1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 19, 1994
Hubbell Incorporated
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(Exact name of registrant as specified in its charter)
Connecticut 1-2958 06-0397030
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(State or other (Commission File No.) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
584 Derby Milford Road, Orange, Connecticut 06477-4024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 799-4100
-------------------------
N/A
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(Former name or former address, if changed since last report.)
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2
Item 2. Acquisition or Disposition of Assets.
(a) On April 19, 1994, Chance Holdings, Inc., a Delaware corporation and
newly-formed wholly-owned subsidiary of the Registrant, acquired all of the
issued and outstanding capital stock of A. B. Chance Industries, Inc., a
Delaware corporation ("Chance"), from Chance's stockholders. Chance is engaged
in the manufacture of electrical apparatus (overhead and underground
distribution switches, fuses, contacts, enclosures and sectionalizers);
anchors; hardware; insulators (porcelain and polymer); and hot-line tools and
other safety equipment.
Pursuant to the terms of the Stock Purchase Agreement, dated March
16, 1994, by and among Registrant, Chance, and the stockholders of Chance,
attached hereto as Exhibit (c)1., Registrant (a) purchased all the issued and
outstanding capital stock of Chance for $40,379,821 (including the "cash-out"
of stock options for $1,140,692 and the redemption of preferred stock for $10
million), and (b) retired Chance's existing debt of $69,620,179. The funds
required for the acquisition were provided from (a) the liquidation of certain
portfolio investments and (b) short-term borrowings of $45 million from Shawmut
Bank Connecticut, N.A.
The purchase price was a result of arm's-length negotiation among
representatives of the respective managements of Registrant and Chance, and the
principal stockholders of Chance. There is no material relationship between
any of the stockholders of Chance and the Registrant or any of its affiliates,
any director or officer of the Registrant, or any associate of any such
director or officer.
(b) Certain of the assets of Chance constitute plant, equipment, and
other physical property utilized in the business of Chance as previously
described, and Registrant intends to continue such use.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired. Audited financial
statements of Chance for the years ended November 30, 1993 and 1992.
(b) Pro forma financial information. Unaudited pro forma combined
balance sheet as of March 31, 1994 and a combined summary of operations for the
year 1993.
(c) Exhibits. The following exhibits are filed with this report, and
their contents are incorporated herein by reference:
1. Stock Purchase Agreement, dated March 16, 1994, by and among
Registrant, Chance and the stockholders of Chance. A copy of
any Exhibit or Schedule to said Stock Purchase Agreement will
be supplied to the Securities & Exchange Commission upon
request.
- 2 -
3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HUBBELL INCORPORATED
Dated: April 29, 1994 By: /s/Richard W. Davies
-------------------------- -------------------------------
Richard W. Davies
Secretary
- 3 -
4
Item 7(a) Financial Statements of Business Acquired
A. B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1993 AND 1992
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
5
Independent Auditors' Report
The Board of Directors
A. B. Chance Industries, Inc.:
We have audited the accompanying consolidated balance sheets of A. B. Chance
Industries, Inc. and subsidiaries as of November 30, 1993 and 1992, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of A. B. Chance
Industries, Inc. and subsidiaries as of November 30, 1993 and 1992, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
As discussed in Notes 1(h), 4, and 6 to the consolidated financial statements,
the Company changed its method of accounting for income taxes in fiscal year
1993 to adopt the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." As discussed in Notes 1(i), 4, and 10 to the consolidated financial
statements, the Company has also adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
106, "Employees' Accounting for Postretirement Benefits other than Pensions" in
fiscal year 1993.
/s/ KPMG Peat Marwick
Certified Public Accountants
1010 Market Street
St. Louis, MO 63101-2085
January 6, 1994
6
A. B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1993 AND 1992
(IN THOUSANDS OF DOLLARS)
Assets 1993 1992
------ ---- ----
Current assets:
Cash and cash equivalents $ 1,533 2,245
Accounts receivable, less allowance for doubtful accounts
of $172 and $173 in 1993 and 1992, respectively 22,972 21,286
Inventories:
Finished goods 9,433 9,684
Raw material and work in process 14,338 15,388
Inventory of discontinued operations, net of
reserve of $1,379 in 1993 1,000 1,613
------- -------
Total inventories 24,771 26,685
------- -------
Deferred income taxes 4,899 -
Other current assets 949 1,034
------- -------
Total current assets 55,124 51,250
------- -------
Property, plant and equipment:
Land 1,511 1,444
Buildings 15,456 15,437
Machinery and equipment 44,672 41,256
Construction in progress 1,612 1,654
------- -------
63,251 59,791
Accumulated depreciation (33,972) (29,185)
Property, plant and equipment of discontinued
operations, net of reserve of $3,877 in 1993 936 5,236
------- -------
Property, plant and equipment, net 30,215 35,842
------- -------
Excess of cost over net assets of businesses acquired, less
accumulated amortization of $5,846 and $4,869 in 1993
and 1992, respectively 33,664 34,641
Other assets 2,758 3,671
------- -------
Total assets $ 121,761 125,404
======= =======
See accompanying notes to consolidated financial statements.
7
Liabilities and Stockholders' Equity 1993 1992
------------------------------------ ---- ----
Current liabilities:
Current maturities of long-term debt $ 6,601 6,940
Accounts payable 10,407 8,690
Accrued expenses 14,585 12,297
Accrued expenses of discontinued operations 1,646 -
Income taxes payable 732 336
------- -------
Total current liabilities 33,971 28,263
Long-term debt, less current maturities 60,867 69,413
Deferred income taxes 4,020 4,996
Other liabilities 6,430 2,383
------- -------
Total liabilities 105,288 105,055
------- -------
Stockholders' equity:
Preferred stock, par value $.01; 100 shares authorized,
issued, and outstanding (liquidating preference $100,000
per share aggregating $10,000,000) 4,952 4,412
Common stock:
Class A, par value $.01; 1,100,000 shares authorized;
150,355 shares issued and outstanding 1 1
Class B, par value $.01; 229,000 shares authorized;
197,632 shares issued and outstanding 2 2
Class C, par value $.01; 665,500 shares authorized;
652,013 shares issued and outstanding 7 7
Additional paid-in capital 15,988 16,528
Accumulated deficit (3,242) (393)
Unfunded pension losses, net of tax (1,131) (210)
Cumulative translation adjustment (60) 61
------- -------
16,517 20,408
Less treasury stock, 3,818 and 5,118 shares of Class A
common stock for the year ended 1993 and 1992, respectively 44 59
------- -------
Total stockholders' equity 16,473 20,349
Commitments and contingencies
------- -------
Total liabilities and stockholders' equity $ 121,761 125,404
======= =======
8
A. B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, 1993 AND 1992
(IN THOUSANDS OF DOLLARS)
1993 1992
---- ----
Net sales $ 156,830 150,907
Cost of sales 110,463 108,163
------- -------
Gross profit 46,367 42,744
Selling, general and administrative expense 29,749 28,324
------- -------
Operating income 16,618 14,420
Other deductions:
Interest expense, net 7,437 8,442
Amortization of excess of cost over net
assets of businesses acquired 977 982
Amortization of noncompete agreement 201 2,406
Other expenses, net 889 1,618
------- -------
Income from continuing operations
before income tax expense (benefit),
discontinued operations, and
cumulative effect of changes in
accounting principles 7,114 972
Income tax expense (benefit) 3,056 (429)
------- -------
Income before discontinued operations and
cumulative effect of changes in account-
ing principles 4,058 1401
Discontinued operations:
Loss from operations of the Parkersburg Division
to be discontinued (net of applicable income tax
benefit of $1,114 in 1993 and $11 in 1992) (1,818) (17)
Estimated loss on disposal of Parkersburg
Division (net of applicable income tax benefit
of $2,618) (4,272) -
------- -------
Income (loss) before cumulative effect
of accounting changes (2,032) 1384
Cumulative effect of changes in accounting for
postretirement benefits other than pensions
and income taxes (817) -
------- -------
Net income (loss) $ (2,849) 1,384
======= =======
See accompanying notes to consolidated financial statements.
9
A. B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED NOVEMBER 30, 1993 AND 1992
(IN THOUSANDS OF DOLLARS)
1993 1992
---- ----
Preferred stock:
Beginning of year $ 4,412 3,930
Accretion of redeemable preferred stock 540 482
------ ------
End of year 4,952 4,412
------ ------
Common stock:
Class A 1 1
Class B 2 2
Class C 7 7
Additional paid-in capital:
Beginning of year 16,528 17,010
Accretion of redeemable preferred stock (540) (482)
------ ------
End of year 15,988 16,528
------ ------
Accumulated deficit:
Beginning of year (393) (1,777)
Net income (2,849) 1,384
------ ------
End of year (3,242) (393)
------ ------
Unfunded pension losses, net of tax
Beginning of year (210) -
Unfunded losses (921) (210)
------ ------
End of year (1,131) (210)
------ ------
Cumulative translation adjustment:
Beginning of year 61 561
Translation adjustment (121) (500)
------ ------
End of year (60) 61
------ ------
Treasury stock:
Beginning of year (59) (59)
Sale of 1,300 shares of Class A common stock from treasury 15 -
------ ------
End of year (44) (59)
------ ------
Total stockholders' equity $ 16,473 20,349
====== ======
See accompanying notes to consolidated financial statements.
10
A. B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1993 AND 1992
(IN THOUSANDS OF DOLLARS)
1993 1992
---- ----
Cash flows from operating activities:
Net income (loss) $ (2,849) 1,384
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Discontinued operations 6,090 17
Cumulative effect of Statement 106 change 1,242 -
Cumulative effect of Statement 109 change (425) -
Depreciation 5,301 6,506
Amortization of excess of cost over net assets of
businesses acquired 977 982
Amortization of noncompete agreement 201 2,406
Amortization of other intangibles 698 695
Write-off of note receivable - 679
Foreign currency transaction losses 187 567
Change in deferred income taxes (393) (2,325)
Junior Subordinated Note interest added
to principal 1,655 1,509
Changes in working capital items:
Accounts receivable, net (1,686) 1,997
Inventories at continuing operations 1,301 (1,930)
Inventories at discontinued operations (766) -
Other current assets 85 (143)
Accounts payable 1,717 (325)
Accrued expenses 606 (881)
Income taxes payable 396 (11)
Other 233 (55)
------ ------
17,419 9,688
------ ------
Net cash provided by operating activities 14,570 11,072
------ ------
Cash flows from investing activities:
Capital expenditures (4,326) (4,318)
Capital expenditures of discontinued operations (244) (176)
Other (187) (567)
------ ------
Net cash used in investing activities (4,757) (5,061)
------ ------
Cash flows from financing activities:
Principal payments of long-term debt (10,090) (3,812)
Principal payments of long term debt of discontinued operations (450) (900)
Proceeds from sale of stock from treasury 15 -
------ ------
Net cash used in financing activities (10,525) (4,712)
------ ------
Increase (decrease) in cash and cash equivalents (712) 1,299
Cash and cash equivalents at beginning of year 2,245 946
------ ------
Cash and cash equivalents at end of year $ 1,533 2,245
====== ======
See accompanying notes to consolidated financial statements.
11
A. B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1993 AND 1992
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of A. B.
Chance Industries, Inc. (Industries), A. B. Chance Company
(Chance), A. B. Chance Canada Ltd. (Chance Canada), and A. B.
Chance U.K. Ltd. (Chance U.K.), collectively referred to
hereinafter as "the Company." All significant intercompany
accounts and transactions have been eliminated in consolidation.
(b) Inventories
Inventories are stated at the lower of cost or market. Inventory
values are based upon standard costs which approximate average
costs. Standard costs are revised at the beginning of the
fiscal year, and variances incurred during the year are
allocated to inventories and cost of sales.
(c) Property, Plant and Equipment
Investments in land, buildings, and machinery and equipment are
recorded at cost. Improvements are capitalized, while repair
and maintenance costs are charged to expense as incurred. When
assets are retired or disposed of, the related cost and
accumulated depreciation are removed from the accounts; gains or
losses are included in operating results.
Depreciation is computed principally using accelerated methods over
estimated service lives. Service lives for principal assets are
30 to 40 years for buildings and 4 to 12 years for machinery and
equipment.
(d) Excess of Cost Over Net Assets of Businesses Acquired
Assets acquired and liabilities assumed relating to business
combinations accounted for as purchase transactions are recorded
at their respective fair values. Excess of cost over net assets
of businesses acquired is amortized on a straight-line basis
over 40 years.
(e) Noncompete Agreement
The noncompete agreement is being amortized on a straight-line
basis over the five-year term of the agreement.
(f) Debt Issuance Costs
Debt issuance costs are being amortized on a straight-line basis
which approximates the interest method over the terms of the
related debt agreements.
(g) Foreign Currency Translation
Chance Canada and Chance U.K. have foreign functional currencies.
Accordingly, their assets and liabilities are translated into
U.S. dollars at current exchange rates. Revenues and expenses
are translated at average exchange rates during the year. The
resulting net translation adjustment is included as a separate
component of stockholders' equity.
(h) Income Taxes
In February 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (Statement)
109, "Accounting for Income Taxes." Under the asset and
liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply
(Continued)
12
2
A.B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under
Statement 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
As discussed in Notes 4 and 6, the Company adopted Statement 109 as
of December 1, 1992 and has reported the cumulative effect of
that change in the method of accounting for income taxes in the
1993 consolidated statement of operations.
The Company previously used the asset and liability method under
Statement 96. Under the asset and liability method of Statement
96, deferred tax assets and liabilities were recognized for all
events that had been recognized in the consolidated financial
statements. Under Statement 96, the future tax consequences of
recovering assets or settling liabilities at their financial
statement carrying amounts were considered in calculating
deferred taxes. Generally, Statement 96 prohibited
consideration of any other future events in calculating deferred
taxes.
The foreign subsidiaries compute and pay their own taxes. No
provision is made for deferred income taxes on the undistributed
earnings of non-U.S. subsidiaries primarily because reinvestment
of these earnings is considered essential for their continuing
operations. In those cases where distributions have been made,
additional income taxes, if any, have been minimal due to
offsets by available foreign tax credits.
(i) Postretirement Benefits Other Than Pensions
In December 1990, FASB issued Statement 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." Statement 106
requires the application of accrual accounting to postretirement
benefits rather than recognizing expense as claims are paid. As
discussed in Notes 4 and 10, the Company adopted Statement 106
as of December 1, 1992 and has reported the cumulative effect of
that change in the method of accounting for such benefits in the
1993 consolidated statement of operations.
(j) Warranty Costs
A reserve for estimated warranty costs is accrued when products are
sold and warranty costs, as incurred, are charged against the
reserve. The accrual is adjusted on an ongoing basis to the
current estimate of actual warranty costs to be incurred on all
previously recognized sales.
(k) Research and Development
Research and development costs, which are expensed as incurred,
amounted to approximately $4,274,000 and $4,326,000 in 1993 and
1992, respectively.
(l) Consolidated Statements of Cash Flows
Cash equivalents consist of cash in banks and highly liquid
investments with original maturities of three months or less.
The Company earned approximately $158,000 and $55,000 of
interest income in 1993 and 1992, respectively. Supplemental
disclosure of cash flow information is as follows:
(In thousands of dollars)
1993 1992
---- ----
Income tax payments $ 2,954 1,078
Interest payments on borrowings 6,473 7,389
======= =======
(Continued)
13
3
A.B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplemental disclosure of noncash investing and financing
activities: During 1993 and 1992, the Company recognized an
additional minimum liability in accordance with Statement 87,
"Employers Accounting for Pensions." An intangible asset was
recognized to the extent of the unrecognized prior service cost
and the excess, approximately $1,824,000 and $339,000, was
reported as a separate component of stockholders' equity, net of
approximately $693,000 and $129,000 deferred tax benefit for
1993 and 1992, respectively.
As a result of the decision to terminate the Parkersburg Division
pension plan, the intangible asset of $158,000 and the component
of stockholders' equity of $422,000, net of deferred tax benefit
of $162,000, recognized in accordance with Statement 87 were
written off during fiscal year 1993.
(m) Preferred Stock
The redemption value of the preferred stock is being accreted up to
the redemption date using the interest method.
(n) Postemployment Benefits
In November 1992, the FASB issued Statement 112, "Employers'
Accounting for Postemployment Benefits." The Company has no
plans which meet the criteria of this statement.
(o) Reclassification
Certain prior year amounts have been reclassified to conform to the
current year presentation.
(2) Acquisition
On December 30, 1987, Industries was formed and acquired all issued
and outstanding capital stock of Chance and its subsidiaries and
the outstanding capital stock of Chance Canada and Chance U.K. from
Emerson Electric Co. (Emerson) under a Stock Purchase
Agreement among Emerson, Chance, and Industries. The acquisition
has been accounted for by the purchase method, with the purchase
price allocated to the assets acquired and liabilities assumed
based on their estimated fair values at the date of acquisition.
(3) Discontinued Operations
During fiscal 1993, the Company announced its intentions to offer
for sale the Parkersburg Division of Chance. The Company expects
to finalize the sale of Parkersburg during fiscal 1994 at a selling
price of approximately $2,000,000. In accordance with Accounting
Principles Board Opinion No. 30, the financial results for this
division are reported as "Discontinued Operations."
At November 30, 1993, the accrued expenses of the discontinued
operations include pension termination costs of approximately
$1,209,000 and other close-down costs of approximately $437,000.
Accounts payable of the discontinued operations at November 30,
1993 and 1992 are $485,000 and $393,000, respectively.
(4) Cumulative Effect of Accounting Change
The Company adopted Statement 106 as of December 1, 1992. The
Cumulative Effect of Accounting Change was a charge of
approximately $1,242,000, net of income tax benefit of
approximately $761,000. The Company also adopted Statement 109, as
of December 1, 1992. The Cumulative Effect of Accounting
Change was a benefit of approximately $425,000.
(Continued)
14
4
A.B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) Other Expenses, Net
On October 17, 1988, the Company entered into an agreement in principle
to sell its former 51%-owned subsidiary, Ritz-Chance Industria
Comercio S.A. (Ritz-Chance), to the minority stockholder for
$2,000,000. Due to no payments being received in fiscal 1992 and
given past payment history, management chose to write-off $679,000,
the balance of the note receivable as reflected in the year ended
November 30, 1991 consolidated financial statements. During fiscal
1993, the Company received a payment of $80,000 on this note. Both
of these amounts are reflected in other expenses, net in the
consolidated financial statements.
(6) Income Taxes
As discussed in Notes 1(h) and 4, the Company adopted Statement 109 as
of December 1, 1992. Prior year consolidated financial statements
have not been restated to apply the provisions of Statement 109.
The domestic and foreign components of income before income tax expense
(benefit), discontinued operations, and cumulative effect of changes
in accounting principles for the years ended November 30, 1993 and
1992 consist of the following:
(In thousands of dollars)
1993 1992
---- ----
Domestic $ 6,782 770
Foreign 332 202
----- ---
$ 7,114 972
===== ===
Total income tax benefit for the years ended November 30, 1993 and 1992
was allocated as follows:
1993 1992
---- ----
Income from continuing operations $ 3,056 (429)
Discontinued operations (3,732) (11)
Cumulative effect of changes in accounting principles (1,186) -
------ ----
$ (1,862) (440)
====== ====
Income tax expense (benefit) attributable to income from continuing
operations for the years ended November 30, 1993 and 1992 consists
of the following:
(In thousands of dollars)
1993 1992
---- ----
Current:
Federal $ 2,650 1,493
Foreign 314 121
State and local 528 194
----- ------
Total current 3,492 1,808
----- ------
Deferred:
Federal (343) (2,114)
Foreign (53) 9
State and local (40) (132)
----- ------
Total deferred (436) (2,237)
----- ------
Total income tax expense (benefit) $ 3,056 (429)
===== ======
(Continued)
15
5
A.B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended November 30, 1993 and 1992, the change in deferred
income taxes represents the effect of changes in the amounts of
temporary differences. The types of temporary differences that give
rise to significant portions of deferred income tax as of November
30, 1993 and 1992 and the tax effects of changes in those temporary
differences during 1993 and 1992 consist of the following:
(In thousands of dollars)
1993 1992
---- ----
Excess book over tax depreciation $ (490) (691)
Change in accounting estimate for deferred
federal income taxes - (1,000)
Book over tax write-down of note receivable 22 (258)
Difference in accounting for accrued vacation for
federal income tax purposes (67) (196)
Book over tax provision for warranty expense - (91)
Other 99 (1)
---- ------
$ (436) (2,237)
---- ------
The tax effects of temporary differences that give rise to the deferred
tax assets and liabilities are as follows:
Deferred tax assets:
Provisions for employee benefits $ 2,397,375
Provision for discontinued operations 2,618,168
Other 1,877,148
---------
Total gross deferred tax assets 6,892,691
Foreign tax credit carryforward 78,686
---------
Total net deferred tax assets 6,971,377
---------
Deferred tax liabilities:
Book versus tax depreciation 6,007,350
Other 85,222
---------
Total net deferred tax liabilities 6,092,572
---------
Net deferred tax asset $ 878,805
=========
The net deferred tax assets are included in the consolidated balance
sheet as follows:
Current tax asset $ 4,899,211
Noncurrent tax liability (4,020,406)
----------
Net deferred taxes $ 878,805
==========
(Continued)
16
6
A.B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The total income tax expense (benefit) from continuing operations
differed from the amounts computed by applying the U.S. federal
income tax rate of 34% to income before income tax expense (benefit)
as a result of the following:
1993 1992
---- ----
Income tax expense computed at the federal
statutory rate of 34% $ 2,419 330
Change in accounting estimate for deferred
federal income taxes - (1,000)
Nondeductible intangible assets 312 312
Foreign tax rate in excess of U.S. federal income tax rate 99 43
Foreign tax credit utilized (178) -
State income taxes 527 62
Statutory exclusion of foreign sales corporations (136) (50)
Utilization of alternative minimum tax credits - (112)
Other 13 (14)
----- ------
$ 3,056 (429)
===== ======
The Company's federal income tax returns for the fiscal years ended
November 30, 1989 and 1988 were under audit by the Internal Revenue
Service (IRS). The IRS had issued a preliminary report which
included the reallocation of certain interest deductions among
members of the consolidated group. The effect of the preliminary
finding would have been to substantially reduce the income tax
refunds received for the years under examination, while allowing the
deductions on a carryforward basis. The Company had previously
established reserves for any settlement that might have arisen from
the IRS audit. In fiscal year 1992, the Company received a letter
from the IRS indicating the returns for the years under audit had
been accepted as originally filed. As the IRS accepted the returns
as originally filed, the Company changed its accounting estimate of
such reserves resulting in a decrease in deferred tax expense for
the year ended November 30, 1992 of $1,000,000.
(7) Long-Term Debt
Long-term debt as of November 30, 1993 and 1992 consists of the
following:
(In thousands of dollars)
1993 1992
---- ----
Revolving credit notes, prime plus 1% $ 2,900 3,500
Revolving credit notes, LIBOR plus 2% 15,000 12,000
Term loans, LIBOR plus 2-1/2%, due in varying amounts
through 1995 6,267 8,745
Tral & Co. senior notes, 11.25%, due December 1995 - 6,000
Teachers senior notes, 11.5%, due December 1995 12,000 16,000
Teachers senior subordinated notes, 13%, due December 1997 15,000 15,000
Junior subordinated note, 14%, due December 1998 16,301 14,646
Other - 462
------ ------
67,468 76,353
Less current maturities 6,601 6,940
------ ------
$ 60,867 69,413
====== ======
(Continued)
17
7
A.B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The aggregate amounts of long-term debt maturing subsequent to November
30, 1993 are as follows:
(In thousands
of dollars)
1994 $ 6,601
1995 25,566
1996 4,000
1997 -
1998 15,000
Thereafter 16,301
------
$ 67,468
======
In December 1987, the Company entered into a revolving credit and term
loan agreement (Credit Agreement) with six banks enabling the
Company to borrow up to $71,400,000. The Credit Agreement provides
a maximum revolving credit of $36,000,000, subject to a qualified
borrowing base. The borrowing base is determined by the amounts of
certain receivables and inventories. At November 30, 1993, the
borrowing base was $31,075,000, of which $17,900,000 was borrowed.
Commitment fees are equal to 1/2% per year on the unused portion of
the available credit up to $24,000,000, plus 1/8% per year on the
remaining $12,000,000. The Company may prepay all or part of the
revolving amounts outstanding, except in the case of Eurodollar
loans which may only be prepaid at the end of the applicable
interest period. The Company is required to periodically reduce the
borrowings by an amount equal to 70% of the excess cash flow of the
Company for the next preceding semiannual period plus the amount of
proceeds received from disposition of certain assets. Such
reduction will be applied first to the term loans, as the term loans
must be repaid prior to the cancellation of the revolving credit.
As of November 30, 1993, the Company has remitted $3,300,000 against
the term loan balances which approximates the after-tax proceeds
from the sale of these assets. Loans under the revolving credit
will, at the Company's option, bear interest payable quarterly at
either prime plus 1% or LIBOR plus 2%. Borrowings under the term
loans will, at the Company's option, bear interest payable quarterly
at either prime plus 1-1/2% or LIBOR plus 2- 1/2%. At November 30,
1993, the prime and LIBOR interest rates were 5.5% and 3.19%,
respectively. The Credit Agreement will terminate and all amounts
will be due and payable on November 30, 1995, or upon repayment and
cancellation of the revolving credit.
On December 31, 1992, the Company paid $6,000,000 to repay the 11.25%
Tral Senior Notes. Funds used to retire the debt were obtained
through increased borrowings on the LIBOR plus 2% Revolving Credit
Notes. The prepayment penalty paid for early extinguishment of the
debt due subsequent to fiscal 1993 was approximately $148,000.
The Teachers Insurance and Annuity Association of America (Teachers)
Senior Notes may be prepaid on or after December 31, 1992, at a
premium over the principal amount that declines in equal annual
increments from 3.29% to zero at December 31, 1994. Payments in
excess of those specified by the Teachers Senior Subordinated Notes
may be made on or after December 31, 1992, at a premium over the
principal amount that declines in equal annual increments from 5.78%
to zero at December 31, 1996.
The Teachers Senior and Teachers Senior Subordinated Notes may be
prepaid, without premium, at any time from the proceeds from the
sale of common stock, merger, consolidation, or the sale of stock or
assets of the Company.
(Continued)
18
8
A.B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Junior Subordinated Note accrues interest at a rate of 14% and is
payable semiannually at the rate of 3% through December 31, 1995 and
7% from January 1, 1996 through December 31, 1997. Interest which
is accrued but unpaid is added to the principal amount of the note
and bears interest at a rate of 14% compounded semiannually. The
principal and unpaid interest are due on December 31, 1998.
Obligations of the Company under the Junior Subordinated Note are
subordinated to senior indebtedness of the Company.
The financing arrangements contain certain covenants that, among other
things, require the Company to (a) maintain certain minimum levels
of (i) cumulative consolidated gross revenues from sales less (ii)
the sum of consolidated selling and general administrative expenses
and costs of sales for such period; (b) maintain certain minimum
ratios of the sum of consolidated earnings before interest, taxes,
and depreciation to interest expense; and (c) maintain certain
minimum ratios of operating cash flow to debt. Additional covenants
limit, among other things, the ability of the Company to (a) incur
indebtedness and certain other fixed obligations, (b) create certain
liens on their respective assets, (c) pay dividends on the Company's
capital stock, (d) make certain investments in or loans to entities,
(e) merge or consolidate with, or sell their assets to, other
entities, (f) make capital expenditures in excess of specified
amounts, and (g) engage in certain transactions with affiliates.
(8) Stockholders' Equity
The preferred stock, which is owned by Emerson, has no dividend
provisions and is nonvoting, except the Company cannot create or
issue any additional stock of any class senior to the preferred
stock without approval of at least 2/3 of the total number of
preferred shares outstanding. The Company is required to redeem,
for $100,000 per share, all of the outstanding shares on December
31, 1999, or prior to a merger or consolidation. In the event of
liquidation, dissolution, or winding up of the Company, subject to
the prior rights of the Company's creditors to its assets, the
holders of shares of preferred stock will be entitled to receive a
liquidation distribution of $100,000 per share.
The Classes A, B, and C common stocks have identical rights, terms, and
conditions except voting. Class A common stock is entitled to vote
on each matter on which stockholders of the Company shall be
entitled to vote, one vote for each share. Class B common stock
shall not have any voting rights except that such holders shall be
entitled to vote, as a separate class, on any amendment, repeal, or
modification of any provision of the certificate of incorporation,
one vote for each share. Class C common stock shall be entitled to
vote on each matter on which the stockholders of the Company shall
be entitled to vote, other than the election of directors, one vote
for each share. In addition, the holders of Class C common stock
shall be entitled to vote, as a separate class, on any amendment,
repeal, or modification of any provision of the certificate of
incorporation, one vote for each share. Holders of Class B common
stock and Class C common stock, under certain circumstances, are
entitled to convert their shares into Class A common stock on a
share-for-share basis.
(9) Stock Option Plan
Under the terms of the 1988 Stock Option Plan, 100,000 shares of Class A
common stock can be issued to key employees of Industries or its
subsidiaries at an exercise price of $11.50 per share. Options are
exercisable upon granting and must be exercised within 15 years from
the date of granting. At November 30, 1993 and 1992, 61,000 shares
had been granted. As of November 30, 1993 and 1992, respectively,
2,100 and 800 shares of Class A common stock had been issued
pursuant to options exercised.
(Continued)
19
9
A.B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) Retirement Benefits
The Company has pension plans covering substantially all employees.
Benefits are provided to employees under defined benefit,
pay-related plans which are noncontributory. Contributions to the
plans equal or exceed the minimum funding requirements of the
Employee Retirement Income Security Act of 1974.
Net periodic pension cost for the years ended November 30, 1993 and 1992
consists of the following:
(In thousands of dollars)
1993 1992
---- ----
Defined benefit plans:
Service cost (benefits earned during year) $ 731 681
Interest cost 979 945
Actual return on plan assets (297) (1,003)
Net amortization and deferral (491) 325
---- ------
Net periodic pension cost $ 922 948
==== ======
The actuarial present value of benefit obligations and the funded status
of the Company's plans as of November 30, 1993 and 1992 consist of
the following:
(In thousands of dollars)
1993 1992
---- ----
Actuarial present value of:
Vested benefit obligation $ 13,465 12,068
====== ======
Accumulated benefit obligation $ 13,777 12,335
====== ======
Projected benefit obligation 15,271 13,467
Plan assets at fair value 10,401 10,336
------ ------
Projected benefit obligation in excess
of plan assets 4,870 3,131
Unrecognized net loss (3,359) (1,317)
Unrecognized prior service costs (1,352) (1,531)
Adjustment required to recognize minimum liability 3,217 1,716
------ ------
Pension liability recognized in
the consolidated balance sheet $ 3,376 1,999
====== ======
The assumed discount rate, rate of increase in compensation levels, and
the expected long-term rate of return on plan assets used in the
actuarial calculations were 7.25%, 5.0%, and 9.75%, respectively,
for 1993 and 8.0%, 5.0%, and 9.75%, respectively, for 1992.
The Company has decided to terminate the pension plan for the
discontinued operations of the Parkersburg Division. The estimated
cost to terminate the pension plan of the employees was
approximately $1,209,000. Prior year consolidated financial
statements have not been restated to reflect this decision.
The Company has pension plans for its foreign subsidiaries. The
aggregate pension expense and liability are immaterial to the
consolidated financial statements.
(Continued)
20
10
A.B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As discussed in Notes 1(i) and 4, the Company adopted Statement 106
effective December 1, 1992. The Company sponsors several defined
benefit postretirement plans that cover both salaried and
nonsalaried employees. These plans provide health care and life
insurance benefits. The health care plans are contributory with
deductibles and benefit levels adjusted periodically. The life
insurance plans are noncontributory. The Company has reserved the
right, subject to existing agreements, to modify or terminate these
benefits. The Company's postretirement health care and life
insurance plans are unfunded.
The following table sets forth the combined financial status of
postretirement benefits other than pensions in the Company's
consolidated balance sheet at November 30, 1993:
Accumulated postretirement benefit obligation:
Retirees and beneficiaries $ 876,423
Fully eligible active plan participants 262,867
Other active plan participants 1,431,875
---------
Total 2,571,165
Plan assets at fair value -
---------
Accrued postretirement benefit obligation $ 2,571,165
=========
Net periodic postretirement benefit cost for the year ended November 30, 1993
includes the following components:
Service cost (benefits earned during the year) $ 83,390
Interest cost on the projected benefit obligation 172,913
-------
Net periodic postretirement benefit cost $ 256,303
=======
For measurement purposes, a 12% annual rate of increase in the per
capita cost of covered health benefits for 1993 was assumed. The
rate was assumed to decline gradually to 5.25% by fiscal year 2008
and remain level thereafter. The health care cost trend rate
assumption has an effect on amounts reported. For example,
increasing the health care cost trend rate by one percentage point
in each year would increase the accumulated postretirement benefit
obligation as of November 30, 1993, by approximately $157,000 and
increase the service and interest cost components of the net
periodic postretirement benefits cost by approximately $22,000.
The assumed discount rate used in the actuarial calculations of the
accumulated postretirement benefit obligation was 7.25% at December
1, 1992 and November 30, 1993. The rate of compensation increase
varies by age of employee. The range of assumed increases in
compensation is from 4.5% for employees age 56 and above to 7.5% for
employees under age 25.
(11) Operating Leases
The Company leases computers, transportation equipment, and various
other property under operating lease agreements. Rent expense for
all such leases was $1,793,000 and $1,758,000 for the years ended
November 30, 1993 and 1992, respectively.
At November 30, 1993, future minimum lease payments under such
noncancellable operating leases are as follows:
(In thousands of dollars)
1994 $ 1,311
1995 639
1996 246
1997 78
1998 24
Thereafter 1
-----
$ 2,299
=====
(Continued)
21
11
A.B. CHANCE INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(12) Related-Party Transactions
The Company paid the Emerson Transportation Division approximately
$1,039,000 and $945,000 for freight costs during the years ended
November 30, 1993 and 1992, respectively.
(13) Commitments and Contingencies
The Company has contingent liabilities, which consist of guarantees and
various other claims occurring in the normal course of business.
These other contingent liabilities are not expected by management to
result in actual liabilities which will have a material effect on
the financial position of the Company.
22
Item 7(b)
PRO FORMA FINANCIAL INFORMATION
Presented below are the unaudited pro forma combined balance sheet of Hubbell
Incorporated and A. B. Chance Industries, Inc. as of March 31, 1994 and
combined summary of operations as if the transaction had occured as of the
beginning of 1993 (in 000's except per share):
A.B. CHANCE
HUBBELL INDUSTRIES, PRO FORMA
ASSETS INCORPORATED INC. ADJUSTMENTS COMBINED
- - ------------------------------------------- ------------ ----------- ----------- ---------
Accounts Receivable $ 117,019 $ 22,284 $ - $ 139,303
Inventories 183,566 26,539 0 210,105
Other Current Assets 80,416 2,549 (33,618) 9,347
Property, Plant & Equipment (Net) 153,049 29,593 - 182,642
Investments 249,556 - (30,000) 219,556
Goodwill 65,696 32,997 37,966 136,659
Other Assets 46,934 2,797 4,148 53,879
------------ ----------- ------------ ------------
TOTAL $ 896,236 $ 116,759 $ (21,504) $ 991,491
============ =========== ============ ============
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
- - -------------------------------------------
Notes Payable $ 99,200 $ - $ 45,000 $ 144,200
Other Current Liabilities 144,374 30,508 6,510 181,392
Long Term Debt 2,700 62,264 (62,264) 2,700
Other Liabilities & Deferred Taxes 80,146 6,736 6,500 93,382
Common Shareholders' Equity 569,816 17,251 (17,250) 569,817
------------ ----------- ------------ ------------
TOTAL $ 896,236 $ 116,759 $ (21,504) $ 991,491
============ =========== ============ ============
SUMMARY OF OPERATIONS
- - -------------------------------------------
Net Sales $ 832,423 $ 156,830 $ - $ 989,253
Income Before Income Taxes $ 81,494 $ 7,114 $ 2,664 $ 91,272
Net Income $ 66,306 $ 4,058 $ 1,063 $ 71,427
Earnings Per Share $ 2.10 - - $ 2.26
In preparing the unaudited pro forma combined balance sheet and summary of
operations, adjustments were made to the historical financial statements to
reflect the reduction in the securities portfolio and investment income;
increase in short-term borrowing and interest expense; amortization of the
estimated goodwill of $71.0M over 40 years; the repayment of existing debt of
A.B. Chance Industries, Inc.; and other estimated purchase accounting entries.
The pro forma statements are not indicative of the results that would have been
obtained if the operations would have been combined during 1993, nor are they
necessarily indicative of the results that may occur in the future.
23
EXHIBIT INDEX
Exhibits Page No.
(c)1. Stock Purchase Agreement, dated March 16, 1994 . . . . . . . . .