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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, 2000.
[ ] 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. [ X ]
The approximate aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 9, 2001 was $1,463,455,000*. The
number of shares outstanding of the Class A Common Stock and Class B Common
Stock as of March 9, 2001 was 9,671,600 and 48,825,700, respectively.
Documents Incorporated by Reference
The definitive proxy statement for the proposed annual meeting of
stockholders to be held on May 7, 2001, filed with the Commission on March 27,
2001 - Part III.
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* 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-nine divisions and subsidiaries in North
America, Switzerland, Puerto Rico, Mexico, Italy, and the United Kingdom.
Hubbell also participates in a joint venture in Taiwan, and maintains sales
offices in Singapore, the People's Republic of China, 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 three operating segments: Electrical, Power and
Industrial Technology, as described below. The Telecommunications Segment, which
had consisted of the Company's Pulse Communications, Inc. ("Pulse") subsidiary,
is now included in the Electrical Segment. Reference is made to page 43 for
information relative to Industry Segment and Geographic Area Information for
years 2000, 1999, and 1998.
In April, 2000, Hubbell sold to ECI Telecom Ltd., its digital subscriber line
communications equipment business assets ("WavePacer(R)"), and certain related
intellectual property.
In July, 2000, Hubbell acquired from Salient 3 Communications, Inc. the stock of
GAI-Tronics Corporation ("GAI-Tronics"). Based in Reading, Pennsylvania,
GAI-Tronics is a leading supplier of specialized communications systems designed
for indoor, outdoor and hazardous environments. GAI-Tronics is included in the
Industrial Technology Segment.
In December, 2000, Hubbell acquired the stock of Temco Electric Products Inc.
("Temco"). Based in Quebec, Canada, Temco designs and manufactures electrical
outlet boxes, metallic wall plates, and related accessories. Temco is included
in the Electrical Segment.
ELECTRICAL SEGMENT
The Electrical Segment is comprised of businesses that primarily sell through
distributors, lighting showrooms, home centers, telephone and telecommunication
companies, and represents stock items including standard and special application
wiring device products, lighting fixtures, fittings, switches and outlet boxes,
enclosures, wire management products and voice and data signal processing
components. The products are typically used in industrial, commercial, and
institutional facilities by electrical contractors, maintenance personnel,
electricians, and telecommunication companies.
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, outlet strips, 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
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proprietary thermoplastic materials offering high impact 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 signal and
control 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. Circuit Guard(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 TVSS,
transient voltage surge suppression devices, under the Spikeshield(R) trademark,
which are used to protect electronic equipment such as personal computers and
other supersensitive electronic equipment. Hubbell also manufactures and/or
sells components designed for use in local area networks (LANs) and other
telecommunications applications supporting high speed data and voice signals.
Primary products include work station modular jacks, faceplates, 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(TM) 2.0,
Controlux(R) 2.0, Superwatt(R), The Detector(TM), and Kemlux(TM) 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 enclosures. Wiegmann products are designed
to enclose and protect electrical conductors, terminations, instruments, power
distribution and control equipment.
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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 Kellems(R)
trademarks and range in size and strength to accommodate differing application
needs. These products, which are designed to tighten around the gripped items,
are sold to industrial, commercial, utility and microwave and cell phone tower
markets.
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.
Telecommunications Products
Hubbell designs, manufactures and sells under the Pulsecom(R) trademark, voice
and data signal processing components primarily used by telephone and
telecommunications companies, and consisting of channel cards and banks for loop
and trunk carriers, and racks and cabinets. These products provide a broad range
of communications access solutions for use by the telephone and
telecommunications industry including: (a) 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 (b) 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.
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. Telecommunications products are
sold primarily by direct sales to customers in the United States and in foreign
countries through sales personnel and sales representatives. 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,
institutional, 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 65%
of Hubbell's total revenue in year 2000, 66% in 1999 and 67% in 1998.
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POWER SEGMENT
Power Segment operations comprise a wide variety of construction, switching and
protection products, hot line tools, grounding equipment, cover ups, fittings
and fasteners, cable accessories, insulators, arresters, cutouts,
sectionalizers, connectors and compression tools for the building and
maintenance of overhead and underground power and telephone lines, as well as
applications in the industrial, construction and pipeline industries.
Electrical Transmission and Distribution Products
Hubbell manufactures and sells, under the Ohio Brass(R) registered trademark, 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*Lite(R)XL and
Veri*Lite(TM) polymer insulator lines and the polymer housed metal-oxide
varistor surge arrester lines. Electrical transmission products, primarily
Hi*Lite(R) suspension and post 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 and 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, 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.
Hubbell manufactures and sells, under the Hubbell(R) trademark, cable
accessories including loadbreak switching technology, deadbreak products, surge
protection, cable splicing and cable termination products, as well as
automation-ready overhead switches and aluminum transformer equipment mounts for
transformers and equipment.
Construction Materials/Tools
Hubbell manufactures and sells, under the Chance(R) trademark, (a) line
construction materials including power-installed helical earth anchors and
power-installed foundations to secure overhead power and communications line
poles, guyed and self-supporting towers, streetlight poles and pipelines
(Helical Pier(R) Foundation Systems are used to support homes and buildings, and
earth anchors are used in a variety of farm, home and construction projects
including tie-back applications); (b) pole line hardware, including galvanized
steel fixtures and extruded plastic materials used in overhead and underground
line construction, connectors, and other accessories for making high voltage
connections and linkages; (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.
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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. 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 26% of Hubbell's total
revenue in year 2000, and 28% in 1999 and in 1998.
INDUSTRIAL TECHNOLOGY SEGMENT
The Industrial Technology 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 Reel(R)
electric cable and hose reels, and specialized communications systems, such as
intra-facility communications systems, telephone systems, and land mobile radio
peripherals. Products are sold primarily to steel mills, industrial complexes,
oil, gas and petrochemical industries, seaports, transportation authorities, the
security industry (malls and colleges) and cable and electronic equipment
manufacturers.
High Voltage Test and Measurement Equipment
Hubbell manufactures and sells, under the Hipotronics(R), Haefely Test(TM) and
Tettex(R) trademarks, a broad line of high voltage test and measurement systems
to test materials and equipment used in the generation, transmission and
distribution of electricity, and high voltage power supplies and electromagnetic
compliance equipment for use in the electrical and electronic industries.
Principal products include AC/DC hipot testers and megohmmeters, cable fault
location systems, oil testers and DC hipots, impulse generators, digital
measurement systems and tan-delta bridges, 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 Reel(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 manufactures and sells under the GAI-Tronics (R) trademark, specialized
communications systems designed to withstand indoor and outdoor hazardous
environments. Products include intra-facility communication systems, telephone
systems, and land mobile radio peripherals. These products are sold to oil, gas
and petrochemical industries, transportation authorities (for use on public
highways and in trains and on train platforms), and the security industry (for
use in malls and on college campuses).
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Hubbell's Industrial Technology Segment products are sold primarily through
direct sales 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 Industrial Technology Segment accounted for
approximately 9% of Hubbell's total revenue in year 2000, 6% in 1999 and 5% in
1998.
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, 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 switches and outlet boxes, hazardous location products,
electrical transmission and distribution products and earth anchoring systems.
Industrial control products are sold in Canada through an independent sales
agent. Hubbell Canada also designs and manufactures electrical outlet boxes,
metallic wall plates, and related accessories.
Harvey Hubbell S.E. Asia Pte. Ltd. markets wiring devices, lighting fixtures,
hazardous location products and electrical transmission and distribution
products.
Haefely Test AG in Switzerland designs and manufactures high voltage test and
instrumentation systems, and GAI-Tronics in the United Kingdom. and Italy
designs and manufactures closed circuit television systems (CCTV).
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 a joint venture in
Taiwan, and sales offices in Mexico, Singapore, the People's Republic of China,
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 10% in 2000, 8% in 1999 and 6% in 1998, with the Canadian
market representing approximately 45% 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.
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Patents
Hubbell has approximately 795 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, 2000 and 1999 were
approximately $117.8 million and $117.3 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.
Competition
Hubbell experiences substantial competition in all categories of its business,
but does not compete with the same companies in all of its product categories.
The number and size of competitors vary considerably depending on the product
line. Hubbell cannot specify with 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, 2000, Hubbell had approximately 10,469 full-time employees,
including salaried and hourly personnel. Approximately 43% of Hubbell's United
States employees are represented by fourteen labor unions. Hubbell considers its
labor relations to be satisfactory.
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Item 2. Properties
A list of Hubbell's material manufacturing facilities, classified by segment, is
included on Page 45 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 2000.
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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
------------------------ ---- --- ---- ---
2000-First quarter 28 3/8 21 3/4 28 13/16 21 5/8
2000-Second quarter 27 1/2 23 1/2 27 7/16 23 5/8
2000-Third quarter 27 5/16 21 3/8 28 5/16 21 13/16
2000-Fourth quarter 27 22 27 13/16 21 5/8
1999-First quarter 39 5/8 33 3/8 41 3/4 34 7/16
1999-Second quarter 45 3/4 36 1/2 49 3/16 39 1/4
1999-Third quarter 42 33 5/8 45 3/16 31 5/8
1999-Fourth quarter 33 1/2 25 3/4 32 26 1/4
Dividends Declared (Cents Per Share) Common A Common B
------------------------ ------------------------
Years Ended December 31, 2000 1999 2000 1999
----------------------- ---- ---- ---- ----
First quarter 32 31 32 31
Second quarter 33 32 33 32
Third quarter 33 32 33 32
Fourth quarter 33 32 33 32
Number of Common Shareholders
At December 31, 2000 1999 1998 1997 1996
--------------- ---- ---- ---- ---- ----
Class A 983 1,090 1,176 1,242 1,285
Class B 4,442 4,805 5,153 5,339 5,359
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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 and shares in millions,
except per share amounts).
OPERATIONS, YEARS ENDED DECEMBER 31, 2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net sales $ 1,424.1 1,451.8 1,424.6 1,378.8 1,297.4
Gross profit $ 369.1 409.0 438.2 430.4 392.3
Special charge (credit) $ (.1)(1) -- -- 52.0(2) --
Operating income $ 184.5 194.4 226.1 171.6 197.5
Provision for income taxes $ 46.1 51.2 61.1 49.8 57.8
Net income $ 138.2 145.8 169.4 130.3(2) 141.5
Return on sales 9.7% 10.0% 11.9% 9.5% 10.9%
Return on common shareholders' average equity 17.0% 17.2% 20.3% 16.6% 20.1%
Return on average total capital (3) 25.1% 25.5% 29.6% 24.2% 25.4%
Earnings per share:
Basic $ 2.26 2.24 2.56 1.94(2) 2.15
Diluted $ 2.25 2.21 2.50 1.89(2) 2.10
Cash dividends declared per common share $ 1.31 1.27 1.22 1.13 1.02
Average number of common shares
outstanding - (diluted) 61.3 65.9 67.7 68.8 67.2
Additions to property, plant, and equipment $ 48.6 53.7 86.1 60.6 39.1
Depreciation and amortization $ 54.9 52.8 48.1 43.2 39.3
FINANCIAL POSITION, AT YEAR-END
Working capital $ 130.6 209.4 219.8 339.9 335.8
Current ratio 1.3 to 1 1.6 to 1 1.6 to 1 2.3 to 1 2.3 to 1
Property, plant and equipment (net) $ 305.3 308.9 310.1 251.9 217.9
Total assets $ 1,454.5 1,407.2 1,390.4 1,284.8 1,185.4
Long-term debt $ 99.7 99.6 99.6 99.5 99.5
Common shareholders' equity:
Total $ 769.5 855.8 840.6 830.3 743.1
Per share $ 12.55 13.00 12.42 12.06 11.05
NUMBER OF EMPLOYEES, AT YEAR-END 10,469 10,190 10,562 8,801 8,178
(1) Special charge (credit) for 2000 reflects a special charge, offset by a
reduction in the streamlining program accrual established in 1997.
(2) 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.
(3) Calculated as net income before long-term interest expense divided by
average total capital.
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Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Beginning in 2000, the Company reports operations in three segments: Electrical,
Power and Industrial Technology (renamed from "Other" during the year). The
Telecommunications Segment, which in prior years consisted of the Company's
Pulse Communications, Inc. ("Pulse") subsidiary, is now included in the
Electrical Segment. This change resulted primarily from a reorganization of
management responsibility and the April 2000 announcement by the Company that it
had completed the sale of Pulse's digital subscriber line communications
equipment business assets ("Wavepacer(R)") and certain related intellectual
property to ECI Telecom, Ltd. of Petah Tikva, Israel. All prior year
descriptions and amounts have been reclassified to conform to the current year
presentation.
RESULTS OF OPERATIONS
2000 Compared to 1999
Consolidated net sales increased 1% (excluding the impact of the September 1999
disposition of The Kerite Company ("Kerite")) due to acquisitions and higher
shipments of utility and lighting products. Offsetting these increases were a
decline in orders and, consequently, sales to telephone companies at Pulse and
weakness in commodity electrical products. Operating income on a comparative
basis declined 6% (excluding the results of Kerite in 1999, gains on sale of
business in 1999 and 2000 and special and nonrecurring charges in 2000). This
decline is mainly attributable to the lower sales and higher logistical costs at
the commodity electrical products business and lower lighting margins.
In February 2000, the Company announced an agreement to sell its WavePacer
business assets to ECI Telecom Ltd. The transaction closed in April 2000, at
which point the Company no longer absorbed new product development costs and
associated operating costs for this business (a development stage company with
limited revenues) which totaled approximately $4.5 million in 2000.
Electrical Segment sales declined 4% due to significantly lower sales at Pulse
as a result of the decline in demand from telephone operating companies for the
unit's core multiplexing access line products. In addition, declining orders and
logistical issues associated with the start-up of a new central distribution
warehouse to service primarily electrical commodity products led to lower sales
in this business. Partially offsetting these declines were improved sales of
premise wiring products due to a combination of strong international demand and
new products. Despite favorable comparisons from having disposed of the
WavePacer business assets of Pulse, operating profit was driven down by lower
earnings in commodity products where high logistical costs related to freight
and warehousing combined to reduce profitability versus 1999. However,
management improved operations as the year progressed resulting in this business
reporting breakeven operating income in the 2000 fourth quarter. The rate of
profit improvement is expected to continue into 2001 in this business. The
segment's 2000 profit also includes an $8.1 million gain on sale of a west-coast
facility.
Power Segment sales increased 2%, excluding Kerite, on higher shipments across
most product lines including overvoltage, connectors, apparatus and tool and
rod. Full year sales in this segment reflect a slowing in the second half of the
year in order input versus strong first half demand, consistent with the
postponement by utility industry customers of necessary upgrades to the
transmission and distribution infrastructure. Comparable operating income rose
due to cost savings associated with the streamlining program. However, delays in
completing certain streamlining actions to late 1999 and early 2000, primarily
impacting high margin connector products, added cost in 2000 and reduced
operating efficiencies. These actions were substantially completed by year-end.
Although order input appears to have stabilized, it is expected to remain soft
through the first half of 2001.
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Industrial Technology Segment (renamed from "Other" in the Fourth Quarter 2000)
sales were up 41% for the year versus 1999 as a result of the July 1999
acquisition of Haefely Test AG, a high voltage test and instrumentation
business, and the July 2000 acquisition of GAI-Tronics Corporation
("GAI-Tronics"). GAI-Tronics is a leading supplier of specialized communications
systems designed for indoor, outdoor and hazardous environments. Operating
income rose 19% due to the effect of acquisitions. Within the segment's legacy
businesses, slower industrial demand resulted in flat sales and modestly lower
profits compared with 1999.
Special and nonrecurring charges
Full year operating results in 2000 reflect a special and nonrecurring charge,
offset by a reduction in the streamlining program accrual established in 1997.
These net costs, which were recorded in the first and second quarters of 2000,
total $23.7 million ($17.8 million net of tax, or $0.29 per diluted share).
Net sales includes a nonrecurring charge of $3.5 million related to an increase
in the reserve for customer returns and allowances. The increased reserve
requirement was primarily in response to higher first half customer credit
activity associated with inaccurate/incomplete shipments from the new electrical
products central distribution warehouse. Credit activity in this business
returned to historical levels by the end of the year.
Cost of sales reflects a special charge of $20.3 million in connection with
management's decision to streamline its product offering and eliminate
non-strategic inventory across all business units. The charge represents the
cost of inventories identified for discontinuance and disposal. In total,
approximately 10,900 or 9% of the company's total SKU's were discontinued in
connection with this program. This rationalization of product is intended to
facilitate improvements in manufacturing efficiencies and lower working capital
needs. This action did not have any significant impact on service levels, sales
or profitability throughout 2000 nor is it expected to in future years. This
action is expected to be completed in the first quarter of 2001.
Special charge, net, reflects income of $.1 million consisting of the cost of
additional first and second quarter 2000 cost reduction and streamlining actions
offset by a reversal (income), in connection with management's ongoing review,
of costs accrued in connection with the 1997 streamlining program. The
components of the net charge and their timing were as follows (in millions):
First Quarter Second Quarter Full Year
------------- -------------- ---------
2000 special charge (expense) $ 3.7 $ 6.7 $ 10.4
Reversal (income): 1997
streamlining program (3.5) (7.0) (10.5)
----- ----- ------
(Income) expense, net $ .2 $ (.3) $ (.1)
===== ===== ======
2000 special charge
The 2000 special charge (expense) is comprised of asset impairments of $6.0
million and facility consolidation and downsizing, severance, and other
provisions of $4.4 million. The asset impairments primarily consist of
adjustments to the carrying cost of certain joint venture investments and
write-downs of surplus equipment. The latter were either (1) acquired in
connection with actions originally contemplated in the 1997 streamlining
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program which have been revised or (2) rendered obsolete as a result of the year
2000 product line discontinuance.
The following table sets forth the original components and year-end status of
the 2000 special charge (in millions):
Employee Asset Exit
Benefits Disposals Costs Total
----- ----- ----- -----
2000 special charge $ 1.6 $ 6.0 $ 2.8 $10.4
Non-cash write-offs -- (6.0) -- (6.0)
Cash expenditures (1.6) -- (1.8) (3.4)
----- ----- ----- -----
Remaining reserve $-- $-- $ 1.0 $ 1.0
===== ===== ===== =====
1997 Streamlining Plan
In 1997, the Company recorded a special charge of $52.0 million ($32.2 million
after-tax or $.47 per share), comprised of $32.4 million of accrued
consolidation and streamlining costs, $9.5 million of facility asset
impairments, a $7.4 million goodwill asset impairment, and other current
employee and product line exit costs of $2.7 million. The Company's
consolidation and streamlining initiatives (the "Plan") were undertaken to
optimize the organization and cost structure primarily within the Electrical and
Power Segments.
As part of management's ongoing review of estimated program costs in connection
with the Plan, adjustments in the amount of $10.5 million were made in the first
and second quarters of 2000. The adjustments (income) reflected costs originally
estimated as part of the 1997 Plan which were deemed no longer required to
complete certain actions in the Electrical and Power Segments. The changes in
estimate within the Electrical Segment of $4.4 million occurred primarily in
connection with newly appointed operating management's decision to terminate
plans related to closure of the St. Louis, MO and South Bend, IN manufacturing
facilities. In addition, the accrual reduction in the Power Segment of
approximately $6.1 million relates to underspending of severance and exit costs,
principally in connection with a foundry consolidation and relocation of
production to lower cost areas. The underspending of severance is mainly due to
an increased incidence of natural attrition and the reassignment of affected
employees.
The components of the initial reserve at December 31, 1997, amounts utilized in
1997-2000, reversed in 2000, and the accrued consolidation and streamlining
reserve balances remaining at December 31, 2000 were (in millions):
Employee Disposal Accrued
Benefits and Exit Costs Charge
----- ----- -----
1997 streamlining program $15.6 $16.8 $32.4
Amounts utilized (8.3) (9.1) (17.4)
Amounts reversed in 2000 (5.4) (5.1) (10.5)
----- ----- -----
Remaining reserve $ 1.9 $ 2.6 $ 4.5
===== ===== =====
Beginning in 2001, annual savings and cost avoidance of the entire Plan should
be as much as $25.0 million. One process consolidation action remains, which is
scheduled to be completed in 2001. This action is consistent with the timing
established in the Plan. Following completion of this action, the overall
program will be substantially concluded.
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Gain on sale of business
In April 2000, the Company completed the sale of its WavePacer business assets
to ECI Telecom Ltd. for a cash purchase price of $61.0 million. The transaction
produced a gain on sale of $36.2 million in the second quarter.
In 1999, the Company sold Kerite, a manufacturer of power cable previously
included in the Power Segment. This transaction produced a gain on sale of $8.8
million.
Investment income increased due to higher average interest rates in 2000 versus
1999, partially offset by lower average investment balances due to a decline in
investable funds resulting from a continuation of the share repurchase program,
acquisitions, additions to property, plant and equipment, and overall lower
earnings. The increase in interest expense primarily reflects the higher level
of commercial paper outstanding during the year. The effective tax rate was
25.0% in 2000 versus 26.0% in 1999. The decrease in the consolidated effective
tax rate results from a greater proportion of income being derived from tax
advantaged operations in Puerto Rico.
Other income, net in 2000 includes the first quarter gain of $3.2 million on
sale of leveraged lease investments in contemplation of their pending
expiration. The 1999 balance includes insurance recoveries in connection with
damage sustained from Hurricane Georges.
Net income declined in response to the decline in segment operating profit and
the special and nonrecurring charges, offset by the gain on sale of Wavepacer
business assets. However, diluted earnings per share increased as a result of a
4.6 million reduction in average diluted shares outstanding in connection with
the 1997 share repurchase program (see Notes to Consolidated Financial
Statements - Earnings Per Share).
1999 Compared to 1998
Consolidated net sales increased 2% on improved shipments of specification-grade
products in the Electrical Segment combined with acquisitions. Offsetting these
improvements was a decline in orders from telephone companies at Pulse;
increased price competition across all businesses and the impact of the
disposition of Kerite in September. Operating income declined 18%, excluding the
gain on sale of Kerite, due to a downturn at Pulse, underperformance in the
Power Segment and erosion in commercial products sales pricing.
Electrical Segment sales increased 1% on improved shipments of
specification-grade wiring and lighting products and the full year effect of the
1998 lighting business acquisitions. These improvements were substantially
offset by lower sales within the core product lines at Pulse due to reduced
expenditures by the Regional Bell Operating Companies (RBOC's) beginning in the
last four months of 1998. Despite higher sales of higher margin
specification-grade products and a modest contribution from acquisitions,
operating profits declined 19% due primarily to a high level of development
expenses associated with new digital subscriber line products at Pulse. In
addition, profits were negatively impacted by start-up costs associated with a
new electrical products distribution center and reduced demand from petroleum
industry customers for hazardous location products.
Power Segment sales increased 2% on higher shipments across most product lines
including construction products, tool and rod, arresters and apparatus. The 2%
year-over-year sales increase includes the negative volume effect of the
September disposition of Kerite, partially offset by the February purchase of
Chardon Electrical. Operating income declined 20% due to unanticipated delays
and associated costs in implementing a complex series of changes as described
under the Company's previously announced streamlining program. These changes
include the relocation of production and distribution facilities to lower cost
sites, reorganization of the segment into a feeder plant/centralized
distribution structure and the implementation of integrated
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business systems. The added costs of the delayed implementation of these
changes, consisting primarily of duplicate facility operating costs and low
productivity at new facilities, reduced profits substantially.
Industrial Technology Segment sales were up 18% as a result of the July
acquisition of Haefely Test AG, a high voltage test and instrumentation
business, from Trench Switzerland AG. Excluding Haefely, segment sales declined
slightly as favorable year-over-year comparisons at the Hipotronics operation
were more than offset by continued low demand from customers in basic industries
such as steel and petrochemicals. Operating income increased 15% due to improved
efficiencies and effective cost control.
Gain on sale of business relates to the third quarter sale of Kerite, a
manufacturer of power cable previously included in the Power Segment.
Investment income declined due to a decline in investable funds resulting from a
continuation of the share repurchase program, acquisitions, additions to
property, plant and equipment, and overall lower earnings. The increase in
interest expense reflects the higher level of commercial paper outstanding
during the year. The effective tax rate was 26.0% in 1999 versus 26.5% in 1998.
The decrease in the consolidated effective tax rate reflects an overall higher
level of tax advantaged earnings from Puerto Rican operations.
Other income, net has increased principally as a result of first-half insurance
recoveries of $3.3 million in connection with prior year damage sustained from
Hurricane Georges and benefits received in connection with corporate-owned life
insurance.
Net income and diluted earnings per share declined in response to the segment
operating issues noted above, offset by the sale of Kerite and a 1.8 million
reduction in average diluted shares outstanding (see Notes to Consolidated
Financial Statements - Earnings Per Share). In 1999, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed," which
requires capitalization of certain costs incurred in the development of software
other than internal-use software. Adoption of this statement resulted in the net
capitalization of $3.9 million of research and development costs for the year,
which would have been otherwise expensed. Capitalized software, net of
amortization, is reported in Other Assets in the Consolidated Balance Sheet.
LIQUIDITY AND CAPITAL RESOURCES
Management views liquidity on the basis of the Company's ability to meet
operational funding needs, fund additional investments, including acquisitions,
and make dividend payments to shareholders. The Company's working capital
position remained strong at December 31, 2000 at $130.6 million versus $209.4
million at December 31, 1999. Total borrowings at December 31, 2000, were $359.2
million, 47% of shareholders equity. Versus December 31, 1999, the debt to
equity ratio has increased due to financing higher inventory levels and the
effect of continuing share purchases in connection with the Company's $300
million share repurchase program initiated and approved in December, 1997.
The Company's overall cash and investment balances remained strong at December
31, 2000 increasing to $267.7 million versus $230.7 million at December 31,
1999. The increase is primarily due to cash proceeds of $61.0 million received
in April from the sale of the WavePacer business assets, partially offset by the
July purchase of GAI-Tronics for $36.2 million and the December acquisition of
Temco Electric Products Inc. ("Temco"). The year-over-year increase in cash and
temporary cash investments also reflects the following: cash provided from
operating and investing activities and the issuance of commercial paper; offset
by investments in plant and equipment, quarterly dividend payments and the
acquisition of treasury shares under the Company's 1997 share repurchase
program. During 2000, the Company purchased 5.6 million Class A and
17
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Class B shares for $142.8 million. Through December 31, 2000, the Company has
completed the purchase of 9.3 million shares aggregating $291.2 million.
At its meeting in December 2000, the Company's Board of Directors authorized
repurchase of an additional $300 million of Class A and Class B shares. This
authorization is expected to be completed over a three-year period and will
begin after the 1997 program is completed.
Cash provided by operations declined in 2000 versus 1999. Despite better
management of accounts receivable, lower earnings from operations and higher
inventory levels resulted in reduced operating cash flow. Higher inventory
levels resulted from (1) management's focus on improving service levels, and (2)
reduced inventory turnover as a result of a 2000 fourth quarter softening of
certain of the Company's industrial markets.
Cash flow from investing activities reflects the completion of two acquisitions
and one divestiture during the year. In April 2000, the Company completed the
sale of Pulse's WavePacer business assets for a purchase price of $61.0 million.
In July, the Company completed the purchase of common stock of GAI-Tronics for a
cash purchase price of $36.2 million. In December, Temco was acquired for $7.4
million. In 1999, Chardon Electrical was acquired and reported in the Power
Segment and Haefely Test AG, a high voltage test and instrumentation business,
became a significant part of the Industrial Technology Segment. Lastly, in the
1999 third quarter, the Company completed the sale of Kerite for a sales price
of $38.4 million.
Expenditures for property, plant and equipment were reduced in 2000 versus 1999
due primarily to the completion of the plant expansion undertaken in connection
with the 1997 streamlining plan. While no significant commitments have been made
at December 31, 2000, the Company anticipates that capital expenditures will
range from $45.0-$55.0 million annually during the next three years. This level
of expenditures reflects the historical capital investment pattern plus the
normal capital requirements of acquired businesses.
Financing activities in 2000 reflect the annual increase in the dividend rate
and the repurchase of $142.8 million of the Company's common stock under the
1997 share repurchase program.
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.
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 North America, Switzerland, Puerto
Rico, Mexico, Italy, and the United Kingdom and sells products in those markets
as well as through sales offices in Singapore, The Peoples Republic of China,
Mexico, Hong Kong, South Korea and the Middle East. International sales were 15%
of the Company's sales in 2000 and 13% in 1999. The Canadian market represents
45%, Switzerland 19%, Mexico 16%, United Kingdom 11% 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
18
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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, phenols, 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, 2000 there were no material
derivative positions.
The following table presents information related to interest risk sensitive
instruments by maturity at December 31, 2000 (dollars in millions):
Fair
Value
Assets 2001 2002 2003 2004 2005 Thereafter Total 12/31/00
------ ------ ------ ------ ------ ------ ------ ------
Available-for-sale
Investments $ 4.9 $ 3.0 $ 4.2 $ .4 $ .4 $ 1.0 $ 13.9 $ 13.9
Avg. Interest Rate 4.7% 4.6% 4.6% 5.3% 4.7% 4.9% -- --
Held-to-maturity
Investments $ 2.1 $ 3.9 $ 5.7 $ 8.0 $ 2.6 $156.7 $179.0 $179.9
Avg. Interest Rate 6.5% 6.7% 6.8% 7.0% 7.3% 6.0% -- --
Liabilities
Commercial Paper &
Short-Term Borrowings $(259.5) -- -- -- -- -- $(259.5) $(259.5)
Avg. Interest Rate 6.6% -- -- -- -- -- -- --
Long-Term Debt -- -- -- -- -- $(99.7) $(99.7) $(101.4)
Avg. Interest Rate -- -- -- -- -- 6.7% -- --
As described in its Statement of Accounting Policies, the Company may use
derivative financial instruments only if they are matched with a specific asset,
liability, or proposed future transaction. The Company does not speculate or use
leverage when trading a financial derivative product. There were no material
derivative transactions during 2000.
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
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method of inventory accounting generally has the effect of charging operating
results with costs (except for depreciation) that reflect current price levels.
Recently Issued Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board issued statement of
Financial Accounting Standard ("SFAS") No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133", which delayed the effective date of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", by one year.
SFAS No. 133 is now effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000 (January 1, 2001 for the Company). SFAS No. 133
requires that all derivative instruments be recorded on the balance sheet at
their fair value. This will change the current practices of the Company, but is
not expected to have a significant impact on financial position or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements",
effective in the fourth quarter of fiscal years beginning after December 15,
1999 (October 1, 2000 for the Company). SAB 101 sets forth the basic principles
of revenue recognition and does not supersede any existing authoritative
literature. SAB 101 did not have any material impact on financial position or
results of operations.
Forward-Looking Statements
Certain statements made in this Management's Discussion and Analysis of Results
of Operations and Financial Condition, and elsewhere in this report, are
forward-looking and are based on the Company's reasonable current expectations.
These forward-looking statements may be identified by the use of words, 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. Such
factors include, but are not limited to: the projection of improvement in the
rate of progress made in lowering costs and improving profitability in the
electrical products business, projected levels of capital expenditures,
anticipated savings related to the consolidation and streamlining plan, and the
timing of completion of actions in connection with the 2000 special charge.
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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 financial statements listed in the index on
page 55 present fairly, in all material respects, the financial position of
Hubbell Incorporated and its subsidiaries (the "Company") at December 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States of America. 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
auditing standards generally accepted in the United States of America, 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 our opinion.
PricewaterhouseCoopers LLP
Stamford, Connecticut
January 17, 2001
21
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Hubbell Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except per share amounts)
Years Ended December 31, 2000 1999 1998
------------------------ ---- ---- ----
NET SALES $ 1,424.1 $ 1,451.8 $ 1,424.6
Cost of goods sold 1,055.0* 1,042.8 986.4
--------- --------- ---------
GROSS PROFIT 369.1 409.0 438.2
Special charge (credit), net (.1) -- --
Selling & administrative expenses 220.9 223.4 212.1
(Gain) on sale of business (36.2) (8.8) --
--------- --------- ---------
OPERATING INCOME 184.5 194.4 226.1
--------- --------- ---------
OTHER INCOME (EXPENSE):
Investment income 15.9 13.4 16.7
Interest expense (19.7) (15.9) (9.9)
Other income (expense), net 3.6 5.1 (2.4)
--------- --------- ---------
TOTAL OTHER INCOME (EXPENSE) (.2) 2.6 4.4
--------- --------- ---------
INCOME BEFORE INCOME TAXES 184.3 197.0 230.5
Provision for income taxes 46.1 51.2 61.1
--------- --------- ---------
NET INCOME $ 138.2 $ 145.8 $ 169.4
========= ========= =========
EARNINGS PER SHARE:
Basic $ 2.26 $ 2.24 $ 2.56
Diluted $ 2.25 $ 2.21 $ 2.50
* 2000 includes a special charge of $20.3 for product rationalization.
See notes to consolidated financial statements.
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Hubbell Incorporated and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Years Ended December 31, 2000 1999 1998
------------------------ ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $138.2 $145.8 $169.4
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of businesses (36.2) (8.8) --
Gain on sale of assets (11.2) -- --
Depreciation and amortization 54.9 52.8 48.1
Deferred income taxes 2.2 8.5 5.2
Expenditures/reversals, streamlining and special charges (24.0) (5.4) (6.8)
Special charge 2000 10.4 -- --
Changes in assets and liabilities, net of the effects
of business acquisitions/dispositions:
(Increase) Decrease in accounts receivable 17.6 (15.6) (.2)
(Increase) Decrease in inventories (11.4) 25.0 (2.2)
(Increase) Decrease in other current assets (3.1) 2.7 10.4
Increase (Decrease) in current liabilities (10.6) (23.4) (34.4)
(Increase) Decrease in other, net (3.0) (5.6) .9
------ ------ ------
Net cash provided by operating activities 123.8 176.0 190.4
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of businesses 61.0 37.4 --
Acquisition of businesses, net of cash acquired (43.6) (38.3) (78.4)
Proceeds from disposition of assets 23.3 -- --
Additions to property, plant and equipment (48.6) (53.7) (86.1)
Purchase of non-current investments (5.6) (37.4) (36.0)
Receipt of principal, maturity and sale of
non-current investments 19.4 27.9 44.2
Other, net 8.6 (2.1) (40.6)
------ ------ ------
Net cash provided by (used in) investing activities 14.5 (66.2) (196.9)
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Commercial paper and notes - borrowing 132.4 13.8 113.0
Payment of dividends (81.2) (82.2) (79.7)
Acquisition of treasury shares (142.8) (57.4) (82.8)
Exercise of stock options 4.1 9.9 10.9
------ ------ ------
Net cash used in financing activities (87.5) (115.9) (38.6)
------ ------ ------
INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS 50.8 (6.1) (45.1)
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of year 24.0 30.1 75.2
------ ------ ------
End of year $ 74.8 $ 24.0 $ 30.1
====== ====== ======
See notes to consolidated financial statements.
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Hubbell Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET
At December 31, (Dollars in millions)
ASSETS 2000 1999
------ ---- ----
CURRENT ASSETS
Cash and temporary cash investments $ 74.8 $ 24.0
Accounts receivable less allowances of $4.2
in 2000 and $4.1 in 1999 209.8 218.7
Inventories 298.6 278.5
Prepaid and other assets 36.8 39.6
-------- --------
Total current assets 620.0 560.8
-------- --------
PROPERTY, PLANT, AND EQUIPMENT, AT COST
Land 15.8 17.2
Buildings 148.3 157.4
Machinery and equipment 465.2 431.3
-------- --------
629.3 605.9
Less accumulated depreciation 324.0 297.0
-------- --------
Net property plant and equipment 305.3 308.9
-------- --------
OTHER ASSETS
Investments 192.9 206.7
Purchase price in excess of net assets of
companies acquired, less accumulated amortization
of $44.4 in 2000 and $37.2 in 1999 262.0 241.3
Other 74.3 89.5
-------- --------
Total other assets 529.2 537.5
-------- --------
$1,454.5 $1,407.2
======== ========
See notes to consolidated financial statements.
24
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Hubbell Incorporated and Subsidiaries
CONSOLIDATED BALANCE SHEET
At December 31, (Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY 2000 1999
------------------------------------------------------ -------- --------
CURRENT LIABILITIES
Commercial paper and other borrowings $ 259.5 $ 127.1
Accounts payable 69.9 75.9
Accrued salaries, wages and employee benefits 21.0 22.6
Accrued income taxes 43.9 32.6
Dividends payable 19.5 20.8
Other accrued liabilities 75.6 72.4
-------- --------
Total current liabilities 489.4 351.4
-------- --------
LONG-TERM DEBT 99.7 99.6
-------- --------
OTHER NON-CURRENT LIABILITIES 89.9 90.5
-------- --------
DEFERRED INCOME TAXES 6.0 9.9
-------- --------
COMMON SHAREHOLDERS' EQUITY
Common Stock, par value $.01
Class A - authorized 50,000,000 shares, outstanding
9,637,338 and 10,274,567 shares .1 .1
Class B - authorized 150,000,000 shares, outstanding
49,120,453 and 53,977,630 shares .5 .5
Additional paid-in capital 211.0 349.7
Retained earnings 577.4 519.1
Cumulative translation adjustments (19.5) (13.6)
Unrealized gain (loss) on investments -- --
-------- --------
Total common shareholders' equity 769.5 855.8
-------- --------
$1,454.5 $1,407.2
======== ========
See notes to consolidated financial statements.
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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
For the three years ended Common Common Paid-In Retained Translation Gain (Loss) Comprehensive
December 31, 2000 Stock Stock Capital Earnings Adjustments on Investments Income
----------------- ---------- --------- --------- ---------- ------------ -------------- ------------
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 (loss)
on investments --
---------
Comprehensive Income $ 165.9
=========
Exercise of stock options 7.9
Acquisition of treasury shares (.1) (82.8)
Cash dividends declared
($1.22 per share) (80.6)
---------- --------- --------- ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1998 $ .1 $ .5 $ 397.8 $ 455.7 $(13.6) $ .1
========== ========= ========= ========== ============ ==========
Net income 145.8 $ 145.8
Translation adjustments --
Unrealized (loss)
on investments (.1) (.1)
---------
Comprehensive Income $ 145.7
=========
Exercise of stock options 9.3
Acquisition of treasury shares (57.4)
Cash dividends declared
($1.27 per share) (82.4)
---------- --------- --------- ---------- ------------ ----------
BALANCE AT DECEMBER 31, 1999 $ .1 $ .5 $ 349.7 $ 519.1 $ (13.6) $ --
========== ========= ========= ========== ============ ==========
Net income 138.2 $ 138.2
Translation adjustments (5.9) (5.9)
Unrealized gain (loss)
on investments --
---------
Comprehensive Income $ 132.3
=========
Exercise of stock options 4.1
Acquisition of treasury shares (142.8)
Cash dividends declared
($1.31 per share) (79.9)
---------- --------- --------- ---------- ------------ ----------
BALANCE AT DECEMBER 31, 2000 $ .1 $ .5 $ 211.0 $ 577.4 $ (19.5) $ --
========== ========= ========= ========== ============ ==========
See notes to consolidated financial statements
26
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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 2000 presentation.
Revenue Recognition
Revenue is recognized from sales upon shipment of products to customers and when
the risks and rewards of ownership pass to customers. Sales discounts, quantity
rebates, allowances and warranty costs are estimated based on experience and
recorded in the period in which the sale is recorded.
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 is 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 not reasonably expected
in the future. These investments are carried at fair value with adjustments
recorded in shareholders' equity net of tax. Debt securities which the Company
has the positive intent and ability to hold to maturity are classified as
held-to-maturity and carried at amortized cost. The effects of amortizing these
securities are recorded in current earnings.
27
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Inventories
Inventories are stated at the lower of cost or market. The cost of substantially
all domestic inventories, 77% 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.
Property, Plant, and Equipment
Property, plant, and equipment placed in service prior to January 1, 1999 are
depreciated over their estimated useful lives, principally using accelerated
methods. Assets placed in service subsequent to January 1, 1999 are depreciated
using straight-line methods. The change to the straight-line method did not have
a material impact on the Company's financial position or results of operations.
Capitalized Software
In 1999, the Company was first required to apply Statement of Financial
Accounting Standard ("SFAS") No. 86, "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed". SFAS 86 requires
capitalization of certain costs incurred in the development of software other
than internal-use software. Application of this statement resulted in the net
capitalization of $0 and $3.9 million of research and development costs in 2000
and 1999, respectively, which would have been otherwise expensed. Capitalized
software, net of amortization, is reported in Other Assets in the Consolidated
Balance Sheet.
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.
28
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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
"SFAS" 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 SFAS 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.
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 instruments 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, liability or proposed transaction. Market value gains or losses on the
derivative financial instrument are recognized in income when the effects of the
related price changes of the related asset or liability are recognized in
income. There were no material derivative transactions, individually or in
total, for the three years ended December 31, 2000.
29
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Hubbell Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SPECIAL AND NONRECURRING CHARGES
Full year operating results in 2000 reflect a special and nonrecurring charge,
offset by a reduction in the streamlining program accrual established in 1997.
These net costs, which were recorded in the first and second quarters of 2000,
total $23.7 million ($17.8 million net of tax, or $0.29 per diluted share).
In accordance with authoritative guidelines for reporting and disclosure, the
Company's charges and accrual reversal are recorded within their respective
classifications in the consolidated statement of income, as follows (in
millions):
First Quarter Second Quarter Year 2000
Nonrecurring charges:
Net sales $ -- $ 3.5 $ 3.5
Special charges (credits):
Cost of goods sold -- 20.3 20.3
Special charge (credits), net .2 (.3) (.1)
------- ------- -------
Total Cost $ .2 $23.5 $23.7
======= ======= =======
Net sales includes a nonrecurring charge of $3.5 million related to an increase
in the reserve for customer returns and allowances. The increased reserve
requirement is primarily in response to higher first half customer credit
activity associated with inaccurate/incomplete shipments from the new electrical
products central distribution warehouse.
Cost of sales reflects a special charge in connection with management's decision
to streamline its product offering and eliminate non-strategic inventory across
all business units. The charge represents the cost of inventories identified for
discontinuance and disposal. In total, approximately 10,900 or 9% of the
Company's total SKU's have been discontinued in connection with this program.
Special charge, net, reflects income of $.1 million consisting of the cost of
additional first and second quarter 2000 cost reduction and streamlining actions
offset by a reversal (income), in connection with management's ongoing review,
of costs accrued in connection with the 1997 streamlining program. The
components of the net charge and their timing were as follows (in millions):
First Quarter Second Quarter Year 2000
2000 special charge (expense) $ 3.7 $ 6.7 $ 10.4
Reversal (income): 1997
streamlining program (3.5) (7.0) (10.5)
--------- --------- --------
(Income) expense, net $ .2 $ (.3) $ (.1)
========= ========= =========
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2000 Special Charge
The 2000 special charge (expense) is comprised of asset impairments of $6.0
million and facility consolidation and downsizing, severance, and other
provisions of $4.4 million. The asset impairments primarily consist of
adjustments to the carrying cost of certain joint venture investments and
write-downs of surplus equipment. The latter were either (1) acquired in
connection with actions originally contemplated in the 1997 streamlining program
which have been revised or (2) rendered obsolete as a result of the year 2000
product line discontinuance.
The following table sets forth the original components and year-end status of
the 2000 special charge (in millions):
Employee Asset Exit
Benefits Disposals Costs Total
-------- --------- ----- -----
2000 special charge $ 1.6 $ 6.0 $ 2.8 $10.4
Non-cash write-offs -- (6.0) -- (6.0)
Cash expenditures (1.6) -- (1.8) (3.4)
------- ------- ------- -------
Remaining reserve $ -- $ -- $ 1.0 $ 1.0
======= ======= ======= =======
1997 Streamlining Plan
In 1997, the Company recorded a special charge of $52.0 million ($32.2 million
after-tax or $.47 per share), comprised of $32.4 million of accrued
consolidation and streamlining costs, $9.5 million of facility asset
impairments, a $7.4 million goodwill asset impairment, and other current
employee and product line exit costs of $2.7 million. The Company's
consolidation and streamlining initiatives (the "Plan") were undertaken to
optimize the organization and cost structure primarily within the Electrical and
Power Segments.
As part of management's ongoing review of estimated program costs in connection
with the Plan, adjustments in the amount of $10.5 million were made in the first
and second quarters of 2000. The adjustments (income) reflected costs originally
estimated as part of the 1997 Plan which were deemed no longer required to
complete certain actions in the Electrical and Power Segments. The changes in
estimate within the Electrical Segment of $4.4 million occurred primarily in
connection with newly appointed operating management's decision to terminate
plans related to closure of the St. Louis, MO and South Bend, IN manufacturing
facilities. In addition, the accrual reduction in the Power Segment of
approximately $6.1 million relates to underspending of severance and exit costs,
principally in connection with a foundry consolidation and relocation of
production to lower cost areas. The underspending of severance is mainly due to
an increased incidence of natural attrition and the reassignment of affected
employees.
31
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The components of the initial reserve at December 31, 1997, amounts utilized in
1997-2000, reversed in 2000, and the accrued consolidation and streamlining
reserve balances remaining at December 31, 2000 were (in millions):
Employee Disposal Accrued
Benefits and Exit Costs Charge
-------- -------------- ------
1997 streamlining program $15.6 $16.8 $32.4
Amounts utilized (8.3) (9.1) (17.4)
Amounts reversed in 2000 (5.4) (5.1) (10.5)
----- ----- -----
Remaining reserve $ 1.9 $ 2.6 $ 4.5
===== ===== =====
One process consolidation action remains, which is scheduled to be completed in
2001. This action is consistent with the timing established in the Plan.
Following completion of this action, the overall program will be substantially
concluded.
ACQUISITIONS
In July 2000, Hubbell acquired the stock of GAI-Tronics Corporation from Salient
3 Communications, Inc. Based in Reading, Pennsylvania, GAI-Tronics is a leading
supplier of specialized communications systems designed for indoor, outdoor and
hazardous environments. GAI-Tronics is included in the Industrial Technology
Segment. To complement the Company's Electrical Segment, Hubbell acquired the
stock of Temco Electric Products Inc. of Quebec, Canada in December 2000. Temco
designs and manufactures electrical outlet boxes, metallic wall plates and
related accessories.
In the 1999 first quarter, Chardon Electrical of Greenville, TN was acquired in
the Power Segment. Chardon is a manufacturer of high voltage cable accessory
products and technology for use in the electric utility market. In the 1999
third quarter, the company completed the purchase of Haefely Test AG, a high
voltage test and instrumentation business from Trench Switzerland AG. As a
significant part of the Industrial Technology Segment, Haefely produces high
voltage test and measurement and a full line of electromagnetic test equipment
used in compliance testing of telecommunications and Local Area Network (LAN)
systems. With complementary high voltage product lines from Hubbell's
Hipotronics business, Haefely broadens the company's participation in the
European and Asian sectors of this global market.
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, and Chalmit Lighting based in Glasgow, Scotland were
acquired. Sterner designs and manufactures specification grade outdoor lighting
fixtures and custom lighting products as well as indoor sports and arena
lighting. Chalmit manufactures lighting fixtures for hazardous and corrosive
locations. Lastly, 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.
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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 2% of net sales in 2000, 1% in 1999, and 3%
in 1998 with no material effect on the Company's reported earnings.
In connection with the above acquisitions, liabilities were assumed as follows
(in millions):
2000 1999 1998
---- ---- ----
Fair value of assets acquired including goodwill $57.6 $47.3 $95.1
Cash paid for businesses, net of cash acquired (43.6) (38.3) (78.4)
------ ------ ------
Liabilities assumed $14.0 $ 9.0 $16.7
===== ====== =====
DISPOSITIONS
In April, 2000, Hubbell sold its digital subscriber line communications
equipment business ("WavePacer(R)"), and certain related intellectual property
to ECI Telecom Ltd. Gross proceeds were $61.0 million and the transaction
produced a gain on sale of $36.2 million in the second quarter. WavePacer
solutions enable delivery of high speed network access for data-intensive
applications such as telecommuting, branch office connectivity, and remote
internet access; and WavePacer remote access multiplexers provide asymmetric
digital subscriber designated line (ADSL) series to remote locations and are
capable of interfacing with any vendor's equipment in the central office.
In September 1999, the Company completed the sale of Kerite, a wholly-owned
subsidiary reported in the Power Segment. Kerite, which manufactures
high-performance, insulated power cable, was sold to The Marmon Corporation for
a cash purchase price of $38.4 million. The sale produced a net gain of $8.8
million which is included in Operating income in the Consolidated Statement of
Income.
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INVESTMENTS
Investments consist primarily of mortgage-backed securities, asset-backed
securities, corporate bonds, U.S. Treasury Notes, and common 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 2000 and 1999 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, 2000 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):
2000
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
--------- ---------- ----------- -------- --------
AVAILABLE-FOR-SALE INVESTMENTS
Common Stocks $ --- $ --- $ -- $ --- $ ---
Municipal Bonds
13.9 -- -- 13.9 13.9
------ ------ ------ ------ ------
Total Available-For-Sale
Investments $ 13.9 $ --- $ -- $ 13.9 $ 13.9
====== ====== ====== ====== ======
HELD-TO-MATURITY INVESTMENTS
Federal National Mortgage
Assoc. Securities (FNMA) $ 70.4 $ .4 $ (.5) $ 70.3 $ 70.4
Gov't. National Mortgage
Assoc. Securities (GNMA) 20.2 .4 -- 20.6 20.2
Federal Home Loan Mortgage
Corporation Securities (FHLMC) 26.6 .5 (.5) 26.6 26.6
U.S. Treasury Notes & Municipal,
Asset-Backed and Corporate
Bonds
61.8 .6 -- 62.4 61.8
====== ====== ====== ====== ======
Total Held-To-Maturity
Investments $179.0 $ 1.9 $ (1.0) $179.9 $179.0
====== ====== ======= ====== ======
1999
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
--------- ---------- ---------- ---------- --------
AVAILABLE-FOR-SALE INVESTMENTS
Common Stocks $ --- $ -- $ -- $ -- $ --
Municipal Bonds
13.3 -- -- 13.3 13.3
Total Available-For-Sale ------ ------ ------ ------ ------
Investments $ 13.3 $ -- $ -- $ 13.3 $ 13.3
====== ====== ====== ====== ======
HELD-TO-MATURITY INVESTMENTS
Federal National Mortgage
Assoc. Securities (FNMA) $ 78.0 $ 1.5 $ (5.6) $ 73.9 $ 78.0
Gov't. National Mortgage
Assoc. Securities (GNMA) 23.5 1.4 (1.2) 23.7 23.5
Federal Home Loan Mortgage
Corporation Securities (FHLMC) 29.8 -- (2.1) 27.7 29.8
U.S. Treasury Notes & Municipal,
Asset-Backed and Corporate
Bonds
62.1 .3 (1.5) 60.9 62.1
------ ------ ------ ------ ------
Total Held-To-Maturity
Investments $193.4 $ 3.2 $(10.4) $186.2 $193.4
====== ====== ====== ====== ======
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INVESTMENTS CONT'D.
Contractual maturities of investments in debt securities, available-for-sale and
held-to-maturity at December 31, 2000 were as follows (in millions):
U.S.Treasury
Notes &
FNMA GNMA FHLMC Other 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 $ -- $ -- $ -- $ -- $ -- $ -- $ 5.0 $ 5.0
After 1 but within 5 years -- -- -- -- -- -- 8.0 8.0
After 5 but within 10 years .9 .9
TOTAL $ -- $ -- $ -- $ -- $ -- $ -- $ 13.9 $ 13.9
========== ========== ========== =========== ========== =========== ========== ========
HELD-TO-MATURITY
INVESTMENTS
Due within 1 year $ -- $ -- $ -- $ -- $ -- $ -- $ 2.1 $ 2.1
After 1 but within 5 years -- -- 2.4 2.4 -- -- 17.9 18.2
After 5 but within 10 years 2.9 2.9 9.1 9.5 -- -- 41.2 41.5
After 10 years 67.5 67.4 8.7 8.7 26.6 26.6 .6 .6
--------- ---------- ----------- ----------- ---------- ---------- ---------- --------
TOTAL $ 70.4 $ 70.3 $ 20.2 $ 20.6 $ 26.6 $ 26.6 $ 61.8 $ 62.4
========= ========== ========= ========= ========== =========== ========== ========
The change in net unrealized holding gain or loss on available-for-sale
securities that has been included in the separate component of shareholders'
equity was immaterial in 2000 and 1999. The cost basis used in computing the
gain or loss on these securities was through specific identification. The
proceeds from the sale of these securities were $4.9 million in 2000 and $3.2
million in 1999.
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INVENTORIES
Inventories are classified as follows at December 31, (in millions):
2000 1999
------- -------
Raw material $ 93.1 $ 92.8
Work-in-process 75.0 72.3
Finished goods 172.9 158.9
------- -------
341.0 324.0
Excess of current production costs over LIFO cost basis 42.4 45.5
------- -------
Total $ 298.6 $ 278.5
======= =======
The financial accounting basis for the LIFO inventories of acquired companies
exceeds the tax basis by approximately $29.6 million at December 31, 2000.
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):
2000 1999 1998
------- ------- -------
Income before income taxes:
United States $ 170.1 $ 193.0 $ 225.0
International 14.2 4.0 5.5
------- ------- -------
Total $ 184.3 $ 197.0 $ 230.5
======= ======= =======
Provisions for income taxes:
Federal $ 36.2 $ 38.5 $ 49.3
State 3.3 3.0 4.0
International 4.4 1.2 2.6
Deferred 2.2 8.5 5.2
------- ------- -------
Total $ 46.1 $ 51.2 $ 61.1
======= ======= =======
The principal items making up the deferred tax provisions (benefits) are set
forth in the following table for the years ended December 31, (in millions):
2000 1999 1998
------- ------- -------
Transactions of leasing subsidiary $ (3.3) $ (1.5) $ (1.4)
Streamlining and special charge reserves 5.5 2.0 3.2
Depreciation 3.1 (1.6) 1.5
Other, net (3.1) 9.6 1.9
------- ------- -------
Total $ 2.2 $ 8.5 $ 5.2
======= ======= =======
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The components of the net deferred tax (asset) liability at December 31, (in
millions) were as follows:
2000 1999
---- ----
Deferred tax assets:
Inventory $ 2.8 $ 3.9
Pensions 14.6 15.9
Postretirement and postemployment benefits 9.9 8.2
Accrued consolidation and streamlining charge 2.0 7.5
Accrued liabilities 39.2 37.4
------ ------
Total deferred tax asset $68.5 $72.9
----- ------
Deferred tax liabilities:
Property, plant, and equipment 27.9 24.8
Leasing subsidiary 9.4 12.7
LIFO inventories of acquired businesses 11.3 11.3
Miscellaneous other 7.8 9.7
------ -----
Total deferred tax liability 56.4 58.5
------ ------
Net deferred tax (asset) $(12.1) $(14.4)
======= =======
Deferred taxes are classified in the financial statements at December 31, 2000
and 1999 as a net short-term deferred tax asset of $18.1 million and $24.3
million, respectively, and a net long-term deferred tax liability of $6.0
million and $9.9 million, respectively.
At December 31, 2000, United States income taxes had not been provided on
approximately $29.9 million of undistributed international earnings. Payments of
income taxes were $33.4 million in 2000, $46.6 million in 1999 and $60.7 million
in 1998.
The consolidated effective income tax rates varied from the United States
federal statutory income tax rate for the years ended December 31, as follows:
2000 1999 1998
---- ---- ----
Federal statutory income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal benefit 1.3 1.3 1.3
Tax-exempt income (.4) (.3) (1.9)
Non-taxable income from
Puerto Rico operations (11.8) (10.7) (8.4)
Other, net .9 .7 .5
----- ----- -----
Consolidated effective income tax rate 25.0% 26.0% 26.5%
===== ==== ====
OTHER NON-CURRENT LIABILITIES
Other Non-Current Liabilities consists of the following at December 31, (in
millions):
2000 1999
---- ----
Pensions $44.0 $44.1
Other postretirement benefits 26.1 27.7
Accrued consolidation and streamlining charge --- 9.5
Other, net 19.8 9.2
------ -----
Total $89.9 $90.5
===== =====
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RETIREMENT BENEFITS
The Company and its subsidiaries have a number of non-contributory defined
benefit pension plans and other non-pension retirement benefit plans. During
2000 and 1999, the Company made an acquisition where defined benefit pension
assets and liabilities of the acquired company were assumed. In addition, the
sale of Kerite in 1999 resulted in a settlement and curtailment of the pension
obligations for that company.
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*
2000 1999 2000 1999
---- ---- ---- ----
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 239.2 $ 252.4 $ 27.7 $ 29.3
Service cost 8.5 9.8 .3 .3
Interest cost 17.7 16.7 1.1 1.2
Plan amendments .1 -- -- --
Actuarial (gain) loss 4.1 (17.3) (.3) (1.2)
Settlement and curtailment gains
(Sale of Kerite) -- (5.9) -- --
Acquisitions 5.5 3.7 -- --
Benefits paid (12.7) (20.2) (2.7) (1.9)
------- ------- ------ ------
Benefit obligation at end of year $ 262.4 $ 239.2 $ 26.1 $ 27.7
------- ------- ------ ------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 242.6 $ 230.7 $ -- $ --
Actual return on plan assets 5.4 24.9 -- --
Acquisitions 6.3 4.0 -- --
Employer contributions 4.3 3.2 -- --
Benefits paid (12.7) (20.2) -- --
------- ------- ------ ------
Fair value of plan assets at end of year $ 245.9 $ 242.6 $ -- $ --
------- ------- ------ ------
FUNDED STATUS $ (16.5) $ 3.4 $(26.1) $(27.7)
Unrecognized net actuarial gain (28.9) (49.5) -- --
Unrecognized prior service cost 1.0 1.0 -- --
------- ------- ------ ------
Accrued benefit cost $ (44.4) $ (45.1) $(26.1) $(27.7)
------- ------- ------ ------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF
DECEMBER 31
Discount rate 7.50% 7.75% 7.50% 7.75%
Expected return on plan assets 9.00% 8.50% N/A N/A
Rate of compensation increase 4.75% 4.75% N/A N/A
*Note: Other Benefits have been adjusted to include other post employment
benefits required pursuant to SFAS112.
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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
2000 1999 1998 2000 1999 1998
---- ---- ---- ---- ---- ----
COMPONENTS OF NET PERIODIC
BENEFIT COST
Service cost $ 8.5 $ 9.8 $ 8.9 $ .3 $ .3 $ .3
Interest cost 17.7 16.7 16.1 1.1 1.2 1.2
Expected return on plan assets (21.2) (18.0) (16.6) -- -- --
Amortization of prior service cost .3 .3 .7 -- -- --
Amortization of actuarial gains (2.4) (1.0) (.5) (.3) (1.2) --
Settlement and curtailment gain
(Sale of Kerite) -- (5.9) -- -- -- --
----- ----- ---- ---- ---- ---
Net periodic benefit cost $ 2.9 $ 1.9 $ 8.6 $ 1.1 $ .3 $ 1.5
----- ----- ---- ---- ---- ---
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 7.75% annual rate of increase in
the per capita cost of pre-65 covered health care benefits was assumed for 2000.
The rate was assumed to decrease gradually to 5% for 2006 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, 2000, approximately $158.1 million of the pension plan assets
were invested in common stocks, including Hubbell Incorporated common stock with
a market value of $9.1 million. The balance of plan assets of $87.8 million was
invested in short term money market accounts, government and corporate bonds.
At December 31, 2000, the Company had certain defined benefit plans where the
accumulated benefit obligation exceeded plan assets. In total, the accumulated
benefit obligation for these plans at December 31, 2000 was $26.6 million and
there were no plan assets. 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 $1.7 million in 2000, $1.5 million in 1999 and in 1998.
This cost is not included in the above net periodic benefit cost. Total pension
expense (including defined contribution plans) as a percent of payroll was 1.6%
in 2000, 1.1% in 1999, and 3.2% in 1998.
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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):
2000 1999
--------------------------------- ------------------------------------------------
COMMERCIAL COMMERCIAL
PAPER AND PAPER AND
OTHER LONG-TERM OTHER LONG-TERM
BORROWINGS DEBT TOTAL BORROWINGS DEBT TOTAL
---------- ---- ----- ---------- ---- -----
Balance at year end $259.5 $99.7 $359.2 $127.1 $99.6 $226.7
Highest aggregate month-end balance $359.6 $316.5
Average borrowings during the year $197.2 $99.7 $296.9 $173.1 $99.6 $272.7
Weighted average interest rate:
At year end 6.55% 6.71% 6.59% 6.39% 6.71% 6.53%
Paid during the year 6.46% 6.71% 6.54% 5.12% 6.71% 5.70%
Interest paid for commercial paper, bank borrowings, and long-term debt totaled
$19.7 million in 2000, $15.8 million in 1999, and $9.7 million in 1998. The
Company maintains various bank credit agreements primarily to support commercial
paper borrowings. At December 31, 2000, the Company had total used and unused
bank credit agreements of $150 million. The expiration date for these bank
credit agreements is September 24, 2001. 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, 2000, total approximately
$90,000. In October, 1995, the Company issued a 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 $9.4 million in 2000, $9.1
million in 1999 and $7.9 million in 1998. The minimum annual rentals on
non-cancelable, long-term, operating leases in effect at December 31, 2000 will
approximate $4.3 million in 2001, $3.8 million in 2002, $3.0 million in 2003,
$2.0 million in 2004 and $1.7 million in 2005.
Research, Development and Engineering
Expenses for new product development and ongoing improvement of existing
products were $10.0 million in 2000, $20.0 million in 1999 and $27.0 million in
1998. The decline in research, development, and engineering is consistent with
the sale of the WavePacer business assets in April 2000. (see Notes to
Consolidated Financial Statements - Dispositions)
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 an extensive 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):
2000 1999
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
Investments
Available-for-sale $13.9 $13.9 $ 13.3 $ 13.3
Held-to-maturity $179.0 $179.9 $193.4 $186.2
Long-Term Debt $(99.7) $(101.4) $ (99.6) $ (96.9)
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, 2000:
Preferred Stock Common Stock
Class A Class B
--------- ---------
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
Exercise of stock options 26,000 391,845
Acquisition of treasury shares (532,916) (1,227,502)
------------------ ---------- ---------
OUTSTANDING AT DECEMBER 31, 1999 --- 10,274,567 53,977,630
Exercise of stock options --- 247,688
Acquisition of treasury shares (637,229) (5,104,865)
------------------ ---------- ----------
OUTSTANDING AT DECEMBER 31, 2000 --- 9,637,338 49,120,453
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.
The Company has a Stockholder Rights Agreement under which holders of Class A
Common Stock have Class A Rights and holders of Class B Common Stock have Class
B Rights. These Rights become exercisable after a specified period of time only
if a person or group of affiliated persons acquires beneficial ownership of 20
percent or more of the outstanding Class A Common Stock of the Company or
announces or commences a tender or exchange offer that would result in the
offeror acquiring beneficial ownership of 20 percent or more of the outstanding
Class A Common Stock of the Company. Each Class A Right entitles the holder to
purchase from the Company one one-thousandth of a share of Series A Junior
Participating Preferred Stock ("Series A Preferred Stock"), without par value,
at a price of $175.00 per one one-thousandth of a share. Similarly, each Class B
Right entitles the holder to purchase one one-thousandth of a share of Class B
Junior Participating Preferred Stock ("Series B Preferred Stock"), without par
value, at a price of $175.00 per one one-thousandth of a share. The Rights may
be redeemed by the Company for one cent per Right prior to the day a person or
group of affiliated persons acquires 20 percent or more of the outstanding Class
A Common Stock of the Company. The Rights 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, 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.
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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 stock were reserved at December 31, 2000 as follows:
Common Stock
------------------------------------------------------
Class A Class B Preferred Stock
Exercise of outstanding stock options --- 7,343,343 ---
Future grant of stock options 959,012 1,643,898 ---
Exercise of stock purchase rights --- --- 58,758
------- --------- ------
Total 959,012 8,987,241 58,758
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, 2000 is set forth below:
Number Option price per Weighted
of shares share range Average
--------- ----------- -------
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
Granted 1,321,800 $27.66 $27.66
Exercised (417,845) $16.86 - $32.06 $23.55
Canceled or expired (259,688) $32.06 - $47.13 $41.79
---------
OUTSTANDING AT DECEMBER 31, 1999 6,340,889 $19.33 - $47.13 $33.23
Granted 1,602,300 $24.59 $24.59
Exercised (247,688) $19.33 - $26.99 $20.05
Canceled or expired (352,158) $19.33 - $47.13 $28.20
---------
OUTSTANDING AT DECEMBER 31, 2000 7,343,343 $23.39 - $47.13 $31.63
On December 31, 2000, outstanding options were comprised of 1,573,408 shares
exerciseable with an average remaining life of three years and an average price
of $25.55 (range $23.39 - $26.99); 1,215,335 shares exerciseable with an average
remaining life of six years and an average price of $37.18 (range $32.06 -
$41.69); 768,100 shares exerciseable and 930,900 shares not vested with a
remaining life of eight years and an average price of $42.86 (range $39.34 -
$47.13); and 2,855,600 shares not vested with an average remaining life of ten
years and an average price of $25.94 (range $24.59 - $27.66).
43
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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:
Weighted Avg.
Grant Date Proforma
Dividend Expected Interest Expected Fair Value Effect on
Yield Volatility Rate Option Term of 1 Option Net Income*
---------- ----------- -------- ----------- ------------- ----------
2000 4.5% 22% 5.2% 7 Years $4.36 $4.2 Million
1999 4.0% 22% 6.6% 7 Years $6.16 $4.2 Million
1998 3.0% 17% 4.8% 7 Years $7.34 $4.1 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 1996 are not considered. The pro forma effect
on earnings per share would be immaterial.
Earnings Per Share
The following table sets forth the computation of earnings per share for the
three years ended December 31, (in millions):
2000 1999 1998
---- ---- ----
Net Income $138.2 $145.8 $169.4
Weighted average number of common
shares outstanding during the year (basic) 61.2 65.1 66.2
Common equivalent shares .1 .8 1.5
------- ------- -------
Average number of shares outstanding (diluted) 61.3 65.9 67.7
==== ====== ======
Earnings per share:
Basic $2.26 $2.24 $2.56
Diluted $2.25 $2.21 $2.50
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-nine divisions and subsidiaries in North
America, Switzerland, Puerto Rico, Mexico, Italy and the United Kingdom. Hubbell
also participates in a joint venture in Taiwan, and maintains sales offices in
Singapore, the People's Republic of China, 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 three operating segments:
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Electrical, Power, and Industrial Technology. Information regarding operating
segments has been presented as required by SFAS No. 131. At December 31, 2000
the operating segments were comprised as follows:
The Electrical Segment is comprised of businesses that primarily sell through
distributors, lighting showrooms, home centers and telephone and
telecommunication companies, and represents stock items including standard and
special application wiring device products, lighting fixtures, fittings, switch
and outlet boxes, enclosures and wire management products and voice and data
signal processing components. The products are used in and around industrial,
commercial and institutional facilities by electrical contractors, maintenance
personnel, electricians, and telecommunication companies.
Power Segment operations are comprised of a wide variety of construction,
switching and protection products, hot line tools, grounding equipment, cover
ups, fittings and fasteners, cable accessories, insulators, arresters, cutouts,
sectionalizers, connectors and compression tools for the building and
maintenance of overhead and underground power and telephone lines, as well as
applications in the industrial, construction and pipeline industries.
The Industrial Technology 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 electric cable
and hose reels and specialized communication systems such as intra-facility
communication systems, telephone systems, and land mobile radio peripherals.
Products are sold primarily to steel mills, industrial complexes, oil, gas and
petro-chemical industries, seaports, transportation authorities, the security
industry (malls and colleges), and cable and electronic equipment 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 10% of total sales in 2000, 8% in 1999, and 6% in 1998
with the Canadian market representing approximately 45% of the total. Net assets
of international subsidiaries were 9% of the consolidated total in 2000 and in
1999 and 6% in 1998. Export sales directly to customers or through electric
wholesalers from the United States operations were $74.8 million in 2000, $75.8
million in 1999, and $80.2 million in 1998.
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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 2 213,500
Puerto Rico 3 327,400 (1)
Tennessee 1 246,800
Virginia 2 471,400
Illinois 2 318,800 (6)
Indiana 1 314,800
Missouri 2 266,000
Minnesota 1 149,500 (2)
Georgia 1 57,100
Mexico 3 385,400 (5)
United Kingdom 3 105,500 (3)
Canada 1 42,900
Power Segment Ohio 1 90,000
South Carolina 1 360,000
Alabama 2 288,000
Tennessee 1 74,000
Missouri 1 804,900
Puerto Rico 1 135,600 (3)
Mexico 1 208,000 (5)
Industrial Technology Ohio 1 76,900
Segment North Carolina 1 81,000 (3)
Wisconsin 1 94,200 (4)
New York 2 169,900
Pennsylvania 1 104,900 (3)
Switzerland 2 104,100 (3)
United Kingdom 1 40,000 (3)
Italy 1 21,500 (3)
----------------------------------
(1) 164,800 square feet leased
(2) 41,200 square feet leased
(3) Leased
(4) 20,000 square feet leased
(5) Shared with Electrical Segment
(6) 95,700 square feet leased
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Additionally, the Company owns or leases warehouses and distribution centers
containing approximately 1,256,500 square feet. The Company believes its
manufacturing and warehousing facilities are adequate to carry on its business
activities.
As of December 31, 2000, the Company had approximately 10,469 full-time
employees, including salaried and hourly personnel. Approximately 43% of the
United States employees are represented by fourteen 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, 2000, 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
2000 1999 1998
---- ---- ----
NET SALES:
Electrical $ 928.6 $ 965.4 $ 957.9
Power 372.9 399.5 393.1
Industrial Technology 122.6 86.9 73.6
--------- -------- ----------
Total $1,424.1 $1,451.8 $ 1,424.6
========= ======== ==========
OPERATING INCOME:
Electrical 122.3 134.6 165.4
Special and nonrecurring charges, net (19.2) - -
Gain on sale of business 36.2
Power 39.7 42.6 53.4
Special and nonrecurring charges, net (3.7) - -
Gain on sale of business - 8.8 -
Industrial Technology 10.0 8.4 7.3
Special charge (.8) - -
--------- -------- --------
Operating income $ 184.5 $ 194.4 $ 226.1
Interest expense (19.7) (15.9) (9.9)
Investment and other income, net 19.5 18.5 14.3
--------- -------- --------
Income before income taxes $ 184.3 $ 197.0 $ 230.5
========= ======== ==========
ASSETS:
Electrical $ 577.9 $ 589.7 $ 609.2
Power 369.1 370.4 390.4
Industrial Technology 159.1 111.0 80.7
General Corporate 348.4 336.1 310.1
-------- --------- ----------
Total $1,454.5 $ 1,407.2 $ 1,390.4
======== ========== ==========
CAPITAL EXPENDITURES:
Electrical $ 35.5 $ 34.1 $ 52.6
Power 9.8 17.6 32.1
Industrial Technology 1.5 1.4 .7
General Corporate 1.8 .6 .7
------- ---------- ----------
Total $ 48.6 $ 53.7 $ 86.1
======= ========== ==========
DEPRECIATION AND AMORTIZATION:
Electrical $ 32.3 $ 30.3 $ 25.1
Power 17.8 19.0 19.5
Industrial Technology 4.2 2.8 2.6
General Corporate .6 .7 .9
------- --------- ----------
Total $ 54.9 $ 52.8 $ 48.1
======= ========= ==========
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GEOGRAPHIC AREA
2000 1999 1998
---- ---- ----
NET SALES:
United States $1,279.1 $1,334.0 $1,338.8
International 145.0 117.8 85.8
-------- -------- --------
Total $1,424.1 $1,451.8 $1,424.6
======== ======== ========
OPERATING INCOME:
United States $ 154.3 $ 171.5 $ 212.0
Special and nonrecurring charge, net (22.6) --- ---
Gain on sale of business 36.2 8.8 ---
International 17.7 14.1 14.1
Special charge (1.1) --- ---
-------- -------- --------
Total $ 184.5 $ 194.4 $ 226.1
======== ======== ========
ASSETS:
United States $1,319.0 $1,285.8 $1,302.3
International 135.5 121.4 88.1
-------- -------- --------
Total $1,454.5 $1,407.2 $1,390.4
======== ======== ========
Quarterly Financial Data (Unaudited)
The table below sets forth summarized quarterly financial data for the years
ended December 31, 2000 and 1999 (in millions, except per share amounts):
First Second Third Fourth
2000 Quarter Quarter Quarter Quarter
---- ------- ------- ------- -------
Net Sales $360.6 $356.6 $360.8 $346.1
Gross Profit $103.1 $ 74.4 $100.3 $ 91.3
Net Income $ 35.1 $ 41.8 $ 33.0 $ 28.3
Earnings Per Share:
Basic $ .55 $ .67 $ .55 $ .49
Diluted $ .55 $ .67 $ .55 $ .48
1999
Net Sales $367.5 $368.6 $372.4 $343.3
Gross Profit $107.0 $110.5 $ 97.4 $ 94.1
Net Income $ 39.7 $ 43.1 $ 35.8 $ 27.2
Earnings Per Share:
Basic $ .61 $ .66 $ .55 $ .42
Diluted $ .60 $ .65 $ .54 $ .42
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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 52
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 55 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
(ended June 30), 1998, and filed on August 7, 1998, is
incorporated by reference; (2) Exhibit 1 of the registrant's
reports on Form 8-A and 8-K, both dated and filed on
December 17, 1998, is incorporated by reference; and (3)
Exhibit 3(a), being a Certificate of Correction to the
Restated Certificate of Incorporation, of the registrant's
report on Form 10-Q for the third quarter (ended September
30), 1999, and filed on November 12, 1999, is incorporated
by reference.
3b* By-Laws, Hubbell Incorporated, as amended on March 5, 2001.
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 and filed on December 17, 1998.
Exhibit 3(c), being an Amendment to Rights Agreement, of the
registrant's report on Form 10-Q for the third quarter
(ended September 30), 1999, and filed on November 12, 1999,
is incorporated by reference.
(1) The definitive proxy statement for the annual meeting of shareholders to be
held on May 7, 2001, filed with the Commission on March 27, 2001, pursuant
to Regulation 14A, is incorporated herein by reference.
* Filed hereunder.
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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 December 8, 1999, Exhibit
10a of the registrant's report on Form 10-K for the year
1999, filed March 27, 2000, is incorporated by reference.
10b(1)+ Hubbell Incorporated 1973 Stock Option Plan for Key
Employees, as amended and restated effective December 8,
1999, 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 (ended June 30), 1993, filed on August 12,
1993, is incorporated by reference.
10f Hubbell Incorporated Deferred Compensation Plan for
Directors, as amended and restated effective December 8,
1999, Exhibit 10f of the registrant's report on Form 10-K
for the year 1999, filed March 27, 2000, 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 December 8, 1999, Exhibit 10i
of the registrant's report on Form 10-K for the year 1999,
filed March 27, 2000, 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.
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.
--------
+ This exhibit constitutes a management contract, compensatory plan, or
arrangement
51
Page 51
2. Exhibits - Continued
Number Description
------ -----------
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 (ended September 30), 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.
10r+ Continuity Agreement, dated as of December 27, 1999, between
Hubbell Incorporated and G. Jackson Ratcliffe, Exhibit 10r of
the registrant's report on Form 10-K for the year 1999, filed
March 27, 2000, is incorporated by reference.
10s+ Continuity Agreement, dated as of December 27, 1999, between
Hubbell Incorporated and Harry B. Rowell, Jr, Exhibit 10s of
the registrant's report on Form 10-K for the year 1999, filed
March 27, 2000, is incorporated by reference.
10t+ Continuity Agreement, dated as of December 27, 1999, between
Hubbell Incorporated and Timothy H. Powers, Exhibit 10t of the
registrant's report on Form 10-K for the year 1999, filed
March 27, 2000, is incorporated by reference.
10u+ Continuity Agreement, dated as of December 27, 1999, between
Hubbell Incorporated and Richard W. Davies, Exhibit 10u of the
registrant's report on Form 10-K for the year 1999, filed
March 27, 2000, is incorporated by reference.
10v+ Continuity Agreement, dated as of December 27, 1999, between
Hubbell Incorporated and James H. Biggart. Exhibit 10v of the
registrant's report on Form 10-K for the year 1999, filed
March 27, 2000, is incorporated by reference.
10w+* Continuity Agreement, dated as of December 27, 1999, between
Hubbell Incorporated and Glenn M. Grunewald.
21 Listing of significant subsidiaries.
27 Exhibit 27 Financial Data Schedule (Electronic filings only)
3. Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
December 31, 2000.
----------------------------------
+ This exhibit constitutes a management contract, compensatory plan, or
arrangement
* Filed hereunder
52
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Executive Officers of the Registrant
Name Age(1) Present Position Business Experience
---- ------ ---------------- -------------------
G. Jackson Ratcliffe 64 Chairman of the Board, President President and Chief Executive Officer since
and Chief Executive Officer 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.
Glenn M. Grunewald 52 Executive Vice President and Present position since July 7, 2000; Group
Chief Operating Officer Vice President 1996-2000; Vice President and
General Manager - Lighting operations 1993-1996;
various other positions at Lighting operations
1974-1993.
Harry B. Rowell, Jr. 59 Executive Vice President Present position since July 7, 2000; Executive
Vice President since 1988; Chief Operating Officer,
1999-July 7, 2000; Group Vice President 1985-1987;
Vice President Corporate Development and
Planning 1979-1985.
Timothy H. Powers 52 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
Richard W. Davies 54 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. 48 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 9, 2001
53
Page 53
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 3/5/01
--------------------------------------------------- -------------
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 3/5/01
-------------------------------------------------------- -------------
G. J. Ratcliffe Date
Chairman of the Board, President, Chief
Executive Officer and Director
By /s/ T. H. Powers 3/5/01
-------------------------------------------------------- -------------
T. H. Powers Date
Senior Vice President & Chief Financial Officer
(Chief Accounting Officer)
By /s/ E. R. Brooks 3/5/01
-------------------------------------------------------- -------------
E. R. Brooks Date
Director
By /s/ G. W. Edwards, Jr. 3/5/01
-------------------------------------------------------- -------------
G. W. Edwards, Jr. Date
Director
By /s/ J. S. Hoffman 3/5/01
-------------------------------------------------------- -------------
J. S. Hoffman Date
Director
By /s/ A. McNally IV 3/5/01
-------------------------------------------------------- -------------
A. McNally IV Date
Director
54
Page 54
By /s/ D. J. Meyer 3/5/01
-------------------------------------------------------- ------------
D. J. Meyer Date
Director
By /s/ J. A. Urquhart 3/5/01
-------------------------------------------------------- ------------
J. A. Urquhart Date
Director
By /s/ M. Wallop 3/5/01
-------------------------------------------------------- ------------
M. Wallop Date
Director
55
Page 55
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Form 10-K for
Financial Statements 2000, Page:
-------------------- -------------
Report of Independent Accountants.................................20
Consolidated Statement of Income for the three years
ended December 31, 2000...........................................21
Consolidated Statement of Cash Flows for the three years
ended December 31, 2000...........................................22
Consolidated Balance Sheet at December 31, 2000 and 1999..........23
Consolidated Statement of Changes in Shareholders'
Equity for the three years ended December 31, 2000................25
Statement of Accounting Policies..................................26
Notes to Consolidated Financial Statements........................29
Financial Statement Schedule
Report of Independent Accountants
on Financial Statement Schedule...................................56
Valuation and Qualifying Accounts and Reserves
(Schedule VIII)...................................................57
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
56
Page 56
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Hubbell Incorporated
Our audits of the consolidated financial statements referred to in our report
dated January 17, 2001, appearing on page 20 of this Form 10-K also included an
audit of the Financial Statement Schedule listed in the index on page 55 of this
Form 10-K. 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 17, 2001
57
Page 57
Schedule VIII
HUBBELL INCORPORATED
AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(In millions)
Reserves deducted in the balance sheet from the assets to which they apply:
Additions Acquisition
Balance at charged Disposition Balance
beginning to costs of at end
of period and expenses businesses Deductions of period
---------- ------------ ----------- ---------- ---------
Allowances for doubtful accounts receivable:
Year 1998 $ 5.7 $ 1.4 $ -- $( 1.4) $ 5.7
Year 1999 $ 5.7 $ .7 $ .6 $( 2.9) $ 4.1
Year 2000 $ 4.1 $ 3.0 $ .6 $( 3.5) $ 4.2
Allowances for
excess/obsolete inventory:
Year 1998 $14.5 $ .5 $ 3.9 $( .4) $18.5
Year 1999 $18.5 $ 8.0 $ .7 $( 7.9) $19.3
Year 2000 $19.3 $22.2 $ 1.1 $(20.0) $22.6
A - Includes the cost of product line discontinuances of $3.3 and $20.3 in 1999
and in 2000, respectively.