Back to GetFilings.com

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10Q

		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended June 30, 2002.
		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from                 to
		Commission File Number 1-2958

HUBBELL INCORPORATED

(203) 799-4100

N/A

Indicate by check mark whether 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 reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes		No

The number of shares of registrant’s classes of common stock outstanding as of August 7, 2002 were:

Table of Contents

INDEX

HUBBELL INCORPORATED

2

Table of Contents

HUBBELL INCORPORATED

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Consolidated Statements of Income
(unaudited)
(in millions, except per share amounts)

See notes to consolidated financial statements.

3

Table of Contents

HUBBELL INCORPORATED

Consolidated Balance Sheets
(in millions)

See notes to consolidated financial statements.

4

Table of Contents

HUBBELL INCORPORATED

Consolidated Statements of Cash Flows
(unaudited)
(in millions)

See notes to consolidated financial statements.

5

Table of Contents

HUBBELL INCORPORATED
Notes to Consolidated Financial Statements
June 30, 2002
(unaudited)

1.		Basis of Presentation
		The accompanying unaudited consolidated financial statements of Hubbell Incorporated (“Hubbell” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002.
		The balance sheet at December 31, 2001 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.
		For further information, refer to the consolidated financial statements and footnotes thereto included in the Hubbell Incorporated Annual Report on Form 10-K for the year ended December 31, 2001.
2.		Inventories are classified as follows (in millions):

3.		Business Combinations
		Acquisitions
		In March 2002, Hubbell entered into an agreement to acquire the LCA Group, Inc. (“LCA”), the domestic lighting business of U.S. Industries, Inc. The transaction was completed on April 26, 2002. The purchase price for the acquisition was approximately $234.0 million in cash, including fees and expenses. This amount is net of a $10 million payment received by Hubbell in the second quarter representing an initial net worth purchase price adjustment and an additional $8.4 million final payment expected in the third quarter. Determination of the final purchase price is subject to completion of the closing net worth calculation which is expected by the end of the 2002 third quarter.
		LCA manufactures and distributes a wide range of outdoor and indoor lighting products to commercial, industrial and residential markets under various brand names, including Alera, Kim, Spaulding, Whiteway, Moldcast, Architectural Area Lighting, Columbia, Keystone, Prescolite, Dual-Lite and Progress. Hubbell financed the acquisition of LCA with available cash and through the issuance of $200.0 million of long-term notes in May, 2002 (See Note 6).

6

Table of Contents

The following table summarizes the preliminary allocation of the assets acquired and liabilities assumed at April 26, 2002 using preliminary determinations of fair market valuations (in millions):

		At June 30, 2002, goodwill related to the acquisition amounted to $42.5 million, representing the difference between the preliminary purchase price of $234.0 million and the net assets acquired of $191.5 million. In total, $63.2 million of the total preliminary purchase price has been allocated to goodwill and identifiable intangible assets deemed to have indefinite lives (primarily trademarks/trade names). Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets, which is expected to be deductible for federal tax purposes. Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”, (“SFAS 142”) is effective for all business combinations that are completed after June 30, 2001. SFAS 142 requires a non-amortization, impairment only approach to accounting for goodwill and indefinite lived intangibles.
		As indicated, the recorded allocation of purchase price and determination of goodwill related to the LCA acquisition at June 30, 2002 is preliminary. In addition to potential changes to fair market valuations, the allocation of purchase price is subject to the finalization of plans related to the cost of facility rationalization and organizational realignment of the Company’s combined lighting businesses.
		The following unaudited pro forma data summarize the results of operations for the periods indicated as if the acquisition of LCA had been completed as of the beginning of the periods presented. The pro forma data give effect to actual operating results prior to the acquisition and includes adjustments to interest expense and other costs associated with the combination. No effect has been given to cost reductions or operating synergies in this presentation. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the periods presented or that may be obtained in the future (in millions):

7

Table of Contents

		Management believes that the combination of the LCA brand names acquired and Hubbell’s existing lighting brands will create leading market positions in many sub-segments of the domestic lighting fixtures industry, both in terms of product offering and market share. Further, the acquisition adds complementary products to the Company’s current product offering and is expected to enhance the ability of the Company to attract premium manufacturers’ representatives in key markets, which is the primary channel to market in the domestic lighting fixtures business. The acquired businesses are included in the Company’s Electrical Segment beginning on the acquisition date of April 26, 2002. The Company expects its lighting operations to generate annual sales in excess of $800 million due to the combination of LCA with the Company’s existing lighting operations.
		In March 2002, the Company completed the purchase of the common stock of Hawke Cable Glands Limited (“Hawke”) for $26.4 million in cash, including fees and expenses and net of cash acquired. Based in the United Kingdom, Hawke is a leading supplier of products used in harsh and hazardous locations worldwide including brass cable glands and cable connectors, cable transition devices, utility transformer breathers, stainless steel and nonmetallic enclosures and field bus connectivity components. Hawke complements the product offering of the Company’s Killark brand electrical components and is included in the Electrical Segment. Hawke is expected to add approximately $18-20 million in net sales annually. The Company is in the process of obtaining valuations of certain intangible assets and adjusting the historical cost basis of assets and liabilities to fair value. As a result, the allocation of the purchase price may change.
		Dispositions
		In April 2000, the Company completed the sale of its WavePacer Digital Subscriber Line assets, part of Pulse Communications, Inc., for a sales price of $61.0 million. The transaction produced a gain on sale of $36.2 million in 2000. At the time of sale, the Company retained a contractual obligation to supply product to the buyer at prices below manufacturing cost, resulting in an adverse commitment. Management revised the remaining adverse commitment accrual at March 31, 2002 to reflect lower order quantities and projected costs than previously estimated, which resulted in an additional gain of $1.4 million. Deliveries under this contract ended in April 2002, and although final order quantities are known, ongoing service and warranty costs continue to be estimated and reserved. Expenditures under the commitment are expected to conclude by the end of the third quarter of 2002.
4.		Goodwill and Other Intangible Assets/Earnings Per Share
		The following table sets forth a reconciliation of Net Income and Earnings Per Share for the three and six months ended June 30, 2002, indicating the impact of adopting the provisions of SFAS 142, on January 1, 2002 (in millions except per share data).

8

Table of Contents

		Upon adoption of SFAS 142 on January 1, 2002, the Company stopped recording goodwill amortization, which in the second quarter and six months ended June 30, 2001, respectively, totaled $1.6 million and $3.2 million, after tax. During the 2002 second quarter, the Company completed the initial impairment tests of the recorded value of goodwill, as is required by the Standard. As a result of this process, the Company identified one reporting unit in the Industrial Technology Segment with a book value, including goodwill, which exceeded its fair market value. As a result, further procedures as prescribed under SFAS 142 are being performed to identify the amount of impairment, which is estimated to be in the range of $20-25 million, net of tax. The adjustment will be reported as the cumulative effect of a change in accounting principle retroactive to the 2002 first quarter. This review is expected to be completed in the third quarter of 2002.
		Changes in the carrying amount of goodwill for the three and six months ended June 30, 2002, by Segment, were as follows:

		The first quarter addition to goodwill relates to the acquisition of Hawke. The second quarter addition relates primarily to LCA and also includes $0.9 million of Hawke acquisition fees and expenses (See Note 3).
		As of June 30, 2002, the Company has $2.0 million of intangible assets, net of accumulated amortization, which are being amortized.
5.		Tax Settlement
		In June 2002, the Company settled a fully reserved tax audit issue with the Internal Revenue Service (“IRS”) resulting in a cash payment of $15.7 million and the recording of $5.0 million of tax benefit income as a result of being reserved at an amount in excess of the agreed settlement. The settlement also contemplates a final cash payment of approximately $2 million in the 2002 third quarter.
6.		Long-Term Debt
		During the 2002 second quarter, the Company completed the sale of $200.0 million of long-term, senior, unsecured notes maturing in 2012 and bearing interest at the rate of 6.375%. The proceeds from the note issuance were used to fund the acquisition of LCA (see Note 3). In connection with the issuance of the notes, the Company entered into a forward interest rate lock to hedge its exposure to fluctuations in treasury rates, which resulted in a loss of approximately $1.3 million during the quarter. This amount has been recorded in other comprehensive income and will be amortized over the life of the notes.

9

Table of Contents

7.

Shareholders’ Equity comprises (in millions):

8.		Special and Non-Recurring Charges
		Operating results in the second half of 2001 reflect special and non-recurring charges of $56.3 million offset by a $3.3 million reduction in the special charge accrual established in 1997 ($35.5 million net of tax, or $0.60 per diluted share).
		The 2001 streamlining and cost reduction program is comprised of a variety of individual programs and was primarily undertaken to reduce the productive capacity of the Company and realign employment levels to better match with lower actual and forecast rates of incoming business. In total, the plan is expected to require a cumulative charge to profit and loss of approximately $62.0 million. In addition to the 2001 charge of $56.3 million, expenses totaling approximately $5–6 million are expected to be charged against profit in 2002, as costs are incurred and specific actions are announced and implemented. Of the total amount expected to be incurred as a 2002 charge, $1.0 and $1.7 million were recorded in the second quarter and six months, respectively, primarily related to planned severance and facility relocation costs.
		The following table sets forth the components and status of the streamlining and cost reduction program at June 30, 2002 (in millions):

		Substantially all actions contemplated are scheduled for completion by December 31, 2002. Cash expenditures under the plan through June 30, 2002 total approximately $11 million for severance and other costs of facility closings. Including the remaining amounts to be charged against earnings in 2002, future cash expenditures of $15 million are expected to be incurred. In addition, cash proceeds of approximately $10 million related to asset sales are also expected.
9.		Comprehensive Income:
		Total comprehensive income and its components are as follows (in millions):

10

Table of Contents

10.		Industry Segments
		The following table sets forth financial information by industry segment for the three and six months ended June 30, (in millions):