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 1 934 | |
| FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010 | ||
|
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.) |
|
|
40 Waterview Drive, Shelton, CT
(Address of principal executive offices) |
06484
(Zip Code) |
(475) 882-4000
(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
þ
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, 2010 was
$2,180,251,177 *. The number of shares outstanding of the
Class A Common Stock and Class B Common Stock as of
February 11, 2011 was 7,167,506 and 53,435,756,
respectively.
Documents
Incorporated by Reference
Portions of the definitive proxy statement for the annual
meeting of shareholders scheduled to be held on May 2,
2011, 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, 2010
TABLE OF CONTENTS
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2010
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, China, Italy, the
United Kingdom (“UK”), Brazil and Australia.
Hubbell also participates in joint ventures in Taiwan, China,
and maintains sales offices in Singapore, the Peoples Republic
of China (“China”), Mexico, South Korea and countries
in the Middle East.
The Company’s reporting segments consist of the Electrical
segment (comprised of electrical systems products and lighting
products) and the Power segment, as described below. See also
Note 20 — Industry Segments and Geographic Area
Information in the Notes to Consolidated Financial Statements.
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 (71%, 70% and 72% of consolidated
revenues in 2010, 2009 and 2008, 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 distributors to
contractors, industrial customers and original equipment
manufacturers (“OEMs”). High voltage products are sold
primarily by direct sales to customers through our 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.
2
Table of Contents
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
®
,
Implo
®
,
Penetrox
tm
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.
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. Hubbell also
sells a variety 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
®
trademarks.
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Table of Contents
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 new product
development efforts are oriented towards expanding those
offerings.
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 Building
Automation, Hubbell Outdoor Lighting, Security Lighting
Systems
tm
,
Spaulding
Lighting
tm
,
Whiteway
tm
,
Sportsliter
Solutions
tm
,
Sterner
Lighting
tm
and Devine
Lighting
tm
and include:
|
• Fixtures used to illuminate athletic and recreational fields
• Bollards
• Canopy light fixtures
• Decorative landscaping fixtures
• Floodlights and poles
• Flood/step/wall mounted lighting
|
• Occupancy/dimming control sensors
• Parking lot/parking garage fixtures
• Site and area lighting fixtures
• Signage fixtures
• Pedestrian zone, path/egress, landscape, building and area lighting fixtures and poles
|
4
Table of Contents
Commercial/Institutional and Industrial Indoor products are sold
under the Alera
Lighting
tm
,
Precision-Paragon [P2], Kurt Versen,
Prescolite
®
,
Dual-Lite
®
,
Compass
®
Products, Hubbell Building Automation, Hubbell Industrial
Lighting,
Chalmit
tm
and
Victor
tm
trademarks and include:
|
• Architectural, specification
and commercial grade fluorescent fixtures
• Emergency lighting/exit signs • Fluorescent high bay fixtures • High intensity discharge high bay and low bay fixtures • Specification grade LED fixtures |
• International Electrotechnical
Commission lighting fixtures designed for hazardous, hostile
corrosive applications
• Inverter power systems • Recessed, surface mounted and track fixtures • Occupancy, dimming and daylight harvesting sensors |
Residential products are sold under the Progress
Lighting
®
,
Everlume
®
,
HomeStyle
®
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 (29%, 30% and 28% of consolidated revenues in
2010, 2009 and 2008, 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, pipeline and
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.
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
®
,
Epoxiglas
®
,
Comcore
®
,
Electro
Composites
tm
,
USCO
tm
,
CDR
tm
,
Hot
Box
®
and
PCORE
®
and include:
|
• Transformer equipment mounts
• Arresters
• Automatic line splice
• Cable elbow terminations and accessories
• High voltage condenser bushings
• High voltage overhead and pad mounted switches
• Hot line taps
• Grounding equipment
• Tool trailers
• Cutouts and fuse links
|
• Mechanical and
compression electrical connectors and tools
• Programmable reclosers • Polymer concrete and fiberglass enclosures, equipment pads and drain products • Specialized hot line tools • Tower construction packages • Truck accessories • Sectionalizers • Insulators |
5
Table of Contents
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 pile foundation systems are used to support homes, buildings and solar applications, and earth anchors are used in a variety of farm, home and construction projects including soil screw and 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, shipments from foreign
operations directly to third parties were 17% in 2010 and 16% in
both 2009 and 2008 with the Canada, UK and Switzerland
operations representing approximately 29%, 20% and 18%,
respectively, of 2010 international net sales. See also
Note 20-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.
Patents
Hubbell has approximately 1,370 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, 2010
was approximately $271.5 million compared to
$253.7 million at December 31, 2009. The increase in
the backlog in 2010 is attributable to higher demand for
renovation and relight as well as a strong rebound in spending
for both distribution and transmission products
6
Table of Contents
compared to the prior year. 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
and Development
Research and development expenditures represent costs to
discover
and/or
apply
new knowledge in developing a new product or process, or in
bringing about significant improvement in an existing product or
process. Research and development expenses are recorded as a
component of Cost of goods sold. Expenses for research and
development were less than 1% of Cost of goods sold for each of
the years 2010, 2009 and 2008.
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 15 — Commitments and Contingencies in the
Notes to Consolidated Financial Statements.
Employees
As of December 31, 2010, Hubbell had approximately 13,000
salaried and hourly employees of which approximately 7,200 of
these employees, or 55%, are located in the United States.
Approximately 2,500 of these U.S. employees are represented
by 17 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”.
7
Table of Contents
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.
Global
economic uncertainty could adversely affect us.
During periods of global economic uncertainty, we could
experience 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 also purchase certain electrical and
electronic components, including lighting ballasts, printed
circuit boards and integrated circuit chips from third party
providers. 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, 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.
Changes
in tax laws or exposure to additional income tax liabilities
could have a material impact on our financial condition, results
of operations and liquidity.
We are subject to income taxes as well as non-income based
taxes, in both the United States and various foreign
jurisdictions. We are subject to ongoing tax audits in various
jurisdictions. Tax authorities may disagree with certain
positions we have taken and assess additional taxes. We
regularly assess the likely outcomes of these audits in order to
determine the appropriateness of our tax provision. However,
there can be no assurance that we will accurately predict the
outcomes of these audits, and the actual outcomes of these
audits could adversely affect our results of operations,
financial condition and cash flows.
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.
We completed our SAP software implementation at the majority of
our domestic businesses in 2006. 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 31% 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, 2010, 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 have an adverse effect
on our business. Although it is not possible to predict such
events or their consequences, these
9
Table of Contents
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 countries.
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 | 15 | 24 | 3,071,900 | 1,623,900 | |||||||||||||
| Australia | — | 2 | — | 34,100 | ||||||||||||||
| Brazil | — | 1 | 123,200 | — | ||||||||||||||
| Canada | 3 | 1 | 178,700 | 22,400 | ||||||||||||||
| Italy | — | 1 | — | 8,200 | ||||||||||||||
| Mexico | 1 | 3 | 658,600 | 43,300 | ||||||||||||||
| 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 | 1 | 10 | 2,212,900 | 94,700 | |||||||||||||
| Brazil | — | 1 | 103,000 | — | ||||||||||||||
| Canada | — | 1 | 30,000 | — | ||||||||||||||
| Mexico | — | 3 | 203,600 | 120,900 | ||||||||||||||
| China | — | 1 | — | 63,800 | ||||||||||||||
| Item 3. | Legal Proceedings |
As described in Note 15 — 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 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. | [Removed and reserved] |
10
Table of Contents
|
Name.
|
Age(1)
|
Present Position
|
Business Experience
|
|||||
|
Timothy H. Powers
|
62 |
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
|
53 |
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
|
64 |
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.
|
58 |
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
|
43 |
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. | |||||
(1)
As
of February 16, 2011.
11
Table of Contents
|
Name.
|
Age(1)
|
Present Position
|
Business Experience
|
|||||
|
W. Robert Murphy
|
61 |
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
|
53 |
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
|
53 |
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
|
59 |
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 16, 2011.
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)
|
Class A Common | Class B Common | ||||||||||||||
|
Years Ended December 31,
|
High | Low | High | Low | ||||||||||||
|
2010 — Fourth quarter
|
58.15 | 46.51 | 61.63 | 48.58 | ||||||||||||
|
2010 — Third quarter
|
49.35 | 36.39 | 51.83 | 37.98 | ||||||||||||
|
2010 — Second quarter
|
50.35 | 37.52 | 52.59 | 39.20 | ||||||||||||
|
2010 — First quarter
|
49.16 | 41.93 | 51.49 | 42.76 | ||||||||||||
|
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 | ||||||||||||
|
Dividends Declared (Dollars Per Share)
|
Class A Common | Class B Common | ||||||||||||||
|
Years Ended December 31,
|
2010 | 2009 | 2010 | 2009 | ||||||||||||
|
First quarter
|
0.36 | 0.35 | 0.36 | 0.35 | ||||||||||||
|
Second quarter
|
0.36 | 0.35 | 0.36 | 0.35 | ||||||||||||
|
Third quarter
|
0.36 | 0.35 | 0.36 | 0.35 | ||||||||||||
|
Fourth quarter
|
0.36 | 0.35 | 0.36 | 0.35 | ||||||||||||
|
Number of Common Shareholders of Record
|
||||||||||||||||||||
|
At December 31,
|
2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
|
Class A
|
483 | 526 | 551 | 571 | 617 | |||||||||||||||
|
Class B
|
2,731 | 2,860 | 3,055 | 3,068 | 3,243 | |||||||||||||||
On February 11, 2011, the Company’s Board of Directors
approved an increase in both the Class A and Class B
Common Stock dividend rate from $0.36 to $0.38 per share per
quarter. The increased quarterly dividend payment will commence
with the dividend payment scheduled for April 11, 2011 to
shareholders of record on March 7, 2011.
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 2011, the Board of Directors extended the term of
this program through February 20, 2012. As of
December 31, 2010, approximately $138 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. During 2010, the Company spent
$23.3 million on the repurchase of Class B Common
Stock, of which $20.4 million was spent in the fourth
quarter. The Company did not repurchase any Class A Common
Stock during 2010.
The following table summarizes the Company’s repurchase
activity of Class B Common Stock during the quarter ended
December 31, 2010:
|
Total Number
|
||||||||||||
|
of Class B
|
Approximate Value of
|
|||||||||||
|
Shares
|
Average Price
|
Shares That May Yet Be
|
||||||||||
|
Purchased
|
Paid per
|
Purchased Under the
|
||||||||||
| (000’s) | Class B Share | December 2007 Program | ||||||||||
| (In millions) | ||||||||||||
|
Balance as of September 30, 2010
|
$ | 158.1 | ||||||||||
|
October 2010
|
— | $ | — | $ | 158.1 | |||||||
|
November 2010
|
— | $ | — | $ | 158.1 | |||||||
|
December 2010
|
336 | $ | 60.55 | $ | 137.7 | |||||||
|
Total for the quarter ended December 31, 2010
|
336 | $ | 60.55 | $ | 137.7 | |||||||
|
Total for the full year ended December 31, 2010
|
406 | $ | 57.32 | |||||||||
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, 2010, 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, 2010, 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 for purposes of this
graph. The comparison assumes $100 was invested on
December 31, 2005 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 12/31/05 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. |
Copyright
©
2011
S & P, a division of The McGraw-Hill Companies Inc.
All rights reserved.
Copyright
©
2011
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).
| 2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
|
OPERATIONS, years ended December 31,
|
||||||||||||||||||||
|
Net sales
|
$ | 2,541.2 | $ | 2,355.6 | $ | 2,704.4 | $ | 2,533.9 | $ | 2,414.3 | ||||||||||
|
Gross profit
|
$ | 828.7 | $ | 725.9 | $ | 803.4 | $ | 735.8 | $ | 656.8 | ||||||||||
|
Special charges, net
|
$ | — | $ | — | $ | — | $ | — | $ | 7.3 | (1) | |||||||||
|
Operating income
|
$ | 367.8 | $ | 294.7 | $ | 346.0 | $ | 299.4 | $ | 233.9 | ||||||||||
|
Operating income as a % of sales
|
14.5 | % | 12.5 | % | 12.8 | % | 11.8 | % | 9.7 | % | ||||||||||
|
Loss on extinguishment of debt
|
$ | (14.7 | ) (2) | $ | — | $ | — | $ | — | $ | — | |||||||||
|
Net income attributable to Hubbell
|
$ | 217.2 | (2) | $ | 180.1 | $ | 222.7 | $ | 208.3 | $ | 158.1 | |||||||||
|
Net income attributable to Hubbell as a % of sales
|
8.5 | % | 7.6 | % | 8.2 | % | 8.2 | % | 6.5 | % | ||||||||||
|
Net income attributable to Hubbell to Hubbell shareholders’
average equity
|
15.8 | % | 15.6 | % | 21.3 | % | 19.9 | % | 15.7 | % | ||||||||||
|
Earnings per share — diluted
|
$ | 3.59 | (2) | $ | 3.15 | $ | 3.93 | $ | 3.49 | $ | 2.58 | |||||||||
|
Cash dividends declared per common share
|
$ | 1.44 | $ | 1.40 | $ | 1.38 | $ | 1.32 | $ | 1.32 | ||||||||||
|
Average number of common shares outstanding — diluted
|
60.3 | 57.0 | 56.5 | 59.5 | 61.1 | |||||||||||||||
|
Cost of acquisitions, net of cash acquired
|
$ | — | $ | 355.8 | $ | 267.4 | $ | 52.9 | $ | 145.7 | ||||||||||
|
FINANCIAL POSITION, at year-end
|
||||||||||||||||||||
|
Working capital
|
$ | 781.1 | $ | 492.8 | $ | 494.1 | $ | 368.5 | $ | 432.1 | ||||||||||
|
Total assets
|
$ | 2,705.8 | $ | 2,402.8 | $ | 2,115.5 | $ | 1,863.4 | $ | 1,751.5 | ||||||||||
|
Total debt
|
$ | 597.7 | $ | 497.2 | $ | 497.4 | $ | 236.1 | $ | 220.2 | ||||||||||
|
Debt to total
capitalization
(3)
|
29 | % | 28 | % | 33 | % | 18 | % | 18 | % | ||||||||||
|
Total Hubbell shareholders’ equity
|
$ | 1,459.2 | $ | 1,298.2 | $ | 1,008.1 | $ | 1,082.6 | $ | 1,015.5 | ||||||||||
|
NUMBER OF EMPLOYEES, at year-end
|
13,000 | 12,700 | 13,000 | 11,500 | 12,000 | |||||||||||||||
| (1) | The Company recorded pretax special charges in 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 2010, the Company recorded a $14.7 million pre-tax charge ($9.1 million after-tax) related to its early extinguishment of debt. The earnings per diluted share impact of this charge was $0.15. See also Note 11- Debt. | |
| (3) | Debt to total capitalization is defined as total debt as a percentage of the sum of total debt and Hubbell shareholders’ equity. |
| 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 2010, 2009 and 2008 by segment are
included under “Segment Results” within this
Management’s Discussion and Analysis.
16
Table of Contents
In 2010, we experienced mixed conditions within our served
markets resulting in slightly higher organic demand. We
continued to execute a business strategy focused on:
| • | Revenue |
Organic:
The demand in 2010 was slightly
higher compared to 2009 primarily due to improvement in the
industrial and utility markets offset by weakness in the
U.S. non-residential construction market. 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:
During 2010 we focused on the
integration of Burndy Americas Inc. (“Burndy”) which
was acquired in the fourth quarter of 2009. See also
Note 2 — Business Acquisitions in the Notes to
Consolidated Financial Statements.
| • | Price Realization |
In 2010, we continued to exercise pricing discipline. Market
conditions made price realization more challenging in 2010
compared to 2009. Our objective is to maintain parity between
pricing and commodity costs; however, volatile market conditions
could impact our ability to achieve that goal.
| • | 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 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 2010, we offset
cost increases by increasing the effectiveness of our freight
and logistics processes including capacity utilization and
network optimization.
| • | Productivity |
We worked towards 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. We also
expanded our manufacturing presence in China by opening another
manufacturing facility.
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 plan
to continue to build on the shared services model that has been
implemented in sourcing and logistics and apply those principles
in other areas.
OUTLOOK
In 2011, we expect net sales to increase three to five
percentage points compared to 2010. We expect to achieve this
increase through slightly higher organic sales and new product
introductions. Demand for our power products is expected to
increase in the mid-single digit range as utility companies
spend on distribution products to maintain the network and
invest in large scale transmission projects. The industrial
markets that we serve are expected to continue to grow overall,
with higher spending for maintenance, repair and overhaul
(“MRO”) and harsh and hazardous related products
partially offset by lower demand for high voltage test
equipment. The non-residential construction market is expected
to be slightly lower than 2010. This market should continue to
benefit from stronger demand for renovation, relight and
controls. Our residential market is expected to be relatively
flat as high levels of unemployment and uncertainty surrounding
foreclosures are likely to continue to slow the recovery.
We plan to continue to work on productivity initiatives,
including improved sourcing, product redesign and lean projects
focused on factory efficiency. We anticipate cost increases from
commodities, pension, healthcare and other inflationary costs.
The pricing environment is expected to remain competitive in
2011 and achieving
17
Table of Contents
parity with commodity costs is expected to be a challenge. We
plan to continue to invest in people and resources to support
our growth initiatives. Overall we expect to expand operating
margin by approximately 50 basis points in 2011 compared to
2010. Additionally, we expect our 2011 tax rate to increase by
approximately 50 basis points due to a higher mix of
domestic income.
In 2011, we anticipate generating free cash flow approximately
equal to net income. Finally, with our strong financial
position, we expect to continue to pursue additional
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. These markets, in order of magnitude of net
sales to the Company, are non-residential construction
(approximately 40%), Industrial (approximately 25%), Utility
(approximately 25%) and residential construction (approximately
10%).
In 2010, market conditions were mixed. Non-residential
construction declined due to lower levels of activity and a lack
of available financing for projects. The industrial market
improved slightly due to higher factory utilization. The utility
market improved due to higher electricity consumption which
increased MRO demand within the distribution segment. The
residential market also improved slightly due to the tax credits
stimulus at the beginning of 2010.
Summary
of Consolidated Results (in millions, except per share
data)
| For the Year Ending December 31, | ||||||||||||||||||||||||
|
% of Net
|
% of Net
|
% of Net
|
||||||||||||||||||||||
| 2010 | Sales | 2009 | Sales | 2008 | Sales | |||||||||||||||||||
|
Net sales
|
$ | 2,541.2 | $ | 2,355.6 | $ | 2,704.4 | ||||||||||||||||||
|
Cost of goods sold
|
1,712.5 | 1,629.7 | 1,901.0 | |||||||||||||||||||||
|
Gross profit
|
828.7 | 32.6 | % | 725.9 | 30.8 | % | 803.4 | 29.7 | % | |||||||||||||||
|
Selling & administrative expense
|
460.9 | 18.1 | % | 431.2 | 18.3 | % | 457.4 | 16.9 | % | |||||||||||||||
|
Operating income
|
367.8 | 14.5 | % | 294.7 | 12.5 | % | 346.0 | 12.8 | % | |||||||||||||||
|
Net income attributable to Hubbell
|
217.2 | 8.5 | % | 180.1 | 7.6 | % | 222.7 | 8.2 | % | |||||||||||||||
|
Earnings per share — diluted
|
$ | 3.59 | $ | 3.15 | $ | 3.93 | ||||||||||||||||||
2010
Compared to 2009
Net
Sales
Net sales for the year ended 2010 were $2.5 billion, an
increase of 8% over the year ended 2009. This increase was due
to the Burndy acquisition, favorable currency translation and
higher organic volume. The Burndy acquisition added
approximately six percentage points to net sales in 2010
compared to 2009 while currency translation and volume increased
net sales by one percentage point each in 2010 compared with
2009.
Gross
Profit
The gross profit margin for 2010 increased to 32.6% compared to
30.8% in 2009. The increase was primarily due to productivity
improvements, including improved factory utilization, and the
favorable impact of the Burndy acquisition partially offset by
unfavorable price realization and higher commodity costs.
18
Table of Contents
Selling &
Administrative Expenses (“S&A”)
S&A expenses increased 7% compared to 2009 primarily due to
the full year impact of the Burndy acquisition partially offset
by savings from streamlining actions. As a percentage of net
sales, S&A expenses were 18.1% in 2010 compared to 18.3% in
2009 as cost increases were in line with volume growth.
Operating
Income
Operating income increased 25% primarily due to higher net sales
and gross profit partially offset by higher selling and
administrative costs. Operating margin of 14.5% in 2010
increased 200 basis points compared to 12.5% in 2009 as a
result of productivity improvements and improved product mix,
including Burndy, partially offset by unfavorable price
realization, higher commodity costs and other inflationary
increases.
Total
Other Expense, net
In 2010, total other expense, net increased by
$14.3 million primarily due to the costs associated with
the early extinguishment of debt and higher net interest expense
partially offset by lower net foreign currency transaction
losses. Costs associated with the debt extinguishment were
$14.7 million in 2010. Interest expense increased by
$0.2 million compared to 2009 due to higher average long
term debt in 2010 compared to 2009 due to the timing of the
completion of debt refinancing in November 2010.
Income
Taxes
The effective tax rate in 2010 was 31.7% compared to 30.7% in
2009. The increased tax rate for 2010 reflects the absence of an
out-of-period
adjustment related to certain deferred tax accounts of
$4.9 million in 2009 partially offset by the favorable
impact of foreign and state income taxes in 2010 when compared
to 2009. Additional information related to our effective tax
rate is included in Note 12 — Income Taxes in the
Notes to the Consolidated Financial Statements.
Net
Income attributable to Hubbell and Earnings Per Diluted
Share
Net income attributable to Hubbell and earnings per diluted
share in 2010 increased 21% and 14%, respectively, compared to
2009 as a result of higher net sales and operating income
partially offset by costs for the early extinguishment of debt
and a higher effective tax rate. The impact of the early
extinguishment of debt charge was $0.15 on earnings per diluted
share. In addition, earnings per diluted share reflects an
increase in average shares outstanding in 2010 compared to 2009
partially due to the full year impact of shares issued in the
fourth quarter of 2009.
Segment
Results
Electrical
Segment
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Net Sales
|
$ | 1,808.2 | $ | 1,650.1 | ||||
|
Operating Income
|
$ | 248.7 | $ | 163.7 | ||||
|
Operating Margin
|
13.8 | % | 9.9 | % | ||||
Net sales in the Electrical segment increased 10% in 2010
compared with 2009. The Burndy acquisition and currency
translation added nine and one percentage points, respectively,
to net sales in 2010 compared to 2009.
Within the segment, electrical systems products net sales
increased 21% in 2010 compared to 2009 due to the Burndy
acquisition, higher volume and favorable currency translation.
Net sales of wiring products, excluding Burndy, increased 10%
while electrical products increased 1% due to higher
construction and industrial net sales partially offset by lower
harsh and hazardous net sales. Net sales of lighting products
decreased 6% in 2010
19
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compared to 2009 due to lower organic volume. Net sales of
Commercial and industrial lighting products decreased 7% while
net sales of residential lighting products were comparable to
2009.
Operating income in 2010 increased 52% compared to 2009
primarily due to incremental operating income associated with
Burndy, productivity improvements including improved factory
utilization and higher volume including a favorable mix of
industrial sales. Operating margin in 2010 increased
390 basis points compared to 2009 primarily due to
productivity improvements, higher industrial mix and the impact
of the Burndy acquisition. Within the segment, both electrical
systems products and lighting products operating income and
operating margin increased during 2010 as compared to 2009.
Power
Segment
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Net Sales
|
$ | 733.0 | $ | 705.5 | ||||
|
Operating Income
|
$ | 119.1 | $ | 131.0 | ||||
|
Operating Margin
|
16.2 | % | 18.6 | % | ||||
Net sales for 2010 increased by 4% compared to 2009. Volume and
foreign currency translation increased net sales by four and one
percentage points, respectively. Lower price realization offset
these increases by approximately one percentage point. The
higher volume was primarily due to demand for distribution
products.
Operating income in 2010 decreased 9% compared to 2009 and
operating margin declined 240 basis points during the same
period. The decline in both operating profit and margin was due
to the unfavorable impact of commodity and inflationary cost
increases, unfavorable product mix and lower price realization
only partially offset by productivity improvements and higher
volume.
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 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.
20
Table of Contents
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 reflected 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 information related to our
effective tax rate is included in Note 12 —
Income Taxes in the Notes to Consolidated Financial Statements.
Net
Income attributable to Hubbell and Earnings Per Diluted
Share
Net income attributable to Hubbell 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 reflected 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.
21
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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 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.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash
Flow
| December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
| (In millions) | ||||||||||||
|
Net cash provided by (used in):
|
||||||||||||
|
Operating activities
|
$ | 266.2 | $ | 397.7 | $ | 319.2 | ||||||
|
Investing activities
|
(54.7 | ) | (373.1 | ) | (306.4 | ) | ||||||
|
Financing activities
|
45.5 | 49.8 | 93.7 | |||||||||
|
Effect of foreign currency exchange rate changes on cash and
cash equivalents
|
5.2 | 5.9 | (5.8 | ) | ||||||||
|
Net change in cash and cash equivalents
|
$ | 262.2 | $ | 80.3 | $ | 100.7 | ||||||
2010
Compared to 2009
Cash provided by operating activities for the year ended 2010
decreased compared to 2009. This decrease was primarily a result
of higher working capital requirements. Working capital used
cash of $38.9 million in 2010 compared to
$126.9 million of cash provided in 2009. The higher level
of working capital in 2010 consists of increases in accounts
receivable and inventory principally due to higher sales,
partially offset by higher levels of current liabilities,
specifically accounts payable. The working capital impact was
partially offset by higher net income and lower contributions to
defined benefit pension plans.
Investing activities used cash of $54.7 million in 2010
compared to cash used of $373.1 million in 2009. The change
was primarily due to the spending on acquisitions in 2009,
slightly offset by higher spending on capital expenditures in
2010 as compared to 2009.
Financing activities provided cash of $45.5 million in 2010
compared to $49.8 million of cash provided in 2009.
Financing activities in 2010 include net proceeds associated
with the November 2010 $300 million debt offering and
exercise of stock options, partially offset by the early
extinguishment of $200 million of long-term debt, share
repurchases and dividends paid. The 2009 financing activities
include the net proceeds associated with the fourth quarter
equity offering, offset by dividends paid.
22
Table of Contents
2009
Compared to 2008
Cash provided by operating activities for the year ended 2009
increased compared to 2008 primarily as 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.
Investments
in the Business
Investments in our business include both normal expenditures
required to maintain the operation of our equipment and
facilities as well as expenditures in support of our strategic
initiatives. In 2010, we used cash of $47.3 million for
capital expenditures, which is more reflective of our historical
level of spending as compared to the $29.4 million invested
in 2009.
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 was added to the electrical systems
business within the Electrical segment. See also
Note 2 — 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 2011, the Board of Directors extended the term of
this program through February 20, 2012. As of
December 31, 2010, approximately $138 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. During 2010, the Company spent
$23.3 million on the repurchase of Class B common
shares. The Company did not repurchase any Class A common
shares in 2010.
Additional information with respect to future investments in the
business can be found under “Outlook” within
Management’s Discussion and Analysis.
23
Table of Contents
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 a useful measure
of our financial leverage for evaluating the Company’s
ability to meet its funding needs.
| December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In millions) | ||||||||
|
Total Debt
|
$ | 597.7 | $ | 497.2 | ||||
|
Total Hubbell Shareholders’ Equity
|
1,459.2 | 1,298.2 | ||||||
|
Total Capital
|
$ | 2,056.9 | $ | 1,795.4 | ||||
|
Debt to Total Capital
|
29 | % | 28 | % | ||||
|
Cash and Investments
|
$ | 559.7 | $ | 286.6 | ||||
|
Net Debt
|
$ | 38.0 | $ | 210.6 | ||||
|
Net Debt to Total Capital
|
2 | % | 12 | % | ||||
The Company’s short-term debt consisted of a
4.0 million Brazilian Real line of credit with HSBC Bank
which is used to fund its Brazilian operations. At
December 31, 2010, 3.0 million Brazilian Real are
outstanding (equivalent to $1.8 million). This line of
credit expires in March 2011 and is not subject to any annual
commitment fees. The Company did not have any short-term debt
outstanding at December 31, 2009.
At December 31, 2010 and 2009, the Company had
$595.9 million and $497.2 million, respectively, of
senior notes reflected as Long-term debt in the Consolidated
Balance Sheet.
In November 2010, the Company completed a public debt offering
for $300 million of long-term, senior, unsecured notes
maturing in November 2022 (the “2022 Notes”) and
bearing interest at a fixed rate of 3.625%. The Company received
$294.8 in proceeds from the offering, net of discounts and debt
issuance costs. The discount and issuance costs were deferred
and are being amortized to interest expense over the term of the
2022 Notes. Interest on the 2022 Notes will be paid
semi-annually in May and November, commencing in May 2011. In
connection with the issuance of the 2022 Notes, the Company
entered into a forward starting swap to hedge its exposure to
fluctuations in treasury rates, which resulted in a loss of
$1.6 million during the fourth quarter of 2010 when the
Company closed out this position. This amount has been recorded,
net of tax, in accumulated other comprehensive loss and will be
amortized to interest expense over the life of the 2022 Notes.
Simultaneous with the November 2010 debt offering, the Company
also announced a cash tender offer for any and all of its
$200 million (6.375%) senior notes that were scheduled to
mature in May 2012 (the “2012 Notes”). Upon expiration
of the tender offer, $81.9 million of the aggregate
outstanding principal amount of the 2012 Notes were validly
tendered and accepted. Subsequent to the expiration of the
tender offer, the Company elected to redeem the remaining
outstanding principal of $118.1 million under the
provisions of the 2012 Notes. The loss on this transaction
(recorded as part of the Loss on extinguishment of debt in the
Consolidated Statement of Income), including the make whole
premium paid, expenses and the write-off of the remaining
deferred issuance costs associated with the 2012 Notes, was
approximately $17.3 million. The net cash proceeds
remaining from the 2022 Note issuance, subsequent to the
tender/redemption of the 2012 Notes, were used for general
corporate purposes.
In conjunction with the early extinguishment of the 2012 Notes,
the Company terminated its interest rate swap associated with
these notes. This interest rate swap was accounted for as a fair
value hedge and was used to convert the stated interest rate of
the 2012 Notes from fixed to floating. At the time of
termination, this interest rate swap was
in-the-money
and resulted in a gain of $2.6 million. This gain was
recorded as part of the Loss on extinguishment of debt in the
Consolidated Statement of Income.
24
Table of Contents
In May 2008, the Company completed a public offering of
$300 million long-term senior, unsecured notes maturing in
May 2018 (the “2018 Notes”). The 2018 Notes bear
interest at a fixed rate of 5.95%. Prior to the issuance of the
2018 Notes, the Company entered into a forward interest rate
lock which resulted in a $1.2 million gain. This amount was
recorded in Accumulated other comprehensive loss, net of tax,
and is being amortized over the life of the notes.
The 2018 Notes and the 2022 Notes are both fixed rate
indebtedness, are callable at any time with a make whole premium
and are only subject to accelerated payment prior to maturity in
the event of a default under the indenture governing the terms
of the 2018 Notes and 2022 Notes, as modified by the
supplemental indentures creating each such series, or upon a
change in control event as defined in such indenture.
In March 2008, the Company exercised its option to expand its
credit facility (“2007 Credit Agreement”) by
$100 million, bringing the total credit facility to
$350 million. The expiration date of the 2007 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, 2010 and 2009. Annual
commitment fee requirements to support availability of the
credit facility were not material. This facility is used as a
backup to our commercial paper program and was undrawn as of
December 31, 2010.
In September 2009, the Company entered into a line of credit
agreement with Credit Suisse for approximately 30 million
Swiss francs (equivalent to $31.6 million) to support the
issuance of letters of credit. The availability of credit under
this facility is dependent upon the maintenance of compensating
balances, which may be withdrawn. There are no annual commitment
fees associated with this credit facility. The Company also
maintains a 2.1 million pound sterling credit facility
(equivalent to $3.2 million) with HSBC Bank in the UK which
is set for renewal on November 30, 2011. There are no
annual commitment fees associated with this credit agreement
which was undrawn as of December 31, 2010.
In addition to the above credit commitments, the Company has an
unsecured line of credit for $35 million with Bank of
America, N.A. to support issuance of its letters of credit.
At December 31, 2010, the Company had approximately
$22.8 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.
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.
25
Table of Contents
The 2008 disruption in the credit markets had a significant
adverse impact on a number of financial institutions. While the
Company’s liquidity was not negatively impacted by this
disruption, management will continue to closely monitor the
Company’s liquidity and the credit markets. Management
cannot predict with any certainty the impact to the Company
should any future disruptions occur 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 dependent 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 2010 and 2009, we recorded $5.4 million and
$7.3 million, respectively, of pension expense related to
the amortization of these unrecognized losses. We expect to
record $8.3 million of expense related to unrecognized
losses and prior service cost in 2011.
The actual return on our pension assets in 2010 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
$24 million in 2010, $27 million in 2009 and
$11 million in 2008 to our qualified 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 $3.5 million to
our foreign plans during 2011. 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 2011. This level of funding
is not expected to have any significant impact on our overall
liquidity.
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 | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Weighted-average assumptions used to determine benefit
obligations at December 31,
|
||||||||||||||||
|
Discount rate
|
5.38 | % | 5.96 | % | 5.40 | % | 6.00 | % | ||||||||
|
Rate of compensation increase
|
3.56 | % | 3.57 | % | 3.50 | % | 3.50 | % | ||||||||
|
Weighted-average assumptions used to determine net periodic
benefit cost for years ended December 31,
|
||||||||||||||||
|
Discount rate
|
5.96 | % | 6.46 | % | 6.00 | % | 6.50 | % | ||||||||
|
Expected return on plan assets
|
7.50 | % | 8.00 | % | N/A | N/A | ||||||||||
|
Rate of compensation increase
|
3.57 | % | 4.07 | % | 3.50 | % | 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
26
Table of Contents
$6.2 million on 2011 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, 2010 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 5.40% which we used to determine
the projected benefit obligation for our U.S. pension plans
at December 31, 2010 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
5.30% and 5.00%, respectively, for our UK and Canadian plans. An
increase of one percentage point in the discount rate would
lower 2011 pretax pension expense by approximately
$6.4 million. A discount rate decline of one percentage
point would increase pretax pension expense by approximately
$8.2 million.
Other
Post Employment Benefits (“OPEB”)
The Company also has a number of health care and life insurance
benefit plans covering eligible employees who reached retirement
age while working for the Company. These benefits have been
discontinued for substantially all future retirees. These plans
are not funded and, therefore, no assumed rate of return on
assets is required. The discount rate of 5.40% used to determine
the projected benefit obligation at December 31, 2010 was
based upon the Citigroup Pension Discount Curve as applied to
our projected annual benefit payments. In 2010 and 2009 in
accordance with the accounting guidance for retirement benefits
we recorded (charges) credits to Accumulated other comprehensive
loss within Hubbell shareholders’ equity, net of tax, of
$2.8 million and $0.5 million, respectively, related
to OPEB.
Off-Balance
Sheet Arrangements
Off-balance sheet arrangements are defined as any transaction,
agreement or other contractual arrangement to which an entity
that is not included in our consolidated results is a party,
under which we, whether or not a party to the arrangement, have,
or in the future may have: (1) an obligation under a direct
or indirect guarantee or similar arrangement, (2) a
retained or contingent interest in assets or (3) an
obligation or liability, including a contingent obligation or
liability, to the extent that it is not fully reflected in the
financial statements.
We do not have any off-balance sheet arrangements as defined
above which have or are likely to have a material effect on our
financial condition, results of operations or cash flows.
27
Table of Contents
Contractual
Obligations
A summary of our contractual obligations and commitments at
December 31, 2010 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
|
$ | 601.8 | $ | 1.8 | $ | — | $ | — | $ | 600.0 | ||||||||||
|
Expected interest payments
|
260.8 | 28.7 | 57.5 | 57.5 | 117.1 | |||||||||||||||
|
Operating lease obligations
|
65.6 | 13.5 | 19.3 | 11.6 | 21.2 | |||||||||||||||
|
Retirement and other benefits
|
437.9 | 34.5 | 75.1 | 83.5 | 244.8 | |||||||||||||||
|
Purchase obligations
|
186.2 | 180.4 | 5.8 | — | — | |||||||||||||||
|
Income tax payments
|
6.3 | 6.3 | — | — | — | |||||||||||||||
|
Obligations under customer incentive programs
|
31.2 | 31.2 | — | — | — | |||||||||||||||
|
Total
|
$ | 1,589.8 | $ | 296.4 | $ | 157.7 | $ | 152.6 | $ | 983.1 | ||||||||||
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. As of December 31,
2010, we have $25.2 million of uncertain tax positions
included in long-term liabilities in our Consolidated Balance
Sheet. We are unable to make a reasonable estimate regarding
settlement of these uncertain tax positions and, as a result,
they have been excluded from the table. See
Note 12 — 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 material
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.
Revenue
Recognition
We recognize revenue in accordance with the revenue recognition
accounting guidance. Revenue is recognized when title to goods
and risk of loss have passed to the customer, there is
persuasive evidence of a purchase arrangement, delivery has
occurred or services are rendered, the price is determinable and
collectability is reasonably assured. Revenue is typically
recognized at the time of shipment. Further, certain of our
businesses account for sales discounts and allowances based on
sales volumes, specific programs and customer deductions, as is
customary in the electrical products industry. These items
primarily relate to sales volume incentives, special pricing
allowances, and returned goods. This requires us to estimate at
the time of sale the amounts that should not be recorded as
revenue as these amounts are not expected to be collected in
cash from customers. We principally rely on historical
experience, specific customer agreements, and anticipated future
trends to estimate these amounts
28
Table of Contents
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. Changes in these estimates may
necessitate future adjustments to inventory reserves.
Customer
Credit and Collections
We maintain allowances for doubtful accounts receivable in order
to reflect the potential uncollectability 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.
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
evaluated each year as of the plans’ measurement date.
Further discussion on the assumptions used in 2010 and 2009 are
included above under “Pension Funding Status” and in
Note 10 — Retirement Benefits in the Notes to
Consolidated Financial Statements.
Taxes
We account for income taxes in accordance with the accounting
guidance for income taxes which requires that deferred tax
assets and liabilities be recognized using enacted tax rates for
the effect of temporary differences between the book and tax
basis of recorded assets and liabilities. Additionally, deferred
tax assets are required to be reduced by a valuation allowance
if it is more likely than not that some portion or all of the
deferred tax asset will not be realized. The factors used to
assess the likelihood of realization of deferred tax assets are
the forecast of future taxable income and available tax planning
strategies that could be implemented to realize the net deferred
tax assets. Failure to achieve forecasted taxable income can
affect the ultimate realization of net deferred tax assets.
We operate within multiple taxing jurisdictions and are subject
to audit in these jurisdictions. The Internal Revenue Service
(“IRS”) and other tax authorities routinely review our
tax returns. These audits can involve complex issues, which may
require an extended period of time to resolve. 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 the accounting guidance to determine whether an
item meets the definition of more-likely-than-not. The
Company’s policy is to recognize these uncertain tax
positions when the more-likely-than-not threshold is met, when
the statute of limitations has expired or upon settlement. In
management’s opinion, adequate provision has been made for
potential adjustments arising from any examinations. See also
Note 12 — Income Taxes in the Notes to
Consolidated Financial Statements.
29
Table of Contents
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 whenever
events or changes in circumstances indicate that the carrying
amount may not be fully recoverable. If such a change in
circumstances occurs, the related estimated future undiscounted
cash flows expected to result from the use of the asset and its
eventual disposition is compared to the carrying amount. If the
sum of the expected cash flows is less than the carrying amount,
we record an impairment charge. The impairment charge is
measured as the amount by which the carrying amount exceeds the
fair value of the asset. The fair value of impaired assets is
determined using expected cash flow estimates, quoted market
prices when available and appraisals as appropriate. We did not
record any material impairment charges related to long-lived
assets in 2010, 2009 and 2008.
Goodwill and indefinite-lived intangible assets are reviewed
annually for impairment unless circumstances dictate the need
for more frequent assessment. We perform our goodwill impairment
testing as of April 1st of each year. The goodwill
impairment testing requires judgment, including the
identification of reporting units, assigning assets and
liabilities to reporting units, and determining the fair value
of each reporting unit. Significant judgments required to
estimate the fair value of reporting units include estimating
future cash flows, determining appropriate discount rates and
other assumptions. We use internal discounted cash flow
estimates to determine fair value. These cash flow estimates are
derived from historical experience and future long-term business
plans and the application of an appropriate discount rate.
Changes in these estimates and assumptions could materially
affect the determination of fair value
and/or
goodwill impairment for each reporting unit. We have not
recorded any goodwill impairments since the initial adoption of
the accounting guidance in 2002.
The identification and measurement of impairment of
indefinite-lived intangible assets involves testing that
compares carrying values of assets to the estimated fair values
of assets. These estimated fair values are determined using
undiscounted cash flow estimates. If the carrying value of the
indefinite-lived intangible exceeds the fair value, the carrying
value will be reduced to the estimated fair value. We did not
record any impairments related to indefinite-lived intangible
assets in 2010, 2009 and 2008.
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
30
Table of Contents
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. | |
| • | Political unrest in foreign countries. | |
| • | 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, 2010. |
31
Table of Contents
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, China, Italy, UK, Brazil and Australia and
sell products in those markets as well as through sales offices
in Singapore, China, Mexico, South Korea and countries in the
Middle East. Hubbell also participates in joint ventures in
Taiwan and China. Shipments from
non-U.S. subsidiaries
as a percentage of the Company’s total net sales were 17%
in 2010 and 16% in both 2009 and 2008. The Canada operations
represent 29%, UK 20%, Switzerland 18%, and all other countries
33% of total 2010 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 14 — Fair Value Measurement in
the Notes to Consolidated Financial Statements.
Product purchases representing approximately 15% of our net
sales are sourced from unaffiliated suppliers located outside
the United States, primarily in 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.
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.
32
Table of Contents
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, 2010 (dollars in millions):
|
Fair Value
|
||||||||||||||||||||||||||||||||
| 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | 12/31/10 | |||||||||||||||||||||||||
|
Assets
|
||||||||||||||||||||||||||||||||
|
Available-for-sale
investments
|
$ | 8.8 | $ | 3.0 | $ | 2.9 | $ | 7.9 | $ | 3.8 | $ | 9.3 | $ | 35.7 | $ | 36.4 | ||||||||||||||||
|
Avg. interest rate
|
3.67 | % | 5.00 | % | 4.58 | % | 5.03 | % | 5.00 | % | 4.98 | % | — | |||||||||||||||||||
|
Liabilities
|
||||||||||||||||||||||||||||||||
|
Long-term debt
|
$ | — | $ | — | $ | — | $ | — | $ | — | $ | 595.9 | $ | 595.9 | $ | 619.7 | ||||||||||||||||
|
Avg. interest rate
|
— | — | — | — | — | 4.79 | % | 4.79 | % | |||||||||||||||||||||||
|
Short-term debt
|
$ | 1.8 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1.8 | $ | 1.8 | ||||||||||||||||
|
Avg. interest rate
|
14.12 | % | — | — | — | — | — | 14.12 | % | |||||||||||||||||||||||
All of the assets and liabilities above are fixed rate
instruments except for the short-term debt. The short-term debt
consists of a revolving credit facility with HSBC Bank which is
used to fund our Brazilian operations. Interest rates for this
facility are calculated using the Brazilian Interbank overnight
money rate plus twenty five basis points.
We use derivative financial instruments only if they are matched
with a specific asset, liability, or proposed future
transaction. We do not speculate or use leverage when trading a
financial derivative product. See also Note 6 —
Investments and Note 11 — 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
|
||||
| 2010, Page: | ||||
| 35 | ||||
|
Consolidated Financial Statements
|
||||
| 36 | ||||
| 37 | ||||
| 38 | ||||
| 39 | ||||
| 40 | ||||
| 41 | ||||
|
Financial Statement Schedule
|
||||
| 85 | ||||
All other schedules are omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
34
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. Our internal control
over financial reporting is 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, 2010. In making this assessment, management
used the criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this
assessment, management concluded that our internal control over
financial reporting was effective at a reasonable assurance
level as of December 31, 2010.
The effectiveness of our internal control over financial
reporting as of December 31, 2010 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, 2010
and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2010 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, 2010, based on criteria
established in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company’s management is
responsible for these financial statements and financial
statement schedule, for maintaining effective internal control
over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management’s Annual Report on
Internal Control over Financial Reporting. Our responsibility is
to express opinions on these financial statements, on the
financial statement schedule, and on the Company’s internal
control over financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Stamford, Connecticut
February 16, 2011
36
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
| Year Ended December 31, | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
(In millions, except
|
||||||||||||
| per share amounts) | ||||||||||||
|
Net sales
|
$ | 2,541.2 | $ | 2,355.6 | $ | 2,704.4 | ||||||
|
Cost of goods sold
|
1,712.5 | 1,629.7 | 1,901.0 | |||||||||
|
Gross profit
|
828.7 | 725.9 | 803.4 | |||||||||
|
Selling & administrative expenses
|
460.9 | 431.2 | 457.4 | |||||||||
|
Operating income
|
367.8 | 294.7 | 346.0 | |||||||||
|
Investment income
|
0.1 | 0.3 | 2.8 | |||||||||
|
Loss on extinguishment of debt
|
(14.7 | ) | — | — | ||||||||
|
Interest expense
|
(31.1 | ) | (30.9 | ) | (27.4 | ) | ||||||
|
Other expense, net
|
(1.7 | ) | (2.5 | ) | (3.0 | ) | ||||||
|
Total other expense
|
(47.4 | ) | (33.1 | ) | (27.6 | ) | ||||||
|
Income before income taxes
|
320.4 | 261.6 | 318.4 | |||||||||
|
Provision for income taxes
|
101.6 | 80.3 | 95.2 | |||||||||
|
Net income
|
218.8 | 181.3 | 223.2 | |||||||||
|
Less: Net income attributable to noncontrolling interest
|
1.6 | 1.2 | 0.5 | |||||||||
|
Net income attributable to Hubbell
|
$ | 217.2 | $ | 180.1 | $ | 222.7 | ||||||
|
Earnings per share
|
||||||||||||
|
Basic
|
$ | 3.61 | $ | 3.16 | $ | 3.96 | ||||||
|
Diluted
|
$ | 3.59 | $ | 3.15 | $ | 3.93 | ||||||
See notes to consolidated financial statements.
37
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
| At December 31, | ||||||||
| 2010 | 2009 | |||||||
| (In millions, except share amounts) | ||||||||
|
ASSETS
|
||||||||
|
Current Assets
|
||||||||
|
Cash and cash equivalents
|
$ | 520.7 | $ | 258.5 | ||||
|
Short-term investments
|
8.8 | 2.6 | ||||||
|
Accounts receivable, net
|
341.8 | 310.1 | ||||||
|
Inventories, net
|
298.4 | 263.5 | ||||||
|
Deferred taxes and other
|
56.4 | 76.6 | ||||||
|
Total Current Assets
|
1,226.1 | 911.3 | ||||||
|
Property, Plant, and Equipment, net
|
358.3 | 368.8 | ||||||
|
Other Assets
|
||||||||
|
Investments
|
30.2 | 25.5 | ||||||
|
Goodwill
|
724.0 | 724.2 | ||||||
|
Intangible assets and other
|
367.2 | 373.0 | ||||||
|
Total Assets
|
$ | 2,705.8 | $ | 2,402.8 | ||||
| LIABILITIES AND EQUITY | ||||||||
|
Current Liabilities
|
||||||||
|
Short-term debt
|
$ | 1.8 | $ | — | ||||
|
Accounts payable
|
160.8 | 130.8 | ||||||
|
Accrued salaries, wages and employee benefits
|
70.4 | 62.8 | ||||||
|
Accrued insurance
|
48.5 | 49.3 | ||||||
|
Dividends payable
|
21.9 | 20.9 | ||||||
|
Other accrued liabilities
|
141.6 | 154.7 | ||||||
|
Total Current Liabilities
|
445.0 | 418.5 | ||||||
|
Long-term Debt
|
595.9 | 497.2 | ||||||
|
Other Non-Current Liabilities
|
201.4 | 185.1 | ||||||
|
Total Liabilities
|
1,242.3 | 1,100.8 | ||||||
|
Commitments and Contingencies (see Note 15)
|
||||||||
|
Hubbell Shareholders’ Equity
|
||||||||
|
Common stock, par value $.01
|
||||||||
|
Class A — Authorized 50,000,000 shares,
outstanding 7,167,506 and
|
||||||||
|
7,167,506 shares
|
0.1 | 0.1 | ||||||
|
Class B — Authorized 150,000,000 shares,
outstanding 53,529,136 and
|
||||||||
|
52,493,487 shares
|
0.5 | 0.5 | ||||||
|
Additional paid-in capital
|
201.3 | 158.4 | ||||||
|
Retained earnings
|
1,338.6 | 1,208.0 | ||||||
|
Accumulated other comprehensive loss
|
(81.3 | ) | (68.8 | ) | ||||
|
Total Hubbell Shareholders’ Equity
|
1,459.2 | 1,298.2 | ||||||
|
Noncontrolling interest
|
4.3 | 3.8 | ||||||
|
Total Equity
|
1,463.5 | 1,302.0 | ||||||
|
Total Liabilities and Equity
|
$ | 2,705.8 | $ | 2,402.8 | ||||
See notes to consolidated financial statements.
38
Table of Contents
| Year Ended December 31, | ||||||||||||
|
|
2010 | 2009 | 2008 | |||||||||
| (In millions) | ||||||||||||
|
Cash Flows from Operating Activities
|
||||||||||||
|
Net income
|
$ | 218.8 | $ | 181.3 | $ | 223.2 | ||||||
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
||||||||||||
|
Depreciation and amortization
|
72.5 | 70.6 | 63.1 | |||||||||
|
Deferred income taxes
|
25.0 | 32.3 | 0.7 | |||||||||
|
Stock-based compensation
|
11.4 | 10.3 | 12.5 | |||||||||
|
Tax benefit on stock-based awards
|
(9.7 | ) | (1.3 | ) | (0.8 | ) | ||||||
|
Gain on sale of assets
|
1.3 | 0.5 | 0.6 | |||||||||
|
Changes in assets and liabilities:
|
||||||||||||
|
(Increase) decrease in accounts receivable
|
(26.1 | ) | 85.5 | (3.7 | ) | |||||||
|
(Increase) decrease in inventories
|
(32.6 | ) | 98.7 | 6.9 | ||||||||
|
Increase (decrease) in current liabilities
|
19.8 | (57.3 | ) | 18.9 | ||||||||
|
Changes in other assets and liabilities, net
|
9.7 | 9.7 | 7.4 | |||||||||
|
Contributions to defined benefit pension plans
|
(23.7 | ) | (27.4 | ) | (11.2 | ) | ||||||
|
Other, net
|
(0.2 | ) | (5.2 | ) | 1.6 | |||||||
|
Net cash provided by operating activities
|
266.2 | 397.7 | 319.2 | |||||||||
|
Cash Flows from Investing Activities
|
||||||||||||
|
Capital expenditures
|
(47.3 | ) | (29.4 | ) | (49.4 | ) | ||||||
|
Acquisitions, net of cash acquired
|
— | (355.8 | ) | (267.4 | ) | |||||||
|
Purchases of
available-for-sale
investments
|
(25.4 | ) | (5.2 | ) | (16.6 | ) | ||||||
|
Proceeds from
available-for-sale
investments
|
14.9 | 14.7 | 20.5 | |||||||||
|
Proceeds from disposition of assets
|
1.9 | 0.6 | 1.0 | |||||||||
|
Other, net
|
1.2 | 2.0 | 5.5 | |||||||||
|
Net cash used in investing activities
|
(54.7 | ) | (373.1 | ) | (306.4 | ) | ||||||
|
Cash Flows from Financing Activities
|
||||||||||||
|
Proceeds from stock issuance, net
|
— | 122.0 | — | |||||||||
|
Commercial paper repayments
|
— | — | (36.7 | ) | ||||||||
|
Issuance of short-term debt
|
3.4 | — | — | |||||||||
|
Payment of short-term debt
|
(1.7 | ) | — | — | ||||||||
|
Issuance of long-term debt, net
|
297.5 | — | 297.7 | |||||||||
|
Payment of long-term debt
|
(200.0 | ) | — | — | ||||||||
|
Debt issuance costs
|
(2.7 | ) | — | (2.7 | ) | |||||||
|
Payment of dividends
|
(85.6 | ) | (78.9 | ) | (76.9 | ) | ||||||
|
Payment of dividends to noncontrolling interest
|
(1.1 | ) | (0.4 | ) | — | |||||||
|
Proceeds from exercise of stock options
|
49.3 | 5.7 | 8.1 | |||||||||
|
Tax benefit on stock-based awards
|
9.7 | 1.3 | 0.8 | |||||||||
|
Acquisition of common shares
|
(23.3 | ) | — | (96.6 | ) | |||||||
|
Other, net
|
— | 0.1 | — | |||||||||
|
Net cash provided by financing activities
|
45.5 | 49.8 | 93.7 | |||||||||
|
Effect of foreign currency exchange rate changes on cash and
cash equivalents
|
5.2 | 5.9 | (5.8 | ) | ||||||||
|
Increase in cash and cash equivalents
|
262.2 | 80.3 | 100.7 | |||||||||
|
Cash and cash equivalents
|
||||||||||||
|
Beginning of year
|
258.5 | 178.2 | 77.5 | |||||||||
|
End of year
|
$ | 520.7 | $ | 258.5 | $ | 178.2 | ||||||
See notes to consolidated financial statements.
39
Table of Contents
|
For the Three Years Ended December 31, 2010, 2009 and
2008
|
||||||||||||||||||||||||||||
| (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, 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, net of tax of $1.2
|
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 of $0.1
|
0.3 | 0.3 | ||||||||||||||||||||||||||
|
Unrealized loss on cash flow hedge, net of tax of $1.0
|
(1.9 | ) | (1.9 | ) | ||||||||||||||||||||||||
|
Total comprehensive income
|
228.1 | |||||||||||||||||||||||||||
|
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 | |||||||||||||
|
Net income
|
217.2 | 217.2 | 1.6 | |||||||||||||||||||||||||
|
Adjustment to pension and other benefit plans, net of tax of $9.7
|
(23.9 | ) | (23.9 | ) | ||||||||||||||||||||||||
|
Translation adjustments
|
11.9 | 11.9 | ||||||||||||||||||||||||||
|
Unrealized loss on cash flow hedge, net of tax of $0.4
|
(0.5 | ) | (0.5 | ) | ||||||||||||||||||||||||
|
Total comprehensive income
|
204.7 | |||||||||||||||||||||||||||
|
Stock-based compensation
|
11.4 | 11.4 | ||||||||||||||||||||||||||
|
Exercise of stock options
|
49.3 | 49.3 | ||||||||||||||||||||||||||
|
Income tax windfall from stock-based awards, net
|
9.4 | 9.4 | ||||||||||||||||||||||||||
|
Acquisition/surrender of common shares
|
(27.2 | ) | (27.2 | ) | ||||||||||||||||||||||||
|
Cash dividends declared ($1.44 per share)
|
(86.6 | ) | (86.6 | ) | ||||||||||||||||||||||||
|
Dividends to noncontrolling interest
|
(1.1 | ) | ||||||||||||||||||||||||||
|
Balance at December 31, 2010
|
$ | 0.1 | $ | 0.5 | $ | 201.3 | $ | 1,338.6 | $ | (81.3 | ) | $ | 1,459.2 | $ | 4.3 | |||||||||||||
See notes to consolidated financial statements.
40
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
| 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”).
Reclassification
Certain reclassifications have been made in prior year financial
statements and notes to conform to the current year
presentation. In addition, certain changes to prior year balance
sheet amounts have been made in accordance with the business
combinations accounting guidance to reflect adjustments made
during the measurement period to provisional amounts recorded
for deferred tax assets acquired related to the October 2009
Burndy acquisition. See Note 2 — Business
Acquisitions.
Revision
to Financial Statement Presentation
During the third quarter of 2010, we determined that the
December 31, 2009 deferred tax assets and deferred tax
liabilities related to the Burndy acquisition were
misclassified, primarily as a result of improperly applying the
jurisdictional netting rules of the income taxes accounting
guidance. The Company has assessed the materiality of this
correction in accordance with the SEC Staff Accounting Bulletin
(“SAB”) No. 99 “Materiality” and has
concluded that the previously issued financial statements are
not materially misstated. In accordance with the SEC’s
SAB No. 108 “Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements”, the Company has corrected the
immaterial misstatement by revising the prior period balance
sheet by decreasing current deferred tax assets (reflected in
Deferred taxes and other) by $17.1 million, decreasing
non-current deferred tax assets (reflected in Intangible assets
and other) by $44.6 million and by decreasing its
non-current deferred tax liability (reflected in Other
Non-current liabilities) by $61.7 million. This revision
did not impact the statement of income or the statement of cash
flows for any period.
Principles
of Consolidation
The Consolidated Financial Statements include all subsidiaries;
all significant intercompany balances and transactions have been
eliminated. The Company participates in two joint ventures, one
of which is accounted for using the equity method, the other has
been consolidated in accordance with the consolidation
accounting guidance. Effective January 2010, an amendment to the
accounting guidance replaced the quantitative-based risks and
rewards calculation for determining which reporting entity, if
any, has a controlling financial interest in a variable interest
entity (“VIE”) with a primarily qualitative analysis.
The qualitative analysis is based on identifying the party that
has both the power to direct the activities that most
significantly impact the VIE’s economic performance (the
“power criterion”) and the obligation to absorb losses
from or the right to receive benefits of the VIE that could
potentially be significant to the VIE (the “losses/benefit
criterion”). The party that meets both these criteria is
deemed to have a controlling financial interest. The party with
the controlling financial interest is considered to be the
primary beneficiary and as a result is required to consolidate
the VIE. The Company has a 50% interest in a joint venture in
Hong Kong, established as Hubbell Asia Limited
(“HAL”). The principal objective of HAL is to manage
the operations of its wholly-owned manufacturing company in
China. Under the new accounting guidance, the Company continues
to be the primary beneficiary of HAL and as a result continues
to consolidate HAL. This determination is based on the fact that
HAL’s sole business purpose is to manufacture product
exclusively for the Company (the power criterion) and the
Company is financially responsible for ensuring HAL maintains a
fixed operating margin (the losses/benefit criterion). The
consolidation of HAL is not material to the Company’s
consolidated financial statements.
41
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Use of
Estimates
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that
affect the reported amounts in the Consolidated Financial
Statements and accompanying Notes to Consolidated Financial
Statements. Actual results could differ from the estimates that
are used.
Revenue
Recognition
Revenue is recognized when title to the goods sold and the risk
of loss have passed to the customer, there is persuasive
evidence of a purchase arrangement, delivery has occurred or
services are rendered, the price is determinable and
collectibility is reasonably assured. Revenue is typically
recognized at the time of shipment as the Company’s
shipping terms are generally FOB shipping point. The Company
recognizes less than one percent of total annual consolidated
net revenue from post shipment obligations and service
contracts, primarily within the Electrical segment. Revenue is
recognized under these contracts when the service is completed
and all conditions of sale have been met. In addition, within
the Electrical segment, certain businesses sell large and
complex equipment which requires construction and assembly and
has long lead times. It is customary in these businesses to
require a portion of the selling price to be paid in advance of
construction. These payments are treated as deferred revenue and
are classified in Other accrued liabilities in the Consolidated
Balance Sheet. Once the equipment is shipped to the customer and
meets the revenue recognition criteria, the deferred revenue is
recognized in the Consolidated Statement of Income.
Further, certain of our businesses account for sales discounts
and allowances based on sales volumes, specific programs and
customer deductions, as is customary in the electrical products
industry. These items primarily relate to sales volume
incentives, special pricing allowances, and returned goods.
Sales volume incentives represent rebates with specific sales
volume targets for specific customers. Certain distributors
qualify for price rebates by subsequently reselling the
Company’s products into select channels of end users.
Following a distributor’s sale 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. Customer returns
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.
42
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Investments
The Company defines short-term investments as securities with
original maturities of greater than three months but less than
one year; all other investments are classified as long-term.
Investments in debt and equity securities are classified by
individual security as 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.
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.
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 the internal-use software accounting guidance.
Capitalized costs include purchased materials and services and
payroll and payroll-related costs. General and administrative,
overhead, maintenance and training costs, as well as the cost of
software that does not add functionality to existing systems,
are expensed as incurred. The cost of internal use software is
amortized on a straight-line basis over appropriate periods,
generally five years. The unamortized balance of internal use
software is included in Intangible assets and other in the
Consolidated Balance Sheet.
Capitalized computer software costs, net of amortization, were
$9.6 million and $12.5 million at December 31,
2010 and 2009, respectively. The Company recorded amortization
expense of $8.1 million, $10.9 million and
$10.7 million in 2010, 2009 and 2008, respectively,
relating to capitalized computer software.
43
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Goodwill
and Other Intangible Assets
Goodwill represents costs in excess of fair values assigned to
the underlying net assets of acquired companies.
Indefinite-lived intangible assets and goodwill are subject to
annual impairment testing using the specific guidance and
criteria described in the accounting guidance. The Company
performs its goodwill impairment testing as of
April 1st of each year, unless circumstances dictate
the need for more frequent assessments. Goodwill impairment
testing involves a two-step process. Step 1 compares the fair
value of the Company’s reporting units to their carrying
values. If the fair value of the reporting unit exceeds its
carrying value, no further analysis is necessary. If the
carrying value of the reporting unit exceeds its fair value,
Step 2 must be completed to quantify the amount of impairment.
Goodwill impairment testing requires judgment, including the
identification of reporting units, assigning assets 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. The
aggregate fair value of the Company’s reporting units is
compared to the Company’s market capitalization on the
valuation date to assess its reasonableness. Changes in these
estimates and assumptions could materially affect the
determination of fair value
and/or
goodwill impairment for each reporting unit.
As of April 1, 2010, the impairment testing resulted in
implied fair values for each reporting unit that exceeded the
reporting unit’s carrying value, including goodwill. The
Company did not have any reporting units at risk of failing Step
1 of the impairment test as the excess of the estimated fair
value over carrying value (expressed as a percentage of carrying
value) ranged from approximately 50% to approximately 200% for
the respective reporting units. The Company has not recorded any
goodwill impairments since the initial adoption of the
accounting guidance in 2002. Additionally, the Company also
performed its annual impairment testing of indefinite-lived
intangible assets which resulted in no impairment in 2010, 2009
and 2008. Intangible assets with definite lives are being
amortized over periods generally ranging from 5-30 years.
Other
Long-Lived Assets
The Company reviews depreciable long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be fully recoverable. If such a change
in circumstances occurs, the related estimated future
undiscounted cash flows expected to result from the use of the
asset and its eventual disposition is compared to the carrying
amount. If the sum of the expected cash flows is less than the
carrying amount, we record an impairment charge. The impairment
charge is measured as the amount by which the carrying amount
exceeds the fair value of the asset. The fair value of impaired
assets is determined using expected cash flow estimates, quoted
market prices when available and appraisals as appropriate. The
Company did not record any material impairment charges in 2010,
2009 and 2008.
Income
Taxes
The Company operates within multiple taxing jurisdictions and is
subject to audit in these jurisdictions. The IRS and other tax
authorities routinely review the Company’s tax returns.
These audits can involve complex issues which may require an
extended period of time to resolve. The Company makes adequate
provisions for best estimates of exposures on previously filed
tax returns. Deferred income taxes are recognized for the tax
consequence of differences between financial statement carrying
amounts and the tax basis of assets and liabilities by applying
the currently enacted statutory tax rates in accordance with the
accounting guidance for incomes taxes. The effect of a change in
statutory tax rates is recognized in the period that includes
the enactment date. Additionally, deferred tax assets are
required to be reduced by a valuation allowance if it is
more-likely-than-not that some portion or all of the deferred
tax asset will not be realized. The Company uses factors to
assess the
44
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
likelihood of realization of deferred tax assets such as the
forecast of future taxable income and available tax planning
strategies that could be implemented to realize the deferred tax
assets.
In addition, the accounting guidance prescribes a recognition
threshold and measurement attribute for the financial statement
recognition and measurement of the tax position taken or
expected to be taken in a tax return. For any amount of benefit
to be recognized, it must be determined that it is
more-likely-than-not that a tax position will be sustained upon
examination by taxing authorities based on the technical merits
of the position. The amount of benefit to be recognized is based
on the Company’s assertion of the most likely outcome
resulting from an examination, including resolution of any
related appeals or litigation processes. Companies are required
to adjust their financial statements to reflect only those tax
positions that are more-likely-than-not to be sustained. See
also Note 12 — Income Taxes.
Research
and Development
Research and development 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 and development expenses are recorded as a
component of Cost of goods sold. Expenses for research and
development were less than 1% of Cost of goods sold for each of
the years 2010, 2009 and 2008.
Retirement
Benefits
The Company maintains various defined benefit pension plans for
some of its U.S. and foreign employees. The accounting
guidance for retirement benefits requires the Company to
recognize the funded status of its defined benefit pension and
postretirement plans as an asset or liability in the
Consolidated Balance Sheet. Gains or losses, prior service costs
or credits, and transition assets or obligations that have not
yet been included in net periodic benefit cost as of the end of
the year are recognized as components of Accumulated other
comprehensive loss, net of tax, within Hubbell
shareholders’ equity. The Company’s policy is to fund
pension costs within the ranges prescribed by applicable
regulations. In addition to providing defined benefit pension
benefits, the Company provides health care and life insurance
benefits for some of its active and retired employees. The
Company’s policy is to fund these benefits through
insurance premiums or as actual expenditures are made. See also
Note 10 — Retirement Benefits.
Earnings
Per Share
The earnings per share accounting guidance requires use of the
two-class method in determining earnings per share. The
two-class method is an earnings allocation formula that
determines earnings per share for common stock and participating
securities. Restricted stock granted by the Company is
considered a participating security since it contains a
non-forfeitable right to dividends. Basic earnings per share is
calculated as net income available to common shareholders
divided by the weighted average number of shares of common stock
outstanding. Earnings per diluted share is calculated as net
income available to common 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 18 — Earnings
Per Share.
Stock-Based
Employee Compensation
The Company measures stock-based employee compensation in
accordance with the accounting guidance for stock based
compensation. This standard requires expensing the value of all
share-based payments, including stock options and similar
awards, based upon the award’s fair value over the
requisite service period. The expense is recorded in Cost of
goods sold and S&A expense in the Consolidated Statement of
Income based on the employees’ respective functions.
The Company records deferred tax assets for awards that will
result in deductions on its tax returns, based upon the amount
of compensation cost recognized and the statutory tax rate in
the jurisdiction in which it will receive a deduction.
Differences between the deferred tax assets recognized for
financial reporting purposes and the actual
45
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
tax deduction reporting in the Company’s tax return are
recorded to Additional paid-in capital to the extent that
previously recognized credits to paid-in capital are still
available. See also Note 17 — 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 19 —
Accumulated Other Comprehensive Loss.
Derivatives
In order 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. The Company
does not speculate or use leverage when trading a derivative
product. Market value gains or losses on the derivative
financial instrument are recognized in income when the effects
of the related price changes of the underlying asset or
liability are recognized in income. See Note 14 —
Fair Value Measurement for more information regarding our
derivative instruments.
Recent
Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board
(“FASB”) issued new guidance that both expanded and
clarified the disclosure requirements related to fair value
measurements. Entities are required to disclose separately the
amounts of significant transfers in and out of Level 1 and
Level 2 of the fair value valuation hierarchy and describe
the reasons for the transfers. Additionally, entities are
required to disclose and roll forward Level 3 activity on a
gross basis rather than as one net number. The new guidance also
clarified that entities are required to provide fair value
measurement disclosures for each class of assets and
liabilities. In addition, entities are required to provide
disclosures about the valuation techniques and inputs used to
measure fair value of assets and liabilities that fall within
Level 2 or Level 3 of the fair value valuation
hierarchy. The new disclosures were adopted by the Company on
January 1, 2010, except for the Level 3 roll forward
disclosures. The Level 3 roll forward disclosures are
effective for fiscal years beginning after December 15,
2010 and, as a result, will be adopted by the Company on
January 1, 2011. See Note 14 — Fair Value
Measurement.
In July 2010 the FASB issued new accounting guidance to improve
the disclosures that an entity provides about the credit quality
of its financing receivables and the related allowance for
credit losses. Accounts receivable with terms exceeding one year
are considered finance receivables subject to the provisions of
this standard. The Company’s trade receivables, which arose
from the sale of goods or services, have a contractual maturity
of one year or less and therefore are not subject to the
provisions of this standard. The Company does not have any
significant receivables with a term exceeding one year and as a
result, the standard does not have a material impact on the
Company.
| Note 2 — | Business Acquisitions |
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 approximately 25%
of its sales in Canada, Mexico and Brazil). The Burndy
acquisition was added to the electrical systems business within
the Electrical segment.
During the measurement period, which ended October 1, 2010,
the Company finalized the tax attributes related to the Burndy
acquisition and as a result recorded an additional deferred tax
asset of $19.5 million with a corresponding reduction in
goodwill. The balance sheet at December 31, 2009 has been
retrospectively adjusted to reflect this adjustment as required
by the business combinations accounting guidance. The following
table
46
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
summarizes the final fair values of the assets acquired and the
liabilities assumed related to the Burndy acquisition (in
millions):
|
Initial
|
2010 Fair Value
|
Final
|
||||||||||
| Valuation | Adjustment | Valuation | ||||||||||
|
Purchase Price Allocation:
|
||||||||||||
|
Accounts receivable
|
$ | 32.5 | $ | — | $ | 32.5 | ||||||
|
Inventory
|
23.4 | — | 23.4 | |||||||||
|
Deferred tax assets
|
91.2 | 19.5 | 110.7 | |||||||||
|
Property, plant and equipment
|
40.7 | — | 40.7 | |||||||||
|
Other assets
|
11.1 | — | 11.1 | |||||||||
|
Intangible assets
|
134.4 | — | 134.4 | |||||||||
|
Goodwill
|
137.4 | (19.5 | ) | 117.9 | ||||||||
|
Deferred tax liabilities
|
(52.9 | ) | — | (52.9 | ) | |||||||
|
Liabilities related to contingencies
|
(11.8 | ) | — | (11.8 | ) | |||||||
|
Other liabilities
|
(50.8 | ) | — | (50.8 | ) | |||||||
|
Total Purchase price
|
$ | 355.2 | $ | — | $ | 355.2 | ||||||
| Note 3 — | Receivables and Allowances |
Receivables consist of the following components at
December 31, (in millions):
| 2010 | 2009 | |||||||
|
Trade accounts receivable
|
$ | 351.7 | $ | 325.5 | ||||
|
Non-trade receivables
|
14.5 | 10.5 | ||||||
|
Accounts receivable, gross
|
366.2 | 336.0 | ||||||
|
Allowance for credit memos, returns, and cash discounts
|
(20.8 | ) | (20.8 | ) | ||||
|
Allowance for doubtful accounts
|
(3.6 | ) | (5.1 | ) | ||||
|
Total allowances
|
(24.4 | ) | (25.9 | ) | ||||
|
Accounts receivable, net
|
$ | 341.8 | $ | 310.1 | ||||
| Note 4 — | Inventories |
Inventories are classified as follows at December 31, (in
millions):
| 2010 | 2009 | |||||||
|
Raw material
|
$ | 106.0 | $ | 88.0 | ||||
|
Work-in-process
|
62.4 | 62.0 | ||||||
|
Finished goods
|
206.4 | 185.2 | ||||||
| 374.8 | 335.2 | |||||||
|
Excess of FIFO over LIFO cost basis
|
(76.4 | ) | (71.7 | ) | ||||
|
Total
|
$ | 298.4 | $ | 263.5 | ||||
In 2009, inventory quantities were significantly reduced. This
reduction resulted in a liquidation of LIFO inventory quantities
carried at lower costs prevailing in prior years as compared
with the cost of 2009 purchases, the effect of which decreased
cost of goods sold by approximately $11.8 million (an
earnings per diluted share impact
47
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of approximately $0.13) for the year ended December 31,
2009. The Company did not record any significant LIFO
liquidations in 2010.
| Note 5 — | Goodwill and Other Intangible Assets |
Changes in the carrying amounts of goodwill for the years ended
December 31, 2010 and 2009, by segment, were as follows (in
millions):
| Segment | ||||||||||||
| Electrical | Power | Total | ||||||||||
|
Balance December 31, 2008
|
$ | 324.1 | $ | 260.5 | $ | 584.6 | ||||||
|
Acquisitions
|
112.6 | 14.2 | 126.8 | |||||||||
|
Translation adjustments
|
9.0 | 3.8 | 12.8 | |||||||||
|
Balance December 31, 2009
|
$ | 445.7 | $ | 278.5 | $ | 724.2 | ||||||
|
Adjustments
|
1.0 | (3.2 | ) | (2.2 | ) | |||||||
|
Translation adjustments
|
1.5 | 0.5 | 2.0 | |||||||||
|
Balance December 31, 2010
|
$ | 448.2 | $ | 275.8 | $ | 724.0 | ||||||
The October 2009 Burndy acquisition resulted in goodwill of
$117.9 million, which is not deductible for tax purposes.
During 2010, goodwill related to this acquisition decreased
$19.5 million for measurement period adjustments related to
the finalization of Burndy’s deferred tax attributes. In
the table above, these retrospective adjustments are reflected
in the Electrical segment goodwill balance at December 31,
2009, in accordance with the accounting guidance for business
combinations. See also Note 2 — Business
Acquisitions.
Additionally, upon finalization of the Company’s 2009
federal income tax return, adjustments were recorded related to
the 2008 acquisition of the Varon Lighting Group, LLC and CDR
Systems Corp. These adjustments, recorded in the Electrical and
Power segments, were $1.0 million and ($3.2) million,
respectively.
The Company has not recorded any goodwill impairments since the
initial adoption of the accounting guidance in 2002.
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,
|
|||||||||||||||
| 2010 | 2009 | |||||||||||||||
|
Accumulated
|
Accumulated
|
|||||||||||||||
| Gross Amount | Amortization | Gross Amount | Amortization | |||||||||||||
|
Definite-lived:
|
||||||||||||||||
|
Patents, tradenames and trademarks
|
$ | 83.6 | $ | (15.2 | ) | $ | 83.0 | $ | (11.0 | ) | ||||||
|
Customer/Agent relationships and other
|
183.1 | (34.6 | ) | 181.3 | (22.0 | ) | ||||||||||
|
Total
|
266.7 | (49.8 | ) | 264.3 | (33.0 | ) | ||||||||||
|
Indefinite-lived:
|
||||||||||||||||
|
Tradenames and other
|
56.6 | — | 56.2 | — | ||||||||||||
|
Total
|
$ | 323.3 | $ | (49.8 | ) | $ | 320.5 | $ | (33.0 | ) | ||||||
Amortization expense associated with these definite-lived
intangible assets was $16.5 million, $12.6 million and
$7.8 million in 2010, 2009 and 2008, respectively.
Amortization expense associated with these intangible assets is
expected to be $15.9 million in 2011, $15.3 million in
2012, $14.9 million in 2013, $14.0 million in 2014 and
$13.0 million in 2015.
48
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 6 — | Investments |
At December 31, 2010 and December 31, 2009, the
Company had both
available-for-sale
and trading investments. The
available-for-sale
investments consisted entirely of municipal bonds while the
trading investments were comprised primarily of debt and equity
mutual funds. 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):
| 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||
|
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
|
$ | 35.7 | $ | 0.7 | $ | — | $ | 36.4 | $ | 36.4 | $ | 25.1 | $ | 0.9 | $ | (0.1 | ) | $ | 25.9 | $ | 25.9 | |||||||||||||||||||
|
Trading Investments
|
2.1 | 0.5 | — | 2.6 | 2.6 | 1.9 | 0.3 | — | 2.2 | 2.2 | ||||||||||||||||||||||||||||||
|
Total Investments
|
$ | 37.8 | $ | 1.2 | $ | — | $ | 39.0 | $ | 39.0 | $ | 27.0 | $ | 1.2 | $ | (0.1 | ) | $ | 28.1 | $ | 28.1 | |||||||||||||||||||
Contractual maturities of
available-for-sale
investments at December 31, 2010 were as follows (in
millions):
|
Amortized
|
||||||||
| Cost | Fair Value | |||||||
|
Available-For-Sale
Investments
|
||||||||
|
Due within 1 year
|
$ | 8.8 | $ | 8.8 | ||||
|
After 1 year but within 5 years
|
17.6 | 18.1 | ||||||
|
After 5 years but within 10 years
|
6.6 | 6.7 | ||||||
|
Due after 10 years
|
2.7 | 2.8 | ||||||
|
Total
|
$ | 35.7 | $ | 36.4 | ||||
At December 31, 2010 and December 31, 2009, the total
net of tax unrealized gains recorded relating to
available-for-sale
securities were $0.5 million. These net unrealized gains
have been included in Accumulated other comprehensive loss, net
of tax. Net unrealized gains relating to trading investments
have been reflected in the results of operations. The cost basis
used in computing the gain or loss on these securities was
through specific identification. Realized gains and losses for
both
available-for-sale
and trading securities were immaterial in 2010, 2009 and 2008.
| Note 7 — | Property, Plant, and Equipment |
Property, plant, and equipment, carried at cost, is summarized
as follows at December 31, (in millions):
| 2010 | 2009 | |||||||
|
Land
|
$ | 38.5 | $ | 41.4 | ||||
|
Buildings and improvements
|
216.2 | 227.8 | ||||||
|
Machinery, tools and equipment
|
635.8 | 620.0 | ||||||
|
Construction-in-progress
|
16.2 | 16.3 | ||||||
|
Gross property, plant, and equipment
|
906.7 | 905.5 | ||||||
|
Less accumulated depreciation
|
(548.4 | ) | (536.7 | ) | ||||
|
Net property, plant, and equipment
|
$ | 358.3 | $ | 368.8 | ||||
49
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 $47.1 million, $46.3 million and
$43.9 million for 2010, 2009 and 2008, respectively.
| Note 8 — | Other Accrued Liabilities |
Other accrued liabilities consists of the following at
December 31, (in millions):
| 2010 | 2009 | |||||||
|
Deferred revenue
|
$ | 34.9 | $ | 44.1 | ||||
|
Customer program incentives
|
31.2 | 23.5 | ||||||
|
Other
|
75.5 | 87.1 | ||||||
|
Total
|
$ | 141.6 | $ | 154.7 | ||||
| Note 9 — | Other Non-Current Liabilities |
Other non-current liabilities consists of the following at
December 31, (in millions):
| 2010 | 2009 | |||||||
|
Pensions
|
$ | 103.2 | $ | 86.0 | ||||
|
Other postretirement benefits
|
32.1 | 36.8 | ||||||
|
Deferred tax liabilities
|
21.2 | 21.5 | ||||||
|
Other
|
44.9 | 40.8 | ||||||
|
Total
|
$ | 201.4 | $ | 185.1 | ||||
| Note 10 — | 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 six defined
contribution pension plans.
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 have been
discontinued for substantially all future retirees. The Company
anticipates future cost-sharing changes for its discontinued
plans that are consistent with past practices.
The Company uses a December 31 measurement date for all of its
plans. There were no amendments made in 2010 or 2009 to the
defined benefit pension plans which had a significant impact on
the total pension benefit obligation. During 2010, amendments
made to the Hubbell and Burndy Retiree Medical Plans resulted in
a reduction of $7.5 million to the liability.
50
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 | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Change in benefit obligation
|
||||||||||||||||
|
Benefit obligation at beginning of year
|
$ | 647.0 | $ | 578.9 | $ | 39.7 | $ | 28.0 | ||||||||
|
Service cost
|
12.7 | 12.2 | 0.3 | 0.6 | ||||||||||||
|
Interest cost
|
37.8 | 36.9 | 2.1 | 1.7 | ||||||||||||
|
Plan participants’ contributions
|
0.7 | 0.7 | — | — | ||||||||||||
|
Amendments
|
— | — | (7.5 | ) | (0.7 | ) | ||||||||||
|
Curtailment and settlement gain
|
— | (0.5 | ) | — | — | |||||||||||
|
Actuarial loss (gain)
|
61.0 | 37.5 | 2.1 | (0.3 | ) | |||||||||||
|
Acquisitions/Divestitures
|
— | 5.7 | — | 13.1 | ||||||||||||
|
Currency impact
|
(1.3 | ) | 5.5 | — | — | |||||||||||
|
Other
|
(0.7 | ) | (0.1 | ) | (0.5 | ) | — | |||||||||
|
Benefits paid
|
(34.7 | ) | (29.8 | ) | (3.2 | ) | (2.7 | ) | ||||||||
|
Benefit obligation at end of year
|
$ | 722.5 | $ | 647.0 | $ | 33.0 | $ | 39.7 | ||||||||
|
Change in plan assets
|
||||||||||||||||
|
Fair value of plan assets at beginning of year
|
$ | 575.8 | $ | 472.7 | $ | — | $ | — | ||||||||
|
Actual return on plan assets
|
54.6 | 89.1 | — | — | ||||||||||||
|
Acquisitions/Divestitures
|
— | 7.4 | — | — | ||||||||||||
|
Employer contributions
|
26.5 | 30.0 | — | — | ||||||||||||
|
Plan participants’ contributions
|
0.7 | 0.7 | — | — | ||||||||||||
|
Currency impact
|
(0.9 | ) | 5.9 | — | — | |||||||||||
|
Settlement loss and other
|
— | (0.2 | ) | — | — | |||||||||||
|
Benefits paid
|
(34.7 | ) | (29.8 | ) | — | — | ||||||||||
|
Fair value of plan assets at end of year
|
$ | 622.0 | $ | 575.8 | $ | — | $ | — | ||||||||
|
Funded status
|
$ | (100.5 | ) | $ | (71.2 | ) | $ | (33.0 | ) | $ | (39.7 | ) | ||||
|
Amounts recognized in the consolidated balance sheet consist
of:
|
||||||||||||||||
|
Prepaid pensions (included in Intangible assets and other)
|
$ | 6.2 | $ | 17.0 | $ | — | $ | — | ||||||||
|
Accrued benefit liability (short-term and long-term)
|
(106.7 | ) | (88.2 | ) | (33.0 | ) | (39.7 | ) | ||||||||
|
Net amount recognized
|
$ | (100.5 | ) | $ | (71.2 | ) | $ | (33.0 | ) | $ | (39.7 | ) | ||||
|
Amounts recognized in Accumulated other comprehensive loss
(income) consist of:
|
||||||||||||||||
|
Net actuarial loss (gain)
|
$ | 153.8 | $ | 115.3 | $ | 0.8 | $ | (1.2 | ) | |||||||
|
Prior service cost (credit)
|
1.2 | 1.5 | (9.1 | ) | (2.5 | ) | ||||||||||
|
Net amount recognized
|
$ | 155.0 | $ | 116.8 | $ | (8.3 | ) | $ | (3.7 | ) | ||||||
51
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The accumulated benefit obligation for all defined benefit
pension plans was $669.6 million and $595.2 million at
December 31, 2010 and 2009, respectively. Information with
respect to plans with accumulated benefit obligations in excess
of plan assets is as follows, (in millions):
| 2010 | 2009 | |||||||
|
Projected benefit obligation
|
$ | 623.3 | $ | 73.5 | ||||
|
Accumulated benefit obligation
|
$ | 586.1 | $ | 67.5 | ||||
|
Fair value of plan assets
|
$ | 517.4 | $ | 11.0 | ||||
The following table sets forth the components of pension and
other benefit costs for the years ended December 31, (in
millions):
| Pension Benefits | Other Benefits | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
|
Components of net periodic benefit cost
|
||||||||||||||||||||||||
|
Service cost
|
$ | 12.7 | $ | 12.2 | $ | 14.6 | $ | 0.3 | $ | 0.6 | $ | 0.2 | ||||||||||||
|
Interest cost
|
37.8 | 36.9 | 35.8 | 2.1 | 1.7 | 1.7 | ||||||||||||||||||
|
Expected return on plan assets
|
(41.7 | ) | (37.2 | ) | (47.5 | ) | — | — | — | |||||||||||||||
|
Amortization of prior service cost/(credit)
|
0.3 | 0.3 | 0.4 | (0.3 | ) | (0.2 | ) | (0.2 | ) | |||||||||||||||
|
Amortization of actuarial losses
|
5.4 | 7.3 | 1.3 | — | — | — | ||||||||||||||||||
|
Curtailment and settlement losses (gains)
|
(0.1 | ) | 0.1 | — | (0.6 | ) | — | (1.7 | ) | |||||||||||||||
|
Net periodic benefit cost
|
$ | 14.4 | $ | 19.6 | $ | 4.6 | $ | 1.5 | $ | 2.1 | $ | — | ||||||||||||
|
Changes recognized in other comprehensive loss (income),
before tax, (in millions):
|
||||||||||||||||||||||||
|
Current year net actuarial (gain)/loss
|
$ | 46.7 | $ | (14.8 | ) | $ | 148.9 | $ | 2.1 | $ | (0.3 | ) | $ | 0.3 | ||||||||||
|
Current year prior service (cost)/credit
|
— | — | 0.2 | (7.6 | ) | (0.8 | ) | — | ||||||||||||||||
|
Amortization of prior service (cost)/credit
|
(0.3 | ) | (0.3 | ) | (0.4 | ) | 0.9 | 0.2 | 0.2 | |||||||||||||||
|
Amortization of net actuarial loss
|
(5.4 | ) | (7.3 | ) | (1.3 | ) | — | — | — | |||||||||||||||
|
Currency impact
|
(3.3 | ) | — | (1.0 | ) | — | — | — | ||||||||||||||||
|
Other adjustments
|
0.5 | 0.4 | 0.1 | — | — | — | ||||||||||||||||||
|
Total recognized in accumulated other comprehensive (income) loss
|
38.2 | (22.0 | ) | 146.5 | (4.6 | ) | (0.9 | ) | 0.5 | |||||||||||||||
|
Total recognized in net periodic pension cost and other
comprehensive loss (income)
|
$ | 52.6 | $ | (2.4 | ) | $ | 151.1 | $ | (3.1 | ) | $ | 1.2 | $ | 0.5 | ||||||||||
|
Amortization expected to be recognized through income during
2011
|
||||||||||||||||||||||||
|
Amortization of prior service cost/(credit)
|
$ | 0.2 | $ | (1.0 | ) | |||||||||||||||||||
|
Amortization of net loss
|
8.1 | — | ||||||||||||||||||||||
|
Total expected to be recognized through income during next
fiscal year
|
$ | 8.3 | $ | (1.0 | ) | |||||||||||||||||||
In addition to the above, certain of the Company’s union
employees participate in multi-employer defined benefit plans.
The total Company cost of these plans was $0.7 million in
2010, $0.8 million in 2009 and $0.9 million in 2008.
In 2009, the Company requested a withdrawal calculation related
to the closure of a facility. The
52
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. This expense was
recorded by the Company in 2009 and ultimately paid in early
2010.
The Company also maintains six defined contribution pension
plans. The total cost of these plans was $6.5 million in
2010 and $5.9 million in both 2009 and 2008, 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 | |||||||||||||||||||||||
| 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | |||||||||||||||||||
|
Weighted-average assumptions used to determine benefit
obligations at December 31,
|
||||||||||||||||||||||||
|
Discount rate
|
5.38 | % | 5.96 | % | 6.46 | % | 5.40 | % | 6.00 | % | 6.50 | % | ||||||||||||
|
Rate of compensation increase
|
3.56 | % | 3.57 | % | 4.07 | % | 3.50 | % | 3.50 | % | 4.00 | % | ||||||||||||
|
Weighted-average assumptions used to determine net periodic
benefit cost for years ended December 31,
|
||||||||||||||||||||||||
|
Discount rate
|
5.96 | % | 6.46 | % | 6.41 | % | 6.00 | % | 6.50 | % | 6.50 | % | ||||||||||||
|
Expected return on plan assets
|
7.50 | % | 8.00 | % | 8.00 | % | N/A | N/A | N/A | |||||||||||||||
|
Rate of compensation increase
|
3.57 | % | 4.07 | % | 4.07 | % | 3.50 | % | 4.00 | % | 4.00 | % | ||||||||||||
At the end of each calendar year, the Company determines the
appropriate expected return on assets for each plan based upon
its strategic asset allocation (see discussion below). In making
this determination, the Company utilizes expected returns for
each asset class based upon current market conditions and
expected risk premiums for each asset class.
The assumed health care cost trend rates used to determine the
projected postretirement benefit obligation are as follows:
| Other Benefits | ||||||||||||
| 2010 | 2009 | 2008 | ||||||||||
|
Assumed health care cost trend rates at December 31,
|
||||||||||||
|
Health care cost trend assumed for next year
|
9.0 | % | 8.0 | % | 8.0 | % | ||||||
|
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
|
2017 | 2015 | 2015 | |||||||||
Assumed health care cost trend rates have a significant effect
on the amounts reported for the postretirement benefit plans. A
one-percentage-point change in assumed health care cost trend
rates would have the following effects (in millions):
|
One Percentage
|
One Percentage
|
|||||||
| Point Increase | Point Decrease | |||||||
|
Effect on total of service and interest cost
|
$ | 0.1 | $ | (0.1 | ) | |||
|
Effect on postretirement benefit obligation
|
$ | 1.6 | $ | (1.5 | ) | |||
53
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, 2011, 2010 and 2009 by asset category are as
follows:
|
Target
|
Percentage of
|
|||||||||||
|
Allocation
|
Plan Assets | |||||||||||
| 2011 | 2010 | 2009 | ||||||||||
|
Asset Category
|
||||||||||||
|
Equity securities
|
43 | % | 44 | % | 50 | % | ||||||
|
Debt securities & Cash
|
37 | % | 38 | % | 32 | % | ||||||
|
Alternative Investments
|
20 | % | 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
$20.0 million (3.7% of total domestic plan assets) and
$15.9 million (3.2% of total domestic plan assets) at
December 31, 2010 and 2009, respectively.
54
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, 2010 and 2009, by asset category are as
follows (in millions):
|
Quoted Prices in
|
Quoted Prices in
|
|||||||||||||||
|
Active Markets
|
Active Market
|
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 | ||||||||||||
|
Balance at December 31, 2009
|
$ | 575.8 | $ | 419.2 | $ | 51.9 | $ | 104.7 | ||||||||
|
Quoted Prices in
|
Quoted Prices in
|
|||||||||||||||
|
Active Markets
|
Active Market
|
Significant
|
||||||||||||||
|
for Identical
|
for Similar Asset
|
Unobservable
|
||||||||||||||
| Total | Assets (Level 1) | (Level 2) | Inputs (Level 3) | |||||||||||||
|
Cash and cash equivalents
|
$ | 56.0 | $ | 56.0 | $ | — | $ | — | ||||||||
|
Equity securities:
|
||||||||||||||||
|
US
Large-cap
(a)
|
144.9 | 144.9 | — | — | ||||||||||||
|
US Mid-cap and Small-cap
Growth
(b)
|
24.1 | 24.1 | — | — | ||||||||||||
|
International Large-cap
|
37.1 | 37.1 | — | — | ||||||||||||
|
Emerging Markets
|
39.8 | 39.8 | — | — | ||||||||||||
|
Fixed Income Securities:
|
||||||||||||||||
|
US Treasuries
|
56.2 | 56.2 | — | — | ||||||||||||
|
Corporate
Bonds
(c)
|
75.9 | 75.9 | — | — | ||||||||||||
|
Asset Backed Securities and Other
|
47.1 | 47.1 | — | — | ||||||||||||
|
Derivatives:
|
||||||||||||||||
|
Equity
Futures
(d)
|
30.2 | — | 30.2 | — | ||||||||||||
|
Alternative Investment Funds
|
110.7 | — | — | 110.7 | ||||||||||||
|
Balance at December 31, 2010
|
$ | 622.0 | $ | 481.1 | $ | 30.2 | $ | 110.7 | ||||||||
| (a) | Includes an actively managed portfolio of large-cap US stocks | |
| (b) | Includes $20.0 million and $15.9 million of the Company’s common stock at December 31, 2010 and 2009, respectively, and an investment in actively managed mid-cap and small-cap US stocks | |
| (c) | Includes primarily investment grade bonds of US issuers from diverse industries | |
| (d) | Includes primarily large-cap US and foreign equity futures |
55
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The fair value of the Company’s pension plan assets
measured using significant unobservable inputs
(Level 3) at December 31, 2010, 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 | |||||||||||||
|
Relating to assets sold during the period
|
— | — | — | |||||||||||||
|
Purchases, sales and settlements, net
|
11.3 | 1.4 | 12.7 | |||||||||||||
|
Transfers in and/or out of Level 3
|
— | — | — | |||||||||||||
|
Balance at December 31, 2009
|
$ | 98.9 | $ | 5.8 | $ | 104.7 | ||||||||||
|
Actual return on plan assets:
|
||||||||||||||||
|
Relating to assets still held at the reporting date
|
4.4 | 1.3 | 5.7 | |||||||||||||
|
Relating to assets sold during the period
|
— | — | — | |||||||||||||
|
Purchases, sales and settlements, net
|
— | 0.3 | 0.3 | |||||||||||||
|
Transfers in and/or out of Level 3
|
— | — | — | |||||||||||||
|
Balance at December 31, 2010
|
$ | 103.3 | $ | 7.4 | $ | 110.7 | ||||||||||
All of the alternative investments held by the Company’s
pension plans consist of fund of fund products, the largest
being an institutional fund of hedge funds (“IFHF”).
The IFHF invests in investment funds managed by a diversified
group of third-party investment managers who employ a variety of
alternative investment strategies, including relative value,
security selection, specialized credit and directional
strategies. The objective of the IFHF is to achieve the desired
capital appreciation with lower volatility than either
traditional equity or fixed income markets. The plan also has a
small investment in a distressed opportunity fund. This fund of
funds product invests in distressed strategies including
turnarounds,
debt-for-control
and active trading.
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 2011. The
Company expects to contribute approximately $3.5 million to
its foreign plans in 2011.
56
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Estimated
Future Benefit Payments
The following domestic and foreign benefit payments, which
reflect future service, as appropriate, are expected to be paid
as follows, (in millions):
| Other Benefits | ||||||||||||||||
|
Medicare
|
||||||||||||||||
|
Part D
|
||||||||||||||||
| Pension Benefits | Gross | Subsidy | Net | |||||||||||||
|
2011
|
$ | 31.7 | $ | 3.0 | $ | 0.2 | $ | 2.8 | ||||||||
|
2012
|
$ | 33.3 | $ | 3.0 | $ | 0.2 | $ | 2.8 | ||||||||
|
2013
|
$ | 36.2 | $ | 3.0 | $ | 0.2 | $ | 2.8 | ||||||||
|
2014
|
$ | 38.1 | $ | 2.9 | $ | 0.2 | $ | 2.7 | ||||||||
|
2015
|
$ | 40.1 | $ | 2.8 | $ | 0.2 | $ | 2.6 | ||||||||
|
2016-2020
|
$ | 233.1 | $ | 12.5 | $ | 0.8 | $ | 11.7 | ||||||||
| Note 11 — | Debt |
The following table sets forth the components of the
Company’s debt structure at December 31, (in millions):
| 2010 | 2009 | |||||||||||||||||||||||
|
Short-Term
|
Senior Notes
|
Short-Term
|
Senior Notes
|
|||||||||||||||||||||
| Debt | (Long-Term) | Total | Debt | (Long-Term) | Total | |||||||||||||||||||
|
Balance at year end
|
$ | 1.8 | $ | 595.9 | $ | 597.7 | $ | — | $ | 497.2 | $ | 497.2 | ||||||||||||
|
Highest aggregate month-end balance
|
$ | 715.7 | $ | 563.5 | ||||||||||||||||||||
|
Average borrowings
|
$ | 2.3 | $ | 525.8 | $ | 528.1 | $ | 5.5 | $ | 496.8 | $ | 502.3 | ||||||||||||
|
Weighted average interest rate:
|
||||||||||||||||||||||||
|
At year end
|
14.12 | % | 4.79 | % | 4.82 | % | — | 6.12 | % | 6.12 | % | |||||||||||||
|
Paid during the year
|
17.00 | % | 5.51 | % | 5.56 | % | 0.26 | % | 6.12 | % | 5.85 | % | ||||||||||||
The Company’s short-term debt consisted of a
4.0 million Brazilian Real line of credit with HSBC Bank
which is used to fund its Brazilian operations. At
December 31, 2010, 3.0 million Brazilian Real are
outstanding (equivalent to $1.8 million). This line of
credit expires in March 2011 and is not subject to any annual
commitment fees. The interest rate on the debt reflects the
prevailing interest rate for short-term borrowings in Brazil.
At December 31, 2010 and 2009, the Company had
$595.9 million and $497.2 million, respectively, of
senior notes reflected as Long-term debt in the Consolidated
Balance Sheet. Interest and fees paid related to total
indebtedness was $28.4 million, $29.8 million and
$24.5 million in 2010, 2009 and 2008, respectively.
In November 2010, the Company completed a public debt offering
for $300 million of long-term, senior, unsecured notes
maturing in November 2022 and bearing interest at a fixed rate
of 3.625%. The Company received $294.8 in proceeds from the
offering, net of discounts and debt issuance costs. The discount
and issuance costs were deferred and are being amortized to
interest expense over the term of the 2022 Notes. Interest on
the 2022 Notes will be paid semi-annually in May and November,
commencing in May 2011. In connection with the issuance of the
2022 Notes, the Company entered into a forward starting swap to
hedge its exposure to fluctuations in treasury rates, which
resulted in a loss of $1.6 million during the fourth
quarter of 2010 when the Company closed out this position. This
amount has been recorded, net of tax, in accumulated other
comprehensive loss and will be amortized to interest expense
over the life of the 2022 Notes.
Simultaneous with the November 2010 debt offering, the Company
also announced the cash tender offer for any and all of its
$200 million (6.375%) senior notes that were scheduled to
mature in May 2012. Upon expiration of
57
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the tender offer, $81.9 million of the aggregate
outstanding principal amount of the 2012 Notes were validly
tendered and accepted. Subsequent to the expiration of the
tender offer, the Company elected to redeem the remaining
outstanding principal of $118.1 million under the
provisions of the 2012 Notes. The loss on this transaction
(recorded as part of the Loss on extinguishment of debt in the
Consolidated Statement of Income), including the make whole
premium paid, expenses and the write-off of the remaining
deferred issuance costs associated with the 2012 Notes, was
approximately $17.3 million. The net cash proceeds
remaining from the 2022 Note issuance, subsequent to the
tender/redemption of the 2012 Notes, were used for general
corporate purposes.
In conjunction with the early extinguishment of the 2012 Notes,
the Company terminated its interest rate swap associated with
these notes. This interest rate swap was accounted for as a fair
value hedge and was used to convert the stated interest rate of
the 2012 Notes from fixed to floating. At the time of
termination, this interest rate swap was
in-the-money
and resulted in a gain of $2.6 million. This gain was
recorded as part of the Loss on extinguishment of debt in the
Consolidated Statement of Income.
In May 2008, the Company completed a public offering of
$300 million long-term senior, unsecured notes maturing in
May 2018. The 2018 Notes bear interest at a fixed rate of 5.95%.
Prior to the issuance of the 2018 Notes, the Company entered
into a forward interest rate lock which resulted in a
$1.2 million gain. This amount was recorded in Accumulated
other comprehensive loss, net of tax, and is being amortized
over the life of the notes.
The 2018 Notes and the 2022 Notes are both fixed rate
indebtedness, are callable at any time with a make whole premium
and are only subject to accelerated payment prior to maturity in
the event of a default under the indenture governing the terms
of the 2018 Notes and 2022 Notes, as modified by the
supplemental indentures creating each such series, or upon a
change of control event as defined in such indenture.
In March 2008, the Company exercised its option to expand its
credit facility by $100 million, bringing the total credit
facility to $350 million. The expiration date of the 2007
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, 2010 and 2009. Annual
commitment fee requirements to support availability of the
credit facility were not material. This facility is used as a
backup to our commercial paper program and was undrawn as of
December 31, 2010.
In September 2009, the Company entered into a line of credit
agreement with Credit Suisse for approximately 30 million
Swiss francs (equivalent to $31.6 million) to support the
issuance of letters of credit. The availability of credit under
this facility is dependent upon the maintenance of compensating
balances, which may be withdrawn. There are no annual commitment
fees associated with this credit facility. The Company also
maintains a 2.1 million pound sterling credit facility
(equivalent to $3.2 million) with HSBC Bank in the UK which
is set for renewal on November 30, 2011. There are no
annual commitment fees associated with this credit agreement
which was undrawn as of December 31, 2010.
In addition to the above credit commitments, the Company has an
unsecured line of credit for $35 million with Bank of
America, N.A. to support issuance of its letters of credit. At
December 31, 2010, the Company had approximately
$22.8 million of letters of credit outstanding under this
facility.
58
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| Note 12 — | 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):
| 2010 | 2009 | 2008 | ||||||||||
|
Income before income taxes:
|
||||||||||||
|
United States
|
$ | 224.5 | $ | 183.1 | $ | 213.6 | ||||||
|
International
|
95.9 | 78.5 | 104.8 | |||||||||
|
Total
|
$ | 320.4 | $ | 261.6 | $ | 318.4 | ||||||
|
Provision for income taxes — current:
|
||||||||||||
|
Federal
|
$ | 47.5 | $ | 25.3 | $ | 64.1 | ||||||
|
State
|
7.8 | 7.2 | 11.0 | |||||||||
|
International
|
21.3 | 15.5 | 19.4 | |||||||||
|
Total provision-current
|
76.6 | 48.0 | 94.5 | |||||||||
|
Provision for income taxes — deferred:
|
||||||||||||
|
Federal
|
$ | 24.3 | $ | 29.5 | $ | 8.5 | ||||||
|
State
|
1.5 | (0.2 | ) | (10.6 | ) | |||||||
|
International
|
(0.8 | ) | 3.0 | 2.8 | ||||||||
|
Total provision — deferred
|
25.0 | 32.3 | 0.7 | |||||||||
|
Total provision for income taxes
|
$ | 101.6 | $ | 80.3 | $ | 95.2 | ||||||
59
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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):
| 2010 | 2009 | |||||||
|
Deferred tax assets:
|
||||||||
|
Inventory
|
$ | 8.0 | $ | 6.4 | ||||
|
Income tax credits
|
18.8 | 16.6 | ||||||
|
Accrued liabilities
|
13.8 | 17.4 | ||||||
|
Pension
|
35.7 | 34.4 | ||||||
|
Postretirement and post employment benefits
|
18.8 | 11.2 | ||||||
|
Stock-based compensation
|
11.3 | 10.2 | ||||||
|
Net operating loss carryforwards
|
75.9 | 86.6 | ||||||
|
Miscellaneous other
|
1.4 | 0.8 | ||||||
|
Gross deferred tax assets
|
183.7 | 183.6 | ||||||
|
Valuation allowance
|
(2.6 | ) | (2.2 | ) | ||||
|
Total net deferred tax assets
|
$ | 181.1 | $ | 181.4 | ||||
|
Deferred tax liabilities:
|
||||||||
|
Acquisition basis difference
|
115.7 | 107.4 | ||||||
|
Property, plant, and equipment
|
27.7 | 29.5 | ||||||
|
Total deferred tax liabilities
|
$ | 143.4 | $ | 136.9 | ||||
|
Total net deferred tax asset
|
$ | 37.7 | $ | 44.5 | ||||
|
Deferred taxes are reflected in the Consolidated Balance
Sheet as follows:
|
||||||||
|
Current tax assets (included in Deferred taxes and other)
|
$ | 24.7 | $ | 46.7 | ||||
|
Non-current tax assets (included in Intangible assets and other)
|
34.2 | 19.3 | ||||||
|
Non-current tax liabilities (included in Other Non-current
liabilities)
|
(21.2 | ) | (21.5 | ) | ||||
|
Total net deferred tax asset
|
$ | 37.7 | $ | 44.5 | ||||
During 2010, the Company determined that the December 31,
2009 deferred tax assets and deferred tax liabilities related to
the Burndy acquisition were misclassified, primarily as a result
of improperly applying the jurisdictional netting rule of the
income taxes accounting guidance. As a result, the Company
revised the December 31, 2009 balance sheet by decreasing
current deferred tax assets by $17.1 million, decreasing
non-current deferred tax assets by $44.6 million and by
decreasing its non-current deferred tax liability by
$61.7 million. In 2010, the Company also finalized the tax
attributes associated with the Burndy acquisition and as a
result recorded an additional $19.5 million of deferred tax
assets. Both of these revisions have been reflected in the
December 31, 2009 data presented in the table above.
As of December 31, 2010, the Company had a total of
$18.8 million of Federal and State tax credit
carryforwards, net of Federal benefit (including credit
carryforwards of $3.3 million related to the Burndy
acquisition) available to offset future income taxes, of which
$0.8 million may be carried forward indefinitely while the
remaining $18.0 million will begin to expire at various
times beginning in 2011 through 2026. The Company has recorded a
net valuation allowance of $2.6 million for the portion of
the tax credit carryforwards the Company anticipates will expire
prior to utilization. Additionally, as of December 31,
2010, the Company had recorded tax benefits totaling
$75.9 million (including $74.7 million related to the
Burndy acquisition) for Federal and State net operating loss
carryforwards (“NOLs”). The tax benefit related to
these NOLs has been adjusted to
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HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
reflect an “ownership change” pursuant to Internal
Revenue Code Section 382, which imposes an annual
limitation on the utilization of pre-acquisition operating
losses. The Company expects to fully utilize the adjusted NOLs
prior to their expiration.
At December 31, 2010, income and withholding taxes have not
been provided on approximately $381.0 million of
undistributed international earnings that are permanently
reinvested in international operations. If such earnings were
not indefinitely reinvested, a tax liability of approximately
$68.7 million would be recognized.
Cash payments of income taxes were $74.0 million,
$53.4 million and $68.8 million in 2010, 2009 and
2008, respectively.
The Company operates within multiple taxing jurisdictions and is
subject to audit in these jurisdictions. The IRS and other tax
authorities routinely audit the Company’s tax returns.
These audits can involve complex issues which may require an
extended period of time to resolve. During 2010, the IRS
concluded an audit of the Company’s 2006 and 2007 federal
income tax returns; however, the statue of limitations has not
yet expired for these years. As a result of this audit, the
Company recorded an additional $2.2 million of income tax
expense during the third quarter of 2010. A cash payment of
$12.7 million related to this audit was made in October
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 2003.
The following tax years, by major jurisdiction, are still
subject to examination by taxing authorities:
|
Jurisdiction
|
Open Years | |||
|
United States
|
2006-2010 | |||
|
Canada
|
2007-2010 | |||
|
UK
|
2008-2010 | |||
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows (in millions):
| 2010 | 2009 | 2008 | ||||||||||
|
Unrecognized tax benefits at beginning of year
|
$ | 30.6 | $ | 17.3 | $ | 8.7 | ||||||
|
Additions based on tax positions relating to the current year
|
2.5 | 3.0 | 4.5 | |||||||||
|
Reductions based on expiration of statute of limitations
|
(0.7 | ) | (1.4 | ) | (0.4 | ) | ||||||
|
Additions to tax positions relating to previous years
|
1.0 | 11.8 | 4.7 | |||||||||
|
Settlements
|
(8.2 | ) | (0.1 | ) | (0.2 | ) | ||||||
|
Total unrecognized tax benefits
|
$ | 25.2 | $ | 30.6 | $ | 17.3 | ||||||
Included in the balance at December 31, 2010 are
$13.6 million of tax positions which, if in the future are
determined to be recognizable, would affect the annual effective
income tax rate. Additionally, there are $0.9 million of
tax positions for which the ultimate deductibility is highly
certain but for which there is uncertainty as to the timing of
such deductibility. Because of the impact of deferred tax
accounting, other than interest and penalties, the disallowance
of the shorter deductibility period would not affect the annual
effective tax rate but would accelerate the payment of cash to
the applicable taxing authority to an earlier period.
The Company’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. The Company recognized approximately $1.0 million
in 2010 and $0.8 million of expense before federal tax
benefit in both 2009 and 2008 related to interest and penalties.
The Company had $1.5 million and $2.6 million accrued
for the payment of interest and penalties as of
December 31, 2010 and December 31, 2009, respectively.
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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:
| 2010 | 2009 | 2008 | ||||||||||||||||||||||
|
Federal statutory income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||||||||||||||
|
State income taxes, net of federal benefit
|
1.7 | 2.0 | 2.7 | |||||||||||||||||||||
|
Foreign income taxes
|
(4.2 | ) | (3.1 | ) | (3.9 | ) | ||||||||||||||||||
|
State tax credits/refunds and loss carryforwards
|
(0.4 | ) | (0.1 | ) | (2.0 | ) | ||||||||||||||||||
|
Out of period adjustment
|
— | (1.9 | ) | — | ||||||||||||||||||||
|
Other, net
|
(0.4 | ) | (1.2 | ) | (1.9 | ) | ||||||||||||||||||
|
Consolidated effective income tax rate
|
31.7 | % | 30.7 | % | 29.9 | % | ||||||||||||||||||
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.
| Note 13 — | 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, 2010. However, the
Company’s top 10 customers accounted for approximately 31%
of the accounts receivable balance at December 31, 2010. As
part of its ongoing procedures, the Company monitors the credit
worthiness of its customers. Bad debt write-offs have
historically been minimal. The Company places its cash and cash
equivalents with financial institutions and limits the amount of
exposure to any one institution.
Fair Value:
The carrying amounts reported in
the Consolidated Balance Sheet for cash and cash equivalents,
short-term 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 6 — Investments and Note 14 —
Fair Value Measurement.
The fair value of the senior notes classified as long-term debt
was determined by reference to quoted market prices and
approximated $619.7 million and $539.6 million at
December 31, 2010 and 2009, respectively.
| Note 14 — | Fair Value Measurement |
Fair value is defined as the amount that would be received for
selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
The FASB fair value measurement guidance established a fair
value hierarchy that prioritizes the inputs used to measure fair
value. The three broad levels of the fair value hierarchy are as
follows:
|
Level 1 —
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities | |
|
Level 2 —
|
Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly | |
|
Level 3 —
|
Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions |
62
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HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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, 2010 and 2009 (in millions):
|
Quoted Prices in
|
Quoted Prices in
|
|||||||||||
|
Active Markets
|
Active Markets
|
|||||||||||
|
for Identical
|
for Similar
|
|||||||||||
|
Asset (Liability)
|
Assets (Level 1) | Assets (Level 2) | Total | |||||||||
|
December 31, 2010
|
||||||||||||
|
Available for sale investments
|
$ | 36.4 | $ | — | $ | 36.4 | ||||||
|
Trading securities
|
2.6 | — | 2.6 | |||||||||
|
Deferred compensation plan liabilities
|
(2.5 | ) | — | (2.5 | ) | |||||||
|
Derivatives:
|
||||||||||||
|
Forward exchange contracts
|
— | (0.6 | ) | (0.6 | ) | |||||||
| $ | 36.5 | $ | (0.6 | ) | $ | 35.9 | ||||||
|
Quoted Prices in
|
Quoted Prices in
|
|||||||||||
|
Active Markets
|
Active Markets
|
|||||||||||
|
for Identical
|
for Similar
|
|||||||||||
| Assets (Level 1) | Assets (Level 2) | Total | ||||||||||
|
December 31, 2009
|
||||||||||||
|
Available for sale investments
|
$ | 25.9 | $ | — | $ | 25.9 | ||||||
|
Trading securities
|
2.2 | — | 2.2 | |||||||||
|
Deferred compensation plan liabilities
|
(1.6 | ) | — | (1.6 | ) | |||||||
|
Derivatives:
|
||||||||||||
|
Forward exchange contracts
|
— | (1.1 | ) | (1.1 | ) | |||||||
|
Interest rate swap
|
— | (0.5 | ) | (0.5 | ) | |||||||
| $ | 26.5 | $ | (1.6 | ) | $ | 24.9 | ||||||
The methods and assumptions used to estimate the Level 2
fair values were as follows:
Forward exchange contracts — The fair value of forward
exchange contracts were based on quoted forward foreign exchange
prices at the reporting date.
Interest rate swap — The fair value of interest rate
swap agreements were estimated based on the LIBOR yield curves
at the reporting date.
During 2010 and 2009, there were no transfers of financial
assets or liabilities in or out of Level 1 or Level 2
of the fair value hierarchy. At December 31, 2010 and
December 31, 2009, the Company did not have any financial
assets or liabilities that fell within the Level 3
hierarchy.
Investments
At December 31, 2010 and December 31, 2009, the
Company had $36.4 million and $25.9 million,
respectively, of municipal bonds classified as
available-for-sale
securities. The Company also had $2.6 million and
$2.2 million of trading securities at December 31,
2010 and December 31, 2009, respectively. 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.
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HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Deferred
compensation plan
The Company offers certain employees the opportunity to
participate in a non-qualified deferred compensation plan. A
participant’s deferrals are invested in a variety of
participant-directed debt and equity mutual funds that are
classified as trading securities. The unrealized gains and
losses associated with these trading securities are directly
offset by the changes in the fair value of the underlying
deferred compensation plan obligation.
Derivatives
In order 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 | Balance Sheet Location | 2010 | 2009 | |||||||||
|
Forward exchange contracts designated as cash flow hedges
|
Other accrued liabilities | $ | (0.6 | ) | $ | (1.1 | ) | |||||
|
Interest rate swap designated as a fair value hedge
|
Other non-current liabilities | — | (0.5 | ) | ||||||||
| $ | (0.6 | ) | $ | (1.6 | ) | |||||||
Forward
exchange contracts
In 2010 and 2009, the Company entered into a series of forward
exchange contracts to purchase U.S. dollars in order to
hedge its exposure to fluctuating rates of exchange on
anticipated inventory purchases. As of December 31, 2010,
the Company has 18 individual forward exchange contracts at
$1.0 million, which have various expiration dates through
December 2011. These contracts have been designated as cash flow
hedges in accordance with the accounting guidance for
derivatives.
Interest
Rate Locks
Prior to the 2010 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 2010 interest
rate lock resulted in a $1.6 million loss while the 2008
interest rate lock resulted in a $1.2 million gain. These
amounts were recorded in Accumulated other comprehensive loss,
net of tax, and are being amortized over the life of the
respective notes. The amortization associated with these
interest rate locks is reflected in Interest expense in the
Consolidated Statement of Income. As of December 31, 2010
there was $0.5 million of net unamortized losses reflected
in Accumulated other comprehensive loss.
Additionally, upon extinguishment of the 2012 Notes, the Company
had $0.2 million of unamortized losses related to an
interest rate lock that had been entered into prior to the notes
issuance in 2002. This amount was written off to Interest
expense in the Consolidated Statement of Income. As of
December 31, 2009, the Company had $0.4 million of net
unamortized gains reflected in Accumulated other comprehensive
loss related to the 2012 and 2018 Notes.
64
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HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes the amounts recognized in
Accumulated other comprehensive related to these forward
exchange contracts and interest rate locks (in millions):
|
December 31,
|
December 31,
|
|||||||
|
Loss Recognized in Accumulated Other Comprehensive Loss (net
of tax)
|
2010 | 2009 | ||||||
|
Forward exchange contracts
|
$ | (0.6 | ) | $ | (1.8 | ) | ||
|
Interest rate locks
|
(1.0 | ) | — | |||||
The following table summarizes the gains/(losses) reclassified
from Accumulated other comprehensive loss into income related to
these forward exchange contracts and interest rate locks for
the years ended December 31, (in millions):
|
Location of Gain/(Loss) Reclassified into Income (Effective
Portion)
|
2010 | 2009 | 2008 | |||||||||
|
Cost of goods sold
|
$ | (1.4 | ) | $ | 0.4 | $ | 0.9 | |||||
|
Interest expense
|
(0.2 | ) | (0.1 | ) | (0.1 | ) | ||||||
There was no hedge ineffectiveness with respect to the forward
exchange cash flow hedges during 2010, 2009 and 2008.
Interest
Rate Swaps
In May 2009, the Company entered into a three year interest rate
swap for an aggregate notional amount of $200 million to
manage its exposure to changes in the fair value of its 2012
Notes. In conjunction with the early extinguishment of these
notes, the Company terminated its interest rate swap associated
with these notes. This interest rate swap was accounted for as a
fair value hedge and was used to convert the stated interest
rate of the 2012 Notes from floating to fixed. At the time of
termination, this interest rate swap was
in-the-money
and resulted in a gain of $2.6 million. This gain was
recorded as part of the Loss on extinguishment of debt in the
Consolidated Statement of Income. Prior to its termination, the
interest rate swap reduced interest expense by $2.2 million
in 2010.
Long-term
Debt
The total carrying value of long-term debt as of
December 31, 2010 was $595.9 million, net of
unamortized discount. As of December 31, 2010, the
estimated fair value of the long-term debt was
$619.7 million based on quoted market prices.
| Note 15 — | 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 past production
of product containing toxic substances, which have arisen in the
normal course of its operations or have been acquired through
business combinations. The Company is self-insured for certain
of these incidents at various amounts. Estimates of future
liability with respect to such matters are based on an
evaluation of currently available facts. Liabilities are
recorded when it is probable that costs will be incurred and can
be reasonably estimated. Given the nature of matters involved,
it is possible that liabilities will be incurred in excess of
amounts currently recorded. However, based upon available
information, including the Company’s past experience,
insurance coverage and reserves, management believes that the
ultimate liability with respect to these matters will not have a
material effect on the consolidated financial position, results
of operations or cash flows of the Company.
The Company accounts for conditional asset retirement and
environmental obligations in accordance with the applicable
accounting guidance. The accounting guidance 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
65
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HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
required to recognize a liability for the fair value of a
conditional asset retirement obligation if the fair value of the
liability can be reasonably estimated. The Company identified
other legal obligations related to environmental clean up for
which a settlement date could not be determined. These items
were not material to the Company’s results of operations,
financial position or cash flows as of, December 31, 2010,
2009 and 2008. The Company continues to monitor and revalue its
liability as necessary and, as of December 31, 2010 the
liability continues to be immaterial.
Leases
Total rental expense under operating leases was
$22.3 million in 2010, $22.2 million in 2009 and
$22.4 million in 2008. The minimum annual rentals on
non-cancelable, long-term, operating leases in effect at
December 31, 2010 are expected to approximate
$13.5 million in 2011, $10.4 million in 2012,
$8.9 million in 2013, $6.5 million in 2014,
$5.1 million in 2015 and $21.2 million thereafter. 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.
| Note 16 — | Capital Stock |
Activity in the Company’s common shares outstanding is set
forth below for the three years ended December 31, 2010 (in
thousands):
| Common Stock | ||||||||
| Class A | Class B | |||||||
|
Outstanding at December 31, 2007
|
7,378 | 50,550 | ||||||
|
Exercise of stock options
|
— | 258 | ||||||
|
Shares issued under director compensation arrangements
|
— | 2 | ||||||
|
Restricted shares issued, 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 director compensation arrangements
|
2 | 155 | ||||||
|
Restricted shares issued, net of forfeitures
|
— | 87 | ||||||
|
Acquisition/surrender of shares
|
— | (35 | ) | |||||
|
Outstanding at December 31, 2009
|
7,167 | 52,493 | ||||||
|
Exercise of stock options/stock appreciation rights
|
— | 1,351 | ||||||
|
Restricted/performance shares issued, net of forfeitures
|
— | 143 | ||||||
|
Acquisition/surrender of shares
|
— | (458 | ) | |||||
|
Outstanding at December 31, 2010
|
7,167 | 53,529 | ||||||
Repurchased shares are retired when acquired and the purchase
price is charged against par value and additional paid-in
capital. Shares may be repurchased through the Company’s
stock repurchase program, acquired by the Company from employees
under the Hubbell Incorporated Stock Option Plan for Key
Employees (the “Option Plan”) or surrendered to the
Company by employees in settlement of their tax liability on
vesting of restricted shares and performance shares under the
Hubbell Incorporated 2005 Incentive Award Plan, (the “Award
66
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HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Plan”). Class A Common shares have twenty votes per
share, while Class B Common shares have one vote per share.
In addition, the Company has 5.9 million authorized shares
of preferred stock; no preferred shares are outstanding.
The Company has an amended and restated Rights Agreement under
which holders of Class A Common Stock have Class A
Rights and holders of Class B Common Stock have
Class B Rights (collectively, “Rights”). These
Rights become exercisable after a specified period of time only
if a person or group of affiliated persons acquires beneficial
ownership of 20 percent or more of the outstanding
Class A Common Stock of the Company or announces or
commences a tender or exchange offer that would result in the
offeror acquiring beneficial ownership of 20 percent or
more of the outstanding Class A Common Stock of the
Company. Each Class A Right entitles the holder to purchase
from the Company one one-thousandth of a share of Series A
Junior Participating Preferred Stock (“Series A
Preferred Stock”), without par value, at a price of $175.00
per one one-thousandth of a share. Similarly, each Class B
Right entitles the holder to purchase one one-thousandth of a
share of Series B Junior Participating Preferred Stock
(“Series B Preferred Stock”), without par value,
at a price of $175.00 per one one-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, 2010 as follows (in thousands):
| Common Stock |
Preferred
|
|||||||||||
| Class A | Class B | Stock | ||||||||||
|
Exercise of outstanding stock options
|
— | 1,178 | — | |||||||||
|
Future grant of stock-based compensation
|
— | 3,253 | — | |||||||||
|
Exercise of stock purchase rights
|
— | — | 61 | |||||||||
|
Shares reserved under other equity compensation plans
|
— | 140 | — | |||||||||
|
Total
|
— | 4,571 | 61 | |||||||||
| Note 17 — | Stock-Based Compensation |
As of December 31, 2010, the Company had various
stock-based awards outstanding which were issued to executives
and other key employees. The accounting guidance requires that
share-based compensation expense be
67
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
recognized over the period from the grant date to the date on
which the award is no longer contingent on the employee
providing additional service (the “substantive vesting
period”). The Company recognizes the cost of these awards
on a straight-line basis over their respective substantive
vesting periods, net of estimated forfeitures.
The Company’s long-term incentive program for awarding
stock-based compensation uses a combination of restricted stock,
stock appreciation rights (“SARs”), and performance
shares of the Company’s Class B Common Stock pursuant
to the Award Plan. In May 2010, the Company’s shareholders
approved an amendment and restatement of the Award Plan which
increased the total number of shares available for issuance
under the Award Plan from 5.9 million to 6.9 million
shares of Class B Common Stock. These shares are to be used
for the settlement of restricted stock, performance shares, and
SARs. The Company issues new shares for settlement of any
stock-based awards. In 2010, the Company issued stock-based
awards using a combination of restricted stock, SARs and
performance shares.
In 2010, 2009 and 2008, the Company recorded $11.4 million,
$10.3 million, and $12.5 million of stock-based
compensation costs, respectively. Of the total 2010 expense,
$10.9 million was recorded to S&A expense and
$0.5 million was recorded to Cost of goods sold. In 2009
and 2008, $9.8 million and $12.1 million,
respectively, was recorded to S&A expense and
$0.5 million and $0.4 million, respectively was
recorded to Cost of goods sold. Stock-based compensation costs
capitalized to inventory were $0.1 million in 2010, 2009
and 2008. The Company recorded income tax benefits of
approximately $4.3 million, $3.9 million and
$4.7 million in 2010, 2009 and 2008, respectively, related
to stock-based compensation. At December 31, 2010, these
benefits are recorded as either a deferred tax asset in Deferred
taxes and other or in Other accrued liabilities in the
Consolidated Balance Sheet. As of December 31, 2010, there
was $18.4 million, pretax, of total unrecognized
compensation cost related to non-vested share-based compensation
arrangements. This cost is expected to be recognized through
2013.
Each of the compensation arrangements is discussed below.
Restricted
Stock
Stock
Issued to Employees
Restricted stock granted is not transferable and is subject to
forfeiture in the event of the recipient’s termination of
employment prior to vesting. The restricted stock generally
vests in one-third increments annually for three years on each
anniversary of the date of grant or completely upon a change in
control or termination of employment by reason of death or
disability. Restricted stock awards are considered outstanding
at the time of grant, as the award holders are entitled to
dividends and voting rights. Unvested restricted stock awards
are considered participating securities in computing earnings
per share. The restricted stock fair values are measured using
the average between the high and low trading prices of the
Company’s Class B Common Stock on the most recent
trading day immediately preceding the grant date
(“measurement date”).
Stock
Issued to Non-employee Directors
In 2010, 2009 and 2008, each non-employee director received a
grant of Class B Common Stock. These grants were made on
the date of the annual meeting of shareholders and vested or
will vest at the following year’s annual meeting of
shareholders, upon a change of control or termination of
employment by reason of death. These shares will be subject to
forfeiture if the director’s service terminates prior to
the date of the next regularly scheduled annual meeting of
shareholders to be held in the following calendar year. During
the years 2010, 2009 and 2008, the Company issued to
non-employee directors 15,750 shares, 6,000 shares and
6,750 shares, respectively.
68
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Activity related to both employee and non-employee restricted
stock for the year ended December 31, 2010 is as follows
(in thousands, except per share amounts):
|
Weighted
|
||||||||
| Shares | Average Value/Share | |||||||
|
Restricted stock at December 31, 2009
|
249 | $ | 39.82 | |||||
|
Shares granted
|
108 | 58.18 | ||||||
|
Shares vested
|
(122 | ) | 40.39 | |||||
|
Shares forfeited
|
(5 | ) | 39.77 | |||||
|
Restricted stock at December 31, 2010
|
230 | $ | 43.25 | |||||
The weighted average fair value per share of restricted stock
granted during the years 2010, 2009 and 2008 was $58.18, $46.23
and $29.92, respectively. The total fair value of restricted
stock vested during the years 2010, 2009 and 2008 was
$7.2 million, $5.3 million and $3.1 million,
respectively.
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,
2010 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, 2009
|
2,322 | $ | 44.27 | |||||||||||||
|
Granted
|
332 | 59.95 | ||||||||||||||
|
Exercised
|
(141 | ) | 38.90 | |||||||||||||
|
Forfeited
|
(20 | ) | 39.44 | |||||||||||||
|
Canceled
|
(20 | ) | 52.51 | |||||||||||||
|
Outstanding at December 31, 2010
|
2,473 | $ | 46.65 | 7.4 years | $ | 33,332 | ||||||||||
|
Exercisable at December 31, 2010
|
1,658 | $ | 46.48 | 6.6 years | $ | 22,632 | ||||||||||
The aggregated intrinsic value of SARs exercised during 2010 and
2009 was $2.8 million and $0.2 million, respectively.
There were no SARs exercised during 2008.
The fair value of the SARs was measured using the Black-Scholes
option pricing model. The following table summarizes the related
assumptions used to determine the fair value of the SARs granted
during the periods ended December 31, 2010, 2009 and 2008.
Expected volatilities are based on historical volatilities of
the Company’s stock and other factors. The expected term of
SARs granted is based upon historical trends of stock option and
SARs
69
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
behavior as well as future projections. The risk-free interest
rate is based on the U.S. Treasury yield curve in effect at
the time of grant for the expected term of award.
|
Weighted Avg.
|
||||||||||||||||||||
|
Grant Date
|
||||||||||||||||||||
|
Dividend
|
Expected
|
Risk Free
|
Expected
|
Fair Value
|
||||||||||||||||
| Yield | Volatility | Interest Rate | Term | of 1 SAR | ||||||||||||||||
|
2010
|
2.7 | % | 28.0 | % | 1.9 | % | 6 Years | $ | 12.79 | |||||||||||
|
2009
|
3.2 | % | 26.5 | % | 3.0 | % | 7 Years | $ | 9.83 | |||||||||||
|
2008
|
3.3 | % | 26.7 | % | 3.2 | % | 7 Years | $ | 6.27 | |||||||||||
Performance
Shares
Performance shares represent the right to receive a share of the
Company’s Class B Common Stock after a three year
vesting period subject to the achievement of certain performance
criteria established by the Company’s Compensation
Committee.
In December 2010, 2009 and 2008, the Company granted 31,671,
34,592, and 54,494 performance shares, respectively. The
grants’ performance conditions are subject to the
achievement of certain market-based criteria. Performance at
target will result in vesting and issuance of the number of
performance shares granted, 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.
In December 2007, the Company granted 30,292 performance shares,
with both performance and market-based criteria. The performance
period related to the December 2007 grant was from
January 1, 2008 through December 31, 2010. There were
26,740 of these shares, net of forfeitures, outstanding as of
December 31, 2010. In February 2011, the Company paid out
31,548 shares related to this grant. This payout is based
upon achieving 66% and 170% of the performance and market-based
criteria, respectively.
In February 2010, the Company issued 41,123 shares related
to its February 2007 performance award grant. The performance
period related to this grant was from January 1, 2007
through December 31, 2009. This payout was based upon
achieving 82% and 183% of the performance and market-based
criteria, respectively. The fair value of the February 2007
performance award at vesting was $1.8 million. There were
no performance share awards that vested in 2009 and 2008.
The fair value of the market-based criteria for the December
2010, 2009 and 2008 performance share awards was determined
based upon a lattice model. The following table summarizes the
related assumptions used to determine the fair values of the
performance shares with respect to the market-based criteria.
Expected volatilities are based on historical volatilities of
the Company’s stock over a three year period. The risk free
interest rate is based on the U.S. Treasury yield curve in
effect at the time of the grant for the expected term of award.
|
Stock Price on
|
Weighted Avg.
|
|||||||||||||||||||||||
|
Measurement
|
Dividend
|
Expected
|
Risk Free
|
Expected
|
Grant Date
|
|||||||||||||||||||
| Date | Yield | Volatility | Interest Rate | Term | Fair Value | |||||||||||||||||||
|
December 2010
|
$ | 59.95 | 2.4 | % | 38.8 | % | 0.8 | % | 3 Years | $ | 80.11 | |||||||||||||
|
December 2009
|
$ | 46.96 | 3.0 | % | 38.6 | % | 1.4 | % | 3 Years | $ | 61.81 | |||||||||||||
|
December 2008
|
$ | 29.28 | 4.8 | % | 25.9 | % | 1.3 | % | 3 Years | $ | 35.26 | |||||||||||||
Total stock-based compensation expense recorded related to
performance share awards was $1.9 million,
$1.7 million and $0.1 million in 2010, 2009 and 2008,
respectively. There has been no stock based compensation
recorded related to the December 2010 performance award as the
service inception date for this particular award begins on
January 1, 2011.
70
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HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Stock
Option Awards
Prior to 2005, the Company granted options to officers and other
key employees to purchase the Company’s Class B Common
Stock. All options granted had an exercise price equal to the
average between the high and low trading prices of the
Company’s Class B Common Stock on the measurement
date. These option awards expire ten years after grant date.
Exercises of existing stock option grants are expected to be
settled in the Company’s Class B Common Stock as
authorized in the Option Plan. The last stock options granted by
the Company were in 2004.
Stock option activity for the year ended December 31, 2010
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, 2009
|
2,501 | $ | 40.44 | |||||||||||||
|
Exercised
|
(1,321 | ) | 37.29 | |||||||||||||
|
Canceled
|
(2 | ) | 44.31 | |||||||||||||
|
Outstanding at December 31, 2010
|
1,178 | $ | 43.98 | 3.2 years | $ | 19,030 | ||||||||||
|
Exercisable at December 31, 2010
|
1,178 | $ | 43.98 | 3.2 years | $ | 19,030 | ||||||||||
The aggregate intrinsic value of stock option exercises during
2010, 2009 and 2008 was $22.8 million, $2.5 million
and $2.2 million, respectively. Cash received from option
exercises was $49.3 million, $5.7 million and
$8.1 million for 2010, 2009 and 2008, respectively.
The Company recorded realized tax benefits from equity-based
awards of $9.7 million, $1.3 million and
$0.8 million for the periods ended December 31, 2010,
2009 and 2008, respectively, which have been included in Cash
Flows From Financing Activities.
| Note 18 — | Earnings Per Share |
The Company computes earnings per share using the two-class
method, which is an earnings allocation formula that determines
earnings per share for common stock and participating
securities. Restricted stock granted by the Company is
considered a participating security since it contains a
non-forfeitable right to dividends.
71
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table sets forth the computation of earnings per
share for the three years ended December 31 (in millions, except
per share amounts):
| 2010 | 2009 | 2008 | ||||||||||
|
Numerator:
|
||||||||||||
|
Net income attributable to Hubbell
|
$ | 217.2 | $ | 180.1 | $ | 222.7 | ||||||
|
Less: Earnings allocated to participating securities
|
0.9 | 0.8 | 0.8 | |||||||||
|
Net income available to common shareholders
|
$ | 216.3 | $ | 179.3 | $ | 221.9 | ||||||
|
Denominator:
|
||||||||||||
|
Average number of common shares outstanding
|
59.9 | 56.8 | 56.2 | |||||||||
|
Potential dilutive shares
|
0.4 | 0.2 | 0.3 | |||||||||
|
Average number of diluted shares outstanding
|
60.3 | 57.0 | 56.5 | |||||||||
|
Earnings per share:
|
||||||||||||
|
Basic
|
$ | 3.61 | $ | 3.16 | $ | 3.96 | ||||||
|
Diluted
|
$ | 3.59 | $ | 3.15 | $ | 3.93 | ||||||
|
Anti-dilutive securities excluded from the calculation of
earnings per diluted share:
|
||||||||||||
|
Stock options and performance shares
|
— | 1.5 | 1.6 | |||||||||
|
Stock appreciation rights
|
1.6 | 2.3 | 1.3 | |||||||||
| Note 19 — | Accumulated Other Comprehensive Loss |
The following table reflects the accumulated balances of other
comprehensive income (loss) (in millions):
| 2010 | 2009 | 2008 | ||||||||||
|
Pension and post retirement benefit plan adjustment, net of tax
|
$ | (95.6 | ) | $ | (71.7 | ) | $ | (86.0 | ) | |||
|
Cumulative translation adjustment
|
14.6 | 2.7 | (32.6 | ) | ||||||||
|
Unrealized gain on investment, net of tax
|
0.5 | 0.5 | 0.2 | |||||||||
|
Cash flow hedge gain (loss), net of tax
|
(0.8 | ) | (0.3 | ) | 1.6 | |||||||
|
Total Accumulated other comprehensive loss
|
$ | (81.3 | ) | $ | (68.8 | ) | $ | (116.8 | ) | |||
| Note 20 — | 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, China, Mexico, Italy, the UK, Brazil and Australia.
Hubbell also participates in joint ventures in Taiwan and China,
and maintains sales offices in Singapore, China, Mexico, South
Korea and countries in the Middle East.
The Company’s reporting segments consist of the Electrical
segment (comprised of electrical systems products and lighting
products), and the Power segment, as described below.
The Electrical segment is comprised of businesses that sell
stock and custom products including standard and special
application wiring device products, rough-in electrical products
and lighting fixtures and controls, and other electrical
equipment. The products are typically used in and around
industrial, commercial and institutional facilities by
electrical contractors, maintenance personnel, electricians, and
telecommunications companies. In
72
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
addition, certain businesses design and manufacture a variety of
high voltage test and measurement equipment, industrial controls
and communication systems used in the non-residential and
industrial markets. Many of these products may also be found in
the oil and gas (onshore and offshore) and mining industries.
Certain lighting fixtures, wiring devices and electrical
products also have residential and utility applications. These
products are primarily sold through electrical and industrial
distributors, home centers, some retail and hardware outlets,
and lighting showrooms. Special application products are sold
primarily through wholesale distributors to contractors,
industrial customers and OEMs. High voltage products are also
sold direct to customers through our 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, 2010, is summarized
below (in millions). When reading the data the following items
should be noted:
| • | Net sales comprise sales to unaffiliated customers — inter-segment and inter-area sales are not significant. | |
| • | 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 as these items are centrally managed by the Company. | |
| • | General corporate assets not allocated to segments are principally cash, prepaid pensions, investments and deferred taxes. These assets have not been allocated as they are centrally managed by the Company. |
73
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Industry
Segment Data
| 2010 | 2009 | 2008 | ||||||||||
|
Net Sales:
|
||||||||||||
|
Electrical
|
$ | 1,808.2 | $ | 1,650.1 | $ | 1,958.2 | ||||||
|
Power
|
733.0 | 705.5 | 746.2 | |||||||||
|
Total
|
$ | 2,541.2 | $ | 2,355.6 | $ | 2,704.4 | ||||||
|
Operating Income:
|
||||||||||||
|
Electrical
|
$ | 248.7 | $ | 163.7 | $ | 227.3 | ||||||
|
Power
|
119.1 | 131.0 | 118.7 | |||||||||
|
Operating income
|
367.8 | 294.7 | 346.0 | |||||||||
|
Loss on extinguishment of debt
|
(14.7 | ) | — | — | ||||||||
|
Interest expense
|
(31.1 | ) | (30.9 | ) | (27.4 | ) | ||||||
|
Investment income and other expense, net
|
(1.6 | ) | (2.2 | ) | (0.2 | ) | ||||||
|
Income before income taxes
|
$ | 320.4 | $ | 261.6 | $ | 318.4 | ||||||
|
Assets:
|
||||||||||||
|
Electrical
|
$ | 1,576.7 | $ | 1,607.9 | $ | 1,252.0 | ||||||
|
Power
|
622.2 | 587.7 | 636.7 | |||||||||
|
General Corporate
|
506.9 | 207.2 | 226.8 | |||||||||
|
Total
|
$ | 2,705.8 | $ | 2,402.8 | $ | 2,115.5 | ||||||
|
Capital Expenditures:
|
||||||||||||
|
Electrical
|
$ | 23.5 | $ | 13.9 | $ | 31.7 | ||||||
|
Power
|
17.8 | 10.5 | 12.1 | |||||||||
|
General Corporate
|
6.0 | 5.0 | 5.6 | |||||||||
|
Total
|
$ | 47.3 | $ | 29.4 | $ | 49.4 | ||||||
|
Depreciation and Amortization:
|
||||||||||||
|
Electrical
|
$ | 50.8 | $ | 48.1 | $ | 42.7 | ||||||
|
Power
|
21.7 | 22.5 | 20.4 | |||||||||
|
Total
|
$ | 72.5 | $ | 70.6 | $ | 63.1 | ||||||
74
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Geographic
Area Data
| 2010 | 2009 | 2008 | ||||||||||
|
Net Sales:
|
||||||||||||
|
United States
|
$ | 2,107.9 | $ | 1,981.0 | $ | 2,283.5 | ||||||
|
International
|
433.3 | 374.6 | 420.9 | |||||||||
|
Total
|
$ | 2,541.2 | $ | 2,355.6 | $ | 2,704.4 | ||||||
|
Operating Income:
|
||||||||||||
|
United States
|
$ | 292.9 | $ | 227.6 | $ | 269.9 | ||||||
|
International
|
74.9 | 67.1 | 76.1 | |||||||||
|
Total
|
$ | 367.8 | $ | 294.7 | $ | 346.0 | ||||||
|
Property, Plant, and Equipment, net:
|
||||||||||||
|
United States
|
$ | 285.6 | $ | 298.0 | $ | 291.1 | ||||||
|
International
|
72.7 | 70.8 | 58.0 | |||||||||
|
Total
|
$ | 358.3 | $ | 368.8 | $ | 349.1 | ||||||
On a geographic basis, the Company defines
“international” as operations based outside of the
United States and its possessions. As a percentage of total net
sales, shipments from foreign operations directly to third
parties were 17% in 2010 and 16% in both 2009 and 2008, with
Canada, UK and Switzerland operations representing approximately
29%, 20% and 18%, respectively, of 2010 total international net
sales. Long-lived assets of international subsidiaries were 20%,
19% and 17% of the consolidated total in 2010, 2009 and 2008,
respectively, with the Mexico, Brazil, Canada and UK operations
representing approximately 50%, 18%, 13% and 10%, respectively,
of the 2010 international total. Export sales from United States
operations were $182.7 million in 2010, $183.3 million
in 2009 and $184.9 million in 2008.
| Note 21 — | 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
the guarantees accounting guidance. As of December 31,
2010, the fair value and maximum potential payment related to
the Company’s guarantees were not material.
The Company offers product warranties which cover defects on
most of its products. These warranties primarily apply to
products that are properly installed, maintained and used for
their intended purpose. The Company accrues estimated warranty
costs at the time of sale. Estimated warranty expenses are based
upon historical information such as past experience, product
failure rates, or the number of units to be repaired or
replaced. Adjustments are made to the product warranty accrual
as claims are incurred or as historical experience indicates.
The product warranty accrual is reviewed for reasonableness on a
quarterly basis and is adjusted as additional information
regarding expected warranty costs becomes known.
75
Table of Contents
HUBBELL
INCORPORATED AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Changes in the accrual for product warranties in 2010 are set
forth below (in millions):
|
Balance at December 31, 2009
|
$ | 9.0 | ||
|
Provision
|
7.5 | |||
|
Expenditures/other
|
(9.8 | ) | ||
|
Balance at December 31, 2010
|
$ | 6.7 | ||
| Note 22 — | Quarterly Financial Data (Unaudited) |
The table below sets forth summarized quarterly financial data
for the years ended December 31, 2010 and 2009 (in
millions, except per share amounts):
|
First
|
Second
|
Third
|
Fourth
|
|||||||||||||
| Quarter | Quarter | Quarter | Quarter | |||||||||||||
|
2010
|
||||||||||||||||
|
Net Sales
|
$ | 570.5 | $ | 646.4 | $ | 685.0 | $ | 639.3 | ||||||||
|
Gross Profit
|
$ | 175.7 | $ | 211.0 | $ | 235.2 | $ | 206.8 | ||||||||
|
Net Income
|
$ | 39.0 | $ | 57.9 | $ | 71.7 | $ | 50.2 | (1) | |||||||
|
Net Income attributable to Hubbell
|
$ | 38.6 | $ | 57.6 | $ | 71.3 | $ | 49.7 | (1) | |||||||
|
Earnings Per Share — Basic
|
$ | 0.64 | $ | 0.96 | $ | 1.19 | $ | 0.82 | (1) | |||||||
|
Earnings Per Share — Diluted
|
$ | 0.64 | $ | 0.95 | $ | 1.18 | $ | 0.81 | (1) | |||||||
|
2009
|
||||||||||||||||
|
Net Sales
|
$ | 585.6 | $ | 584.2 | $ | 593.9 | $ | 591.9 | ||||||||
|
Gross Profit
|
$ | 167.0 | $ | 174.2 | $ | 192.9 | $ | 191.8 | ||||||||
|
Net Income
|
$ | 34.1 | $ | 39.6 | $ | 57.5 | $ | 50.1 | (2) | |||||||
|
Net Income attributable to Hubbell
|
$ | 33.8 | $ | 39.4 | $ | 57.3 | $ | 49.6 | (2) | |||||||
|
Earnings Per Share — Basic
|
$ | 0.60 | $ | 0.70 | $ | 1.01 | $ | 0.85 | ||||||||
|
Earnings Per Share — Diluted
|
$ | 0.60 | $ | 0.70 | $ | 1.01 | $ | 0.84 | ||||||||
| (1) | The fourth quarter of 2010 includes a $14.7 million pre-tax charge ($9.1 million after-tax) related to a loss on debt extinguishment. The earnings per share impact of this charge, both basic and diluted, was $0.15. | |
| (2) | The fourth quarter of 2009 includes a $4.9 million out of period adjustment which decreased Provision for income taxes. See Note 12 — Income Taxes. |
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 that the controls and
procedures will meet their objectives.
The Company carried out an evaluation, under the supervision and
with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company’s
disclosure controls and procedures as defined in Exchange 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, 2010 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.
77
Table of Contents
PART III
| Item 10. | Directors, Executive Officers and Corporate Governance(1) |
| 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,
2010 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)
|
3,884 | (c)(d) | $ | 45.79 | (e) | 3,253 | (c) | |||||
|
Equity Compensation Plans Not Requiring Shareholder Approval(b)
|
— | — | 140 | (c) | ||||||||
|
Total
|
3,884 | $ | 45.79 | 3,393 | ||||||||
| (a) | The Company’s (1) Option Plan and (2) Award Plan. | |
| (b) | The Company’s Deferred Compensation Plan for Directors. | |
| (c) | Class B Common Stock | |
| (d) | Includes 233 performance share awards assuming a maximum payout target. The Company does not anticipate that the maximum payout target will be achieved for these awards. | |
| (e) | Weighted average exercise price excludes performance share awards included in column A. |
The remaining information required by this item is incorporated
by reference to the subheadings “Compensation Discussion
and Analysis,” “Compensation Committee Report,”
“Executive Compensation” and “Compensation of
Directors” of the definitive proxy statement for the
Company’s annual meeting of shareholders scheduled to be
held on May 2, 2011.
| Item 13. | Certain Relationships and Related Transactions and Director Independence(3) |
| Item 14. | Principal Accountant Fees and Services(4) |
| (1) | Certain of the information required by this item regarding executive officers is included under the subheading “Executive Officers of the Registrant” at the end of Part I, of this Form 10-K and the remaining required information is incorporated by reference to the subheadings “Item 1 – Election of Directors,” “General—Information Regarding Executive Officers,” “General—Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance—Code of Ethics,” and “Corporate Governance—Board Committees—Audit Committee” of the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 2, 2011. | |
| (2) | The information required by this item is incorporated by reference to the subheadings “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Executive Compensation” and “Compensation of Directors” of the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 2, 2011. | |
| (3) | The information required by this item is incorporated by reference to the subheadings “General—Review and Approval of Related Person Transactions” and “Corporate Governance—Director Independence” of the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 2, 2011. | |
| (4) | The information required by this item is incorporated by reference to the subheading “Item 2 – Ratification of the Selection of Independent Registered Public Accounting Firm” of the definitive proxy statement for the Company’s annual meeting of shareholders scheduled to be held on May 2, 2011. |
78
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. | |
|
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. | |
|
4h
|
Second Supplemental Indenture, dated as of November 17, 2010, between Hubbell Incorporated and The Bank of New York Mellon Trust Company, N.A. (as successor to The Bank of New York Trust Company, N.A., JPMorgan Chase Bank, N.A., The Chase Manhattan Bank and Chemical Bank), as trustee, including the form of 3.625% Senior Notes due 2022. Exhibit 4.2 of the registrant’s report on Form 8-K filed on November 17, 2010, is incorporated by reference. | |
|
10a†
|
Hubbell Incorporated Amended and Restated Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2005. Exhibit 10a of the registrant’s report on Form 10-Q for the third quarter (ended September 30), 2007, filed October 26, 2007, is incorporated by reference. | |
|
10a(1)†*
|
Amendment to Hubbell Incorporated Amended and Restated Supplemental Executive Retirement Plan, as amended and restated effective January 1, 2005. | |
|
10b(1)†
|
Hubbell Incorporated Stock Option Plan for Key Employees, as amended and restated effective May 5, 2003.(i) Exhibit 10b(1) of the registrant’s report 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†
|
Change in Control and Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and Timothy H. Powers. Exhibit 10.1 of the registrant’s report on Form 8-K filed on January 5, 2011, is incorporated by reference. | |
|
10u†
|
Change in Control and Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and Richard W. Davies. Exhibit 10.3 of the registrant’s report on Form 8-K filed on January 5, 2011, is incorporated by reference. | |
|
10v†
|
Change in Control and Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and James H. Biggart. Exhibit 10.4 of the registrant’s report on Form 8-K filed on January 5, 2011, is incorporated by reference. | |
|
10w†
|
Hubbell Incorporated Amended and Restated Top Hat Restoration Plan, as amended and restated effective January 1, 2005. Exhibit 10w of the registrant’s report on Form 10-Q for the third quarter (ended September 30), 2007 filed October 26, 2007, is incorporated by reference. | |
|
10w(1)†*
|
Amendment to Hubbell Incorporated Amended and Restated Top Hat Restoration Plan, as amended and restated effective January 1, 2005. | |
|
10z†
|
Hubbell Incorporated Incentive Compensation Plan, adopted effective January 1, 2002. Exhibit 10z of the registrant’s report on Form 10-K for the year 2001, filed on March 19, 2002, is incorporated by reference. | |
|
10aa†
|
Change in Control and Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and William R. Murphy. Exhibit 10.5 of the registrant’s report on Form 8-K filed on January 5, 2011, is incorporated by reference. | |
|
10cc†
|
Change in Control and Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and Gary N. Amato. Exhibit 10.7 of the registrant’s report on Form 8-K filed on January 5, 2011, is incorporated by reference. | |
|
10.9†
|
Grantor Trust for Senior Management Plans Trust Agreement, dated as of March 14, 2005, between Hubbell Incorporated and The Bank of New York, as Trustee. Exhibit 10.9 of the registrant’s report 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. |
80
Table of Contents
|
Number
|
Description
|
|
|
10.ee†
|
Hubbell Incorporated 2005 Incentive Award Plan, as amended and restated effective as of May 3, 2010. Exhibit 10.1 of the registrant’s report on Form 8-K filed May 7, 2010, 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†
|
Change in Control and Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and David G. Nord. Exhibit 10.2 of the registrant’s report on Form 8-K filed on January 5, 2011, is incorporated by reference. | |
|
10.ii
|
Credit Agreement, dated as of October 31, 2007 Among Hubbell Incorporated, Hubbell Cayman Limited, Hubbell Investments Limited, The Lenders Party hereto, Bank of America, N.A., Citibank, N.A., U.S. Bank National Association, and Wachovia Bank National Association as Syndication Agents, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Securities Inc. as Sole Lead Arranger and Bookrunner (the “Credit Agreement”). Exhibit 10.ii of the registrant’s report 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.kk(1)†*
|
Amendment to Hubbell Incorporated Supplemental Management Retirement Plan, effective September 12, 2007. | |
|
10.mm†
|
Trust Agreement, dated as of January 1, 2008, by and between Hubbell Incorporated and T. Rowe Price Trust Company, as Trustee. Exhibit 10.mm of the registrant’s report 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.rr†
|
Change in Control Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and Darrin S. Wegman. Exhibit 10.6 of the registrant’s report on Form 8-K filed January 5, 2011, is incorporated by reference. | |
|
10.tt†
|
Hubbell Incorporated Defined Contribution Restoration Plan, effective January 1, 2011. Exhibit 10.1 of the registrant’s report on Form 8-K filed December 13, 2010, is incorporated by reference. | |
|
10.uu†
|
Change in Control Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and Scott H. Muse. Exhibit 10.8 of the registrant’s report on Form 8-K filed January 5, 2011, is incorporated by reference. | |
|
10.vv†
|
Change in Control Severance Agreement, dated as of December 31, 2010, between Hubbell Incorporated and William T. Tolley. Exhibit 10.9 of the registrant’s report on Form 8-K filed January 5, 2011, is incorporated by reference. | |
|
21*
|
Listing of subsidiaries. | |
|
23*
|
Consent of PricewaterhouseCoopers LLP. | |
|
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. |
81
Table of Contents
|
Number
|
Description
|
|
|
32.1*
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
32.2*
|
Certification of Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
|
101.INS**
|
XBRL Instance Document. | |
|
101.SCH**
|
XBRL Taxonomy Extension Schema Document. | |
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase Document. | |
|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase Document. | |
|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document. | |
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document. |
| † | This exhibit constitutes a management contract, compensatory plan, or arrangement | |
| * | Filed hereunder |
| ** | In accordance with Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
82
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)
| By |
/s/
David
G. Nord
|
David G. Nord
Senior Vice President and
Chief Financial Officer
Date: February 16, 2011
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 | 2/16/11 | |||
| By |
/s/
D.
G. Nord
|
Senior Vice President and Chief Financial Officer | 2/16/11 | |||
| By |
/s/
D.
S. Wegman
|
Vice President, Controller | 2/16/11 | |||
| By |
/s/
G.
W. Edwards, Jr
|
Director | 2/16/11 | |||
| By |
/s/
L.
J. Good
|
Director | 2/16/11 | |||
| By |
/s/
A.
J. Guzzi
|
Director | 2/16/11 | |||
| By |
/s/
J.
S. Hoffman
|
Director | 2/16/11 | |||
| By |
/s/
N.J.
Keating
|
Director | 2/16/11 | |||
| By |
/s/
A.
McNally IV
|
Director | 2/16/11 | |||
| By |
/s/
G.
J. Ratcliffe
|
Director | 2/16/11 | |||
| By |
/s/
C.
A. Rodriguez
|
Director | 2/16/11 | |||
| By |
/s/
R.
J. Swift
|
Director | 2/16/11 | |||
| By |
/s/
D.
S. Van Riper
|
Director | 2/16/11 |
84
Table of Contents
Schedule II
HUBBELL
INCORPORATED AND SUBSIDIARIES
FOR THE
YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
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 2008
|
$ | 3.7 | $ | 2.2 | $ | 0.4 | $ | (2.3 | ) | $ | 4.0 | |||||||||
|
Year 2009
|
$ | 4.0 | $ | 2.1 | $ | — | $ | (1.0 | ) | $ | 5.1 | |||||||||
|
Year 2010
|
$ | 5.1 | $ | (0.2 | ) | $ | — | $ | (1.3 | ) | $ | 3.6 | ||||||||
|
Allowance for credit memos and returns:
|
||||||||||||||||||||
|
Year 2008
|
$ | 18.9 | $ | 106.3 | $ | 0.2 | $ | (108.6 | ) | $ | 16.8 | |||||||||
|
Year 2009
|
$ | 16.8 | $ | 85.4 | $ | — | $ | (83.6 | ) | $ | 18.6 | |||||||||
|
Year 2010
|
$ | 18.6 | $ | 102.3 | $ | — | $ | (102.3 | ) | $ | 18.6 | |||||||||
|
Allowances for excess/obsolete inventory:
|
||||||||||||||||||||
|
Year 2008
|
$ | 27.6 | $ | 9.1 | $ | 1.2 | $ | (4.8 | ) | $ | 33.1 | |||||||||
|
Year 2009
|
$ | 33.1 | $ | 12.0 | $ | — | $ | (8.2 | ) | $ | 36.9 | |||||||||
|
Year 2010
|
$ | 36.9 | $ | 4.9 | $ | — | $ | (9.4 | ) | $ | 32.4 | |||||||||
|
Valuation allowance on deferred tax assets:
|
||||||||||||||||||||
|
Year 2008
|
$ | — | $ | 2.5 | $ | — | $ | — | $ | 2.5 | ||||||||||
|
Year 2009
|
$ | 2.5 | $ | — | $ | — | $ | (0.3 | ) | $ | 2.2 | |||||||||
|
Year 2010
|
$ | 2.2 | $ | 0.4 | $ | — | $ | — | $ | 2.6 | ||||||||||
85
TABLE OF CONTENTS
Part IprintItem 1. BusinessprintNote 20-industryprintItem 1A. Risk FactorsprintItem 1B. Unresolved Staff CommentsprintItem 2. PropertiesprintItem 3. Legal ProceedingsprintItem 4. [removed and Reserved]printPart 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 Business AcquisitionsprintNote 3 Receivables and AllowancesprintNote 4 InventoriesprintNote 5 Goodwill and Other Intangible AssetsprintNote 6 InvestmentsprintNote 7 Property, Plant, and EquipmentprintNote 8 Other Accrued LiabilitiesprintNote 9 Other Non-current LiabilitiesprintNote 10 Retirement BenefitsprintPart DprintNote 11 DebtprintNote 12 Income TaxesprintNote 13 Financial InstrumentsprintNote 14 Fair Value MeasurementprintNote 15 Commitments and ContingenciesprintNote 16 Capital StockprintNote 17 Stock-based CompensationprintNote 18 Earnings Per ShareprintNote 19 Accumulated Other Comprehensive LossprintNote 20 Industry Segments and Geographic Area InformationprintNote 21 GuaranteesprintNote 22 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, Executive Officers and Corporate Governance(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 and Director Independence(3)printItem 14. Principal Accountant Fees and Services(4)printPart IVprintItem 15. Exhibits and Financial Statement Scheduleprint