Back to GetFilings.com

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10Q

HUBBELL INCORPORATED

(Exact name of registrant as specified in its charter)

(203) 799-4100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report.)

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  [X]          No  [   ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X]     No [   ]

The number of shares outstanding of the Class A Common Stock and Class B Common Stock as of November 3, 2003 were 9,605,847 and 50,128,753, respectively.

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
September 30, 2003
(unaudited)

1. Basis of Presentation

	The accompanying unaudited consolidated financial statements of Hubbell Incorporated (“Hubbell”, the “Company”, or “Registrant”) 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 considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003. Certain prior year amounts have been reclassified to conform with the current year presentation.
	The balance sheet at December 31, 2002 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, 2002.

2. Stock- Based Compensation

	Effective December 2002, the Company adopted the disclosure provisions as outlined in Statement of Financial Accounting Standards (“SFAS”) No. 148 “Accounting for Stock Based Compensation - Transition and Disclosure, an amendment of FASB Statement No. 123”. SFAS No. 123 - “Accounting for Stock-Based Compensation” permits, but does not require, a fair value based method of accounting for employee stock option and performance plans which results in compensation expense being recognized in the results of operations when awards are granted. The Company continues to use the intrinsic value based method of accounting for such plans in accordance with Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees,” where compensation expense per option granted is measured as the excess, if any, of the quoted market price of the Company’s stock at the measurement date over the exercise price.
	The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 for stock options (in millions, except per share amounts):

6

Table of Contents

3. Inventories are classified as follows (in millions):

4. Business Combinations

	There were no business acquisitions or dispositions for the first nine months of 2003.
	In April 2002, Hubbell acquired the LCA Group, Inc. (“LCA”), the domestic lighting business of U.S. Industries, Inc. The purchase price for the acquisition was approximately $235.0 million in cash.
	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.
	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 January 1, 2002. 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 acquisition. 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 reported if the acquisition had occurred as of January 1, 2002 or that may be reported in the future (in millions, except per share amounts):

Management believes that the combination of the LCA brand names acquired and Hubbell’s other lighting brands has created leading market positions in many product segments of the North American lighting fixtures industry. Further, the acquisition added complementary products to the Company’s current product offering and enhanced the ability of the Company to attract leading manufacturers’ representatives in key markets, which is the primary channel to market in the North American lighting fixtures business. The acquired businesses are included in the Company’s Electrical Segment beginning on the acquisition date of April 26, 2002.

      Dispositions

In April 2000, the Company completed the sale of its WavePacer Digital Subscriber Line (“WavePacer”) assets, part of Pulse Communications, Inc., for a sales price of $61.0 million. The transaction produced a pretax 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.

7

Table of Contents

In September 2002, the Company entered into an agreement modifying the original manufacturing contract. In accordance with the modification agreement, final quantities were shipped and the Company was released from all service and warranty obligations, which resulted in a pretax gain of $1.6 million in the 2002 third quarter. For the first nine months of 2002, a total pretax gain of $3.0 million related to this sale was recorded.

5. Earnings Per Share

	The following table sets forth the computation of earnings per share for the three and nine months ended September 30, 2003 and 2002 (in millions, except per share amounts).

A portion of the total number of options to purchase shares of common stock were not included in the computation of diluted earnings per share because the effect would be anti-dilutive. The number of anti-dilutive options outstanding were 1.9 million for the third quarter and 3.6 million for the nine months ended September 30, 2003. The number of anti-dilutive options outstanding were 2.8 million for the third quarter and 2.3 million for the nine months ended September 30, 2002.

6. Goodwill and Other Intangible Assets

	Changes in the carrying amount of goodwill for the nine months ended September 30, 2003, by segment, were as follows (in millions):

	In the first and second quarters of 2003, the Company made certain adjustments to goodwill in order to finalize the purchase accounting of the acquisitions of Hawke Cable Glands Limited (“Hawke”) and LCA. These adjustments related to the fair value of certain fixed assets and accrued liabilities.
	During 2002, the Company completed the initial impairment tests of the recorded value of goodwill, as required by SFAS 142, “Goodwill and Other Intangible Assets”. The Company identified one reporting unit within the Industrial Technology segment with a book value, including goodwill, which exceeded its fair market value. Thereafter, the implied fair value of the goodwill for this reporting unit was calculated, which resulted in a non-cash charge of $25.4 million, net of tax, or $0.43 per share-diluted to write-down the full value of the reporting unit’s goodwill. This non-cash charge was reported as the cumulative effect of a change in accounting principle retroactive to January 1, 2002. Fair values were calculated using a range of future operating results and primarily utilized a discounted cash flow model. In the second quarter of 2003, the Company performed its annual impairment testing of goodwill and indefinite-lived intangible assets. This testing resulted in implied fair values for each reporting unit which exceeded the reporting unit’s carrying value, including goodwill. Similarly, there were no impairments of indefinite-lived intangible assets. The Company’s policy is to perform its annual impairment testing in the second quarter of each year, unless circumstances dictate the need for more frequent assessments.

8

Table of Contents

Identifiable intangible assets as of September 30, 2003 are recorded in Intangible assets and other in the Consolidated Balance Sheet and include approximately $25 million of indefinite-lived intangible assets not subject to amortization and $8.7 million of intangibles with definite lives that are being amortized and are presented net of accumulated amortization of $2.1 million. Indefinite lived intangible assets primarily represent trade names and customer lists, while definite-lived intangible assets primarily represent trademarks and patents, for which amortization expense is expected to be approximately $1 million per year over the next five years.

7. Shareholders’ Equity

	Shareholders’ Equity is comprised of the following (in millions, except share and per share amounts):

8. Special Charges

          Special Charges — Lighting Business Integration Program

	Special charges (credits), net in the third quarter of 2003 reflect a net credit of $0.2 million. The net credit in the quarter consists of special charges of $1.0 million related to asset disposals, plant shutdown expenses and relocation of inventory and employees in connection with the ongoing lighting business integration program (the “Program”). Offsetting the $1.0 million of special charges was income of $1.2 million primarily resulting from favorable adjustments related to actual and estimated realizable values of buildings and equipment either sold or held for sale in connection with the Program.
	For the nine months ended September 30, 2003, special charges (credits), net totaled $5.8 million comprised of $7.0 million of expenses, partially offset by the $1.2 million credit noted above. Program costs charged to expense in 2003 include the following:

	1.		Costs associated with integration actions announced at the end of 2002 which, in accordance with generally accepted accounting principles, are to be expensed as incurred. These costs totaled $4.2 million for the first nine months of 2003 and consisted of plant shutdown expenses of $2.2 million, personnel realignment costs of $0.9 million, and other costs of $1.1 million.
	2.		Integration actions undertaken in 2003 totaling $2.8 million associated with management’s decision to exit the entertainment lighting fixtures product offering. Costs associated with this action were recorded in the 2003 second quarter and consist of contract cancellation costs of $1.5 million and asset impairment and other costs of $1.3 million. In addition to the Special charge component on this action, $1.8 million was included in Cost of goods sold for the write-down of entertainment lighting fixture inventory to estimated salvage value. Consequently, the total cost associated with the entertainment lighting product line discontinuance was $4.6 million.

	The lighting integration program began in December 2002 with a pretax charge to earnings of $10.3 million to provide for the following actions:

9

Table of Contents

           Product Line Inventory Rationalization – ($5.4 million)

This program reflected management’s decision to streamline its product offering and rationalize overlapping product lines between Hubbell’s existing lighting fixture business and the lighting fixture businesses acquired in 2002. The cost of this program reflected the write-down of the carrying cost of certain inventory to estimated salvage value and was included in Cost of goods sold in the 2002 Consolidated Statement of Income. This inventory will be scrapped or sold for a nominal value, which was considered in the write-down recorded.

          Reorganization – ($4.9 million)

	The 2002 special charge also included costs related to future actions to integrate and reorganize the lighting fixture businesses acquired in 2002. Specific actions being undertaken or already completed, all within the Electrical segment, include the following:

	•		Relocate San Leandro, CA office
	•		Close Martin, TN manufacturing facility
	•		Consolidate warehouses
	•		Rationalize product lines

	Total reorganization costs of $4.9 million expensed in the 2002 fourth quarter included severance costs ($1.8 million), asset impairments ($2.4 million) and other facility exit costs ($0.7 million). A facility in Martin, TN was closed in the first quarter of 2003 and the carrying cost of this facility was reduced to estimated realizable value. Total estimated proceeds of $1.0 million from asset sale recoveries were considered in determining the asset impairment charges. However, as noted above, actual amounts realized on asset sales and revised estimates of amounts to be realized from assets held-for-sale have increased the estimate of proceeds by approximately $1.2 million.
	Employee benefit costs included estimated severance benefits for 222 employees, all of whom left the Company by March 31, 2003.
	Facility exit costs included warehouse lease termination costs, postproduction maintenance and facility restoration costs associated with facilities to be closed, and costs incurred in 2002 for moving equipment.

	In addition to the $10.3 million 2002 special charge discussed above, an additional $2.0 million of costs related to integration activities affecting the acquired LCA operations were accrued at December 31, 2002 in the purchase accounting for the acquisition of LCA. The $2.0 million of costs accrued in purchase accounting were primarily severance and employee relocation costs ($1.7 million) in connection with the closure of the San Leandro, CA facility. Separation benefits were provided for approximately 64 employees, all of whom had left the Company by September 30, 2003.
	The following table sets forth the components and status of total accrued lighting business integration costs at September 30, 2003 (in millions):

Through September 30, 2003, approximately $20.0 million has either been accrued in purchase accounting or charged to expense in connection with this Program. Substantially all actions contemplated by these charges were completed by September 30, 2003. Cash expenditures for actions recorded to date under the Program are expected to total approximately $9.9 million for severance and other costs of facility closings and contract terminations of which $9.6 million has been spent as of September 30, 2003.

10

Table of Contents

Prior Year Special Charges — 2001 Streamlining Program

     The amounts recorded in 2002 as special charges (credits) include a net credit of $0.4 million and $1.3 million of costs incurred in the third quarter and nine months, respectively, related to the streamlining and cost reduction program (the “Plan”) recorded at the end of 2001. The Plan was comprised of costs associated with actions 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 required a cumulative pretax charge of $52.0 million consisting of aggregate 2002 special charges of $3.4 million and $48.6 million of charges recognized in 2001.

     The $0.4 million net credit in the third quarter of 2002 related to charges of $0.5 million for severance and facility relocation costs incurred, offset by $0.9 million of favorable estimate adjustments in connection with managements’ ongoing review of accrued costs.

     Substantially all actions contemplated in the Plan were completed by December 31, 2002. Cash expenditures through September 30, 2003 associated with the Plan totaled $12.4 million for severance and other costs of facility closings, prior to $11 million in asset sale recoveries achieved to date. An additional $1-2 million in asset sale recoveries is expected.

9. Comprehensive Income:

     Total comprehensive income and its components are as follows (in millions):

10. Segment Information

     The following table sets forth financial information by business segment (in millions):