | |
| | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 79.9 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 79.9 | | | | | |
Stock-based compensation | | | | | | | | | | | 12.5 | | | | | | | | | | | | 12.5 | | | | | | | | | | | | | | | | 12.5 | | | | | | | | | | | | 12.5 | | | | | |
Exercise of stock options | | | | | | | | | | | 8.1 | | | | | | | | | | | | 8.1 | | | | | | | | | | | | | | | | 8.1 | | | | | | | | | | | | 8.1 | | | | | |
Income tax shortfall from stock-based awards, net | | | | | | | | | | | (0.1 | ) | | | | | | | | | | | (0.1 | ) | | | | | | | | | | | | | | | (0.1 | ) | | | | | | | | | | | (0.1 | ) | | | | |
Acquisition/surrender of common shares | | | | | | | | | | | (97.5 | ) | | | | | | | | | | | (97.5 | ) | | | | | | | | | | | | | | | (97.5 | ) | | | | | | | | | | | (97.5 | ) | | | | |
Cash dividends declared ($1.38 per share) | | | | | | | | | | | | | | | (77.4 | ) | | | | | | | (77.4 | ) | | | | | | | | | | | | | | | | | | | (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 | | | $ | 0.1 | | | $ | 0.5 | | | $ | 16.3 | | | $ | 1,108.0 | | | $ | (116.8 | ) | | $ | 1,008.1 | | | $ | 3.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | 180.1 | | | | | | | | 180.1 | | | | 1.2 | | | | | | | | | | | | | | | | 180.1 | | | | | | | | 180.1 | | | | 1.2 | |
Adjustment to pension and other benefit plans, net of tax of $8.6 | | | | | | | | | | | | | | | | | | | 14.3 | | | | 14.3 | | | | | | | | | | | | | | | | | | | | | | | | 14.3 | | | | 14.3 | | | | | |
Translation adjustments | | | | | | | | | | | | | | | | | | | 35.3 | | | | 35.3 | | | | | | | | | | | | | | | | | | | | | | | | 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 | ) | | | | | |
Unrealized gain on investments, net of tax of $0.1 | | | | | | | | | | | | | | | | | | | | 0.3 | | | | 0.3 | | | | | |
Unrealized loss on cash flow hedge, net of tax of $1.0 | | | | | | | | | | | | | | | | | | | | (1.9 | ) | | | (1.9 | ) | | | | |
| | | | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | 228.1 | | | | | | | | | | | | | | | | | | | | | | | | | | | | 228.1 | | | | | |
Stock-based compensation | | | | | | | | | | | 10.3 | | | | | | | | | | | | 10.3 | | | | | | | | | | | | | | | | 10.3 | | | | | | | | | | | | 10.3 | | | | | |
Exercise of stock options | | | | | | | | | | | 5.7 | | | | | | | | | | | | 5.7 | | | | | | | | | | | | | | | | 5.7 | | | | | | | | | | | | 5.7 | | | | | |
Income tax windfall from stock-based awards, net | | | | | | | | | | | 0.6 | | | | | | | | | | | | 0.6 | | | | | | | | | | | | | | | | 0.6 | | | | | | | | | | | | 0.6 | | | | | |
Issuance of shares related to director’s deferred compensation | | | | | | | | | | | 5.2 | | | | | | | | | | | | 5.2 | | | | | | | | | | | | | | | | 5.2 | | | | | | | | | | | | 5.2 | | | | | |
Acquisition/surrender of common shares | | | | | | | | | | | (1.7 | ) | | | | | | | | | | | (1.7 | ) | | | | | | | | | | | | | | | (1.7 | ) | | | | | | | | | | | (1.7 | ) | | | | |
Cash dividends declared ($1.40 per share) | | | | | | | | | | | | | | | (80.1 | ) | | | | | | | (80.1 | ) | | | | | | | | | | | | | | | | | | | (80.1 | ) | | | | | | | (80.1 | ) | | | | |
Issuance of common stock, net | | | | | | | | | | | 122.0 | | | | | | | | | | | | 122.0 | | | | | | | | | | | | | | | | 122.0 | | | | | | | | | | | | 122.0 | | | | | |
Dividends to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | (0.4 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | (0.4 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2009 | | $ | 0.1 | | | $ | 0.5 | | | $ | 158.4 | | | $ | 1,208.0 | | | $ | (68.8 | ) | | $ | 1,298.2 | | | $ | 3.8 | | | $ | 0.1 | | | $ | 0.5 | | | $ | 158.4 | | | $ | 1,208.0 | | | $ | (68.8 | ) | | $ | 1,298.2 | | | $ | 3.8 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net income | | | | | | | | | | | | | | | | 217.2 | | | | | | | | 217.2 | | | | 1.6 | |
Adjustment to pension and other benefit plans, net of tax of $9.7 | | | | | | | | | | | | | | | | | | | | (23.9 | ) | | | (23.9 | ) | | | | |
Translation adjustments | | | | | | | | | | | | | | | | | | | | 11.9 | | | | 11.9 | | | | | |
Unrealized loss on cash flow hedge, net of tax of $0.4 | | | | | | | | | | | | | | | | | | | | (0.5 | ) | | | (0.5 | ) | | | | |
| | | | |
Total comprehensive income | | | | | | | | | | | | | | | | | | | | | | | | 204.7 | | | | | |
Stock-based compensation | | | | | | | | | | | | 11.4 | | | | | | | | | | | | 11.4 | | | | | |
Exercise of stock options | | | | | | | | | | | | 49.3 | | | | | | | | | | | | 49.3 | | | | | |
Income tax windfall from stock-based awards, net | | | | | | | | | | | | 9.4 | | | | | | | | | | | | 9.4 | | | | | |
Acquisition/surrender of common shares | | | | | | | | | | | | (27.2 | ) | | | | | | | | | | | (27.2 | ) | | | | |
Cash dividends declared ($1.44 per share) | | | | | | | | | | | | | | | | (86.6 | ) | | | | | | | (86.6 | ) | | | | |
Dividends to noncontrolling interest | | | | | | | | | | | | | | | | | | | | | | | | | | | | (1.1 | ) |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2010 | | | $ | 0.1 | | | $ | 0.5 | | | $ | 201.3 | | | $ | 1,338.6 | | | $ | (81.3 | ) | | $ | 1,459.2 | | | $ | 4.3 | |
| | | | | | | | | | | | | | | | |
See notes to consolidated financial statements.
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HUBBELL INCORPORATED AND SUBSIDIARIES
| |
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. In addition, certain changes to prior year balance sheet amounts have been made in accordance with the business combinations accounting guidance to reflect adjustments made during the measurement period to provisional amounts recorded for deferred tax assets acquired related to the October 2009 Burndy acquisition. See Note 2 — Business Acquisitions.
Revision to Financial Statement Presentation
During the year endedthird quarter of 2010, we determined that the December 31, 2009 the Company recorded an immaterial out of period adjustment, predominately arising in years prior to 1999deferred tax assets and deferred tax liabilities related to certain deferred tax accounts, which decreased the Provision forBurndy acquisition were misclassified, primarily as a result of improperly applying the jurisdictional netting rules of the income taxes by $4.9 million.accounting guidance. The Company has assessed the materiality of this correction in accordance with the SEC Staff Accounting Bulletin (“SAB”) No. 99 “Materiality” and has concluded that the adjustment waspreviously issued financial statements are not material tomaterially misstated. In accordance with the SEC’s SAB No. 108 “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, the Company has corrected the immaterial misstatement by revising the prior periodsperiod balance sheet by decreasing current deferred tax assets (reflected in Deferred taxes and other) by $17.1 million, decreasing non-current deferred tax assets (reflected in Intangible assets and other) by $44.6 million and by decreasing its non-current deferred tax liability (reflected in Other Non-current liabilities) by $61.7 million. This revision did not impact the cumulative effect was not material tostatement of income or the resultsstatement of cash flows for the year ended December 31, 2009.any period.
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 provisionsconsolidation accounting guidance. Effective January 2010, an amendment to the accounting guidance replaced the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a variable interest entity (“VIE”) with a primarily qualitative analysis. The qualitative analysis is based on identifying the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance (the “power criterion”) and the obligation to absorb losses from or the right to receive benefits of ASC 810 “Consolidation” (“ASC 810”the VIE that could potentially be significant to the VIE (the “losses/benefit criterion”). See Note 2The party that meets both these criteria is deemed to have a controlling financial interest. The party with the controlling financial interest is considered to be the primary beneficiary and as a result is required to consolidate the VIE. 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 China. Under the new accounting guidance, the Company continues to be the primary beneficiary of HAL and as a result continues to consolidate HAL. This determination is based on the fact that HAL’s sole business purpose is to manufacture product exclusively for the Company (the power criterion) and the Company is financially responsible for ensuring HAL maintains a fixed operating margin (the losses/benefit criterion). The consolidation of HAL is not material to the Company’s consolidated financial statements.
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HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Variable Interest Entities.(Continued)
Use of Estimates
The preparation of financial statements in accordance with GAAP 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 the electrical products markets.industry. 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
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HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of an eligible product, the distributor submits a claim for a price rebate. Customers have a right to return goods under certain circumstances which are reasonably estimable by affected businesses andbusinesses. Customer returns have historically ranged from1%-3% of gross sales.
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.
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 within Hubbell shareholders’ equity. Gains and losses from foreign currency transactions are included in 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.
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HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Investments
The Company defines short-term investments as securities with original maturities of greater than three months but less than one 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 trading investments. Ouravailable-for-sale investments, consisting of municipal bonds, are carried on the balance sheet at fair value with current period adjustments to carrying value recorded in Accumulated other comprehensive loss within 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. The 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 reflected in the results of 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.
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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 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.
Capitalized Computer Software Costs
Qualifying costs of internal use software are capitalized in accordance with ASC 350.the internal-use software accounting guidance. Capitalized costs include purchased materials and services and payroll and payroll-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 $12.5$9.6 million and $21.3$12.5 million at December 31, 20092010 and 2008,2009, respectively. The Company recorded amortization expense of $8.1 million, $10.9 million and $10.7 million in 2010, 2009 and $10.9 million in 2009, 2008, and 2007, respectively, relating to capitalized computer software.
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HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 ASC 350.the accounting guidance. The Company performs its goodwill impairment testing as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. ThisGoodwill impairment testing involves a two-step process. Step 1 compares the fair value of the Company’s reporting units to their carrying values to estimatedvalues. If the fair values and when appropriate,value of the reporting unit exceeds its carrying value, no further analysis is necessary. If the carrying value of thesethe reporting unit exceeds its fair value, Step 2 must be completed to quantify the amount of impairment.
Goodwill impairment testing requires judgment, including the identification of reporting units, assigning assets will be reducedand liabilities to estimatedreporting units and determining the fair value.value of each reporting unit. Significant judgments required to estimate the fair value of reporting 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. The aggregate fair value of the Company’s 2009reporting units is compared to the Company’s market capitalization on the valuation date to assess its reasonableness. Changes in these estimates and assumptions could materially affect the determination of fair valueand/or goodwill impairment for each reporting unit.
As of April 1, 2010, the impairment testing resulted in implied fair values for each reporting unit exceedingthat exceeded the reporting unit’s carrying value, including goodwill. The Company did not have any reporting units at risk of failing Step 1 of the impairment test as the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value) ranged from approximately 50% to approximately 200% for the respective reporting units. The Company has not recorded any goodwill impairments since the initial adoption of the accounting guidance in 2002. Additionally, the Company also performed its annual impairment testing of indefinite-lived intangible assets which resulted in no impairment.impairment in 2010, 2009 and 2008. 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 otherreviews depreciable long-lived assets when appropriatefor impairment whenever events or changes in accordance with the provisions ASC 360 “Property, Plant and Equipment” (“ASC 360”). Ifcircumstances indicate that the carrying value of assets exceedsamount may not be fully recoverable. If such a change in circumstances occurs, the sum of therelated estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition is compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, we record an impairment charge. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value of the assetasset. The fair value of impaired assets is written down to estimated fair value.determined using expected cash flow estimates, quoted market prices when available and appraisals as appropriate. The Company continually evaluates eventsdid not record any material impairment charges in 2010, 2009 and circumstances to determine if revisions to values or estimates of useful lives are warranted.
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HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2008.
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 ASC 740.the accounting guidance for incomes taxes. The effect of a change in statutory tax rates is recognized in the period that includes the enactment date. ASC 740 also requires thatAdditionally, deferred tax assets are required to 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
44
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
In addition, ASC 740the accounting guidance prescribes a recognition threshold and 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. Companies 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 Statements of these uncertain tax positions and the adoption in 2007 are included inSee also Note 1312 — Income Taxes.
Research and Development & Engineering
Research development and engineeringdevelopment 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 engineeringdevelopment expenses are recorded as a component of Cost of goods sold. Expenses for research development and engineeringdevelopment were less than 1% of Cost of goods sold for each of the years 2010, 2009 2008 and 2007.2008.
Retirement Benefits
The Company maintains various defined benefit pension plans for some of its U.S. and foreign employees. ASC 715The accounting guidance for retirement benefits 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 are recognized as components of Accumulated other comprehensive loss, net of tax, within 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. See also Note 1110 — 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 theThe earnings per share calculation pursuant toaccounting guidance requires use of the two-class method.method in determining earnings per share. The two-class method is an earnings allocation formula that treatsdetermines earnings per share for common stock and participating securities. Restricted stock granted by the Company is considered a participating security as having rightssince it contains a non-forfeitable right to earnings that would otherwise have been available to common shareholders.dividends. 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. 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 performance shares. See also Note 1918 — Earnings Per Share.
Stock-Based Employee Compensation
The Company measures stock-based employee compensation in accordance with ASC 718.the accounting guidance for stock based compensation. This standard requires expensing the value of all share-based payments, including stock options and similar awards, based upon the award’s fair value over the requisite service period. The expense is recorded in Cost of goods sold and S&A expense in the Consolidated Statement of Income based on the employees’ respective functions.
The Company records deferred tax assets for awards that will result in deductions on its tax returns, based upon the amount of compensation cost recognized and the statutory tax rate in the jurisdiction in which it will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual
45
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
tax deduction reporting in the Company’s tax return are recorded to Additional paid-in capital to the extent that previously recognized credits to paid-in capital are still available. See also Note 1817 — Stock-Based Compensation.
Comprehensive Income
Comprehensive income is a measure of net income and all other changes in Hubbell shareholders’ equity that result from recognized transactions and other events of the period other than transactions with shareholders. See also the Consolidated Statement of Changes in Equity and Note 2019 — Accumulated other comprehensive loss.Other Comprehensive Loss.
Derivatives
ToIn order to limit financial risk in the management of its assets, liabilities and debt, the Company may use derivative financial instruments such as: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. The Company does not speculate or use leverage when trading a derivative product. 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. See Note 1514 — Fair Value Measurement for more information regarding our derivative instruments.
Recent Accounting Pronouncements
On July 1, 2009,In January 2010, the FASB issued Statement of Financial Accounting StandardStandards Board (“SFAS”FASB”) No. 168, “The FASB Accounting Standards Codificationissued new guidance that both expanded and clarified the Hierarchy of Generally Accepted Accounting Principles”, also known as FASB Accounting Standards Codification (“ASC”) 105, “Generally Accepted Accounting Principles” (“ASC 105”) (the “Codification”). ASC 105 establishes the exclusive authoritative reference for U.S. GAAP for use in financial statements, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. Going forward, the FASB will not issue new standards in 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 income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. The Company has adopted these provisions effective January 1, 2009. The presentation and disclosure requirements related to fair value measurements. Entities are required to disclose separately the Company’s noncontrolling interest have been applied retrospectively. Seeamounts of significant transfers in and out of Level 1 and Level 2 of the Consolidated Financial Statementsfair value valuation hierarchy and Note 2 — Variable Interest Entities.
describe the reasons for the transfers. Additionally, entities are required to disclose and roll forward Level 3 activity on a gross basis rather than as one net number. The provisionsnew guidance also clarified that entities are required to provide fair value measurement disclosures for each class of ASC 815 require enhanced disclosures, including interim periodassets and liabilities. In addition, entities are required to provide disclosures about (a) howthe valuation techniques and why an entity uses derivative instruments, (b) how derivative instrumentsinputs used to measure fair value of assets and related 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 flows. Expandedliabilities that fall within Level 2 or Level 3 of the fair value valuation hierarchy. The new disclosures concerning where derivatives are
45
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reported onwere adopted by the balance sheet and where gains/losses are recognized in the results of operations are also required. The Company adopted the enhanced disclosure requirements of ASC 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, 2010, except for the Level 3 roll forward disclosures. The Level 3 roll forward disclosures are effective for fiscal years beginning after December 15, 2010 and, as a result, will be applied prospectively to transfers of financial assets completed after December 31, 2009. Theadopted by the Company does not anticipate these provisions will have a material impact on its financial statements.
In August 2009, the FASB issued ASU2009-5, “Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value” (“ASU2009-5”). This update provides clarification of the fair value measurement of financial liabilities when a quoted price in an active market for an identical liability (levelJanuary 1, input of the valuation hierarchy) is not available. The Company adopted the provisions of ASU2009-5 in the fourth quarter of 2009.2011. See Note 1514 — Fair Value Measurement.
In December 2009,July 2010 the FASB issued ASU2009-17, “Consolidations (Topic 810)” (“ASU2009-17”) which amendsnew accounting guidance to improve the consolidation guidancedisclosures that an entity provides about the credit quality of its financing receivables and the related allowance for 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 entitycredit losses. Accounts receivable with an approach expected to be primarily qualitative. ASU2009-17 will be applicableterms exceeding one year are considered finance receivables subject to the Company on January 1, 2010.provisions of this standard. The Company’s trade receivables, which arose from the sale of goods or services, have a contractual maturity of one year or less and therefore are not subject to the provisions of this standard. The Company has evaluateddoes not have any significant receivables with a term exceeding one year and as a result, the update and has determined that it willstandard does not have a material impact on its financial statements.the Company.
| |
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 ASC 810, HAL is considered a variable interest entity (“VIE”) and the Company is 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 disclosure requirements related to HAL’s noncontrolling interest have been applied retrospectively for all periods presented in accordance with ASC 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.
On October 2, 2009, the Company completed the purchase of Burndy for $355.2 million in cash (net of cash acquired of $33.6 million). Burndy is a leading North American manufacturer of connectors, cable accessories and tooling. Burndy serves commercial and industrial markets and utility customers primarily in the United States (with roughlyapproximately 25% of its sales in Canada, Mexico and Brazil). ThisThe Burndy acquisition was completedadded to complement Hubbell’sthe electrical systems business within the Electrical segment.
During the measurement period, which ended October 1, 2010, the Company finalized the tax attributes related to the Burndy acquisition and as a result recorded an additional deferred tax asset of $19.5 million with a corresponding reduction in goodwill. The balance sheet at December 31, 2009 has been retrospectively adjusted to reflect this adjustment as required by the business combinations accounting guidance. The following table
46
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
existing product offerings. The Burndy acquisition has been added to the electrical 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.
As of December 31, 2009, the Company had not yet finalized all the working capital adjustments with the seller. As a result, the purchase price allocation may change in future reporting periods, although the Company does not anticipate that these changes will be significant.
The following table summarizes the preliminaryfinal fair values of the assets acquired and the liabilities assumed related to the Burndy acquisition (in millions):
| | | | | | | | | | | | | | | | |
| | October 2, 2009 | | | Initial
| | 2010 Fair Value
| | Final
| |
| | Burndy | | | Valuation | | Adjustment | | Valuation | |
|
Purchase Price Allocation: | | | | | | | | | | | | | | | | |
Accounts receivable | | $ | 32.5 | | | $ | 32.5 | | | $ | — | | | $ | 32.5 | |
Inventory | | | 23.4 | | | | 23.4 | | | | — | | | | 23.4 | |
Deferred tax assets | | | 91.2 | | | | 91.2 | | | | 19.5 | | | | 110.7 | |
Property, plant and equipment | | | 40.7 | | | | 40.7 | | | | — | | | | 40.7 | |
Other assets | | | 11.1 | | | | 11.1 | | | | — | | | | 11.1 | |
Intangible assets | | | 134.4 | | | | 134.4 | | | | — | | | | 134.4 | |
Goodwill | | | 137.4 | | | | 137.4 | | | | (19.5 | ) | | | 117.9 | |
Deferred tax liabilities | | | (52.9 | ) | | | (52.9 | ) | | | — | | | | (52.9 | ) |
Liabilities related to contingencies | | | (11.8 | ) | | | (11.8 | ) | | | — | | | | (11.8 | ) |
Other liabilities | | | (50.8 | ) | | | (50.8 | ) | | | — | | | | (50.8 | ) |
| | | | | | | | | | |
Total Purchase price | | $ | 355.2 | | | $ | 355.2 | | | $ | — | | | $ | 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 the multi period excess earnings method. The valuation of tangible assets was derived using a combination of the income approach, the market approach and the cost approach.
The fair value of 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 acquisition. These contingent liabilities consisted of contingent consideration related to an acquisition Burndy completed in 2008 as well as environmental liabilities. The undiscounted fair value related to the contingent consideration liability is
47
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$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 selling 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 consolidated results. Supplemental pro forma information has not been provided as the acquired operations were a component of a larger legal entity and separate historical financial statements were not prepared. Since stand-alone financial information prior to the acquisition is not readily available, compilation of such data is impracticable.
In December 2009, the Company purchased a product line for $0.6 million. This product line, comprised of conductor bar and festoon systems, has been added to the electrical systems business within the Electrical segment.
The Consolidated Financial Statements include the results of operations of the acquired businesses from their respective dates of acquisition.
| |
Note 43 — | Receivables and Allowances |
Receivables consist of the following components at December 31, (in millions):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Trade accounts receivable | | $ | 325.5 | | | $ | 363.3 | | | $ | 351.7 | | | $ | 325.5 | |
Non-trade receivables | | | 10.5 | | | | 16.9 | | | | 14.5 | | | | 10.5 | |
| | | | | | | | | | |
Accounts receivable, gross | | | 336.0 | | | | 380.2 | | | | 366.2 | | | | 336.0 | |
Allowance for credit memos, returns, and cash discounts | | | (20.8 | ) | | | (19.2 | ) | | | (20.8 | ) | | | (20.8 | ) |
Allowance for doubtful accounts | | | (5.1 | ) | | | (4.0 | ) | | | (3.6 | ) | | | (5.1 | ) |
| | | | | | | | | | |
Total allowances | | | (25.9 | ) | | | (23.2 | ) | | | (24.4 | ) | | | (25.9 | ) |
| | | | | | | | | | |
Accounts receivable, net | | $ | 310.1 | | | $ | 357.0 | | | $ | 341.8 | | | $ | 310.1 | |
| | | | | | | | | | |
48
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Inventories are classified as follows at December 31, (in millions):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Raw material | | $ | 88.0 | | | $ | 108.6 | | | $ | 106.0 | | | $ | 88.0 | |
Work-in-process | | | 62.0 | | | | 65.7 | | | | 62.4 | | | | 62.0 | |
Finished goods | | | 185.2 | | | | 247.2 | | | | 206.4 | | | | 185.2 | |
| | | | | | | | | | |
| | | 335.2 | | | | 421.5 | | | | 374.8 | | | | 335.2 | |
Excess of FIFO over LIFO cost basis | | | (71.7 | ) | | | (86.3 | ) | | | (76.4 | ) | | | (71.7 | ) |
| | | | | | | | | | |
Total | | $ | 263.5 | | | $ | 335.2 | | | $ | 298.4 | | | $ | 263.5 | |
| | | | | | | | | | |
DuringIn 2009, inventory quantities have beenwere significantly 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 (an earnings per diluted share impact
47
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of approximately $0.13) 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 theseThe Company did not record any significant LIFO liquidations.liquidations in 2010.
| |
Note 65 — | Goodwill and Other Intangible Assets |
Changes in the carrying amounts of goodwill for the years ended December 31, 20092010 and 2008,2009, by segment, were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Segment | | | | | Segment | | | |
| | Electrical | | Power | | Total | | | Electrical | | Power | | Total | |
|
Balance December 31, 2007 | | $ | 256.4 | | | $ | 210.2 | | | $ | 466.6 | | |
| | | | | | | | |
Acquisitions | | | 87.4 | | | | 53.8 | | | | 141.2 | | |
Translation adjustments | | | (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 | | | | 112.6 | | | | 14.2 | | | | 126.8 | |
Translation adjustments | | | 9.0 | | | | 3.8 | | | | 12.8 | | | | 9.0 | | | | 3.8 | | | | 12.8 | |
| | | | | | | | | | | | | | |
Balance December 31, 2009 | | $ | 465.2 | | | $ | 278.5 | | | $ | 743.7 | | | $ | 445.7 | | | $ | 278.5 | | | $ | 724.2 | |
| | | | | | | | | | | | | | |
Adjustments | | | | 1.0 | | | | (3.2 | ) | | | (2.2 | ) |
Translation adjustments | | | | 1.5 | | | | 0.5 | | | | 2.0 | |
| | | | | | | | |
Balance December 31, 2010 | | | $ | 448.2 | | | $ | 275.8 | | | $ | 724.0 | |
| | | | | | | | |
InThe October 2009 the Company completed the purchase of Burndy. ThisBurndy acquisition resulted in $137.4goodwill of $117.9 million, ofwhich is not deductible for tax purposes. During 2010, goodwill which has been included in the Electrical segment. In addition, the Company finalized the purchase accountingrelated to this acquisition decreased $19.5 million for measurement period adjustments related to the 2008 acquisitionsfinalization of Varon and CDR Systems Corp. (“CDR”) in 2009. The Varon adjustment has beenBurndy’s deferred tax attributes. In the table above, these retrospective adjustments are reflected in the Electrical segment whilegoodwill balance at December 31, 2009, in accordance with the accounting guidance for business combinations. See also Note 2 — Business Acquisitions.
Additionally, upon finalization of the Company’s 2009 federal income tax return, adjustments were recorded related to the 2008 acquisition of the Varon Lighting Group, LLC and CDR adjustment has been reflectedSystems Corp. These adjustments, recorded in the Electrical and Power segment. For more information regarding the Burndy acquisition, see Note 3 — Business Acquisitions.segments, were $1.0 million and ($3.2) million, respectively.
The Company has not recorded any goodwill impairments since the initial adoption of the standardaccounting guidance 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,
| | | December 31,
| | December 31,
| |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
| | | | Accumulated
| | | | Accumulated
| | | | | Accumulated
| | | | Accumulated
| |
| | Gross Amount | | Amortization | | Gross Amount | | Amortization | | | Gross Amount | | Amortization | | Gross Amount | | Amortization | |
|
Definite-lived: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Patents, tradenames and trademarks | | $ | 83.0 | | | $ | (11.0 | ) | | $ | 84.4 | | | $ | (7.4 | ) | | $ | 83.6 | | | $ | (15.2 | ) | | $ | 83.0 | | | $ | (11.0 | ) |
Customer/Agent relationships and other | | | 181.3 | | | | (22.0 | ) | | | 74.2 | | | | (12.0 | ) | | | 183.1 | | | | (34.6 | ) | | | 181.3 | | | | (22.0 | ) |
| | | | | | | | | | | | | | | | | | |
Total | | | 264.3 | | | | (33.0 | ) | | | 158.6 | | | | (19.4 | ) | | | 266.7 | | | | (49.8 | ) | | | 264.3 | | | | (33.0 | ) |
Indefinite-lived: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Tradenames and other | | | 56.2 | | | | — | | | | 20.3 | | | | — | | | | 56.6 | | | | — | | | | 56.2 | | | | — | |
| | | | | | | | | | | | | | | | | | |
Total | | $ | 320.5 | | | $ | (33.0 | ) | | $ | 178.9 | | | $ | (19.4 | ) | | $ | 323.3 | | | $ | (49.8 | ) | | $ | 320.5 | | | $ | (33.0 | ) |
| | | | | | | | | | | | | | | | | | |
Amortization expense associated with these definite-lived intangible assets was $16.5 million, $12.6 million and $7.8 million in 2010, 2009 and $5.5 million in 2009, 2008, and 2007, respectively. Amortization expense associated with these intangible assets is expected to be $15.2$15.9 million in 2010,2011, $15.3 million in 2012, $14.9 million in 2011, $14.32013, $14.0 million in 2012, $13.92014 and $13.0 million in 2013 and $13.8 million in 2014.2015.
48
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
At December 31, 20092010 and December 31, 2008,2009, the Company had bothavailable-for-sale and trading investments. Theavailable-for-sale investments consisted entirely of municipal bonds. At December 31, 2009,bonds while the trading investments consistedwere comprised primarily of debt and 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.
The following table sets forth selected data with respect to the Company’s investments at December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
| | | | 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 | | $ | 25.1 | | | $ | 0.9 | | | $ | (0.1 | ) | | $ | 25.9 | | | $ | 25.9 | | | $ | 34.6 | | | $ | 0.6 | | | $ | (0.1 | ) | | $ | 35.1 | | | $ | 35.1 | | | $ | 35.7 | | | $ | 0.7 | | | $ | — | | | $ | 36.4 | | | $ | 36.4 | | | $ | 25.1 | | | $ | 0.9 | | | $ | (0.1 | ) | | $ | 25.9 | | | $ | 25.9 | |
Trading Investments | | | 1.9 | | | | 0.3 | | | | — | | | | 2.2 | | | | 2.2 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2.1 | | | | 0.5 | | | | — | | | | 2.6 | | | | 2.6 | | | | 1.9 | | | | 0.3 | | | | — | | | | 2.2 | | | | 2.2 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Investments | | $ | 27.0 | | | $ | 1.2 | | | $ | (0.1 | ) | | $ | 28.1 | | | $ | 28.1 | | | $ | 34.6 | | | $ | 0.6 | | | $ | (0.1 | ) | | $ | 35.1 | | | $ | 35.1 | | | $ | 37.8 | | | $ | 1.2 | | | $ | — | | | $ | 39.0 | | | $ | 39.0 | | | $ | 27.0 | | | $ | 1.2 | | | $ | (0.1 | ) | | $ | 28.1 | | | $ | 28.1 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Contractual maturities ofavailable-for-sale investments at December 31, 20092010 were as follows (in millions):
| | | | | | | | | | | | | | | | |
| | Amortized
| | Fair
| | | Amortized
| | | |
| | Cost | | Value | | | Cost | | Fair Value | |
|
Available-For-Sale Investments | | | | | | | | | | | | | | | | |
Due within 1 year | | $ | 2.6 | | | $ | 2.6 | | | $ | 8.8 | | | $ | 8.8 | |
After 1 year but within 5 years | | | 12.1 | | | | 12.7 | | | | 17.6 | | | | 18.1 | |
After 5 years but within 10 years | | | 5.0 | | | | 5.1 | | | | 6.6 | | | | 6.7 | |
Due after 10 years | | | 5.4 | | | | 5.5 | | | | 2.7 | | | | 2.8 | |
| | | | | | | | | | |
Total | | $ | 25.1 | | | $ | 25.9 | | | $ | 35.7 | | | $ | 36.4 | |
| | | | | | | | | | |
50
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
InAt December 31, 2010 and December 31, 2009, and 2008, the total net of tax unrealized gains recorded relating toavailable-for-sale securities were $0.3 million and less than $0.1 million, respectively.$0.5 million. These net unrealized gains have been included in Accumulated other comprehensive 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 for bothavailable-for-sale and trading securities were immaterial in 2010, 2009 2008 and 2007.2008.
| |
Note 87 — | Property, Plant, and Equipment |
Property, plant, and equipment, carried at cost, is summarized as follows at December 31, (in millions):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Land | | $ | 41.4 | | | $ | 36.3 | | | $ | 38.5 | | | $ | 41.4 | |
Buildings and improvements | | | 227.8 | | | | 212.8 | | | | 216.2 | | | | 227.8 | |
Machinery, tools and equipment | | | 620.0 | | | | 611.5 | | | | 635.8 | | | | 620.0 | |
Construction-in-progress | | | 16.3 | | | | 15.3 | | | | 16.2 | | | | 16.3 | |
| | | | | | | | | | |
Gross property, plant, and equipment | | | 905.5 | | | | 875.9 | | | | 906.7 | | | | 905.5 | |
Less accumulated depreciation | | | (536.7 | ) | | | (526.8 | ) | | | (548.4 | ) | | | (536.7 | ) |
| | | | | | | | | | |
Net property, plant, and equipment | | $ | 368.8 | | | $ | 349.1 | | | $ | 358.3 | | | $ | 368.8 | |
| | | | | | | | | | |
49
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 $47.1 million, $46.3 million and $43.9 million for 2010, 2009 and $43.1 million for 2009, 2008, and 2007, respectively.
| |
Note 98 — | Other Accrued Liabilities |
Other accrued liabilities consists of the following at December 31, (in millions):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Deferred revenue | | $ | 44.1 | | | $ | 39.2 | | | $ | 34.9 | | | $ | 44.1 | |
Customer program incentives | | | 23.5 | | | | 25.4 | | | | 31.2 | | | | 23.5 | |
Other | | | 87.1 | | | | 64.6 | | | | 75.5 | | | | 87.1 | |
| | | | | | | | | | |
Total | | $ | 154.7 | | | $ | 129.2 | | | $ | 141.6 | | | $ | 154.7 | |
| | | | | | | | | | |
| |
Note 109 — | Other Non-Current Liabilities |
Other non-current liabilities consists of the following at December 31, (in millions):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Pensions | | $ | 86.0 | | | $ | 107.8 | | | $ | 103.2 | | | $ | 86.0 | |
Other postretirement benefits | | | 36.8 | | | | 25.5 | | | | 32.1 | | | | 36.8 | |
Deferred tax liabilities | | | 83.2 | | | | 9.7 | | | | 21.2 | | | | 21.5 | |
Other | | | 40.8 | | | | 39.0 | | | | 44.9 | | | | 40.8 | |
| | | | | | | | | | |
Total | | $ | 246.8 | | | $ | 182.0 | | | $ | 201.4 | | | $ | 185.1 | |
| | | | | | | | | | |
| |
Note 1110 — | 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 sevensix 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 January 1, 2007 the defined benefit pension plan for Hubbell’s UK operations was closed to all new employees hired on or after January 1, 2007. These U.S., Canadian and 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 werehave been 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 some of their union employees. The 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 offer retiree medical benefits to all future union retirees. Furthermore, effective February 11, 2009, 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.
The Company uses a December 31 measurement date for all of its plans. NoThere were no amendments made in 20092010 or 20082009 to the defined benefit pension plans which had a significant impact on the total pension benefit obligation. During 2010, amendments made to the Hubbell and Burndy Retiree Medical Plans resulted in a reduction of $7.5 million to the liability.
5250
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 | |
| | 2009 | | 2008 | | 2009 | | 2008 | | | 2010 | | 2009 | | 2010 | | 2009 | |
|
Change in benefit obligation | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Benefit obligation at beginning of year | | $ | 578.9 | | | $ | 577.2 | | | $ | 28.0 | | | $ | 30.1 | | | $ | 647.0 | | | $ | 578.9 | | | $ | 39.7 | | | $ | 28.0 | |
Service cost | | | 12.2 | | | | 14.6 | | | | 0.6 | | | | 0.2 | | | | 12.7 | | | | 12.2 | | | | 0.3 | | | | 0.6 | |
Interest cost | | | 36.9 | | | | 35.8 | | | | 1.7 | | | | 1.7 | | | | 37.8 | | | | 36.9 | | | | 2.1 | | | | 1.7 | |
Plan participants’ contributions | | | 0.7 | | | | 0.9 | | | | — | | | | — | | | | 0.7 | | | | 0.7 | | | | — | | | | — | |
Amendments | | | — | | | | 0.2 | | | | (0.7 | ) | | | — | | | | — | | | | — | | | | (7.5 | ) | | | (0.7 | ) |
Curtailment and settlement gain | | | (0.5 | ) | | | — | | | | — | | | | (1.8 | ) | | | — | | | | (0.5 | ) | | | — | | | | — | |
Special termination benefits | | | — | | | | — | | | | — | | | | 0.1 | | |
Actuarial loss (gain) | | | 37.5 | | | | (4.1 | ) | | | (0.3 | ) | | | 0.3 | | | | 61.0 | | | | 37.5 | | | | 2.1 | | | | (0.3 | ) |
Acquisitions/Divestitures | | | 5.7 | | | | — | | | | 13.1 | | | | — | | | | — | | | | 5.7 | | | | — | | | | 13.1 | |
Currency impact | | | 5.5 | | | | (18.7 | ) | | | — | | | | — | | | | (1.3 | ) | | | 5.5 | | | | — | | | | — | |
Other | | | (0.1 | ) | | | (0.1 | ) | | | — | | | | 0.3 | | | | (0.7 | ) | | | (0.1 | ) | | | (0.5 | ) | | | — | |
Benefits paid | | | (29.8 | ) | | | (26.9 | ) | | | (2.7 | ) | | | (2.9 | ) | | | (34.7 | ) | | | (29.8 | ) | | | (3.2 | ) | | | (2.7 | ) |
| | | | | | | | | | | | | | | | | | |
Benefit obligation at end of year | | $ | 647.0 | | | $ | 578.9 | | | $ | 39.7 | | | $ | 28.0 | | | $ | 722.5 | | | $ | 647.0 | | | $ | 33.0 | | | $ | 39.7 | |
| | | | | | | | | | | | | | | | | | |
Change in plan assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Fair value of plan assets at beginning of year | | | 472.7 | | | | 609.1 | | | | — | | | | — | | | $ | 575.8 | | | $ | 472.7 | | | $ | — | | | $ | — | |
Actual return on plan assets | | | 89.1 | | | | (108.6 | ) | | | — | | | | — | | | | 54.6 | | | | 89.1 | | | | — | | | | — | |
Acquisitions/Divestitures | | | 7.4 | | | | — | | | | — | | | | — | | | | — | | | | 7.4 | | | | — | | | | — | |
Employer contributions | | | 30.0 | | | | 14.1 | | | | — | | | | — | | | | 26.5 | | | | 30.0 | | | | — | | | | — | |
Plan participants’ contributions | | | 0.7 | | | | 0.9 | | | | — | | | | — | | | | 0.7 | | | | 0.7 | | | | — | | | | — | |
Currency impact | | | 5.9 | | | | (15.9 | ) | | | — | | | | — | | | | (0.9 | ) | | | 5.9 | | | | — | | | | — | |
Settlement loss and other | | | (0.2 | ) | | | — | | | | — | | | | — | | | | — | | | | (0.2 | ) | | | — | | | | — | |
Benefits paid | | | (29.8 | ) | | | (26.9 | ) | | | — | | | | — | | | | (34.7 | ) | | | (29.8 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | |
Fair value of plan assets at end of year | | $ | 575.8 | | | $ | 472.7 | | | $ | — | | | $ | — | | | $ | 622.0 | | | $ | 575.8 | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | |
Funded status | | $ | (71.2 | ) | | $ | (106.2 | ) | | $ | (39.7 | ) | | $ | (28.0 | ) | | $ | (100.5 | ) | | $ | (71.2 | ) | | $ | (33.0 | ) | | $ | (39.7 | ) |
| | | | | | | | | | | | | | | | | | |
Amounts recognized in the consolidated balance sheet consist of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Prepaid pensions (included in Intangible assets and other) | | $ | 17.0 | | | $ | 4.8 | | | $ | — | | | $ | — | | | $ | 6.2 | | | $ | 17.0 | | | $ | — | | | $ | — | |
Accrued benefit liability (short-term and long-term) | | | (88.2 | ) | | | (111.0 | ) | | | (39.7 | ) | | | (28.0 | ) | | | (106.7 | ) | | | (88.2 | ) | | | (33.0 | ) | | | (39.7 | ) |
| | | | | | | | | | | | | | | | | | |
Net amount recognized | | $ | (71.2 | ) | | $ | (106.2 | ) | | $ | (39.7 | ) | | $ | (28.0 | ) | | $ | (100.5 | ) | | $ | (71.2 | ) | | $ | (33.0 | ) | | $ | (39.7 | ) |
| | | | | | | | | | | | | | | | | | |
Amounts recognized in Accumulated other comprehensive loss (income) consist of: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Net actuarial loss (gain) | | $ | 115.3 | | | $ | 136.9 | | | $ | (1.2 | ) | | $ | (0.8 | ) | | $ | 153.8 | | | $ | 115.3 | | | $ | 0.8 | | | $ | (1.2 | ) |
Prior service cost (credit) | | | 1.5 | | | | 1.9 | | | | (2.5 | ) | | | (2.0 | ) | | | 1.2 | | | | 1.5 | | | | (9.1 | ) | | | (2.5 | ) |
| | | | | | | | | | | | | | | | | | |
Net amount recognized | | $ | 116.8 | | | $ | 138.8 | | | $ | (3.7 | ) | | $ | (2.8 | ) | | $ | 155.0 | | | $ | 116.8 | | | $ | (8.3 | ) | | $ | (3.7 | ) |
| | | | | | | | | | | | | | | | | | |
5351
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The accumulated benefit obligation for all defined benefit pension plans was $595.2$669.6 million and $529.8$595.2 million at December 31, 20092010 and 2008,2009, respectively. Information with respect to plans with accumulated benefit obligations in excess of plan assets is as follows, (in millions):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 |
|
Projected benefit obligation | | $ | 73.5 | | | $ | 499.8 | | | $ | 623.3 | | | $ | 73.5 | |
Accumulated benefit obligation | | $ | 67.5 | | | $ | 461.8 | | | $ | 586.1 | | | $ | 67.5 | |
Fair value of plan assets | | $ | 11.0 | | | $ | 388.7 | | | $ | 517.4 | | | $ | 11.0 | |
The following table sets forth the components of pension and other benefit costs for the years ended December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits | | | Pension Benefits | | Other Benefits | |
| | 2009 | | 2008 | | 2007 | | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | | 2010 | | 2009 | | 2008 | |
|
Components of net periodic benefit cost | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | | $ | 12.2 | | | $ | 14.6 | | | $ | 16.9 | | | $ | 0.6 | | | $ | 0.2 | | | $ | 0.5 | | | $ | 12.7 | | | $ | 12.2 | | | $ | 14.6 | | | $ | 0.3 | | | $ | 0.6 | | | $ | 0.2 | |
Interest cost | | | 36.9 | | | | 35.8 | | | | 32.7 | | | | 1.7 | | | | 1.7 | | | | 1.7 | | | | 37.8 | | | | 36.9 | | | | 35.8 | | | | 2.1 | | | | 1.7 | | | | 1.7 | |
Expected return on plan assets | | | (37.2 | ) | | | (47.5 | ) | | | (42.6 | ) | | | — | | | | — | | | | — | | | | (41.7 | ) | | | (37.2 | ) | | | (47.5 | ) | | | — | | | | — | | | | — | |
Amortization of prior service cost | | | 0.3 | | | | 0.4 | | | | (0.3 | ) | | | (0.2 | ) | | | (0.2 | ) | | | (0.2 | ) | |
Amortization of prior service cost/(credit) | | | | 0.3 | | | | 0.3 | | | | 0.4 | | | | (0.3 | ) | | | (0.2 | ) | | | (0.2 | ) |
Amortization of actuarial losses | | | 7.3 | | | | 1.3 | | | | 1.9 | | | | — | | | | — | | | | 0.1 | | | | 5.4 | | | | 7.3 | | | | 1.3 | | | | — | | | | — | | | | — | |
Curtailment and settlement losses (gains) | | | 0.1 | | | | — | | | | (0.1 | ) | | | — | | | | (1.7 | ) | | | 1.4 | | | | (0.1 | ) | | | 0.1 | | | | — | | | | (0.6 | ) | | | — | | | | (1.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Net periodic benefit cost | | $ | 19.6 | | | $ | 4.6 | | | $ | 8.5 | | | $ | 2.1 | | | $ | — | | | $ | 3.5 | | | $ | 14.4 | | | $ | 19.6 | | | $ | 4.6 | | | $ | 1.5 | | | $ | 2.1 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | | | | | | | $ | 46.7 | | | $ | (14.8 | ) | | $ | 148.9 | | | $ | 2.1 | | | $ | (0.3 | ) | | $ | 0.3 | |
Current year prior service cost | | | — | | | | 0.2 | | | | | | | | (0.8 | ) | | | — | | | | | | |
Current year prior service (cost)/credit | | | | — | | | | — | | | | 0.2 | | | | (7.6 | ) | | | (0.8 | ) | | | — | |
Amortization of prior service (cost)/credit | | | (0.3 | ) | | | (0.4 | ) | | | | | | | 0.2 | | | | 0.2 | | | | | | | | (0.3 | ) | | | (0.3 | ) | | | (0.4 | ) | | | 0.9 | | | | 0.2 | | | | 0.2 | |
Amortization of net actuarial loss | | | (7.3 | ) | | | (1.3 | ) | | | | | | | — | | | | — | | | | | | | | (5.4 | ) | | | (7.3 | ) | | | (1.3 | ) | | | — | | | | — | | | | — | |
Currency impact | | | — | | | | (1.0 | ) | | | | | | | — | | | | — | | | | | | | | (3.3 | ) | | | — | | | | (1.0 | ) | | | — | | | | — | | | | — | |
Other adjustments | | | 0.4 | | | | 0.1 | | | | | | | | — | | | | — | | | | | | | | 0.5 | | | | 0.4 | | | | 0.1 | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Total recognized in accumulated other comprehensive income | | | (22.0 | ) | | | 146.5 | | | | | | | | (0.9 | ) | | | 0.5 | | | | | | |
Total recognized in accumulated other comprehensive (income) loss | | | | 38.2 | | | | (22.0 | ) | | | 146.5 | | | | (4.6 | ) | | | (0.9 | ) | | | 0.5 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total recognized in net periodic pension cost and other comprehensive loss (income) | | $ | (2.4 | ) | | $ | 151.1 | | | | | | | $ | 1.2 | | | $ | 0.5 | | | | | | | $ | 52.6 | | | $ | (2.4 | ) | | $ | 151.1 | | | $ | (3.1 | ) | | $ | 1.2 | | | $ | 0.5 | |
| | | | | | | | | | | | | | | | | | | | | | |
Amortization expected to be recognized through income during 2010 | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization expected to be recognized through income during 2011 | | | | | | | | | | | | | | | | | | | | | | | | | |
Amortization of prior service cost/(credit) | | $ | 0.3 | | | | | | | | | | | $ | (0.2 | ) | | | | | | | | | | $ | 0.2 | | | | | | | | | | | $ | (1.0 | ) | | | | | | | | |
Amortization of net loss | | | 4.9 | | | | | | | | | | | | — | | | | | | | | | | | | 8.1 | | | | | | | | | | | | — | | | | | | | | | |
| | | | | | | | | | |
Total expected to be recognized through income during next fiscal year | | $ | 5.2 | | | | | | | | | | | $ | (0.2 | ) | | | | | | | | | | $ | 8.3 | | | | | | | | | | | $ | (1.0 | ) | | | | | | | | |
| | | | | | | | | | |
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 $0.7 million in 2010, $0.8 million in 2009 and $0.9 million in 2008 and $0.7 million in 2007.2008. In 2009, the Company requested a withdrawal calculation related to the closure of a facility. The
5452
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 beenmillion. This expense was recorded by the Company as an expense in 2009.2009 and ultimately paid in early 2010.
The Company also maintains sevensix defined contribution pension plans. The total cost of these plans was $6.5 million in 2010 and $5.9 million in both 2009 and 2008, and $5.8 million in 2007, 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 | |
| | 2009 | | 2008 | | 2007 | | 2009 | | 2008 | | 2007 | | 2010 | | 2009 | | 2008 | | 2010 | | 2009 | | 2008 | |
|
Weighted-average assumptions used to determine benefit obligations at December 31, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Discount rate | | | 5.96 | % | | | 6.46 | % | | | 6.41 | % | | | 6.00 | % | | | 6.50 | % | | | 6.50 | % | | | 5.38 | % | | | 5.96 | % | | | 6.46 | % | | | 5.40 | % | | | 6.00 | % | | | 6.50 | % |
Rate of compensation increase | | | 3.57 | % | | | 4.07 | % | | | 4.58 | % | | | 3.50 | % | | | 4.00 | % | | | 4.00 | % | | | 3.56 | % | | | 3.57 | % | | | 4.07 | % | | | 3.50 | % | | | 3.50 | % | | | 4.00 | % |
Weighted-average assumptions used to determine net periodic benefit cost for years ended 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 | % |
Expected return on plan assets | | | 8.00 | % | | | 8.00 | % | | | 8.00 | % | | | N/A | | | | N/A | | | | N/A | | | | 7.50 | % | | | 8.00 | % | | | 8.00 | % | | | N/A | | | | N/A | | | | N/A | |
Rate of compensation increase | | | 4.07 | % | | | 4.07 | % | | | 4.58 | % | | | 4.00 | % | | | 4.00 | % | | | 4.00 | % | | | 3.57 | % | | | 4.07 | % | | | 4.07 | % | | | 3.50 | % | | | 4.00 | % | | | 4.00 | % |
At the end 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 |
| | 2009 | | 2008 | | 2007 | | 2010 | | 2009 | | 2008 |
|
Assumed health care cost trend rates at December 31, | | | | | | | | | | | | | | | | | | |
Health care cost trend assumed for next year | | | 8.0 | % | | | 8.0 | % | | | 9.0 | % | | | 9.0 | % | | | 8.0 | % | | | 8.0 | % |
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 | | | | 2017 | | | | 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
| | One Percentage
| | One Percentage
|
| | Point Increase | | Point Decrease | | Point Increase | | Point Decrease |
|
Effect on total of service and interest cost | | $ | 0.1 | | | $ | (0.1 | ) | | $ | 0.1 | | | $ | (0.1 | ) |
Effect on postretirement benefit obligation | | $ | 1.3 | | | $ | (1.2 | ) | | $ | 1.6 | | | $ | (1.5 | ) |
5553
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Plan Assets
The Company’s combined targeted and actual domestic and foreign pension plan weighted average asset allocation at December 31, 2011, 2010 2009 and 20082009 by asset category are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Target
| | Percentage of
| | | Target
| | Percentage of
| |
| | Allocation
| | Plan Assets | | | Allocation
| | Plan Assets | |
| | 2010 | | 2009 | | 2008 | | | 2011 | | 2010 | | 2009 | |
|
Asset Category | | | | | | | | | | | | | | | | | | | | | | | | |
Equity securities | | | 47 | % | | | 50 | % | | | 45 | % | | | 43 | % | | | 44 | % | | | 50 | % |
Debt securities & Cash | | | 34 | % | | | 32 | % | | | 37 | % | | | 37 | % | | | 38 | % | | | 32 | % |
Alternative Investments | | | 19 | % | | | 18 | % | | | 18 | % | | | 20 | % | | | 18 | % | | | 18 | % |
| | | | | | | | | | | | | | |
Total | | | 100 | % | | | 100 | % | | | 100 | % | | | 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 written investment policies 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 $20.0 million (3.7% of total domestic plan assets) and $15.9 million (3.2% of total domestic plan assets) and $10.9 million (2.6% of total domestic plan assets) at December 31, 20092010 and 2008,2009, respectively.
5654
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of the Company’s pension plan assets at December 31, 2010 and 2009, by asset category are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Quoted Prices in
| | Quoted Prices in
| | | | | | | Quoted Prices in
| | Quoted Prices in
| | | |
| | | | Active Markets
| | Active Markets
| | Significant
| | | | | Active Markets
| | Active Market
| | Significant
| |
| | | | for Identical
| | for Similar Asset
| | Unobservable
| | | | | for Identical
| | for Similar Asset
| | Unobservable
| |
Asset Category | | Total | | Assets (Level 1) | | (Level 2) | | Inputs (Level 3) | | | Total | | Assets (Level 1) | | (Level 2) | | Inputs (Level 3) | |
|
Cash and cash equivalents | | $ | 25.2 | | | $ | 25.2 | | | $ | — | | | $ | — | | | $ | 25.2 | | | $ | 25.2 | | | $ | — | | | $ | — | |
Equity securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
US Large-cap(a) | | | 109.1 | | | | 109.1 | | | | — | | | | — | | | | 109.1 | | | | 109.1 | | | | — | | | | — | |
US Mid-cap and Small-cap Growth(b) | | | 19.1 | | | | 19.1 | | | | — | | | | — | | | | 19.1 | | | | 19.1 | | | | — | | | | — | |
International Large-cap | | | 62.7 | | | | 62.7 | | | | — | | | | — | | | | 62.7 | | | | 62.7 | | | | — | | | | — | |
Emerging Markets | | | 43.9 | | | | 43.9 | | | | — | | | | — | | | | 43.9 | | | | 43.9 | | | | — | | | | — | |
Fixed Income Securities: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
US Treasuries | | | 60.3 | | | | 60.3 | | | | — | | | | — | | | | 60.3 | | | | 60.3 | | | | — | | | | — | |
Corporate Bonds(c) | | | 91.7 | | | | 91.7 | | | | — | | | | — | | | | 91.7 | | | | 91.7 | | | | — | | | | — | |
Asset Backed Securities and Other | | | 7.2 | | | | 7.2 | | | | — | | | | — | | | | 7.2 | | | | 7.2 | | | | — | | | | — | |
Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Futures(d) | | | 51.6 | | | | — | | | | 51.6 | | | | — | | | | 51.6 | | | | — | | | | 51.6 | | | | — | |
Fixed Income Futures | | | 0.3 | | | | — | | | | 0.3 | | | | — | | | | 0.3 | | | | — | | | | 0.3 | | | | — | |
Alternative Investment Funds | | | 104.7 | | | | — | | | | — | | | | 104.7 | | | | 104.7 | | | | — | | | | — | | | | 104.7 | |
| | | | | | | | | | | | | | | | | | |
Total | | $ | 575.8 | | | $ | 419.2 | | | $ | 51.9 | | | $ | 104.7 | | |
Balance at December 31, 2009 | | | $ | 575.8 | | | $ | 419.2 | | | $ | 51.9 | | | $ | 104.7 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | Quoted Prices in
| | | Quoted Prices in
| | | | |
| | | | | Active Markets
| | | Active Market
| | | Significant
| |
| | | | | for Identical
| | | for Similar Asset
| | | Unobservable
| |
| | Total | | | Assets (Level 1) | | | (Level 2) | | | Inputs (Level 3) | |
|
Cash and cash equivalents | | $ | 56.0 | | | $ | 56.0 | | | $ | — | | | $ | — | |
Equity securities: | | | | | | | | | | | | | | | | |
US Large-cap(a) | | | 144.9 | | | | 144.9 | | | | — | | | | — | |
US Mid-cap and Small-cap Growth(b) | | | 24.1 | | | | 24.1 | | | | — | | | | — | |
International Large-cap | | | 37.1 | | | | 37.1 | | | | — | | | | — | |
Emerging Markets | | | 39.8 | | | | 39.8 | | | | — | | | | — | |
Fixed Income Securities: | | | | | | | | | | | | | | | | |
US Treasuries | | | 56.2 | | | | 56.2 | | | | — | | | | — | |
Corporate Bonds(c) | | | 75.9 | | | | 75.9 | | | | — | | | | — | |
Asset Backed Securities and Other | | | 47.1 | | | | 47.1 | | | | — | | | | — | |
Derivatives: | | | | | | | | | | | | | | | | |
Equity Futures(d) | | | 30.2 | | | | — | | | | 30.2 | | | | — | |
Alternative Investment Funds | | | 110.7 | | | | — | | | | — | | | | 110.7 | |
| | | | | | | | | | | | | | | | |
Balance at December 31, 2010 | | $ | 622.0 | | | $ | 481.1 | | | $ | 30.2 | | | $ | 110.7 | |
| | | | | | | | | | | | | | | | |
| | |
(a) | | Includes an actively managed portfolio of large-cap US stocks |
|
(b) | | Includes $20.0 million and $15.9 million of the Company’s common stock at December 31, 2010 and 2009, respectively, 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 |
55
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of the Company’s pension plan assets measured using significant unobservable inputs (Level 3) at December 31, 2009,2010, by asset category are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Institutional
| | Distressed
| | | | | Institutional
| | Distressed
| | | | | |
| | Fund of
| | Opportunities
| | | | | Fund of
| | Opportunities
| | | | | |
| | Hedge Funds | | Fund | | Total | | | Hedge Funds | | Fund | | Total | | | |
|
Balance at December 31, 2008 | | $ | 77.2 | | | $ | 3.9 | | | $ | 81.1 | | | $ | 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 | | | | 10.4 | | | | 0.5 | | | | 10.9 | | | | | |
Relating to assets sold during the period | | | | — | | | | — | | | | — | | | | | |
Purchases, sales and settlements, net | | | 11.3 | | | | 1.4 | | | | 12.7 | | | | 11.3 | | | | 1.4 | | | | 12.7 | | | | | |
Transfers in and/or out of Level 3 | | | | — | | | | — | | | | — | | | | | |
| | | | | | | | | | | | | | |
Balance at December 31, 2009 | | $ | 98.9 | | | $ | 5.8 | | | $ | 104.7 | | | $ | 98.9 | | | $ | 5.8 | | | $ | 104.7 | | | | | |
| | | | | | | | | | | | | | |
Actual return on plan assets: | | | | | | | | | | | | | | | | | |
Relating to assets still held at the reporting date | | | | 4.4 | | | | 1.3 | | | | 5.7 | | | | | |
Relating to assets sold during the period | | | | — | | | | — | | | | — | | | | | |
Purchases, sales and settlements, net | | | | — | | | | 0.3 | | | | 0.3 | | | | | |
Transfers in and/or out of Level 3 | | | | — | | | | — | | | | — | | | | | |
| | | | | | | | |
Balance at December 31, 2010 | | | $ | 103.3 | | | $ | 7.4 | | | $ | 110.7 | | | | | |
| | | | | | | | |
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 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, 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 2010.2011. The Company expects to contribute approximately $5$3.5 million to its foreign plans in 2010.2011.
56
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Estimated Future Benefit Payments
The following domestic and foreign benefit payments, which reflect future service, as appropriate, are expected to be paid as follows, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Other Benefits | | | | | Other Benefits |
| | | | | | Medicare
| | | | | | | | | Medicare
| | |
| | | | | | Part D
| | | | | | | | | Part D
| | |
| | Pension Benefits | | Gross | | Subsidy | | Net | | | Pension Benefits | | Gross | | Subsidy | | Net |
|
2010 | | $ | 29.9 | | | $ | 3.1 | | | $ | 0.2 | | | $ | 2.9 | | |
2011 | | $ | 31.5 | | | $ | 3.1 | | | $ | 0.2 | | | $ | 2.9 | | | $ | 31.7 | | | $ | 3.0 | | | $ | 0.2 | | | $ | 2.8 | |
2012 | | $ | 33.1 | | | $ | 3.1 | | | $ | 0.2 | | | $ | 2.9 | | | $ | 33.3 | | | $ | 3.0 | | | $ | 0.2 | | | $ | 2.8 | |
2013 | | $ | 35.7 | | | $ | 3.1 | | | $ | 0.2 | | | $ | 2.9 | | | $ | 36.2 | | | $ | 3.0 | | | $ | 0.2 | | | $ | 2.8 | |
2014 | | $ | 37.3 | | | $ | 3.0 | | | $ | 0.2 | | | $ | 2.8 | | | $ | 38.1 | | | $ | 2.9 | | | $ | 0.2 | | | $ | 2.7 | |
2015-2019 | | $ | 210.4 | | | $ | 14.2 | | | $ | 0.8 | | | $ | 13.4 | | |
2015 | | | $ | 40.1 | | | $ | 2.8 | | | $ | 0.2 | | | $ | 2.6 | |
2016-2020 | | | $ | 233.1 | | | $ | 12.5 | | | $ | 0.8 | | | $ | 11.7 | |
The following table sets forth the components of the Company’s debt structure at December 31, (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 |
| | 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 | | $ | — | | | $ | 497.2 | | | $ | 497.2 | | | $ | — | | | $ | 497.4 | | | $ | 497.4 | | | $ | 1.8 | | | $ | 595.9 | | | $ | 597.7 | | | $ | — | | | $ | 497.2 | | | $ | 497.2 | |
Highest aggregate month-end balance | | | | | | | | | | $ | 563.5 | | | | | | | | | | | $ | 497.4 | | | | | | | | | $ | 715.7 | | | | | | | | | $ | 563.5 | |
Average borrowings | | $ | 5.5 | | | $ | 496.8 | | | $ | 502.3 | | | $ | 97.9 | | | $ | 373.2 | | | $ | 471.1 | | | $ | 2.3 | | | $ | 525.8 | | | $ | 528.1 | | | $ | 5.5 | | | $ | 496.8 | | | $ | 502.3 | |
Weighted average interest rate: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At year end | | | — | | | | 6.12 | % | | | 6.12 | % | | | — | | | | 6.12 | % | | | 6.12 | % | | | 14.12 | % | | | 4.79 | % | | | 4.82 | % | | | — | | | | 6.12 | % | | | 6.12 | % |
Paid during the year | | | 0.26 | % | | | 6.12 | % | | | 5.85 | % | | | 3.38 | % | | | 6.21 | % | | | 5.62 | % | | | 17.00 | % | | | 5.51 | % | | | 5.56 | % | | | 0.26 | % | | | 6.12 | % | | | 5.85 | % |
The Company’s short-term debt consisted of a 4.0 million Brazilian Real line of credit with HSBC Bank which is used to fund its Brazilian operations. At December 31, 2010, 3.0 million Brazilian Real are outstanding (equivalent to $1.8 million). This line of credit expires in March 2011 and is not subject to any annual commitment fees. The interest rate on the debt reflects the prevailing interest rate for short-term borrowings in Brazil.
At December 31, 20092010 and 2008,2009, the Company had $497.2$595.9 million and $497.4$497.2 million, respectively, of senior notes reflected as Long-term debt in the Consolidated Balance Sheet. Interest and fees paid related to total indebtedness totaledwas $28.4 million, $29.8 million for 2009,and $24.5 million forin 2010, 2009 and 2008, and $17.1 million for 2007.respectively.
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,November 2010, the Company completed the sale ofa public debt offering for $300 million of long-term, senior, unsecured notes maturing in 2018November 2022 and bearing interest at thea fixed rate of 5.95%3.625%. The Company received $294.8 in proceeds offrom the May 2008 debt offering, net of discounts and debt issuance costs. The discount and issuance costs were useddeferred and are being amortized to pay down commercial paper borrowingsinterest expense over the term of the 2022 Notes. Interest on the 2022 Notes will be paid semi-annually in May and for general corporate purposes.November, commencing in May 2011. In connection with the issuance of the 2022 Notes, the Company entered into a forward starting swap to hedge its exposure to fluctuations in treasury rates, which resulted in a loss of $1.6 million during the fourth quarter of 2010 when the Company closed out this position. This amount has been recorded, net of tax, in accumulated other comprehensive loss and will be amortized to interest expense over the life of the 2022 Notes.
Both of these notes are fixed rate indebtedness, are not callable and are only subject to accelerated payment prior to maturity ifSimultaneous with the November 2010 debt offering, the Company fails to meet certain non-financial covenants,also announced the cash tender offer for any and all of whichits $200 million (6.375%) senior notes that were met at December 31, 2009 and 2008. The most restrictivescheduled to mature in May 2012. Upon expiration of these covenants limits our ability to enter into mortgages
5857
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and sale-leasebacks of property having a net book value in excess of $5the tender offer, $81.9 million without the approval of the aggregate outstanding principal amount of the 2012 Notes were validly tendered and accepted. Subsequent to the expiration of the tender offer, the Company elected to redeem the remaining outstanding principal of $118.1 million under the provisions of the 2012 Notes. The loss on this transaction (recorded as part of the Loss on extinguishment of debt in the Consolidated Statement of Income), including the make whole premium paid, expenses and the write-off of the remaining deferred issuance costs associated with the 2012 Notes, was approximately $17.3 million. The net cash proceeds remaining from the 2022 Note holders.issuance, subsequent to the tender/redemption of the 2012 Notes, were used for general corporate purposes.
In conjunction with the early extinguishment of the 2012 Notes, the Company terminated its interest rate swap associated with these notes. This interest rate swap was accounted for as a fair value hedge and was used to convert the stated interest rate of the 2012 Notes from fixed to floating. At the time of termination, this interest rate swap wasin-the-money and resulted in a gain of $2.6 million. This gain was recorded as part of the Loss on extinguishment of debt in the Consolidated Statement of Income.
In May 2008, the Company completed a public offering of $300 million long-term senior, unsecured notes maturing in May 2018. The 2018 Notes bear interest at a fixed rate of 5.95%. Prior to the 2002 and 2008 issuance of the long term notes,2018 Notes, the Company entered into a 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 lockwhich resulted in a $1.2 million gain. These amounts wereThis amount was recorded in Accumulated other comprehensive loss, net of tax, and areis being amortized over the life of the respective notes.
In September 2009,The 2018 Notes and the Company entered into2022 Notes are both fixed rate indebtedness, are callable at any time with a line of credit agreement with Credit Suisse for approximately 30 million Swiss francsmake whole premium and are only subject 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 interest rate swap for an aggregate notional amount of $200 millionaccelerated payment prior to manage its exposure to changesmaturity in the fair valueevent of its 6.375% $200 million fixed rate debt maturing in May 2012. Undera default under the swap,indenture governing 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 valueterms of the fixed-rate debt. For2018 Notes and 2022 Notes, as modified by the year ended December 31, 2009, interest expense was reduced $1.2 millionsupplemental indentures creating each such series, or upon a change of control event as a result of entering into the interest rate swap.defined in such indenture.
In March 2008, the Company exercised its option to expand its credit facility by $100 million, bringing the total credit facility to $350 million. The expiration date of the credit agreement2007 Credit Agreement is October 31, 2012. 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 Hubbell shareholders’ equity). The Company was in compliance with all debt covenants at December 31, 20092010 and 2008.2009. 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, 2009.2010.
TheIn September 2009, the Company maintainsentered into 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 agreement with Banco Real that expires in April 2010.Credit Suisse for approximately 30 million Swiss francs (equivalent to $31.6 million) 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 thesethis credit agreements. Thesefacility. The Company also maintains a 2.1 million pound sterling credit facilities werefacility (equivalent to $3.2 million) with HSBC Bank in the UK which is set for renewal on November 30, 2011. There are no annual commitment fees associated with this credit agreement which was undrawn as of December 31, 2009.2010.
In addition to the above credit commitments, the Company has an unsecured line of credit for $60$35 million with Bank of America, N.A. to support issuance of its letters of credit. At December 31, 2009,2010, the Company had approximately $32.5$22.8 million of letters of credit outstanding under this facility.
5958
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (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):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Income before income taxes: | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 183.1 | | | $ | 213.6 | | | $ | 191.9 | | | $ | 224.5 | | | $ | 183.1 | | | $ | 213.6 | |
International | | | 78.5 | | | | 104.8 | | | | 92.3 | | | | 95.9 | | | | 78.5 | | | | 104.8 | |
| | | | | | | | | | | | | | |
Total | | $ | 261.6 | | | $ | 318.4 | | | $ | 284.2 | | | $ | 320.4 | | | $ | 261.6 | | | $ | 318.4 | |
| | | | | | | | | | | | | | |
Provision for income taxes — current: | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | | $ | 25.3 | | | $ | 64.1 | | | $ | 60.6 | | | $ | 47.5 | | | $ | 25.3 | | | $ | 64.1 | |
State | | | 7.2 | | | | 11.0 | | | | 7.7 | | | | 7.8 | | | | 7.2 | | | | 11.0 | |
International | | | 15.5 | | | | 19.4 | | | | 11.3 | | | | 21.3 | | | | 15.5 | | | | 19.4 | |
| | | | | | | | | | | | | | |
Total provision-current | | | 48.0 | | | | 94.5 | | | | 79.6 | | | | 76.6 | | | | 48.0 | | | | 94.5 | |
| | | | | | | | | | | | | | |
Provision for income taxes — deferred: | | | | | | | | | | | | | | | | | | | | | | | | |
Federal | | $ | 29.5 | | | $ | 8.5 | | | $ | (8.4 | ) | | $ | 24.3 | | | $ | 29.5 | | | $ | 8.5 | |
State | | | (0.2 | ) | | | (10.6 | ) | | | (0.7 | ) | | | 1.5 | | | | (0.2 | ) | | | (10.6 | ) |
International | | | 3.0 | | | | 2.8 | | | | 5.4 | | | | (0.8 | ) | | | 3.0 | | | | 2.8 | |
| | | | | | | | | | | | | | |
Total provision — deferred | | | 32.3 | | | | 0.7 | | | | (3.7 | ) | | | 25.0 | | | | 32.3 | | | | 0.7 | |
| | | | | | | | | | | | | | |
Total provision for income taxes | | $ | 80.3 | | | $ | 95.2 | | | $ | 75.9 | | | $ | 101.6 | | | $ | 80.3 | | | $ | 95.2 | |
| | | | | | | | | | | | | | |
6059
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):
| | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | | 2010 | | 2009 | |
|
Deferred tax assets: | | | | | | | | | | | | | | | | |
Inventory | | $ | 6.4 | | | $ | 8.1 | | | $ | 8.0 | | | $ | 6.4 | |
Income tax credits | | | 33.2 | | | | 22.1 | | | | 18.8 | | | | 16.6 | |
Accrued liabilities | | | 18.0 | | | | 14.5 | | | | 13.8 | | | | 17.4 | |
Pension | | | 34.4 | | | | 42.2 | | | | 35.7 | | | | 34.4 | |
Postretirement and post employment benefits | | | 11.2 | | | | 12.2 | | | | 18.8 | | | | 11.2 | |
Stock-based compensation | | | 10.2 | | | | 9.4 | | | | 11.3 | | | | 10.2 | |
Net operating loss carryforwards | | | 50.0 | | | | 1.7 | | | | 75.9 | | | | 86.6 | |
Miscellaneous other | | | 0.8 | | | | 11.1 | | | | 1.4 | | | | 0.8 | |
| | | | | | | | | | |
Gross deferred tax assets | | | 164.2 | | | | 121.3 | | | | 183.7 | | | | 183.6 | |
Valuation allowance | | | (2.2 | ) | | | (2.5 | ) | | | (2.6 | ) | | | (2.2 | ) |
| | | | | | | | | | |
Total net deferred tax assets | | $ | 162.0 | | | $ | 118.8 | | | $ | 181.1 | | | $ | 181.4 | |
| | | | | | | | | | |
Deferred tax liabilities: | | | | | | | | | | | | | | | | |
Acquisition basis difference | | | 107.4 | | | | 47.4 | | | | 115.7 | | | | 107.4 | |
Property, plant, and equipment | | | 29.5 | | | | 44.5 | | | | 27.7 | | | | 29.5 | |
| | | | | | | | | | |
Total deferred tax liabilities | | $ | 136.9 | | | $ | 91.9 | | | $ | 143.4 | | | $ | 136.9 | |
| | | | | | | | | | |
Total net deferred tax asset/(liability) | | $ | 25.1 | | | $ | 26.9 | | |
Total net deferred tax asset | | | $ | 37.7 | | | $ | 44.5 | |
| | | | | | | | | | |
Deferred taxes are reflected in the Consolidated Balance Sheet as follows (in millions): | | | | | | | | | |
Deferred taxes are reflected in the Consolidated Balance Sheet as follows: | | | | | | | | | |
Current tax assets (included in Deferred taxes and other) | | $ | 56.0 | | | $ | 28.3 | | | $ | 24.7 | | | $ | 46.7 | |
Non-current tax assets (included in Intangible assets and other) | | | 52.3 | | | | 8.3 | | | | 34.2 | | | | 19.3 | |
Non-current tax liabilities (included in Other Non-current liabilities) | | | (83.2 | ) | | | (9.7 | ) | | | (21.2 | ) | | | (21.5 | ) |
| | | | | | | | | | |
Total net deferred tax asset/(liability) | | $ | 25.1 | | | $ | 26.9 | | |
Total net deferred tax asset | | | $ | 37.7 | | | $ | 44.5 | |
| | | | | | | | | | |
During 2010, the Company determined that the December 31, 2009 deferred tax assets and deferred tax liabilities related to the Burndy acquisition were misclassified, primarily as a result of improperly applying the jurisdictional netting rule of the income taxes accounting guidance. As a result, the Company revised the December 31, 2009 balance sheet by decreasing current deferred tax assets by $17.1 million, decreasing non-current deferred tax assets by $44.6 million and by decreasing its non-current deferred tax liability by $61.7 million. In 2010, the Company also finalized the tax attributes associated with the Burndy acquisition and as a result recorded an additional $19.5 million of deferred tax assets. Both of these revisions have been reflected in the December 31, 2009 data presented in the table above.
As of December 31, 2009,2010, the Company had a total of $33.2$18.8 million of Federal and State tax credit carryforwards, net of Federal benefit (including credit carryforwards of $19.9$3.3 million related to the Burndy acquisition) available to offset future income taxes, of which $0.8 million may be carried forward indefinitely while the remaining $32.4$18.0 million will begin to expire at various times beginning in 20102011 through 2025.2026. The Company has recorded a net valuation allowance of $2.2$2.6 million for the portion of the tax carryforward creditscredit carryforwards the Company anticipates will expire prior to utilization. Additionally, as of December 31, 2009,2010, the Company had recorded tax benefits totaling $50.0$75.9 million (including $48.5$74.7 million related to the Burndy acquisition) for Federal and State net operating loss carryforwards (“NOLs”). The tax benefit related to these NOLs has been adjusted to
60
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 the adjusted NOLs prior to their expiration.
At December 31, 2009,2010, income and withholding taxes have not been provided on approximately $301.8$381.0 million of undistributed international earnings that are permanently reinvested in international operations. If such earnings were not indefinitely reinvested, a tax liability of approximately $47.3$68.7 million would be recognized.
Cash payments of income taxes were $74.0 million, $53.4 million in 2009,and $68.8 million in 2010, 2009 and 2008, and $79.7 million in 2007.
61
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)respectively.
The Company files incomeoperates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax returns inauthorities routinely audit the U.S. federal jurisdiction and various states and foreign jurisdictions.Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. During 2008,2010, the IRS commencedconcluded an examinationaudit 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 asfederal income tax returns; however, the statue of December 31, 2009. Thelimitations has not yet expired for these years. As a result of this audit, the Company expectsrecorded an additional $2.2 million of income tax expense during the third quarter of 2010. A cash payment of $12.7 million related to finalize the 06/07 exam duringthis audit was made in October 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 2002.2003.
The following tax years, by major jurisdiction, are still subject to examination by taxing authorities:
| | | | |
Jurisdiction | | Open Years | |
|
United States | | | 2006-20092006-2010 | |
Canada | | | 2006-20092007-2010 | |
UK | | | 2008-20092008-2010 | |
As a result of adopting certain provisions of ASC 740 on January 1, 2007, the Company recognized a $4.7 million decrease in the liability for unrecognized tax benefits. This adjustment was recorded as an increase to retained earnings. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Unrecognized tax benefits at beginning of year | | $ | 17.3 | | | $ | 8.7 | | | $ | 24.2 | | | $ | 30.6 | | | $ | 17.3 | | | $ | 8.7 | |
Additions based on tax positions relating to the current year | | | 3.0 | | | | 4.5 | | | | 2.8 | | | | 2.5 | | | | 3.0 | | | | 4.5 | |
Reductions based on expiration of statute of limitations | | | (1.4 | ) | | | (0.4 | ) | | | (1.3 | ) | | | (0.7 | ) | | | (1.4 | ) | | | (0.4 | ) |
Additions (reductions) to tax positions relating to previous years | | | 11.8 | | | | 4.7 | | | | (13.8 | ) | |
Additions to tax positions relating to previous years | | | | 1.0 | | | | 11.8 | | | | 4.7 | |
Settlements | | | (0.1 | ) | | | (0.2 | ) | | | (3.2 | ) | | | (8.2 | ) | | | (0.1 | ) | | | (0.2 | ) |
| | | | | | | | | | | | | | |
Total unrecognized tax benefits | | $ | 30.6 | | | $ | 17.3 | | | $ | 8.7 | | | $ | 25.2 | | | $ | 30.6 | | | $ | 17.3 | |
| | | | | | | | | | | | | | |
Included in the balance at December 31, 20092010 are $17.8$13.6 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 $2.4$0.9 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. In each of the years 2009 and 2008, theThe Company recognized approximately $1.0 million in 2010 and $0.8 million of expense related to interestbefore federal tax benefit in both 2009 and penalties. In 2007, the Company recorded a credit of $2.7 million2008 related to interest and penalties. The Company had $2.6$1.5 million and $1.8$2.6 million accrued for the payment of interest and penalties as of December 31, 20092010 and December 31, 2008,2009, respectively.
6261
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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Federal statutory income tax rate | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | 35.0 | % | | | | | | | 35.0 | % | | | | | | | 35.0 | % | | | | |
State income taxes, net of federal benefit | | | 2.0 | | | | 2.7 | | | | 1.8 | | | | 1.7 | | | | | | | | 2.0 | | | | | | | | 2.7 | | | | | |
Foreign income taxes | | | (3.1 | ) | | | (3.9 | ) | | | (5.4 | ) | | | (4.2 | ) | | | | | | | (3.1 | ) | | | | | | | (3.9 | ) | | | | |
State tax credits and loss carryforwards | | | (0.1 | ) | | | (2.0 | ) | | | — | | |
IRS audit settlement | | | — | | | | — | | | | (1.9 | ) | |
State tax credits/refunds and loss carryforwards | | | | (0.4 | ) | | | | | | | (0.1 | ) | | | | | | | (2.0 | ) | | | | |
Out of period adjustment | | | (1.9 | ) | | | — | | | | — | | | | — | | | | | | | | (1.9 | ) | | | | | | | — | | | | | |
Other, net | | | (1.2 | ) | | | (1.9 | ) | | | (2.8 | ) | | | (0.4 | ) | | | | | | | (1.2 | ) | | | | | | | (1.9 | ) | | | | |
| | | | | | | | | | | | | | |
Consolidated effective income tax rate | | | 30.7 | % | | | 29.9 | % | | | 26.7 | % | | | 31.7 | % | | | | | | | 30.7 | % | | | | | | | 29.9 | % | | | | |
| | | | | | | | | | | | | | |
During the year ended December 31, 2009, the Company recorded an immaterial out of periodout-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 benefit of $5.3 million recorded in connection with the completion of an IRS examination of the Company’s 2004 and 2005 tax returns.
| |
Note 1413 — | 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, 2009.2010. However, the Company’s top 10 customers accounted for approximately 35%31% of the accounts receivable balance at December 31, 2009.2010. 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 76 — Investments and Note 1514 — 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 $539.6$619.7 million and $484.7$539.6 million at December 31, 20092010 and 2008,2009, respectively.
| |
Note 1514 — | Fair Value Measurement |
ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”), provides enhanced guidanceFair value is defined as the amount that would be received for usingselling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure assets and liabilities and expands disclosure with respect tofair value. The three broad levels of the fair value measurements. In 2008, the Company elected to defer adoption of ASC 820 until January 1, 2009 for nonfinancial assets and nonfinancial liabilities thathierarchy are recognized or disclosed at fair value in the financial statements on a non-recurring basis.as follows:
| | |
Level 1 — | | Quoted prices (unadjusted) in active markets for identical assets or liabilities |
Level 2 — | | Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly |
Level 3 — | | Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions |
6362
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES 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: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or 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 and Level 3 inputs are unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions.
The 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, 20092010 and 20082009 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Quoted Prices in
| | Quoted Prices in
| | | | Quoted Prices in
| | Quoted Prices in
| | | Quoted Prices in
| | Quoted Prices in
| | | |
| | | | Active Markets
| | Active Markets
| | | | Active Markets
| | Active Markets for
| | | Active Markets
| | Active Markets
| | | |
| | December 31,
| | for Identical
| | for Similar Assets
| | December 31,
| | for Identical
| | Similar Assets
| | | for Identical
| | for Similar
| | | |
Asset (Liability) | | 2009 | | Assets (Level 1) | | (Level 2) | | 2008 | | Assets (Level 1) | | (Level 2) | | | Assets (Level 1) | | Assets (Level 2) | | Total | |
|
Long term investments | | $ | 26.5 | | | $ | 26.5 | | | $ | — | | | $ | 35.1 | | | $ | 35.1 | | | $ | — | | |
Deferred compensation plan assets | | | 1.6 | | | | 1.6 | | | | — | | | | — | | | | — | | | | — | | |
December 31, 2010 | | | | | | | | | | | | | |
Available for sale investments | | | $ | 36.4 | | | $ | — | | | $ | 36.4 | |
Trading securities | | | | 2.6 | | | | — | | | | 2.6 | |
Deferred compensation plan liabilities | | | | (2.5 | ) | | | — | | | | (2.5 | ) |
Derivatives: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Forward exchange contracts | | | (1.1 | ) | | | — | | | | (1.1 | ) | | | 1.9 | | | | — | | | | 1.9 | | | | — | | | | (0.6 | ) | | | (0.6 | ) |
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 | | | $ | 36.5 | | | $ | (0.6 | ) | | $ | 35.9 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | Quoted Prices in
| | | Quoted Prices in
| | | | |
| | Active Markets
| | | Active Markets
| | | | |
| | for Identical
| | | for Similar
| | | | |
| | Assets (Level 1) | | | Assets (Level 2) | | | Total | |
|
December 31, 2009 | | | | | | | | | | | | |
Available for sale investments | | $ | 25.9 | | | $ | — | | | $ | 25.9 | |
Trading securities | | | 2.2 | | | | — | | | | 2.2 | |
Deferred compensation plan liabilities | | | (1.6 | ) | | | — | | | | (1.6 | ) |
Derivatives: | | | | | | | | | | | | |
Forward exchange contracts | | | — | | | | (1.1 | ) | | | (1.1 | ) |
Interest rate swap | | | — | | | | (0.5 | ) | | | (0.5 | ) |
| | | | | | | | | | | | |
| | $ | 26.5 | | | $ | (1.6 | ) | | $ | 24.9 | |
| | | | | | | | | | | | |
The methods and assumptions used to estimate the Level 2 fair values were as follows:
Forward exchange contracts — The fair value of forward exchange contracts were based on quoted forward foreign exchange prices at the reporting date.
Interest rate swap — The fair value of interest rate swap agreements were estimated based on the LIBOR yield curves at the reporting date.
During 2010 and 2009, there were no transfers of financial assets or liabilities in or out of Level 1 or Level 2 of the fair value hierarchy. At December 31, 20092010 and December 31, 2008,2009, the Company did not have any financial assets or liabilities that fell within the Level 3 hierarchy.
Long-term Investments
At December 31, 2010 and December 31, 2009, and 2008, long-term investments included $25.9the Company had $36.4 million and $35.1$25.9 million, respectively, of municipal bonds classified asavailable-for-sale securities. The Company also had $0.6$2.6 million and $2.2 million of trading securities reflected as long-term investments as ofat December 31, 2009.2010 and December 31, 2009, respectively. 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.
6463
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred compensation plan
The Company offers certain employees the opportunity to participate in a non-qualified deferred compensation plan. A participant’s deferrals are invested in a variety of participant-directed debt and equity mutual funds that are classified as trading securities. The unrealized gains and losses associated with these trading securities are directly offset by the changes in the fair value of the underlying deferred compensation plan obligation.
Derivatives
ToIn order to limit financial risk in the management of its assets, liabilities and debt, the Company may use derivative financial instruments such as: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 values of derivative instruments in the Consolidated Balance Sheet are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Asset/(Liability) Derivatives | | | Asset/(Liability) Derivatives | |
| | | | Fair Value | | | | | Fair Value | |
| | | | December 31,
| | December 31,
| | | | | December 31,
| | December 31,
| |
Derivatives designated as hedges in accordance with ASC 815 | | Balance Sheet Location | | 2009 | | 2008 | | |
Derivatives designated as hedges | | | Balance Sheet Location | | 2010 | | 2009 | |
|
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 | ) | | | — | | | | Other accrued liabilities | | | $ | (0.6 | ) | | $ | (1.1 | ) |
Interest rate swap designated as a fair value hedge | | | Other non-current liabilities | | | | (0.5 | ) | | | — | | | | Other non-current liabilities | | | | — | | | | (0.5 | ) |
| | | | | | | | | | | | |
| | | | | | $ | (1.6 | ) | | $ | 1.9 | | | | | | | $ | (0.6 | ) | | $ | (1.6 | ) |
| | | | | | | | | | | | |
Forward exchange contracts
In 20092010 and 2008,2009, 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, 2009,2010, 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.2011. These contracts have been designated as cash flow hedges in accordance with ASC 815.the accounting guidance for derivatives.
The following table summarizes the amounts and location of gains/(losses) recognized in Accumulated other comprehensive loss and reclassified into income related to forward exchange contracts (in millions):
| | | | | | | | | | | | | | | | |
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
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest Rate Locks
Prior to the 20022010 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 20022010 interest rate lock resulted in a $1.3$1.6 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, 2010 there was $0.5 million of net unamortized losses reflected in Accumulated other comprehensive loss.
Additionally, upon extinguishment of the 2012 Notes, the Company had $0.2 million of unamortized losses related to an interest rate lock that had been entered into prior to the notes issuance in 2002. This amount was written off to Interest expense in the Consolidated Statement of Income. As of December 31, 2009, and 2008, there werethe Company had $0.4 million and $0.3 million, respectively, of net unamortized gains remaining.reflected in Accumulated other comprehensive loss related to the 2012 and 2018 Notes.
64
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table summarizes the amounts recognized in Accumulated other comprehensive related to these forward exchange contracts and interest rate locks (in millions):
| | | | | | | | |
| | December 31,
| | | December 31,
| |
Loss Recognized in Accumulated Other Comprehensive Loss (net of tax) | | 2010 | | | 2009 | |
|
Forward exchange contracts | | $ | (0.6 | ) | | $ | (1.8 | ) |
Interest rate locks | | | (1.0 | ) | | | — | |
The following table summarizes the gains/(losses) reclassified from Accumulated other comprehensive loss into income related to these forward exchange contracts and interest rate locks for the years ended December 31, (in millions):
| | | | | | | | | | | | |
Location of Gain/(Loss) Reclassified into Income (Effective Portion) | | 2010 | | | 2009 | | | 2008 | |
|
Cost of goods sold | | $ | (1.4 | ) | | $ | 0.4 | | | $ | 0.9 | |
Interest expense | | | (0.2 | ) | | | (0.1 | ) | | | (0.1 | ) |
There was no hedge ineffectiveness with respect to the forward exchange cash flow hedges during 2010, 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 2012 Notes. In conjunction with the early extinguishment of these notes, the Company terminated its interest rate swap associated with these notes. This interest rate swap was accounted for as a fair value hedge and was used to convert the stated interest rate of the 2012 Notes from floating to fixed. At the time of termination, this interest rate swap wasin-the-money and resulted in a gain of $2.6 million. This gain was recorded as part of the Loss on extinguishment of debt in the Consolidated Statement of Income. Prior to its termination, the interest rate swap reduced interest expense by $2.2 million in 2010.
Long-term Debt
The total carrying value of long-term debt as of December 31, 20092010 was $497.2$595.9 million, net of unamortized discount and a basis adjustment related to a fair value hedge.discount. As of December 31, 2009,2010, the estimated fair value of the long-term debt was $539.6$619.7 million based on quoted market prices.
| |
Note 1615 — | 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 and environmental obligations in accordance with ASC 410 “Asset Retirement and Environmental Obligations” (“ASC 410”). ASC 410the applicable accounting guidance. The accounting guidance defines “conditional asset retirement obligation” as 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
65
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. These items were not material to the Company’s results of operations, financial position or cash flows as of, December 31, 2010, 2009 2008 and 2007.2008. The Company continues to monitor and revalue its liability as necessary and, as of December 31, 20092010 the liability continues to be immaterial.
Leases
Total rental expense under operating leases was $22.3 million in 2010, $22.2 million in 2009 and $22.4 million in 2008, and $20.2 million in 2007.2008. The minimum annual rentals on non-cancelable, long-term, operating leases in effect at December 31, 20092010 are expected to approximate $13.0 million in 2010, $8.8$13.5 million in 2011, $6.1$10.4 million in 2012, $4.7$8.9 million in 2013, $3.8$6.5 million in 2014, $5.1 million in 2015 and $16.2$21.2 million thereafter. The Company accounts for its leases in accordance with 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.
66
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Activity in the Company’s common shares outstanding is set forth below for the three years ended December 31, 2009,2010 (in thousands):
| | | | | | | | | | | | | | | | |
| | Common Stock | | | Common Stock | |
| | Class A | | Class B | | | Class A | | Class B | |
|
Outstanding at December 31, 2006 | | | 8,177 | | | | 52,001 | | |
| | | | | | |
Exercise of stock options/stock appreciation rights | | | — | | | | 1,356 | | |
Shares issued under compensation arrangements | | | — | | | | 2 | | |
Non-vested shares issued under compensation arrangements, net of forfeitures | | | — | | | | 101 | | |
Acquisition/surrender of shares | | | (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 | | |
Non-vested shares issued under compensation arrangements, net of forfeitures | | | — | | | | 175 | | |
Shares issued under director compensation arrangements | | | | — | | | | 2 | |
Restricted shares issued, net of forfeitures | | | | — | | | | 175 | |
Acquisition/surrender of shares | | | (213 | ) | | | (1,883 | ) | | | (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 | | | | — | | | | 2,990 | |
Exercise of stock options/stock appreciation rights | | | — | | | | 194 | | | | — | | | | 194 | |
Shares issued under compensation arrangements | | | 2 | | | | 155 | | |
Non-vested shares issued under compensation arrangements, net of forfeitures | | | — | | | | 87 | | |
Shares issued under director compensation arrangements | | | | 2 | | | | 155 | |
Restricted shares issued, net of forfeitures | | | | — | | | | 87 | |
Acquisition/surrender of shares | | | — | | | | (35 | ) | | | — | | | | (35 | ) |
| | | | | | | | | | |
Outstanding at December 31, 2009 | | | 7,167 | | | | 52,493 | | | | 7,167 | | | | 52,493 | |
| | | | | | | | | | |
Exercise of stock options/stock appreciation rights | | | | — | | | | 1,351 | |
Restricted/performance shares issued, net of forfeitures | | | | — | | | | 143 | |
Acquisition/surrender of shares | | | | — | | | | (458 | ) |
| | | | | | |
Outstanding at December 31, 2010 | | | | 7,167 | | | | 53,529 | |
| | | | | | |
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 (the “Option Plan”) or surrendered to the Company by employees in settlement of their tax liability on vesting of restricted shares and performance shares under the Hubbell Incorporated 2005 Incentive Award Plan, (the “ Award “Award
66
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Plan”). Voting rights per share: Class A Common — twenty;shares have twenty votes per share, while Class B Common — one.shares have one vote per share. 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-
67
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
thousandthone-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 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, 20092010 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 | | | — | | | | 2,501 | | | | — | | | | — | | | | 1,178 | | | | — | |
Future grant of stock-based compensation | | | — | | | | 2,690 | | | | — | | | | — | | | | 3,253 | | | | — | |
Exercise of stock purchase rights | | | — | | | | — | | | | 60 | | | | — | | | | — | | | | 61 | |
Shares reserved under other equity compensation plans | | | — | | | | 140 | | | | — | | | | — | | | | 140 | | | | — | |
| | | | | | | | | | | | | | |
Total | | | — | | | | 5,331 | | | | 60 | | | | — | | | | 4,571 | | | | 61 | |
| | | | | | | | | | | | | | |
| |
Note 1817 — | Stock-Based Compensation |
As of December 31, 2009,2010, the Company had various stock-based awards outstanding which were issued to executives and other key employees. These awards have been accounted for 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.
ASC 718accounting guidance requires that share-based compensation expense be
67
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 toThe Company recognizes the adoptioncost of ASC 718, share-based compensation expense was recorded for retirement-eligible employeesthese awards on a straight-line basis over the awards’ stated vesting period. With the adoption of ASC 718, the Company continues to follow the stated vesting period for the unvested portions of awards granted prior to adoption of ASC 718 and follows thetheir respective substantive vesting period for awards granted after the adoptionperiods, net of ASC 718.estimated forfeitures.
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 of the Company’s Class B Common Stock pursuant to the Award Plan. UnderIn May 2010, the Company’s shareholders approved an amendment and restatement of the Award Plan which increased the Company may authorize uptotal number of shares available for issuance under the Award Plan from 5.9 million to 5.96.9 million shares of Class B Common Stock inStock. These shares are to be used for the settlement of restricted stock, performance shares, SARs or any post-2004
68
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
grants of stock options.and SARs. The Company issues new shares for settlement of any stock-based awards. In 2009,2010, the Company issued stock-based awards using a combination of restricted stock, SARs and performance shares.
In 2010, 2009 2008 and 2007,2008, the Company recorded $11.4 million, $10.3 million, $12.5 million, and $12.7$12.5 million of stock-based compensation costs, respectively. Of the total 20092010 expense, $9.8$10.9 million was recorded to S&A expense and $0.5 million was recorded to Cost of goods sold. In 2009 and 2008, and 2007, $12.1$9.8 million and $11.9$12.1 million, respectively, was recorded to S&A expense and $0.4$0.5 million and $0.8$0.4 million, respectively was recorded to Cost of goods sold. Stock-based compensation costs capitalized to inventory were $0.1 million in 2010, 2009 2008 and 2007.2008. The Company recorded income tax benefits of approximately $4.3 million, $3.9 million and $4.7 million in 2010, 2009 and $4.8 million in 2009, 2008, and 2007 respectively, related to stock-based compensation. At December 31, 2009,2010, 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, 2009,2010, there was $17.2$18.4 million, pretax, of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized through 2012.2013.
Each of the compensation arrangements is discussed below.
Restricted Stock
Stock Issued to Employees
Restricted stock granted is not transferable and is subject to forfeiture in the event of the recipient’s termination of employment prior to vesting. The restricted stock generally vests 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. RecipientsRestricted stock awards are considered outstanding at the time of grant, as the award holders are entitled to receive dividends and voting rights on their non-vestedrights. Unvested restricted stock.stock awards are considered participating securities in computing earnings per share. The restricted stock 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 2010, 2009 and 2008, each non-employee director received a grant of 750 shares of Class B Common Stock. In 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. During the years 2010, 2009 2008 and 2007,2008, the Company issued to non-employee directors 15,750 shares, 6,000 shares and 6,750 shares, and 3,150 shares, respectively.
68
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Activity related to both employee and non-employee restricted stock for the year ended December 31, 20092010 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, 2008 | | | 278 | | | $ | 38.02 | | |
Restricted stock at December 31, 2009 | | | | 249 | | | $ | 39.82 | |
Shares granted | | | 111 | | | $ | 46.23 | | | | 108 | | | | 58.18 | |
Shares vested | | | (116 | ) | | $ | 41.92 | | | | (122 | ) | | | 40.39 | |
Shares forfeited | | | (24 | ) | | $ | 38.37 | | | | (5 | ) | | | 39.77 | |
| | | | | | | | | | |
Non-vested restricted stock at December 31, 2009 | | | 249 | | | $ | 39.82 | | |
Restricted stock at December 31, 2010 | | | | 230 | | | $ | 43.25 | |
| | | | | | | | |
The weighted average fair value per share of restricted stock granted during the years 2010, 2009 and 2008 was $58.18, $46.23 and 2007$29.92, respectively. The total fair value of restricted stock vested during the years 2010, 2009 and 2008 was $46.23, $29.92$7.2 million, $5.3 million and $54.52,$3.1 million, respectively.
69
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Appreciation Rights
SARs granted 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, 20092010 is as follows (in thousands, except exercise amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Weighted
| | | | | | | | | Weighted
| | | |
| | | | | | Average
| | | | | | | | | Average
| | | |
| | | | Weighted
| | Remaining
| | Aggregate
| | | | | Weighted
| | Remaining
| | Aggregate
| |
| | Number of
| | Average
| | Contractual
| | Intrinsic
| | | Number of
| | Average
| | Contractual
| | Intrinsic
| |
| | Rights | | Exercise Price | | Term | | Value | | | Rights | | Exercise Price | | Term | | Value | |
|
Outstanding at December 31, 2008 | | | 2,061 | | | $ | 43.57 | | | | | | | | | | |
Outstanding at December 31, 2009 | | | | 2,322 | | | $ | 44.27 | | | | | | | | | |
Granted | | | 369 | | | | 46.96 | | | | | | | | | | | | 332 | | | | 59.95 | | | | | | | | | |
Exercised | | | (14 | ) | | | 29.28 | | | | | | | | | | | | (141 | ) | | | 38.90 | | | | | | | | | |
Forfeited | | | (30 | ) | | | 52.14 | | | | | | | | | | | | (20 | ) | | | 39.44 | | | | | | | | | |
Cancelled | | | (64 | ) | | | 36.88 | | | | | | | | | | |
Canceled | | | | (20 | ) | | | 52.51 | | | | | | | | | |
| | | | | | | | | | |
Outstanding at December 31, 2009 | | | 2,322 | | | $ | 44.27 | | | | 8.0 years | | | $ | 13,220 | | |
Outstanding at December 31, 2010 | | | | 2,473 | | | $ | 46.65 | | | | 7.4 years | | | $ | 33,332 | |
| | | | | | | | | | | | | | | | | | |
Exercisable at December 31, 2009 | | | 1,326 | | | $ | 48.14 | | | | 7.1 years | | | $ | 4,132 | | |
Exercisable at December 31, 2010 | | | | 1,658 | | | $ | 46.48 | | | | 6.6 years | | | $ | 22,632 | |
| | | | | | | | | | | | | | | | | | |
The aggregated intrinsic value of SARs exercised during 2010 and 2009 was $2.8 million and $0.2 million.million, respectively. There were no SARs exercised during 2008 and the aggregate intrinsic value of SARs exercised in 2007 was not material.2008.
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, 2010, 2009 2008 and 2007.2008. 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
69
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 |
|
2010 | | | | 2.7 | % | | | 28.0 | % | | | 1.9 | % | | | 6 Years | | | $ | 12.79 | |
2009 | | | 3.2 | % | | | 26.5 | % | | | 3.0 | % | | | 7 Years | | | $ | 9.83 | | | | 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 | | |
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 December 2010, 2009 2008 and 2007,2008, the Company granted 31,671, 34,592, and 54,494 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 2007 grant includes both performance and market-based 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 FebruaryDecember 2007, the Company granted 34,78330,292 performance shares, with both performance and market-based criteria. The performance period related to the FebruaryDecember 2007 grant was from January 1, 20072008 through December 31, 2009.2010. There were 31,01826,740 of these shares, net of forfeitures, outstanding as of December 31, 2009.2010. In February 2010,2011, the Company paid out 41,12331,548 shares related to this grant. This payout is based upon achieving 66% and 170% of the performance and market-based criteria, respectively.
In February 2010, the Company issued 41,123 shares related to its February 2007 performance award grant. The performance period related to this grant was from January 1, 2007 through December 31, 2009. This payout was based upon achieving 82% and 183% of the performance and market-based criteria, respectively.
The fair value of the DecemberFebruary 2007 performance sharesaward at vesting was calculated separately for the$1.8 million. There were no performance criteriashare awards that vested in 2009 and the market-based criteria. The fair value of the performance criteria of $50.94 per share for the December 2007 grant, 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. 2008.
The fair value of the market-based criteria for the December 2007,2010, 2009 and 2008 and 2009performance share 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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Price on
| | | | | | | | | | Weighted Avg.
| | | Stock Price on
| | | | | | | | | | Weighted Avg.
|
| | Measurement
| | Dividend
| | Expected
| | Risk Free
| | Expected
| | Grant Date
| | | Measurement
| | Dividend
| | Expected
| | Risk Free
| | Expected
| | Grant Date
|
| | Date | | Yield | | Volatility | | Interest Rate | | Term | | Fair Value | | | Date | | Yield | | Volatility | | Interest Rate | | Term | | Fair Value |
|
December 2010 | | | $ | 59.95 | | | | 2.4 | % | | | 38.8 | % | | | 0.8 | % | | | 3 Years | | | $ | 80.11 | |
December 2009 | | $ | 46.96 | | | | 3.0 | % | | | 38.6 | % | | | 1.4 | % | | | 3 Years | | | $ | 61.81 | | | $ | 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 | | | $ | 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 | | |
Total stock-based compensation expense recorded related to performance share awards was $1.9 million, $1.7 million and $0.1 million in 2010, 2009 and $0.9 million in 2009, 2008, and 2007, respectively. There has been no stock based compensation recorded related to the December 20092010 performance award as the service inception date for this particular award begins on January 1, 2010.2011.
70
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Option Awards
Prior to 2005, the Company granted options to officers and other key employees to purchase the Company’s Class B Common 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 expire ten years after 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. The last stock options granted by the Company were in 2004.
Stock option activity for the year ended December 31, 20092010 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, 2008 | | | 2,777 | | | $ | 39.82 | | | | | | | | | | |
Outstanding at December 31, 2009 | | | | 2,501 | | | $ | 40.44 | | | | | | | | | |
Exercised | | | (191 | ) | | | 29.82 | | | | | | | | | | | | (1,321 | ) | | | 37.29 | | | | | | | | | |
Canceled | | | (85 | ) | | | 43.89 | | | | | | | | | | | | (2 | ) | | | 44.31 | | | | | | | | | |
| | | | | | | | | | |
Outstanding at December 31, 2009 | | | 2,501 | | | $ | 40.44 | | | | 3.6 years | | | $ | 8,470 | | |
Outstanding at December 31, 2010 | | | | 1,178 | | | $ | 43.98 | | | | 3.2 years | | | $ | 19,030 | |
| | | | | | | | | | | | | | | | | | |
Exercisable at December 31, 2009 | | | 2,501 | | | $ | 40.44 | | | | 3.6 years | | | $ | 8,470 | | |
Exercisable at December 31, 2010 | | | | 1,178 | | | $ | 43.98 | | | | 3.2 years | | | $ | 19,030 | |
| | | | | | | | | | | | | | | | | | |
The aggregate intrinsic value of stock option exercises during 2010, 2009 and 2008 and 2007 was $22.8 million, $2.5 million $2.2 million and $19.9$2.2 million, respectively. Cash received from option exercises was $49.3 million, $5.7 million and $8.1 million for 2010, 2009 and $48.02008, respectively.
The Company recorded realized tax benefits from equity-based awards of $9.7 million, $1.3 million and $0.8 million for the periods ended December 31, 2010, 2009 and 2008, respectively, which have been included in Cash Flows From Financing Activities.
| |
Note 18 — | Earnings Per Share |
The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and 2007, respectively.participating securities. Restricted stock granted by the Company is considered a participating security since it contains a non-forfeitable right to dividends.
71
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recorded realized tax benefits from equity-based awards of $1.3 million, $0.8 million and $6.9 million for the periods ended December 31, 2009, 2008 and 2007, respectively, which have been included in Cash Flows From Financing Activities in the Consolidated Statement of Cash Flows as prescribed by ASC 718.
| |
Note 19 — | 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 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 each of the years ended December 31, 2008 and 2007.
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):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Earnings per basic share: | | | | | | | | | | | | | |
Numerator: | | | | | | | | | | | | | |
Net income attributable to Hubbell | | $ | 180.1 | | | $ | 222.7 | | | $ | 208.3 | | | $ | 217.2 | | | $ | 180.1 | | | $ | 222.7 | |
Less: Distributed and undistributed earnings allocated to participating securities | | | 0.8 | | | | 0.8 | | | | 0.6 | | |
Less: Earnings allocated to participating securities | | | | 0.9 | | | | 0.8 | | | | 0.8 | |
| | | | | | | | | | | | | | |
Net income available to common shareholders | | | 179.3 | | | | 221.9 | | | | 207.7 | | | $ | 216.3 | | | $ | 179.3 | | | $ | 221.9 | |
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 | | |
Denominator: | | | | | | | | | | | | | |
Average number of common shares outstanding | | | 56.8 | | | | 56.2 | | | | 59.0 | | | | 59.9 | | | | 56.8 | | | | 56.2 | |
Potential dilutive shares | | | 0.2 | | | | 0.3 | | | | 0.5 | | | | 0.4 | | | | 0.2 | | | | 0.3 | |
| | | | | | | | | | | | | | |
Average number of diluted shares outstanding | | | 57.0 | | | | 56.5 | | | | 59.5 | | | | 60.3 | | | | 57.0 | | | | 56.5 | |
| | | | | | | | | | | | | | |
| | $ | 3.15 | | | $ | 3.93 | | | $ | 3.49 | | |
| | | | | | | | |
Earnings per share: | | | | | | | | | | | | | |
Basic | | | $ | 3.61 | | | $ | 3.16 | | | $ | 3.96 | |
Diluted | | | $ | 3.59 | | | $ | 3.15 | | | $ | 3.93 | |
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 options and performance shares | | | | — | | | | 1.5 | | | | 1.6 | |
Stock appreciation rights | | | 2.3 | | | | 1.3 | | | | 1.3 | | | | 1.6 | | | | 2.3 | | | | 1.3 | |
72
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
| |
Note 2019 — | Accumulated Other Comprehensive Income (Loss)Loss |
The following table reflects the accumulated balances of other comprehensive income (loss) (in millions):
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | Accumulated
| |
| | Pension/
| | | Cumulative
| | | Unrealized Gain
| | | Cash Flow
| | | Other
| |
| | OPEB
| | | Translation
| | | (Loss) on
| | | Hedging
| | | Comprehensive
| |
| | Adjustment | | | Adjustment | | | Investments | | | Gain (Loss) | | | Income (Loss) | |
|
Balance at December 31, 2006 | | $ | (38.8 | ) | | $ | 7.0 | | | $ | — | | | $ | (0.6 | ) | | $ | (32.4 | ) |
2007 activity | | | 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 | |
2008 activity | | | (92.1 | ) | | | (53.7 | ) | | | — | | | | 3.0 | | | | (142.8 | ) |
| | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2008 | | | (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 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | |
| | 2010 | | | 2009 | | | 2008 | |
|
Pension and post retirement benefit plan adjustment, net of tax | | $ | (95.6 | ) | | $ | (71.7 | ) | | $ | (86.0 | ) |
Cumulative translation adjustment | | | 14.6 | | | | 2.7 | | | | (32.6 | ) |
Unrealized gain on investment, net of tax | | | 0.5 | | | | 0.5 | | | | 0.2 | |
Cash flow hedge gain (loss), net of tax | | | (0.8 | ) | | | (0.3 | ) | | | 1.6 | |
| | | | | | | | | | | | |
Total Accumulated other comprehensive loss | | $ | (81.3 | ) | | $ | (68.8 | ) | | $ | (116.8 | ) |
| | | | | | | | | | | | |
| |
Note 2120 — | 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 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 countries in the Middle East.
The Company’s reporting segments consist of the Electrical segment (comprised of electrical systems products and lighting products), and the Power segment, as described below.
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
72
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 distributors to contractors, industrial customers and OEMs. High voltage products are also sold direct to customers through itsour 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, 2009,2010, 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.segments as these items are centrally managed by the Company. |
|
| • | General corporate assets not allocated to segments are principally cash, prepaid pensions, investments and deferred taxes. These assets have not been allocated as they are centrally managed by the Company. |
73
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Industry Segment Data
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Net Sales: | | | | | | | | | | | | | | | | | | | | | | | | |
Electrical | | $ | 1,650.1 | | | $ | 1,958.2 | | | $ | 1,897.3 | | | $ | 1,808.2 | | | $ | 1,650.1 | | | $ | 1,958.2 | |
Power | | | 705.5 | | | | 746.2 | | | | 636.6 | | | | 733.0 | | | | 705.5 | | | | 746.2 | |
| | | | | | | | | | | | | | |
Total | | $ | 2,355.6 | | | $ | 2,704.4 | | | $ | 2,533.9 | | | $ | 2,541.2 | | | $ | 2,355.6 | | | $ | 2,704.4 | |
| | | | | | | | | | | | | | |
Operating Income: | | | | | | | | | | | | | | | | | | | | | | | | |
Electrical | | $ | 163.7 | | | $ | 227.3 | | | $ | 202.1 | | | $ | 248.7 | | | $ | 163.7 | | | $ | 227.3 | |
Power | | | 131.0 | | | | 118.7 | | | | 97.3 | | | | 119.1 | | | | 131.0 | | | | 118.7 | |
| | | | | | | | | | | | | | |
Operating income | | | 294.7 | | | | 346.0 | | | | 299.4 | | | | 367.8 | | | | 294.7 | | | | 346.0 | |
Loss on extinguishment of debt | | | | (14.7 | ) | | | — | | | | — | |
Interest expense | | | (30.9 | ) | | | (27.4 | ) | | | (17.6 | ) | | | (31.1 | ) | | | (30.9 | ) | | | (27.4 | ) |
Investment and other (expense) income, net | | | (2.2 | ) | | | (0.2 | ) | | | 2.4 | | |
Investment income and other expense, net | | | | (1.6 | ) | | | (2.2 | ) | | | (0.2 | ) |
| | | | | | | | | | | | | | |
Income before income taxes | | $ | 261.6 | | | $ | 318.4 | | | $ | 284.2 | | | $ | 320.4 | | | $ | 261.6 | | | $ | 318.4 | |
| | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | | | | | | | | | |
Electrical | | $ | 1,607.9 | | | $ | 1,252.0 | | | $ | 1,106.7 | | | $ | 1,576.7 | | | $ | 1,607.9 | | | $ | 1,252.0 | |
Power | | | 587.7 | | | | 636.7 | | | | 510.0 | | | | 622.2 | | | | 587.7 | | | | 636.7 | |
General Corporate | | | 268.9 | | | | 226.8 | | | | 246.7 | | | | 506.9 | | | | 207.2 | | | | 226.8 | |
| | | | | | | | | | | | | | |
Total | | $ | 2,464.5 | | | $ | 2,115.5 | | | $ | 1,863.4 | | | $ | 2,705.8 | | | $ | 2,402.8 | | | $ | 2,115.5 | |
| | | | | | | | | | | | | | |
Capital Expenditures: | | | | | | | | | | | | | | | | | | | | | | | | |
Electrical | | $ | 13.9 | | | $ | 31.7 | | | $ | 38.5 | | | $ | 23.5 | | | $ | 13.9 | | | $ | 31.7 | |
Power | | | 10.5 | | | | 12.1 | | | | 13.6 | | | | 17.8 | | | | 10.5 | | | | 12.1 | |
General Corporate | | | 5.0 | | | | 5.6 | | | | 3.8 | | | | 6.0 | | | | 5.0 | | | | 5.6 | |
| | | | | | | | | | | | | | |
Total | | $ | 29.4 | | | $ | 49.4 | | | $ | 55.9 | | | $ | 47.3 | | | $ | 29.4 | | | $ | 49.4 | |
| | | | | | | | | | | | | | |
Depreciation and Amortization: | | | | | | | | | | | | | | | | | | | | | | | | |
Electrical | | $ | 48.1 | | | $ | 42.7 | | | $ | 41.8 | | | $ | 50.8 | | | $ | 48.1 | | | $ | 42.7 | |
Power | | | 22.5 | | | | 20.4 | | | | 18.4 | | | | 21.7 | | | | 22.5 | | | | 20.4 | |
| | | | | | | | | | | | | | |
Total | | $ | 70.6 | | | $ | 63.1 | | | $ | 60.2 | | | $ | 72.5 | | | $ | 70.6 | | | $ | 63.1 | |
| | | | | | | | | | | | | | |
74
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Geographic Area Data
| | | | | | | | | | | | | | | | | | | | | | | | |
| | 2009 | | 2008 | | 2007 | | | 2010 | | 2009 | | 2008 | |
|
Net Sales: | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 1,981.0 | | | $ | 2,283.5 | | | $ | 2,175.9 | | | $ | 2,107.9 | | | $ | 1,981.0 | | | $ | 2,283.5 | |
International | | | 374.6 | | | | 420.9 | | | | 358.0 | | | | 433.3 | | | | 374.6 | | | | 420.9 | |
| | | | | | | | | | | | | | |
Total | | $ | 2,355.6 | | | $ | 2,704.4 | | | $ | 2,533.9 | | | $ | 2,541.2 | | | $ | 2,355.6 | | | $ | 2,704.4 | |
| | | | | | | | | | | | | | |
Operating Income: | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 227.6 | | | $ | 269.9 | | | $ | 250.3 | | | $ | 292.9 | | | $ | 227.6 | | | $ | 269.9 | |
International | | | 67.1 | | | | 76.1 | | | | 49.1 | | | | 74.9 | | | | 67.1 | | | | 76.1 | |
| | | | | | | | | | | | | | |
Total | | $ | 294.7 | | | $ | 346.0 | | | $ | 299.4 | | | $ | 367.8 | | | $ | 294.7 | | | $ | 346.0 | |
| | | | | | | | | | | | | | |
Property, Plant, and Equipment, net: | | | | | | | | | | | | | | | | | | | | | | | | |
United States | | $ | 298.0 | | | $ | 291.1 | | | $ | 277.6 | | | $ | 285.6 | | | $ | 298.0 | | | $ | 291.1 | |
International | | | 70.8 | | | | 58.0 | | | | 49.5 | | | | 72.7 | | | | 70.8 | | | | 58.0 | |
| | | | | | | | | | | | | | |
Total | | $ | 368.8 | | | $ | 349.1 | | | $ | 327.1 | | | $ | 358.3 | | | $ | 368.8 | | | $ | 349.1 | |
| | | | | | | | | | | | | | |
On a geographic basis, the Company defines “international” as operations based outside of the United States and its possessions. As a percentage of total net sales, international shipments from foreign operations directly to third parties were 17% in 2010 and 16% in both 2009 and 2008, and 14% in 2007, with theCanada, UK Canada and Switzerland operations representing approximately 36%29%, 24%20% and 13%18%, respectively, of 20092010 total international net sales. Long-lived assets of international subsidiaries were 19%20%, 17%19% and 15%17% of the consolidated total in 2010, 2009 2008 and 2007,2008, respectively, with the Mexico, Brazil, Canada and UK operations representing approximately 52%50%, 18%, 13% and 9%10%, respectively, of the 20092010 international total. Export sales from United States operations were $182.7 million in 2010, $183.3 million in 2009 and $184.9 million in 2008 and $145.8 million in 2007.2008.
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 costs to be incurred are 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 ASC 460 “Guarantees”.the guarantees accounting guidance. As of December 31, 2009,2010, the fair value and maximum potential payment related to the Company’s guarantees were not material.
The Company offers a product warrantywarranties which coverscover defects on most of its products. These warranties primarily apply to products that are properly installed, maintained and used for their intended purpose, installed correctly, and properly maintained.purpose. The Company 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.
75
HUBBELL INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Changes in the accrual for product warranties in 20092010 are set forth below (in millions):
| | | | | | | | |
Balance at December 31, 2008 | | $ | 6.6 | | |
Balance at December 31, 2009 | | | $ | 9.0 | |
Provision | | | 10.1 | | | | 7.5 | |
Purchase accounting adjustments | | | 5.6 | | |
Expenditures/other | | | (13.3 | ) | | | (9.8 | ) |
| | | | | | |
Balance at December 31, 2009 | | $ | 9.0 | | |
Balance at December 31, 2010 | | | $ | 6.7 | |
| | | | | | |
| |
Note 2322 — | Quarterly Financial Data (Unaudited) |
The table below sets forth summarized quarterly financial data for the years ended December 31, 20092010 and 20082009 (in millions, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | First
| | Second
| | Third
| | Fourth
| | | First
| | Second
| | Third
| | Fourth
| |
| | Quarter | | Quarter | | Quarter | | Quarter | | | Quarter | | Quarter | | Quarter | | Quarter | |
|
2009 | | | | | | | | | | | | | | | | | |
2010 | | | | | | | | | | | | | | | | | |
Net Sales | | $ | 585.6 | | | $ | 584.2 | | | $ | 593.9 | | | $ | 591.9 | | | $ | 570.5 | | | $ | 646.4 | | | $ | 685.0 | | | $ | 639.3 | |
Gross Profit | | $ | 167.0 | | | $ | 174.2 | | | $ | 192.9 | | | $ | 191.8 | | | $ | 175.7 | | | $ | 211.0 | | | $ | 235.2 | | | $ | 206.8 | |
Net Income | | | $ | 39.0 | | | $ | 57.9 | | | $ | 71.7 | | | $ | 50.2 | (1) |
Net Income attributable to Hubbell | | $ | 33.8 | | | $ | 39.4 | | | $ | 57.3 | | | $ | 49.6 | (1) | | $ | 38.6 | | | $ | 57.6 | | | $ | 71.3 | | | $ | 49.7 | (1) |
Earnings Per Share — Basic | | $ | 0.60 | | | $ | 0.70 | | | $ | 1.01 | | | $ | 0.85 | | | $ | 0.64 | | | $ | 0.96 | | | $ | 1.19 | | | $ | 0.82 | (1) |
Earnings Per Share — Diluted | | $ | 0.60 | | | $ | 0.70 | | | $ | 1.01 | | | $ | 0.84 | | | $ | 0.64 | | | $ | 0.95 | | | $ | 1.18 | | | $ | 0.81 | (1) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
2008 | | | | | | | | | | | | | | | | | |
2009 | | | | | | | | | | | | | | | | | |
Net Sales | | $ | 627.9 | | | $ | 689.6 | | | $ | 734.8 | | | $ | 652.1 | | | $ | 585.6 | | | $ | 584.2 | | | $ | 593.9 | | | $ | 591.9 | |
Gross Profit | | $ | 187.4 | | | $ | 209.9 | | | $ | 220.2 | | | $ | 185.9 | | | $ | 167.0 | | | $ | 174.2 | | | $ | 192.9 | | | $ | 191.8 | |
Net Income | | | $ | 34.1 | | | $ | 39.6 | | | $ | 57.5 | | | $ | 50.1 | (2) |
Net Income attributable to Hubbell | | $ | 48.4 | | | $ | 61.5 | | | $ | 66.5 | | | $ | 46.3 | | | $ | 33.8 | | | $ | 39.4 | | | $ | 57.3 | | | $ | 49.6 | (2) |
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 | | |
Earnings Per Share — Basic | | | $ | 0.60 | | | $ | 0.70 | | | $ | 1.01 | | | $ | 0.85 | |
Earnings Per Share — Diluted | | | $ | 0.60 | | | $ | 0.70 | | | $ | 1.01 | | | $ | 0.84 | |
| | |
(1) | | The fourth quarter of 2010 includes a $14.7 million pre-tax charge ($9.1 million after-tax) related to a loss on debt extinguishment. The earnings per share impact of this charge, both basic and diluted, was $0.15. |
|
(2) | | The fourth quarter of 2009 includes a $4.9 million out of period adjustment which decreased Provision for income taxes. See Note 1312 — Income Taxes. |
|
(2) | | Adjusted to reflect the retrospective application of ASC260-10-45-61A |
76
| |
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 regardingthat the reliability of financial reportingcontrols 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.procedures will meet their objectives.
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 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 as of December 31, 20092010 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.
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PART III
| |
Item 10. | Directors, and Executive Officers of the Registrant(1)and Corporate Governance(1) |
(1) Certain of the information required by this item regarding executive officers is included in Part I, Item 4 of thisForm 10-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 3, 2010.
77
| |
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, 20092010 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):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | C | | | | | | | C | |
| | A | | B | | Number of Securities Remaining
| | | A | | B | | Number of Securities Remaining,
| |
| | Number of Securities to be
| | Weighted Average
| | Available for Future Issuance
| | | Number of Securities to be
| | Weighted Average
| | Available for Future Issuance
| |
| | Issued upon Exercise of
| | Exercise Price of
| | Under Equity Compensation
| | | Issued upon Exercise of
| | Exercise Price of
| | Under Equity Compensation
| |
| | Outstanding Options,
| | Outstanding 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) | | | 5,046 | (c)(d) | | $ | 42.28 | (e) | | | 2,690 | (c) | | | 3,884 | (c)(d) | | $ | 45.79 | (e) | | | 3,253 | (c) |
Equity Compensation Plans Not Requiring Shareholder Approval(b) | | | — | | | | — | | | | 140 | (c) | | | — | | | | — | | | | 140 | (c) |
| | | | | | | | | | | | | | |
Total | | | 5,046 | | | $ | 42.28 | | | | 2,830 | | | | 3,884 | | | $ | 45.79 | | | | 3,393 | |
| | | | | | | | | | | | | | |
| | |
(a) | | The Company’s (1) Option Plan and (2) Award Plan. |
|
| | |
|
(b) | | The Company’s Deferred Compensation Plan for Directors. |
|
| | |
|
(c) | | Class B Common Stock |
|
(d) | | Includes 223233 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 subheadings “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation” and “Compensation of Directors” of the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 3, 2010.2, 2011.
| |
Item 13. | Certain Relationships and Related Transactions(2)Transactions and Director Independence(3) |
| |
Item 14. | Principal Accountant Fees and Services(2)Services(4) |
| | |
(2)(1) | | TheCertain of the information required by this item regarding executive officers is included under the subheading “Executive Officers of the Registrant” at the end of Part I, of thisForm 10-K and the remaining required information is incorporated by reference to the subheadings “Item 1 – Election of Directors,” “General—Information Regarding Executive Officers,” “General—Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance—Code of Ethics,” and “Corporate Governance—Board Committees—Audit Committee” of the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 3, 2010.2, 2011. |
|
(2) | | The information required by this item is incorporated by reference to the subheadings “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation” and “Compensation of Directors” of the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 2, 2011. |
|
(3) | | The information required by this item is incorporated by reference to the subheadings “General—Review and Approval of Related Person Transactions” and “Corporate Governance—Director Independence” of the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 2, 2011. |
|
(4) | | The information required by this item is incorporated by reference to the subheading “Item 2 – Ratification of the Selection of Independent Registered Public Accounting Firm” of the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 2, 2011. |
78
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. |
4h | | Second Supplemental Indenture, dated as of November 17, 2010, between Hubbell Incorporated and The Bank of New York Mellon Trust Company, N.A. (as successor to The Bank of New York Trust Company, N.A., JPMorgan Chase Bank, N.A., The Chase Manhattan Bank and Chemical Bank), as trustee, including the form of 3.625% Senior Notes due 2022. Exhibit 4.2 of the registrant’s report onForm 8-K filed on November 17, 2010, is incorporated by reference. |
10a† | | Hubbell Incorporated Amended and Restated 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. |
10a(1)†* | | Amendment to Hubbell Incorporated Amended and Restated Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2005. |
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. |
79
| | |
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† | | AmendedChange in Control and Restated ContinuitySeverance Agreement, dated as of November 1, 2007,December 31, 2010, between Hubbell Incorporated and Timothy H. Powers. Exhibit 10.1 of the registrant’s report onForm 10-K8-K for the year 2007, filed on February 28, 2008,January 5, 2011, is incorporated by reference. |
10u† | | AmendedChange in Control and Restated ContinuitySeverance Agreement, dated as of November 1, 2007,December 31, 2010, between Hubbell Incorporated and Richard W. Davies. Exhibit 10.u10.3 of the registrant’s report onForm 10-K8-K for the year 2007, filed on February 28, 2008,January 5, 2011, is incorporated by reference. |
10v† | | AmendedChange in Control and Restated ContinuitySeverance Agreement, dated as of November 1, 2007,December 31, 2010, between Hubbell Incorporated and James H. Biggart. Exhibit 10.v10.4 of the registrant’s report onForm 10-K8-K for the year 2007, filed on February 28, 2008,January 5, 2011, is incorporated by reference. |
10w† | | Hubbell Incorporated Amended and Restated 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. |
10w(1)†* | | Amendment to Hubbell Incorporated Amended and Restated Top Hat Restoration Plan, as amended and restated effective January 1, 2005. |
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† | | AmendedChange in Control and Restated ContinuitySeverance Agreement, dated as of November 1, 2007,December 31, 2010, between Hubbell Incorporated and W. RobertWilliam R. Murphy. Exhibit 10.aa10.5 of the registrant’s report onForm 10-K8-K for the year 2007, filed on February 28, 2008,January 5, 2011, is incorporated by reference. |
10cc† | | AmendedChange in Control and Restated ContinuitySeverance Agreement, dated as of November 1, 2007,December 31, 2010, between Hubbell Incorporated and Gary N. Amato. Exhibit 10.cc10.7 of the registrant’s report onForm 10-K8-K for the year 2007, filed on February 28, 2008,January 5, 2011, 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. |
80
| | |
Number | | Description |
|
10.ee(1)†10.ee† | | Amendment, dated September 21, 2006, to the Hubbell Incorporated 2005 Incentive Award Plan.Plan, as amended and restated effective as of May 3, 2010. Exhibit 10.210.1 of the registrant’s report onForm 10-Q8-K for the third quarter (ended September 30), 2006, filed on NovemberMay 7, 20062010, 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† | | AmendedChange in Control and Restated ContinuitySeverance Agreement, dated as of November 1, 2007,December 31, 2010, between Hubbell Incorporated and David G. Nord. Exhibit 10.gg10.2 of the registrant’s report onForm 10-K8-K for the year 2007, filed on February 28, 2008,January 5, 2011, 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.kk(1)†* | | Amendment to Hubbell Incorporated Supplemental Management Retirement Plan, effective September 12, 2007. |
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† | | ContinuityChange in Control Severance Agreement, dated as of July 1, 2008,December 31, 2010, between Hubbell Incorporated and Darrin S. Wegman. Exhibit 10.rr10.6 of the registrant’s report onForm 10-Q8-K for the second quarter (ended June 30), 2008, filed July 28, 2008,January 5, 2011, is incorporated by reference. |
10.ss†10.tt† | | Amendment, dated as of July 24, 2008, to Amended and Restated Continuity Agreement for Gary N. Amato.Hubbell Incorporated Defined Contribution Restoration Plan, effective January 1, 2011. Exhibit 10.ss10.1 of the registrant’s report ofonForm 10-Q8-K forfiled December 13, 2010, is incorporated by reference. |
10.uu† | | Change in Control Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and Scott H. Muse. Exhibit 10.8 of the second quarter (ended June 30), 2008,registrant’s report onForm 8-K filed July 28, 2008,January 5, 2011, is incorporated by reference. |
10.vv† | | Change in Control Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and William T. Tolley. Exhibit 10.9 of the registrant’s report onForm 8-K filed January 5, 2011, is incorporated by reference. |
21* | | Listing of subsidiaries. |
23* | | Consent of PricewaterhouseCoopers LLP. |
81
| | |
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. |
81
| | |
Number | | Description |
|
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. |
101.INS** | | XBRL Instance Document. |
101.SCH** | | XBRL Taxonomy Extension Schema Document. |
101.CAL** | | XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF** | | XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB** | | XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE** | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
† | | This exhibit constitutes a management contract, compensatory plan, or arrangement |
|
* | | Filed hereunder |
| | |
** | | In accordance with Rule 406T ofRegulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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 19, 201016, 2011
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 | | 2/19/1016/11 |
| | | | | | |
By | | /s/ D. G. Nord D. G. Nord | | Senior Vice President and Chief Financial Officer | | 2/19/1016/11 |
| | | | | | |
By | | /s/ D. S. Wegman D. S. Wegman | | Vice President, Controller | | 2/19/10 |
| | | | | | |
By | | /s/ E. R. Brooks
E. R. Brooks | | Director | | 2/19/1016/11 |
| | | | | | |
By | | /s/ G. W. Edwards, Jr G. W. Edwards, Jr | | Director | | 2/19/1016/11 |
| | | | | | |
By | | /s/ L. J. Good L. J. Good | | Director | | 2/19/1016/11 |
| | | | | | |
By | | /s/ A. J. Guzzi A. J. Guzzi | | Director | | 2/19/1016/11 |
| | | | | | |
By | | /s/ J. S. Hoffman J. S. Hoffman | | Director | | 2/19/1016/11 |
| | | | | | |
By | | /s/ N.J. Keating N.J. Keating | | Director | | 2/16/11 |
| | | | | | |
By | | /s/ A. McNally IV A. McNally IV | | Director | | 2/19/1016/11 |
| | | | | | |
By | | /s/ G. J. Ratcliffe G. J. Ratcliffe | | Director | | 2/19/1016/11 |
| | | | | | |
By | | /s/ C. A. Rodriguez C. A. Rodriguez | | Director | | 2/19/1016/11 |
| | | | | | |
By | | /s/ R. J. Swift R. J. Swift | | Director | | 2/19/1016/11 |
| | | | | | |
By | | /s/ D. S. Van Riper D. S. Van Riper | | Director | | 2/19/1016/11 |
84
Schedule II
HUBBELL INCORPORATED AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 2007, 2008, 2009 AND 20092010
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
| | Dispositions
| | | | 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 2007 | | $ | 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 | | | $ | 4.0 | | | $ | 2.1 | | | $ | — | | | $ | (1.0 | ) | | $ | 5.1 | |
Year 2010 | | | $ | 5.1 | | | $ | (0.2 | ) | | $ | — | | | $ | (1.3 | ) | | $ | 3.6 | |
Allowance for credit memos and returns: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year 2007 | | $ | 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 | | | $ | 16.8 | | | $ | 85.4 | | | $ | — | | | $ | (83.6 | ) | | $ | 18.6 | |
Year 2010 | | | $ | 18.6 | | | $ | 102.3 | | | $ | — | | | $ | (102.3 | ) | | $ | 18.6 | |
Allowances for excess/obsolete inventory: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year 2007 | | $ | 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 | | | $ | 33.1 | | | $ | 12.0 | | | $ | — | | | $ | (8.2 | ) | | $ | 36.9 | |
Year 2010 | | | $ | 36.9 | | | $ | 4.9 | | | $ | — | | | $ | (9.4 | ) | | $ | 32.4 | |
Valuation allowance on deferred tax assets: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year 2007 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | |
Year 2008 | | $ | — | | | $ | 2.5 | | | $ | — | | | $ | — | | | $ | 2.5 | | | $ | — | | | $ | 2.5 | | | $ | — | | | $ | — | | | $ | 2.5 | |
Year 2009 | | $ | 2.5 | | | $ | — | | | $ | — | | | $ | (0.3 | ) | | $ | 2.2 | | | $ | 2.5 | | | $ | — | | | $ | — | | | $ | (0.3 | ) | | $ | 2.2 | |
Year 2010 | | | $ | 2.2 | | | $ | 0.4 | | | $ | — | | | $ | — | | | $ | 2.6 | |
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