HUBBELL INC
10-Qs and 10-Ks
PROXIES
Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009 | ||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-2958
Hubbell Incorporated
(Exact name of registrant as
specified in its charter)
| State of Connecticut | 06-0397030 | |
|
(State or other jurisdiction
of
incorporation or organization) |
(I.R.S. Employer
Identification No.) |
|
|
584 Derby Milford Road, Orange, CT
(Address of principal executive offices) |
06477
(Zip Code) |
(203) 799-4100
(Registrant’s telephone number, including area code)
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of each Class
|
Name of Exchange on which Registered
|
|
| Class A Common — $.01 par value (20 votes per share) | New York Stock Exchange | |
| Class B Common — $.01 par value (1 vote per share) | New York Stock Exchange | |
| Series A Junior Participating Preferred Stock Purchase Rights | New York Stock Exchange | |
| Series B Junior Participating Preferred Stock Purchase Rights | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
þ
No
o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the Securities
Exchange Act of
1934. Yes
o
No
þ
Indicate by check mark if the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such report), and (2) has been subject
to such filing requirements for the past
90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes
o
No
o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
|
Large accelerated
filer
þ
|
Accelerated filer o | Non-accelerated filer o | Smaller reporting Company o |
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
The approximate aggregate market value of the voting stock held
by non-affiliates of the registrant as of June 30, 2009 was
$1,646,427,497*. The number of shares outstanding of the
Class A Common Stock and Class B Common Stock as of
February 12, 2010 was 7,167,506 and 52,579,625,
respectively.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the annual
meeting of shareholders scheduled to be held on May 3,
2010, to be filed with the Securities and Exchange Commission
(the “SEC”), are incorporated by reference in answer
to Part III of this
Form 10-K.
| * | Calculated by excluding all shares held by Executive Officers and Directors of registrant and the Louie E. Roche Trust, the Harvey Hubbell Trust, the Harvey Hubbell Foundation and the registrant’s pension plans, without conceding that all such persons or entities are “affiliates” of registrant for purpose of the Federal Securities Laws. |
HUBBELL
INCORPORATED
ANNUAL
REPORT ON
FORM 10-K
For the Year Ended December 31, 2009
TABLE OF CONTENTS
For the Year Ended December 31, 2009
TABLE OF CONTENTS
1
Table of Contents
PART I
| Item 1. | Business |
Hubbell Incorporated (herein referred to as “Hubbell”,
the “Company”, the “registrant”,
“we”, “our” or “us”, which
references shall include its divisions and subsidiaries as the
context may require) was founded as a proprietorship in 1888,
and was incorporated in Connecticut in 1905. Hubbell is
primarily engaged in the design, manufacture and sale of quality
electrical and electronic products for a broad range of
non-residential and residential construction, industrial and
utility applications. Products are either sourced complete,
manufactured or assembled by subsidiaries in the United States,
Canada, Switzerland, Puerto Rico, Mexico, the People’s
Republic of China, Italy, the United Kingdom (“UK”),
Brazil and Australia. Hubbell also participates in joint
ventures in Taiwan and the People’s Republic of China, and
maintains sales offices in Singapore, the People’s Republic
of China, Mexico, South Korea, and the Middle East.
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. See also
Note 21 — Industry Segments and Geographic Area
Information in the Notes to Consolidated Financial Statements.
On October 2, 2009, the Company completed the purchase of
Burndy Americas
(“Burndy
®
”)
for $355.2 million in cash (net of cash acquired). Burndy,
headquartered in Manchester, New Hampshire, is a leading North
American manufacturer of connectors, cable accessories and
tooling. Burndy’s connector portfolio consists of
Hydent
tm
and
Servit
®
compression and mechanical connectors;
Implo
tm
,
Hyground
®
and
Burndyweld
®
transmission and substation grounding connectors and
Wejtap
tm
overhead line connectors. Burndy also sells cable accessories
including
Penetrox
tm
oxide inhibiting compounds and hydraulic, pneumatic and
mechanical tooling including the
Patriot
®
family of battery tools and The Smart
Cart
®
cable management systems. Burndy serves commercial and
industrial markets and utility customers primarily in the United
States (with roughly 25% of its sales in Canada, Mexico and
Brazil). This acquisition has been added to the electrical
systems business within the Electrical segment.
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 Company’s annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and all amendments to those reports are made available free of
charge through the Investor Relations section of the
Company’s website at
http://www.hubbell.com
as soon as practicable after such material is electronically
filed with, or furnished to, the SEC. These filings are also
available for reading and copying at the SEC’s Public
Reference Room at 100 F Street N.E.,
Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
In addition, the Company’s SEC filings can be accessed from
the SEC’s homepage on the Internet at
http://www.sec.gov.
The information contained on the Company’s website or
connected to our website is not incorporated by reference into
this Annual Report on
Form 10-K
and should not be considered part of this report.
ELECTRICAL
SEGMENT
The Electrical segment (70%, 72% and 75% of consolidated
revenues in 2009, 2008 and 2007, respectively) is comprised of
businesses that sell stock and custom products including
standard and special application wiring device products,
rough-in electrical products, lighting fixtures and controls, as
well as other electrical equipment. The products are typically
used in and around industrial, commercial and institutional
facilities by electrical contractors, maintenance personnel,
electricians and telecommunications companies. In addition,
certain businesses design and manufacture a variety of high
voltage test and measurement equipment, industrial controls and
communication systems used in the non-residential and industrial
markets. Many of these products may also be found in the oil and
gas (onshore and offshore) and mining industries. Certain
lighting fixtures, wiring devices and electrical products also
have residential and utility applications.
These products are primarily sold through electrical and
industrial distributors, home centers, retail and hardware
outlets, and lighting showrooms. Special application products
are sold primarily through wholesale
2
Table of Contents
distributors to contractors, industrial customers and original
equipment manufacturers (“OEMs”). High voltage
products are sold primarily by direct sales to customers through
its sales engineers. Hubbell maintains a sales and marketing
organization to assist potential users with the application of
certain products to their specific requirements, and with
architects, engineers, industrial designers, OEMs and electrical
contractors for the design of electrical systems to meet the
specific requirements of industrial, non-residential and
residential users. Hubbell is also represented by sales agents
for its lighting fixtures and controls, electrical wiring
devices, rough-in electrical products and high voltage products
lines.
Hubbell
Electrical Systems
Wiring
Products
Hubbell designs, manufactures and sells wiring products which
are supplied principally to industrial, non-residential and
residential customers. These products, comprising several
thousand catalog items, include items such as:
|
• Cable/cord reels
|
• Marine products
|
• Surge suppression devices
|
||
|
• Connectors
|
• Mesh grips |
• Switches & dimmers
|
||
|
• Floor boxes/poke throughs
|
• Pin & sleeve devices | • Switched enclosures | ||
|
• Ground fault devices
|
• Service poles | • Wiring accessories |
These products, sold under the
Hubbell
®
,
Kellems
®
,
Bryant
®
,
Burndy
®
,
Wejtap
tm
,
Hydent
tm
,
Servit
®
,
Hyground
®
,
Burndyweld
®
,
and Circuit
Guard
®
trademarks, are sold to industrial, non-residential, utility and
residential markets. Hubbell also manufactures TVSS (transient
voltage surge suppression) devices, under the
Spikeshield
®
trademark, which are designed to protect electronic equipment
such as personal computers and other supersensitive electronic
equipment.
Hubbell also manufactures
and/or
sells
components designed for use in local and wide area networks and
other telecommunications applications supporting high-speed data
and voice signals.
Electrical
Products
Hubbell designs and manufactures electrical products with
various applications. These include commercial and industrial
products, tooling and cable management products, products for
harsh and hazardous locations and high voltage test and
measurement equipment.
Commercial
Products
Hubbell manufactures
and/or
sells
outlet boxes, enclosures and fittings under the following
trademarks:
| • | Raco ® - steel and plastic boxes, covers, metallic and nonmetallic electrical fittings and floor boxes | |
| • | Bell ® - outlet boxes, a wide variety of electrical boxes, covers, combination devices, lampholders and lever switches with an emphasis on weather-resistant types suitable for outdoor applications | |
| • | Wiegmann ® - a full-line of fabricated steel electrical equipment enclosures such as rainproof and dust-tight panels, consoles and cabinets, wireway and electronic enclosures and a line of non-metallic electrical equipment enclosures |
Industrial
Controls
Hubbell manufactures and sells a variety of heavy-duty
electrical and radio control products which have broad
application in the control of industrial equipment and
processes. These products range from standard and specialized
industrial control components to combinations of components that
control industrial manufacturing processes.
3
Table of Contents
Tooling and
Cable Management Products
Hubbell manufactures and sells a wide array of tooling products
including hydraulic, mechanical and pneumatic tooling, as well
as the
Patriot
®
family of battery tools for various applications. The 2009
acquisition of Burndy expanded Hubbell’s array of cable
management products, including hand carts and spool carriers.
Hubbell’s cable management products are sold under the
Gleason
Reel
®
and The Smart
Cart
®
tradenames.
Products for
Harsh and Hazardous Locations
Hubbell’s special application products are intended to
protect the electrical system from the environment
and/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
®
,
Disconex
tm
,
HostileLite
®
,
Hawke
tm
,
GAI-Tronics
®
,
FEMCO
®
,
DAC
tm
,
and
Elemec
tm
,
and include:
|
• Cable connectors, glands and fittings
|
• Junction boxes, plugs, receptacles | |
|
• Conduit raceway fittings
|
• Land mobile radio peripherals | |
|
• Electrical distribution equipment
|
• Lighting fixtures | |
|
• Electrical motor controls
|
• Switches | |
|
• Enclosures
|
• Telephone systems | |
|
• Intra-facility communications
|
Other products manufactured and sold for use primarily in the
mining industry under the trademark
Austdac
tm
include material handling, conveyer control and monitoring
equipment, gas detection equipment, emergency warning lights and
sounders.
High Voltage
Test and Measurement Equipment
Hubbell manufactures and sells, under the
Hipotronics
®
,
Haefely
®
and
Tettex
®
trademarks, a broad line of high voltage test and measurement
systems to test materials and equipment used in the generation,
transmission and distribution of electricity, and high voltage
power supplies and electromagnetic compliance equipment for use
in the electrical and electronic industries.
Lighting
Products
Hubbell manufactures and sells lighting fixtures and controls
for indoor and outdoor applications within three categories:
1) Commercial/Institutional and Industrial Outdoor,
2) Commercial/Institutional and Industrial Indoor, and
3) Residential.
A fast growing trend within all three of these categories is the
adoption of light emitting diode (“LED”) technology as
the light source. The Company has a broad array of LED-luminaire
products within each category and the majority of the new
product development efforts are oriented towards expanding those
offerings.
4
Table of Contents
Commercial/Institutional and Industrial Outdoor products are
sold under a number of brand names and trademarks, including Kim
Lighting
®
,
Architectural Area Lighting, Beacon Products, Hubbell Outdoor
Lighting, Security™, Spaulding™, Whiteway™,
Sportsliter
®
,
Sterner
®
,
Devine
®
,
and
Lightscaper
®
and include:
|
• Bollards
• Canopy light fixtures
|
• Pedestrian zone, path/egress, landscape, building
and area lighting fixtures and poles
|
|
|
• Decorative landscaping fixtures
|
• Series fixtures
|
|
|
• Fixtures used to illuminate athletic and recreational fields
• Floodlights and poles
|
• Signage fixtures
• Flood/step/wall mounted lighting
|
|
|
• Occupancy/vacancy sensors
|
• Inverter power systems
|
Commercial/Institutional and Industrial Indoor products are sold
under the Alera™, Columbia
Lighting
®
,
Precision Lighting™, Paragon Lighting, Kurt Versen,
Prescolite
®
,
Dual-Lite
®
,
Compass™ Products, Hubbell Industrial Lighting,
Chalmit™, Victor™,
Killark
®
and Thomas Research Products trademarks and include:
|
• Architectural, specification and commercial grade fluorescent fixtures
• Emergency lighting/exit signs
|
• International Electrotechnical Commission lighting
fixtures designed for hazardous, hostile corrosive applications
|
|
|
• Fluorescent high bay fixtures
|
• Inverter power systems
|
|
|
• High intensity discharge high bay and low bay
fixtures
|
• Recessed, surface mounted and track fixtures
• Specification grade LED fixtures |
Residential products are sold under the Progress
Lighting
®
,
Everlume
®
,
HomeStyle
tm
Lighting, and Thomasville
Lighting
®
(a registered trademark of Thomasville Furniture Industries,
Inc.) tradenames and include:
|
• Bath/vanity fixtures and fans
|
• Linear fluorescent
|
|
|
• Ceiling fans
|
• Outdoor and landscape fixtures
|
|
|
• Chandeliers, sconces, directionals
|
• Residential LED fixtures
|
|
|
• Close to ceiling fixtures
|
• Track and recessed lighting
|
|
|
• Dimmers and door chimes
|
• Under-cabinet lighting
|
POWER
SEGMENT
The Power segment (30%, 28% and 25% of consolidated revenues in
2009, 2008 and 2007, respectively) consists of operations that
design and manufacture various transmission, distribution,
substation and telecommunications products primarily used by the
utility industry. In addition, certain of these products are
used in the civil construction and transportation industries.
Products are sold to distributors and directly to users such as
electric utilities, telecommunication companies, mining
operations, industrial firms, construction and engineering
firms. While Hubbell believes its sales in this area are not
materially dependent upon any customer or group of customers, a
decrease in purchases by public utilities does affect this
category.
5
Table of Contents
Transmission
and Distribution Products
Hubbell manufactures and sells a wide variety of electrical
transmission, substation and distribution products. These
products are sold under a number of brand names and trademarks,
such as Ohio
Brass
®
,
Chance
®
,
Anderson
®
,
Fargo
®
,
Hubbell
®
,
Polycast
®
,
Quazite
®
,
Comcore
®
,
Hot
Box
®
and
PCORE
®
and include:
|
• Transformer equipment mounts
• Arresters
|
• Mechanical and compression electrical connectors and
tools
|
|
|
• Automatic line splices
|
• Reclosers
|
|
|
• Cable elbow terminations and accessories
• High voltage condenser bushings
• Switches
• Hot line taps
• Cutouts
|
• Polymer concrete and fiberglass enclosures, equipment pads and drain products
• Specialized hot line tools
• Insulators
• Sectionalizers
|
Hubbell also manufactures and sells under the
Chance
®
and/or
Atlas
Systems,
Inc
®
trademarks products that include:
| • | Line construction materials including power-installed foundation systems and earth anchors to secure overhead power and communications line poles, guyed and self-supporting towers, streetlight poles and pipelines. Additionally, helical pier foundation systems are used to support homes and buildings, and earth anchors are used in a variety of farm, home and construction projects including tie-back applications. | |
| • | Pole line and tower hardware, including galvanized steel fixtures and extruded plastic materials used in overhead and underground line construction, connectors, fasteners, pole and cross arm accessories, insulator pins, mounting brackets and related components, and other accessories for making high voltage connections and linkages. | |
| • | Construction tools and accessories for building overhead and underground power and telephone lines. |
INFORMATION
APPLICABLE TO ALL GENERAL CATEGORIES
International
Operations
The Company has several operations located outside of the United
States. These operations manufacture, assemble
and/or
market Hubbell products and service both the Electrical and
Power segments.
As a percentage of total net sales, international shipments from
foreign operations directly to third parties were 16% in 2009
and 2008, and 14% in 2007 with the UK, Canada and Switzerland
operations representing approximately 36%, 24% and 13%,
respectively, of 2009 international net sales. See also
Note 21-Industry
Segments and Geographic Area Information in the Notes to
Consolidated Financial Statements.
Raw
Materials
Raw materials used in the manufacture of Hubbell products
primarily include steel, aluminum, brass, copper, 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.
6
Table of Contents
Patents
Hubbell has approximately 1,400 active United States and foreign
patents covering many of its products, which expire at various
times. While Hubbell deems these patents to be of value, it does
not consider its business to be dependent upon patent
protection. Hubbell also licenses products under patents owned
by others, as may be needed, and grants licenses under certain
of its patents.
Working
Capital
Inventory, accounts receivable and accounts payable levels,
payment terms and, where applicable, return policies are in
accordance with the general practices of the electrical products
industry and standard business procedures. See also Item 7.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations.
Backlog
Backlog of orders believed to be firm at December 31, 2009
was approximately $253.7 million compared to
$291.5 million at December 31, 2008. The decrease in
the backlog in 2009 is attributable to broad based weakness in
the markets that we serve, particularly the non-residential
construction market. Although this backlog is important, the
majority of Hubbell’s revenues result from sales of
inventoried products or products that have short periods of
manufacture.
Competition
Hubbell experiences substantial competition in all categories of
its business, but does not compete with the same companies in
all of its product categories. The number and size of
competitors vary considerably depending on the product line.
Hubbell cannot specify with precision the number of competitors
in each product category or their relative market position.
However, some of its competitors are larger companies with
substantial financial and other resources. Hubbell considers
product performance, reliability, quality and technological
innovation as important factors relevant to all areas of its
business, and considers its reputation as a manufacturer of
quality products to be an important factor in its business. In
addition, product price, service levels and other factors can
affect Hubbell’s ability to compete.
Research,
Development & Engineering
Research, development and engineering expenditures represent
costs incurred in the experimental or laboratory sense aimed at
discovery
and/or
application of new knowledge in developing a new product or
process, or in bringing about significant improvement in an
existing product or process. Research, development and
engineering expenses are recorded as a component of Cost of
goods sold. Expenses for research, development and engineering
were less than 1% of Cost of goods sold for each of the years
2009, 2008 and 2007.
Environment
The Company is subject to various federal, state and local
government requirements relating to the protection of employee
health and safety and the environment. The Company believes
that, as a general matter, its policies, practices and
procedures are properly designed to prevent unreasonable risk of
environmental damage and personal injury to its employees and
its customers’ employees and that the handling,
manufacture, use and disposal of hazardous or toxic substances
are in accord with environmental laws and regulations.
Like other companies engaged in similar businesses, the Company
has incurred or acquired through business combination remedial
response and voluntary cleanup costs for site contamination and
is a party to product liability and other lawsuits and claims
associated with environmental matters, including past production
of product containing toxic substances. Additional lawsuits,
claims and costs involving environmental matters are likely to
continue to arise in the future. However, considering past
experience and reserves, the Company does not anticipate that
these matters will have a material impact on earnings, capital
expenditures, or competitive position. See also
Note 16 — Commitments and Contingencies in the
Notes to Consolidated Financial Statements.
7
Table of Contents
Employees
As of December 31, 2009, Hubbell had approximately 12,700
salaried and hourly employees of which approximately 7,000 of
these employees or 55% are located in the United States.
Approximately 2,700 of these U.S. employees are represented
by 21 labor unions. Hubbell considers its labor relations to be
satisfactory.
| Item 1A. | Risk Factors |
Our business, operating results, financial condition, and cash
flows may be impacted by a number of factors including, but not
limited to those set forth below. Any one of these factors could
cause our actual results to vary materially from recent results
or future anticipated results. See also Item 7.
Management’s Discussion and Analysis —
“Executive Overview of the Business”,
“Outlook”, and “Results of Operations”.
We
operate in markets that are subject to competitive pressures
that could affect selling prices or demand for our
products.
We compete on the basis of product performance, quality, service
and/or
price. Our competitive strategy is to design and manufacture
high quality products at the lowest possible cost. Our
competitors include companies that have greater sales and
financial resources than our Company. Competition could affect
future selling prices or demand for our products.
A global
recession and continued worldwide credit constraints could
adversely affect us.
Recent global economic events, including concerns over the tight
credit markets and failures or material business deterioration
of financial institutions and other entities, have resulted in a
continued concern regarding the global recession. If these
conditions continue or worsen, we could experience additional
declines in revenues, profitability and cash flow due to reduced
orders, payment delays, supply chain disruptions or other
factors caused by economic challenges faced by our customers,
prospective customers and suppliers.
We source
products and materials from various suppliers located in
countries throughout the world. A disruption in the
availability, price, or quality of these products could impact
our operating results.
We use a variety of raw materials in the production of our
products including steel, aluminum, brass, copper, bronze, zinc,
nickel and plastics. We have multiple sources of supply for
these products and are not dependent on any single supplier.
However, significant shortages of these materials or price
increases could increase our operating costs and adversely
impact the competitive positions of our products which would
directly impact our results of operations.
We continue to increase the amount of product materials,
components and finished goods that are sourced from low cost
countries including Mexico, the People’s Republic of China,
and other countries in Asia. A political disruption or
significant changes related to transportation to
and/or
from
one of these countries could affect the availability of these
materials and components which would directly impact our results
of operations.
We rely on our suppliers in low cost countries to produce high
quality materials, components and finished goods according to
our specifications. Although we have quality control procedures
in place, there is a risk that products may not meet our
specifications which could impact our ability to ship high
quality products to our customers on a timely basis and this
could adversely impact our results of operations.
We engage
in acquisitions and strategic investments and may encounter
difficulty in obtaining appropriate acquisitions and in
integrating these businesses.
We have pursued and will continue to seek potential acquisitions
and other strategic investments to complement and expand our
existing businesses within our core markets. The rate and extent
to which appropriate acquisitions become available may impact
our growth rate. The success of these transactions will depend
on our ability to integrate these businesses into our
operations. We may encounter difficulties in integrating
acquisitions into our operations and in managing strategic
investments. Therefore, we may not realize the degree or timing
of expected synergies and benefits anticipated when we first
enter into a transaction.
8
Table of Contents
Our
operating results may be impacted by actions related to our
enterprise-wide business system.
As of the end of 2006, the SAP software implementation had been
completed throughout the majority of our domestic businesses.
Since then, we have continued to work on standardizing business
processes and improving our understanding and utilization of the
system. Based upon the complexity of this system, there is risk
that we will continue to incur additional costs to enhance the
system, perform process reengineering and future implementations
at our remaining businesses and post 2006 acquisitions. Any
future reengineering or implementations could result in
operating inefficiencies which could impact our operating
results or our ability to perform necessary business
transactions.
A
deterioration in the credit quality of our customers could have
a material adverse effect on our operating results and financial
condition.
We have an extensive customer base of distributors and
wholesalers, electric utilities, OEMs, electrical contractors,
telecommunications companies, and retail and hardware outlets.
We are not dependent on a single customer, however, our top 10
customers account for approximately 35% of our total accounts
receivable. A deterioration in credit quality of several major
customers could adversely affect our results of operations,
financial condition and cash flows.
Inability
to access capital markets may adversely affect our
business.
Our ability to invest in our business and make strategic
acquisitions may require access to the capital markets. If we
are unable to access the capital markets, we could experience a
material adverse affect on our business and financial results.
We have
two classes of common stock with different voting rights, which
results in a concentration of voting power of our common
stock.
As of December 31, 2009, the holders of our Class A
common stock (with 20 votes per share) held approximately 73% of
the voting power represented by all outstanding shares of our
common stock and approximately 12% of the Company’s total
equity value, and the Hubbell Trust and Roche Trust collectively
held approximately 49% of our Class A common stock. The
holders of the Class A common stock thus are in a position
to influence matters that are brought to a vote of the holders
of our common stock, including, among others, the election of
the board of directors, any amendments to our charter documents,
and the approval of material transactions. In order to further
the interests of our shareholders, the Company routinely reviews
various alternatives to meet its capital structure objectives,
including equity, reclassification and debt transactions.
We are
subject to litigation and environmental regulations that may
adversely impact our operating results.
We are, and may in the future be, a party to a number of legal
proceedings and claims, including those involving product
liability, patent and environmental matters, which could be
significant. Given the inherent uncertainty of litigation, we
can offer no assurance that a future adverse development related
to existing litigation or any future litigation will not have a
material adverse impact to our business. We are also subject to
various laws and regulations relating to environmental
protection and the discharge of materials into the environment,
and we could incur substantial costs as a result of the
noncompliance with or liability for clean up or other costs or
damages under environmental laws. In addition, we could be
affected by future laws or regulations, including those imposed
in response to climate change concerns. Compliance with any
future laws and regulations could result in an adverse affect on
our business and financial results.
We face
the potential harms of natural disasters, terrorism, acts of
war, international conflicts or other disruptions to our
operations.
Natural disasters, acts or threats of war or terrorism,
international conflicts, and the actions taken by the
United States and other governments in response to such
events could cause damage to or disrupt our business operations,
our suppliers or our customers, and could create political or
economic instability, any of which could
9
Table of Contents
have an adverse effect on our business. Although it is not
possible to predict such events or their consequences, these
events could decrease demand for our products, make it difficult
or impossible for us to deliver products, or disrupt our supply
chain.
| Item 1B. | Unresolved Staff Comments |
None
| Item 2. | Properties |
Hubbell’s manufacturing and warehousing facilities,
classified by segment, are located in the following areas. The
Company believes its manufacturing and warehousing facilities
are adequate to carry on its business activities.
|
Total Approximate Floor
|
||||||||||||||||||
| Number of Facilities | Area in Square Feet | |||||||||||||||||
|
Segment
|
Location | Warehouses | Manufacturing | Owned | Leased | |||||||||||||
|
Electrical segment
|
United States | 16 | 25 | 3,071,900 | 1,796,000 | |||||||||||||
| Australia | 3 | — | 34,100 | |||||||||||||||
| Brazil | 1 | 123,200 | — | |||||||||||||||
| Canada | 3 | 1 | 178,700 | 22,400 | ||||||||||||||
| Italy | 1 | — | 8,200 | |||||||||||||||
| Mexico | 1 | 3 | 658,600 | 43,300 | ||||||||||||||
| People’s Republic of China | 1 | — | 185,900 | |||||||||||||||
| Puerto Rico | 1 | 162,400 | — | |||||||||||||||
| Singapore | 1 | — | 6,700 | |||||||||||||||
| Switzerland | 1 | — | 73,800 | |||||||||||||||
| United Kingdom | 3 | 133,600 | 40,000 | |||||||||||||||
|
Power segment
|
United States | 2 | 10 | 2,212,900 | 131,300 | |||||||||||||
| Brazil | 1 | 103,000 | — | |||||||||||||||
| Canada | 1 | 30,000 | — | |||||||||||||||
| Mexico | 3 | 203,600 | 120,900 | |||||||||||||||
| Item 3. | Legal Proceedings |
As described in Note 16 — Commitments and
Contingencies in the Notes to Consolidated Financial Statements,
the Company is involved in various legal proceedings, including
patent matters, as well as workers’ compensation, product
liability and environmental matters, including, for each, past
production of product containing toxic substances, which have
arisen in the normal course of its operations and with respect
to which the Company is self-insured for certain incidents at
various amounts. Management believes, considering its past
experience, insurance coverage and reserves, that the final
outcome of such matters will not have a material adverse effect
on the Company’s consolidated financial position, results
of operations or cash flows.
| Item 4. | Submission of Matters to a Vote of Security Holders |
No matters were submitted to a vote of security holders during
the fourth quarter of 2009.
10
Table of Contents
Executive
Officers of the Registrant
|
Name.
|
Age(1)
|
Present Position
|
Business Experience
|
|||||
|
Timothy H. Powers
|
61 |
Chairman of the
Board, President and Chief Executive Officer |
Chairman of the Board since September 15, 2004; President and Chief Executive Officer since July 1, 2001; Senior Vice President and Chief Financial Officer September 21, 1998 to June 30, 2001; previously Executive Vice President, Finance & Business Development, Americas Region, Asea Brown Boveri. | |||||
|
David G. Nord
|
52 |
Senior Vice
President and Chief Financial Officer |
Present position since September 19,
2005; previously Chief Financial Officer of Hamilton Sundstrand Corporation, a United Technologies company, from April 2003 to September 2005, and Vice President, Controller of United Technologies Corporation from October 2000 to March 2003. |
|||||
|
Richard W. Davies
|
63 |
Vice President,
General Counsel and Secretary |
Present position since January 1, 1996; General Counsel since 1987; Secretary since 1982; Assistant Secretary 1980-1982; Assistant General Counsel 1974-1987. | |||||
|
James H. Biggart, Jr.
|
57 |
Vice President and
Treasurer |
Present position since January 1, 1996; Treasurer since 1987; Assistant Treasurer 1986-1987; Director of Taxes 1984-1986. | |||||
|
Darrin S. Wegman
|
42 |
Vice President and
Controller |
Present position since March 1, 2008; Vice President and Controller of the former Hubbell Industrial Technology segment/Hubbell Electrical Products March 2004-February 2008; Vice President and Controller of the former Hubbell Industrial Technology segment March 2002-March 2004; Controller of GAI-Tronics Corporation July 2000-February 2002. | |||||
11
Table of Contents
|
Name.
|
Age(1)
|
Present Position
|
Business Experience
|
|||||
|
W. Robert Murphy
|
60 |
Executive Vice President,
Marketing and Sales |
Present position since October 1, 2007; Senior Group Vice President 2001-2007; Group Vice President 2000-2001; Senior Vice President Marketing and Sales (Wiring Systems) 1985-1999; and various sales positions (Wiring Systems) 1975-1985. | |||||
|
Scott H. Muse
|
52 |
Group Vice
President (Lighting Products) |
Present position since April 27, 2002 (elected as an officer of the Company on December 3, 2002); previously President and Chief Executive Officer of Lighting Corporation of America, Inc. (“LCA”) 2000-2002, and President of Progress Lighting, Inc. 1993-2000. | |||||
|
William T. Tolley
|
52 |
Group Vice
President (Power Systems) |
Present position since December 23, 2008; Group Vice President (Wiring Systems) October 1, 2007-December 23, 2008; Senior Vice President of Operations and Administration (Wiring Systems) October 2005-October 2007; Director of Special Projects April 2005-October 2005; administrative leave November 2004-April 2005; Senior Vice President and Chief Financial Officer February 2002 - November 2004. | |||||
|
Gary N. Amato
|
58 |
Group Vice
President (Electrical Systems) |
Present position since December 23, 2008; Group Vice President (Electrical Products) October 2006-December 23, 2008; Vice President October 1997-September 2006; Vice President and General Manager of the Company’s Industrial Controls Divisions (ICD) 1989-1997; Marketing Manager, ICD, April 1988-March 1989. | |||||
There are no family relationships between any of the above-named
executive officers.
| (1) | As of February 19, 2010. |
12
Table of Contents
PART II
| Item 5. | Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The Company’s Class A and Class B Common Stock is
principally traded on the New York Stock Exchange under the
symbols “HUBA” and “HUBB”. The following
tables provide information on market prices, dividends declared,
number of common shareholders, and repurchases by the Company of
shares of its Class A and Class B Common Stock.
|
Market Prices (Dollars Per Share)
|
Common A | Common B | ||||||||||||||
|
Years Ended December 31,
|
High | Low | High | Low | ||||||||||||
|
2009 — Fourth quarter
|
45.89 | 38.50 | 48.05 | 40.67 | ||||||||||||
|
2009 — Third quarter
|
40.49 | 29.40 | 43.03 | 31.64 | ||||||||||||
|
2009 — Second quarter
|
34.00 | 25.80 | 36.58 | 27.80 | ||||||||||||
|
2009 — First quarter
|
33.26 | 21.84 | 34.60 | 22.15 | ||||||||||||
|
2008 — Fourth quarter
|
41.31 | 28.19 | 36.64 | 25.88 | ||||||||||||
|
2008 — Third quarter
|
51.65 | 38.75 | 44.64 | 33.57 | ||||||||||||
|
2008 — Second quarter
|
53.75 | 45.92 | 48.63 | 39.87 | ||||||||||||
|
2008 — First quarter
|
54.00 | 46.01 | 50.56 | 42.40 | ||||||||||||
|
Dividends Declared (Dollars Per Share)
|
Common A | Common B | ||||||||||||||
|
Years Ended December 31,
|
2009 | 2008 | 2009 | 2008 | ||||||||||||
|
First quarter
|
0.35 | 0.33 | 0.35 | 0.33 | ||||||||||||
|
Second quarter
|
0.35 | 0.35 | 0.35 | 0.35 | ||||||||||||
|
Third quarter
|
0.35 | 0.35 | 0.35 | 0.35 | ||||||||||||
|
Fourth quarter
|
0.35 | 0.35 | 0.35 | 0.35 | ||||||||||||
|
Number of Common Shareholders of Record
|
||||||||||||||||||||
|
At December 31,
|
2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||
|
Class A
|
526 | 551 | 571 | 617 | 665 | |||||||||||||||
|
Class B
|
2,860 | 3,055 | 3,068 | 3,243 | 3,319 | |||||||||||||||
In February 2010, the Company’s Board of Directors
approved an increase in the common stock dividend rate from
$0.35 to $0.36 per share per quarter. The increased quarterly
dividend payment will commence with the dividend payment
scheduled for April 9, 2010 to shareholders of record on
March 8, 2010.
13
Table of Contents
Purchases
of Equity Securities
In December 2007, the Board of Directors approved a stock
repurchase program and authorized the repurchase of up to
$200 million of Class A and Class B Common Stock.
In February 2010, the Board of Directors extended the term of
this program through February 20, 2011. As of
December 31, 2009, approximately $160 million remains
available under this program. Depending upon numerous factors,
including market conditions and alternative uses of cash, the
Company may conduct discretionary repurchases through open
market and privately negotiated transactions during its normal
trading windows. The Company has not repurchased any shares
under this program since August 2008.
14
Table of Contents
Corporate
Performance Graph
The following graph compares the total return to shareholders on
the Company’s Class B Common Stock during the five
years ended December 31, 2009, with a cumulative total
return on the (i) Standard & Poor’s MidCap
400 (“S&P MidCap 400”) and (ii) the Dow
Jones U.S. Electrical Components & Equipment
Index (“DJUSEC”). The Company is a member of the
S&P MidCap 400. As of December 31, 2009, the DJUSEC
reflects a group of approximately twenty-six company stocks in
the electrical components and equipment market segment, and
serves as the Company’s peer group. The comparison assumes
$100 was invested on December 31, 2004 in the
Company’s Class B Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among
Hubbell Inc., The S&P Midcap 400 Index
And The Dow Jones US Electrical Components & Equipment Index
And The Dow Jones US Electrical Components & Equipment Index
| * | $100 invested on 12/31/04 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. |
Copyright
©
2010
S & P, a division of The McGraw-Hill Companies Inc.
All rights reserved.
Copyright
©
2010
Dow Jones & Co. All rights reserved.
15
Table of Contents
| Item 6. | Selected Financial Data |
The following summary should be read in conjunction with the
consolidated financial statements and notes contained herein
(dollars and shares in millions, except per share amounts).
| 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
|
OPERATIONS, years ended December 31,
|
||||||||||||||||||||
|
Net sales
|
$ | 2,355.6 | $ | 2,704.4 | $ | 2,533.9 | $ | 2,414.3 | $ | 2,104.9 | ||||||||||
|
Gross profit
|
$ | 725.9 | $ | 803.4 | $ | 735.8 | $ | 656.8 | (1) | $ | 595.0 | (1) | ||||||||
|
Special charges, net
|
$ | — | $ | — | $ | — | $ | 7.3 | (1) | $ | 10.3 | (1) | ||||||||
|
Operating income
|
$ | 294.7 | (2) | $ | 346.0 | (2) | $ | 299.4 | (2) | $ | 233.9 | (2) | $ | 226.8 | ||||||
|
Operating income as a % of sales
|
12.5 | % | 12.8 | % | 11.8 | % | 9.7 | % | 10.8 | % | ||||||||||
|
Net income attributable to Hubbell
|
$ | 180.1 | $ | 222.7 | $ | 208.3 | (3) | $ | 158.1 | $ | 165.1 | (3) | ||||||||
|
Net income attributable to Hubbell as a % of sales
|
7.6 | % | 8.2 | % | 8.2 | % | 6.5 | % | 7.8 | % | ||||||||||
|
Net income attributable to Hubbell to Hubbell shareholders’
average equity
|
15.6 | % | 21.3 | % | 19.9 | % | 15.7 | % | 17.0 | % | ||||||||||
|
Earnings per share — diluted
|
$ | 3.15 | $ | 3.93 | (4) | $ | 3.49 | (4) | $ | 2.58 | (4) | $ | 2.67 | |||||||
|
Cash dividends declared per common share
|
$ | 1.40 | $ | 1.38 | $ | 1.32 | $ | 1.32 | $ | 1.32 | ||||||||||
|
Average number of common shares outstanding — diluted
|
57.0 | 56.5 | 59.5 | 61.1 | 61.8 | |||||||||||||||
|
Cost of acquisitions, net of cash acquired
|
$ | 355.8 | $ | 267.4 | $ | 52.9 | $ | 145.7 | $ | 54.3 | ||||||||||
|
FINANCIAL POSITION, at year-end
|
||||||||||||||||||||
|
Working capital
|
$ | 499.4 | $ | 494.1 | $ | 368.5 | $ | 432.1 | $ | 459.6 | ||||||||||
|
Total assets
|
$ | 2,464.5 | $ | 2,115.5 | $ | 1,863.4 | $ | 1,751.5 | $ | 1,667.0 | ||||||||||
|
Total debt
|
$ | 497.2 | $ | 497.4 | $ | 236.1 | $ | 220.2 | $ | 228.8 | ||||||||||
|
Debt to total
capitalization
(5)
|
28 | % | 33 | % | 18 | % | 18 | % | 19 | % | ||||||||||
|
Hubbell shareholders’
equity:
(6)
|
||||||||||||||||||||
|
Total
|
$ | 1,298.2 | $ | 1,008.1 | $ | 1,082.6 | $ | 1,015.5 | $ | 998.1 | ||||||||||
|
Per share
|
$ | 22.78 | $ | 17.84 | $ | 18.19 | $ | 16.62 | $ | 16.15 | ||||||||||
|
NUMBER OF EMPLOYEES, at year-end
|
12,700 | 13,000 | 11,500 | 12,000 | 11,300 | |||||||||||||||
| (1) | The Company recorded pretax special charges in 2005 and 2006. These special charges primarily related to a series of actions related to the consolidation of manufacturing, sales and administrative functions across our commercial and industrial lighting businesses. These actions were significantly completed as of December 31, 2006. | |
| (2) | In 2006, the Company adopted the provisions under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 “Compensation-Stock Compensation” (“ASC 718”) using the modified prospective transition method and therefore previously reported amounts were not restated. Operating income for the years 2009, 2008, 2007 and 2006 includes stock-based compensation expense of $10.3 million, $12.5 million, $12.7 million and $11.8 million, respectively. | |
| (3) | In 2007 and 2005, the Company recorded tax benefits of $5.3 million and $10.8 million, respectively, in Provision for income taxes related to the completion of U.S. Internal Revenue Service (“IRS”) examinations for tax years through 2005. | |
| (4) | Effective January 1, 2009, the Company adopted the provisions of ASC 260-10-45-61A “Earnings Per Share” which requires that unvested share-based payment awards that contain the rights to nonforfeitable dividends be considered participating securities and therefore should be included in the earnings per share calculation pursuant to the two-class method. Retrospective application of this standard decreased diluted earnings per share by $.01 for the years ended December 31, 2008, 2007 and 2006. | |
| (5) | Debt to total capitalization is defined as total debt as a percentage of the sum of total debt and Hubbell shareholders’ equity. | |
| (6) | In 2006, the Company adopted certain provisions of ASC 715 “Compensation - Retirement Benefits” (“ASC 715”), which resulted in a non-cash charge to Hubbell shareholders’ equity of $36.8 million, net of tax. |
16
Table of Contents
| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
EXECUTIVE
OVERVIEW OF THE BUSINESS
Our Company is primarily engaged in the design, manufacture and
sale of quality electrical and electronic products for a broad
range of non-residential and residential construction,
industrial and utility applications. The Company’s
reporting segments consist of the Electrical segment (comprised
of electrical systems products and lighting products) and the
Power segment. Results for 2009, 2008 and 2007 by segment are
included under “Segment Results” within this
Management’s Discussion and Analysis.
In 2009, we experienced broad based weakness in our served
markets resulting in lower overall demand. Nevertheless, we
continued to execute a business strategy focused on:
| • | Revenue |
Organic.
While demand in 2009 decreased due to
the recessionary market conditions, the Company remained focused
on expanding market share through an emphasis on new product
introductions and more effective utilization of sales and
marketing efforts across the organization.
Acquisitions.
In 2009 and 2008, we invested
$355.8 million and $267.4 million, respectively, on
acquisitions. In 2009, these businesses contributed
approximately $200 million in net sales.
| • | Price Realization |
In 2008, numerous price increases were implemented to offset
significant commodity cost increases, steel in particular. In
2009, we experienced a less volatile commodity environment
compared to 2008 and continued to exercise pricing discipline.
However, the combination of weaker overall demand and lower
year-over-year
commodity costs made price realization progressively more
challenging throughout 2009.
| • | Cost Containment |
Global sourcing.
We remained focused on
expanding our global product and component sourcing and supplier
cost reduction program. We continued to consolidate suppliers,
utilize reverse auctions, and partner with vendors to shorten
lead times, improve quality and delivery and reduce costs.
Freight and Logistics.
Transporting our
products from suppliers, to warehouses, and ultimately to our
customers, is a major cost to our Company. In 2009, we reduced
these costs and increased the effectiveness of our freight and
logistics processes including capacity utilization and network
optimization.
| • | Productivity |
We worked towards fully realizing the benefits of our
enterprise-wide business system, including standardizing best
practices in inventory management, production planning and
scheduling to improve manufacturing throughput and reduce costs.
In addition, value-engineering efforts and product transfers
contributed to our productivity improvements. This continued
emphasis on operational improvements has led to further
reductions in lead times and improved service levels to our
customers.
Working Capital Efficiency.
Working capital
efficiency is principally measured as the percentage of trade
working capital (inventory plus accounts receivable, less
accounts payable) divided by annual net sales. The focus on
improving our working capital efficiency provided
$126.9 million of operating cash flow in 2009.
Transformation of business processes.
We
continued our long-term initiative of applying lean process
improvement techniques throughout the enterprise, with
particular emphasis on reducing supply chain complexity to
eliminate waste and improve efficiency and reliability. We will
continue to build on the shared services model that has been
implemented in sourcing and logistics and apply those principles
in other areas.
17
Table of Contents
OUTLOOK
In 2010, we anticipate our end market demand to be mixed.
Hubbell’s largest served market, non-residential
construction, is forecasted to decline by approximately twenty
percent due to lower construction starts throughout the past
year and a half and ongoing challenges in the availability of
financing. The utility market for transmission and distribution
products is expected to grow modestly. The growth should be
driven by the build out of new transmission lines from
alternative energy sources such as wind, infrastructure spending
to upgrade and modernize the grid that is supported by stimulus
spending and a housing recovery. The industrial markets are
likely to improve in 2010 with capacity utilization rates
improving from 2009’s severely depressed levels. The
residential market is forecasted to improve from historically
low levels, but we remain cautious about the magnitude of the
recovery being forecasted given the level of unemployment and
high supply of existing inventory. The Federal stimulus plan is
expected to generate orders in 2010, particularly in our Power
and Lighting businesses, but the timing and magnitude are still
difficult to estimate. The
year-over-year
impact of the Burndy acquisition is expected to contribute
approximately six percentage points of incremental net sales in
2010 compared to 2009. Overall, we expect approximately the same
level of net sales in 2010 as in 2009.
We will continue to work on productivity initiatives, including
further plant rationalization, improving freight and logistics
cost, better optimization of sourcing and management of the cost
price equation to drive margin improvement in 2010. The
incremental
year-over-year
productivity savings associated with the streamlining actions
implemented during 2009 are expected to contribute approximately
100 basis points to margin. Additionally, we expect our
2010 tax rate to increase to approximately 32.5% due to a higher
mix of domestic income and the absence of certain one time
items. We also expect the Burndy acquisition to be accretive to
2010 earnings.
In 2010, we anticipate generating free cash flow approximately
equal to net income. Finally, we will focus on continuing to
integrate Burndy and pursuing additional opportunistic
acquisitions.
RESULTS
OF OPERATIONS
Our operations are classified into two segments: Electrical and
Power. For a complete description of the Company’s
segments, see Part I, Item 1 of this Annual Report on
Form 10-K.
Within these segments, Hubbell primarily serves customers in the
non-residential and residential construction, industrial and
utility markets.
The table below approximates percentages of our total
2009 net sales generated by the markets indicated.
Hubbell’s
Served Markets
|
Segment
|
Non-residential | Residential | Industrial | Utility | Total | |||||||||||||||
|
Electrical
|
51 | % | 10 | % | 34 | % | 5 | % | 100 | % | ||||||||||
|
Power
|
9 | % | 2 | % | 8 | % | 81 | % | 100 | % | ||||||||||
|
Hubbell Consolidated
|
39 | % | 8 | % | 27 | % | 26 | % | 100 | % | ||||||||||
In 2009, market conditions declined in all of our served
markets. Non-residential construction declined significantly due
to lower levels of construction activity and a lack of available
financing for projects. The residential market continued its
steep decline due to credit conditions, job losses and an over
supply of housing inventory. The industrial market declined as
well due to lower factory utilization. The utility market
declined due to continued weakness in the housing market as well
as constrained capital spending due in part to lower electricity
demand and transmission project delays.
18
Table of Contents
Summary
of Consolidated Results (in millions, except per share
data)
| For the Year Ending December 31, | ||||||||||||||||||||||||
|
% of Net
|
% of Net
|
% of Net
|
||||||||||||||||||||||
| 2009 | Sales | 2008 | Sales | 2007 | Sales | |||||||||||||||||||
|
Net sales
|
$ | 2,355.6 | $ | 2,704.4 | $ | 2,533.9 | ||||||||||||||||||
|
Cost of goods sold
|
1,629.7 | 1,901.0 | 1,798.1 | |||||||||||||||||||||
|
Gross profit
|
725.9 | 30.8 | % | 803.4 | 29.7 | % | 735.8 | 29.0 | % | |||||||||||||||
|
Selling & administrative expense
|
431.2 | 18.3 | % | 457.4 | 16.9 | % | 436.4 | 17.2 | % | |||||||||||||||
|
Operating income
|
294.7 | 12.5 | % | 346.0 | 12.8 | % | 299.4 | 11.8 | % | |||||||||||||||
|
Net income attributable to Hubbell
|
180.1 | 7.6 | % | 222.7 | 8.2 | % | 208.3 | 8.2 | % | |||||||||||||||
|
Earnings per share — diluted
|
$ | 3.15 | $ | 3.93 | $ | 3.49 | ||||||||||||||||||
2009
Compared to 2008
Net
Sales
Net sales for the year ended 2009 were $2.4 billion, a
decrease of 13% over the year ended 2008. This decrease was due
to a 17% volume decline and unfavorable currency translation
partially offset by acquisitions and selling price increases.
Acquisitions and selling price increases added approximately
five and one percentage points, respectively, to net sales in
2009 compared to 2008. Currency translation decreased net sales
in 2009 by two percentage points compared with 2008.
Gross
Profit
The gross profit margin for 2009 increased to 30.8% compared to
29.7% in 2008. The increase was primarily due to productivity
improvements, including lower freight and logistics costs, lower
commodity costs and selling price increases partially offset by
lower volume and unfavorable overhead absorption.
Selling &
Administrative Expenses (“S&A”)
S&A expenses decreased 6% compared to 2008 primarily due to
savings from streamlining actions partially offset by
acquisition related expenses and higher pension costs. As a
percentage of net sales, S&A expenses of 18.3% in 2009 were
higher than the 16.9% reported in 2008 due to higher pension
costs, acquisition related costs and volume declines in excess
of cost reduction actions.
Operating
Income
Operating income decreased 15% primarily due to lower net sales
and gross profit partially offset by lower selling and
administrative costs. Operating margin of 12.5% in 2009
decreased 30 basis points compared to 12.8% in 2008 as a
result of the lower volume largely offset by productivity
improvements and commodity cost decreases.
Total
Other Expense, net
In 2009, interest expense increased compared to 2008 due to
higher average long term debt in 2009 compared to 2008. The
higher long term debt level was primarily due to the Company
completing a $300 million bond offering in May 2008 to
support strategic growth initiatives. In addition, interest
income decreased compared to 2008 due to lower interest rates.
Income
Taxes
The effective tax rate in 2009 was 30.7% compared to 29.9% in
2008. The effective tax rate for 2009 reflects a lower tax
benefit from our foreign operations and an increase in uncertain
tax positions offset by a lower state effective rate and an out
of period adjustment related to certain deferred tax accounts of
$4.9 million. Additional
19
Table of Contents
information related to our effective tax rate is included in
Note 13 — Income Taxes in the Notes to the
Consolidated Financial Statements.
Net
Income and Earnings Per Share
Net income and earnings per diluted share in 2009 decreased 19%
and 20%, respectively, compared to 2008 as a result of lower net
sales and operating income in addition to higher net interest
expense and a higher effective tax rate. In addition, the
decrease in earnings per diluted share reflects an increase in
average shares outstanding in 2009 compared to 2008 due to
shares issued in the fourth quarter of 2009.
Segment
Results
Electrical
Segment
| 2009 | 2008 | |||||||
| (In millions) | ||||||||
|
Net Sales
|
$ | 1,650.1 | $ | 1,958.2 | ||||
|
Operating Income
|
$ | 163.7 | $ | 227.3 | ||||
|
Operating Margin
|
9.9 | % | 11.6 | % | ||||
Net sales in the Electrical segment decreased 16% in 2009
compared with 2008 due to broad-based market weakness.
Acquisitions and selling price increases added approximately
four and one percentage points, respectively, to net sales in
2009 compared to 2008. Currency translation decreased net sales
in 2009 by two percentage points compared with 2008.
Within the segment, electrical systems products net sales
decreased 18% in 2009 compared to 2008 due to lower market
demand for both wiring and electrical products. Net sales at
these businesses decreased 20% and 16%, respectively. Burndy
added approximately four percentage points to electrical systems
products net sales for the year, which was essentially offset by
unfavorable foreign currency translation. Demand for high
voltage test equipment was strong, resulting in a 15% increase
in net sales in 2009 compared to 2008. Net sales of lighting
products decreased 18% in 2009 compared to 2008 due to lower
market demand partially offset by the 2008 acquisition of The
Varon Lighting Group, LLC, (“Varon”) and price
realization. Commercial and industrial lighting net sales
decreased 17% including the impact of the 2008 Varon
acquisition. Net sales of residential lighting products were
lower by 24% as a result of the decline in the
U.S. residential construction market.
Operating income in 2009 decreased 28% compared to 2008
primarily due to lower market demand. Productivity improvements,
commodity cost declines and price realization offset
inflationary cost increases and negative absorption due to
inventory reductions. Operating margin in 2009 was lower than
2008 primarily due to lower absorption of manufacturing overhead
resulting from significantly lower production volume,
acquisition-related costs and higher S&A expenses as a
percentage of net sales. S&A expenses, while higher as a
percentage of net sales in 2009, decreased 8% compared to 2008.
Within the segment, both electrical systems products and
lighting products operating income and operating margin declined
during 2009 as compared to 2008.
Power
Segment
| 2009 | 2008 | |||||||
| (In millions) | ||||||||
|
Net Sales
|
$ | 705.5 | $ | 746.2 | ||||
|
Operating Income
|
$ | 131.0 | $ | 118.7 | ||||
|
Operating Margin
|
18.6 | % | 15.9 | % | ||||
Net sales for 2009 decreased by 5% compared to 2008 due to
market weakness partially offset by acquisitions and price
realization. Acquisitions and price realization added
approximately eight and one percentage points, respectively, to
net sales in 2009 compared to 2008. The lower market demand was
due to the continued weakness in the housing market that
resulted in lower demand for distribution products. In addition,
demand slowed for transmission projects, particularly in the
second half of 2009 as utility capital spending was constrained
due to lower
20
Table of Contents
electricity demand. In addition, foreign currency translation
decreased net sales in 2009 by one percentage point compared
with 2008.
Operating income in 2009 increased 10% compared to 2008 while
operating margin improved 270 basis points during the same
period. The improvement in both operating profit and margin was
due to the favorable impact of commodity cost decreases,
productivity improvements and price increases partially offset
by the impact of lower volume and inflationary cost increases.
2008
Compared to 2007
Net
Sales
Net sales for the year ended 2008 were $2.7 billion, an
increase of 7% over the year ended 2007. This increase was
primarily due to acquisitions and selling price increases.
Acquisitions and selling price increases added approximately
four and three percentage points, respectively, to net sales in
2008 compared to 2007. Organic growth, primarily due to new
products sales, was offset by the residential market decline.
Currency translation had no material impact on net sales in 2008
compared with 2007.
Gross
Profit
The gross profit margin for 2008 increased to 29.7% compared to
29.0% in 2007. The increase was primarily due to productivity
improvements, including lower freight and logistics costs and
the favorable impact of acquisitions. In addition, selling price
increases more than offset rising commodity costs.
Selling &
Administrative Expenses
S&A expenses increased 5% compared to 2007 primarily due to
the added S&A expenses of the businesses acquired and
increased advertising. As a percentage of net sales, S&A
expenses of 16.9% in 2008 were lower than the 17.2% reported in
2007 due to cost containment initiatives, including lower
headcount, excluding acquisitions, as well as better leverage of
fixed costs on higher sales.
Operating
Income
Operating income increased 16% primarily due to higher net sales
and gross profit partially offset by increased selling and
administration costs. Operating margins of 12.8% in 2008
increased 100 basis points compared to 11.8% in 2007 as a
result of increased sales and higher gross profit margins as
well as leveraging of selling and administrative costs.
Total
Other Expense, net
In 2008, interest expense increased compared to 2007 due to
higher long term debt in 2008 compared to 2007. The higher long
term debt level was primarily due to the Company completing a
$300 million bond offering in May 2008 to support strategic
growth initiatives. Other expense, net was impacted by net
foreign currency transaction losses in 2008 compared to net
foreign currency transaction gains in 2007.
Income
Taxes
The effective tax rate in 2008 was 29.9% compared to 26.7% in
2007. The higher
year-over-year
annual effective tax rate reflected a higher level of
U.S. earnings in 2008 and non-recurring favorable
adjustments impacting the 2007 rate related to the closing of an
IRS examination of the Company’s 2004 and 2005 federal tax
returns. Additional information related to our effective tax
rate is included in Note 13 — Income Taxes in the
Notes to the Consolidated Financial Statements.
21
Table of Contents
Net
Income and Earnings Per Share
Net income and earnings per diluted share in 2008 increased 7%
and 13%, respectively, compared to 2007 as a result of higher
net sales and operating income, including the favorable impact
of acquisitions, partially offset by higher net interest expense
and a higher effective tax rate. In addition, the increase in
earnings per diluted share reflects a reduction in average
shares outstanding in 2008 compared to 2007 due to shares
repurchased under our stock repurchase programs, net of employee
stock option exercises.
Segment
Results
Electrical
Segment
| 2008 | 2007 | |||||||
| (In millions) | ||||||||
|
Net Sales
|
$ | 1,958.2 | $ | 1,897.3 | ||||
|
Operating Income
|
$ | 227.3 | $ | 202.1 | ||||
|
Operating Margin
|
11.6 | % | 10.7 | % | ||||
Net sales in the Electrical segment increased 3% in 2008
compared with 2007 due to the favorable impact of the
acquisition of Kurt Versen, Inc. (“Kurt Versen”) and
selling price increases partially offset by weaker residential
product sales. Within the segment, wiring product sales
increased slightly in 2008 compared to 2007 due to selling price
increases and market share gains partially due to increased
demand for energy management controls and sensors offset by
weaker overall industry market demand. Sales of electrical
products increased by approximately 10% in 2008 compared to 2007
due to strong demand for harsh and hazardous and high voltage
products and selling price increases. Sales of lighting products
decreased slightly in 2008 compared to 2007 due to lower
residential volume largely offset by acquisitions and selling
price increases. Sales of residential lighting fixture products
were lower by approximately 21% in 2008 compared to 2007 as a
result of a decline in the U.S. residential construction
market. Acquisitions and selling price increases added
approximately three and two percentage points, respectively, to
the segment’s net sales in 2008 compared to 2007.
Operating margins increased in 2008 compared to 2007 due to the
favorable impact of the Kurt Versen acquisition, productivity
improvements and selling price increases partially offset by
residential volume declines and higher commodity costs. Wiring
products operating margins were virtually flat in 2008 compared
to 2007 due to selling price increases and productivity
improvements offset by higher inflationary costs. Operating
income and margins rose at electrical products in 2008 compared
to 2007 due to selling price increases, a favorable product mix
of higher margin harsh and hazardous products and strong
performance from the high voltage businesses. Lighting product
margins were unchanged in 2008 compared to 2007 due to lower
margins for the residential business as a result of volume
declines offset by improved margins in commercial and industrial
lighting products. The improvement in commercial and industrial
margins was due to acquisitions, selling price increases and
productivity improvements, partially offset by commodity
increases and volume decreases.
Power
Segment
| 2008 | 2007 | |||||||
| (In millions) | ||||||||
|
Net Sales
|
$ | 746.2 | $ | 636.6 | ||||
|
Operating Income
|
$ | 118.7 | $ | 97.3 | ||||
|
Operating Margin
|
15.9 | % | 15.3 | % | ||||
Net sales in the Power segment in 2008 increased 17% compared to
2007 due to acquisitions, selling price increases and modest
market share gains. The impact of the PCORE Electric Company,
Inc. (“PCORE”) acquisition completed in the fourth
quarter of 2007, combined with the four acquisitions that
occurred in the second half of 2008, added approximately eight
percentage points to net sales in 2008 compared to 2007. In
addition, we estimate that selling price increases added
approximately four percentage points to net sales in 2008
compared to 2007. Operating income increased 22% in 2008
compared to 2007 due to increased sales and acquisitions.
Operating
22
Table of Contents
margins increased in 2008 compared to 2007 due to productivity
improvements and selling price increases offset by higher
commodity and inflationary costs and the impact of acquisitions.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash
Flow
| December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In millions) | ||||||||||||
|
Net cash provided by (used in):
|
||||||||||||
|
Operating activities
|
$ | 397.7 | $ | 319.2 | $ | 335.2 | ||||||
|
Investing activities
|
(373.1 | ) | (306.4 | ) | (105.7 | ) | ||||||
|
Financing activities
|
49.8 | 93.7 | (200.4 | ) | ||||||||
|
Effect of foreign currency exchange rate changes on cash and
cash equivalents
|
5.9 | (5.8 | ) | 3.1 | ||||||||
|
Net change in cash and cash equivalents
|
$ | 80.3 | $ | 100.7 | $ | 32.2 | ||||||
2009
Compared to 2008
Cash provided by operating activities for the year ended 2009
increased compared to 2008. This increase was primarily a result
of lower working capital, the utilization of foreign tax credit
carryforwards and the utilization of net operating losses
acquired as part of the Burndy acquisition. These increases were
partially offset by lower net income and higher contributions to
defined benefit pension plans. Working capital in 2009 provided
cash of $126.9 million compared to $22.1 million of
cash provided in 2008. The effective management of working
capital, particularly accounts receivable and inventory,
provided cash of $85.5 million and $98.7 million,
respectively. These sources of cash were partially offset by
lower levels of current liabilities, specifically accounts
payable.
Investing activities used cash of $373.1 million in 2009
compared to cash used of $306.4 million in 2008. The change
is primarily due to a higher level of spending on acquisitions
in 2009 as compared to 2008, slightly offset by lower spending
on capital expenditures.
Financing activities provided cash of $49.8 million in 2009
compared to $93.7 million of cash provided in 2008. The
2009 financing activities include the net proceeds associated
with the fourth quarter equity offering, offset by dividends
paid. Financing activities in 2008 included the net proceeds
associated with the $300 million debt offering completed in
May 2008, partially offset by share repurchases, net commercial
paper repayments and dividends paid.
2008
Compared to 2007
Cash provided by operating activities for the year ended 2008
decreased compared to 2007 primarily as a result of a lower
benefit from working capital, partially offset by higher net
income, lower contributions to defined benefit pension plans,
and lower tax payments. As a result of higher net sales in 2008,
working capital changes during 2008 resulted in cash provided of
$22.1 million compared to cash provided of
$94.1 million in 2007. Accounts receivable increased
$3.7 million in 2008 compared to a decrease of
$27.8 million in 2007 due to higher net sales. Inventory
balances decreased in 2008 due to improvements in inventory
management. Current liabilities contributed $18.9 million
to operating cash flow in 2008 primarily due to increased
deferred revenues associated with cash received in advance from
customers in the high voltage businesses.
Investing activities used cash of $306.4 million in 2008
compared to cash used of $105.7 million during 2007. Cash
outlays to acquire new businesses increased $214.5 million
in 2008 compared to 2007. Capital expenditures decreased
$6.5 million in 2008 compared to 2007 as a result of the
completion of the lighting headquarters in early 2007.
23
Table of Contents
Financing activities provided cash of $93.7 million in 2008
compared to a $200.4 million use of cash during 2007. This
increase was the result of the $300 million debt offering
completed during the second quarter of 2008 combined with a
lower level of share repurchases. In 2008, the Company
repurchased 2.0 million shares of common stock for
$96.6 million as compared to 3.6 million shares
repurchased in 2007 for $193.1 million. These increases
were partially offset by a higher level of net commercial paper
repayments and lower proceeds from exercises of stock options.
Investments
in the Business
Investments in our business include both normal expenditures
required to maintain the operations of our equipment and
facilities as well as expenditures in support of our strategic
initiatives. In 2009, we used cash of $29.4 million for
capital expenditures, a decrease of $20.0 million from 2008.
In October 2009 we completed the acquisition of Burndy for
$355.2 million, net of cash acquired. Burndy is a leading
North American manufacturer of connectors, cable accessories and
tooling. This acquisition has been added to the electrical
systems business within the Electrical segment. Additional
information regarding business acquisitions is included in
Note 3 — Business Acquisitions in the Notes to
Consolidated Financial Statements.
In December 2007, the Board of Directors approved a stock
repurchase program and authorized the repurchase of up to
$200 million of Class A and Class B Common Stock.
In February 2010, the Board of Directors extended the term of
this program through February 20, 2011. As of
December 31, 2009, approximately $160 million remains
available under this program. Depending upon numerous factors,
including market conditions and alternative uses of cash, the
Company may conduct discretionary repurchases through open
market and privately negotiated transactions during its normal
trading windows. The Company has not repurchased any shares
under this program since August 2008.
Additional information with respect to future investments in the
business can be found under “Outlook” within
Management’s Discussion and Analysis.
Capital
Structure
Debt
to Capital
Net debt, defined as total debt less cash and investments, is a
non-GAAP measure that may not be comparable to definitions used
by other companies. We consider net debt to be more appropriate
than total debt for measuring our financial leverage as it
better measures our ability to meet our funding needs.
| December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In millions) | ||||||||
|
Total Debt
|
$ | 497.2 | $ | 497.4 | ||||
|
Total Hubbell Shareholders’ Equity
|
1,298.2 | 1,008.1 | ||||||
|
Total Capital
|
$ | 1,795.4 | $ | 1,505.5 | ||||
|
Debt to Total Capital
|
28 | % | 33 | % | ||||
|
Cash and Investments
|
$ | 286.6 | $ | 213.3 | ||||
|
Net Debt
|
$ | 210.6 | $ | 284.1 | ||||
At December 31, 2009 and 2008, the Company’s total
debt consisted entirely of ten year senior notes issued in May
2002 and May 2008. These fixed-rate notes, with amounts of
$200 million and $300 million due in 2012 and 2018,
respectively, are not callable and are only subject to
accelerated payment prior to maturity if the Company fails to
meet certain non-financial covenants, all of which were met at
December 31, 2009 and 2008. The most restrictive of these
covenants limits our ability to enter into mortgages and
sale-leasebacks of property having a net book value in excess of
$5 million without the approval of the note holders.
24
Table of Contents
Prior to the issuance of both of these notes, the Company
entered into forward interest rate locks to hedge its exposure
to fluctuations in treasury interest rates. The 2002 interest
rate lock resulted in a $1.3 million loss, while the 2008
interest rate lock resulted in a $1.2 million gain. Both of
these amounts have been recorded in Accumulated other
comprehensive loss, net of tax, and are being amortized over the
respective lives of the notes.
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 “Derivatives and
Hedging” (“ASC 815”) and qualifies for the
“short-cut” method; as such, no hedge ineffectiveness
is recognized. The interest rate swap is recorded at fair value,
with an offsetting amount recorded against the carrying value of
the fixed-rate debt. For the year ended December 31, 2009,
interest expense was reduced $1.2 million as a result of
entering into the interest rate swap.
In September 2009, the Company entered into a line of credit
agreement with Credit Suisse for approximately 30 million
Swiss francs to support the issuance of letters of credit. The
availability of credit under this facility is dependent upon the
maintenance of compensating balances, which may be withdrawn.
There are no annual commitment fees associated with this credit
facility.
In March 2008, the Company exercised its option to expand its
revolving credit facility from $250 million to
$350 million. The expiration date of this 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, 2009 and 2008. Annual
commitment fee requirements to support availability of the
credit facility were not material. This facility is used as a
backup to our commercial paper program and was undrawn as of
December 31, 2009 and through the filing date of this
Form 10-K.
Additional information related to our debt is included in
Note 12 — Debt in the Notes to Consolidated
Financial Statements.
The Company maintains a 9.4 million pound sterling credit
facility with HSBC Bank Plc. in the UK which is set for review
on November 30, 2010. The Company also maintains a
3.0 million Brazilian real line of credit with Banco Real
that expires in April 2010. There are no annual commitment fees
associated with these credit agreements. These credit facilities
were undrawn as of December 31, 2009.
In addition to the above credit commitments, the Company has an
unsecured line of credit for $60 million to support
issuance of its letters of credit. At December 31, 2009,
the Company had approximately $32.5 million of letters of
credit outstanding under this facility.
Although these facilities are not the principal source of our
liquidity, we believe these facilities are capable of providing
adequate financing at reasonable rates of interest. However, a
significant deterioration in results of operations or cash
flows, leading to deterioration in financial condition, could
either increase our future borrowing costs or restrict our
ability to sell commercial paper in the open market. We have not
entered into any other guarantees, commitments or obligations
that we anticipate would give rise to unexpected cash
requirements.
Liquidity
We measure liquidity on the basis of our ability to meet
short-term and long-term operational funding needs, fund
additional investments, including acquisitions, and make
dividend payments to shareholders. Significant factors affecting
the management of liquidity are cash flows from operating
activities, capital expenditures, cash dividend payments, stock
repurchases, access to bank lines of credit and our ability to
attract long-term capital with satisfactory terms.
During October 2009, we issued 2,990,000 shares of
Class B common stock. The Company received net proceeds of
$122.0 million, which were used for general corporate
purposes including the repayment of $66 million of
commercial paper borrowings that were issued to fund the Burndy
acquisition.
25
Table of Contents
Internal cash generation together with currently available cash
and investments, available borrowing facilities and an ability
to access credit lines, if needed, are expected to be sufficient
to fund operations, the current rate of cash dividends, capital
expenditures, and any increase in working capital that would be
required to accommodate a higher level of business activity. We
actively seek to expand by acquisition as well as through the
growth of our current businesses. While a significant
acquisition may require additional debt
and/or
equity financing, we believe that we would be able to obtain
additional financing based on our favorable historical earnings
performance and strong financial position.
The disruption in the current credit markets has had a
significant adverse impact on a number of financial
institutions. At this point in time, the Company’s
liquidity has not been impacted by the current credit
environment and management does not expect that it will be
materially impacted in the near future. Management will continue
to closely monitor the Company’s liquidity and the credit
markets. However, management cannot predict with any certainty
the impact to the Company of any further disruption in the
credit environment.
Pension
Funding Status
We have a number of funded and unfunded non-contributory
U.S. and foreign defined benefit pension plans. Benefits
under these plans are generally provided based on either years
of service and final average pay or a specified dollar amount
per year of service. The funded status of our qualified, defined
benefit pension plans is dependant upon many factors including
future returns on invested pension assets, the level of market
interest rates, employee earnings and employee demographics.
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
approximates
11-13 years.
During 2009 and 2008, we recorded $7.3 million and
$1.3 million, respectively, of pension expense related to
the amortization of these unrecognized losses. We expect to
record $5.2 million of expense related to unrecognized
losses and prior service cost in 2010.
The actual return on our pension assets in 2009 substantially
exceeded our expected return. However, the cumulative return
over the past five and ten year periods has been slightly less
than our expected return for the same periods. In addition,
there has been a decline in long-term interest rates and a
resulting increase in our pension liabilities. These lower than
expected rates of return combined with declines in long-term
interest rates have had a negative impact on the funded status
of the plans. Consequently, we contributed approximately
$27 million in 2009, $11 million in 2008 and
$28 million in 2007 to both our foreign and domestic
defined benefit pension plans. These contributions have improved
the funded status of all of our plans. We expect to make
additional contributions of approximately $5 million to our
foreign plans during 2010. Although not required under the
Pension Protection Act of 2006, we may decide to make a
voluntary contribution to the Company’s qualified
U.S. defined benefit plans in 2010. This level of funding
is not expected to have any significant impact on our overall
liquidity.
26
Table of Contents
Assumptions
The following assumptions were used to determine projected
pension and other benefit obligations at the measurement date
and the net periodic benefit costs for the year:
| Pension Benefits | Other Benefits | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Weighted-average assumptions used to determine benefit
obligations at December 31,
|
||||||||||||||||
|
Discount rate
|
5.96 | % | 6.46 | % | 6.00 | % | 6.50 | % | ||||||||
|
Rate of compensation increase
|
3.57 | % | 4.07 | % | 3.50 | % | 4.00 | % | ||||||||
|
Weighted-average assumptions used to determine net periodic
benefit cost for years ended December 31,
|
||||||||||||||||
|
Discount rate
|
6.46 | % | 6.41 | % | 6.50 | % | 6.50 | % | ||||||||
|
Expected return on plan assets
|
8.00 | % | 8.00 | % | N/A | N/A | ||||||||||
|
Rate of compensation increase
|
4.07 | % | 4.07 | % | 4.00 | % | 4.00 | % | ||||||||
At the end of each year, we estimate the expected long-term rate
of return on pension plan assets based on the strategic asset
allocation for our plans. In making this determination, we
utilize expected rates of return for each asset class based upon
current market conditions and expected risk premiums for each
asset class. A one percentage point change in the expected
long-term rate of return on pension fund assets would have an
impact of approximately $5.8 million on 2010 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, 2009 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% which we used to determine
the projected benefit obligation for our U.S. pension plans
at December 31, 2009 was determined using the Citigroup
Pension Discount Curve applied to our expected annual future
pension benefit payments. A similar methodology was utilized for
our international pension plans resulting in a discount rate of
5.7% and 5.25%, respectively, for our UK and Canadian plans. An
increase of one percentage point in the discount rate would
lower 2010 pretax pension expense by approximately
$4.2 million. A discount rate decline of one percentage
point would increase pretax pension expense by approximately
$7.5 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 were
discontinued in 1991 for substantially all future retirees with
the exception of the recently acquired Burndy business and
certain operations in our Power segment which still maintain a
limited retiree medical plan for their union employees. 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% used to determine the projected benefit
obligation at December 31, 2009 was based upon the
Citigroup Pension Discount Curve as applied to our projected
annual benefit payments for these plans. In 2009 and 2008 in
accordance with ASC 715 we recorded (charges) credits to
Accumulated other comprehensive loss within Hubbell
shareholders’ equity, net of tax, of $0.5 million and
$(0.2) million, respectively, related to OPEB.
27
Table of Contents
Off-Balance
Sheet Arrangements
Off-balance sheet arrangements are defined as any transaction,
agreement or other contractual arrangement to which an entity
that is not included in our consolidated results is a party,
under which we, whether or not a party to the arrangement, have,
or in the future may have: (1) an obligation under a direct
or indirect guarantee or similar arrangement, (2) a
retained or contingent interest in assets or (3) an
obligation or liability, including a contingent obligation or
liability, to the extent that it is not fully reflected in the
financial statements.
We do not have any off-balance sheet arrangements as defined
above which have or are likely to have a material effect on
financial condition, results of operations or cash flows.
Contractual
Obligations
A summary of our contractual obligations and commitments at
December 31, 2009 is as follows (in millions):
| Payments due by period | ||||||||||||||||||||
|
Less than
|
More than
|
|||||||||||||||||||
|
Contractual Obligations
|
Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | |||||||||||||||
|
Debt obligations
|
$ | 500.0 | $ | — | $ | 200.0 | — | $ | 300.0 | |||||||||||
|
Expected interest payments
|
183.6 | 30.6 | 54.8 | 35.7 | 62.5 | |||||||||||||||
|
Operating lease obligations
|
52.6 | 13.0 | 14.9 | 8.5 | 16.2 | |||||||||||||||
|
Purchase obligations
|
219.8 | 210.6 | 9.2 | — | — | |||||||||||||||
|
Income tax payments
|
10.6 | 10.6 | — | — | — | |||||||||||||||
|
Obligations under customer incentive programs
|
23.5 | 23.5 | — | — | — | |||||||||||||||
|
Total
|
$ | 990.1 | $ | 288.3 | $ | 278.9 | 44.2 | $ | 378.7 | |||||||||||
Our purchase obligations include amounts committed under legally
enforceable contracts or purchase orders for goods and services
with defined terms as to price, quantity, delivery and
termination liability. These obligations primarily consist of
inventory purchases made in the normal course of business to
meet operational requirements, consulting arrangements and
commitments for equipment purchases. Other long-term liabilities
reflected in our Consolidated Balance Sheet at December 31,
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. We are unable to make a reasonable estimate
regarding settlement of the remainder of these uncertain tax
positions and, as a result, they have been excluded from the
table. See Note 13 — Income Taxes in the Notes to
Consolidated Financial Statements.
Critical
Accounting Estimates
Note 1 — Significant Accounting Policies of the
Notes to Consolidated Financial Statements describes the
significant accounting policies used in the preparation of our
financial statements.
Use of
Estimates
We are required to make assumptions and estimates and apply
judgments in the preparation of our financial statements that
affect the reported amounts of assets and liabilities, revenues
and expenses and related disclosures. We base our assumptions,
estimates and judgments on historical experience, current trends
and other factors deemed relevant by management. We continually
review these estimates and their underlying assumptions to
ensure they are appropriate for the circumstances. Changes in
estimates and assumptions used by us could have a significant
impact on our financial results. We believe that the following
estimates are among our most critical in fully understanding and
evaluating our reported financial results. These items utilize
assumptions and estimates about the effect of future events that
are inherently uncertain and are therefore based on our judgment.
28
Table of Contents
Revenue
Recognition
We recognize revenue in accordance with ASC 605 “Revenue
Recognition” (“ASC 605”). Revenue is recognized
when title to goods and risk of loss have passed to the
customer, there is persuasive evidence of a purchase
arrangement, delivery has occurred or services are rendered, the
price is determinable and collectibility is reasonably assured.
Revenue is typically recognized at the time of shipment.
Further, certain of our businesses account for sales discounts
and allowances based on sales volumes, specific programs and
customer deductions, as is customary in electrical products
markets. These items primarily relate to sales volume
incentives, special pricing allowances, and returned goods. This
requires us to estimate at the time of sale the amounts that
should not be recorded as revenue as these amounts are not
expected to be collected in cash from customers. We principally
rely on historical experience, specific customer agreements, and
anticipated future trends to estimate these amounts at the time
of shipment. Also see Note 1 — Significant
Accounting Policies of the Notes to Consolidated Financial
Statements.
Inventory
Valuation
We routinely evaluate the carrying value of our inventories to
ensure they are carried at the lower of cost or market value.
Such evaluation is based on our judgment and use of estimates,
including sales forecasts, gross margins for particular product
groupings, planned dispositions of product lines, technological
events and overall industry trends. In addition, the evaluation
is based on changes in inventory management practices which may
influence the timing of exiting products and method of disposing
of excess inventory.
Excess inventory is generally identified by comparing future
expected inventory usage to actual on-hand quantities. Reserves
are provided for on-hand inventory in excess of pre-defined
usage forecasts. Forecast usage is primarily determined by
projecting historical (actual) sales and inventory usage levels
forward to future periods. Application of this reserve
methodology can have the effect of increasing reserves during
periods of declining demand and, conversely, reducing reserve
requirements during periods of accelerating demand. This reserve
methodology is applied based upon a current stratification of
inventory, whether by commodity type, product family, part
number, stock keeping unit, etc. As a result of our lean process
improvement initiatives, we continue to develop improved
information concerning demand patterns for inventory
consumption. This improved information is introduced into the
excess inventory reserve calculation as it becomes available and
may impact required levels of reserves.
Customer
Credit and Collections
We maintain allowances for doubtful accounts receivable in order
to reflect the potential uncollectibility of receivables related
to purchases of products on open credit. If the financial
condition of our customers were to deteriorate, resulting in
their inability to make required payments, we may be required to
record additional allowances for doubtful accounts.
Capitalized
Computer Software Costs
We capitalize certain costs of internally developed software in
accordance with 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
29
Table of Contents
evaluated each year as of the plans’ measurement date.
Further discussion on the assumptions used in 2009 and 2008 are
included above under “Pension Funding Status” and in
Note 11 — Retirement Benefits in the Notes to
Consolidated Financial Statements.
Taxes
We account for income taxes in accordance with ASC 740
“Income Taxes” (“ASC 740”). ASC 740 requires
that deferred tax assets and liabilities be recognized using
enacted tax rates for the effect of temporary differences
between the book and tax basis of recorded assets and
liabilities. ASC 740 also requires that deferred tax assets be
reduced by a valuation allowance if it is more likely than not
that some portion or all of the deferred tax asset will not be
realized. The factors used to assess the likelihood of
realization of deferred tax assets are the forecast of future
taxable income and available tax planning strategies that could
be implemented to realize the net deferred tax assets. Failure
to achieve forecasted taxable income can affect the ultimate
realization of net deferred tax assets.
We operate within multiple taxing jurisdictions and are subject
to audit in these jurisdictions. The IRS and other tax
authorities routinely review our tax returns. These audits can
involve complex issues, which may require an extended period of
time to resolve. In accordance with ASC 740, the Company records
uncertain tax positions only when it has determined that it is
more-likely-than-not that a tax position will be sustained upon
examination by taxing authorities based on the technical merits
of the position. The Company uses the criteria established in
ASC 740 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.
Contingent
Liabilities
We are subject to proceedings, lawsuits, and other claims or
uncertainties related to environmental, legal, product and other
matters. We routinely assess the likelihood of an adverse
judgment or outcome to these matters, as well as the range of
potential losses. A determination of the reserves required, if
any, is made after careful analysis, including consultations
with outside advisors, where applicable. The required reserves
may change in the future due to new developments.
Valuation
of Long-Lived Assets
Our long-lived assets include land, buildings, equipment, molds
and dies, software, goodwill and other intangible assets.
Long-lived assets, other than goodwill and indefinite-lived
intangibles, are depreciated over their estimated useful lives.
We review depreciable long-lived assets for impairment to assess
recoverability from future operations using undiscounted cash
flows. For these assets, no impairment charges were recorded in
2009 or 2008.
Goodwill and indefinite-lived intangible assets are reviewed
annually for impairment unless circumstances dictate the need
for more frequent assessment. The Company performs its 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 uses internal discounted cash
flow estimates to determine fair value. These cash flow
estimates are derived from historical experience and future
long-term business plans and the application of an appropriate
discount rate. Changes in these estimates and assumptions could
materially affect the determination of fair value
and/or
goodwill impairment for each reporting unit.
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.
30
Table of Contents
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 this
Form 10-K
and in the Annual Report attached hereto, which does not
constitute part of this
Form 10-K,
contain “forward-looking statements” as defined by the
Private Securities Litigation Reform Act of 1995. These include
statements about capital resources, performance and results of
operations and are based on our reasonable current expectations.
In addition, all statements regarding anticipated growth or
improvement in operating results, anticipated market conditions
and economic recovery are forward looking. Forward-looking
statements may be identified by the use of words, such as
“believe”, “expect”, “anticipate”,
“intend”, “depend”, “should”,
“plan”, “estimated”, “predict”,
“could”, “may”, “subject to”,
“continues”, “growing”,
“prospective”, “forecast”,
“projected”, “purport”, “might”,
“if”, “contemplate”, “potential”,
“pending,” “target”, “goals”,
“scheduled”, “will likely be”, and similar
words and phrases. Discussions of strategies, plans or
intentions often contain forward-looking statements. Factors,
among others, that could cause our actual results and future
actions to differ materially from those described in
forward-looking statements include, but are not limited to:
| • | Changes in demand for our products, market conditions, product quality, or product availability adversely affecting sales levels. | |
| • | Changes in markets or competition adversely affecting realization of price increases. | |
| • | Failure to achieve projected levels of efficiencies, cost savings and cost reduction measures, including those expected as a result of our lean initiative and strategic sourcing plans. | |
| • | The expected benefits and the timing of other actions in connection with our enterprise-wide business system. | |
| • | Availability and costs of raw materials, purchased components, energy and freight. | |
| • | Changes in expected or future levels of operating cash flow, indebtedness and capital spending. | |
| • | General economic and business conditions in particular industries or markets. | |
| • | The anticipated benefits from the Federal stimulus package. | |
| • | Regulatory issues, changes in tax laws or changes in geographic profit mix affecting tax rates and availability of tax incentives. | |
| • | A major disruption in one of our manufacturing or distribution facilities or headquarters, including the impact of plant consolidations and relocations. | |
| • | 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. | |
| • | Impact of productivity improvements on lead times, quality and delivery of product. | |
| • | Anticipated future contributions and assumptions including changes in interest rates and plan assets with respect to pensions. | |
| • | Adjustments to product warranty accruals in response to claims incurred, historical experiences and known costs. | |
| • | Unexpected costs or charges, certain of which might be outside of our control. | |
| • | Changes in strategy, economic conditions or other conditions outside of our control affecting anticipated future global product sourcing levels. | |
| • | Ability to carry out future acquisitions and strategic investments in our core businesses as well as the acquisition related costs. | |
| • | Unanticipated difficulties integrating acquisitions as well as the realization of expected synergies and benefits anticipated when we first enter into a transaction. |
31
Table of Contents
| • | Future repurchases of common stock under our common stock repurchase programs. | |
| • | Changes in accounting principles, interpretations, or estimates. | |
| • | The outcome of environmental, legal and tax contingencies or costs compared to amounts provided for such contingencies. | |
| • | 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. | |
| • | 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 on Form 10-K for the year ended December 31, 2009. |
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.
| 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 manufacture
and/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 the Middle East.
International shipments from
non-U.S. subsidiaries
as a percentage of the Company’s total net sales were 16%
in 2009 and 2008 and 14% in 2007. The UK operations represent
36%, Canada 24%, Switzerland 13%, and all other countries 27% of
total 2009 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 15 — Fair Value Measurements in the Notes to
Consolidated Financial Statements.
Product purchases representing approximately 18% of our net
sales are sourced from unaffiliated suppliers located outside
the United States, primarily in the People’s Republic of
China and other Asian countries, Europe and Brazil. We are
actively seeking to expand this activity, particularly related
to purchases from low cost areas of the world. Foreign sourcing
of products may result in unexpected fluctuations in product
cost or increased risk of business interruption due to lack of
product or component availability due to any one of the
following:
| • | Political or economic uncertainty in the source country | |
| • | Fluctuations in the rate of exchange between the U.S. dollar and the currencies of the source countries | |
| • | Increased logistical complexity including supply chain interruption or delay, port of departure or entry disruption and overall time to market | |
| • | Loss of proprietary information | |
| • | 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.
32
Table of Contents
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 costs
and/or
limited supply. These conditions can potentially result in our
inability to acquire these key materials on a timely basis to
produce our products and satisfy our incoming sales orders.
Similarly, the cost of these materials can rise suddenly and
result in materially higher costs of producing our products. We
believe we have adequate primary and secondary sources of supply
for each of our key materials and that, in periods of rising
prices, we expect to recover a majority of the increased cost in
the form of higher selling prices. However, recoveries typically
lag the effect of cost increases due to the nature of our
markets.
Our financial results are subject to interest rate fluctuations
to the extent there is a difference between the amount of our
interest-earning assets and the amount of interest-bearing
liabilities. The principal objectives of our investment
management activities are to preserve capital while earning net
investment income that is commensurate with acceptable levels of
interest rate, default and liquidity risk taking into account
our funding needs. As part of our investment management
strategy, we may use derivative financial products such as
interest rate hedges and interest rate swaps. Refer to further
discussion under “Capital Structure” within this
Management’s Discussion and Analysis.
From time to time or when required, we issue commercial paper,
which exposes us to changes in interest rates. Our cash position
includes amounts denominated in foreign currencies. We manage
our worldwide cash requirements by considering available funds
held by our subsidiaries and the cost effectiveness with which
these funds can be accessed.
We continually evaluate risk retention and insurance levels for
product liability, property damage and other potential exposures
to risk. We devote significant effort to maintaining and
improving safety and internal control programs, which are
intended to reduce our exposure to certain risks. We determine
the level of insurance coverage and the likelihood of a loss and
believe that the current levels of risk retention are consistent
with those of comparable companies in the industries in which we
operate. There can be no assurance that we will not incur losses
beyond the limits of our insurance. However, our liquidity,
financial position and profitability are not expected to be
materially affected by the levels of risk retention that we
accept.
The following table presents cost information related to
interest risk sensitive instruments by maturity at
December 31, 2009 (dollars in millions):
|
Fair Value
|
||||||||||||||||||||||||||||||||
| 2010 | 2011 | 2012 | 2013 | 2014 | Thereafter | Total | 12/31/09 | |||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Available-for-sale
investments
|
$ | 2.6 | $ | 2.0 | $ | 4.4 | $ | 1.2 | $ | 4.5 | $ | 10.4 | $ | 25.1 | $ | 25.9 | ||||||||||||||||
|
Avg. interest rate
|
6.05 | % | 5.62 | % | 5.00 | % | 4.00 | % | 5.06 | % | 5.11 | % | — | — | ||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term debt
|
$ | — | $ | — | $ | 199.1 | $ | — | $ | — | $ | 298.1 | $ | 497.2 | $ | 539.6 | ||||||||||||||||
|
Avg. interest rate
|
— | — | 6.38 | % | — | — | 5.95 | % | 6.12 | % | — | |||||||||||||||||||||
All of the assets and liabilities above are fixed rate
instruments. We use derivative financial instruments only if
they are matched with a specific asset, liability, or proposed
future transaction. We do not speculate or use leverage when
trading a financial derivative product.
In May 2009, the Company entered into a three year interest rate
swap to manage its exposure to changes in the fair value of its
6.375% $200 million fixed rate debt maturing in May 2012.
As a result of this interest rate swap, the Company’s
effective interest rate on its $200 million fixed rate debt
was reduced to 5.10% for the year ended December 31, 2009.
See Note 12 — Debt in the Notes to Consolidated
Financial Statements.
33
Table of Contents
| Item 8. | Financial Statements and Supplementary Data |
INDEX TO
FINANCIAL STATEMENTS AND SCHEDULE
|
Form 10-K for
|
||||
| 2009, 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
Table of Contents
REPORT OF
MANAGEMENT
HUBBELL INCORPORATED AND SUBSIDIARIES
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 on
Form 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 by
Rules 13a-15(f)
and
15d-15(f)
under the Securities Exchange Act of 1934. Internal control over
financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of financial statements for external reporting
purposes in accordance with generally accepted accounting
principles. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Management has assessed the effectiveness of our
internal control over financial reporting as of
December 31, 2009. In making this assessment, management
used the criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
assessment, management concluded that our internal control over
financial reporting was effective as of December 31, 2009.
The effectiveness of our internal control over financial
reporting as of December 31, 2009 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 on
Form 10-K.
|
|
|
|
Timothy H. Powers
|
David G. Nord | |
|
Chairman of the Board,
|
Senior Vice President and | |
|
President & Chief Executive Officer
|
Chief Financial Officer |
35
Table of Contents
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, 2009
and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2009 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, 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, 2010
36
Table of Contents
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
(In millions, except
|
||||||||||||
| per share amounts) | ||||||||||||
|
Net sales
|
$ | 2,355.6 | $ | 2,704.4 | $ | 2,533.9 | ||||||
|
Cost of goods sold
|
1,629.7 | 1,901.0 | 1,798.1 | |||||||||
|
Gross profit
|
725.9 | 803.4 | 735.8 | |||||||||
|
Selling & administrative expenses
|
431.2 | 457.4 | 436.4 | |||||||||
|
Operating income
|
294.7 | 346.0 | 299.4 | |||||||||
|
Investment income
|
0.3 | 2.8 | 2.4 | |||||||||
|
Interest expense
|
(30.9 | ) | (27.4 | ) | (17.6 | ) | ||||||
|
Other expense, net
|
(2.5 | ) | (3.0 | ) | — | |||||||
|
Total other expense
|
(33.1 | ) | (27.6 | ) | (15.2 | ) | ||||||
|
Income before income taxes
|
261.6 | 318.4 | 284.2 | |||||||||
|
Provision for income taxes
|
80.3 | 95.2 | 75.9 | |||||||||
|
Net income
|
181.3 | 223.2 | 208.3 | |||||||||
|
Less: Net income attributable to noncontrolling interest
|
1.2 | 0.5 | — | |||||||||
|
Net income attributable to Hubbell
|
$ | 180.1 | $ | 222.7 | $ | 208.3 | ||||||
|
Earnings per share
|
||||||||||||
|
Basic
|
$ | 3.16 | $ | 3.96 | $ | 3.53 | ||||||
|
Diluted
|
$ | 3.15 | $ | 3.93 | $ | 3.49 | ||||||
See notes to consolidated financial statements.
37
Table of Contents
| At December 31, | ||||||||
| 2009 | 2008 | |||||||
| (In millions, except share amounts) | ||||||||
|
ASSETS
|
||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 258.5 | $ | 178.2 | ||||
|
Accounts receivable, net
|
310.1 | 357.0 | ||||||
|
Inventories, net
|
263.5 | 335.2 | ||||||
|
Deferred taxes and other
|
85.8 | 48.7 | ||||||
|
Total Current Assets
|
917.9 | 919.1 | ||||||
|
Property, Plant, and Equipment, net
|
368.8 | 349.1 | ||||||
|
Other Assets
|
||||||||
|
Investments
|
28.1 | 35.1 | ||||||
|
Goodwill
|
743.7 | 584.6 | ||||||
|
Intangible assets and other
|
406.0 | 227.6 | ||||||
|
Total Assets
|
$ | 2,464.5 | $ | 2,115.5 | ||||
| LIABILITIES AND EQUITY | ||||||||
|
Current Liabilities
|
||||||||
|
Accounts payable
|
$ | 130.8 | $ | 168.3 | ||||
|
Accrued salaries, wages and employee benefits
|
62.8 | 61.5 | ||||||
|
Accrued insurance
|
49.3 | 46.3 | ||||||
|
Dividends payable
|
20.9 | 19.7 | ||||||
|
Other accrued liabilities
|
154.7 | 129.2 | ||||||
|
Total Current Liabilities
|
418.5 | 425.0 | ||||||
|
Long-term Debt
|
497.2 | 497.4 | ||||||
|
Other Non-Current Liabilities
|
246.8 | 182.0 | ||||||
|
Total Liabilities
|
1,162.5 | 1,104.4 | ||||||
|
Commitments and Contingencies
|
||||||||
|
Hubbell Shareholders’ Equity
|
||||||||
|
Common stock, par value $.01
|
||||||||
|
Class A — Authorized 50,000,000 shares,
outstanding 7,167,506 and 7,165,075 shares
|
0.1 | 0.1 | ||||||
|
Class B — Authorized 150,000,000 shares,
outstanding 52,493,487 and 49,102,167 shares
|
0.5 | 0.5 | ||||||
|
Additional paid-in capital
|
158.4 | 16.3 | ||||||
|
Retained earnings
|
1,208.0 | 1,108.0 | ||||||
|
Accumulated other comprehensive loss
|
(68.8 | ) | (116.8 | ) | ||||
|
Total Hubbell Shareholders’ Equity
|
1,298.2 | 1,008.1 | ||||||
|
Noncontrolling interest
|
3.8 | 3.0 | ||||||
|
Total Equity
|
1,302.0 | 1,011.1 | ||||||
|
Total Liabilities and Equity
|
$ | 2,464.5 | $ | 2,115.5 | ||||
See notes to consolidated financial statements.
38
Table of Contents
| Year Ended December 31, | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
| (In millions) | ||||||||||||
|
Cash Flows from Operating Activities
|
||||||||||||
|
Net income
|
$ | 181.3 | $ | 223.2 | $ | 208.3 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
|
Depreciation and amortization
|
70.6 | 63.1 | 60.2 | |||||||||
|
Deferred income taxes
|
32.3 | 0.7 | (3.7 | ) | ||||||||
|
Stock-based compensation
|
10.3 | 12.5 | 12.7 | |||||||||
|
Tax benefit on stock-based awards
|
(1.3 | ) | (0.8 | ) | (6.9 | ) | ||||||
|
Loss (gain) on sale of assets
|
0.5 | 0.6 | (0.7 | ) | ||||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
Decrease (increase) in accounts receivable
|
85.5 | (3.7 | ) | 27.8 | ||||||||
|
Decrease in inventories
|
98.7 | 6.9 | 24.2 | |||||||||
|
(Decrease) increase in current liabilities
|
(57.3 | ) | 18.9 | 42.1 | ||||||||
|
Changes in other assets and liabilities, net
|
9.7 | 7.4 | (3.1 | ) | ||||||||
|
Contributions to defined benefit pension plans
|
(27.4 | ) | (11.2 | ) | (28.4 | ) | ||||||
|
Other, net
|
(5.2 | ) | 1.6 | 2.7 | ||||||||
|
Net cash provided by operating activities
|
397.7 | 319.2 | 335.2 | |||||||||
|
Cash Flows from Investing Activities
|
||||||||||||
|
Capital expenditures
|
(29.4 | ) | (49.4 | ) | (55.9 | ) | ||||||
|
Acquisitions, net of cash acquired
|
(355.8 | ) | (267.4 | ) | (52.9 | ) | ||||||
|
Purchases of
available-for-sale
investments
|
(5.2 | ) | (16.6 | ) | (41.2 | ) | ||||||
|
Proceeds from
available-for-sale
investments
|
14.7 | 20.5 | 38.6 | |||||||||
|
Proceeds from
held-to-maturity
investments
|
— | 0.3 | — | |||||||||
|
Proceeds from disposition of assets
|
0.6 | 1.0 | 5.1 | |||||||||
|
Other, net
|
2.0 | 5.2 | 0.6 | |||||||||
|
Net cash used in investing activities
|
(373.1 | ) | (306.4 | ) | (105.7 | ) | ||||||
|
Cash Flows from Financing Activities
|
||||||||||||
|
Proceeds from stock issuance, net
|
122.0 | — | — | |||||||||
|
Commercial paper (repayments) borrowings, net
|
— | (36.7 | ) | 20.9 | ||||||||
|
Payment of other debt
|
— | — | (5.1 | ) | ||||||||
|
Issuance of long-term debt
|
— | 297.7 | — | |||||||||
|
Debt issuance costs
|
— | (2.7 | ) | — | ||||||||
|
Payment of dividends
|
(78.9 | ) | (76.9 | ) | (78.4 | ) | ||||||
|
Payment of dividends to noncontrolling interest
|
(0.4 | ) | — | — | ||||||||
|
Proceeds from exercise of stock options
|
5.7 | 8.1 | 48.0 | |||||||||
|
Tax benefit on stock-based awards
|
1.3 | 0.8 | 6.9 | |||||||||
|
Acquisition of common shares
|
— | (96.6 | ) | (193.1 | ) | |||||||
|
Other, net
|
0.1 | — | 0.4 | |||||||||
|
Net cash provided by (used in) financing activities
|
49.8 | 93.7 | (200.4 | ) | ||||||||
|
Effect of foreign currency exchange rate changes on cash and
cash equivalents
|
5.9 | (5.8 | ) | 3.1 | ||||||||
|
Increase in cash and cash equivalents
|
80.3 | 100.7 | 32.2 | |||||||||
|
Cash and cash equivalents
|
||||||||||||
|
Beginning of year
|
178.2 | 77.5 | 45.3 | |||||||||
|
End of year
|
$ | 258.5 | $ | 178.2 | $ | 77.5 | ||||||
See notes to consolidated financial statements.
39
Table of Contents
|
For the Three Years Ended December 31, 2009, 2008 and
2007
|
||||||||||||||||||||||||||||
| (In millions, except per share amounts) | ||||||||||||||||||||||||||||
|
Accumulated
|
Total
|
|||||||||||||||||||||||||||
|
Class A
|
Class B
|
Additional
|
Other
|
Hubbell
|
||||||||||||||||||||||||
|
Common
|
Common
|
Paid-In
|
Retained
|
Comprehensive
|
Shareholders’
|
Noncontrolling
|
||||||||||||||||||||||
| Stock | Stock | Capital | Earnings | Income (Loss) | Equity | interest | ||||||||||||||||||||||
|
Balance at December 31, 2006
|
$ | 0.1 | $ | 0.5 | $ | 219.9 | $ | 827.4 | $ | (32.4 | ) | $ | 1,015.5 | $ | — | |||||||||||||
|
Net income
|
208.3 | 208.3 | ||||||||||||||||||||||||||
|
Adjustment to pension and other benefit plans, net of tax of
$27.3
|
44.9 | 44.9 | ||||||||||||||||||||||||||
|
Translation adjustments
|
14.1 | 14.1 | ||||||||||||||||||||||||||
|
Unrealized gain on investments, net of tax
|
0.2 | 0.2 | ||||||||||||||||||||||||||
|
Unrealized gain on cash flow hedge including $0.1 of
amortization, net of tax
|
(0.8 | ) | (0.8 | ) | ||||||||||||||||||||||||
|
Total comprehensive income
|
266.7 | |||||||||||||||||||||||||||
|
Adjustment to initially adopt accounting for uncertain tax
positions
|
4.7 | 4.7 | ||||||||||||||||||||||||||
|
Stock-based compensation
|
12.7 | 12.7 | ||||||||||||||||||||||||||
|
Exercise of stock options
|
48.0 | 48.0 | ||||||||||||||||||||||||||
|
Income tax windfall from stock-based awards, net
|
6.9 | 6.9 | ||||||||||||||||||||||||||
|
Acquisition/surrender of common shares
|
(194.2 | ) | (194.2 | ) | ||||||||||||||||||||||||
|
Cash dividends declared ($1.32 per share)
|
(77.7 | ) | (77.7 | ) | ||||||||||||||||||||||||
|
Investment in noncontrolling interest
|
2.5 | |||||||||||||||||||||||||||
|
Balance at December 31, 2007
|
$ | 0.1 | $ | 0.5 | $ | 93.3 | $ | 962.7 | $ | 26.0 | $ | 1,082.6 | $ | 2.5 | ||||||||||||||
|
Net income
|
222.7 | 222.7 | 0.5 | |||||||||||||||||||||||||
|
Adjustment to pension and other benefit plans, net of tax of
$54.9
|
(92.1 | ) | (92.1 | ) | ||||||||||||||||||||||||
|
Translation adjustments
|
(53.7 | ) | (53.7 | ) | ||||||||||||||||||||||||
|
Unrealized gain on cash flow hedge including $0.1 of
amortization, net of tax
|
3.0 | 3.0 | ||||||||||||||||||||||||||
|
Total comprehensive income
|
79.9 | |||||||||||||||||||||||||||
|
Stock-based compensation
|
12.5 | 12.5 | ||||||||||||||||||||||||||
|
Exercise of stock options
|
8.1 | 8.1 | ||||||||||||||||||||||||||
|
Income tax shortfall from stock-based awards, net
|
(0.1 | ) | (0.1 | ) | ||||||||||||||||||||||||
|
Acquisition/surrender of common shares
|
(97.5 | ) | (97.5 | ) | ||||||||||||||||||||||||
|
Cash dividends declared ($1.38 per share)
|
(77.4 | ) | (77.4 | ) | ||||||||||||||||||||||||
|
Balance at December 31, 2008
|
$ | 0.1 | $ | 0.5 | $ | 16.3 | $ | 1,108.0 | $ | (116.8 | ) | $ | 1,008.1 | $ | 3.0 | |||||||||||||
|
Net income
|
180.1 | 180.1 | 1.2 | |||||||||||||||||||||||||
|
Adjustment to pension and other benefit plans, net of tax of $8.6
|
14.3 | 14.3 | ||||||||||||||||||||||||||
|
Translation adjustments
|
35.3 | 35.3 | ||||||||||||||||||||||||||
|
Unrealized gain on investments, net of tax
|
0.3 | 0.3 | ||||||||||||||||||||||||||
|
Unrealized loss on cash flow hedge including $0.1 of
amortization, net of tax
|
(1.9 | ) | (1.9 | ) | ||||||||||||||||||||||||
|
Total comprehensive income
|
228.1 | |||||||||||||||||||||||||||
|
Stock-based compensation
|
10.3 | 10.3 | ||||||||||||||||||||||||||
|
Exercise of stock options
|
5.7 | 5.7 | ||||||||||||||||||||||||||
|
Income tax windfall from stock-based awards, net
|
0.6 | 0.6 | ||||||||||||||||||||||||||
|
Issuance of shares related to director’s deferred
compensation
|
5.2 | 5.2 | ||||||||||||||||||||||||||
|
Acquisition/surrender of common shares
|
(1.7 | ) | (1.7 | ) | ||||||||||||||||||||||||
|
Cash dividends declared ($1.40 per share)
|
(80.1 | ) | (80.1 | ) | ||||||||||||||||||||||||
|
Issuance of common stock, net
|
122.0 | 122.0 | ||||||||||||||||||||||||||
|
Dividends to noncontrolling interest
|
(0.4 | ) | ||||||||||||||||||||||||||
|
Balance at December 31, 2009
|
$ | 0.1 | $ | 0.5 | $ | 158.4 | $ | 1,208.0 | $ | (68.8 | ) | $ | 1,298.2 | $ | 3.8 | |||||||||||||
See notes to consolidated financial statements.
40
Table of Contents
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.
During the year ended December 31, 2009, the Company
recorded an immaterial out of period adjustment, predominately
arising in years prior to 1999 related to certain deferred tax
accounts, which decreased the Provision for income taxes by
$4.9 million. The Company concluded that the adjustment was
not material to prior periods and the cumulative effect was not
material to the results for the year ended December 31,
2009.
Principles
of Consolidation
The Consolidated Financial Statements include all subsidiaries;
all significant intercompany balances and transactions have been
eliminated. The Company participates in two joint ventures, one
of which is accounted for using the equity method, the other has
been consolidated in accordance with the provisions of ASC 810
“Consolidation” (“ASC 810”). See
Note 2 — Variable Interest Entities.
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 electrical products
markets. These items primarily relate to sales volume
incentives, special pricing allowances, and returned goods.
Sales volume incentives represent rebates with specific sales
volume targets for specific customers. Certain distributors
qualify for price rebates by subsequently reselling the
Company’s products into select channels of end users.
Following a distributor’s sale
41
Table of Contents
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 and have historically ranged from
1%-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.
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 either
available-for-sale,
held-to-maturity
or trading investments. Our
available-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 as
held-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.
42
Table of Contents
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 the
last-in,
first-out (LIFO) method of inventory accounting. The cost of
foreign inventories and certain domestic inventories is
determined utilizing average cost or
first-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. 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 million and $21.3 million at December 31,
2009 and 2008, respectively. The Company recorded amortization
expense of $10.9 million, $10.7 million and
$10.9 million in 2009, 2008 and 2007, respectively,
relating to capitalized computer software.
Goodwill
and Other Intangible Assets
Goodwill represents costs in excess of fair values assigned to
the underlying net assets of acquired companies.
Indefinite-lived intangible assets and goodwill are subject to
annual impairment testing using the specific guidance and
criteria described in ASC 350. The Company performs its goodwill
impairment testing as of April 1st of each year,
unless circumstances dictate the need for more frequent
assessments. This testing compares carrying values to estimated
fair values and when appropriate, the carrying value of these
assets will be reduced to estimated fair value. 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 Company’s 2009 goodwill
impairment testing resulted in fair values for each reporting
unit exceeding the reporting unit’s carrying value,
including goodwill. The Company performed its annual impairment
testing of indefinite-lived intangible assets which resulted in
no impairment. Intangible assets with definite lives are being
amortized over periods generally ranging from 5-30 years.
Other
Long-Lived Assets
The Company evaluates the potential impairment of other
long-lived assets when appropriate in accordance with the
provisions ASC 360 “Property, Plant and Equipment”
(“ASC 360”). If the carrying value of assets exceeds
the sum of the estimated future undiscounted cash flows, the
carrying value of the asset is written down to estimated fair
value. The Company continually evaluates events and
circumstances to determine if revisions to values or estimates
of useful lives are warranted.
43
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Income
Taxes
The Company operates within multiple taxing jurisdictions and is
subject to audit in these jurisdictions. The IRS and other tax
authorities routinely review the Company’s tax returns.
These audits can involve complex issues which may require an
extended period of time to resolve. The Company makes adequate
provisions for best estimates of exposures on previously filed
tax returns. Deferred income taxes are recognized for the tax
consequence of differences between financial statement carrying
amounts and the tax basis of assets and liabilities by applying
the currently enacted statutory tax rates in accordance with ASC
740. The effect of a change in statutory tax rates is recognized
in the period that includes the enactment date. ASC 740 also
requires that deferred tax assets be reduced by a valuation
allowance if it is more-likely-than-not that some portion or all
of the deferred tax asset will not be realized. The Company uses
factors to assess the likelihood of realization of deferred tax
assets such as the forecast of future taxable income and
available tax planning strategies that could be implemented to
realize the deferred tax assets.
In addition, ASC 740 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 in Note 13 — Income Taxes.
Research,
Development & Engineering
Research, development and engineering expenditures represent
costs to discover
and/or
apply
new knowledge in developing a new product, process, or in
bringing about a significant improvement to an existing product
or process. Research, development and engineering expenses are
recorded as a component of Cost of goods sold. Expenses for
research, development and engineering were less than 1% of Cost
of goods sold for each of the years 2009, 2008 and 2007.
Retirement
Benefits
The Company maintains various defined benefit pension plans for
some of its U.S. and foreign employees. ASC 715 requires
the Company to recognize the funded status of its defined
benefit pension and postretirement plans as an asset or
liability in the Consolidated Balance Sheet. Gains or losses,
prior service costs or credits, and transition assets or
obligations that have not yet been included in net periodic
benefit cost as of the end of the year 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 11 — Retirement Benefits.
Earnings
Per Share
Effective January 1, 2009, the Company adopted the
provisions of ASC 260-10-45-61A which requires that unvested
share-based payment awards that contain nonforfeitable rights to
dividends be considered participating securities. Participating
securities are required to be included in the earnings per share
calculation pursuant to the two-class method. The two-class
method is an earnings allocation formula that treats a
participating security as having rights to earnings that would
otherwise have been available to common shareholders. Basic
earnings per share is calculated as net income available to
common shareholders divided by the weighted average number of
shares of common stock outstanding. Earnings per diluted share
is calculated as net income available to common
44
Table of Contents
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 19 — Earnings Per Share.
Stock-Based
Employee Compensation
The Company measures stock-based employee compensation in
accordance with ASC 718. This standard requires expensing the
value of all share-based payments, including stock options and
similar awards, based upon the award’s fair value over the
requisite service period. See also Note 18 —
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 20 —
Accumulated other comprehensive loss.
Derivatives
To limit financial risk in the management of its assets,
liabilities and debt, the Company may use derivative financial
instruments such as: foreign currency hedges, commodity hedges,
interest rate hedges and interest rate swaps. All derivative
financial instruments are matched with an existing Company
asset, liability or proposed transaction. Market value gains or
losses on the derivative financial instrument are recognized in
income when the effects of the related price changes of the
underlying asset or liability are recognized in income. See
Note 15 — Fair Value Measurement for more
information regarding our derivative instruments.
Recent
Accounting Pronouncements
On July 1, 2009, the FASB issued Statement of Financial
Accounting Standard (“SFAS”) No. 168, “The
FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles”, also known as
FASB Accounting Standards Codification (“ASC”) 105,
“Generally Accepted Accounting Principles”
(“ASC 105”) (the “Codification”). 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 the Company’s
noncontrolling interest have been applied retrospectively. See
the Consolidated Financial Statements and
Note 2 — Variable Interest Entities.
The provisions of ASC 815 require enhanced disclosures,
including interim period disclosures, about (a) how and why
an entity uses derivative instruments, (b) how derivative
instruments 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. Expanded disclosures concerning
where derivatives are
45
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
reported on the balance sheet and where gains/losses are
recognized in the results of operations are also required. The
Company adopted the 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, and will
be applied prospectively to transfers of financial assets
completed after December 31, 2009. The Company does not
anticipate these provisions will have a material impact on its
financial statements.
In August 2009, the FASB issued ASU
2009-5,
“Fair Value Measurements and Disclosures (Topic
820) — Measuring Liabilities at Fair Value”
(“ASU
2009-5”).
This update provides clarification of the fair value measurement
of financial liabilities when a quoted price in an active market
for an identical liability (level 1 input of the valuation
hierarchy) is not available. The Company adopted the provisions
of ASU
2009-5
in
the fourth quarter of 2009. See Note 15 — Fair
Value Measurement.
In December 2009, the FASB issued ASU
2009-17,
“Consolidations (Topic 810)” (“ASU
2009-17”)
which amends the consolidation guidance 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 entity
with an approach expected to be primarily qualitative. ASU
2009-17
will
be applicable to the Company on January 1, 2010. The
Company has evaluated the update and has determined that it will
not have a material impact on its financial statements.
| 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 roughly 25% of
its sales in Canada, Mexico and Brazil). This acquisition was
completed to complement Hubbell’s
46
Table of Contents
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 preliminary fair values of
the assets acquired and liabilities assumed related to the
Burndy acquisition (in millions):
| October 2, 2009 | ||||
| Burndy | ||||
|
Purchase Price Allocation:
|
||||
|
Accounts receivable
|
$ | 32.5 | ||
|
Inventory
|
23.4 | |||
|
Deferred tax assets
|
91.2 | |||
|
Property, plant and equipment
|
40.7 | |||
|
Other assets
|
11.1 | |||
|
Intangible assets
|
134.4 | |||
|
Goodwill
|
137.4 | |||
|
Deferred tax liabilities
|
(52.9 | ) | ||
|
Liabilities related to contingencies
|
(11.8 | ) | ||
|
Other liabilities
|
(50.8 | ) | ||
|
Total Purchase price
|
$ | 355.2 | ||
|
Intangible Assets:
|
||||
|
Indefinite lived tradenames and trademarks
|
$ | 35.5 | ||
|
Patents
|
2.5 | |||
|
Customer relationships
|
94.3 | |||
|
Other
|
2.1 | |||
|
Total Intangible assets
|
$ | 134.4 | ||
|
Intangible Asset Weighted Average Amortization Period:
|
||||
|
Patents
|
5 years | |||
|
Customer relationships
|
20 years | |||
|
Other
|
3 years | |||
|
Total Weighted average
|
19 years | |||
The fair values assigned to intangible assets were determined
through the use of the income approach, specifically the relief
from royalty method and 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
Table of Contents
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 4 — | Receivables and Allowances |
Receivables consist of the following components at
December 31, (in millions):
| 2009 | 2008 | |||||||
|
Trade accounts receivable
|
$ | 325.5 | $ | 363.3 | ||||
|
Non-trade receivables
|
10.5 | 16.9 | ||||||
|
Accounts receivable, gross
|
336.0 | 380.2 | ||||||
|
Allowance for credit memos, returns, and cash discounts
|
(20.8 | ) | (19.2 | ) | ||||
|
Allowance for doubtful accounts
|
(5.1 | ) | (4.0 | ) | ||||
|
Total allowances
|
(25.9 | ) | (23.2 | ) | ||||
|
Accounts receivable, net
|
$ | 310.1 | $ | 357.0 | ||||
48
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 5 — | Inventories, net |
Inventories are classified as follows at December 31, (in
millions):
| 2009 | 2008 | |||||||
|
Raw material
|
$ | 88.0 | $ | 108.6 | ||||
|
Work-in-process
|
62.0 | 65.7 | ||||||
|
Finished goods
|
185.2 | 247.2 | ||||||
| 335.2 | 421.5 | |||||||
|
Excess of FIFO over LIFO cost basis
|
(71.7 | ) | (86.3 | ) | ||||
|
Total
|
$ | 263.5 | $ | 335.2 | ||||
During 2009, inventory quantities have been reduced. This
reduction resulted in a liquidation of LIFO inventory quantities
carried at lower costs prevailing in prior years as compared
with the cost of 2009 purchases, the effect of which decreased
cost of goods sold by approximately $11.8 million for the
year ended December 31, 2009. Earnings per diluted share
increased by approximately $0.13 for the year ended
December 31, 2009 as a result of these LIFO liquidations.
| Note 6 — | Goodwill and Other Intangible Assets |
Changes in the carrying amounts of goodwill for the years ended
December 31, 2009 and 2008, by segment, were as follows (in
millions):
| Segment | ||||||||||||
| 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 | ||||||
|
Acquisitions
|
132.1 | 14.2 | 146.3 | |||||||||
|
Translation adjustments
|
9.0 | 3.8 | 12.8 | |||||||||
|
Balance December 31, 2009
|
$ | 465.2 | $ | 278.5 | $ | 743.7 | ||||||
In October 2009, the Company completed the purchase of Burndy.
This acquisition resulted in $137.4 million of goodwill
which has been included in the Electrical segment. In addition,
the Company finalized the purchase accounting related to the
2008 acquisitions of Varon and CDR Systems Corp.
(“CDR”) in 2009. The Varon adjustment has been
reflected in the Electrical segment, while the CDR adjustment
has been reflected in the Power segment. For more information
regarding the Burndy acquisition, see Note 3 —
Business Acquisitions.
The Company has not recorded any goodwill impairments since the
initial adoption of the standard in 2002.
49
Table of Contents
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,
|
|||||||||||||||
| 2009 | 2008 | |||||||||||||||
|
Accumulated
|
Accumulated
|
|||||||||||||||
| Gross Amount | Amortization | Gross Amount | Amortization | |||||||||||||
|
Definite-lived:
|
||||||||||||||||
|
Patents, tradenames and trademarks
|
$ | 83.0 | $ | (11.0 | ) | $ | 84.4 | $ | (7.4 | ) | ||||||
|
Customer/Agent relationships and other
|
181.3 | (22.0 | ) | 74.2 | (12.0 | ) | ||||||||||
|
Total
|
264.3 | (33.0 | ) | 158.6 | (19.4 | ) | ||||||||||
|
Indefinite-lived:
|
||||||||||||||||
|
Tradenames and other
|
56.2 | — | 20.3 | — | ||||||||||||
|
Total
|
$ | 320.5 | $ | (33.0 | ) | $ | 178.9 | $ | (19.4 | ) | ||||||
Amortization expense associated with these definite-lived
intangible assets was $12.6 million, $7.8 million and
$5.5 million in 2009, 2008 and 2007, respectively.
Amortization expense associated with these intangible assets is
expected to be $15.2 million in 2010, $14.9 million in
2011, $14.3 million in 2012, $13.9 million in 2013 and
$13.8 million in 2014.
| Note 7 — | Investments |
At December 31, 2009 and December 31, 2008,
available-for-sale
investments consisted entirely of municipal bonds. At
December 31, 2009, trading investments consisted 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 | |||||||||||||||||||||||||||||||||||||||
|
Gross
|
Gross
|
Gross
|
Gross
|
|||||||||||||||||||||||||||||||||||||
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
Carrying
|
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
Carrying
|
|||||||||||||||||||||||||||||||
| 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 | ||||||||||||||||||
|
Trading Investments
|
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 | ||||||||||||||||||
Contractual maturities of
available-for-sale
investments at December 31, 2009 were as follows (in
millions):
|
Amortized
|
Fair
|
|||||||
| Cost | Value | |||||||
|
Available-For-Sale
Investments
|
||||||||
|
Due within 1 year
|
$ | 2.6 | $ | 2.6 | ||||
|
After 1 year but within 5 years
|
12.1 | 12.7 | ||||||
|
After 5 years but within 10 years
|
5.0 | 5.1 | ||||||
|
Due after 10 years
|
5.4 | 5.5 | ||||||
|
Total
|
$ | 25.1 | $ | 25.9 | ||||
50
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In 2009 and 2008, the total net unrealized gains recorded
relating to
available-for-sale
securities were $0.3 million and less than
$0.1 million, respectively. 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 were
immaterial in 2009, 2008 and 2007.
| Note 8 — | Property, Plant, and Equipment |
Property, plant, and equipment, carried at cost, is summarized
as follows at December 31, (in millions):
| 2009 | 2008 | |||||||
|
Land
|
$ | 41.4 | $ | 36.3 | ||||
|
Buildings and improvements
|
227.8 | 212.8 | ||||||
|
Machinery, tools and equipment
|
620.0 | 611.5 | ||||||
|
Construction-in-progress
|
16.3 | 15.3 | ||||||
|
Gross property, plant, and equipment
|
905.5 | 875.9 | ||||||
|
Less accumulated depreciation
|
(536.7 | ) | (526.8 | ) | ||||
|
Net property, plant, and equipment
|
$ | 368.8 | $ | 349.1 | ||||
Depreciable lives on buildings range between
20-40 years.
Depreciable lives on machinery, tools, and equipment range
between 3-20 years. The Company recorded depreciation
expense of $46.3 million, $43.9 million and
$43.1 million for 2009, 2008 and 2007, respectively.
| Note 9 — | Other Accrued Liabilities |
Other accrued liabilities consists of the following at
December 31, (in millions):
| 2009 | 2008 | |||||||
|
Deferred revenue
|
$ | 44.1 | $ | 39.2 | ||||
|
Customer program incentives
|
23.5 | 25.4 | ||||||
|
Other
|
87.1 | 64.6 | ||||||
|
Total
|
$ | 154.7 | $ | 129.2 | ||||
| Note 10 — | Other Non-Current Liabilities |
Other non-current liabilities consists of the following at
December 31, (in millions):
| 2009 | 2008 | |||||||
|
Pensions
|
$ | 86.0 | $ | 107.8 | ||||
|
Other postretirement benefits
|
36.8 | 25.5 | ||||||
|
Deferred tax liabilities
|
83.2 | 9.7 | ||||||
|
Other
|
40.8 | 39.0 | ||||||
|
Total
|
$ | 246.8 | $ | 182.0 | ||||
| Note 11 — | Retirement Benefits |
The Company has funded and unfunded non-contributory
U.S. and foreign defined benefit pension plans. Benefits
under these plans are generally provided based on either years
of service and final average pay or a specified dollar amount
per year of service. The Company also maintains seven defined
contribution pension plans.
51
Table of Contents
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 were
discontinued in 1991 for substantially all future retirees with
the exception of the recently acquired Burndy business and
certain operations in our Power segment which still maintain a
limited retiree medical plan for 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. No amendments made in 2009 or 2008 to the defined benefit
pension plans had a significant impact on the total pension
benefit obligation.
52
Table of Contents
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 | |||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||
|
Change in benefit obligation
|
||||||||||||||||
|
Benefit obligation at beginning of year
|
$ | 578.9 | $ | 577.2 | $ | 28.0 | $ | 30.1 | ||||||||
|
Service cost
|
12.2 | 14.6 | 0.6 | 0.2 | ||||||||||||
|
Interest cost
|
36.9 | 35.8 | 1.7 | 1.7 | ||||||||||||
|
Plan participants’ contributions
|
0.7 | 0.9 | — | — | ||||||||||||
|
Amendments
|
— | 0.2 | (0.7 | ) | — | |||||||||||
|
Curtailment and settlement gain
|
(0.5 | ) | — | — | (1.8 | ) | ||||||||||
|
Special termination benefits
|
— | — | — | 0.1 | ||||||||||||
|
Actuarial loss (gain)
|
37.5 | (4.1 | ) | (0.3 | ) | 0.3 | ||||||||||
|
Acquisitions/Divestitures
|
5.7 | — | 13.1 | — | ||||||||||||
|
Currency impact
|
5.5 | (18.7 | ) | — | — | |||||||||||
|
Other
|
(0.1 | ) | (0.1 | ) | — | 0.3 | ||||||||||
|
Benefits paid
|
(29.8 | ) | (26.9 | ) | (2.7 | ) | (2.9 | ) | ||||||||
|
Benefit obligation at end of year
|
$ | 647.0 | $ | 578.9 | $ | 39.7 | $ | 28.0 | ||||||||
|
Change in plan assets
|
||||||||||||||||
|
Fair value of plan assets at beginning of year
|
472.7 | 609.1 | — | — | ||||||||||||
|
Actual return on plan assets
|
89.1 | (108.6 | ) | — | — | |||||||||||
|
Acquisitions/Divestitures
|
7.4 | — | — | — | ||||||||||||
|
Employer contributions
|
30.0 | 14.1 | — | — | ||||||||||||
|
Plan participants’ contributions
|
0.7 | 0.9 | — | — | ||||||||||||
|
Currency impact
|
5.9 | (15.9 | ) | — | — | |||||||||||
|
Settlement loss and other
|
(0.2 | ) | — | — | — | |||||||||||
|
Benefits paid
|
(29.8 | ) | (26.9 | ) | — | — | ||||||||||
|
Fair value of plan assets at end of year
|
$ | 575.8 | $ | 472.7 | $ | — | $ | — | ||||||||
|
Funded status
|
$ | (71.2 | ) | $ | (106.2 | ) | $ | (39.7 | ) | $ | (28.0 | ) | ||||
|
Amounts recognized in the consolidated balance sheet consist
of:
|
||||||||||||||||
|
Prepaid pensions (included in Intangible assets and other)
|
$ | 17.0 | $ | 4.8 | $ | — | $ | — | ||||||||
|
Accrued benefit liability (short-term and long-term)
|
(88.2 | ) | (111.0 | ) | (39.7 | ) | (28.0 | ) | ||||||||
|
Net amount recognized
|
$ | (71.2 | ) | $ | (106.2 | ) | $ | (39.7 | ) | $ | (28.0 | ) | ||||
|
Amounts recognized in Accumulated other comprehensive loss
(income) consist of:
|
||||||||||||||||
|
Net actuarial loss (gain)
|
$ | 115.3 | $ | 136.9 | $ | (1.2 | ) | $ | (0.8 | ) | ||||||
|
Prior service cost (credit)
|
1.5 | 1.9 | (2.5 | ) | (2.0 | ) | ||||||||||
|
Net amount recognized
|
$ | 116.8 | $ | 138.8 | $ | (3.7 | ) | $ | (2.8 | ) | ||||||
53
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The accumulated benefit obligation for all defined benefit
pension plans was $595.2 million and $529.8 million at
December 31, 2009 and 2008, respectively. Information with
respect to plans with accumulated benefit obligations in excess
of plan assets is as follows, (in millions):
| 2009 | 2008 | |||||||
|
Projected benefit obligation
|
$ | 73.5 | $ | 499.8 | ||||
|
Accumulated benefit obligation
|
$ | 67.5 | $ | 461.8 | ||||
|
Fair value of plan assets
|
$ | 11.0 | $ | 388.7 | ||||
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 | |||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
|
Components of net periodic benefit cost
|
||||||||||||||||||||||||
|
Service cost
|
$ | 12.2 | $ | 14.6 | $ | 16.9 | $ | 0.6 | $ | 0.2 | $ | 0.5 | ||||||||||||
|
Interest cost
|
36.9 | 35.8 | 32.7 | 1.7 | 1.7 | 1.7 | ||||||||||||||||||
|
Expected return on plan assets
|
(37.2 | ) | (47.5 | ) | (42.6 | ) | — | — | — | |||||||||||||||
|
Amortization of prior service cost
|
0.3 | 0.4 | (0.3 | ) | (0.2 | ) | (0.2 | ) | (0.2 | ) | ||||||||||||||
|
Amortization of actuarial losses
|
7.3 | 1.3 | 1.9 | — | — | 0.1 | ||||||||||||||||||
|
Curtailment and settlement losses (gains)
|
0.1 | — | (0.1 | ) | — | (1.7 | ) | 1.4 | ||||||||||||||||
|
Net periodic benefit cost
|
$ | 19.6 | $ | 4.6 | $ | 8.5 | $ | 2.1 | $ | — | $ | 3.5 | ||||||||||||
|
Changes recognized in other comprehensive loss (income),
before tax, (in millions):
|
||||||||||||||||||||||||
|
Current year net actuarial (gain)/loss
|
$ | (14.8 | ) | $ | 148.9 | $ | (0.3 | ) | $ | 0.3 | ||||||||||||||
|
Current year prior service cost
|
— | 0.2 | (0.8 | ) | — | |||||||||||||||||||
|
Amortization of prior service (cost)/credit
|
(0.3 | ) | (0.4 | ) | 0.2 | 0.2 | ||||||||||||||||||
|
Amortization of net actuarial loss
|
(7.3 | ) | (1.3 | ) | — | — | ||||||||||||||||||
|
Currency impact
|
— | (1.0 | ) | — | — | |||||||||||||||||||
|
Other adjustments
|
0.4 | 0.1 | — | — | ||||||||||||||||||||
|
Total recognized in accumulated other comprehensive income
|
(22.0 | ) | 146.5 | (0.9 | ) | 0.5 | ||||||||||||||||||
|
Total recognized in net periodic pension cost and other
comprehensive loss (income)
|
$ | (2.4 | ) | $ | 151.1 | $ | 1.2 | $ | 0.5 | |||||||||||||||
|
Amortization expected to be recognized through income during
2010
|
||||||||||||||||||||||||
|
Amortization of prior service cost/(credit)
|
$ | 0.3 | $ | (0.2 | ) | |||||||||||||||||||
|
Amortization of net loss
|
4.9 | — | ||||||||||||||||||||||
|
Total expected to be recognized through income during next
fiscal year
|
$ | 5.2 | $ | (0.2 | ) | |||||||||||||||||||
In addition to the above, certain of the Company’s union
employees participate in multi-employer defined benefit plans.
The total Company cost of these plans was $0.8 million in
2009, $0.9 million in 2008 and $0.7 million in 2007.
In 2009 the Company requested a withdrawal calculation related
to the closure of a facility. The
54
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
preliminary net present value calculation of the liability
provided by the plan was $0.9 million which has been
recorded by the Company as an expense in 2009.
The Company also maintains seven defined contribution pension
plans. The total cost of these plans was $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 | |||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||
|
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 | % | ||||||||||||
|
Rate of compensation increase
|
3.57 | % | 4.07 | % | 4.58 | % | 3.50 | % | 4.00 | % | 4.00 | % | ||||||||||||
|
Weighted-average assumptions used to determine net periodic
benefit cost for years ended December 31,
|
||||||||||||||||||||||||
|
Discount rate
|
6.46 | % | 6.41 | % | 5.66 | % | 6.50 | % | 6.50 | % | 5.75 | % | ||||||||||||
|
Expected return on plan assets
|
8.00 | % | 8.00 | % | 8.00 | % | N/A | N/A | N/A | |||||||||||||||
|
Rate of compensation increase
|
4.07 | % | 4.07 | % | 4.58 | % | 4.00 | % | 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 | ||||||||||||
| 2009 | 2008 | 2007 | ||||||||||
|
Assumed health care cost trend rates at December 31,
|
||||||||||||
|
Health care cost trend assumed for next year
|
8.0 | % | 8.0 | % | 9.0 | % | ||||||
|
Rate to which the cost trend is assumed to decline
|
5.0 | % | 5.0 | % | 5.0 | % | ||||||
|
Year that the rate reaches the ultimate trend rate
|
2015 | 2015 | 2015 | |||||||||
Assumed health care cost trend rates have a significant effect
on the amounts reported for the postretirement benefit plans. A
one-percentage-point change in assumed health care cost trend
rates would have the following effects (in millions):
|
One Percentage
|
One Percentage
|
|||||||
| Point Increase | Point Decrease | |||||||
|
Effect on total of service and interest cost
|
$ | 0.1 | $ | (0.1 | ) | |||
|
Effect on postretirement benefit obligation
|
$ | 1.3 | $ | (1.2 | ) | |||
55
Table of Contents
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, 2010, 2009 and 2008 by asset category are as
follows:
|
Target
|
Percentage of
|
|||||||||||
|
Allocation
|
Plan Assets | |||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Asset Category
|
||||||||||||
|
Equity securities
|
47 | % | 50 | % | 45 | % | ||||||
|
Debt securities & Cash
|
34 | % | 32 | % | 37 | % | ||||||
|
Alternative Investments
|
19 | % | 18 | % | 18 | % | ||||||
|
Total
|
100 | % | 100 | % | 100 | % | ||||||
At the end of each year, the Company estimates the expected
long-term rate of return on pension plan assets based on the
strategic asset allocation for its plans. In making this
determination, the Company utilizes expected rates of return for
each asset class based upon current market conditions and
expected risk premiums for each asset class. The Company has
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
$15.9 million (3.2% of total domestic plan assets) and
$10.9 million (2.6% of total domestic plan assets) at
December 31, 2009 and 2008, respectively.
56
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair value of the Company’s pension plan assets at
December 31, 2009, by asset category are as follows (in
millions):
|
Quoted Prices in
|
Quoted Prices in
|
|||||||||||||||
|
Active Markets
|
Active Markets
|
Significant
|
||||||||||||||
|
for Identical
|
for Similar Asset
|
Unobservable
|
||||||||||||||
|
Asset Category
|
Total | Assets (Level 1) | (Level 2) | Inputs (Level 3) | ||||||||||||
|
Cash and cash equivalents
|
$ | 25.2 | $ | 25.2 | $ | — | $ | — | ||||||||
|
Equity securities:
|
||||||||||||||||
|
US
Large-cap
(a)
|
109.1 | 109.1 | — | — | ||||||||||||
|
US Mid-cap and Small-cap
Growth
(b)
|
19.1 | 19.1 | — | — | ||||||||||||
|
International Large-cap
|
62.7 | 62.7 | — | — | ||||||||||||
|
Emerging Markets
|
43.9 | 43.9 | — | — | ||||||||||||
|
Fixed Income Securities:
|
||||||||||||||||
|
US Treasuries
|
60.3 | 60.3 | — | — | ||||||||||||
|
Corporate
Bonds
(c)
|
91.7 | 91.7 | — | — | ||||||||||||
|
Asset Backed Securities and Other
|
7.2 | 7.2 | — | — | ||||||||||||
|
Derivatives:
|
||||||||||||||||
|
Equity
Futures
(d)
|
51.6 | — | 51.6 | — | ||||||||||||
|
Fixed Income Futures
|
0.3 | — | 0.3 | — | ||||||||||||
|
Alternative Investment Funds
|
104.7 | — | — | 104.7 | ||||||||||||
|
Total
|
$ | 575.8 | $ | 419.2 | $ | 51.9 | $ | 104.7 | ||||||||
| (a) | Includes an actively managed portfolio of large-cap US stocks | |
| (b) | Includes $15.9 million of the Company’s common stock and an investment in actively managed mid-cap and small-cap US stocks | |
| (c) | Includes primarily investment grade bonds of US issuers from diverse industries | |
| (d) | Includes primarily large-cap US and foreign equity futures |
The fair value of the Company’s pension plan assets
measured using significant unobservable inputs
(Level 3) at December 31, 2009, by asset category
are as follows (in millions):
|
Institutional
|
Distressed
|
|||||||||||
|
Fund of
|
Opportunities
|
|||||||||||
| Hedge Funds | Fund | Total | ||||||||||
|
Balance at December 31, 2008
|
$ | 77.2 | $ | 3.9 | $ | 81.1 | ||||||
|
Actual return on plan assets:
|
||||||||||||
|
Relating to assets still held at the reporting date
|
10.4 | 0.5 | 10.9 | |||||||||
|
Purchases, sales and settlements, net
|
11.3 | 1.4 | 12.7 | |||||||||
|
Balance at December 31, 2009
|
$ | 98.9 | $ | 5.8 | $ | 104.7 | ||||||
All of the alternative investments held by the Company’s
pension plans consist of fund of fund products, the largest
being an institutional fund of hedge funds (“IFHF”).
The IFHF invests in investment funds managed by a diversified
group of third-party investment managers who employ a variety of
alternative investment strategies, including relative value,
security selection, specialized credit and 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
Table of Contents
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. The
Company expects to contribute approximately $5 million to
its foreign plans in 2010.
Estimated
Future Benefit Payments
The following domestic and foreign benefit payments, which
reflect future service, as appropriate, are expected to be paid,
(in millions):
| Other Benefits | ||||||||||||||||
|
Medicare
|
||||||||||||||||
|
Part D
|
||||||||||||||||
| Pension Benefits | Gross | Subsidy | Net | |||||||||||||
|
2010
|
$ | 29.9 | $ | 3.1 | $ | 0.2 | $ | 2.9 | ||||||||
|
2011
|
$ | 31.5 | $ | 3.1 | $ | 0.2 | $ | 2.9 | ||||||||
|
2012
|
$ | 33.1 | $ | 3.1 | $ | 0.2 | $ | 2.9 | ||||||||
|
2013
|
$ | 35.7 | $ | 3.1 | $ | 0.2 | $ | 2.9 | ||||||||
|
2014
|
$ | 37.3 | $ | 3.0 | $ | 0.2 | $ | 2.8 | ||||||||
|
2015-2019
|
$ | 210.4 | $ | 14.2 | $ | 0.8 | $ | 13.4 | ||||||||
| Note 12 — | Debt |
The following table sets forth the components of the
Company’s debt structure at December 31, (in millions):
| 2009 | 2008 | |||||||||||||||||||||||
|
Short-Term
|
Senior Notes
|
Short-Term
|
Senior Notes
|
|||||||||||||||||||||
| Debt | (Long-Term) | Total | Debt | (Long-Term) | Total | |||||||||||||||||||
|
Balance at year end
|
$ | — | $ | 497.2 | $ | 497.2 | $ | — | $ | 497.4 | $ | 497.4 | ||||||||||||
|
Highest aggregate month-end balance
|
$ | 563.5 | $ | 497.4 | ||||||||||||||||||||
|
Average borrowings
|
$ | 5.5 | $ | 496.8 | $ | 502.3 | $ | 97.9 | $ | 373.2 | $ | 471.1 | ||||||||||||
|
Weighted average interest rate:
|
||||||||||||||||||||||||
|
At year end
|
— | 6.12 | % | 6.12 | % | — | 6.12 | % | 6.12 | % | ||||||||||||||
|
Paid during the year
|
0.26 | % | 6.12 | % | 5.85 | % | 3.38 | % | 6.21 | % | 5.62 | % | ||||||||||||
At December 31, 2009 and 2008, the Company had $497.2 and
$497.4 million, respectively, of senior notes reflected as
Long-term debt in the Consolidated Balance Sheet. Interest and
fees paid related to total indebtedness totaled
$29.8 million for 2009, $24.5 million for 2008 and
$17.1 million for 2007.
In May 2002, the Company issued ten year, non-callable notes due
in 2012 at face value of $200 million and a fixed interest
rate of 6.375%. In May 2008, the Company completed the sale of
$300 million of long-term, senior, unsecured notes maturing
in 2018 and bearing interest at the rate of 5.95%. The proceeds
of the May 2008 debt offering, net of discount, were used to pay
down commercial paper borrowings and for general corporate
purposes.
Both of these notes are fixed rate indebtedness, are not
callable and are only subject to accelerated payment prior to
maturity if the Company fails to meet certain non-financial
covenants, all of which were met at December 31, 2009 and
2008. The most restrictive of these covenants limits our ability
to enter into mortgages
58
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and sale-leasebacks of property having a net book value in
excess of $5 million without the approval of the Note
holders.
Prior to the 2002 and 2008 issuance of the long term notes, the
Company entered into forward interest rate locks to hedge its
exposure to fluctuations in treasury rates. The 2002 interest
rate lock resulted in a $1.3 million loss, while the 2008
interest rate lock resulted in a $1.2 million gain. These
amounts were recorded in Accumulated other comprehensive loss,
net of tax, and are being amortized over the life of the
respective notes.
In September 2009, the Company entered into a line of credit
agreement with Credit Suisse for approximately 30 million
Swiss francs to support the issuance of letters of credit. The
availability of credit under this facility is dependent upon the
maintenance of compensating balances, which 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 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. For the year ended December 31, 2009,
interest expense was reduced $1.2 million as a result of
entering into the interest rate swap.
In 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
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, 2009 and 2008. Annual
commitment fee requirements to support availability of the
credit facility were not material. This facility is used as a
backup to our commercial paper program and was undrawn as of
December 31, 2009.
The Company maintains a 9.4 million pound sterling credit
facility with HSBC Bank Plc. in the UK which is set for review
on November 30, 2010. The Company also maintains a
3.0 million Brazilian real line of credit with Banco Real
that expires in April 2010. There are no annual commitment fees
associated with these credit agreements. These credit facilities
were undrawn as of December 31, 2009.
In addition to the above credit commitments, the Company has an
unsecured line of credit for $60 million to support
issuance of its letters of credit. At December 31, 2009,
the Company had approximately $32.5 million of letters of
credit outstanding under this facility.
59
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 13 — | Income Taxes |
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 | ||||||||||
|
Income before income taxes:
|
||||||||||||
|
United States
|
$ | 183.1 | $ | 213.6 | $ | 191.9 | ||||||
|
International
|
78.5 | 104.8 | 92.3 | |||||||||
|
Total
|
$ | 261.6 | $ | 318.4 | $ | 284.2 | ||||||
|
Provision for income taxes — current:
|
||||||||||||
|
Federal
|
$ | 25.3 | $ | 64.1 | $ | 60.6 | ||||||
|
State
|
7.2 | 11.0 | 7.7 | |||||||||
|
International
|
15.5 | 19.4 | 11.3 | |||||||||
|
Total provision-current
|
48.0 | 94.5 | 79.6 | |||||||||
|
Provision for income taxes — deferred:
|
||||||||||||
|
Federal
|
$ | 29.5 | $ | 8.5 | $ | (8.4 | ) | |||||
|
State
|
(0.2 | ) | (10.6 | ) | (0.7 | ) | ||||||
|
International
|
3.0 | 2.8 | 5.4 | |||||||||
|
Total provision — deferred
|
32.3 | 0.7 | (3.7 | ) | ||||||||
|
Total provision for income taxes
|
$ | 80.3 | $ | 95.2 | $ | 75.9 | ||||||
60
Table of Contents
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 | |||||||
|
Deferred tax assets:
|
||||||||
|
Inventory
|
$ | 6.4 | $ | 8.1 | ||||
|
Income tax credits
|
33.2 | 22.1 | ||||||
|
Accrued liabilities
|
18.0 | 14.5 | ||||||
|
Pension
|
34.4 | 42.2 | ||||||
|
Postretirement and post employment benefits
|
11.2 | 12.2 | ||||||
|
Stock-based compensation
|
10.2 | 9.4 | ||||||
|
Net operating loss carryforwards
|
50.0 | 1.7 | ||||||
|
Miscellaneous other
|
0.8 | 11.1 | ||||||
|
Gross deferred tax assets
|
164.2 | 121.3 | ||||||
|
Valuation allowance
|
(2.2 | ) | (2.5 | ) | ||||
|
Total net deferred tax assets
|
$ | 162.0 | $ | 118.8 | ||||
|
Deferred tax liabilities:
|
||||||||
|
Acquisition basis difference
|
107.4 | 47.4 | ||||||
|
Property, plant, and equipment
|
29.5 | 44.5 | ||||||
|
Total deferred tax liabilities
|
$ | 136.9 | $ | 91.9 | ||||
|
Total net deferred tax asset/(liability)
|
$ | 25.1 | $ | 26.9 | ||||
|
Deferred taxes are reflected in the Consolidated Balance
Sheet as follows (in millions):
|
||||||||
|
Current tax assets (included in Deferred taxes and other)
|
$ | 56.0 | $ | 28.3 | ||||
|
Non-current tax assets (included in Intangible assets and other)
|
52.3 | 8.3 | ||||||
|
Non-current tax liabilities (included in Other Non-current
liabilities)
|
(83.2 | ) | (9.7 | ) | ||||
|
Total net deferred tax asset/(liability)
|
$ | 25.1 | $ | 26.9 | ||||
As of December 31, 2009, the Company had a total of
$33.2 million of Federal and State tax credit
carryforwards, net of Federal benefit (including credit
carryforwards of $19.9 million related to the Burndy
acquisition) available to offset future income taxes, of which
$0.8 million may be carried forward indefinitely while the
remaining $32.4 million will begin to expire at various
times beginning in 2010 through 2025. The Company has recorded a
net valuation allowance of $2.2 million for the portion of
the tax carryforward credits the Company anticipates will expire
prior to utilization. Additionally, as of December 31,
2009, the Company had recorded tax benefits totaling
$50.0 million (including $48.5 million related to the
Burndy acquisition) for Federal and State net operating loss
carryforwards (“NOLs”). The tax benefit related to
these NOLs has been adjusted to reflect an “ownership
change” pursuant to Internal Revenue Code Section 382,
which imposes an annual limitation on the utilization of
pre-acquisition operating losses. The Company expects to fully
utilize the adjusted NOLs prior to their expiration.
At December 31, 2009, income and withholding taxes have not
been provided on approximately $301.8 million of
undistributed international earnings that are permanently
reinvested in international operations. If such earnings were
not indefinitely reinvested, a tax liability of approximately
$47.3 million would be recognized.
Cash payments of income taxes were $53.4 million in 2009,
$68.8 million in 2008 and $79.7 million in 2007.
61
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company files income tax returns in the U.S. federal
jurisdiction and various states and foreign jurisdictions.
During 2008, the IRS commenced an examination of the
Company’s U.S. income tax returns for the years ended
December 31, 2006 and 2007 (“06/07 Exam”). The
06/07 Exam remains on-going as of December 31, 2009. The
Company expects to finalize the 06/07 exam during 2010. With few
exceptions, the Company is no longer subject to state, local, or
non-U.S. income
tax examinations by tax authorities for years prior to 2002.
The following tax years, by major jurisdiction, are still
subject to examination by taxing authorities:
|
Jurisdiction
|
Open Years | |||
|
United States
|
2006-2009 | |||
|
Canada
|
2006-2009 | |||
|
UK
|
2008-2009 | |||
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 | ||||||||||
|
Unrecognized tax benefits at beginning of year
|
$ | 17.3 | $ | 8.7 | $ | 24.2 | ||||||
|
Additions based on tax positions relating to the current year
|
3.0 | 4.5 | 2.8 | |||||||||
|
Reductions based on expiration of statute of limitations
|
(1.4 | ) | (0.4 | ) | (1.3 | ) | ||||||
|
Additions (reductions) to tax positions relating to previous
years
|
11.8 | 4.7 | (13.8 | ) | ||||||||
|
Settlements
|
(0.1 | ) | (0.2 | ) | (3.2 | ) | ||||||
|
Total unrecognized tax benefits
|
$ | 30.6 | $ | 17.3 | $ | 8.7 | ||||||
Included in the balance at December 31, 2009 are
$17.8 million of tax positions which, if in the future are
determined to be recognizable, would affect the annual effective
income tax rate. Additionally, there are $2.4 million of
tax positions for which the ultimate deductibility is highly
certain but for which there is uncertainty as to the timing of
such deductibility. Because of the impact of deferred tax
accounting, other than interest and penalties, the disallowance
of the shorter deductibility period would not affect the annual
effective tax rate but would accelerate the payment of cash to
the applicable taxing authority to an earlier period. The
Company has classified the amount of unrecognized tax positions
that are expected to settle within the next 12 months as a
current liability.
The Company’s policy is to record interest and penalties
associated with the underpayment of income taxes within
Provision for income taxes in the Consolidated Statement of
Income. In each of the years 2009 and 2008, the Company
recognized approximately $0.8 million of expense related to
interest and penalties. In 2007, the Company recorded a credit
of $2.7 million related to interest and penalties. The
Company had $2.6 million and $1.8 million accrued for
the payment of interest and penalties as of December 31,
2009 and December 31, 2008, respectively.
62
Table of Contents
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 | ||||||||||
|
Federal statutory income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State income taxes, net of federal benefit
|
2.0 | 2.7 | 1.8 | |||||||||
|
Foreign income taxes
|
(3.1 | ) | (3.9 | ) | (5.4 | ) | ||||||
|
State tax credits and loss carryforwards
|
(0.1 | ) | (2.0 | ) | — | |||||||
|
IRS audit settlement
|
— | — | (1.9 | ) | ||||||||
|
Out of period adjustment
|
(1.9 | ) | — | — | ||||||||
|
Other, net
|
(1.2 | ) | (1.9 | ) | (2.8 | ) | ||||||
|
Consolidated effective income tax rate
|
30.7 | % | 29.9 | % | 26.7 | % | ||||||
During the year ended December 31, 2009, the Company
recorded an immaterial out of period adjustment, predominately
arising in years prior to 1999 related to certain deferred tax
accounts, which decreased the provision for income tax by
$4.9 million. The Company concluded that the adjustment was
not material to prior periods and the cumulative effect was not
material to the results for the year ended December 31,
2009.
The 2007 consolidated effective income tax rate reflects the
impact of a tax 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 14 — | Financial Instruments |
Concentrations of Credit Risk:
Financial
instruments which potentially subject the Company to
concentrations of credit risk consist of trade receivables, cash
and cash equivalents and short-term investments. The Company
grants credit terms in the normal course of business to its
customers. Due to the diversity of its product lines, the
Company has an extensive customer base including electrical
distributors and wholesalers, electric utilities, equipment
manufacturers, electrical contractors, telecommunication
companies and retail and hardware outlets. No single customer
accounted for more than 10% of total sales in any year during
the three years ended December 31, 2009. However, the
Company’s top 10 customers accounted for approximately 35%
of the accounts receivable balance at December 31, 2009. As
part of its ongoing procedures, the Company monitors the credit
worthiness of its customers. Bad debt write-offs have
historically been minimal. The Company places its cash and cash
equivalents with financial institutions and limits the amount of
exposure to any one institution.
Fair Value:
The carrying amounts reported in
the Consolidated Balance Sheet for cash and cash equivalents,
short-term and long-term investments, receivables, bank
borrowings, accounts payable and accruals approximate their fair
values given the immediate or short-term nature of these items.
See also Note 7 — Investments and
Note 15 — Fair Value Measurement.
The fair value of the senior notes classified as long-term debt
was determined by reference to quoted market prices of
securities with similar characteristics and approximated
$539.6 million and $484.7 million at December 31,
2009 and 2008, respectively.
| Note 15 — | Fair Value Measurement |
ASC 820 “Fair Value Measurements and Disclosures”
(“ASC 820”), provides enhanced guidance for using fair
value to measure assets and liabilities and expands disclosure
with respect to fair value measurements. In 2008, the Company
elected to defer adoption of ASC 820 until January 1, 2009
for nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial
statements on a non-recurring basis.
63
Table of Contents
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, 2009 and 2008 (in millions):
|
Quoted Prices in
|
Quoted Prices in
|
Quoted Prices in
|
Quoted Prices in
|
|||||||||||||||||||||
|
Active Markets
|
Active Markets
|
Active Markets
|
Active Markets for
|
|||||||||||||||||||||
|
December 31,
|
for Identical
|
for Similar Assets
|
December 31,
|
for Identical
|
Similar Assets
|
|||||||||||||||||||
|
Asset (Liability)
|
2009 | Assets (Level 1) | (Level 2) | 2008 | Assets (Level 1) | (Level 2) | ||||||||||||||||||
|
Long term investments
|
$ | 26.5 | $ | 26.5 | $ | — | $ | 35.1 | $ | 35.1 | $ | — | ||||||||||||
|
Deferred compensation plan assets
|
1.6 | 1.6 | — | — | — | — | ||||||||||||||||||
|
Derivatives:
|
||||||||||||||||||||||||
|
Forward exchange contracts
|
(1.1 | ) | — | (1.1 | ) | 1.9 | — | 1.9 | ||||||||||||||||
|
Interest rate swap
|
(0.5 | ) | — | (0.5 | ) | — | — | — | ||||||||||||||||
|
Deferred compensation plan liabilities
|
(1.6 | ) | (1.6 | ) | — | — | — | — | ||||||||||||||||
| $ | 24.9 | $ | 26.5 | $ | (1.6 | ) | $ | 37.0 | $ | 35.1 | $ | 1.9 | ||||||||||||
At December 31, 2009 and December 31, 2008, the
Company did not have any financial assets or liabilities that
fell within the Level 3 hierarchy.
Long-term
Investments
At December 31, 2009 and 2008, long-term investments
included $25.9 million and $35.1 million,
respectively, of municipal bonds classified as
available-for-sale
securities. The Company also had $0.6 million of trading
securities reflected as long-term investments as of
December 31, 2009. These investments are carried on the
balance sheet at fair value. Unrealized gains and losses
associated with
available-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.
64
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Derivatives
To limit financial risk in the management of its assets,
liabilities and debt, the Company may use derivative financial
instruments such as: foreign currency hedges, commodity hedges,
interest rate hedges and interest rate swaps. All derivative
financial instruments are matched with an existing Company
asset, liability or proposed transaction. Market value gains or
losses on the derivative financial instrument are recognized in
income when the effects of the related price changes of the
underlying asset or liability are recognized in income.
The fair values of derivative instruments in the Consolidated
Balance Sheet are as follows (in millions):
| Asset/(Liability) Derivatives | ||||||||||||
| Fair Value | ||||||||||||
|
December 31,
|
December 31,
|
|||||||||||
|
Derivatives designated as hedges in accordance with ASC
815
|
Balance Sheet Location | 2009 | 2008 | |||||||||
|
Forward exchange contracts designated as cash flow hedges
|
Deferred taxes and other | $ | — | $ | 1.9 | |||||||
|
Forward exchange contracts designated as cash flow hedges
|
Other accrued liabilities | (1.1 | ) | — | ||||||||
|
Interest rate swap designated as a fair value hedge
|
Other non-current liabilities | (0.5 | ) | — | ||||||||
| $ | (1.6 | ) | $ | 1.9 | ||||||||
Forward
exchange contracts
In 2009 and 2008, the Company entered into a series of forward
exchange contracts to purchase U.S. dollars in order to
hedge its exposure to fluctuating rates of exchange on
anticipated inventory purchases. As of December 31, 2009,
the Company has 18 individual forward exchange contracts, 12 at
$1.0 million and 6 at $0.5 million, which have various
expiration dates through December 2010 and June 2010,
respectively. These contracts have been designated as cash flow
hedges in accordance with ASC 815.
The following table summarizes the amounts and location of
gains/(losses) recognized in Accumulated other comprehensive
loss and reclassified into income related to 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
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Interest
Rate Locks
Prior to the 2002 and 2008 issuance of long-term notes, the
Company entered into forward interest rate locks to hedge its
exposure to fluctuations in treasury rates. The 2002 interest
rate lock resulted in a $1.3 million loss while the 2008
interest rate lock resulted in a $1.2 million gain. These
amounts were recorded in Accumulated other comprehensive loss,
net of tax, and are being amortized over the life of the
respective notes. The amortization associated with these
interest rate locks is reflected in Interest expense in the
Consolidated Statement of Income. As of December 31, 2009
and 2008, there were $0.4 million and $0.3 million,
respectively, of net unamortized gains remaining.
Long-term
Debt
The total carrying value of long-term debt as of
December 31, 2009 was $497.2 million, net of
unamortized discount and a basis adjustment related to a fair
value hedge. As of December 31, 2009, the estimated fair
value of the long-term debt was $539.6 million based on
quoted market prices.
| Note 16 — | Commitments and Contingencies |
Environmental
and Legal
The Company is subject to environmental laws and regulations
which may require that it investigate and remediate the effects
of potential contamination associated with past and present
operations. The Company is also subject to various legal
proceedings and claims, including those relating to patent
matters, as well as workers’ compensation, product
liability and environmental matters, including, for each, past
production of product containing toxic substances, which have
arisen in the normal course of its operations or have been
acquired through business combinations. The Company is
self-insured for certain of these incidents at various amounts.
Estimates of future liability with respect to such matters are
based on an evaluation of currently available facts. Liabilities
are recorded when it is probable that costs will be incurred and
can be reasonably estimated. Given the nature of matters
involved, it is possible that liabilities will be incurred in
excess of amounts currently recorded. However, based upon
available information, including the Company’s past
experience, insurance coverage and reserves, management believes
that the ultimate liability with respect to these matters will
not have a material effect on the consolidated financial
position, results of operations or cash flows of the Company.
The Company accounts for conditional asset retirement
obligations in accordance with ASC 410 “Asset Retirement
and Environmental Obligations” (“ASC 410”). ASC
410 defines “conditional asset retirement obligation”
as a legal obligation to perform an asset retirement activity in
which the timing
and/or
method of settlement are conditional on a future event that may
or may not be within the control of the Company. Accordingly, an
entity is required to recognize a liability for the fair value
of a conditional asset retirement obligation if the fair value
of the liability can be reasonably estimated. The Company
identified other legal obligations related to environmental
clean up for which a settlement date could not be determined.
These items were not material to the Company’s results of
operations, financial position or cash flows as of
December 31, 2009, 2008 and 2007. The Company continues to
monitor and revalue its liability as necessary and, as of
December 31, 2009 the liability continues to be immaterial.
Leases
Total rental expense under operating leases was
$22.2 million in 2009, $22.4 million in 2008, and
$20.2 million in 2007. The minimum annual rentals on
non-cancelable, long-term, operating leases in effect at
December 31, 2009 are expected to approximate
$13.0 million in 2010, $8.8 million in 2011,
$6.1 million in 2012, $4.7 million in 2013,
$3.8 million in 2014 and $16.2 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
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 17 — | Capital Stock |
Activity in the Company’s common shares outstanding is set
forth below for the three years ended December 31, 2009,
(in thousands):
| Common Stock | ||||||||
| 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 | ||||||
|
Exercise of stock options
|
— | 258 | ||||||
|
Shares issued under compensation arrangements
|
— | 2 | ||||||
|
Non-vested shares issued under compensation arrangements, net of
forfeitures
|
— | 175 | ||||||
|
Acquisition/surrender of shares
|
(213 | ) | (1,883 | ) | ||||
|
Outstanding at December 31, 2008
|
7,165 | 49,102 | ||||||
|
Shares issued as part of equity offering
|
— | 2,990 | ||||||
|
Exercise of stock options/stock appreciation rights
|
— | 194 | ||||||
|
Shares issued under compensation arrangements
|
2 | 155 | ||||||
|
Non-vested shares issued under compensation arrangements, net of
forfeitures
|
— | 87 | ||||||
|
Acquisition/surrender of shares
|
— | (35 | ) | |||||
|
Outstanding at December 31, 2009
|
7,167 | 52,493 | ||||||
During October 2009, the Company issued 2,990,000 shares of
Class B common stock. The Company received net proceeds of
$122.0 million, which were used for general corporate
purposes including the repayment of $66 million of
commercial paper borrowings that were issued to fund the Burndy
acquisition.
Repurchased shares are retired when acquired and the purchase
price is charged against par value and additional paid-in
capital. Shares may be repurchased through the Company’s
stock repurchase program, acquired by the Company from employees
under the Hubbell Incorporated Stock Option Plan for Key
Employees (the “Option Plan”) or surrendered to the
Company by employees in settlement of their tax liability on
vesting of restricted shares under the Hubbell Incorporated 2005
Incentive Award Plan, (the “ Award Plan”). Voting
rights per share: Class A Common — twenty;
Class B Common — one. In addition, the Company
has 5.9 million authorized shares of preferred stock; no
preferred shares are outstanding.
The Company has an amended and restated Rights Agreement under
which holders of Class A Common Stock have Class A
Rights and holders of Class B Common Stock have
Class B Rights (collectively, “Rights”). These
Rights become exercisable after a specified period of time only
if a person or group of affiliated persons acquires beneficial
ownership of 20 percent or more of the outstanding
Class A Common Stock of the Company or announces or
commences a tender or exchange offer that would result in the
offeror acquiring beneficial ownership of 20 percent or
more of the outstanding Class A Common Stock of the
Company. Each Class A Right entitles the holder to purchase
from the Company one one-thousandth of a share of Series A
Junior Participating Preferred Stock (“Series A
Preferred Stock”), without par value, at a price of $175.00
per one one-thousandth of a share. Similarly, each Class B
Right entitles the holder to purchase one one-thousandth of a
share of Series B Junior Participating Preferred Stock
(“Series B Preferred Stock”), without par value,
at a price of $175.00 per one one-
67
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
thousandth of a share. The Rights may be redeemed by the Company
for one cent per Right prior to the day a person or group of
affiliated persons acquires 20 percent or more of the
outstanding Class A Common Stock of the Company. The Rights
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, 2009 as follows (in thousands):
| Common Stock |
Preferred
|
|||||||||||
| Class A | Class B | Stock | ||||||||||
|
Exercise of outstanding stock options
|
— | 2,501 | — | |||||||||
|
Future grant of stock-based compensation
|
— | 2,690 | — | |||||||||
|
Exercise of stock purchase rights
|
— | — | 60 | |||||||||
|
Shares reserved under other equity compensation plans
|
— | 140 | — | |||||||||
|
Total
|
— | 5,331 | 60 | |||||||||
| Note 18 — | Stock-Based Compensation |
As of December 31, 2009, 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 718 requires that share-based compensation expense be
recognized over the period from the grant date to the date on
which the award is no longer contingent on the employee
providing additional service (the “substantive vesting
period”). In periods prior to the adoption of ASC 718,
share-based compensation expense was recorded for
retirement-eligible employees 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 the substantive vesting period for awards granted after
the adoption of ASC 718.
The Company’s long-term incentive program for awarding
stock-based compensation uses a combination of restricted stock,
stock appreciation rights (“SARs”), and performance
shares of the Company’s Class B Common Stock pursuant
to the Award Plan. Under the Company’s Award Plan, the
Company may authorize up to 5.9 million shares of
Class B Common Stock in settlement of restricted stock,
performance shares, SARs or any post-2004
68
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
grants of stock options. The Company issues new shares for
settlement of any stock-based awards. In 2009, the Company
issued stock-based awards using a combination of restricted
stock, SARs and performance shares.
In 2009, 2008 and 2007, the Company recorded $10.3 million,
$12.5 million, and $12.7 million of stock-based
compensation costs, respectively. Of the total 2009 expense,
$9.8 million was recorded to S&A expense and
$0.5 million was recorded to Cost of goods sold. In 2008
and 2007, $12.1 million and $11.9 million,
respectively, was recorded to S&A expense and
$0.4 million and $0.8 million, respectively was
recorded to Cost of goods sold. Stock-based compensation costs
capitalized to inventory were $0.1 million in 2009, 2008
and 2007. The Company recorded income tax benefits of
approximately $3.9 million, $4.7 million, and
$4.8 million in 2009, 2008, and 2007 respectively, related
to stock-based compensation. At December 31, 2009, these
benefits are recorded as either a deferred tax asset in Deferred
taxes and other or in Other accrued liabilities in the
Consolidated Balance Sheet. As of December 31, 2009, there
was $17.2 million, pretax, of total unrecognized
compensation cost related to non-vested share-based compensation
arrangements. This cost is expected to be recognized through
2012.
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. Recipients are entitled to receive dividends and
voting rights on their non-vested restricted stock. The fair
values are measured using the average between the high and low
trading prices of the Company’s Class B Common Stock
on the most recent trading day immediately preceding the grant
date (“measurement date”).
Stock
Issued to Non-employee Directors
In 2009 and 2008, each non-employee director received a grant of
750 shares of Class B Common Stock. In 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 2009, 2008 and
2007, the Company issued to non-employee directors
6,000 shares, 6,750 shares and 3,150 shares,
respectively.
Activity related to both employee and non-employee restricted
stock for the year ended December 31, 2009 is as follows
(in thousands, except per share amounts):
|
Weighted
|
||||||||
| Shares | Average Value/Share | |||||||
|
Non-vested restricted stock at December 31, 2008
|
278 | $ | 38.02 | |||||
|
Shares granted
|
111 | $ | 46.23 | |||||
|
Shares vested
|
(116 | ) | $ | 41.92 | ||||
|
Shares forfeited
|
(24 | ) | $ | 38.37 | ||||
|
Non-vested restricted stock at December 31, 2009
|
249 | $ | 39.82 | |||||
The weighted average fair value per share of restricted stock
granted during the years 2009, 2008 and 2007 was $46.23, $29.92
and $54.52, respectively.
69
Table of Contents
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,
2009 is as follows (in thousands, except exercise amounts):
|
Weighted
|
||||||||||||||||
|
Average
|
||||||||||||||||
|
Weighted
|
Remaining
|
Aggregate
|
||||||||||||||
|
Number of
|
Average
|
Contractual
|
Intrinsic
|
|||||||||||||
| Rights | Exercise Price | Term | Value | |||||||||||||
|
Outstanding at December 31, 2008
|
2,061 | $ | 43.57 | |||||||||||||
|
Granted
|
369 | 46.96 | ||||||||||||||
|
Exercised
|
(14 | ) | 29.28 | |||||||||||||
|
Forfeited
|
(30 | ) | 52.14 | |||||||||||||
|
Cancelled
|
(64 | ) | 36.88 | |||||||||||||
|
Outstanding at December 31, 2009
|
2,322 | $ | 44.27 | 8.0 years | $ | 13,220 | ||||||||||
|
Exercisable at December 31, 2009
|
1,326 | $ | 48.14 | 7.1 years | $ | 4,132 | ||||||||||
The aggregated intrinsic value of SARs exercised during 2009 was
$0.2 million. There were no SARs exercised during 2008 and
the aggregate intrinsic value of SARs exercised in 2007 was not
material.
The fair value of the SARs was measured using the Black-Scholes
option pricing model. The following table summarizes the related
assumptions used to determine the fair value of the SARs granted
during the periods ended December 31, 2009, 2008 and 2007.
Expected volatilities are based on historical volatilities of
the Company’s stock and other factors. The expected term of
SARs granted is based upon historical trends of stock option and
SARs behavior as well as future projections. The risk-free
interest rate is based on the U.S. Treasury yield curve in
effect at the time of grant for the expected term of award.
|
Weighted Avg.
|
||||||||||||||||||||
|
Grant Date
|
||||||||||||||||||||
|
Dividend
|
Expected
|
Risk Free
|
Expected
|
Fair Value
|
||||||||||||||||
| Yield | Volatility | Interest Rate | Term | of 1 SAR | ||||||||||||||||
|
2009
|
3.2 | % | 26.5 | % | 3.0 | % | 7 Years | $ | 9.83 | |||||||||||
|
2008
|
3.3 | % | 26.7 | % | 3.2 | % | 7 Years | $ | 6.27 | |||||||||||
|
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 2009, 2008 and 2007, the Company granted 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
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In February 2007, the Company granted 34,783 performance shares,
with both performance and market-based criteria. The performance
period related to the February 2007 grant was from
January 1, 2007 through December 31, 2009. There were
31,018 of these shares, net of forfeitures, outstanding as of
December 31, 2009. In February 2010, the Company paid out
41,123 shares related to this grant. This payout is based
upon achieving 82% and 183% of the performance and market-based
criteria, respectively.
The fair value of the December 2007 performance shares was
calculated separately for the performance criteria and the
market-based criteria. The fair 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. The fair value of the market-based
criteria for the December 2007, 2008 and 2009 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.
|
|||||||||||||||||||||||
|
Measurement
|
Dividend
|
Expected
|
Risk Free
|
Expected
|
Grant Date
|
|||||||||||||||||||
| Date | Yield | Volatility | Interest Rate | Term | Fair Value | |||||||||||||||||||
|
December 2009
|
$ | 46.96 | 3.0 | % | 38.6 | % | 1.4 | % | 3 Years | $ | 61.81 | |||||||||||||
|
December 2008
|
$ | 29.28 | 4.8 | % | 25.9 | % | 1.3 | % | 3 Years | $ | 35.26 | |||||||||||||
|
December 2007
|
$ | 54.56 | 2.4 | % | 21.1 | % | 2.9 | % | 3 Years | $ | 63.69 | |||||||||||||
Total stock-based compensation expense recorded related to
performance share awards was $1.7 million,
$0.1 million and $0.9 million in 2009, 2008, and 2007,
respectively. There has been no stock based compensation
recorded related to the December 2009 performance award as the
service inception date for this particular award begins on
January 1, 2010.
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.
Stock option activity for the year ended December 31, 2009
is set forth below (in thousands, except per share amounts):
|
Weighted
|
||||||||||||||||
|
Average
|
||||||||||||||||
|
Remaining
|
Aggregate
|
|||||||||||||||
|
Number of
|
Weighted Average
|
Contractual
|
Intrinsic
|
|||||||||||||
| Shares | Exercise Price | Term | Value | |||||||||||||
|
Outstanding at December 31, 2008
|
2,777 | $ | 39.82 | |||||||||||||
|
Exercised
|
(191 | ) | 29.82 | |||||||||||||
|
Canceled
|
(85 | ) | 43.89 | |||||||||||||
|
Outstanding at December 31, 2009
|
2,501 | $ | 40.44 | 3.6 years | $ | 8,470 | ||||||||||
|
Exercisable at December 31, 2009
|
2,501 | $ | 40.44 | 3.6 years | $ | 8,470 | ||||||||||
The aggregate intrinsic value of stock option exercises during
2009, 2008 and 2007 was $2.5 million, $2.2 million and
$19.9 million, respectively. Cash received from option
exercises was $5.7 million, $8.1 million and
$48.0 million for 2009, 2008 and 2007, respectively.
71
Table of Contents
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 the
two-class
method. The two-class method is an earnings allocation formula
that treats a participating security as having rights to
earnings that would otherwise have been available to common
shareholders. 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 | ||||||||||
|
Earnings per basic share:
|
||||||||||||
|
Net income attributable to Hubbell
|
$ | 180.1 | $ | 222.7 | $ | 208.3 | ||||||
|
Less: Distributed and undistributed earnings allocated to
participating securities
|
0.8 | 0.8 | 0.6 | |||||||||
|
Net income available to common shareholders
|
179.3 | 221.9 | 207.7 | |||||||||
|
Average number of common shares outstanding
|
56.8 | 56.2 | 59.0 | |||||||||
| $ | 3.16 | $ | 3.96 | $ | 3.53 | |||||||
|
Earnings per diluted share:
|
||||||||||||
|
Net income attributable to Hubbell
|
$ | 180.1 | $ | 222.7 | $ | 208.3 | ||||||
|
Less: Distributed and undistributed earnings allocated to
participating securities
|
0.8 | 0.8 | 0.6 | |||||||||
|
Net income available to common shareholders
|
179.3 | 221.9 | 207.7 | |||||||||
|
Average number of common shares outstanding
|
56.8 | 56.2 | 59.0 | |||||||||
|
Potential dilutive shares
|
0.2 | 0.3 | 0.5 | |||||||||
|
Average number of diluted shares outstanding
|
57.0 | 56.5 | 59.5 | |||||||||
| $ | 3.15 | $ | 3.93 | $ | 3.49 | |||||||
|
Anti-dilutive securities excluded from the calculation of
earnings per diluted share:
|
||||||||||||
|
Stock options performance shares and restricted stock
|
1.5 | 1.6 | 0.4 | |||||||||
|
Stock appreciation rights
|
2.3 | 1.3 | 1.3 | |||||||||
72
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 20 — | Accumulated Other Comprehensive Income (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 | ) | |||||||
| Note 21 — | Industry Segments and Geographic Area Information |
Nature
of Operations
Hubbell Incorporated was founded as a proprietorship in 1888,
and was incorporated in Connecticut in 1905. Hubbell designs,
manufactures and sells quality electrical and electronic
products for a broad range of non-residential and residential
construction, industrial and utility applications. Products are
either sourced complete, manufactured or assembled by
subsidiaries in the United States, Canada, Switzerland, Puerto
Rico, the People’s Republic of China, Mexico, Italy, the
UK, Brazil and Australia. Hubbell also participates in joint
ventures in Taiwan and the People’s Republic of China, and
maintains sales offices in Singapore, the People’s Republic
of China, Mexico, South Korea and the Middle East.
The Electrical segment is comprised of businesses that sell
stock and custom products including standard and special
application wiring device products, rough-in electrical products
and lighting fixtures and controls, and other electrical
equipment. The products are typically used in and around
industrial, commercial and institutional facilities by
electrical contractors, maintenance personnel, electricians, and
telecommunications companies. In addition, certain businesses
design and manufacture a variety of high voltage test and
measurement equipment, industrial controls and communication
systems used in the non-residential and industrial markets. Many
of these products may also be found in the oil and gas (onshore
and offshore) and mining industries. Certain lighting fixtures,
wiring devices and electrical products also have residential and
utility applications. These products are primarily sold through
electrical and industrial distributors, home centers, some
retail and hardware outlets, and lighting showrooms. Special
application products are sold primarily through wholesale
distributors to contractors, industrial customers and OEMs. High
voltage products are also sold direct to customers through its
sales engineers.
The Power segment consists of operations that design and
manufacture various transmission, distribution, substation and
telecommunications products primarily used by the utility
industry. In addition, certain of these products are used in the
civil construction and transportation industries. Products are
sold to distributors and directly to users such as electric
utilities, telecommunication companies, mining operations,
industrial firms, construction and engineering firms.
Financial
Information
Financial information by industry segment and geographic area
for the three years ended December 31, 2009, is summarized
below (in millions). When reading the data the following items
should be noted:
| • | Net sales comprise sales to unaffiliated customers — inter-segment and inter-area sales are not significant. |
73
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| • | Segment operating income consists of net sales less operating expenses, including total corporate expenses, which are generally allocated to each segment on the basis of the segment’s percentage of consolidated net sales. Interest expense and investment income and other expense, net have not been allocated to segments. | |
| • | General corporate assets not allocated to segments are principally cash, prepaid pensions, investments and deferred taxes. |
Industry
Segment Data
| 2009 | 2008 | 2007 | ||||||||||
|
Net Sales:
|
||||||||||||
|
Electrical
|
$ | 1,650.1 | $ | 1,958.2 | $ | 1,897.3 | ||||||
|
Power
|
705.5 | 746.2 | 636.6 | |||||||||
|
Total
|
$ | 2,355.6 | $ | 2,704.4 | $ | 2,533.9 | ||||||
|
Operating Income:
|
||||||||||||
|
Electrical
|
$ | 163.7 | $ | 227.3 | $ | 202.1 | ||||||
|
Power
|
131.0 | 118.7 | 97.3 | |||||||||
|
Operating income
|
294.7 | 346.0 | 299.4 | |||||||||
|
Interest expense
|
(30.9 | ) | (27.4 | ) | (17.6 | ) | ||||||
|
Investment and other (expense) income, net
|
(2.2 | ) | (0.2 | ) | 2.4 | |||||||
|
Income before income taxes
|
$ | 261.6 | $ | 318.4 | $ | 284.2 | ||||||
|
Assets:
|
||||||||||||
|
Electrical
|
$ | 1,607.9 | $ | 1,252.0 | $ | 1,106.7 | ||||||
|
Power
|
587.7 | 636.7 | 510.0 | |||||||||
|
General Corporate
|
268.9 | 226.8 | 246.7 | |||||||||
|
Total
|
$ | 2,464.5 | $ | 2,115.5 | $ | 1,863.4 | ||||||
|
Capital Expenditures:
|
||||||||||||
|
Electrical
|
$ | 13.9 | $ | 31.7 | $ | 38.5 | ||||||
|
Power
|
10.5 | 12.1 | 13.6 | |||||||||
|
General Corporate
|
5.0 | 5.6 | 3.8 | |||||||||
|
Total
|
$ | 29.4 | $ | 49.4 | $ | 55.9 | ||||||
|
Depreciation and Amortization:
|
||||||||||||
|
Electrical
|
$ | 48.1 | $ | 42.7 | $ | 41.8 | ||||||
|
Power
|
22.5 | 20.4 | 18.4 | |||||||||
|
Total
|
$ | 70.6 | $ | 63.1 | $ | 60.2 | ||||||
74
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Geographic
Area Data
| 2009 | 2008 | 2007 | ||||||||||
|
Net Sales:
|
||||||||||||
|
United States
|
$ | 1,981.0 | $ | 2,283.5 | $ | 2,175.9 | ||||||
|
International
|
374.6 | 420.9 | 358.0 | |||||||||
|
Total
|
$ | 2,355.6 | $ | 2,704.4 | $ | 2,533.9 | ||||||
|
Operating Income:
|
||||||||||||
|
United States
|
$ | 227.6 | $ | 269.9 | $ | 250.3 | ||||||
|
International
|
67.1 | 76.1 | 49.1 | |||||||||
|
Total
|
$ | 294.7 | $ | 346.0 | $ | 299.4 | ||||||
|
Property, Plant, and Equipment, net:
|
||||||||||||
|
United States
|
$ | 298.0 | $ | 291.1 | $ | 277.6 | ||||||
|
International
|
70.8 | 58.0 | 49.5 | |||||||||
|
Total
|
$ | 368.8 | $ | 349.1 | $ | 327.1 | ||||||
On a geographic basis, the Company defines
“international” as operations based outside of the
United States and its possessions. As a percentage of total net
sales, international shipments from foreign operations directly
to third parties were 16% in both 2009 and 2008 and 14% in 2007,
with the UK, Canada and Switzerland operations representing
approximately 36%, 24% and 13%, respectively, of 2009 total
international net sales. Long-lived assets of international
subsidiaries were 19%, 17% and 15% of the consolidated total in
2009, 2008 and 2007, respectively, with the Mexico, Canada and
UK operations representing approximately 52%, 13% and 9%,
respectively, of the 2009 total. Export sales from United States
operations were $183.3 million in 2009, $184.9 million
in 2008 and $145.8 million in 2007.
| Note 22 — | Guarantees |
The Company accrues for costs associated with guarantees when it
is probable that a liability has been incurred and the amount
can be reasonably estimated. The most likely 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”. As of December 31, 2009,
the fair value and maximum potential payment related to the
Company’s guarantees were not material.
The Company offers a product warranty which covers defects on
most of its products. These warranties primarily apply to
products that are properly used for their intended purpose,
installed correctly, and properly maintained. The Company
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
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Changes in the accrual for product warranties in 2009 are set
forth below (in millions):
|
Balance at December 31, 2008
|
$ | 6.6 | ||
|
Provision
|
10.1 | |||
|
Purchase accounting adjustments
|
5.6 | |||
|
Expenditures/other
|
(13.3 | ) | ||
|
Balance at December 31, 2009
|
$ | 9.0 | ||
| Note 23 — | Quarterly Financial Data (Unaudited) |
The table below sets forth summarized quarterly financial data
for the years ended December 31, 2009 and 2008 (in
millions, except per share amounts):
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
|
2009
|
||||||||||||||||
|
Net Sales
|
$ | 585.6 | $ | 584.2 | $ | 593.9 | $ | 591.9 | ||||||||
|
Gross Profit
|
$ | 167.0 | $ | 174.2 | $ | 192.9 | $ | 191.8 | ||||||||
|
Net Income attributable to Hubbell
|
$ | 33.8 | $ | 39.4 | $ | 57.3 | $ | 49.6 | (1) | |||||||
|
Earnings Per Share — Basic
|
$ | 0.60 | $ | 0.70 | $ | 1.01 | $ | 0.85 | ||||||||
|
Earnings Per Share — Diluted
|
$ | 0.60 | $ | 0.70 | $ | 1.01 | $ | 0.84 | ||||||||
|
2008
|
||||||||||||||||
|
Net Sales
|
$ | 627.9 | $ | 689.6 | $ | 734.8 | $ | 652.1 | ||||||||
|
Gross Profit
|
$ | 187.4 | $ | 209.9 | $ | 220.2 | $ | 185.9 | ||||||||
|
Net Income attributable to Hubbell
|
$ | 48.4 | $ | 61.5 | $ | 66.5 | $ | 46.3 | ||||||||
|
Earnings Per Share —
Basic
(2)
|
$ | 0.85 | $ | 1.10 | $ | 1.18 | $ | 0.83 | ||||||||
|
Earnings Per Share —
Diluted
(2)
|
$ | 0.85 | $ | 1.09 | $ | 1.18 | $ | 0.82 | ||||||||
| (1) | The fourth quarter of 2009 includes a $4.9 million out of period adjustment which decreased Provision for income taxes. See Note 13 — Income Taxes. | |
| (2) | Adjusted to reflect the retrospective application of ASC 260-10-45-61A |
76
Table of Contents
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
Not applicable.
| Item 9A. | Controls and Procedures |
The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed
in Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and
communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. Management
necessarily applied its judgment in assessing the costs and
benefits of such controls and procedures which, by their nature,
can provide only reasonable assurance regarding the reliability
of financial reporting and the preparation of financial
statements for external reporting purposes in accordance with
generally accepted accounting principles. Because of its
inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.
The Company carried out an evaluation, under the supervision and
with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s
disclosure controls and procedures as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e),
as of the end of the period covered by this report on
Form 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, 2009 are included in Item 8 of this
Annual Report on
Form 10-K.
There have been no changes in the Company’s internal
control over financial reporting that occurred during the
Company’s most recently completed quarter that have
materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.
| Item 9B. | Other Information |
Not applicable.
PART III
| Item 10. | Directors and Executive Officers of the Registrant(1) |
(1) Certain of the information required by this item
regarding executive officers is included in Part I,
Item 4 of this
Form 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
Table of Contents
| 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,
2009 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 | ||||||||||||
| A | B |
Number of Securities Remaining
|
||||||||||
|
Number of Securities to be
|
Weighted Average
|
Available for Future Issuance
|
||||||||||
|
Issued upon Exercise of
|
Exercise Price of
|
Under Equity Compensation
|
||||||||||
|
Outstanding Options,
|
Outstanding Options,
|
Plans (Excluding Securities
|
||||||||||
|
Plan Category
|
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) | |||||
|
Equity Compensation Plans Not Requiring Shareholder Approval(b)
|
— | — | 140 | (c) | ||||||||
|
Total
|
5,046 | $ | 42.28 | 2,830 | ||||||||
| (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 223 performance share awards assuming a maximum payout target. The Company does not anticipate that the maximum payout target will be achieved for these awards. | |
| (e) | Weighted average exercise price excludes performance share awards included in column A. |
The remaining information required by this item is incorporated
by reference to the definitive proxy statement for the
Company’s annual meeting of shareholders scheduled to be
held on May 3, 2010.
| Item 13. | Certain Relationships and Related Transactions(2) |
| Item 14. | Principal Accountant Fees and Services(2) |
| (2) | The information required by this item is incorporated by reference to the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 3, 2010. |
78
Table of Contents
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 on
Form 10-K.
| 2. | Exhibits |
|
Number
|
Description
|
|
|
3a
|
Restated Certificate of Incorporation, as amended and restated as of September 23, 2003. Exhibit 3a of the registrant’s report on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 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 on Form 8-K filed on December 17, 2008, is incorporated by reference. | |
|
10a†
|
Hubbell Incorporated Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2005. Exhibit 10a of the registrant’s report on Form 10-Q for the third quarter (ended September 30), 2007, filed October 26, 2007, is incorporated by reference. | |
|
10b(1)†
|
Hubbell Incorporated Stock Option Plan for Key Employees, as amended and restated effective May 5, 2003.(i) Exhibit 10b(1) of the registrant’s report on Form 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 on Form 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 on Form 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 on Form 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 on Form 10-K for the year 2008, filed on February 20, 2009, is incorporated by reference. |
79
Table of Contents
|
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 on Form 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 on Form 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 on Form 10-Q for the third quarter (ended September 30), 2007, filed on October 26, 2007, is incorporated by reference. | |
|
10p†
|
Hubbell Incorporated Senior Executive Incentive Compensation Plan, effective January 1, 1996. Exhibit C of the registrant’s proxy statement, dated March 22, 1996 and filed on March 27, 1996, is incorporated by reference. | |
|
10.1†
|
Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and Timothy H. Powers. Exhibit 10.1 of the registrant’s report on Form 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. | |
|
10u†
|
Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and Richard W. Davies. Exhibit 10.u of the registrant’s report on Form 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. | |
|
10v†
|
Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and James H. Biggart. Exhibit 10.v of the registrant’s report on Form 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. | |
|
10w†
|
Hubbell Incorporated Top Hat Restoration Plan, as amended and restated effective January 1, 2005. Exhibit 10w of the registrant’s report on Form 10-Q for the third quarter (ended September 30), 2007 filed October 26, 2007, is incorporated by reference. | |
|
10z†
|
Hubbell Incorporated Incentive Compensation Plan, adopted effective January 1, 2002. Exhibit 10z of the registrant’s report on Form 10-K for the year 2001, filed on March 19, 2002, is incorporated by reference. | |
|
10aa†
|
Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and W. Robert Murphy. Exhibit 10.aa of the registrant’s report on Form 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. | |
|
10cc†
|
Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and Gary N. Amato. Exhibit 10.cc of the registrant’s report on Form 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. | |
|
10.9†
|
Grantor Trust for Senior Management Plans Trust Agreement, dated as of March 14, 2005, between Hubbell Incorporated and The Bank of New York, as Trustee. Exhibit 10.9 of the registrant’s report on Form 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 on Form 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 on Form 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 on Form 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 on Form 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
Table of Contents
|
Number
|
Description
|
|
|
10.ee(1)†
|
Amendment, dated September 21, 2006, to the Hubbell Incorporated 2005 Incentive Award Plan. Exhibit 10.2 of the registrant’s report on Form 10-Q for the third quarter (ended September 30), 2006, filed on November 7, 2006 is incorporated by reference. | |
|
10.ff†
|
Letter Agreement, dated September 2005, between Hubbell Incorporated and David G. Nord. Exhibit 99.1 of the registrant’s report on Form 8-K dated and filed September 6, 2005, is incorporated by reference. | |
|
10.gg†
|
Amended and Restated Continuity Agreement, dated as of November 1, 2007, between Hubbell Incorporated and David G. Nord. Exhibit 10.gg of the registrant’s report on Form 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. | |
|
10.ii
|
Credit Agreement, dated as of October 31, 2007 Among Hubbell Incorporated, Hubbell Cayman Limited, Hubbell Investments Limited, The Lenders Party hereto, Bank of America, N.A., Citibank, N.A., U.S. Bank National Association, and Wachovia Bank National Association as Syndication Agents, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Securities Inc. as Sole Lead Arranger and Bookrunner (the “Credit Agreement”). Exhibit 10.ii of the registrant’s report on Form 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 on Form 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 on Form 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 on Form 10-Q for the third quarter (ended September 30), 2007, filed on October 26, 2007, is incorporated by reference. | |
|
10.mm†
|
Trust Agreement, dated as of January 1, 2008, by and between Hubbell Incorporated and T. Rowe Price Trust Company, as Trustee. Exhibit 10.mm of the registrant’s report on Form 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 on Form 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 on Form 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 on Form 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 on Form 10-K for the year 2007, filed on February 28, 2008, is incorporated by reference. | |
|
10.rr†
|
Continuity Agreement, dated as of July 1, 2008, between Hubbell Incorporated and Darrin S. Wegman. Exhibit 10.rr of the registrant’s report on Form 10-Q for the second quarter (ended June 30), 2008, filed July 28, 2008, is incorporated by reference. | |
|
10.ss†
|
Amendment, dated as of July 24, 2008, to Amended and Restated Continuity Agreement for Gary N. Amato. Exhibit 10.ss of the registrant’s report of Form 10-Q for the second quarter (ended June 30), 2008, filed July 28, 2008, is incorporated by reference. | |
|
21*
|
Listing of subsidiaries. | |
|
23*
|
Consent of PricewaterhouseCoopers LLP. |
81
Table of Contents
|
Number
|
Description
|
|
|
31.1*
|
Certification of Chief Executive Officer Pursuant to Item 601(b) (31) of Regulation 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) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
32.1*
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
32.2*
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| † | This exhibit constitutes a management contract, compensatory plan, or arrangement | |
| * | Filed hereunder |
82
Table of Contents
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
| By |
/s/
Darrin
S. Wegman
|
Darrin S. Wegman
Vice President and
Controller
(Also signing as Chief Accounting Officer)
(Also signing as Chief Accounting Officer)
| By |
/s/
David
G. Nord
|
David G. Nord
Senior Vice President and
Chief Financial Officer
Date: February 19, 2010
83
Table of Contents
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
|
Chairman of the Board, President and Chief Executive Officer and Director | 2/19/10 | |||
| By |
/s/
D.
G. Nord
|
Senior Vice President and Chief Financial Officer | 2/19/10 | |||
| By |
/s/
D.
S. Wegman
|
Vice President, Controller | 2/19/10 | |||
| By |
/s/
E.
R. Brooks
|
Director | 2/19/10 | |||
| By |
/s/
G.
W. Edwards, Jr
|
Director | 2/19/10 | |||
| By |
/s/
L.
J. Good
|
Director | 2/19/10 | |||
| By |
/s/
A.
J. Guzzi
|
Director | 2/19/10 | |||
| By |
/s/
J.
S. Hoffman
|
Director | 2/19/10 | |||
| By |
/s/
A.
McNally IV
|
Director | 2/19/10 | |||
| By |
/s/
G.
J. Ratcliffe
|
Director | 2/19/10 | |||
| By |
/s/
C.
A. Rodriguez
|
Director | 2/19/10 | |||
| By |
/s/
R.
J. Swift
|
Director | 2/19/10 | |||
| By |
/s/
D.
S. Van Riper
|
Director | 2/19/10 |
84
Table of Contents
Schedule II
HUBBELL
INCORPORATED AND SUBSIDIARIES
FOR THE
YEARS ENDED DECEMBER 31, 2007, 2008 AND 2009
Reserves deducted in the balance sheet from the assets to which
they apply (in millions):
|
Additions/
|
||||||||||||||||||||
|
(Reversals)
|
||||||||||||||||||||
|
Balance at
|
Charged to
|
Acquisitions/
|
Balance
|
|||||||||||||||||
|
Beginning
|
Costs and
|
Dispositions
|
at End
|
|||||||||||||||||
| 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 | |||||||||
|
Year 2009
|
$ | 4.0 | $ | 2.1 | $ | — | $ | (1.0 | ) | $ | 5.1 | |||||||||
|
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 | |||||||||
|
Year 2009
|
$ | 16.8 | $ | 85.4 | $ | — | $ | (83.6 | ) | $ | 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 | |||||||||
|
Year 2009
|
$ | 33.1 | $ | 12.0 | $ | — | $ | (8.2 | ) | $ | 36.9 | |||||||||
|
Valuation allowance on deferred tax assets:
|
||||||||||||||||||||
|
Year 2007
|
$ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
|
Year 2008
|
$ | — | $ | 2.5 | $ | — | $ | — | $ | 2.5 | ||||||||||
|
Year 2009
|
$ | 2.5 | $ | — | $ | — | $ | (0.3 | ) | $ | 2.2 | |||||||||
85
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintNote 21-industryprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. Submission Of Matters To A Vote Of Security HoldersprintPart IIprintItem 5. Market For The Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesprintItem 6. Selected Financial DataprintItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 7A. Quantitative and Qualitative Disclosures About Market RiskprintItem 8. Financial Statements and Supplementary DataprintNote 1 Significant Accounting PoliciesprintNote 2 Variable Interest EntitiesprintNote 3 Business AcquisitionsprintNote 4 Receivables and AllowancesprintNote 5 Inventories, NetprintNote 6 Goodwill and Other Intangible AssetsprintNote 7 InvestmentsprintNote 8 Property, Plant, and EquipmentprintNote 9 Other Accrued LiabilitiesprintNote 10 Other Non-current LiabilitiesprintNote 11 Retirement BenefitsprintPart DprintNote 12 DebtprintNote 13 Income TaxesprintNote 14 Financial InstrumentsprintNote 15 Fair Value MeasurementprintNote 16 Commitments and ContingenciesprintNote 17 Capital StockprintNote 18 Stock-based CompensationprintNote 19 Earnings Per ShareprintNote 20 Accumulated Other Comprehensive Income (loss)printNote 21 Industry Segments and Geographic Area InformationprintNote 22 GuaranteesprintNote 23 Quarterly Financial Data (unaudited)printItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureprintItem 9A. Controls and ProceduresprintItem 9B. Other InformationprintPart IIIprintItem 10. Directors and Executive Officers Of The Registrant(1)printItem 11. Executive Compensation(2)printItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersprintItem 13. Certain Relationships and Related Transactions(2)printItem 14. Principal Accountant Fees and Services(2)printPart IVprintItem 15. Exhibits and Financial Statement Scheduleprint