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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
Commission File No. 1-2958
HUBBELL INCORPORATED
(Exact name of Registrant as specified in its charter)
CONNECTICUT 06-0397030
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
584 Derby Milford Road, Orange, Connecticut 06477-4024
(Address of principal executive offices) (Zip Code)
(203) 799-4100
(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 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 report), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
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. [ ]
The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 12, 1999 was $2,397,740,000. The
number of shares outstanding of the Class A Common Stock and Class B Common
Stock as of March 12, 1999 was 10,673,000 and 54,549,000, respectively.
Documents Incorporated by Reference
The definitive proxy statement for the proposed annual meeting of
stockholders to be held on May 3, 1999, filed with the Commission on
March 29, 1999 - Part III.
- - ------------------
* Calculated by excluding all shares held by executive Officers and
Directors of Registrant and the Roche Trust, the Hubbell Trust and the
Harvey Hubbell Foundation, without conceding that all such persons are
"affiliates" of registrant for purpose of the Federal Securities Laws.
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PART I
Item 1. Business
Hubbell Incorporated (herein referred to as "Hubbell", the "Company" or the
"registrant", 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. For over a century, Hubbell has
manufactured and sold high quality electrical and electronic products for a
broad range of commercial, industrial, telecommunications, and utility
applications. Since 1961, Hubbell has expanded its operations into other areas
of the electrical industry and related fields. Hubbell products are now
manufactured or assembled by twenty-three divisions and subsidiaries in the
United States, Canada, Puerto Rico, Mexico, the United Kingdom and Singapore.
Hubbell also participates in joint ventures with partners in South America,
Germany and Taiwan, and maintains sales offices in Malaysia, Mexico, Hong Kong,
South Korea, and the Middle East.
Hubbell is primarily engaged in the engineering, manufacture and sale of
electrical and electronic products. For management reporting and control, the
businesses are divided into four operating segments: Electrical, Power,
Telecommunications and Other, as described below. Reference is made to pages
45 and 46 for information relative to Industry Segment and Geographic Area
Information for 1998, 1997 and 1996.
During 1998, Hubbell acquired the following three lighting businesses to augment
the existing lighting products portfolio: (a) Devine Lighting of Kansas City, MO
which specializes in design-oriented architectural outdoor lighting fixtures;
(b) Sterner Lighting based in Eden Prairie, MN which designs and manufactures
specification grade outdoor lighting fixtures and custom lighting products and
indoor sports and arena lighting; and (c) Chalmit Lighting based in Hilington,
Scotland which designs and manufactures lighting fixtures for hazardous and
corrosive locations. To broaden the Company's telecommunications product lines,
during 1998, Hubbell acquired certain assets of Siescor Technologies, Inc. based
in Tulsa, OK. Siescor designs and manufactures digital loop carrier systems used
to connect subscribers to central office telephone switches for voice and data
communications over copper, fiber and digital microwave networks.
ELECTRICAL SEGMENT
The Electrical Segment is comprised of businesses that primarily sell through
distributors, lighting showrooms, and home centers and represents stock items
including standard and special application wiring device products, lighting
fixtures, fittings, switches and outlet boxes, enclosures and wire management
products. The products are typically used in industrial, commercial, and
institutional facilities by electrical contractors, maintenance personnel and
electricians.
Electrical Wiring Devices
Hubbell manufactures and sells highly durable and reliable wiring devices which
are supplied principally to industrial, commercial and institutional customers.
These products, comprising several thousand catalog items, include plugs,
dimmers, receptacles (including surge suppressor units), wall outlets,
connectors, adapters, floor boxes, switches, occupancy sensors (including
passive infrared and ultrasonic motion sensing devices), lampholders, control
switches, pendants, weatherproof enclosures, and wallplates. Pin-and-sleeve
devices built to IEC (International Electrotechnical Commission) and new UL
standards have incorporated improved water and dust-tight construction and
impact resistance. Switch and receptacle wall plates feature proprietary
thermoplastic materials offering high impact
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resistance and durability, and are available in a variety of colors and styles.
Delivery systems, including nonmetallic surface raceway systems for power, data
and communications distribution, provide efficiency and flexibility in both
initial installations and remodeling applications. Hubbell also sells wiring
devices for use in certain environments requiring specialized products, such as
multi-pin connectors and cable assemblies for the connection of sensors in
materials processing, modular cable protection systems, and portable power
distribution units with ground fault protection for commercial and industrial
applications. Some of the portable power distribution units contain a number of
outlets to which electrically-powered equipment may be simultaneously connected
for ground fault protection. GFR(R) ground fault units protect the user from
electrical shock by interrupting the circuit to which they are connected when a
fault to ground is detected. Hubbell also manufactures and/or sells components
designed for use in local area networks (LANs) and other telecommunications
applications supporting high speed data and voice signals. Primary products
include work station modular jacks, faceplates, Networker(R) surface housings,
modular furniture plates, cross connect patch panels, connectorized cable
assemblies, punch down blocks, free standing racks, enclosures and other
products used for installation, testing and distribution of LANs. These products
support unshielded, shielded and fiber optic media types and typically service
commercial, institutional and industrial applications.
Lighting Fixtures
Hubbell manufactures and sells lighting fixtures and accessories for both indoor
and outdoor applications with three basic classifications of products: Outdoor,
Industrial and Commercial. The Outdoor products include poles, MiniLiter(R) and
Sterner's Infranor(TM) floodlights, Devine's Geometric 2000 series fixtures and
Magnusquare(R) II Architectural fixtures which are used to illuminate service
stations, outdoor display signs, parking lots, security areas, shopping centers
and similar areas, and Sportsliter(R) fixtures which are used to illuminate
athletic and recreational fields. In addition, a line of Lightscaper(R)
decorative outdoor fixtures is sold for use in landscaping applications such as
pools, gardens and walkways. The Industrial products include Superbay(R) 2.0,
Controlux(R) 2.0, Superwatt(R), The Detector(TM), and Kemlux(R) fixtures used to
illuminate factories, work spaces, and similar areas, including specialty
requirements such as paint rooms, clean rooms and warehouses. The Commercial
products include HID, fluorescent, Pathfinder(R) emergency and exit, and
recessed and track fixtures which are used for offices, schools, hospitals,
retail stores, and similar applications. The fixtures use high-intensity
discharge lamps, such as mercury-vapor, high-pressure sodium, and metal-halide
lamps, as well as quartz, fluorescent and incandescent lamps, all of which are
purchased from other sources. Hubbell also manufactures a broad range of track
and down lighting fixtures and accessories sold under the Marco(R) trademark, a
line of life safety products, fixtures and related components which are used in
specialized safety applications, and a line of IEC lighting fixtures designed
for hazardous, hostile and corrosive applications sold under the Chalmit(TM)
trademark.
Outlet Boxes, Enclosures and Fittings
Hubbell manufactures and/or sells: (a) under the Raco(R) trademark, steel and
plastic boxes used at outlets, switch locations and junction points; (b) a broad
line of metallic and plastic fittings, including rigid plastic conduit fittings,
EMT (thinwall) fittings and metal conduit fittings; (c) a family of nonmetallic
electrical products including conduit tubing and Bell Outdoor(R) outlet boxes;
(d) a variety of electrical boxes, covers, combination devices, lampholders and
lever switches manufactured under the Bell(R) trademark, with an emphasis on
weather-resistant types suitable for outdoor applications; and (e) under the
Wiegmann(R) trademark, a full-line of fabricated steel enclosures such as
rainproof and dust-tight panels, consoles and cabinets, wireway and electronic
enclosures and a line of non-metallic
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enclosures. Wiegmann products are designed to enclose and protect electrical
conductors, terminations, instruments, power distribution and control equipment.
Holding Devices
Hubbell manufactures and sells a line of Kellems(R) and Bryant(R) mesh grips
used to pull, support and relieve stress in elongated items such as cables,
electrical cords, hoses and conduits, a line of Gotcha(R) cord connectors
designed to prevent electrical conductors from pulling away from electrical
terminals to which the conductors are attached, and wire management products
including non-metallic surface raceway products for wiring and flexible conduit
for OEM applications. The grips are sold under the Dua Pull(R) and Economy(R)
trademarks and range in size and strength to accommodate differing application
needs. The mesh of the grip is designed to tighten around the gripped items.
Hazardous and Hostile Location Application Products
Hubbell's special application products, which are sold under the Killark(R)
trademark, include weatherproof and hazardous location products suitable for
standard, explosion-proof and other hostile area applications, include conduit
raceway fittings, Disconex(R) switches, enclosures, HostileLite(R) lighting
fixtures, electrical distribution equipment, standard and custom electrical
motor controls, junction boxes, plugs and receptacles. Hazardous locations are
those areas where a potential for explosion and fire exists due to the presence
of flammable gasses, fibers, vapors, dust or other easily ignitable materials
and include such applications as refineries, petro-chemical plants, grain
elevators and material processing areas.
Sales and Distribution of Electrical Segment Products
A majority of Hubbell's Electrical Segment products are stock items and are sold
through electrical 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 original
equipment manufacturers. Voice and data signal processing equipment products are
represented worldwide through a direct sales organization and by selected,
independent telecommunications representatives, primarily sold through datacom,
electrical and catalogue distribution channels. Hubbell maintains a sales and
marketing organization to assist potential users with the application of certain
products to their specific requirements, and maintains regional offices in the
United States which work with architects, engineers, industrial designers,
original equipment manufacturers and electrical contractors for the design of
electrical systems to meet the specific requirements of industrial and
commercial users. Hubbell is also represented by sales representatives for its
lighting fixtures and electrical wiring devices product lines. The sales of
Electrical Segment products accounted for approximately 57% of Hubbell's total
revenue in 1998 and 56% in 1997 and in 1996.
POWER SEGMENT
Power Segment operations are comprised of products used in the transmission and
distribution of electricity and are sold through distributors and directly to
users such as electric utilities, industrial firms, and engineering and
construction firms. Segment products are comprised of wire and cable,
insulators, surge arresters, switches, cutouts, sectionalizers and construction
materials and tools for the building and maintenance of overhead and underground
power and telephone lines.
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Insulated Wire and Cable
Hubbell manufactures and sells under the Kerite(R) trademark premium quality,
high performance, insulated power cable for application in critical circuits of
electric utilities and major industrials. This product line utilizes proprietary
insulation systems and unique designs to meet the increasingly demanding
specifications of its customers. Applications include generating plants,
underground and underwater transmission and distribution systems, petrochemical
and pharmaceutical plants and mines. Hubbell also manufactures (a)
specially-designed cable for supplying power to submersible pumps in oil wells,
which cable is designed to offer increased service life in the extreme
temperature and corrosive conditions encountered in these adverse environments,
and (b) accessories for splicing and terminating cable ends.
Electrical Transmission and Distribution Products
Hubbell manufactures and sells, under the Ohio Brass(TM) and OB(TM) registered
trademarks, a complete line of polymer insulators and high-voltage surge
arresters used in the construction of electrical transmission and distribution
lines and substations. The primary focus in this product area are the
Hi-Lite(R), Hi*LiteXL(R) and Veri*Lite(R) polymer insulator lines and the
polymer housed metal-oxide varistor surge arrester lines. Electrical
transmission products, primarily Hi*LiteXL suspension insulators, are used in
the expansion and upgrading of electrical transmission capability.
Hubbell manufactures and sells, under the Chance(R) trademark, products used in
the electrical transmission, distribution and telecommunications industries,
including overhead and underground electrical apparatus such as (a) distribution
switches (to control and route the flow of power through electrical lines); (b)
cutouts, sectionalizers, and fuses (to protect against faults and over-current
conditions on power distribution systems); and (c) fiberglass insulation systems
(pole framing and conductor insulation).
Hubbell manufactures and sells, under the Anderson(TM) trademark, electrical
connectors and associated hardware including pole line, line and tower hardware,
compression crimping tools and accessories, mechanical and compression
connectors, suspension clamps, terminals, supports, couplers, and tees for
utility distribution and transmission systems, substations, and industry.
Hubbell manufactures and sells, under the Fargo(R) trademark, electrical power
distribution and transmission products, principally for the utility industry.
Distribution products include electrical connectors, automatic line splices,
dead ends, hot line taps, formed wire products, wildlife protectors, and various
associated products. Transmission products include splices, sleeves, connectors,
dead ends, spacers and dampers. Products also consist of original equipment and
resale products including substation fittings for cable, tube and bus as well as
underground enclosures, wrenches, hydraulic pumps and presses, and coatings.
Construction Materials/Tools
Hubble manufactures, and sells under the Chance(R) trademark, (a) line
construction materials, including helical anchors used to hold overhead power
and communications lines erect, for tower, streetlight pole, pipeline, bracket
assemblies for use with Helical Pier(R) anchor systems for underpinning
foundations, and a variety of farm, home and construction anchoring, tie-back
and holding applications; (b) pole line hardware, including galvanized steel
fixtures and extruded plastic materials used in overhead and underground line
construction and connectors, and other accessories for making high voltage
connections and linkages;
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(c) construction tools and accessories for building overhead and underground
power and telephone lines; and (d) hot-line tools (all types of tools mounted on
insulated poles used to construct and maintain energized high voltage lines)
and other safety equipment.
Sales and Distribution of Power Segment Products
Sales of high-voltage products are made through distributors and directly to
users such as electric utilities, mining operations, industrial firms, and
engineering and construction firms engaged in electric transmission projects.
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. The sale of power segment products accounted for
approximately 28% of Hubbell's total revenue in 1998 and in 1997 and 27% in
1996.
TELECOMMUNICATIONS SEGMENT
Telecommunication operations design and manufacture voice and data signal
processing components primarily used by telephone and telecommunications
companies and consists of channel cards and banks for loop and trunk carriers,
and racks and cabinets.
Hubbell designs, manufactures and sells, under the Pulsecom(R) trademark, a
broad range of communications access solutions for use by the telephone and
telecommunications industry. These solutions encompass a comprehensive product
line ranging from POTS to ISDN to high-speed internet and broadband access
solutions designed to assist Network Access Providers (NAPs) in offering their
customers quality and cost-effective voice and data services. Hubbell's (a) Wave
Pacer(TM) xDSL solutions enable delivery of high speed network access for
data-intensive applications such as telecommuting, branch office connectivity,
and remote internet access; (b) remote access multiplexers provide asymetric
digital subscriber line (ADSL) services to remote locations and are capable of
interfacing with any vendor's equipment in the central office; (c) DLC solutions
to multiplex traffic from many users over a single link using existing copper or
fiber facilities providing easier and more cost-effective service to new users
since fewer and smaller cables are required for providing expanded service; and
(d) D4 solutions to provide delivery of integrated voice and data services.
Customers of these product lines include various telecommunications companies,
the Regional Bell Operating Companies (RBOCs), independent telephone companies,
competitive local exchange carriers, companies with private networks, and
internet service providers. These products are sold primarily by direct sales to
customers in the United States and in foreign countries through sales personnel
and sales representatives. Telecommunication segment products accounted for
approximately 10% of Hubbell's total revenue in 1998 and in 1997 and 11% in
1996.
OTHER INDUSTRY SEGMENT
The Other Industry Segment consists of operations that design and manufacture
test and measurement equipment, high voltage power supplies and variable
transformers, industrial controls including motor speed controls, pendant-type
push-button stations, overhead crane controls, and Gleason(R) electric cable and
hose reels. Products are sold primarily to steel mills, industrial complexes,
seaports, and cable manufacturers.
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High Voltage Test and Measurement Equipment
Hubbell manufactures and sells, under the Hipotronics(R) trademark, 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 for use in the electrical and electronic industries.
Principal products include AC/DC hipot testers and megohmmeters, cable fault
location systems, oil testers and DC hipots, impulse generators and digital
measurement systems, AC series resonant and corona detection systems, DC test
sets and power supplies, variable transformers, voltage regulators, and motor
and transformer test sets.
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. Standard products include motor speed
controls, pendant-type push-button stations, power and grounding resistors and
overhead crane controls. Also manufactured and sold are a line of transfer
switches used to direct electrical supply from alternate sources, and a line of
fire pump control products used in fire control systems.
Hubbell manufactures, under the Gleason(R) trademark, industrial-quality cable
management products including electric cable and hose reels, protective steel
and nylon cable tracks (cable and hose carriers), cable festooning hardware,
highly engineered container crane reels and festoons for the international
market, slip rings, and a line of ergonomic tool support systems (workstation
accessories and components such as balancers, retractors, torque reels, tool
supports, boom and jib kits).
Hubbell's Other Industry Segment products are sold through electrical
distributors and sales representatives to contractors, industrial customers and
original equipment manufacturers, with the exception of high voltage test and
measurement equipment which is sold primarily by direct sales to customers in
the United States and in foreign countries through its sales engineers and
independent sales representatives.
The sale of products in the Other Industry Segment accounted for approximately
5% of Hubbell's total revenue in 1998 and 6% in 1997 and in 1996.
INFORMATION APPLICABLE TO ALL GENERAL CATEGORIES
International Operations
Hubbell Ltd. in the United Kingdom manufactures and/or markets fuse switches,
contactors, selected wiring device products, lighting fixtures, premise wiring
products, specialized control gear, chart recording products, and industrial
control products used in motor control applications such as fuse switches and
contactors.
Hubbell Canada Inc. and Hubbell de Mexico, S.A. de C.V. manufacture and/or
market wiring devices, premise wiring products, lighting fixtures, grips,
fittings, non-metallic switch and outlet boxes, hazardous location products,
electrical transmission and distribution products and helical anchoring systems
for pipeline buoyancy control. Industrial control products are sold in Canada
through an independent sales agent.
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Harvey Hubbell S.E. Asia Pte. Ltd. assembles and/or markets wiring devices,
premise wiring products, lighting fixtures, hazardous location products,
electrical transmission and distribution products and cable.
Hubbell also manufactures lighting products, wiring devices, weatherproof outlet
boxes, fittings, and power products in Juarez, Mexico. Hubbell also has
interests in various other international operations such as joint ventures in
South America, Germany and Taiwan, and sales offices in Malaysia, Hong Kong,
South Korea and the Middle East.
The wiring devices sold by Hubbell's operations in the United Kingdom,
Singapore, Canada and Mexico are similar to those produced in the United States,
most of which are manufactured in the United States and Puerto Rico.
As a percentage of total sales, international shipments from foreign
subsidiaries were 6% in 1998, 1997 and 1996, with the Canadian market
representing approximately 60% of the total.
Raw Materials
Principal raw materials used in the manufacture of Hubbell products include
steel, brass, copper, aluminum, bronze, plastics, phenolics, bone fiber,
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.
Patents
Hubbell has approximately 850 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 licenses under patents owned by others, as may be
needed, and grants licenses under certain of its patents.
Working Capital
Hubbell maintains sufficient inventory to enable it to provide a high level of
service to its customers. The inventory levels, payment terms and return
policies are in accord with the general practices of the electrical products
industry and standard business procedures.
Backlog
Backlog of orders believed to be firm at December 31, 1998 and 1997 were
approximately $85.5 million and $77.8 million, respectively. Most of the backlog
is expected to be shipped in the current 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.
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Competition
Hubbell experiences substantial competition in all categories of its business,
but does not compete with the same companies in all its product categories. The
number and size of competitors vary considerably depending on the product line.
Hubbell cannot specify with exactitude 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 and other factors can affect Hubbell's
ability to compete.
Environment
Compliance with Federal, State and local provisions regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, is not believed to have any material effect upon the financial or
competitive position of Hubbell.
Employees
As of December 31, 1998, Hubbell had approximately 10,600 full-time employees,
including salaried and hourly personnel. Approximately 40% of Hubbell's United
States employees are represented by 13 labor unions. Hubbell considers its labor
relations to be satisfactory.
Item 2. Properties
A list of Hubbell's material manufacturing facilities, classified by segment is
included on Page 47 hereof under Industry Segment and Geographical Area
Information.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which Hubbell or any of its
subsidiaries is a party or of which any of their property is the subject, other
than ordinary and routine litigation incident to their business.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
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PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The Company's Class A and Class B common stocks are principally traded on the
New York Stock Exchange under the symbols "HUBA" and "HUBB". The following
tables provide information on market prices, dividends declared and number of
common shareholders.
Market Prices (Dollars Per Share) Common A Common B
-------- --------
Years Ended December 31, High Low High Low
- - ------------------------ ---- --- ---- ---
1998-First quarter 48 1/2 44 3/16 51 15/16 46 15/16
1998-Second quarter 48 13/16 43 5/8 52 3/16 41 5/8
1998-Third quarter 44 5/8 35 3/8 44 13/16 35 1/2
1998-Fourth quarter 42 15/16 34 1/4 42 3/4 34 9/16
1997-First quarter 40 3/4 37 1/2 45 1/8 41
1997-Second quarter 43 1/8 38 3/4 46 1/2 41 3/4
1997-Third quarter 46 7/16 42 3/4 49 3/16 45
1997-Fourth quarter 47 3/16 42 3/8 50 1/2 43 15/16
Dividends Declared (Cents Per Share) Common A Common B
Years Ended December 31, 1998 1997 1998 1997
- - ------------------------ ---- ---- ---- -----
First quarter 29 26 29 26
Second quarter 31 29 31 29
Third quarter 31 29 31 29
Fourth quarter 31 29 31 29
Number of Common Shareholders
At December 31, 1998 1997 1996 1995 1994
- - --------------- ---- ---- ---- ---- ----
Class A 1,176 1,242 1,285 1,308 1,327
Class B 5,153 5,339 5,359 5,521 5,354
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Item 6. Selected Financial Data
The following summary should be read in conjunction with the consolidated
financial statements and notes contained herein (dollars in millions, except per
share amounts).
OPERATIONS, YEARS ENDED DECEMBER 31, 1998 1997 1996 1995 1994
- - ------------------------------------ ---- ---- ---- ---- ----
Net sales $ 1,424.6 1,378.8 1,297.4 1,143.1 1,013.7
Gross profit $ 438.2 430.4 392.3 339.9 305.0
Special charge -- (52.0) (1) -- -- --
Operating income $ 226.1 171.6 197.5 165.0 140.6
Provision for income taxes $ 61.1 49.8 57.8 45.1 39.4
Net income $ 169.4 130.3(1) 141.5 121.9 106.5
Return on sales 11.9% 9.5% 10.9% 10.7% 10.5%
Return on common shareholders' average equity 20.3% 16.6% 20.1% 19.1% 18.3%
Return on average total capital 18.9% 15.5% 18.4% 18.5% 18.2%
Earnings per share:
Basic $ 2.56 1.94(1) 2.15 1.85 1.62
Diluted $ 2.50 1.89(1) 2.10 1.83 1.60
Cash dividends declared per common share $ 1.22 1.13 1.02 .92 .81
Additions to property, plant, and equipment $ 86.1 60.6 39.1 38.2 53.2
Depreciation and amortization $ 48.1 43.2 39.3 36.2 34.0
FINANCIAL POSITION, AT YEAR-END
Working capital $ 219.8 339.9 335.8 305.2 112.8
Current ratio 1.6 to 1 2.3 to 1 2.3 to 1 2.6 to 1 1.3 to 1
Property, plant and equipment (net) $ 310.1 251.9 217.9 204.2 202.0
Total assets $ 1,390.4 1,284.8 1,185.4 1,057.2 1,041.6
Long-term debt $ 99.6 99.5 99.5 102.1 2.7
Common shareholders' equity:
Total $ 840.6 830.3 743.1 667.3 609.0
Per share $ 12.42 12.06 11.05 10.00 9.24
NUMBER OF EMPLOYEES, AT YEAR-END 10,562 8,801 8,178 7,410 7,405
- - ------------------
(1) In the fourth quarter of 1997, the Company recorded a special charge of
$52.0 million which reduced net income by $32.2 million or $0.47 per
share. Excluding the special charge, net earnings from operations would
have been $162.5 million or $2.36 per share-diluted.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
LIQUIDITY AND CAPITAL RESOURCES
Management views liquidity on the basis of the Company's ability to meet
operational needs, fund additional investments, including acquisitions, and make
dividend payments to shareholders. At December 31, 1998, the Company's financial
condition remained strong with working capital of $219.8 million and a current
ratio of 1.6 to 1.
Operating cash flow reflects higher working capital requirements to support
increased sales and to adequately fund requirements of the acquired businesses
during 1998. Net income increased in line with sales growth. The increase in
depreciation and amortization is due to a higher level of depreciable assets and
the acquisition of businesses in 1998 and 1997. The increase in accounts
receivable reflects the Company's continued growth, especially into markets with
payment cycles that are longer than its traditional electrical wholesale market.
A portion of the increase in inventories is to provide adequate stock to
maintain customer service levels during relocation of manufacturing operations.
The decline in current liabilities is principally due to payment of interest and
taxes.
During 1998 the Company acquired three lighting businesses which augmented the
existing lighting products portfolio. Devine Lighting of Kansas City, MO,
Sterner Lighting based in Eden Prairie, MN and Chalmit Lighting based in
Hilington, Scotland. To broaden the Company's telecommunication product lines,
Siescor Technologies, Inc. based in Tulsa, OK was acquired. In addition, two
minor product lines were acquired in the first quarter of the year. All of the
businesses were acquired for cash of $78.4 million. In February, 1997, Hubbell
acquired Fargo Manufacturing Company, Inc. ("Fargo") based in Poughkeepsie, New
York. Fargo manufactures distribution and transmission line products primarily
for the electric utility market. Each share of Fargo common stock was converted
into a right to receive shares or fractions thereof of Hubbell's Class B Common
Stock and accordingly 1,170,572 shares of Class B Common Stock were issued.
Additionally, three product lines and associated assets were acquired during
1997 for $21.1 million in cash. The purchase prices of these businesses were
immaterial to the Company's financial position at December 31, 1998 and 1997.
The higher level of expenditures for property, plant and equipment reflects the
construction of a new warehouse and expansion of manufacturing facilities under
streamlining initiatives. While no significant commitments had been made at
December 31, 1998, the Company anticipates that capital expenditures will
approximate $70.0 million annually during the next three years. This level of
expenditure reflects the historical capital investment pattern plus the normal
capital requirements of acquired businesses together with the capital investment
portion of the Company's streamlining initiative (refer to Special Charge).
Financing activities in 1998 reflect the thirty-eighth consecutive annual
increase in the dividend rate and the repurchase of $82.8 million of the
Company's Class A and Class B common stock under the 1997 stock repurchase
program. Implementation of the program through open market purchases and
privately negotiated transactions began in mid-December, 1997. Commercial paper
of $113.3 million was issued to fund working capital requirements and payment of
dividends. At December 31, 1998, total borrowings, consisting of commercial
paper and long-term debt, of $212.9 million were 25.3% of shareholder's equity
compared to 12.0% in 1997.
The Company believes that currently available cash, available borrowing
facilities, and its ability to increase its credit lines if needed, combined
with internally generated funds should be more than sufficient to fund capital
expenditures, share repurchases as well as any increase in working capital that
would be required to accommodate a higher level of business activity. The
Company actively seeks to expand by acquisition as well as through the growth of
its present businesses. While a significant acquisition may require additional
borrowings, the Company believes it would be able to obtain financing based on
its favorable historical earnings performance and strong financial position.
14
Page 14
RESULTS OF OPERATIONS
1998 Compared to 1997
Consolidated net sales increased 3% on improved shipments combined with the
acquisition of nine product lines (six in 1998 and three in 1997). Offsetting
these improvements was a decline in orders from telephone companies to the
Telecommunications Segment; weak international markets combined with a strong
U.S. dollar; and increased price competition across all businesses. Net
operating income increased 1%, as productivity increases offset an erosion in
sales pricing.
The Company's business segment reporting for 1998 has been changed to reflect
the internal reporting and management control structure in accordance with the
requirements of Financial Accounting Standard No. 131. Previously, the Company
reported segments based on product groupings as was required under prior
accounting rules. Accordingly, segment information for 1997 and 1996 have been
reclassified to reflect the 1998 format.
Electrical Segment sales increased 4% on improved shipments of generally all
products and the acquisition of lighting businesses which contributed one point
of the growth. Operating profits increased 1% as price competition offset the
benefit of higher sales combined with the impact of redeployment expenses
associated with the streamlining and consolidation of the fittings, switch and
outlet box businesses.
Power Segment sales increased 2% on higher sales of anchors, hot line tools,
line splices and taps and the inclusion of Fargo, acquired in February, 1997,
which was offset by lower sales in Canada and Asia. Operating income increased
13% on improved efficiencies from the streamlining initiatives and completing
the assimilation of Fargo.
Telecommunications Segment sales were up 5% as the acquisition of Siescor
Technologies, Inc. more than offset the decline in sales of Pulse
Communications, Inc., due to the slow down in the Asian markets and reduced
expenditures by the Regional Bell Operating Companies (RBOC's) during the last
four months of 1998. New product development programs were continued at planned
expenditure rates which when combined with lower sales of existing products
resulted in 24% decline in operating profits.
Other Industry Segment sales were down 1% as spending programs within the
domestic steel industry were reduced in the last months of the year combined
with lower worldwide demand for test and measurement equipment. Operating income
increased more than 20% on improved efficiencies from the streamlining and
reorganization initiatives which were completed in the first part of 1998.
Sales through the Company's international units declined by 3% reflecting the
weakened economies in Asia and Canada. Profitability was affected by unfavorable
translation rates due to the strengthening of the U.S. dollar against foreign
currencies and combined with the lower sales volume resulted in operating income
declining by 10%. Export sales from United States operations were down 16% from
1997 reflecting the weak economic conditions in Asia and South America combined
with the impact of strong U.S. dollar. Total sales into the international market
were 11% in 1998 and 14% in 1997 and 1996. The Canadian market represents
approximately 60% of total international sales followed by Latin America, Europe
and Asia. The Company's sales to countries in Europe which are adopting the Euro
as their common currency are not significant and, therefore, the impact of any
changes in currency related software programs is deemed to be immaterial.
Investment income declined as investable funds were used by the Company to fund
the stock repurchase program and additions to property, plant and equipment. The
increase in interest expense reflects the higher level of commercial paper
outstanding during the year. The effective tax rate was 26.5% in 1998 versus
27.7% in 1997. The decrease in tax rate reflects a reduction in state and other
taxes.
15
Page 15
1997 Compared to 1996
Consolidated net sales increased by more than 6% reflecting a general
improvement across all businesses combined with the acquisition of Fargo and
three product line additions. The acquired businesses contributed approximately
two points of the growth in sales. Operating income for 1997 includes a special
charge of $52.0 million ($32.2 million after-tax or $.47 per share), comprised
of $44.6 million for streamlining initiatives and a $7.4 million asset
impairment write-down. Excluding the special charge, operating income increased
13% on higher sales volume and improved operating efficiencies from the
Company's 1993 restructuring program. The improvement in operating efficiencies
is reflected in the increase in net operating margins in 1997 to 16.2% compared
to 15.2% in 1996.
Electrical Segment sales increased 6% on generally higher shipments of all
products within the segment and the addition of product lines in the Bryant
business unit. Segment operating income before the special charge increased more
than 9% on the higher sales and profitability improvement in restructured units.
Power Segment sales increased by 8% on growth of surge arresters, insulators,
cut-outs and related hardware within the North American markets combined with
the acquisition of Fargo on February 14, 1997. Before the special charge
operating income increased 25% on higher sales, improved profitability and
business acquisitions (approximately twelve points of the increase).
Telecommunications Segment sales increased 4% on strong demand for channel banks
and cabinets offsetting a decline in international markets in the last months of
the year. Operating income increased 15% as the result of higher operating
efficiency from increased volume combined with lower material costs.
The Other Industry Segment sales were essentially even with last year as the
increased shipments of industrial controls and cable reels were offset by lower
demand for test and measurement equipment. Before the special charge, segment
operating income increased 28% on higher sales volume of industrial controls and
cable reels and improved operating efficiencies in all business units as a
result of the restructuring program.
Sales through the Company's international subsidiaries increased 12% reflecting
continued growth in the Canadian and Mexican markets. Operating income, before
the special charge, increased 28% on higher sales volume which included a higher
portion of products for electric utilities. Export sales from United States
operations were essentially even with the previous year as the general increase
in most product sales was offset by lower demand for high voltage test and
measurement equipment. Total sales into the international market represented 14%
of sales in 1997 and 1996. The Canadian market represents approximately 60% of
total international sales followed by Latin America, Europe and Asia
respectively.
Investment income increased 8% on a higher average level of investable funds
combined with higher yields. Interest expense was 13% lower due to the repayment
of the Gleason acquisition notes and a lower level of commercial paper
borrowings. The decrease in other expenses reflects a lower level of expenses
associated with the Company's corporate owned life insurance program. The
effective tax rate was 27.7% in 1997 and 29% in 1996. The decline in the
effective tax rate is a result of the decline in pre-tax income following the
special charge. The Company's tax rate benefits from lower taxes on earnings in
its Puerto Rico operations, utilization of corporate owned life insurance and
continued emphasis on generating tax-exempt income.
16
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Special Charge
In 1997 the Company recorded a special charge of $52.0 million ($32.2 million
after-tax or $.47 per share), comprised of $44.6 million for consolidation and
streamlining initiatives and a $7.4 million asset impairment write-down.
The Company's consolidation and streamlining initiatives were undertaken to
optimize the organization and cost structure primarily within the Electrical and
Power Segments. As part of this initiative, the Company has expanded its
manufacturing facilities by 335,000 square feet in Mexico, added an additional
63,000 square feet to its Canadian facility and constructed a 270,000 square
foot warehouse and distribution facility for its power products business.
Combined with the consolidation of other manufacturing and office facilities,
these programs will result in the relocation of approximately 2,000 jobs and
closure of 5 facilities. After an approximate three year implementation period,
the annual savings and cost avoidance could be as much as $25.0 million. As
shown in the table below, the Company has expended $12.0 million in 1998 and
$12.9 million in 1997. The other costs relate to workforce and production
redeployment costs which are being expensed as incurred. The accounting
treatment for the program costs has been made in accordance with the guidelines
contained in the Emerging Issues Task Force ("EITF") Issue No. 94-3.
The components of the consolidation and streamlining charge and related reserve
balances remaining at December 31, 1998 were (in millions):
Employee Asset Exit Accrued Other
Benefits Disposals Costs Charge Costs Total
-------- --------- ----- ------ ----- -----
1997 Streamlining Charge $15.6 $18.0 $6.1 $39.7 $4.9 $44.6
Amounts Utilized in 1997 (0.6) (7.3) (0.1) (8.0) (4.9) (12.9)
Amounts Utilized in 1998 (3.8) (2.4) (0.6) (6.8) (5.2) (12.0)
------ ------ ----- ------
Remaining Reserve $11.2 $ 8.3 $5.4 $24.9
====== ====== ===== ======
The $7.4 million asset impairment write-down relates to the Other Industry
Segment and consists of a partial goodwill write-down determined in accordance
with the Company's accounting policy under FAS 121.
The restructuring program which the Company began in late 1993 was completed
during 1997. The 1993 program addressed the consolidation of manufacturing
facilities, realignment of warehousing and distribution activities, and
reductions in labor force primarily within the lighting and wiring products
businesses. The restructuring charge included personnel costs (severence and
post-employment benefits), plant and equipment relocation and asset disposals
totaling $50.0 million. Costs charged against the restructuring accrual were
$8.7 million in 1997, $9.7 million in 1996, $9.5 million in 1995, $14.8 million
in 1994 and $7.3 million in 1993. The cumulative expenditures represented
personnel costs of $20.6 million, plant and equipment relocation of $21.8
million, and asset disposals of $7.6 million. Personnel costs included non-cash
charges of $6.2 million for early retirement programs which were reclassified to
the Company's pension liability.
17
Page 17
Market Risks
In the operation of its business, the Company has market risk exposures to
foreign currency exchange rates, raw material prices and interest rates. Each of
these risks and the Company's strategies to manage the exposure is discussed
below.
The Company manufactures its products in the United States, Canada, Mexico and
United Kingdom and sells products in those markets as well as through sales
offices in Southeast Asia and the Middle East. International sales were 11% of
the Company's sales in 1998 and 14% in 1997. The Canadian market represents 60%,
Mexico 18%, United Kingdom 13% and all other areas 9% of the total international
sales. As such, the Company's operating results could be affected by changes in
foreign currency exchange rates or weak economic conditions in the foreign
markets in which the Company distributes its products. To manage this exposure,
the Company closely monitors the working capital requirements of its
international units and to the extent possible will maintain their monetary
assets in U.S. dollar instruments. The Company views this exposure as not being
material to its operating results and, therefore, does not actively hedge its
foreign currency risk.
Raw materials used in the manufacture of the Company's products include steel,
brass, copper, aluminum, bronze, plastics, phenolics, bone fiber, elastomers
and petrochemicals as well as purchased electrical and electronic components.
The Company's financial results could be affected by the availability and
changes in prices of materials. The Company closely monitors its inventory
requirements and utilizes multiple suppliers. The Company is not materially
dependent upon any single material or supplier and does not actively hedge or
use derivative instruments in the management of its inventories.
The financial results of the Company are subject to risk from interest rate
fluctuations to the extent that there is a difference between the amount of the
Company's interest-earning assets and the amount of interest-bearing
liabilities. The principal objective of the Company's investment management
activities is to maximize net investment income while maintaining acceptable
levels of interest rate and liquidity risk and facilitating the funding needs of
the Company. As part of its investment management, the Company may use
derivative financial products such as interest rate hedges and interest rate
swaps. During the two years ended December 31, 1998 there were no derivative
positions.
18
Page 18
The following table presents information related to interest risk sensitive
instruments by maturity at December 31, 1998 (dollars in millions):
Fair
Value
Assets 1999 2000 2001 2002 2003 Thereafter Total 12/31/98
- - ------ ---- ---- ---- ---- ---- ---------- ----- --------
Available-for-sale
Investments $ 2.2 $ 3.9 $ 2.6 $ 2.8 $ 1.2 $ -- $ 12.7 $ 12.7
Avg. Interest Rate 3.6% 3.6% 3.9% 4.5% 3.9% -- -- --
Held-to-maturity
Investments $ 0.9 $ 2.3 $ 10.2 $ 7.6 $ 0.9 $162.5 $184.4 $187.6
Avg. Interest Rate 5.5% 5.8% 6.5% 6.5% 6.7% 6.3% -- --
Liabilities
Commercial Paper &
Short-Term Borrowings $(113.3) -- -- -- -- -- $(113.3) $(113.3)
Avg. Interest Rate 5.3% -- -- -- -- -- -- --
Long-Term Debt -- -- -- -- -- $(99.6) $(99.6) $(106.4)
Avg. Interest Rate -- -- -- -- -- 6.7% -- --
As described in its Accounting Policies, the Company may use derivative
financial instruments only if they are matched with a specific asset or
liability. The Company does not speculate or use leverage when trading a
financial derivative product. There were no derivative transactions during 1998.
Inflation
In times of inflationary cost increases, the Company has historically been able
to maintain its profitability by improvements in operating methods and cost
recovery through price increases. In large measure the reported operating
results have absorbed the effects of inflation since the Company's predominant
use of the LIFO method of inventory accounting generally has the effect of
charging operating results with costs (except for depreciation) that reflect
current price levels.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the Year 1900 rather than the Year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
During 1995, the Company established a task force which assessed the impact the
Year 2000 could have on the Company's operations and its relationship with
customers and vendors. The assessment resulted in development of appropriate
corrective action plans which addressed the following areas:
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- Internal business support systems (operations, engineering,
accounting, etc.)
- Equipment and controls used in the factory and offices
(presses, injection molders, photocopiers, telephone
systems, etc.)
- Products sold that include electronic components
- Third party suppliers for materials and supplies
- Key service providers (banks, transportation companies, gas
and electric utilities, communication networks, etc.)
- Customers' ability to place orders electronically with the
Company
The corrective action plan for the Company's business support systems included
(a) identification of software and data processing equipment that was not Year
2000 ready, (b) the necessary modification, upgrade or replacement, (c) testing
and (d) establishing a timetable with estimated cost. The identification phase
was completed in 1996 and corrective activity has progressed within each of the
business segments as follows:
Electrical Segment: Software and equipment upgrades are in place with
testing in process except for the RACO business which
is in the process of migrating to a Year 2000
compliant operating system. Work is scheduled to be
completed by the end of the second quarter of 1999.
Power Segment: All business units are on Year 2000 compliant systems
except for the A. B. Chance Company which is targeted
to complete its migration to the Year 2000 compliant
system during the second quarter of 1999.
Telecommunications Equipment and software upgrades were completed during
Segment: the fourth quarter of 1998. Testing continues and
will be completed during the first quarter of 1999.
Other Industry Hipotronics has upgraded its business operating
Segment: system to be Year 2000 compliant. Hubbell Industrial
Controls and Gleason Reel are making modifications
to their systems with a completion scheduled for
second quarter of 1999.
International: The Canadian business systems were replaced during
1997 with Year 2000 compliant products. England, S.
E. Asia and Mexico are upgrading their system and
should be completed by the second quarter of 1999.
All equipment and controls used by the Company in its factories, offices and
warehouses have been inventoried for Year 2000 risk. No critical equipment was
identified that needs Year 2000 update. Testing and verification is ongoing, and
as needed, equipment is being upgraded or replaced.
The Company's business units have reviewed their product lines for Year 2000
compliance. To date, no Year 2000 compliance issues with regard to the Company's
products have been identified.
The action plans also address the impact that Year 2000 issues may have on
vendors for materials and supplies with respect to the Company. Efforts are
underway to evaluate suppliers' Year 2000 readiness and to determine
alternatives and contingency plans such as alternate supply sources and
accumulation of inventory. Approaches to reducing supply disruptions will vary
by business and facility and are intended as a means of managing the risk but
cannot eliminate the potential for disruption due to a third party. Corrective
actions are to be completed or contingency plans initiated by the third quarter
of 1999.
The Company's key service providers have been contacted to determine their Year
2000 readiness and, where appropriate, testing of transactions are being made.
With regard to utilities, such as gas and electric, the Company is relying on
their statement of Year 2000 compliance as testing is not necessarily feasible.
20
Page 20
The Company is also dependent upon its customers for sales and cashflow.
Interruptions in our customers' ability to place orders with the Company
electronically due to Year 2000 issues could result in reduced sales, increased
inventories or receivables and lower cashflows. While these events are possible,
the diversity of the Company's customer base is broad enough to minimize the
effects of a single occurrence. Steps are being taken to monitor customers' Year
2000 readiness, including testing of transactions, as a means of determining
risks and alternatives with a targeted completion of the second quarter 1999.
Estimated expenditures for the corrective action plan of the Company, which
includes the Company's internal costs, are $20 million, with approximately 70%
having been spent to date. Cost for replacement of software and equipment are
capitalized in accordance with Company policies while costs of modifications
are expensed as incurred.
At this time, activities have been progressing in accordance with the action
plans and executive management is monitoring programs. Critical milestones in
the plans are to be completed by the end of the first quarter of 1999. Failure
to meet the milestones would provide advance notice and steps will be taken to
minimize potential effects and implement alternative actions including manual
processing.
While the Company believes its efforts to address the Year 2000 Issue will be
successful in avoiding any material adverse effect on the Company's operations
or financial condition, it recognizes that failing to resolve Year 2000 issues
on a timely basis would, in a "most reasonably likely worst case scenario",
significantly limit its ability to manufacture and distribute its products and
process its daily business transactions for a period of time, especially if such
failure is coupled with third party or infrastructure failures. Similarly, the
Company could be significantly affected by the failure of one or more
significant suppliers, customers or components of the infrastructure to conduct
their respective operations after 1999. Adverse effects on the Company could
include, among other things, business disruption, increased costs, loss of
business and other similar risks.
Forward-Looking Statements
Certain statements made in the discussion and analysis of Liquidity and Capital
Resources, Results of Operations and Special Charge are forward-looking. In
particular the projected levels of capital expenditures, project expenses and
anticipated savings relating to the consolidation, streamlining and
reorganization programs are forward-looking and are based on the Company's
reasonable current expectations. Also, certain statements under the caption
"Impact of the Year 2000 Issues" are forward-looking. These may be identified by
the use of forward-looking words or phrases, such as "believe", "expect",
"anticipate", "should", "plan", "estimated", "potential", "target", "goals", and
"scheduled", among others. In connection with the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, the Company is hereby
identifying important factors that could cause actual results to differ
materially from those contained in the specified statements.
The Company is currently implementing a program of consolidation, streamlining
and reorganization, primarily within its Power and Electrical Segments. The
risks and uncertainties that may affect the level of capital expenditures,
expenses and anticipated savings for this program include but are not limited
to; (1) timely completion of facility construction in accordance with current
estimates; (2) timely delivery and installation of manufacturing equipment; (3)
training and hiring of new employees and retraining of existing employees for
different processes; (4) start-up of manufacturing and distribution processes in
a cost-effective and high quality manner; (5) maintaining customer service
levels during the transition; and (6) absence of labor disputes during
implementation of the program. The Company notes that a variety of factors could
cause the Company's assessment of Year 2000 issues to differ materially from the
actual impact of Year 2000 issues. The risks and uncertainties that may affect
the Company's assessment of Year 2000 issues includes (1) the complexity
involved in ascertaining all situations in which Year 2000 issues may arise; (2)
the ability of the Company to obtain the
21
Page 21
services of sufficient personnel to implement the program; (3) possible
increases in the cost of personnel required to implement the program; (4)
absence of delays in scheduled deliveries of new hardware and software from
third party suppliers; (5) the receipt and the reliability of responses from
suppliers, customers and others to whom compliance inquiries are being made; (6)
the ability of material third parties to bring their affected system into
compliance and (7) absence of unforeseen events which could delay timely
implementation of the program.
22
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Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Hubbell Incorporated
In our opinion, the consolidated balance sheets and the related consolidated
statements of income, cash flows and changes in shareholders' equity listed in
the index on page 57 present fairly, in all material respects, the financial
position of Hubbell Incorporated and its subsidiaries (the "Company") at
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes 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. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 21, 1999
23
Page 23
Hubbell Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET
At December 31, (Dollars in millions)
ASSETS 1998 1997
- - ------ ---- ----
CURRENT ASSETS
Cash and temporary cash investments $ 30.1 $ 75.2
Accounts receivable less allowances of $5.7
in 1998 and $5.7 in 1997 200.2 191.0
Inventories 300.9 275.9
Prepaid taxes 24.0 30.2
Other 9.6 23.9
------- ------
Total current assets 564.8 596.2
------ ------
PROPERTY, PLANT, AND EQUIPMENT, AT COST
Land 15.3 13.8
Buildings 128.9 121.5
Machinery and equipment 464.4 382.7
------ ------
608.6 518.0
Less-accumulated depreciation 298.5 266.1
------ ------
Net property plant and equipment 310.1 251.9
------ ------
OTHER ASSETS
Investments 197.3 205.6
Purchase price in excess of net assets of
companies acquired, less accumulated amortization
of $30.4 in 1998 and $24.7 in 1997 232.6 190.5
Property held as investment 12.0 11.3
Other 73.6 29.3
------ ------
Total other assets 515.5 436.7
------ ------
$1,390.4 $1,284.8
======== ========
See notes to consolidated financial statements.
24
Page 24
Hubbell Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET
At December 31, (Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
- - ------------------------------------ ---- ----
CURRENT LIABILITIES
Commercial paper and other borrowings $ 113.3 $ .3
Accounts payable 69.8 60.9
Accrued salaries, wages and employee benefits 26.6 34.1
Accrued income taxes 31.1 38.3
Dividends payable 20.4 19.5
Accrued consolidation and streamlining charge 10.0 14.0
Other accrued liabilities 73.8 89.2
------- -------
Total current liabilities 345.0 256.3
------- -------
LONG-TERM DEBT 99.6 99.5
-------- --------
OTHER NON-CURRENT LIABILITIES 104.1 95.8
------- --------
DEFERRED INCOME TAXES 1.1 2.9
--------- ---------
COMMON SHAREHOLDERS' EQUITY
Common Stock, par value $.01
Class A - authorized 50,000,000 shares, outstanding
10,781,483 and 11,146,062 shares .1 .1
Class B - authorized 150,000,000 shares, outstanding
54,813,287 and 55,880,945 shares .5 .6
Additional paid-in capital 397.8 472.7
Retained earnings 455.7 366.9
Cumulative translation adjustments (13.6) (10.1)
Unrealized gain (loss) on investments .1 .1
--------- ---------
Total common shareholders' equity 840.6 830.3
--------- ---------
$1,390.4 $1,284.8
======== ========
See notes to consolidated financial statements.
25
Page 25
Hubbell Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except per share amounts)
Years Ended December 31, 1998 1997 1996
- - ------------------------ ---- ---- ----
NET SALES $1,424.6 $1,378.8 $1,297.4
Cost of goods sold 986.4 948.4 905.1
--------- --------- ---------
GROSS PROFIT 438.2 430.4 392.3
Special charge - 52.0 -
Selling & administrative expenses 212.1 206.8 194.8
--------- --------- ---------
OPERATING INCOME 226.1 171.6 197.5
--------- --------- ---------
OTHER INCOME (EXPENSE):
Investment income 16.7 18.3 16.8
Interest expense (9.9) (7.3) (8.4)
Other income (expense), net (2.4) (2.5) (6.6)
---------- ---------- ----------
TOTAL OTHER INCOME, NET 4.4 8.5 1.8
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 230.5 180.1 199.3
Provision for income taxes 61.1 49.8 57.8
--------- ---------- ---------
NET INCOME $ 169.4 $ 130.3 $ 141.5
======== ======== ========
EARNINGS PER SHARE:
Basic $2.56 $1.94 $2.15
Diluted $2.50 $1.89 $2.10
See notes to consolidated financial statements.
26
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Hubbell Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Years Ended December 31, 1998 1997 1996
- - ------------------------ ------ ------ ------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $169.4 $130.3 $141.5
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 48.1 43.2 39.3
Deferred income taxes 5.2 (11.5) (1.4)
Special charge -- 52.0 --
Expenditures for streamlining, consolidation and restructuring (6.8) (9.5) (9.7)
Changes in assets and liabilities, net of the effects of business
acquisitions:
(Increase) Decrease in accounts receivable (.2) (13.5) (20.7)
(Increase) Decrease in inventories (2.2) (27.2) 1.2
(Increase) Decrease in other current assets 10.4 (14.2) (4.7)
Increase (Decrease) in current liabilities (34.4) (3.5) 36.9
(Increase) Decrease in other, net .9 2.5 6.8
------ ------ ------
Net cash provided by operating activities 190.4 148.6 189.2
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of non-current investments (31.6) (50.8) (9.7)
Receipt of principal, maturity and sale of
non-current investments 39.8 15.4 15.2
Acquisition of businesses, net of cash acquired (78.4) (21.1) (32.5)
Additions to property, plant and equipment (86.1) (60.6) (39.1)
Other, net (40.6) 14.8 (8.1)
------ ------ ------
Net cash used in investing activities (196.9) (102.3) (74.2)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Short-term borrowing (repayment) 113.0 (18.4) --
Long-term borrowing (repayment) -- -- (2.7)
Payment of dividends (79.7) (73.7) (65.2)
Acquisition of treasury shares (82.8) (21.8) (5.6)
Exercise of stock options 10.9 8.4 5.9
Other, net -- -- --
------ ------ ------
Net cash used in financing activities (38.6) (105.5) (67.6)
------ ------ ------
INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS (45.1) (59.2) 47.4
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 75.2 134.4 87.0
------ ------ ------
End of period $ 30.1 $ 75.2 $134.4
====== ====== ======
See notes to consolidated financial statements.
27
Page 27
Hubbell Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in millions, except per share amounts)
Class A Class B Additional Cumulative Unrealized Compre-
For the three years ended Common Common Paid-In Retained Translation Gain (Loss) hensive
December 31, 1998 Stock Stock Capital Earnings Adjustments on Investments Income
------ ------ ------- -------- ----------- ------------- ------
BALANCE AT DECEMBER 31, 1995 $ .1 $ .3 $437.9 $238.3 $ (9.2) $ .1
Net income 141.5 $141.5
Translation adjustments .7 .7
Unrealized gain on investments .1 .1
------
Comprehensive Income $142.3
======
Exercise of stock options 14.3
Acquisition of treasury shares (13.9)
Cash dividends declared
($1.02 per share) (67.0)
Stock split 2-for-1 .2 (.3)
------ ------ ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1996 $ .1 $ .5 $438.3 $312.5 $ (8.5) $ .2
Net income 130.3 $130.3
Translation adjustments (1.6) (1.6)
Unrealized (loss) on investments (.1) (.1)
------
Comprehensive Income $128.6
======
Exercise of stock options 11.5
Acquisition of treasury shares (27.5)
Shares issued for Fargo acquisition .1 50.4
Cash dividends declared
($1.13 per share) (75.9)
------ ------ ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1997 $ .1 $ .6 $472.7 $366.9 $(10.1) $ .1
Net income 169.4 $169.4
Translation adjustments (3.5) (3.5)
Unrealized gain on investments --
------
Comprehensive Income $165.9
======
Exercise of stock options 16.2
Acquisition of treasury shares (.1) (91.1)
Cash dividends declared
($1.22 per share) (80.6)
------ ------ ------ ------ ------ ------
BALANCE AT DECEMBER 31, 1998 $ .1 $ .5 $397.8 $455.7 $(13.6) $ .1
====== ====== ====== ====== ====== ======
See notes to consolidated financial statements
28
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Hubbell Incorporated and Subsidiaries
STATEMENT OF ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include all subsidiaries; all significant
intercompany balances and transactions have been eliminated. Investments in
joint ventures are accounted for by using the equity method. Certain
reclassifications, which were not significant, have been made in prior period
financial statements to conform to the 1998 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities and disclosures, if any, of
contingent assets and liabilities at the date of the financial statements.
Similarly, estimates and assumptions are required for the reporting of revenues
and expenses. Actual results could differ from the estimates that were used.
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 rates of exchange 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 shareholders' equity. Gains and losses from foreign currency transactions are
included in income of the period.
Cash and Temporary Cash Investments
Temporary cash investments consist of liquid investments with maturities of
three months or less when purchased. The carrying value of cash and temporary
cash investments approximates fair value because of their short maturities.
Investments
Investments in debt and equity securities are classified by individual security
into one of three separate categories: trading, available-for-sale or
held-to-maturity. Trading investments are bought and held principally for the
purpose of selling them in the near term and are carried at fair market value.
Adjustments to the carrying value of trading investments are included in current
earnings. Available-for-sale investments are intended to be held for an
indefinite period but may be sold in response to events reasonably expected in
the future. These investments are carried at fair value with adjustments
recorded in shareholders' equity net of tax. Investments which the Company has
the positive intent and ability to hold to maturity are classified as
held-to-maturity and carried at amortized cost.
Inventories
Inventories are stated at the lower of cost or market. The cost of substantially
all domestic inventories, 81% of total inventory value, is determined on the
basis of the last-in, first-out (LIFO) method of inventory accounting. The cost
of foreign inventories and certain domestic inventories is determined on the
basis of the first-in, first-out (FIFO) method of inventory accounting.
29
Page 29
Property, Plant, and Equipment
Property, plant, and equipment are depreciated over their estimated useful
lives, principally using accelerated methods.
Purchase Price in Excess of Net Assets of Companies Acquired
The cost of companies acquired in excess of the amount assigned to net assets is
being amortized on a straight-line basis over a 10 to 40 year period.
Impairment of Long-Lived Assets
Long-lived assets, including goodwill, are evaluated for financial impairment
when events or changes in circumstances indicate that the carrying amount of
such assets may not be fully recoverable. Recoverability is evaluated by
measuring the carrying amount of the assets against the estimated undiscounted
cash flow associated with them. Long-lived assets to be disposed of are valued
at the lower of their carrying amount or fair value less cost to sell.
Deferred Income Taxes
Deferred income taxes are recognized for the tax consequence of differences
between the financial statement carrying amounts and tax bases of assets and
liabilities by applying the currently enacted statutory tax rates. The effect of
a change in statutory tax rates is recognized in income in the period that
includes the enactment date. Federal income taxes have not been provided on the
undistributed earnings of the Company's international subsidiaries as the
Company has reinvested all of these earnings indefinitely.
Retirement Benefits
The Company's policy is to fund pension costs within the ranges prescribed by
applicable regulations. In addition to providing pension benefits, in some
circumstances the Company provides health care and life insurance benefits for
retired employees. The Company's policy is to fund these benefits through
insurance premiums or as actual expenditures are made.
Earnings Per Share
Earnings per share is based on reported net income and the weighted average
number of shares of common stock outstanding (basic) and the total of common
stock outstanding and common stock equivalents (diluted).
Stock-Based Compensation
FAS 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
current intrinsic value based method of accounting for such plans where
compensation expense 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.
However, as required by FAS No. 123, the Company provides pro forma disclosure
of net income and earnings per share in the notes to the consolidated financial
statements as if the fair value based method of accounting has been applied.
30
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Comprehensive Income
As shown in the Statement of Changes in Shareholders' Equity, comprehensive
income is a measure of net income and all other changes in equity of the Company
that result from recognized transactions and other events of the period other
than transactions with shareholders. The other changes in equity are comprised
of the change in Cumulative Translation Adjustments for foreign currency items
and Unrealized Gain (Loss) on investments held for sale.
Derivatives
The Company, to limit financial risk in the management of its assets,
liabilities and debt may use derivative financial products such as: foreign
currency hedges, commodity hedges, interest rate hedges and interest rate swaps.
All derivative financial instruments must be matched with an existing Company
asset or liability. Market value gains or losses on the derivative financial
instrument are recognized in income when the effects of the related price
changes of the related asset or liability are recognized in income or at the
time the derivative instrument is closed. The Company does not speculate or use
leverage when trading a financial derivative product. There were no material
derivative transactions, individually or in total, for the three years ended
December 31, 1998. The impact of FAS No. 133 - "Accounting for Derivative
Instruments and Hedging Activity" effective 2000 will change the current
practices of the Company, but will not have a significant impact on the results
of operations.
31
Page 31
Hubbell Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Special Charge
Net operating profit for 1997 included a special charge of $52.0 million ($32.2
million after-tax or $.47 per share), comprised of $44.6 million for
streamlining initiatives and a $7.4 million asset impairment write-down.
The Company's streamlining initiatives were undertaken to optimize the
organization and cost structure primarily within the Electrical and Power
Segments. These programs will result in the relocation of approximately 2,000
jobs and closure of 5 facilities. As shown in the table below, the Company has
accrued $15.6 million of employee termination costs, $24.1 million of plant and
equipment disposal costs, and $4.9 million of other costs. The other costs are
related to workforce and production redeployment costs which are being expensed
as incurred.
The components of the streamlining charge and related reserve balances remaining
at December 31, 1998 were (in millions):
Employee Asset Exit Accrued Other
Benefits Disposals Costs Charge Costs Total
-------- --------- ----- ------ ----- -----
1997 Streamlining Charge $15.6 $18.0 $ 6.1 $39.7 $ 4.9 $44.6
Amounts Utilized in 1997 (0.6) (7.3) (0.1) (8.0) (4.9) (12.9)
Amounts Utilized in 1998 (3.8) (2.4) (0.6) (6.8) (5.2) (12.0)
----- ----- ----- -----
Remaining Reserve ...... $11.2 $ 8.3 $ 5.4 $24.9
===== ===== ===== =====
The $7.4 million asset impairment write-down relates to the Other Industry
Segment and consists of a partial goodwill write-down determined in accordance
with the Company's accounting policy under FAS 121.
The restructuring program which the Company began in late 1993 was completed
during 1997. The 1993 program addressed the consolidation of manufacturing
facilities, realignment of warehousing and distribution activities, and
reductions in labor force primarily with the lighting and wiring products
businesses. The restructuring charge included personnel costs (severance and
post-employment benefits), plant and equipment relocation and asset disposals
totaling $50.0 million. Costs charged against the restructuring accrual were
$8.7 million in 1997, $9.7 million in 1996, $9.5 million in 1995, $14.8 million
in 1994 and $7.3 million in 1993. The cumulative expenditures represented
personnel costs of $20.6 million, plant and equipment relocation of $21.8
million, and asset disposals of $7.6 million. Personnel costs included non-cash
charges of $6.2 million for early retirement programs which were reclassified to
the Company's pension liability.
32
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Acquisitions
During 1998 the Company acquired three lighting businesses which augmented the
existing lighting products portfolio. In the first quarter, Devine Lighting of
Kansas City, MO which specializes in design-oriented architectural outdoor
lighting fixtures was purchased. In the late fourth quarter, Sterner Lighting
based in Eden Prairie, MN which designs and manufactures specification grade
outdoor lighting fixtures and custom lighting products as well as indoor
sports and arena lighting and Chalmit Lighting based in Hilington, Scotland
which manufactures lighting fixtures for hazardous and corrosive locations were
acquired. To broaden the Company's telecommunication product lines, Siescor
Technologies, Inc. based in Tulsa, OK was acquired. Siescor designs and
manufactures digital loop carrier systems used to connect subscribers to central
office telephone switches for voice and data communications over copper, fiber
and digital microwave networks. In addition, two minor product lines were
acquired in the first quarter of the year. All of the businesses were acquired
for cash of $78.4 million and the transactions were recorded under the purchase
method of accounting.
On February 14, 1997, Hubbell acquired Fargo Manufacturing Company, Inc.
("Fargo") based in Poughkeepsie, New York. Fargo manufactures distribution and
transmission line products primarily for the electric utility market. Each share
of Fargo common stock was converted into a right to receive shares or fractions
thereof of Hubbell's Class B Common Stock and accordingly 1,170,572 shares of
Class B Common Stock were issued. The acquisition of Fargo has been recorded
under the purchase method of accounting with a cost of $43.1 million net of cash
acquired. Additionally, three product lines and associated assets were acquired
during 1997 for $21.1 million in cash.
On January 2, 1996, the Company acquired the Anderson Electrical Products
business ("Anderson"). Anderson manufactures electrical connectors and
associated hardware and tools for the electric utility industry with
manufacturing facilities in Alabama and Tennessee. On January 31, 1996, the
Company acquired all the outstanding stock of Gleason Reel Corp. ("Gleason")
based in Mayville, Wisconsin. Gleason manufactures cable management products
(including electric cable and hose reels, protective steel and nylon cable
tracks and cable festooning hardware) and a line of ergonomic tool support
systems. Additionally, during 1996, the Company completed two minor acquisitions
which broadened its product lines: a Canadian manufacturer of power poles for
commercial applications and a manufacturer of fault detection systems for power
cables. The businesses were acquired for cash of $32.5 million and notes of
$18.6 million that mature in one year and were recorded under the purchase
method of accounting.
The costs of the acquired businesses have been allocated to assets acquired and
liabilities assumed based on fair values with the residual amount assigned to
goodwill, which is being amortized over ten to forty years. The businesses have
been included in the financial statements as of their respective acquisition
dates and represented approximately 3% of 1998, 2% of 1997 and 5% of 1996 net
sales with no material effect on the Company's reported earnings.
In connection with the above acquisitions, liabilities were assumed as follows
(in millions):
1998 1997 1996
------- ------- -------
Fair value of assets acquired including goodwill $ 95.1 $ 73.6 $ 59.8
Issuance of short term notes -- -- (18.6)
Issuance of Class B Common Stock -- (43.1) --
Cash paid for businesses, net of cash acquired . (78.4) (21.1) (32.5)
------- ------- -------
Liabilities assumed $ 16.7 $ 9.4 $ 8.7
======= ======= =======
33
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INVESTMENTS
Investments consist primarily of mortgage-backed securities, U.S. Treasury
Notes, common and preferred stocks. Investments which are available-for-sale are
stated at market values based on current quotes while investments which are
being held-to-maturity are stated at amortized cost. There were no securities
during 1998 and 1997 that were classified as trading investments. Certain
portfolio securities that are affected by changes in interest rates may be
hedged with futures contracts for U.S. Treasury notes and bonds. Market value
gains and losses on the futures contracts are recognized in income when the
effects of the related price changes in the value of the hedged securities are
recognized. At December 31, 1998 there were no open futures contracts.
The following tables set forth selected data with respect to the Company's
long-term investments at December 31, (in millions):
1998
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---- ----- ------ ----- -----
AVAILABLE-FOR-SALE
INVESTMENTS
Common & Preferred Stocks $ .1 $ -- $ -- $ .1 $ .1
Federal National Mortgage
Assoc. Securities (FNMA) -- -- -- -- --
Mortgage-backed Securities -- -- -- -- --
U.S. Treasury Notes &
Municipal Bonds 12.7 .1 (.1) 12.7 12.7
Total Available-For-Sale ------ ------ ------ ------ ------
Investments $ 12.8 $ .1 $ (.1) $ 12.8 $ 12.8
====== ====== ====== ====== ======
HELD-TO-MATURITY
INVESTMENTS
Federal National Mortgage
Assoc. Securities (FNMA) $ 87.9 $ 3.1 $ (1.5) $ 89.5 $ 87.9
Gov't. National Mortgage
Assoc. Securities (GNMA) 25.2 2.0 (.6) 26.6 25.2
Mortgage-backed
securities 8.8 .1 (.8) 8.1 8.8
U.S. Treasury Notes &
Municipal Bonds 62.5 .9 -- 63.4 62.5
Total Held-To-Maturity ------ ------ ------ ------ ------
Investments $184.4 $ 6.1 $ (2.9) $187.6 $184.4
====== ====== ====== ====== ======
1997
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---- ----- ------ ----- -----
Common & Preferred Stocks $ .2 $ .1 $ (.1) $ .2 $ .2
Federal National Mortgage
Assoc. Securities (FNMA) -- -- -- -- --
Mortgage-backed Securities -- -- -- -- --
U.S. Treasury Notes &
Municipal Bonds 12.0 .1 -- 12.1 12.1
Total Available-For-Sale ------ ------ ------ ------ ------
Investments $ 12.2 $ .2 $ (.1) $ 12.3 $ 12.3
====== ====== ====== ====== ======
HELD-TO-MATURITY
INVESTMENTS
Federal National Mortgage
Assoc. Securities (FNMA) $ 88.4 $ 4.9 $ (1.1) $ 92.2 $ 88.4
Gov't. National Mortgage
Assoc. Securities (GNMA) 30.0 2.1 (.5) 31.6 30.0
Mortgage-backed
securities 17.0 .3 -- 17.3 17.0
U.S. Treasury Notes &
Municipal Bonds 57.9 .5 (.3) 58.1 57.9
Total Held-To-Maturity ------ ------ ------ ------ ------
Investments $193.3 $ 7.8 $ (1.9) $199.2 $193.3
====== ====== ====== ====== ======
34
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INVESTMENTS CONT'D.
Contractual maturities of investments in debt securities available-for-sale and
held-to-maturity at December 31, 1998 were as follows (in millions):
U.S. Treasury
Mortgage Backed Notes &
FNMA GNMA Securities Municipal Bonds
---- ---- ---------- ---------------
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
---- ----- ---- ----- ---- ----- ---- -----
AVAILABLE-FOR-SALE
INVESTMENTS
Due within 1 year $ -- $ -- $ -- $ -- $ -- $ -- $ 2.2 $ 2.2
After 1 but within 5 years -- -- -- -- -- -- 10.5 10.5
After 5 but within 10 years -- -- -- -- -- -- -- --
After 10 years -- -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
TOTAL $ -- $ -- $ -- $ -- $ -- $ -- $12.7 $12.7
===== ===== ===== ===== ===== ===== ===== =====
HELD-TO-MATURITY
INVESTMENTS
Due within 1 year $ -- $ -- $ -- $ -- $ -- $ -- $ .9 $ .9
After 1 but within 5 years -- -- 1.0 1.1 -- -- 20.0 20.3
After 5 but within 10 years 2.4 2.3 14.5 15.6 -- -- .9 .9
After 10 years 85.5 87.2 9.7 9.9 8.8 8.1 40.7 41.3
----- ----- ----- ----- ----- ----- ----- -----
TOTAL $87.9 $89.5 $25.2 $26.6 $ 8.8 $ 8.1 $62.5 $63.4
===== ===== ===== ===== ===== ===== ===== =====
35
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Inventories
Inventories are classified as follows at December 31, (in millions):
1998 1997
------- -------
Raw material $ 104.9 $ 96.5
Work-in-process 79.6 74.3
Finished goods 162.0 148.9
------- -------
346.5 319.7
Excess of current production costs over LIFO cost basis 45.6 43.8
------- -------
Total $ 300.9 $ 275.9
======= =======
The financial accounting basis for the LIFO inventories of acquired companies
exceeds the tax basis by approximately $29.8 million at December 31, 1998.
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):
1998 1997 1996
------- ------- -------
Income before income taxes:
United States $ 225.0 $ 176.0 $ 192.9
International 5.5 4.1 6.4
------- ------- -------
Total $ 230.5 $ 180.1 $ 199.3
======= ======= =======
Provisions for income taxes:
Federal $ 49.3 $ 54.1 $ 49.1
State 4.0 6.3 7.0
International 2.6 .9 3.1
Deferred 5.2 (11.5) (1.4)
------- ------- -------
Total $ 61.1 $ 49.8 $ 57.8
======= ======= =======
36
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The principal items making up the deferred tax provisions are set forth in the
following table for the years ended December 31, (in millions):
1998 1997 1996
------- ------- -------
Transactions of leasing subsidiary $ (1.4) $ (1.3) $ (1.4)
Special charge -- (14.8) --
Restructuring reserve 3.2 3.3 3.7
Depreciation 1.5 .7 (1.2)
Other, net 1.9 .6 (2.5)
------- ------- -------
Total $ 5.2 $ (11.5) $ (1.4)
======= ======= =======
The components of the net deferred tax (asset) liability at December 31, (in
millions) were as follows:
1998 1997
------- -------
Deferred tax assets:
Inventory $ 3.8 $ 3.6
Pensions 16.8 14.9
Postretirement and postemployment benefits 8.9 9.1
Accrued consolidation and streamlining charge 9.5 12.0
Accrued liabilities 43.6 47.0
------- -------
Total deferred tax asset $ 82.6 $ 86.6
------- -------
Deferred tax liabilities:
Property, plant, and equipment 26.4 24.9
Leasing subsidiary 14.2 15.5
LIFO inventories of acquired businesses 11.3 11.3
Miscellaneous other 7.8 7.6
------- -------
Total deferred tax liability 59.7 59.3
------- -------
Net deferred tax (asset) liability $ (22.9) $ (27.3)
======= =======
37
Page 37
Deferred taxes are classified in the financial statements as a net short-term
deferred tax asset of $24.0 million and a net long-term deferred tax liability
of $1.1 million.
At December 31, 1998, United States income taxes had not been provided on
approximately $14.9 million of undistributed international earnings. Payments of
income taxes were $60.7 million in 1998, $62.4 million in 1997 and $45.7 million
in 1996.
The consolidated effective income tax rates varied from the United States
federal statutory income tax rate for the years ended December 31, as follows:
1998 1997 1996
------ ------ ------
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 1.3 2.0 2.3
Partially tax-exempt income (1.9) (2.4) (2.5)
Non-taxable income from
Puerto Rico operations (8.4) (8.4) (6.6)
Other, net .5 1.5 .8
------ ------ ------
Consolidated effective income tax rate 26.5% 27.7% 29.0%
====== ====== ======
Other Non-Current Liabilities
Other Non-Current Liabilities consists of the following at December 31, (in
millions):
1998 1997
------- -------
Pensions $ 43.6 $ 34.6
Other postretirement benefits 20.3 20.3
Accrued consolidation and streamlining charge 14.9 17.7
Other, net 25.3 23.2
------- -------
Total $ 104.1 $ 95.8
======= =======
38
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Retirement Benefits
The Company and its subsidiaries have a number of non-contributory defined
benefit pension plans and other nonpension retirement benefit plans. During
1998, the Company made an acquisition where defined benefit pension assets and
liabilities of the acquired company were assumed.
The following table sets forth the reconciliation of beginning and ending
balances of the benefit obligations and the plan assets for the above plans at
December 31, (in millions):
Pension Benefits Other Benefits
1998 1997 1998 1997
-------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 237.7 $ 206.8 $ 20.3 $ 20.4
Service cost 8.9 7.7 .3 .3
Interest cost 16.1 15.3 1.2 1.1
Plan amendments .7 .6 -- --
Actuarial (gain) loss (1.2) 17.9 -- --
Acquisitions 1.1 -- -- --
Benefits paid (10.9) (10.6) (1.5) (1.5)
-------- -------- -------- --------
Benefit obligation at end of year $252.4 $ 237.7 $ 20.3 $ 20.3
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 218.0 $ 197.2 $ -- $ --
Actual return on plan assets 20.4 28.1 -- --
Acquisitions .9 -- -- --
Employer contributions 2.3 3.3 -- --
Benefits paid (10.9) (10.6) -- --
-------- -------- -------- --------
Fair value of plan assets at end of year $ 230.7 $ 218.0 $ -- $ --
-------- -------- -------- --------
FUNDED STATUS $ (21.7) $ (19.7) $ (20.3) $ (20.3)
Unrecognized net actuarial gain (26.1) (21.6) -- --
Unrecognized prior service cost 1.3 1.2 -- --
-------- -------- -------- --------
Accrued benefit cost $ (46.5) $ (40.1) $ (20.3) $ (20.3)
-------- -------- -------- --------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31
Discount rate 6.75% 7.00% 7.25% 7.25%
Expected return on plan assets 8.00% 8.00% N/A N/A
Rate of compensation increase 4.00% 4.00% N/A N/A
39
Page 39
The following table sets forth the components of pension and other benefits cost
for the years ended December 31, (in millions):
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
------- ------- ------- ------- ------- -------
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 8.9 $ 7.7 $ 7.4 $ .3 $ .3 $ .3
Interest cost 16.1 15.3 14.1 1.2 1.1 1.3
Expected return on plan assets (16.6) (15.4) (12.9) -- -- --
Amortization of prior service cost .7 .4 .4 -- -- --
Amortization of actuarial gains (.5) (.6) (.4) -- -- --
------- ------- ------- ------- ------- -------
Net periodic benefit cost $ 8.6 $ 7.4 $ 8.6 $ 1.5 $ 1.4 $ 1.6
------- ------- ------- ------- ------- -------
The Company and its subsidiaries have a number of health care and life insurance
benefit plans covering eligible employees who reached retirement age while
working for the Company. These other benefits were discontinued in 1991 for
substantially all future retirees, with the exception of A.B. Chance Company
which was acquired in 1994 and Anderson Electrical Products, Inc., which was
acquired in 1996. For measurement purposes, a 9% annual rate of increase in the
per capita cost of pre-65 covered health care benefits was assumed for 1998. The
rate was assumed to decrease gradually to 5.5% for 2001 and remain at that level
thereafter. The impact of a 1 percentage point increase or decrease in
assumptions would not be material to the Company. Some of the plans provide for
retiree contributions which are periodically increased. The plans anticipate
future cost-sharing changes that are consistent with the Company's past
practices.
At December 31, 1998, approximately $145.2 million of the pension plan assets
were invested in common stocks, including Hubbell Incorporated common stock with
a market value of $13.8 million. The balance of plan assets of $85.5 million
were invested in short term money market accounts, government and corporate
bonds.
At December 31, 1998, the Company had certain defined benefit plans where the
accumulated benefit obligation exceeded plan assets. In total, the accumulated
benefit obligation and plan assets for these plans at December 31, 1998 were
$51.0 million and $26.7 million respectively. No additional minimum liability
was required to be recognized for any of these plans.
The Company also maintains two qualified defined contribution plans. The total
cost of these plans was $1.5 million in 1998, $1.1 million in 1997 and $.8
million in 1996. This cost is not included in the above net periodic benefit
cost for the defined benefit pension plans. Total pension expense (including
defined contribution plans) as a percent of payroll was 3.2% in 1998, 3.5% in
1997 and 4.1% in 1996.
40
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Commercial Paper, Other Borrowings and Long-Term Debt
The following table sets forth the components of the Company's debt structure at
December 31, (in millions):
1998 1997
------------------------------------ --------------------------------
COMMERCIAL COMMERCIAL
PAPER AND PAPER AND
OTHER LONG-TERM OTHER LONG-TERM
BORROWINGS DEBT TOTAL BORROWINGS DEBT TOTAL
---------- ---- ----- ---------- ---- -----
Balance at year end $ 113.3 $ 99.6 $ 212.9 $ .3 $ 99.5 $ 99.8
Highest aggregate month-end balance $ 215.5 $ 124.7
Average borrowings during the year $ 55.3 $ 99.6 $ 154.9 $ 6.7 $ 99.5 $ 106.2
Weighted average interest rate:
At year end 5.32% 6.72% 5.97% 6.00% 6.72% 6.72%
Paid during the year 5.50% 6.72% 6.28% 5.71% 6.72% 6.66%
Interest paid for commercial paper, bank borrowings, and long-term debt totaled
$9.7 million in 1998, $7.2 million in 1997, and $8.1 million in 1996. The
Company maintains various bank credit agreements primarily to support commercial
paper borrowings. At December 31, 1998, the Company had total unused bank credit
agreements of $50 million. The expiration date for these bank credit agreements
is September 27, 1999. Borrowings under credit agreements generally are
available at the prime rate or at a surcharge over the London Interbank Offered
Rate (LIBOR). Annual commitment fee requirements to support availability of
credit agreements at December 31, 1998, total approximately $30,000. In January,
1996, short term notes of $18.6 million with an interest rate of 6%, were issued
as part of the purchase price for Gleason Reel Corp. In January, 1997, $18.4
million of these notes were repaid, with the balance repaid in January, 1998.
Long-term debt consists of ten year non-callable notes due in 2005 at a face
value of $100.0 million and a fixed interest rate of 6 5/8%.
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Leases
Total rental expense under operating leases was $7.9 million in 1998, $7.4
million in 1997 and $6.8 million in 1996. The minimum annual rentals on
non-cancelable, long-term, operating leases in effect at December 31, 1998 will
approximate $3.5 million in 1999, $2.6 million in 2000, and will decline
thereafter.
Research, Development and Engineering
Expenses for new product development and ongoing improvement of existing
products were $27.0 million in 1998, $19.0 million in 1997 and $14.2 million in
1996.
Financial Instruments
Concentration of Credit Risks: Financial instruments which potentially subject
the Company to concentration of credit risks consist of trade receivables and
temporary cash 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 a diverse customer base including electrical distributors and
wholesalers, electric utilities, equipment manufacturers, electrical
contractors, telephone operating companies and retail and hardware outlets. 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 temporary cash investments with financial institutions and limits the
amount of exposure to any one institution.
Fair Value: The carrying amounts reported in the consolidated balance sheets for
cash and temporary cash investments, receivables, commercial paper and bank
borrowings, accounts payable and accruals approximate their fair values given
the immediate or short-term maturity of these financial investments.
The fair value of investment securities and long term debt are as follows (in
millions):
1998 1997
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Investments
Available-for-sale $ 12.8 $ 12.8 $ 12.3 $ 12.3
Held-to-maturity $184.4 187.6 $193.2 $ 199.2
Long-Term Debt $(99.6) $(106.4) $(99.5) $(101.6)
Fair value is based on quoted market prices for the same or similar securities.
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Capital Stock
Share activity in the Company's preferred and common stocks is set forth below
for the three years ended December 31, 1998:
Preferred Stock Common Stock
--------------- ------------
Class A Class B
------- -------
OUTSTANDING AT DECEMBER 31, 1995 -- 5,786,315 27,139,225
Exercise of stock options 53,314 528,370
Acquisition of treasury shares (141,864) (285,307)
2-for-1 stock split 5,748,355 27,230,302
---------- ---------- ----------
OUTSTANDING AT DECEMBER 31, 1996 -- 11,446,120 54,612,590
Exercise of stock options 62,748 344,565
Acquisition of Fargo -- 1,170,572
Acquisition of treasury shares (362,806) (246,782)
---------- ---------- ----------
OUTSTANDING AT DECEMBER 31, 1997 -- 11,146,062 55,880,945
Exercise of stock options 56,000 475,975
Acquisition of treasury shares (420,579) (1,543,633)
---------- ---------- ----------
OUTSTANDING AT DECEMBER 31, 1998 -- 10,781,483 54,813,287
Treasury shares are retired when acquired and the purchase price is charged
against par value and additional paid-in capital. Voting rights per share: Class
A Common - twenty; Class B Common - one. In addition, the Company has 5,891,097
authorized shares of preferred stock; none are outstanding.
On December 9, 1998, the Board of Directors adopted a new stockholder Rights
Agreement to replace the previous agreement. Under the new Rights Agreement,
holders of Class A Common Stock have Class A Rights and holders of Class B
Common Stock have Class B 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"),
par value $10.00 per share, 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 share of Class B Junior Participating Preferred Stock ("Series
B Preferred Stock"), par value $10.00 per share, 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 expire on December 31, 2008, unless earlier redeemed 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,
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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 common stock were reserved at December 31, 1998 as follows:
Common Stock
------------
Class A Class B Preferred Stock
------- ------- ---------------
Exercise of outstanding stock options 26,000 5,670,627 --
Future grant of stock options 959,012 1,356,187 --
Distribution of performance units -- 108,156 --
Exercise of stock purchase rights -- -- 65,595
------- --------- ------
Total 985,012 7,134,970 65,595
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Stock Options
The Company has granted to officers and key employees options to purchase the
Company's Class A and Class B Common Stock and the Company may grant to officers
and key employees options to purchase the Company's Class B Common Stock at not
less than 100% of market prices on the date of grant with a ten year term and a
three year vesting period. Stock option activity for the three years ended
December 31, 1998 is set forth below:
Number Option price per Weighted
of shares share range Average
--------- ----------- -------
OUTSTANDING AT DECEMBER 31, 1995 4,503,884 $10.95 - $32.06 $24.10
Granted 796,000 $41.69 $41.69
Exercised (581,684) $10.95 - $32.06 $24.50
Canceled or expired (37,100) $25.15 - $32.06 $27.93
---------
OUTSTANDING AT DECEMBER 31, 1996 4,681,100 $10.95 - $41.69 $27.68
Granted 946,400 $47.13 $47.13
Exercised (407,313) $10.95 - $32.06 $28.38
Canceled or expired (53,399) $21.25 - $32.06 $25.31
---------
OUTSTANDING AT DECEMBER 31, 1997 5,166,788 $13.82 - $47.13 $31.18
Granted 1,132,400 $39.34 $39.34
Exercised (531,975) $13.82 - $32.06 $31.54
Canceled or expired (70,591) $25.71 - $47.13 $39.75
---------
OUTSTANDING AT DECEMBER 31, 1998 5,696,622 $16.86 - $47.13 $33.24
At December 31, 1998, outstanding options were comprised of 1,222,783 shares
exercisable with an average remaining life of three years and an average price
of $23.59 (range $16.86 - $26.99); 1,676,939 shares exercisable with an average
remaining life of seven years and an average price of $28.08 (range $25.15 -
$32.06); and 2,796,900 shares not vested with an average remaining life of nine
years and an average price of $42.52 (range $39.34 - $47.13).
On May 5, 1997 the Company's shareholders approved a performance unit plan for
employees who are primarily responsible in an administrative or executive
capacity for the direction of the functions or operation of the Company and its
subsidiaries. The performance units, which were awarded in the Company's Class B
Common Stock, are based on achieving targeted earnings per share growth over the
three-year period commencing January 1, 1997 and ending December 31, 1999.
Participants may receive from 0 to 200 percent of the award grant depending upon
whether the average annual compounded earnings per share growth is (a) below the
10% mark (no award), (b) 10% to 12.4% (100% of award), (c) 12.5% to 14.9% (150%
of award), and (d) 15% and above (200% of award). The maximum number of shares
that could have been issued under the plan is 221,638.
The following table summarizes the pro forma effect on net income if
compensation expense had been recognized for stock options using the
Black-Scholes option-pricing model and related assumptions:
Dividend Expected Interest Expected Fair Value Effect on
Yield Volatility Rate Option Term of 1 Option Net Income*
----- ---------- ---- ----------- ----------- -----------
1998 3.0% 17% 4.8% 7 Years $ 7.34 $4.1 Million
1997 2.5% 13% 6.0% 7 Years $ 10.26 $2.7 Million
1996 2.5% 13% 6.4% 7 Years $ 9.38 $1.2 Million
* These pro forma disclosures may not be representative of the effects on
reported net income for future years since options vest over several years
and options granted prior to 1995 are not considered. The pro forma effect
on earnings per share would be immaterial.
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Earnings Per Share
The following table sets forth the computation of earnings per share for the
three years ended December 31, (in millions except per share data):
1998 1997 1996
-------- -------- --------
Net Income $ 169.4 $ 130.3 $ 141.5
Weighted average number of common
shares outstanding during the year (basic) 66.2 67.0 65.9
Common equivalent shares 1.5 1.8 1.3
-------- -------- --------
Average number of shares outstanding (diluted) 67.7 68.8 67.2
======== ======== ========
Earnings per share:
Basic $ 2.56 $ 1.94 $ 2.15
Diluted $ 2.50 $ 1.89 $ 2.10
Industry Segment and Geographic Area Information
Nature of Operations
Hubbell Incorporated was founded as a proprietorship in 1888, and was
incorporated in Connecticut in 1905. For over a century, Hubbell has
manufactured and sold high quality electrical and electronic products for a
broad range of commercial, industrial, telecommunications and utility
applications. Since 1961, Hubbell has expanded its operations into other areas
of the electrical industry and related fields. Hubbell products are now
manufactured or assembled by twenty-three divisions and subsidiaries in the
United States, Canada, Puerto Rico, Mexico, United Kingdom and Singapore.
Hubbell also participates in joint ventures with partners in South America,
Germany and Taiwan, and maintains sales offices in Malaysia, Mexico, Hong Kong,
South Korea and the Middle East.
The Company is primarily engaged in the engineering, manufacture and sale of
electrical and electronic products. For management reporting and control, the
businesses are divided into four operating segments: Electrical, Power,
Telecommunications and Other Industry. Information regarding operating segments
has been presented as required by Financial Accounting Standard No. 131.
Previously, the Company reported segment information on a product basis
determined by voltage characteristics. At December 31, 1998 the operating
segments were comprised as follows:
The Electrical Segment is comprised of businesses that primarily sell through
distributors, lighting showrooms, and home centers and represents stock items
including standard and special application wiring device products, lighting
fixtures, fittings, switch and outlet boxes, enclosures and wire management
products. The products are used in and around industrial and commercial
facilities by electrical contractors, maintenance personnel and electricians.
Power Segment operations are comprised of products used in the transmission and
distribution of electricity and are sold through distributors and directly to
users such as electric utilities,
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industrial firms and engineering and construction firms. Segment products are
comprised of wire and cable, insulators, surge arresters, switches, cutouts,
sectionalizers and construction materials and tools for the building and
maintenance of overhead and underground power and telephone lines.
The Telecommunications Segment designs and manufactures voice and data signal
processing components primarily used by telephone and telecommunications
companies and consists of channel cards and banks for loop and trunk carriers,
and racks and cabinets.
The Other Industry Segment consists of operations that design and manufacture
test and measurement equipment, high voltage power supplies and variable
transformers, industrial controls including motor speed controls, pendant-type
push-button stations, overhead crane controls; and Gleason(R) electric cable
and hose reels. Products are sold primarily to steel mills, industrial
complexes, seaports, and cable manufacturers.
On a geographic basis, the Company defines "international" as operations and
subsidiaries based outside of the United States and its possessions. Sales of
international units were 6% of total sales in 1998, 1997 and 1996 with the
Canadian market representing approximately 60% of the total. Net assets of
international subsidiaries were 4% of the consolidated total in 1998, 5% in 1997
and 5% in 1996. Export sales directly to customers or through electric
wholesalers from the United States operations were $80.2 million in 1998, $105.0
million in 1997 and $98.9 million in 1996.
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The Company's principal manufacturing facilities are located in the following
areas, classified by segment:
Approximate Floor
Segment Location No. of Facilities Area in Square Feet
------- -------- ----------------- -------------------
Electrical Segment Connecticut 2 207,400
Puerto Rico 3 256,000 (1)
Tennessee 1 250,000
Virginia 1 321,300
Illinois 1 165,000
Indiana 1 320,000
Missouri 2 361,500
Minnesota 2 173,800 (2)
Georgia 1 130,000
Mexico 2 260,000
Power Segment Connecticut 1 503,000
New York 3 274,000
Ohio 1 92,000
South Carolina 1 353,000
Alabama 2 322,000
Tennessee 1 77,000
Missouri 1 746,000
Puerto Rico 1 135,565 (3)
Telecommunications
Segment Virginia 1 138,000
Oklahoma 1 199,000
Other Industry Ohio 1 76,900
Segment North Carolina 1 81,000 (3)
Wisconsin 1 94,000 (4)
- - ----------------------------------
(1) 96,500 square feet leased
(2) 41,700 square feet leased
(3) Leased
(4) 20,000 square feet leased
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Additionally, the Company owns or leases warehouses and distribution centers
containing approximately 792,500 square feet. The Company believes its
manufacturing and warehousing facilities are adequate to carry on its business
activities.
As of December 31, 1998, the Company has approximately 10,600 full-time
employees, including salaried and hourly personnel. Approximately 40% of the
employees are represented by 13 labor unions. During the next twelve months
there are four union contracts due for renegotiation.
Financial Information
Financial information by industry segment and geographic area for the three
years ended December 31, 1998, is summarized below (in millions). When reading
the data the following items should be noted:
- - - Net sales comprise sales to unaffiliated customers - intersegment and
inter-area sales are immaterial.
- - - Segment operating income consists of net sales less operating expenses.
Interest expense, and other income, have not been allocated to segments.
- - - General corporate assets not allocated to segments are principally cash and
investments.
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INDUSTRY SEGMENT 1998 1997 1996
-------- -------- --------
NET SALES:
Electrical $ 808.4 $ 776.3 $ 730.6
Power 393.1 386.0 355.9
Telecommunications 149.5 142.2 136.4
Other 73.6 74.3 74.5
-------- -------- --------
Total $1,424.6 $1,378.8 $1,297.4
======== ======== ========
OPERATING INCOME:
Electrical 146.6 145.4 133.3
Special Charge (25.0)
Power 53.4 47.2 37.8
Special Charge (19.0)
Telecommunications 18.8 25.0 21.7
Special Charge (2.0)
Other 7.3 6.0 4.7
Special Charge (6.0)
-------- -------- --------
Operating Income $ 226.1 $ 171.6 $ 197.5
Interest expense (9.9) (7.3) (8.4)
Investment and other income, net 14.3 15.8 10.2
-------- -------- --------
Income before income taxes $ 230.5 $ 180.1 $ 199.3
======== ======== ========
ASSETS:
Electrical $ 540.7 $ 412.1 $ 381.3
Power 390.4 359.9 273.3
Telecommunications 80.7 86.8 89.7
Other 68.5 49.9 53.2
General Corporate 310.1 376.1 387.9
-------- -------- --------
Total $1,390.4 $1,284.8 $1,185.4
======== ======== ========
CAPITAL EXPENDITURES:
Electrical $ 49.4 $ 25.2 $ 20.5
Power 32.1 29.1 14.7
Telecommunications 3.2 4.4 2.5
Other .7 1.5 .7
General Corporate .7 .4 .7
-------- -------- --------
Total $ 86.1 $ 60.6 $ 39.1
======== ======== ========
DEPRECIATION AND AMORTIZATION:
Electrical $ 21.4 $ 21.8 $ 20.5
Power 19.5 15.3 13.3
Telecommunications 3.7 2.5 2.0
Other 2.6 2.7 2.6
General Corporate .9 .9 .9
-------- -------- --------
Total $ 48.1 $ 43.2 $ 39.3
======== ======== ========
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GEOGRAPHIC AREA
1998 1997 1996
-------- -------- --------
NET SALES:
United States $1,338.8 $1,290.6 $1,218.3
International 85.8 88.2 79.1
-------- -------- --------
Total $1,424.6 $1,378.8 $1,297.4
======== ======== ========
OPERATING INCOME:
United States $ 212.0 $ 208.0 $ 185.3
Special Charge -- (51.1) --
International 14.1 15.6 12.2
Special Charge -- (.9) --
-------- -------- --------
Total $ 226.1 $ 171.6 $ 197.5
======== ======== ========
ASSETS:
United States $1,336.9 $1,220.8 $1,125.1
International 53.5 64.0 60.3
-------- -------- --------
Total $1,390.4 $1,284.8 $1,185.4
======== ======== ========
Quarterly Financial Data (Unaudited)
The table below sets forth summarized quarterly financial data for the years
ended December 31, 1998 and 1997 (in millions, except per share amounts):
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- - ---- ------- ------- ------- -------
Net Sales $ 339.7 $ 372.5 $ 361.6 $ 350.8
Gross Profit $ 104.5 $ 116.3 $ 110.9 $ 106.5
Net Income $ 39.9 $ 44.1 $ 43.2 $ 42.2
Earnings Per Share:
Basic $ .60 $ .67 $ .65 $ .64
Diluted $ .58 $ .65 $ .64 $ .63
1997
- - ----
Net Sales $ 324.7 $ 352.9 $ 351.7 $ 349.5
Gross Profit $ 100.1 $ 111.2 $ 108.0 $ 111.1
Net Income $ 36.3 $ 41.4 $ 41.7 $ 10.9
Earnings Per Share:
Basic $ .54 $ .62 $ .62 $ .16
Diluted $ .53 $ .60 $ .60 $ .16
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Information relative to Executive Officers appears on Page 54 of
this report.
Item 10. Directors and Executive Officers of the Registrant(1)
Item 11. Executive Compensation (1)
Item 12. Security Ownership of Certain Beneficial Owners and Management (1)
Item 13. Certain Relationships and Related Transactions (1)
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. Financial Statements and Schedules
Financial statements and schedules listed in the Index to Financial Statements
and Schedules appearing on Page 57 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 May 14, 1998. (1) Exhibit 3a of the registrant's report on Form
10-Q for the second quarter, 1998, dated June 30, 1998 and filed
on August 7, 1998, is incorporated by reference; and (2) Exhibit 1
of the registrant's reports on Form 8-A and 8-K, both dated
December 17, 1998 and filed on December 17, 1998, is incorporated
by reference.
3b By-Laws, Hubbell Incorporated, as amended on March 11, 1997.
Exhibit 3b of the registrant's report on Form 10-K for the year
1996, filed on March 27, 1997, is incorporated by reference.
3c Rights Agreement, dated as of December 9, 1998, between Hubbell
Incorporated and ChaseMellon Shareholder Services, L.L.C.) as
Rights Agent (incorporated by reference to Exhibit 1 to the
registrant's Registration Statement on Form 8-A and Form 8-K, both
dated December 17, 1998, and filed on December 17, 1998).
- - -------------
(1) The definitive proxy statement for the annual meeting of shareholders to
be held on May 3, 1999, filed with the Commission on March 29, 1999,
pursuant to Regulation 14A, is incorporated herein by reference.
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2. Exhibits - Continued
Number Description
------ -----------
4a Instruments with respect to the 1996 issue of long-term debt
have not been filed as exhibits to this Annual Report on Form
10-K as the authorized principal amount on such issue does not
exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis; registrant agrees to
furnish a copy of each such instruments to the Commission upon
request.
10a+ Hubbell Incorporated Supplemental Executive Retirement Plan,
as amended and restated effective January 1, 1998, is
incorporated herein by reference.
10b(1)+ Hubbell Incorporated 1973 Stock Option Plan for Key Employees,
as amended effective May 5, 1997. Exhibit A of the
registrant's proxy statement, dated March 21, 1997, filed on
March 27, 1997, is incorporated by reference.
10c+ Description of the Hubbell Incorporated, Post Retirement Death
Benefit Plan for Participants in the Supplemental Executive
Retirement Plan, as amended effective May 1, 1993. Exhibit 10c
of the registrant's report on Form 10-Q for the second
quarter, 1993, filed on August 12, 1993, is incorporated
by reference.
10f Hubbell Incorporated Deferred Compensation Plan for Directors,
as amended and restated effective June 20, 1991. Exhibit 10f
of the registrant's report on Form 10-Q for the second
quarter, 1991, filed on August 7, 1991, is incorporated by
reference.
10g+ Hubbell Incorporated Incentive Compensation Plan, as amended
effective January 1, 1996. Exhibit B of the registrant's proxy
statement, dated March 22, 1996 and filed on March 27, 1996,
is incorporated by reference.
10h Hubbell Incorporated Key Man Supplemental Medical Insurance,
as amended and restated effective December 9, 1986. Exhibit
10h of the registrant's report on Form 10-K for the year 1987,
filed on March 25, 1988, is incorporated by reference.
10i Hubbell Incorporated Retirement Plan for Directors, as amended
and restated effective March 13, 1990. Exhibit 10i of the
registrant's report on Form 10-K for the year 1989, filed on
March 26, 1990, is incorporated by reference.
10l+ Employment Agreement, dated March 28, 1989 (effective January
1, 1989), between Hubbell Incorporated and G. Jackson
Ratcliffe, Chairman of the Board, President and Chief
Executive Officer. Exhibit 10l of the registrant's report on
Form 10-K for the year 1988, filed on March 29, 1989, is
incorporated by reference.
+ This exhibit constitutes a management contract, compensatory plan, or
arrangement
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2. Exhibits - Continued
Number Description
------ -----------
10m+ Employment Agreement, dated March 28, 1989 (effective January
1, 1989), between Hubbell Incorporated and Vincent R.
Petrecca, Executive Vice President. Exhibit 10m of the
registrant's report on Form 10-K for the year 1988, filed on
March 29, 1989, is incorporated by reference.
10n+ Employment Agreement, dated March 28, 1989 (effective January
1, 1989), between Hubbell Incorporated and Harry B. Rowell,
Jr., Executive Vice President. Exhibit 10n of the registrant's
report on Form 10-K for the year 1988, filed on March 29,
1989, is incorporated by reference.
10o+ Hubbell Incorporated Policy for Providing Severance Payments
to Key Managers, as amended and restated effective September
9, 1993. Exhibit 10o of the registrant's report on Form 10-Q
for the third quarter, 1993, filed on November 10, 1993, 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.
10q+ Hubbell Incorporated Performance Unit Plan, effective January
1, 1997. Exhibit B of the registrant's proxy statement, dated
March 21, 1997, filed on March 27, 1997, is incorporated by
reference.
21 Listing of significant subsidiaries.
27 Exhibit 27 Financial Data Schedule (Electronic filings only)
3. Reports on Form 8-K
A report on Form 8-K, dated December 17, 1998 was filed on December 17,
1998.
+ This exhibit constitutes a management contract, compensatory plan, or
arrangement
54
Page 54
Executive Officers of the Registrant
Name Age(1) Present Position Business Experience
---- ------ ---------------- -------------------
G. Jackson Ratcliffe 62 Chairman of the Board, President President and Chief Executive Officer
and Chief Executive Officer Officer since January 1, 1988; Chairman of the
Board since 1987; Executive Vice President
Administration 1983-1987; Senior Vice
President-Finance and Law 1980-1983; Vice
President, General Counsel and Secretary
1974-1980.
Harry B. Rowell, Jr. 57 Executive Vice President and Present position since January 1,
Chief Operating Officer January 1, 1988; Group Vice President
1985-1987; Vice President Corporate Development
and Planning 1979-1985.
Vincent R. Petrecca 58 Executive Vice President Present position since January 1, 1988; Group
Vice President 1984-1987; Vice President and
General Manager of the Wiring Device Division
1981-1984; Vice President and General Manager
of the Lighting Division 1976-1981.
Timothy H. Powers 50 Senior Vice President and Present position since September 21,
Chief Financial Officer 1998; previously Executive Vice President,
Finance & Business Development, Americas
Region, Asea Brown Boveri
Thomas H. Pluff 51 Group Vice President Present position since March 1989.
Richard W. Davies 52 Vice President, General Counsel Present position since January 1,
and Secretary 1996; General Counsel since 1987; Secretary
since 1982; Assistant Secretary 1980-1982;
Assistant General Counsel 1974-1987.
James H. Biggart, Jr. 46 Vice President and Treasurer Present position since January 1, 1996;
Treasurer since 1987; Assistant Treasurer
1986-1987; Director of Taxes 1984-1986.
There is no family relationship between any of the above-named
executive officers.
- - --------------------------
(1) As of March 12, 1999
55
Page 55
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/ G. J. Ratcliffe 3/8/99
----------------------------------------- ------
G. J. Ratcliffe Date
Chairman of the Board, President, Chief
Executive Officer and Director
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.
By /s/ G. J. Ratcliffe 3/8/99
----------------------------------------- ------
G. J. Ratcliffe Date
Chairman of the Board, President, Chief
Executive Officer and Director
By /s/ T. H. Powers 3/8/99
----------------------------------------- ------
T. H. Powers Date
Senior Vice President & Chief Financial Officer
(Chief Accounting Officer)
By /s/ E. R. Brooks 3/8/99
----------------------------------------- ------
E. R. Brooks Date
Director
By /s/ G. W. Edwards, Jr. 3/8/99
----------------------------------------- ------
G. W. Edwards, Jr. Date
Director
By /s/ J. S. Hoffman 3/8/99
----------------------------------------- ------
J. S. Hoffman Date
Director
By /s/ H. G. McDonell 3/8/99
----------------------------------------- ------
H. G. McDonell Date
Director
56
Page 56
By /s/ A. McNally IV 3/8/99
----------------------------------------- ------
A. McNally IV Date
Director
By /s/ D. J. Meyer 3/8/99
----------------------------------------- ------
D. J. Meyer Date
Director
By /s/ J. A. Urquhart 3/8/99
----------------------------------------- ------
J. A. Urquhart Date
Director
By /s/ M. Wallop 3/8/99
----------------------------------------- ------
M. Wallop Date
Director
57
Page 57
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Form 10-K for
Financial Statements 1998, Page:
- - -------------------- -----------
Report of Independent Accountants ....................... 22
Consolidated Balance Sheet at December 31, 1998 and 1997 23
Consolidated Statement of Income for the three years
ended December 31, 1998 ................................. 25
Consolidated Statement of Cash Flows for the three years
ended December 31, 1998 ................................. 26
Consolidated Statement of Changes in Shareholders' Equity
for the three years ended December 31, 1998 ............. 27
Statement of Accounting Policies ........................ 28
Notes to Consolidated Financial Statements .............. 31
Financial Statement Schedule
Report of Independent Accountants
on Financial Statement Schedule ......................... 58
Valuation and Qualifying Accounts and Reserves
(Schedule VIII) ......................................... 59
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
58
Page 58
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Hubbell Incorporated
Our audits of the consolidated balance sheets and the related consolidated
statements of income, cash flows and changes in shareholders' equity referred to
in our report dated January 21, 1999, appearing on page 22 of this Form 10-K
also included an audit of the Financial Statement Schedule listed in the index
on page 57. In our opinion, the Financial Statement Schedule presents fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 21, 1999
59
Page 59
Schedule VIII
HUBBELL INCORPORATED
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(In millions)
Reserves deducted in the balance sheet from the assets to which they apply:
Additions Deductions -
Balance at charged Acquisition uncollectible Balance
beginning to costs of accounts at end
of period and expenses businesses written off of period
--------- ------------ ---------- ----------- ---------
Allowances for doubtful
accounts receivable:
Year 1996 $4.3 $1.2 $.1 $ (.7) $4.9
Year 1997 $4.9 $1.3 $.2 $ (.7) $5.7
Year 1998 $5.7 $1.4 $ -- $(1.4) $5.7
60
EXHIBIT INDEX
-------------
Number Description
------ -----------
3a Restated Certificate of Incorporation, as amended and restated as
of May 14, 1998. (1) Exhibit 3a of the registrant's report on Form
10-Q for the second quarter, 1998, dated June 30, 1998 and filed
on August 7, 1998, is incorporated by reference; and (2) Exhibit 1
of the registrant's reports on Form 8-A and 8-K, both dated
December 17, 1998 and filed on December 17, 1998, is incorporated
by reference.
3b By-Laws, Hubbell Incorporated, as amended on March 11, 1997, is
incorporated by reference.
3c Rights Agreement, dated as of December 9, 1998, between Hubbell
Incorporated and ChaseMellon Shareholder Services, L.L.C.) as
Rights Agent (incorporated by reference to Exhibit 1 to the
registrant's Registration Statement on Form 8-A and Form 8-K, both
dated December 17, 1998, and filed on December 17, 1998).
4a Instruments with respect to the 1996 issue of long-term debt
have not been filed as exhibits to this Annual Report on Form
10-K as the authorized principal amount on such issue does not
exceed 10% of the total assets of the registrant and its
subsidiaries on a consolidated basis; registrant agrees to
furnish a copy of each such instruments to the Commission upon
request.
10a+ Hubbell Incorporated Supplemental Executive Retirement Plan,
as amended and restated effective January 1, 1998, is
incorporated by reference.
10b(1)+ Hubbell Incorporated 1973 Stock Option Plan for Key Employees,
as amended effective May 5, 1997. Exhibit A of the
registrant's proxy statement, dated March 21, 1997, filed on
March 27, 1997, is incorporated by reference.
10c+ Description of the Hubbell Incorporated, Post Retirement Death
Benefit Plan for Participants in the Supplemental Executive
Retirement Plan, as amended effective May 1, 1993. Exhibit 10c
of the registrant's report on Form 10-Q for the second
quarter, 1993, filed on August 12, 1993, is incorporated
herein by reference.
10f Hubbell Incorporated Deferred Compensation Plan for Directors,
as amended and restated effective June 20, 1991. Exhibit 10f
of the registrant's report on Form 10-Q for the second
quarter, 1991, filed on August 7, 1991, is incorporated by
reference.
10g+ Hubbell Incorporated Incentive Compensation Plan, as amended
effective January 1, 1996. Exhibit B of the registrant's proxy
statement, dated March 22, 1996 and filed on March 27, 1996,
is incorporated by reference.
- - -------------
(1) The definitive proxy statement for the annual meeting of shareholders to
be held on May 3, 1999, filed with the Commission on March 29, 1999,
pursuant to Regulation 14A, is incorporated herein by reference.
61
Number Description
------ -----------
10h Hubbell Incorporated Key Man Supplemental Medical Insurance,
as amended and restated effective December 9, 1986. Exhibit
10h of the registrant's report on Form 10-K for the year 1987,
filed on March 25, 1988, is incorporated by reference.
10i Hubbell Incorporated Retirement Plan for Directors, as amended
and restated effective March 13, 1990. Exhibit 10i of the
registrant's report on Form 10-K for the year 1989, filed on
March 26, 1990, is incorporated by reference.
10l+ Employment Agreement, dated March 28, 1989 (effective January
1, 1989), between Hubbell Incorporated and G. Jackson
Ratcliffe, Chairman of the Board, President and Chief
Executive Officer. Exhibit 10l of the registrant's report on
Form 10-K for the year 1988, filed on March 29, 1989, is
incorporated by reference.
10m+ Employment Agreement, dated March 28, 1989 (effective January
1, 1989), between Hubbell Incorporated and Vincent R.
Petrecca, Executive Vice President. Exhibit 10m of the
registrant's report on Form 10-K for the year 1988, filed on
March 29, 1989, is incorporated by reference.
10n+ Employment Agreement, dated March 28, 1989 (effective January
1, 1989), between Hubbell Incorporated and Harry B. Rowell,
Jr., Executive Vice President. Exhibit 10n of the registrant's
report on Form 10-K for the year 1988, filed on March 29,
1989, is incorporated by reference.
10o+ Hubbell Incorporated Policy for Providing Severance Payments
to Key Managers, as amended and restated effective September
9, 1993. Exhibit 10o of the registrant's report on Form 10-Q
for the third quarter, 1993, filed on November 10, 1993, 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.
10q+ Hubbell Incorporated Performance Unit Plan, effective January
1, 1997. Exhibit B of the registrant's proxy statement, dated
March 21, 1997, filed on March 27, 1997, is incorporated by
reference.
21 Listing of significant subsidiaries.
27 Exhibit 27 Financial Data Schedule (Electronic filings only)
+ This exhibit constitutes a management contract, compensatory plan, or
arrangement