All other schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial statements or notes thereto.
Our management is responsible for the preparation, integrity and fair
presentation of its published financial statements. The financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America and include amounts based on informed judgments made by management.
We believe it is critical to provide investors and other users of
our financial statements with information that is relevant, objective, understandable and timely, so that they can make informed
decisions. As a result, we have established and maintain systems and practices and internal control processes designed to provide
reasonable, but not absolute, assurance that transactions are properly executed and recorded and that our policies and procedures
are carried out appropriately. Management strives to recruit, train and retain high quality people to ensure that controls are
designed, implemented and maintained in a high-quality, reliable manner.
Our independent registered public accounting firm audited our financial
statements and the effectiveness of our internal control over financial reporting in accordance with standards established by the
Public Company Accounting Oversight Board (United States). Their report appears on the next page within this Annual Report on Form
10-K.
Our Board of Directors normally meets at least five times per year
to provide oversight, to review corporate strategies and operations, and to assess management’s conduct of the business.
The Audit Committee of our Board of Directors (which meets approximately eight times per year) is comprised of at least three individuals
all of whom must be “independent” under current New York Stock Exchange listing standards and regulations adopted by
the SEC under the federal securities laws. The Audit Committee meets regularly with our internal auditors and independent registered
public accounting firm, as well as management to review, among other matters, accounting, auditing, internal controls and financial
reporting issues and practices. Both the internal auditors and independent registered public accounting firm have full, unlimited
access to the Audit Committee.
Management is responsible for establishing
and maintaining adequate systems of internal control over financial reporting as defined by Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external reporting purposes in accordance with generally accepted accounting principles. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness
of our internal control over financial reporting as of December 31, 2013. In making this assessment, management used the
criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (1992). Based on this assessment, management concluded that our internal control over financial
reporting was effective at a reasonable assurance level as of December 31, 2013.
The effectiveness of our internal control over financial reporting
as of December 31, 2013 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm as stated
in their report which is included on the next page within this Annual Report on Form 10-K.
Consolidated Statement of Income
|
|
Year Ended December 31,
|
|
(in millions, except per share amounts)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Net sales
|
|
$
|
3,183.9
|
|
|
$
|
3,044.4
|
|
|
$
|
2,871.6
|
|
Cost of goods sold
|
|
|
2,113.4
|
|
|
|
2,032.2
|
|
|
|
1,947.9
|
|
Gross profit
|
|
|
1,070.5
|
|
|
|
1,012.2
|
|
|
|
923.7
|
|
Selling & administrative expenses
|
|
|
562.9
|
|
|
|
540.4
|
|
|
|
499.9
|
|
Operating income
|
|
|
507.6
|
|
|
|
471.8
|
|
|
|
423.8
|
|
Interest expense
|
|
|
(30.8
|
)
|
|
|
(30.8
|
)
|
|
|
(30.9
|
)
|
Investment income
|
|
|
1.3
|
|
|
|
1.8
|
|
|
|
1.3
|
|
Other expense, net
|
|
|
(4.3
|
)
|
|
|
(1.0
|
)
|
|
|
(4.4
|
)
|
Total other expense
|
|
|
(33.8
|
)
|
|
|
(30.0
|
)
|
|
|
(34.0
|
)
|
Income before income taxes
|
|
|
473.8
|
|
|
|
441.8
|
|
|
|
389.8
|
|
Provision for income taxes
|
|
|
144.0
|
|
|
|
139.7
|
|
|
|
119.6
|
|
Net income
|
|
|
329.8
|
|
|
|
302.1
|
|
|
|
270.2
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
3.3
|
|
|
|
2.4
|
|
|
|
2.3
|
|
NET INCOME ATTRIBUTABLE TO HUBBELL
|
|
$
|
326.5
|
|
|
$
|
299.7
|
|
|
$
|
267.9
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5.51
|
|
|
$
|
5.05
|
|
|
$
|
4.47
|
|
Diluted
|
|
$
|
5.47
|
|
|
$
|
5.00
|
|
|
$
|
4.42
|
|
See notes
to consolidated financial statements.
|
|
Consolidated Statement of Comprehensive Income
|
|
Year Ended December 31,
|
|
(in millions)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Net income
|
|
$
|
329.8
|
|
|
$
|
302.1
|
|
|
$
|
270.2
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(15.0
|
)
|
|
|
8.3
|
|
|
|
(12.1
|
)
|
Pension and post
retirement benefit plans’ service costs and net actuarial gains (losses), net of taxes of $(38.7), $(14.2) and
$36.0
|
|
|
63.1
|
|
|
|
23.6
|
|
|
|
(58.1
|
)
|
Unrealized (loss) gain on investments, net of taxes of $0.2, $0.1 and $(0.3)
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
0.5
|
|
Unrealized gain (loss) on cash flow hedges, net of taxes of $(0.1), $0.2 and $(0.3)
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
|
|
0.6
|
|
Other comprehensive income (loss)
|
|
|
48.1
|
|
|
|
31.3
|
|
|
|
(69.1
|
)
|
Comprehensive income
|
|
|
377.9
|
|
|
|
333.4
|
|
|
|
201.1
|
|
Less: Comprehensive income attributable to noncontrolling interest
|
|
|
3.3
|
|
|
|
2.4
|
|
|
|
2.3
|
|
COMPREHENSIVE INCOME ATTRIBUTABLE TO HUBBELL
|
|
$
|
374.6
|
|
|
$
|
331.0
|
|
|
$
|
198.8
|
|
See notes to consolidated financial statements.
HUBBELL
INCORPORATED
-
Form
10-K
|
28
|
Consolidated Balance Sheet
|
|
At December 31,
|
(In
millions, except share amounts)
|
|
2013
|
|
|
2012
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
740.7
|
|
|
$
|
645.0
|
|
Short-term investments
|
|
|
10.1
|
|
|
|
8.8
|
|
Accounts receivable, net
|
|
|
440.9
|
|
|
|
405.2
|
|
Inventories, net
|
|
|
385.7
|
|
|
|
341.7
|
|
Deferred taxes and other
|
|
|
55.0
|
|
|
|
55.5
|
|
Total Current Assets
|
|
|
1,632.4
|
|
|
|
1,456.2
|
|
Property, Plant, and Equipment, net
|
|
|
377.1
|
|
|
|
364.7
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Investments
|
|
|
35.8
|
|
|
|
36.7
|
|
Goodwill
|
|
|
800.4
|
|
|
|
755.5
|
|
Intangible assets, net
|
|
|
286.6
|
|
|
|
288.1
|
|
Other long-term assets
|
|
|
54.9
|
|
|
|
45.8
|
|
TOTAL ASSETS
|
|
$
|
3,187.2
|
|
|
$
|
2,947.0
|
|
LIABILITIES
AND EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
$
|
0.3
|
|
|
$
|
-
|
|
Accounts payable
|
|
|
225.9
|
|
|
|
213.1
|
|
Accrued salaries, wages and employee benefits
|
|
|
74.7
|
|
|
|
75.4
|
|
Accrued insurance
|
|
|
41.8
|
|
|
|
39.6
|
|
Other accrued liabilities
|
|
|
124.3
|
|
|
|
119.3
|
|
Total Current Liabilities
|
|
|
467.0
|
|
|
|
447.4
|
|
Long-term Debt
|
|
|
597.2
|
|
|
|
596.7
|
|
Other Non-Current Liabilities
|
|
|
208.2
|
|
|
|
235.0
|
|
TOTAL LIABILITIES
|
|
|
1,272.4
|
|
|
|
1,279.1
|
|
Commitments and Contingencies (see Note 15)
|
|
|
|
|
|
|
|
|
Hubbell Shareholders’ Equity
|
|
|
|
|
|
|
|
|
Common stock, par value $.01
|
|
|
|
|
|
|
|
|
Class A - Authorized 50,000,000 shares, outstanding 7,167,506 and 7,167,506 shares
|
|
|
0.1
|
|
|
|
0.1
|
|
Class B - Authorized 150,000,000 shares, outstanding 52,005,492 and 52,069,205 shares
|
|
|
0.5
|
|
|
|
0.5
|
|
Additional paid-in capital
|
|
|
44.2
|
|
|
|
64.0
|
|
Retained earnings
|
|
|
1,932.6
|
|
|
|
1,715.7
|
|
Accumulated other comprehensive loss
|
|
|
(71.0
|
)
|
|
|
(119.1
|
)
|
Total Hubbell Shareholders’ Equity
|
|
|
1,906.4
|
|
|
|
1,661.2
|
|
Noncontrolling interest
|
|
|
8.4
|
|
|
|
6.7
|
|
Total Equity
|
|
|
1,914.8
|
|
|
|
1,667.9
|
|
TOTAL LIABILITIES AND EQUITY
|
|
$
|
3,187.2
|
|
|
$
|
2,947.0
|
|
See notes to consolidated financial statements.
HUBBELL
INCORPORATED
-
Form
10-K
|
29
|
Consolidated Statement of Cash Flows
|
|
Year Ended December 31,
|
|
(In millions)
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
329.8
|
|
|
$
|
302.1
|
|
|
$
|
270.2
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
70.6
|
|
|
|
66.8
|
|
|
|
68.2
|
|
Deferred income taxes
|
|
|
13.3
|
|
|
|
27.5
|
|
|
|
18.8
|
|
Stock-based compensation
|
|
|
14.3
|
|
|
|
15.8
|
|
|
|
15.1
|
|
Tax benefit on stock-based awards
|
|
|
(8.4
|
)
|
|
|
(15.6
|
)
|
|
|
(8.2
|
)
|
Loss (gain) on sale of assets
|
|
|
0.2
|
|
|
|
0.4
|
|
|
|
(3.9
|
)
|
Changes in assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in accounts receivable
|
|
|
(30.9
|
)
|
|
|
(1.8
|
)
|
|
|
(51.6
|
)
|
Increase in inventories
|
|
|
(25.9
|
)
|
|
|
(11.8
|
)
|
|
|
(16.4
|
)
|
Increase (decrease) in current liabilities
|
|
|
1.7
|
|
|
|
(31.7
|
)
|
|
|
46.5
|
|
Changes in other assets and liabilities, net
|
|
|
15.8
|
|
|
|
20.7
|
|
|
|
22.8
|
|
Contributions to qualified defined benefit pension plans
|
|
|
(3.2
|
)
|
|
|
(22.6
|
)
|
|
|
(22.7
|
)
|
Other, net
|
|
|
4.5
|
|
|
|
(0.7
|
)
|
|
|
(3.8
|
)
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
381.8
|
|
|
|
349.1
|
|
|
|
335.0
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(58.8
|
)
|
|
|
(49.1
|
)
|
|
|
(55.4
|
)
|
Acquisitions, net of cash acquired
|
|
|
(96.5
|
)
|
|
|
(90.7
|
)
|
|
|
(29.6
|
)
|
Receipt of escrow funds from acquisition
|
|
|
-
|
|
|
|
6.8
|
|
|
|
-
|
|
Purchases of available-for-sale investments
|
|
|
(11.1
|
)
|
|
|
(9.5
|
)
|
|
|
(23.8
|
)
|
Proceeds from sales of available-for-sale investments
|
|
|
10.5
|
|
|
|
19.4
|
|
|
|
9.4
|
|
Proceeds from disposition of assets
|
|
|
3.4
|
|
|
|
4.8
|
|
|
|
9.6
|
|
Other, net
|
|
|
1.4
|
|
|
|
2.2
|
|
|
|
3.3
|
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
|
(151.1
|
)
|
|
|
(116.1
|
)
|
|
|
(86.5
|
)
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of short-term debt
|
|
|
0.4
|
|
|
|
0.2
|
|
|
|
1.4
|
|
Payment of short-term debt
|
|
|
(0.1
|
)
|
|
|
(3.1
|
)
|
|
|
-
|
|
Debt issuance costs
|
|
|
-
|
|
|
|
-
|
|
|
|
(1.1
|
)
|
Payment of dividends
|
|
|
(109.5
|
)
|
|
|
(122.3
|
)
|
|
|
(90.1
|
)
|
Payment of dividends to noncontrolling interest
|
|
|
(1.5
|
)
|
|
|
(1.3
|
)
|
|
|
(0.9
|
)
|
Proceeds from exercise of stock options
|
|
|
2.4
|
|
|
|
24.8
|
|
|
|
21.9
|
|
Tax benefit on stock-based awards
|
|
|
8.4
|
|
|
|
15.6
|
|
|
|
8.2
|
|
Acquisition of common shares
|
|
|
(31.0
|
)
|
|
|
(75.6
|
)
|
|
|
(137.7
|
)
|
NET CASH USED IN FINANCING ACTIVITIES
|
|
|
(130.9
|
)
|
|
|
(161.7
|
)
|
|
|
(198.3
|
)
|
Effect of foreign currency exchange rate changes on cash and cash equivalents
|
|
|
(4.1
|
)
|
|
|
4.1
|
|
|
|
(1.3
|
)
|
Increase in cash and cash equivalents
|
|
|
95.7
|
|
|
|
75.4
|
|
|
|
48.9
|
|
Cash and cash equivalents, beginning of year
|
|
|
645.0
|
|
|
|
569.6
|
|
|
|
520.7
|
|
Cash and cash equivalents, end of year
|
|
$
|
740.7
|
|
|
$
|
645.0
|
|
|
$
|
569.6
|
|
See
notes to consolidated financial statements.
HUBBELL
INCORPORATED
-
Form
10-K
|
30
|
Consolidated Statement of Changes in Equity
|
|
For the Three Years Ended December 31, 2013, 2012 and 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total Hubbell
|
|
|
Non-
|
|
(In millions, except per
|
|
Common
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders’
|
|
|
controlling
|
|
share amounts)
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
interest
|
|
BALANCE AT DECEMBER 31, 2010
|
|
$
|
0.1
|
|
|
$
|
0.5
|
|
|
$
|
201.3
|
|
|
$
|
1,338.6
|
|
|
$
|
(81.3
|
)
|
|
$
|
1,459.2
|
|
|
$
|
4.3
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
267.9
|
|
|
|
|
|
|
|
267.9
|
|
|
|
2.3
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(69.1
|
)
|
|
|
(69.1
|
)
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
15.1
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
21.9
|
|
|
|
|
|
|
|
|
|
|
|
21.9
|
|
|
|
|
|
Income tax windfall from stock-based awards, net
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
8.1
|
|
|
|
|
|
Acquisition/surrender of common shares
|
|
|
|
|
|
|
|
|
|
|
(144.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(144.6
|
)
|
|
|
|
|
Cash dividends declared ($1.52 per Class
A & B shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(90.7
|
)
|
|
|
|
|
|
|
(90.7
|
)
|
|
|
|
|
Dividends to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.9
|
)
|
BALANCE AT DECEMBER 31, 2011
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
101.8
|
|
|
|
1,515.8
|
|
|
|
(150.4
|
)
|
|
|
1,467.8
|
|
|
|
5.7
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
299.7
|
|
|
|
|
|
|
|
299.7
|
|
|
|
2.4
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.3
|
|
|
|
31.3
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
15.4
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
24.8
|
|
|
|
|
|
|
|
|
|
|
|
24.8
|
|
|
|
|
|
Income tax windfall from stock-based awards, net
|
|
|
|
|
|
|
|
|
|
|
15.1
|
|
|
|
|
|
|
|
|
|
|
|
15.1
|
|
|
|
|
|
Acquisition/surrender of common shares
|
|
|
|
|
|
|
|
|
|
|
(93.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(93.1
|
)
|
|
|
|
|
Cash dividends declared ($1.68 per Class
A & B shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99.8
|
)
|
|
|
|
|
|
|
(99.8
|
)
|
|
|
|
|
Dividends to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
BALANCE AT DECEMBER 31, 2012
|
|
|
0.1
|
|
|
|
0.5
|
|
|
|
64.0
|
|
|
|
1,715.7
|
|
|
|
(119.1
|
)
|
|
|
1,661.2
|
|
|
|
6.7
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326.5
|
|
|
|
|
|
|
|
326.5
|
|
|
|
3.3
|
|
Other comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48.1
|
|
|
|
48.1
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
13.5
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
|
|
Income tax windfall from stock-based awards, net
|
|
|
|
|
|
|
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
8.4
|
|
|
|
|
|
Acquisition/surrender of common shares
|
|
|
|
|
|
|
|
|
|
|
(44.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(44.1
|
)
|
|
|
|
|
Cash
dividends declared ($1.85 per Class A & B shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109.6
|
)
|
|
|
|
|
|
|
(109.6
|
)
|
|
|
|
|
Dividends to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.6
|
)
|
BALANCE AT DECEMBER 31, 2013
|
|
$
|
0.1
|
|
|
$
|
0.5
|
|
|
$
|
44.2
|
|
|
$
|
1,932.6
|
|
|
$
|
(71.0
|
)
|
|
$
|
1,906.4
|
|
|
$
|
8.4
|
|
See notes to consolidated
financial statements.
HUBBELL
INCORPORATED
-
Form
10-K
|
31
|
Notes to Consolidated Financial Statements
NOTE 1
|
Significant Accounting Policies
|
Basis of Presentation
The accompanying consolidated financial statements of the Company
have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Reclassifications
Certain reclassifications have been made in prior year financial
statements and notes to conform to the current year presentation.
Principles of Consolidation
The Consolidated Financial Statements include all wholly owned
subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company participates in two joint
ventures, one of which is accounted for using the equity method, the other has been consolidated in accordance with the consolidation
accounting guidance. An analysis is performed to determine which reporting entity, if any, has a controlling financial interest
in a variable interest entity (“VIE”) with a primarily qualitative analysis. The qualitative analysis is based on identifying
the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance
(the “power criterion”) and the obligation to absorb losses from or the right to receive benefits of the VIE that could
potentially be significant to the VIE (the “losses/benefit criterion”). The party that meets both these criteria is
deemed to have a controlling financial interest. The party with the controlling financial interest is considered to be the primary
beneficiary and as a result is required to consolidate the VIE. The Company has a 50% interest in a joint venture in Hong Kong,
established as Hubbell Asia Limited (“HAL”). The principal objective of HAL is to manage the operations of its wholly-owned
manufacturing company in China. Under the accounting guidance, the Company is the primary beneficiary of HAL and as a result consolidates
HAL. This determination is based on the fact that HAL’s sole business purpose is to manufacture product exclusively for the
Company (the power criterion) and the Company is financially responsible for ensuring HAL maintains a fixed operating margin (the
losses/benefit criterion). The consolidation of HAL is not material to the Company’s consolidated financial statements.
Use of Estimates
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements
and accompanying Notes to Consolidated Financial Statements. Actual results could differ from the estimates that are used.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the price is fixed and determinable and collection is probable. Product is considered
delivered to the customer once it has been shipped and title and risk of loss have been transferred. The majority of the Company’s
revenue is recognized at the time of shipment. The Company recognizes less than one percent of total annual consolidated net revenue from post shipment obligations and service
contracts, primarily within the Electrical segment. Revenue is recognized under these contracts when the service is completed and
all conditions of sale have been met. In addition, within the Electrical segment, certain businesses sell large and complex equipment
which requires construction and assembly and occasionally has long lead times. It is customary in these businesses to require a
portion of the selling price to be paid in advance of construction. These payments are treated as deferred revenue and are classified
in Other accrued liabilities in the Consolidated Balance Sheet. Once the equipment is shipped to the customer and meets the revenue
recognition criteria, the deferred revenue is recognized in the Consolidated Statement of Income.
Further, certain of our businesses account for sales discounts
and allowances based on sales volumes, specific programs and customer deductions, as is customary in the electrical products industry.
These items primarily relate to sales volume incentives, special pricing allowances, and returned goods. Sales volume incentives
represent rebates with specific sales volume targets for specific customers. Certain distributors qualify for price rebates by
subsequently reselling the Company’s products into select channels of end users. Following a distributor’s sale of
an eligible product, the distributor submits a claim for a price rebate. Customers also have a right to return goods under certain
circumstances which are reasonably estimable by affected businesses. Customer returns have historically ranged from 1%-3% of gross
sales.
These arrangements require us to estimate at the time of sale
the amounts that should not be recorded as revenue as these amounts are not expected to be collected from customers. The Company
principally relies on historical experience, specific customer agreements and anticipated future trends to estimate these amounts
at the time of shipment.
Shipping and Handling Fees and Costs
The Company records shipping and handling costs as part of Cost
of goods sold in the Consolidated Statement of Income. Any amounts billed to customers for reimbursement of shipping and handling
are included in Net sales in the Consolidated Statement of Income.
Foreign Currency Translation
The assets and liabilities of international subsidiaries are translated
to U.S. dollars at exchange rates in effect at the end of the year, and income and expense items are translated at average
exchange rates in effect during the year. The effects of exchange rate fluctuations on the translated amounts of foreign currency
assets and liabilities are included as translation adjustments in Accumulated other comprehensive loss within Hubbell shareholders’
equity. Gains and losses from foreign currency transactions are included in results of operations.
Cash and Cash Equivalents
The carrying value of cash equivalents approximates fair value.
Cash equivalents consist of highly liquid investments with original maturities of three months or less.
HUBBELL INCORPORATED
-
Form
10-K
|
32
|
Investments
Investments in debt and equity securities are classified by individual
security as available-for-sale, held-to-maturity or trading investments. Our available-for-sale investments, consisting of municipal
bonds, are carried on the balance sheet at fair value with current period adjustments to carrying value recorded in Accumulated
other comprehensive loss within Hubbell shareholders’ equity, net of tax. Realized gains and losses are recorded in income
in the period of sale. The Company’s trading investments are carried on the balance sheet at fair value and consist primarily
of debt and equity mutual funds. Gains and losses associated with these trading investments are reflected in the results of operations.
The Company did not have any investments classified as held-to-maturity as of December 31, 2013 and 2012.
Accounts Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount
and generally do not bear interest. The allowance for doubtful accounts is based on an estimated amount of probable credit losses
in existing accounts receivable. The allowance is calculated based upon a combination of historical write-off experience, fixed
percentages applied to aging categories and specific identification based upon a review of past due balances and problem accounts.
Account balances are charged off against the allowance when it is determined that internal collection efforts should no longer
be pursued. The Company also maintains a reserve for credit memos, cash discounts and product returns which are principally calculated
based upon historical experience, specific customer agreements, as well as anticipated future trends.
Inventories
Inventories are stated at the lower of cost or market value. The
cost of substantially all domestic inventories (approximately 85% of total net inventory value) is determined utilizing the last-in,
first-out (LIFO) method of inventory accounting. The cost of foreign inventories and certain domestic inventories is determined
utilizing average cost or first-in, first-out (FIFO) methods of inventory accounting. Reserves for excess and obsolete inventory
are provided based on current assessments about future demand compared to on-hand quantities.
Property, Plant, and Equipment
Property, plant and equipment values are stated at cost less accumulated
depreciation. Maintenance and repair expenditures that do not significantly increase the life of an asset are charged to expense
when incurred. Property, plant and equipment placed in service prior to January 1, 1999 are depreciated over their estimated
useful lives, principally using accelerated methods. Assets placed in service subsequent to January 1, 1999 are depreciated
over their estimated useful lives, using straight-line methods. Leasehold improvements are amortized over the shorter of their
economic lives or the lease term. Gains and losses arising on the disposal of property, plant and equipment are included in Operating
income in the Consolidated Statement of Income.
Capitalized Computer Software Costs
Capitalized computer software costs, net of amortization, were
$10.9 million and $8.7 million at December 31, 2013 and 2012, respectively. This balance is reflected in Other long-term assets
in the Consolidated Balance Sheet. Capitalized computer software costs primarily consist of purchased materials and services. Software
is amortized on a straight-line basis over appropriate periods, generally five years. The Company recorded amortization expense
of $4.3 million, $3.5 million and $4.8 million in 2013, 2012 and 2011, respectively, relating to capitalized computer software.
Goodwill and Other Intangible Assets
Goodwill represents costs in excess of fair values assigned to
the underlying net assets of acquired companies. Indefinite-lived intangible assets and goodwill are subject to annual impairment
testing using the specific guidance and criteria described in the accounting guidance. The Company performs its goodwill impairment
testing as of April 1
st
of each year, unless circumstances dictate the need for more frequent assessments. The Company
has elected to utilize the two step goodwill impairment testing process as prescribed in the accounting guidance. Step 1 compares
the fair value of the Company’s reporting units to their carrying values. If the fair value of the reporting unit exceeds
its carrying value, no further analysis is necessary. If the carrying value of the reporting unit exceeds its fair value, Step
2 must be completed to quantify the amount of impairment.
Goodwill impairment testing requires judgment, including the identification
of reporting units, assigning assets and liabilities to reporting units and determining the fair value of each reporting unit.
Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining
appropriate discount rates and other assumptions. The Company uses internal discounted cash flow estimates to determine fair value.
These cash flow estimates are derived from historical experience and future long-term business plans and the application of an
appropriate discount rate. Changes in these estimates and assumptions could materially affect the determination of fair value and/or
goodwill impairment for each reporting unit. The Company’s estimated aggregate fair value of its reporting units are reasonable
when compared to the Company’s market capitalization on the valuation date.
As of April 1, 2013, the impairment testing resulted in implied
fair values for each reporting unit that exceeded the reporting unit’s carrying value, including goodwill. The Company did
not have any reporting units at risk of failing Step 1 of the impairment test as the excess of the estimated fair value over carrying
value (expressed as a percentage of carrying value) ranged from approximately 100% to approximately 400% for the respective reporting
units. Additionally, the Company did not have any reporting units with zero or negative carrying amounts. The Company has not recorded
any goodwill impairments since the initial adoption of the accounting guidance in 2002.
The Company’s intangible assets consist primarily of patents,
tradenames and customer relationships. Intangible assets with definite lives are being amortized over periods generally ranging
from 5-30 years. These definite lived intangibles are tested for impairment whenever events or circumstances indicate that the
carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount of
an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The Company did not record
any impairments related to its definite lived intangible assets in 2013, 2012 or 2011. The Company also has some tradenames that
are considered to be indefinite-lived intangible assets. These indefinite-lived are not amortized and are tested for impairment
annually, unless circumstances dictate the need for more frequent assessment.
In 2012, the accounting guidance related to testing indefinite
lived intangible assets, other than goodwill, for impairment was amended. The amendment provides entities an option of performing
a qualitative assessment before calculating the fair value of the asset. If the entity determines, on the basis of certain qualitative
factors, that it is more-likely-than-not that the asset is not impaired, the entity would not need to calculate the fair value
of the asset. The Company elected to bypass the qualitative assessment and proceeded directly to the determination of fair value
of its indefinite lived intangibles which resulted in no impairment in 2013, 2012 or 2011.
Other Long-Lived Assets
The Company reviews depreciable long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If such a change in
circumstances occurs,
HUBBELL
INCORPORATED
-
Form
10-K
|
33
|
the related estimated future undiscounted cash flows expected
to result from the use of the asset group and its eventual disposition is compared to the carrying amount. If the sum of the expected
cash flows is less than the carrying amount, an impairment charge is recorded. The impairment charge is measured as the amount
by which the carrying amount exceeds the fair value of the asset. The fair value of impaired assets is determined using expected
cash flow estimates, quoted market prices when available and appraisals as appropriate. The Company did not record any material
impairment charges in 2013, 2012 or 2011.
Accrued Insurance
The Company retains a significant portion of the risks associated
with workers’ compensation, medical, automobile and general liability insurance. The Company estimates self-insurance liabilities
using a number of factors, including historical claims experience, demographic factors, severity factors and other actuarial assumptions.
The accrued liabilities associated with these programs are based on the Company’s estimate of the ultimate costs to settle
known claims as well as claims incurred but not reported as of the balance sheet date. The Company periodically reviews the assumptions
with a third party actuary to determine the adequacy of these self-insurance reserves.
Income Taxes
The Company operates within multiple taxing jurisdictions and
is subject to audit in these jurisdictions. The IRS and other tax authorities routinely review the Company’s tax returns.
These audits can involve complex issues which may require an extended period of time to resolve. The Company makes adequate provisions
for best estimates of exposures on previously filed tax returns. Deferred income taxes are recognized for the tax consequence of
differences between financial statement carrying amounts and the tax basis of assets and liabilities by applying the currently
enacted statutory tax rates in accordance with the accounting guidance for income taxes. The effect of a change in statutory tax
rates is recognized in the period that includes the enactment date. Additionally, deferred tax assets are required to be reduced
by a valuation allowance if it is more-likely-than-not that some portion or all of the deferred tax asset will not be realized.
The Company uses factors to assess the likelihood of realization of deferred tax assets such as the forecast of future taxable
income and available tax planning strategies that could be implemented to realize the deferred tax assets.
In addition, the accounting guidance prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of the tax position taken or expected
to be taken in a tax return. For any amount of benefit to be recognized, it must be determined that it is more-likely-than-not
that a tax position will be sustained upon examination by taxing authorities based on the technical merits of the position. The
amount of benefit to be recognized is based on the Company’s assertion of the most likely outcome resulting from an examination,
including resolution of any related appeals or litigation processes. Companies are required to adjust their financial statements
to reflect only those tax positions that are more-likely-than-not to be sustained. See also Note 12 — Income Taxes.
Research and Development
Research and development expenditures represent costs to discover
and/or apply new knowledge in developing a new product, process, or in bringing about a significant improvement to an existing
product or process. Research and development expenses are recorded as a component of Cost of goods sold. Expenses for research
and development were approximately 2% of Cost of goods sold for each of the years 2013, 2012 and 2011.
Retirement Benefits
The Company maintains various defined benefit pension plans for
some of its U.S. and foreign employees. The accounting guidance for retirement benefits requires the Company to recognize
the funded status of its defined benefit pension and postretirement plans as an asset or liability in the Consolidated Balance Sheet. Gains or losses, prior service costs or credits,
and transition assets or obligations that have not yet been included in net periodic benefit cost as of the end of the year are
recognized as components of Accumulated other comprehensive loss, net of tax, within Hubbell shareholders’ equity. The Company’s
policy is to fund pension costs within the ranges prescribed by applicable regulations. In addition to providing defined benefit
pension benefits, the Company provides health care and life insurance benefits for some of its active and retired employees. The
Company’s policy is to fund these benefits through insurance premiums or as actual expenditures are made. See also Note 10
— Retirement Benefits.
Earnings Per Share
The earnings per share accounting guidance requires use of the
two-class method in determining earnings per share. The two-class method is an earnings allocation formula that determines earnings
per share for common stock and participating securities. Restricted stock granted by the Company is considered a participating
security since it contains a non-forfeitable right to dividends. Basic earnings per share is calculated as net income available
to common shareholders divided by the weighted average number of shares of common stock outstanding. Earnings per diluted share
is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding of common
stock plus the incremental shares outstanding assuming the exercise of dilutive stock options, stock appreciation rights and performance
shares. See also Note 18 — Earnings Per Share.
Stock-Based Compensation
The Company recognizes the grant-date fair
value of all stock-based awards on a straight-line basis over their respective requisite service periods (generally equal to an
award’s vesting period), except for performance-based restricted stock awards which are expensed using the graded vesting
attribution method. A stock-based award is considered vested for expense attribution purposes when the retention of the award
is no longer contingent on providing subsequent service. Accordingly, the Company recognizes compensation cost immediately for
awards granted to retirement-eligible individuals or over the period from the grant date to the date retirement eligibility is
achieved, if less than the stated vesting period. The expense is recorded in Cost of goods sold and S&A expense in the Consolidated
Statement of Income based on the recipients’ respective functions within the organization.
The Company records deferred tax assets for awards that will result
in deductions on its tax returns, based upon the amount of compensation cost recognized and the statutory tax rate in the jurisdiction
in which it will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and
the actual tax deduction reported in the Company’s tax return are recorded to Additional paid-in capital to the extent that
previously recognized credits to paid-in capital are still available. See also Note 17 — Stock-Based Compensation.
Derivatives
In order to limit financial risk in the management of its assets,
liabilities and debt, the Company may use derivative financial instruments such as foreign currency hedges, commodity hedges, interest
rate hedges and interest rate swaps. All derivative financial instruments are matched with an existing Company asset, liability
or proposed transaction. The Company does not speculate or use leverage when trading a derivative product. Market value gains or
losses on the derivative financial instrument are recognized in income when the effects of the related price changes of the underlying
asset or liability are recognized in income. See Note 14 – Fair Value Measurement for more information regarding our derivative
instruments.
Recent Accounting Pronouncements
In February 2013, the FASB amended the disclosure requirements
regarding the reporting of amounts reclassified out of accumulated other comprehensive income. The amendment does not change the
current
HUBBELL INCORPORATED
-
Form
10-K
|
34
|
requirement for reporting net income or other comprehensive income,
but requires additional disclosures about significant amounts reclassified out of accumulated other comprehensive income including
the effect of the reclassification on the related net income line items. This amendment was adopted prospectively by the Company
effective January 1, 2013. See also Note 19 — Accumulated Other Comprehensive Loss.
In March 2013, the FASB amended guidance
related to a parent company’s accounting for the release of the cumulative translation adjustment into net income upon derecognition
of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This guidance is
effective for fiscal periods beginning after December 15, 2013, and is to be applied prospectively to derecognition events
occurring after the effective date. The adoption of this amendment did not have a material impact on the Company’s
financial statements.
In July 2013, the FASB amended its guidance on the financial statement
presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or a tax credit carryforward
exists. This guidance is effective for fiscal periods beginning after December 15, 2013, and is to be applied prospectively to
all unrecognized tax benefits that exist at the effective date. Retrospective and early adoption are also permitted. The Company
does not anticipate the adoption of this amendment will have a material impact on its financial statements.
NOTE 2
|
Business Acquisitions
|
The Company periodically reviews acquisition targets that it believes
will be a complementary strategic fit to its existing product portfolio. During 2013, the Company completed three acquisitions
totaling $96.5 million, net of cash acquired which were added to the Electrical segment.
During the third quarter of 2013, the Company purchased all of
the membership interests of Carmen Matthew, LLC (d/b/a “Norlux”), which specializes in the design and manufacture of
custom LED solutions. Norlux was purchased for $14.9 million and has been added to the Electrical segment, resulting in the recognition
of intangible assets of $4.3 million and goodwill of $8.1 million. The $4.3 million of intangible assets consists primarily
of customer relationships and tradenames that will be amortized over a weighted average period of approximately 15 years.
All of the goodwill associated with the Norlux acquisition is expected to be deductible for tax purposes.
During the second quarter of 2013, the Company purchased all of
the outstanding common stock of Connector Manufacturing Company and Canadian Connector Corporation, collectively referred to as
“CMC”, for $44.2 million, net of cash acquired. CMC manufactures and sells mechanical connectors and pole line hardware.
This acquisition has been added to the Electrical segment and has resulted in the recognition of intangible assets of $6.0 million
and goodwill of $22.2 million. The $6.0 million of intangible assets consists of tradenames and customer relationships that will
be amortized over a weighted average period of approximately 19 years. None of the goodwill associated with the CMC acquisition
is expected to be deductible for tax purposes.
During the first quarter of 2013, the Company completed the acquisition
of the majority of the net assets of Continental Industries, Inc. (“Continental”) for $37.4 million. Continental produces
high quality exothermic welding and connector products. This acquisition has been added to the Electrical segment and has resulted in the recognition of intangible assets
of $11.0 million and goodwill of $19.3 million. The $11.0 million of intangible assets consists primarily of customer relationships
and tradenames that will be amortized over a weighted average period of approximately 20 years. All of the goodwill associated
with the Continental acquisition is expected to be deductible for tax purposes.
All of these business acquisitions have been accounted for as
business combinations and have resulted in the recognition of goodwill. The goodwill relates to a number of factors built into
the purchase price, including the future earnings and cash flow potential of the businesses as well as the complementary strategic
fit and resulting synergies they bring to the Company’s existing operations.
The following table summarizes the preliminary estimated fair
values of the assets acquired and liabilities assumed at the date of acquisition related to these transactions:
Tangible assets acquired
|
|
$
|
37.4
|
|
Intangible assets
|
|
|
21.3
|
|
Goodwill
|
|
|
49.6
|
|
Liabilities assumed
|
|
|
(11.8
|
)
|
TOTAL CASH CONSIDERATION
|
|
$
|
96.5
|
|
The Consolidated Financial Statements include the results of operations
of the acquired businesses from their respective dates of acquisition. Net sales and earnings related to these acquisitions for
the year ended December 31, 2013 were not significant to the consolidated results. Pro forma information related to these acquisitions
has not been included because the impact to the Company’s consolidated results of operations was not material.
NOTE 3
|
Receivables and Allowances
|
Receivables consist of the following components at December 31,
(in millions):
|
|
2013
|
|
|
2012
|
|
Trade accounts receivable
|
|
$
|
461.1
|
|
|
$
|
421.2
|
|
Non-trade receivables
|
|
|
13.5
|
|
|
|
10.2
|
|
Accounts receivable, gross
|
|
|
474.6
|
|
|
|
431.4
|
|
Allowance for credit memos, returns, and cash discounts
|
|
|
(31.6
|
)
|
|
|
(23.0
|
)
|
Allowance for doubtful accounts
|
|
|
(2.1
|
)
|
|
|
(3.2
|
)
|
Total allowances
|
|
|
(33.7
|
)
|
|
|
(26.2
|
)
|
ACCOUNTS RECEIVABLE, NET
|
|
$
|
440.9
|
|
|
$
|
405.2
|
|
HUBBELL INCORPORATED
-
Form
10-K
|
35
|
Inventories are classified as follows at December 31, (in millions):
|
|
|
2013
|
|
|
|
2012
|
|
Raw material
|
|
$
|
122.3
|
|
|
$
|
118.4
|
|
Work-in-process
|
|
|
87.2
|
|
|
|
81.8
|
|
Finished goods
|
|
|
259.4
|
|
|
|
226.5
|
|
|
|
|
468.9
|
|
|
|
426.7
|
|
Excess of FIFO over LIFO cost basis
|
|
|
(83.2
|
)
|
|
|
(85.0
|
)
|
INVENTORIES, NET
|
|
$
|
385.7
|
|
|
$
|
341.7
|
|
NOTE 5
|
Goodwill and Other Intangible Assets
|
Changes in the carrying amounts of goodwill for the years ended
December 31, 2013 and 2012, by segment, were as follows (in millions):
|
|
Segment
|
|
|
|
|
|
|
|
Electrical
|
|
|
|
Power
|
|
|
|
Total
|
|
BALANCE DECEMBER 31, 2011
|
|
$
|
453.0
|
|
|
$
|
274.3
|
|
|
$
|
727.3
|
|
Acquisitions
|
|
|
18.6
|
|
|
|
7.7
|
|
|
|
26.3
|
|
Translation adjustments
|
|
|
3.0
|
|
|
|
(1.1
|
)
|
|
|
1.9
|
|
BALANCE DECEMBER 31, 2012
|
|
$
|
474.6
|
|
|
$
|
280.9
|
|
|
$
|
755.5
|
|
Acquisitions
|
|
|
49.6
|
|
|
|
-
|
|
|
|
49.6
|
|
Translation adjustments
|
|
|
(3.3
|
)
|
|
|
(1.4
|
)
|
|
|
(4.7
|
)
|
BALANCE DECEMBER 31, 2013
|
|
$
|
520.9
|
|
|
$
|
279.5
|
|
|
$
|
800.4
|
|
In 2013, the Company completed the acquisitions of Norlux, CMC
and Continental within the Electrical segment for aggregate consideration of $96.5 million, net of cash received. These acquisitions
have been accounted for as business combinations and have resulted in the recognition of $49.6 million of goodwill. See also
Note 2 -Business Acquisitions.
The Company has not recorded any goodwill impairments since the
initial adoption of the accounting guidance in 2002.
Identifiable intangible assets are recorded in Intangible assets
and other in the Consolidated Balance Sheet. Identifiable intangible assets are comprised of the following (in millions):
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
|
|
Gross Amount
|
|
|
Accumulated
Amortization
|
|
|
Gross Amount
|
|
|
Accumulated
Amortization
|
|
Definite-lived:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents, tradenames and trademarks
|
|
$
|
111.2
|
|
|
$
|
(27.7
|
)
|
|
$
|
102.8
|
|
|
$
|
(23.0
|
)
|
Customer/agent relationships and other
|
|
|
222.2
|
|
|
|
(75.0
|
)
|
|
|
212.7
|
|
|
|
(60.8
|
)
|
TOTAL DEFINITE-LIVED INTANGIBLES
|
|
|
333.4
|
|
|
|
(102.7
|
)
|
|
|
315.5
|
|
|
|
(83.8
|
)
|
Indefinite-lived:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradenames and other
|
|
|
55.9
|
|
|
|
-
|
|
|
|
56.4
|
|
|
|
-
|
|
TOTAL INTANGIBLE ASSETS
|
|
$
|
389.3
|
|
|
$
|
(102.7
|
)
|
|
$
|
371.9
|
|
|
$
|
(83.8
|
)
|
Amortization expense associated with these definite-lived intangible
assets was $19.9 million, $18.1 million and $16.6 million in 2013, 2012 and 2011, respectively. Amortization expense associated
with these intangible assets is expected to be $19.5 million in 2014, $17.6 million in 2015, $16.9 million in 2016, $15.7 million
in 2017 and $14 million in 2018.
HUBBELL INCORPORATED
-
Form
10-K
|
36
|
At December 31, 2013 and December 31, 2012, the Company had both
available-for-sale and trading investments. The available-for-sale investments consisted entirely of municipal bonds while the
trading investments were comprised primarily of debt and equity mutual funds. These investments are stated at fair market value
based on current quotes.
The following table sets forth selected data with respect to the
Company’s investments at December 31, (in millions):
|
|
2013
|
|
|
2012
|
|
|
|
Amortized
Cost
|
|
|
Gross Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
Carrying
Value
|
|
Available-For-Sale Investments
|
|
$
|
38.0
|
|
|
$
|
0.6
|
|
|
$
|
-
|
|
|
$
|
38.6
|
|
|
$
|
38.6
|
|
|
$
|
38.5
|
|
|
$
|
1.2
|
|
|
$
|
-
|
|
|
$
|
39.7
|
|
|
$
|
39.7
|
|
Trading Investments
|
|
|
5.4
|
|
|
|
1.9
|
|
|
|
-
|
|
|
|
7.3
|
|
|
|
7.3
|
|
|
|
4.7
|
|
|
|
1.1
|
|
|
|
-
|
|
|
|
5.8
|
|
|
|
5.8
|
|
TOTAL INVESTMENTS
|
|
$
|
43.4
|
|
|
$
|
2.5
|
|
|
$
|
-
|
|
|
$
|
45.9
|
|
|
$
|
45.9
|
|
|
$
|
43.2
|
|
|
$
|
2.3
|
|
|
$
|
-
|
|
|
$
|
45.5
|
|
|
$
|
45.5
|
|
Contractual maturities of available-for-sale investments at December
31, 2013 were as follows (in millions):
|
|
Amortized
Cost
|
|
|
Fair Value
|
|
Available-For-Sale Investments
|
|
|
|
|
|
|
|
|
Due within 1 year
|
|
$
|
10.0
|
|
|
$
|
10.1
|
|
After 1 year but within 5 years
|
|
|
18.4
|
|
|
|
18.9
|
|
After 5 years but within 10 years
|
|
|
9.6
|
|
|
|
9.6
|
|
Due after 10 years
|
|
|
-
|
|
|
|
-
|
|
TOTAL
|
|
$
|
38.0
|
|
|
$
|
38.6
|
|
At December 31, 2013 and 2012, the total net of tax unrealized
gains recorded relating to available-for-sale securities were $0.4 and $0.7 million, respectively. These net unrealized gains have
been included in Accumulated other comprehensive loss, net of tax. Net unrealized gains relating to trading investments have been
reflected in the results of operations. The cost basis used in computing the gain or loss on these securities was through specific
identification. Gains and losses for both available-for-sale and trading securities were not material in 2013, 2012 and 2011.
NOTE 7
|
Property, Plant, and Equipment
|
Property, plant, and equipment, carried at cost, is summarized
as follows at December 31, (in millions):
|
|
2013
|
|
|
2012
|
|
Land
|
|
$
|
44.4
|
|
|
$
|
43.2
|
|
Buildings and improvements
|
|
|
243.6
|
|
|
|
234.8
|
|
Machinery, tools, and equipment
|
|
|
692.8
|
|
|
|
669.9
|
|
Construction-in-progress
|
|
|
24.1
|
|
|
|
24.5
|
|
Gross property, plant, and equipment
|
|
|
1,004.9
|
|
|
|
972.4
|
|
Less accumulated depreciation
|
|
|
(627.8
|
)
|
|
|
(607.7
|
)
|
NET PROPERTY, PLANT, AND EQUIPMENT
|
|
$
|
377.1
|
|
|
$
|
364.7
|
|
Depreciable lives on buildings range between 20-40 years.
Depreciable lives on machinery, tools, and equipment range between 3-20 years. The Company recorded depreciation expense of
$45.3 million, $44.1 million and $45.8 million for 2013, 2012 and 2011, respectively.
HUBBELL INCORPORATED
-
Form
10-K
|
37
|
NOTE 8
|
Other Accrued Liabilities
|
Other accrued liabilities consists of the following at December 31,
(in millions):
|
|
2013
|
|
|
2012
|
|
Customer program incentives
|
|
$
|
39.1
|
|
|
$
|
34.7
|
|
Accrued income taxes
|
|
|
11.8
|
|
|
|
14.1
|
|
Deferred revenue
|
|
|
15.8
|
|
|
|
16.4
|
|
Other
|
|
|
57.6
|
|
|
|
54.1
|
|
TOTAL
|
|
$
|
124.3
|
|
|
$
|
119.3
|
|
NOTE 9
|
Other Non-Current Liabilities
|
Other non-current liabilities consists of the following at December 31,
(in millions):
|
|
2013
|
|
|
2012
|
|
Pensions
|
|
$
|
78.9
|
|
|
$
|
154.3
|
|
Other postretirement benefits
|
|
|
25.6
|
|
|
|
27.8
|
|
Deferred tax liabilities
|
|
|
66.7
|
|
|
|
16.9
|
|
Other
|
|
|
37.0
|
|
|
|
36.0
|
|
TOTAL
|
|
$
|
208.2
|
|
|
$
|
235.0
|
|
HUBBELL INCORPORATED
-
Form
10-K
|
38
|
NOTE 10
|
Retirement
Benefits
|
The Company has funded and unfunded non-contributory
U.S. and foreign defined benefit pension plans. Benefits under these plans are generally provided based on either years of
service and final average pay or a specified dollar amount per year of service. The US defined benefit pension plan has been closed
to new participants since 2004, while the Canadian and UK defined benefit pension plans have been closed to new entrants since
2006 and 2007, respectively. These US, Canadian and UK employees are eligible instead for defined contribution plans.
The Company also has a number of health care
and life insurance benefit plans covering eligible employees who reached retirement age while working for the Company. These benefits
have been discontinued for substantially all future retirees. The Company anticipates future cost-sharing changes for its discontinued
plans that are consistent with past practices.
The Company uses a December 31 measurement
date for all of its plans. There were no amendments made in 2013 or 2012 to the defined benefit pension plans which had a significant
impact on the total pension benefit obligation.
The following table sets forth the reconciliation
of beginning and ending balances of the benefit obligations and the plan assets for the Company’s defined benefit pension
and other benefit plans at December 31, (in millions):
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
Change in benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning
of year
|
|
$
|
879.5
|
|
|
$
|
832.4
|
|
|
$
|
30.4
|
|
|
$
|
33.7
|
|
Service cost
|
|
|
16.7
|
|
|
|
16.0
|
|
|
|
-
|
|
|
|
-
|
|
Interest cost
|
|
|
36.5
|
|
|
|
36.5
|
|
|
|
1.1
|
|
|
|
1.3
|
|
Plan participants’ contributions
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
-
|
|
|
|
-
|
|
Amendments
|
|
|
0.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Actuarial loss (gain)
|
|
|
(69.2
|
)
|
|
|
24.2
|
|
|
|
(1.4
|
)
|
|
|
(2.4
|
)
|
Currency impact
|
|
|
0.3
|
|
|
|
3.9
|
|
|
|
-
|
|
|
|
-
|
|
Other
|
|
|
(0.5
|
)
|
|
|
(0.5
|
)
|
|
|
(0.1
|
)
|
|
|
-
|
|
Benefits paid
|
|
|
(36.2
|
)
|
|
|
(33.7
|
)
|
|
|
(1.9
|
)
|
|
|
(2.2
|
)
|
Benefit obligation at end of year
|
|
$
|
828.2
|
|
|
$
|
879.5
|
|
|
$
|
28.1
|
|
|
$
|
30.4
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of
year
|
|
$
|
726.3
|
|
|
$
|
647.6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Actual return on plan assets
|
|
|
64.8
|
|
|
|
82.8
|
|
|
|
-
|
|
|
|
-
|
|
Employer contributions
|
|
|
8.0
|
|
|
|
25.1
|
|
|
|
-
|
|
|
|
-
|
|
Plan participants’ contributions
|
|
|
0.7
|
|
|
|
0.7
|
|
|
|
-
|
|
|
|
-
|
|
Currency impact
|
|
|
0.4
|
|
|
|
3.8
|
|
|
|
-
|
|
|
|
-
|
|
Benefits paid
|
|
|
(36.2
|
)
|
|
|
(33.7
|
)
|
|
|
-
|
|
|
|
-
|
|
Fair value of plan assets at end of year
|
|
$
|
764.0
|
|
|
$
|
726.3
|
|
|
$
|
-
|
|
|
$
|
-
|
|
FUNDED STATUS
|
|
$
|
(64.2
|
)
|
|
$
|
(153.2
|
)
|
|
$
|
(28.1
|
)
|
|
$
|
(30.4
|
)
|
Amounts recognized in the
consolidated balance sheet consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid pensions (included in Other long-term
assets)
|
|
$
|
18.7
|
|
|
$
|
5.6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Accrued benefit liability (short-term and
long-term)
|
|
|
(82.9
|
)
|
|
|
(158.8
|
)
|
|
|
(28.1
|
)
|
|
|
(30.4
|
)
|
NET
AMOUNT RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET
|
|
$
|
(64.2
|
)
|
|
$
|
(153.2
|
)
|
|
$
|
(28.1
|
)
|
|
$
|
(30.4
|
)
|
Amounts
recognized in Accumulated other comprehensive loss (income) consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
107.2
|
|
|
$
|
208.9
|
|
|
$
|
(0.9
|
)
|
|
$
|
0.4
|
|
Prior service cost (credit)
|
|
|
1.0
|
|
|
|
0.8
|
|
|
|
(6.2
|
)
|
|
|
(7.1
|
)
|
NET AMOUNT RECOGNIZED IN
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
$
|
108.2
|
|
|
$
|
209.7
|
|
|
$
|
(7.1
|
)
|
|
$
|
(6.7
|
)
|
HUBBELL INCORPORATED
-
Form
10-K
|
39
|
The accumulated benefit obligation for
all defined benefit pension plans was $771.9 million and $824.1 million at December 31, 2013 and 2012,
respectively. Information with respect to plans with accumulated benefit obligations in excess of plan assets is as follows,
(in millions):
|
|
2013
|
|
|
2012
|
|
Projected benefit obligation
|
|
$
|
77.2
|
|
|
$
|
765.9
|
|
Accumulated benefit obligation
|
|
$
|
74.5
|
|
|
$
|
725.0
|
|
Fair value of plan assets
|
|
$
|
-
|
|
|
$
|
607.1
|
|
As of December 31, 2013, all of the Company’s
qualified defined benefit plans had assets in excess of the accumulated benefit obligation. As of December 31, 2012, half of these
qualified defined benefit plans were underfunded on an accumulated benefit obligation basis.
The following table sets forth the components
of pension and other benefit costs for the years ended December 31, (in millions):
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
16.7
|
|
|
$
|
16.0
|
|
|
$
|
13.6
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest cost
|
|
|
36.5
|
|
|
|
36.5
|
|
|
|
38.1
|
|
|
|
1.1
|
|
|
|
1.3
|
|
|
|
1.6
|
|
Expected return on plan assets
|
|
|
(46.7
|
)
|
|
|
(39.9
|
)
|
|
|
(41.8
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of prior service cost/(credit)
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
0.2
|
|
|
|
(1.0
|
)
|
|
|
(1.0
|
)
|
|
|
(1.0
|
)
|
Amortization of actuarial losses
|
|
|
13.8
|
|
|
|
17.4
|
|
|
|
8.4
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
-
|
|
Curtailment and settlement losses (gains)
|
|
|
-
|
|
|
|
-
|
|
|
|
(0.1
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net periodic benefit cost
|
|
$
|
20.5
|
|
|
$
|
30.2
|
|
|
$
|
18.4
|
|
|
$
|
-
|
|
|
$
|
0.3
|
|
|
$
|
0.6
|
|
Changes recognized in other comprehensive loss (income), before tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year net actuarial (gain)/loss
|
|
$
|
(87.8
|
)
|
|
$
|
(19.1
|
)
|
|
$
|
99.8
|
|
|
$
|
(1.4
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
1.8
|
|
Current year prior service (cost)/credit
|
|
|
0.4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Amortization of prior service (cost)/credit
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
1.0
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Amortization of net actuarial loss
|
|
|
(13.8
|
)
|
|
|
(17.4
|
)
|
|
|
(8.4
|
)
|
|
|
0.1
|
|
|
|
-
|
|
|
|
-
|
|
Currency impact
|
|
|
(0.1
|
)
|
|
|
(0.2
|
)
|
|
|
0.1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other adjustments
|
|
|
-
|
|
|
|
0.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
0.3
|
|
|
|
-
|
|
Total recognized in other comprehensive (income) loss
|
|
|
(101.5
|
)
|
|
|
(36.6
|
)
|
|
|
91.3
|
|
|
|
(0.3
|
)
|
|
|
(1.2
|
)
|
|
|
2.8
|
|
TOTAL RECOGNIZED IN NET
PERIODIC PENSION COST AND OTHER COMPREHENSIVE LOSS (INCOME)
|
|
$
|
(81.0
|
)
|
|
$
|
(6.4
|
)
|
|
$
|
109.7
|
|
|
$
|
(0.3
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
3.4
|
|
Amortization expected to be recognized through income during 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service cost/(credit)
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.0
|
)
|
|
|
|
|
|
|
|
|
Amortization of net loss
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
TOTAL EXPECTED TO BE RECOGNIZED THROUGH INCOME DURING NEXT FISCAL YEAR
|
|
$
|
3.7
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
The Company also maintains six defined contribution
pension plans. The total cost of these plans was $11.2 million in 2013, $10.5 million in 2012 and $9.7 million in 2011, excluding
the employer match for the 401(k) plan. This cost is not included in the above net periodic benefit cost for the defined benefit
pension plans.
As of December 31, 2012, the Company
participated in four multiemployer defined benefit pension plans under the terms of collective-bargaining agreements that
cover its union represented employees. During 2013, the Company elected to withdraw from one of these multiemployer plans at
a cost of $0.5 million. As of December 31, 2013, one of the three multiemployer defined benefit pension plans in which the
Company participates is considered to be less than 65 percent funded. The Company’s total contributions to these plans
were $0.9 million in 2013 and $0.7 million in both 2012 and 2011. These contributions represent more than five percent of the
total contributions made to each of these plans during the past three years. After assessing future required contributions
and/or the potential liabilities associated with withdrawing from these plans, the Company has concluded that none of these
plans are significant.
HUBBELL INCORPORATED
-
Form
10-K
|
40
|
Assumptions
The following assumptions were used to determine
the projected benefit obligations at the measurement date and the net periodic benefit cost for the year:
|
|
Pension Benefits
|
|
|
Other Benefits
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Weighted-average assumptions used to determine benefit obligations at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.04
|
%
|
|
|
4.22
|
%
|
|
|
4.42
|
%
|
|
|
4.60
|
%
|
|
|
4.20
|
%
|
|
|
4.40
|
%
|
Rate of compensation increase
|
|
|
3.18
|
%
|
|
|
3.11
|
%
|
|
|
3.53
|
%
|
|
|
3.00
|
%
|
|
|
3.00
|
%
|
|
|
3.50
|
%
|
Weighted-average assumptions used to determine net periodic benefit cost for
years ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
4.22
|
%
|
|
|
4.42
|
%
|
|
|
5.38
|
%
|
|
|
4.20
|
%
|
|
|
4.40
|
%
|
|
|
5.40
|
%
|
Expected return on plan assets
|
|
|
6.70
|
%
|
|
|
6.50
|
%
|
|
|
7.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
3.11
|
%
|
|
|
3.53
|
%
|
|
|
3.56
|
%
|
|
|
3.00
|
%
|
|
|
3.50
|
%
|
|
|
3.50
|
%
|
At the end of each year, the Company determines
the appropriate expected return on assets for each plan based upon its strategic asset allocation (see discussion below). In making
this determination, the Company utilizes expected returns for each asset class based upon current market conditions and expected
risk premiums for each asset class.
The Company also determines the
discount rate to be used to calculate the present value of pension plan liabilities at the end of each year. The discount
rate for the Company’s U.S. and Canadian pension plans is determined by matching the expected cash flows associated
with its benefit obligations to a yield curve based on high quality, fixed income debt instruments with maturities that
closely match the expected funding period of its pension liabilities. This yield curve is derived using a bond matching
approach which incorporates a selection of bonds that align with the Company’s projected benefit obligations. As of
December 31, 2013, the Company used a discount rate of 5.1% for its U.S. pension plans compared to a discount rate of
4.2% used in 2012. For its Canadian pension plan, the Company used a discount rate of 4.75% compared to the 4.1% discount
rate used in 2012.
For its UK pension plan the discount rate
was derived using a yield curve fitted to the yields on AA bonds in the Barclays Capital Sterling Aggregate Corporate Index and
uses sample plan cash flow data as a proxy to plan specific liability cash flows. The derived discount rate is the single discount
rate equivalent to discounting these liability cash flows at the term-dependent spot rate of AA corporate bonds. This methodology
resulted in a December 31, 2013 discount rate for the UK pension plan of 4.6% as compared to a discount rate of 4.5% used in 2012.
The rate of compensation increase assumption
reflects the Company’s actual experience and best estimate of future increases.
The assumed health care cost trend rates
used to determine the projected postretirement benefit obligation are as follows:
|
|
Other Benefits
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Assumed health care cost trend rates at December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
Health care cost trend assumed for next year
|
|
|
8.5
|
%
|
|
|
8.8
|
%
|
|
|
9.0
|
%
|
Rate to which the cost trend is assumed to decline
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
|
|
5.0
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
|
2028
|
|
|
|
2028
|
|
|
|
2028
|
|
Assumed health care cost trend rates have
an effect on the amounts reported for the postretirement benefit plans. A one-percentage-point change in assumed health care cost
trend rates would have the following effects (in millions):
|
|
One Percentage
|
|
|
One Percentage
|
|
|
|
Point Increase
|
|
|
Point Decrease
|
|
Effect on total of service and interest cost
|
|
$
|
0.1
|
|
|
$
|
-
|
|
Effect on postretirement benefit obligation
|
|
$
|
1.3
|
|
|
$
|
(1.3
|
)
|
HUBBELL INCORPORATED
-
Form
10-K
|
41
|
Plan Assets
The Company’s combined targeted and
actual domestic and foreign pension plans weighted average asset allocation at December 31, 2013 and 2012 by asset category are
as follows:
|
|
Percentage of Plan Assets
|
|
|
Target
|
|
|
Actual
|
|
Asset Category
|
|
|
2014
|
|
|
|
2013
|
|
|
|
2012
|
|
Equity securities
|
|
|
28
|
%
|
|
|
40
|
%
|
|
|
40
|
%
|
Debt securities & Cash
|
|
|
60
|
%
|
|
|
43
|
%
|
|
|
43
|
%
|
Alternative Investments
|
|
|
12
|
%
|
|
|
17
|
%
|
|
|
17
|
%
|
TOTAL
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
At the end of each year, the Company
estimates the expected long-term rate of return on pension plan assets based on the strategic asset allocation for its plans.
In making this determination, the Company utilizes expected rates of return for each asset class based upon current market
conditions and expected risk premiums for each asset class. The Company has written investment policies and asset allocation
guidelines for its domestic and foreign pension plans. In establishing these policies, the Company has considered that its
various pension plans are a major retirement vehicle for most plan participants and has acted to discharge its fiduciary
responsibilities with regard to the plans solely in the interest of such participants and their beneficiaries. The goal
underlying the establishment of the investment policies is to provide that pension assets shall be invested in a prudent
manner and so that, together with the expected contributions to the plans, the funds will be sufficient to meet the
obligations of the plans as they become due. To achieve this result, the Company conducts a periodic strategic asset
allocation study to form a basis for the allocation of pension assets between various asset categories. Specific policy
benchmark percentages are assigned to each asset category with minimum and maximum ranges established for each. The assets
are then tactically managed within these ranges. Equity securities include investments in large-cap, mid-cap and small-cap
companies located inside and outside the United States. Fixed income securities include corporate bonds of companies from
diversified industries, mortgage-backed securities and US Treasuries. Derivative investments include futures contracts used
by the plan to adjust the level of its investments within an asset allocation category. All futures contracts are 100%
supported by cash or cash equivalent investments. At no time may derivatives be utilized to leverage the asset portfolio.
Equity securities include Company common
stock in the amounts of $35.0 million (5.3% of total domestic plan assets) and $27.6 million (4.4% of total domestic plan assets)
at December 31, 2013 and 2012, respectively.
The fair value of the Company’s pension
plan assets at December 31, 2013 and 2012, by asset category are as follows (in millions):
|
|
|
|
|
Quoted Prices in Active
|
|
|
Quoted Prices in Active
|
|
|
Significant
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Market for Similar Asset
|
|
|
Unobservable Inputs
|
|
Asset Category
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash and cash equivalents
|
|
$
|
26.3
|
|
|
$
|
26.3
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Large-cap
(a)
|
|
|
82.0
|
|
|
|
82.0
|
|
|
|
-
|
|
|
|
-
|
|
US Mid-cap and Small-cap Growth
(b)
|
|
|
42.1
|
|
|
|
42.1
|
|
|
|
-
|
|
|
|
-
|
|
International Large-cap
|
|
|
105.3
|
|
|
|
105.3
|
|
|
|
-
|
|
|
|
-
|
|
Emerging Markets
|
|
|
40.4
|
|
|
|
40.4
|
|
|
|
-
|
|
|
|
-
|
|
Fixed Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasuries
|
|
|
66.8
|
|
|
|
66.8
|
|
|
|
-
|
|
|
|
-
|
|
Corporate Bonds
(c)
|
|
|
119.4
|
|
|
|
119.4
|
|
|
|
-
|
|
|
|
-
|
|
Asset Backed Securities and Other
|
|
|
89.3
|
|
|
|
89.3
|
|
|
|
-
|
|
|
|
-
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity/Debt Futures
(d)
|
|
|
60.1
|
|
|
|
-
|
|
|
|
60.1
|
|
|
|
-
|
|
Alternative Investment Funds
(e)
|
|
|
132.3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
132.3
|
|
BALANCE AT DECEMBER 31, 2013
|
|
$
|
764.0
|
|
|
$
|
571.6
|
|
|
$
|
60.1
|
|
|
$
|
132.3
|
|
HUBBELL INCORPORATED
-
Form
10-K
|
42
|
|
|
|
|
|
Quoted Prices in Active
|
|
|
Quoted Prices in Active
|
|
|
Significant
|
|
|
|
|
|
|
Markets for Identical
|
|
|
Market for Similar Asset
|
|
|
Unobservable Inputs
|
|
Asset Category
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash and cash equivalents
|
|
$
|
45.9
|
|
|
$
|
45.9
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Large-cap
(a)
|
|
|
86.1
|
|
|
|
86.1
|
|
|
|
-
|
|
|
|
-
|
|
US Mid-cap and Small-cap Growth
(b)
|
|
|
31.7
|
|
|
|
31.7
|
|
|
|
-
|
|
|
|
-
|
|
International Large-cap
|
|
|
46.0
|
|
|
|
46.0
|
|
|
|
-
|
|
|
|
-
|
|
Emerging Markets
|
|
|
37.8
|
|
|
|
37.8
|
|
|
|
-
|
|
|
|
-
|
|
Fixed Income Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Treasuries
|
|
|
52.9
|
|
|
|
52.9
|
|
|
|
-
|
|
|
|
-
|
|
Corporate Bonds
(c)
|
|
|
113.9
|
|
|
|
113.9
|
|
|
|
-
|
|
|
|
-
|
|
Asset Backed Securities and Other
|
|
|
122.6
|
|
|
|
122.6
|
|
|
|
-
|
|
|
|
-
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity/Debt Futures
(d)
|
|
|
63.2
|
|
|
|
-
|
|
|
|
63.2
|
|
|
|
-
|
|
Alternative Investment Funds
(e)
|
|
|
126.2
|
|
|
|
-
|
|
|
|
-
|
|
|
|
126.2
|
|
BALANCE AT DECEMBER 31, 2012
|
|
$
|
726.3
|
|
|
$
|
536.9
|
|
|
$
|
63.2
|
|
|
$
|
126.2
|
|
(a)
|
Includes an actively managed
portfolio of large-cap US stocks.
|
|
|
(b)
|
Includes $35.0
million and $27.6 million of the Company’s common stock at December 31, 2013 and 2012, respectively, and an investment
in actively managed mid-cap and small-cap US stocks.
|
|
|
(c)
|
Includes primarily investment grade bonds
of US issuers from diverse industries.
|
|
|
(d)
|
Includes primarily large-cap US and foreign
equity futures as well as short positions in US Treasuries to adjust the duration of the portfolio.
|
|
|
(e)
|
Includes investments in hedge funds, including
fund of fund products.
|
The fair value of the Company’s alternative
investment funds measured using significant unobservable inputs (Level 3) at December 31, 2013, are as follows (in millions):
|
|
Alternative
|
|
|
|
Investment Funds
|
|
BALANCE AT DECEMBER 31, 2011
|
|
$
|
117.8
|
|
Actual return on plan assets:
|
|
|
|
|
Relating to assets still held at the reporting date
|
|
|
9.2
|
|
Relating to assets sold during the period
|
|
|
-
|
|
Purchases, sales and settlements, net
|
|
|
(0.8
|
)
|
Transfers in and/or out of Level 3
|
|
|
-
|
|
BALANCE AT DECEMBER 31, 2012
|
|
$
|
126.2
|
|
Actual return on plan assets:
|
|
|
|
|
Relating to assets still held at the reporting date
|
|
|
9.0
|
|
Relating to assets sold during the period
|
|
|
0.2
|
|
Purchases, sales and settlements, net
|
|
|
(3.1
|
)
|
Transfers in and/or out of Level 3
|
|
|
-
|
|
BALANCE AT DECEMBER 31, 2013
|
|
$
|
132.3
|
|
The alternative investments held by the Company’s
pension plans consist of fund of fund products. Funds of funds invest in a number of investment funds managed by a diversified
group of third-party investment managers who employ a variety of alternative investment strategies, including relative value, security
selection, distressed value, global macro, specialized credit and directional strategies. The objective of these funds is to achieve
the desired capital appreciation with lower volatility than either traditional equity or fixed income securities. The alternative
investments are valued using net asset values provided by the fund managers. The net asset values are determined based on the fair
values of the underlying investments in the funds.
The Company’s other postretirement
benefits are unfunded; therefore, no asset information is reported.
Contributions
Although not required under the Pension Protection
Act of 2006, the Company may make a voluntary contribution to its qualified domestic defined benefit pension plans in 2014. The
Company expects to contribute approximately $4.0 million to its foreign plans in 2014.
HUBBELL INCORPORATED
-
Form
10-K
|
43
|
Estimated Future Benefit Payments
The following domestic and foreign benefit
payments, which reflect future service, as appropriate, are expected to be paid as follows, (in millions):
|
|
|
Pension
|
|
|
|
|
|
|
|
|
Benefits
|
|
|
|
Other Benefits
|
|
2014
|
|
$
|
37.5
|
|
|
$
|
2.4
|
|
2015
|
|
$
|
39.7
|
|
|
$
|
2.4
|
|
2016
|
|
$
|
42.4
|
|
|
$
|
2.3
|
|
2017
|
|
$
|
44.4
|
|
|
$
|
2.2
|
|
2018
|
|
$
|
47.1
|
|
|
$
|
2.2
|
|
2019-2023
|
|
$
|
267.7
|
|
|
$
|
9.5
|
|
The following table sets forth the Company’s
long-term debt at December 31, (in millions):
|
|
Maturity
|
|
|
2013
|
|
|
2012
|
|
Senior notes at 5.95%, net of unamortized discount
|
|
|
2018
|
|
|
$
|
299.0
|
|
|
$
|
298.7
|
|
Senior notes at 3.625%, net of unamortized discount
|
|
|
2022
|
|
|
|
298.2
|
|
|
|
298.0
|
|
|
|
|
|
|
|
$
|
597.2
|
|
|
$
|
596.7
|
|
In November 2010, the Company completed a
public debt offering for $300 million of long-term, senior, unsecured notes maturing in November 2022 and bearing interest at a
fixed rate of 3.625%. Prior to the issuance of the 2022 Notes, the Company entered into a forward interest rate lock which resulted
in a $1.6 million loss. This amount was recorded in Accumulated other comprehensive loss, net of tax and is being amortized over
the life of the 2022 Notes.
In May 2008, the Company completed a public
offering of $300 million long-term senior, unsecured notes maturing in May 2018. The 2018 Notes bear interest at a fixed rate of
5.95%. Prior to the issuance of the 2018 Notes, the Company entered into a forward interest rate lock which resulted in a $1.2
million gain. This amount was recorded in Accumulated other comprehensive loss, net of tax, and is being amortized over the life
of the notes.
The 2018 Notes and the 2022 Notes are both
fixed rate indebtedness, are callable at any time with a make whole premium and are only subject to accelerated payment prior to
maturity in the event of a default under the indenture governing the 2018 Notes and 2022 Notes, as modified by the supplemental
indentures creating such series, or upon a change in control event as defined in such indenture. The Company was in compliance
with all of its covenants as of December 31, 2013.
During 2013 the Company entered into an uncommitted
credit facility for a 12.6 million Chinese Renminbi line of credit to support its operations in China. At December 31, 2013, 2.1
million Chinese Renminbi (equivalent to $0.3 million) was outstanding under this line of credit. There were no borrowings outstanding
at December 31, 2012 under this line of credit.
Other information related to short-term debt
at December 31, is summarized below:
|
|
2013
|
|
|
2012
|
|
Interest rate:
|
|
|
|
|
|
|
|
|
At year end
|
|
|
6.00
|
%
|
|
|
N/A
|
|
Paid during the year (weighted average)
|
|
|
5.20
|
%
|
|
|
18.45
|
%
|
As of December 31, 2013, the Company’s
$500 million revolving credit facility had not been drawn against. The credit facility, which serves as a backup to our commercial
paper program, was scheduled to expire in October 2016. In March 2013, the facility was amended to extend the maturity date to
March 2018. The interest rate applicable to borrowing under the credit agreement is generally either the prime rate or a surcharge
over LIBOR. The single financial covenant in the $500 million credit facility, which the Company is in compliance with, requires
that total debt not exceed 55% of total capitalization. Annual commitment fees to support availability under the credit facility
are not material.
The Company also maintains other lines of
credit that are primarily used to support the issuance of letters of credit. Interest rates and other terms of borrowing under
these lines of credit vary from country to country, depending on local market conditions. At December 31, 2013 and 2012 these lines
totaled $60.4 million and $55.4 million, respectively, of which $37.5 million and $36.6 million was unused. The annual commitment
fees associated with these lines of credit are not material.
Interest and fees paid related to total indebtedness
was $29.7 million, $29.8.million and $29.3 million in 2013, 2012, and 2011, respectively.
HUBBELL INCORPORATED
-
Form
10-K
|
44
|
The following table sets forth selected data with respect to the
Company’s income tax provisions for the years ended December 31, (in millions):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
360.8
|
|
|
$
|
330.2
|
|
|
$
|
282.5
|
|
International
|
|
|
113.0
|
|
|
|
111.6
|
|
|
|
107.3
|
|
TOTAL INCOME BEFORE INCOME TAXES
|
|
$
|
473.8
|
|
|
$
|
441.8
|
|
|
$
|
389.8
|
|
Provision for income taxes — current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
94.6
|
|
|
$
|
66.4
|
|
|
$
|
61.7
|
|
State
|
|
|
15.1
|
|
|
|
12.8
|
|
|
|
9.7
|
|
International
|
|
|
21.0
|
|
|
|
33.0
|
|
|
|
29.4
|
|
Total provision-current
|
|
|
130.7
|
|
|
|
112.2
|
|
|
|
100.8
|
|
Provision for income taxes — deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
14.4
|
|
|
$
|
25.6
|
|
|
$
|
23.3
|
|
State
|
|
|
0.1
|
|
|
|
1.8
|
|
|
|
(0.3
|
)
|
International
|
|
|
(1.2
|
)
|
|
|
0.1
|
|
|
|
(4.2
|
)
|
Total provision — deferred
|
|
|
13.3
|
|
|
|
27.5
|
|
|
|
18.8
|
|
TOTAL PROVISION FOR INCOME TAXES
|
|
$
|
144.0
|
|
|
$
|
139.7
|
|
|
$
|
119.6
|
|
Deferred tax assets and liabilities result from differences in
the basis of assets and liabilities for tax and financial statement purposes. The components of the deferred tax assets/(liabilities)
at December 31, were as follows (in millions):
|
|
2013
|
|
|
2012
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Inventory
|
|
$
|
4.7
|
|
|
$
|
8.3
|
|
Income tax credits
|
|
|
31.3
|
|
|
|
34.4
|
|
Accrued liabilities
|
|
|
19.0
|
|
|
|
17.7
|
|
Pension
|
|
|
23.4
|
|
|
|
50.8
|
|
Postretirement and post employment benefits
|
|
|
11.0
|
|
|
|
11.6
|
|
Stock-based compensation
|
|
|
10.1
|
|
|
|
9.9
|
|
Net operating loss carryforwards
|
|
|
53.1
|
|
|
|
64.3
|
|
Miscellaneous other
|
|
|
3.4
|
|
|
|
4.5
|
|
Gross deferred tax assets
|
|
|
156.0
|
|
|
|
201.5
|
|
Valuation allowance
|
|
|
(28.5
|
)
|
|
|
(26.1
|
)
|
Total deferred tax assets, net of valuation allowance
|
|
$
|
127.5
|
|
|
$
|
175.4
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Acquisition basis difference
|
|
|
(123.3
|
)
|
|
|
(120.5
|
)
|
Property, plant, and equipment
|
|
|
(40.4
|
)
|
|
|
(37.4
|
)
|
Total deferred tax liabilities
|
|
$
|
(163.7
|
)
|
|
$
|
(157.9
|
)
|
TOTAL NET DEFERRED TAX (LIABILITY) ASSET
|
|
$
|
(36.2
|
)
|
|
$
|
17.5
|
|
Deferred taxes are reflected in the Consolidated Balance Sheet as follows:
|
|
|
|
|
|
|
|
|
Current tax assets (included in Deferred taxes and other)
|
|
$
|
31.0
|
|
|
$
|
32.7
|
|
Non-current tax assets (included in Other long-term assets)
|
|
|
1.0
|
|
|
|
1.7
|
|
Current tax liabilities (included in Other accrued liabilities)
|
|
|
(1.5
|
)
|
|
|
-
|
|
Non-current tax liabilities (included in Other Non-current liabilities)
|
|
|
(66.7
|
)
|
|
|
(16.9
|
)
|
TOTAL NET DEFERRED TAX (LIABILITY) ASSET
|
|
$
|
(36.2
|
)
|
|
$
|
17.5
|
|
As of December 31, 2013, the Company
had a total of $31.3 million of Federal, State (net of Federal benefit) and foreign (fully valued) tax credit carryforwards,
available to offset future income taxes. As of December 31, 2013, $8.0 million of the tax credits may be carried forward
indefinitely while the remaining $23.3 million will begin to expire at various times in 2014 through 2029. As of December 31,
2013, the Company had recorded tax benefits totaling $53.1 million for Federal, State and foreign net operating loss
carryforwards (“NOLs”). As of December 31, 2013, $14.7 million of NOLs may be carried forward indefinitely
while the remaining $38.4 million will begin to expire at various times in 2016 through 2031. The tax benefit related to
a portion of these NOLs has been adjusted to reflect an “ownership change” pursuant to Internal Revenue Code
Section 382, which imposes an annual limitation on the utilization of pre-acquisition operating losses. The Company has
recorded a net valuation allowance of $28.5 million for the portion of the foreign tax and state tax credit carryforwards and
foreign NOLs that the Company anticipates will expire prior to utilization. The increase in the valuation allowance primarily
relates to current year losses which have resulted in additional NOLs in foreign jurisdictions. The income tax credits and
NOL carryforwards at December 31, 2012 have been revised to reflect the deferred balances and corresponding valuation
allowances that had previously been reported net, resulting in no change to the net deferred tax assets at December 31,
2012.
At December 31, 2013, income and withholding taxes have not been
provided on approximately $650 million of undistributed international earnings that are permanently reinvested in international
operations. If such earnings were not indefinitely reinvested, a tax liability of approximately $140 million would be recognized.
Cash payments of income taxes were $127.2 million, $113.2 million
and $80.1 million in 2013, 2012, and 2011, respectively.
HUBBELL INCORPORATED
-
Form
10-K
|
45
|
The Company operates within multiple taxing jurisdictions and
is subject to audit in these jurisdictions. The IRS and other tax authorities routinely audit the Company’s tax returns.
These audits can involve complex issues which may require an extended period of time to resolve. The IRS is currently conducting
an audit of the Company’s 2010 and 2011 federal income tax returns. We expect to conclude the 2010 and 2011 audit within
the next twelve months. With few exceptions, the Company is no longer subject to state, local, or non-U.S. income tax examinations
by tax authorities for years prior to 2006.
The following tax years, by major jurisdiction, are still subject
to examination by taxing authorities:
Jurisdiction
|
|
Open Years
|
United States
|
|
2010-2013
|
Canada
|
|
2010-2013
|
UK
|
|
2009-2013
|
A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows (in millions):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Unrecognized tax benefits at beginning of year
|
|
$
|
13.5
|
|
|
$
|
27.6
|
|
|
$
|
25.2
|
|
Additions based on tax positions relating to the current year
|
|
|
2.2
|
|
|
|
1.8
|
|
|
|
2.7
|
|
Reductions based on expiration of statute of limitations
|
|
|
(1.5
|
)
|
|
|
(9.6
|
)
|
|
|
(1.3
|
)
|
Additions to tax positions relating to previous years
|
|
|
2.1
|
|
|
|
0.8
|
|
|
|
1.2
|
|
Settlements
|
|
|
(1.5
|
)
|
|
|
(7.1
|
)
|
|
|
(0.2
|
)
|
TOTAL UNRECOGNIZED TAX BENEFITS
|
|
$
|
14.8
|
|
|
$
|
13.5
|
|
|
$
|
27.6
|
|
Included in the balance at December
31, 2013 are $10.0 million of tax positions which, if in the future are determined to be recognizable, would affect the
annual effective income tax rate. Additionally, there are $1.3 million of tax positions for which the ultimate deductibility
is highly certain but for which there is uncertainty as to the timing of such deductibility. Because of the impact of
deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not
affect the annual effective tax rate but would accelerate the payment of cash to the applicable taxing authority to an
earlier period. It is reasonably possible that in the next twelve months, because of changes in facts and circumstances, the
unrecognized tax benefits may decrease. The Company estimates that the possible decrease is up to $3.0 million. The Company
has classified the amount of unrecognized tax positions that are expected to settle within the next twelve months as a
current liability.
The Company’s policy is to record interest and penalties
associated with the underpayment of income taxes within Provision for income taxes in the Consolidated Statement of Income. The
Company recognized expense (benefit), before federal tax impact, related to interest and penalties of approximately $(0.2) million
in 2013, $(0.5) million in 2012 and $0.4 million 2011. The Company had $1.2 million and $1.4 million accrued for the payment
of interest and penalties as of December 31, 2013 and December 31, 2012, respectively.
The consolidated effective income tax rate varied from the United
States federal statutory income tax rate for the years ended December 31, as follows:
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Federal statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes, net of federal benefit
|
|
|
2.1
|
|
|
|
1.8
|
|
|
|
1.4
|
|
Foreign income taxes
|
|
|
(3.6
|
)
|
|
|
(3.4
|
)
|
|
|
(3.6
|
)
|
Other, net
|
|
|
(3.1
|
)
|
|
|
(1.8
|
)
|
|
|
(2.1
|
)
|
CONSOLIDATED EFFECTIVE INCOME TAX RATE
|
|
|
30.4
|
%
|
|
|
31.6
|
%
|
|
|
30.7
|
%
|
On January 2, 2013 the American Taxpayers Relief Act of 2012 (2012
Tax Act) was enacted. The benefits related the 2012 Tax Act are not reflected in the 2012 effective income tax rate calculation
above, as they were recorded in the first quarter of 2013, the period of enactment.
NOTE 13
|
Financial Instruments
|
Concentrations of Credit Risk: Financial instruments which potentially
subject the Company to significant concentrations of credit risk consist of trade receivables, cash equivalents and investments.
The Company grants credit terms in the normal course of business to its customers. Due to the diversity of its product lines, the
Company has an extensive customer base including electrical distributors and wholesalers, electric utilities, equipment manufacturers,
electrical contractors, telecommunication companies and retail and hardware outlets. No single customer accounted for more than
10% of total sales in any year during the three years ended December 31, 2013. However, the Company’s top ten customers
account for approximately one-third of its net sales. As part of its ongoing procedures, the Company monitors the credit worthiness
of its customers. Bad debt write-offs have historically been minimal. The Company places its cash and cash equivalents with financial
institutions and limits the amount of exposure in any one institution.
Fair Value: The carrying amounts reported in the Consolidated
Balance Sheet for cash and cash equivalents, short-term investments, receivables, bank borrowings, accounts payable and accruals
approximate their fair values given the immediate or short-term nature of these items. See also Note 6 — Investments and
Note 14 – Fair Value Measurement.
HUBBELL INCORPORATED
-
Form
10-K
|
46
|
NOTE 14
|
Fair Value Measurement
|
Fair value is defined as the amount that would be received for
selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value.
The three broad levels of the fair value hierarchy are as follows:
Level 1 –
|
Quoted prices (unadjusted) in active markets for identical assets or liabilities
|
|
|
Level 2 –
|
Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability,
either directly or indirectly
|
|
|
Level 3 –
|
Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions
|
The following table shows, by level within the fair value hierarchy,
the Company’s financial assets and liabilities that are accounted for at fair value on a recurring basis at December 31,
2013 and 2012 (in millions):
Asset (Liability)
|
|
Quoted Prices in Active Markets
|
|
|
Quoted Prices in Active Markets
|
|
|
|
|
December 31, 2013
|
|
for Identical Assets (Level 1)
|
|
|
for Similar Assets (Level 2)
|
|
|
Total
|
|
Money market funds
(a)
|
|
$
|
482.2
|
|
|
$
|
-
|
|
|
$
|
482.2
|
|
Available for sale investments
|
|
|
38.6
|
|
|
|
-
|
|
|
|
38.6
|
|
Trading securities
|
|
|
7.3
|
|
|
|
-
|
|
|
|
7.3
|
|
Deferred compensation plan liabilities
|
|
|
(7.3
|
)
|
|
|
-
|
|
|
|
(7.3
|
)
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
-
|
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
$
|
520.8
|
|
|
$
|
0.4
|
|
|
$
|
521.2
|
|
|
|
Quoted Prices in Active Markets
|
|
|
Quoted Prices in Active Markets
|
|
|
|
|
December 31, 2012
|
|
for Identical Assets (Level 1)
|
|
|
for Similar Assets (Level 2)
|
|
|
Total
|
|
Money market funds
(a)
|
|
$
|
423.6
|
|
|
$
|
-
|
|
|
$
|
423.6
|
|
Available for sale investments
|
|
|
39.7
|
|
|
|
-
|
|
|
|
39.7
|
|
Trading securities
|
|
|
5.8
|
|
|
|
-
|
|
|
|
5.8
|
|
Deferred compensation plan liabilities
|
|
|
(5.8
|
)
|
|
|
-
|
|
|
|
(5.8
|
)
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts
|
|
|
-
|
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
$
|
463.3
|
|
|
$
|
(0.2
|
)
|
|
$
|
463.1
|
|
(a)
|
Money market funds are included in Cash and cash equivalents in the Consolidated
Balance Sheet.
|
The methods and assumptions used to estimate the Level 2 fair
values were as follows:
Forward exchange contracts – The fair value of forward exchange
contracts were based on quoted forward foreign exchange prices at the reporting date.
During 2013 and 2012, there were no transfers of financial assets
or liabilities in or out of Level 1 or Level 2 of the fair value hierarchy. At December 31, 2013 and December 31, 2012, the Company
did not have any financial assets or liabilities that fell within the Level 3 hierarchy.
Investments
At December 31, 2013 and December 31, 2012, the Company had $38.6
million and $39.7 million, respectively, of municipal bonds classified as available-for-sale securities. The Company also had $7.3
million and $5.8 million of trading securities at December 31, 2013 and December 31, 2012, respectively. These investments are
carried on the balance sheet at fair value. Unrealized gains and losses associated with available-for-sale securities are reflected
in Accumulated other comprehensive loss, net of tax, while unrealized gains and losses associated with trading securities are reflected
in the results of operations.
Deferred compensation plan
The Company offers certain employees the opportunity to participate
in non-qualified deferred compensation plans. A participant’s deferrals are invested in a variety of participant-directed
debt and equity mutual funds that are classified as trading securities. During 2013 and 2012, the Company purchased $0.9 million
and $1.3 million, respectively, of trading securities related to these deferred compensation plans. As a result of participant
distributions, the Company sold $0.2 million of these trading securities in 2013. There were no distributions or sales in 2012.
The unrealized gains and losses associated with these trading securities are directly offset by the changes in the fair value of
the underlying deferred compensation plan obligation.
Derivatives
In order to limit financial risk in the management of its assets,
liabilities and debt, the Company may use derivative financial instruments such as foreign currency hedges, commodity hedges, interest
rate hedges and interest rate swaps. All derivative financial instruments are matched with an existing Company asset, liability
or proposed transaction. Market value gains or losses on the derivative financial instrument are recognized in income when the
effects of the related price changes of the underlying asset or liability are recognized in income.
The fair values of derivative instruments in the Consolidated
Balance Sheet are as follows (in millions):
|
|
Asset/(Liability) Derivatives
|
|
|
|
|
Fair Value
|
|
Derivatives designated as hedges
|
|
Balance Sheet Location
|
|
December 31, 2013
|
|
|
December 31, 2012
|
|
Forward exchange contracts designated as cash flow hedges
|
|
Other accrued liabilities
|
|
$
|
-
|
|
|
$
|
(0.2
|
)
|
Forward exchange contracts designated as cash flow hedges
|
|
Deferred taxes and other
|
|
|
0.4
|
|
|
|
-
|
|
|
|
|
|
$
|
0.4
|
|
|
$
|
(0.2
|
)
|
HUBBELL INCORPORATED
-
Form
10-K
|
47
|
Forward exchange contracts
In 2013 and 2012, the Company entered into a series of forward
exchange contracts to purchase U.S. dollars in order to hedge its exposure to fluctuating rates of exchange on anticipated inventory
purchases by one of its Canadian subsidiaries. As of December 31, 2013, the Company had 18 individual forward exchange contracts
for a notional $1.0 million each, which have various expiration dates through December 2014. These contracts have been designated
as cash flow hedges in accordance with the accounting guidance for derivatives.
Interest rate locks
Prior to the issuance of long-term notes in 2010 and 2008, the
Company entered into forward interest rate locks to hedge its exposure to fluctuations in treasury rates. The 2010 interest rate
lock resulted in a $1.6 million loss while the 2008 interest rate lock resulted in a $1.2 million gain. These amounts were recorded
in Accumulated other comprehensive loss, net of tax, and are being amortized over the life of the respective notes. The amortization
associated with these interest rate locks is reclassified from Accumulated other comprehensive loss to Interest expense in the
Consolidated Statement of Income. The amortization reclassification for the years ended December 31, 2013 and 2012 was not material.
As of both December 31, 2013 and December 31, 2012 there was $0.4 million of net unamortized losses reflected in Accumulated other
comprehensive loss.
The following table summarizes the results of cash flow hedging
relationships for years ended December 31, (in millions):
|
|
Derivative Gain/(Loss) Recognized in
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss,
|
|
Location of Gain/(Loss)
|
|
Gain/(Loss) Reclassified into Earnings
|
|
|
net of tax
|
|
Reclassified into Income
|
|
(Effective Portion)
|
Derivative Instrument
|
|
2013
|
|
|
2012
|
|
|
(Effective Portion)
|
|
2013
|
|
|
2012
|
|
Forward exchange contract
|
|
$
|
0.6
|
|
|
$
|
(0.5
|
)
|
|
Cost of goods sold
|
|
$
|
0.4
|
|
|
$
|
(0.1
|
)
|
There was no hedge ineffectiveness with respect to the forward
exchange cash flow hedges during 2013, 2012 and 2011.
Long-term Debt
The total carrying value of long-term debt as of December 31,
2013 and 2012 was $597.2 million and $596.7 million, respectively, net of unamortized discount. As of December 31, 2013 and 2012,
the estimated fair value of the long-term debt was $631.0 million and $682.7 million, respectively, based on quoted market prices.
The Company’s long-term debt falls within level 2 of the fair value hierarchy.
NOTE 15
|
Commitments and Contingencies
|
Legal and Environmental
The Company is subject to various legal proceedings arising in
the normal course of its business. These proceedings include claims for damages arising out of use of the Company’s products,
intellectual property, workers’ compensation and environmental matters. The Company is self-insured up to specified limits
for certain types of claims, including product liability and workers’ compensation, and is fully self-insured for certain
other types of claims, including environmental and intellectual property matters. The Company recognizes a liability for any contingency
that in management’s judgment is probable of occurrence and can be reasonably estimated. We continually reassess the likelihood
of adverse judgments and outcomes in these matters, as well as estimated ranges of possible losses based upon an analysis of each
matter which includes consideration of outside legal counsel and, if applicable, other experts.
The Company is currently involved in litigation with Powerweb
Energy, Inc. as more fully described in Item 3 “Legal Proceedings” of this Annual Report on Form 10-K. The Company
believes it has meritorious defenses against all claims and it will continue to vigorously defend itself in this matter. During
2013, the Company recorded an accrual equal to the low end of its estimated range of outcome. In addition, the Company does not
believe the outcome will result in a material amount in excess of the existing accrual. Given the inherent uncertainty of litigation,
however, the ultimate resolution of this matter remains unclear and could have a material adverse effect on the Company’s
financial position, liquidity, and results of operations.
The Company is subject to
environmental laws and regulations which may require that it investigate and remediate the effects of potential contamination
associated with past and present operations as well as those acquired through business combinations. Environmental
liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. The Company continues
to monitor these environmental matters and revalues its liabilities as necessary. Total environmental liabilities were $12.3
million and $12.5 million as of December 31, 2013 and 2012, respectively.
The Company accounts for conditional asset retirement and
environmental obligations in accordance with the applicable accounting guidance. The accounting guidance defines
“conditional asset retirement obligation” as a legal obligation to perform an asset retirement activity in which
the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the
Company. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement
obligation if the fair value of the liability can be reasonably estimated. Asset retirement obligations were not material as
of December 31, 2013 and 2012.
Leases
Total rental expense under operating leases was $23.2 million
in 2013, $21.9 million in 2012 and $21.7 million in 2011. The minimum annual rentals on non-cancelable, long-term, operating leases
in effect at December 31, 2013 are expected to approximate $15.5 million in 2014, $11.4 million in 2015, $8.6 million in 2016,
$5.7 million in 2017, $4.4 million in 2018 and $17.0 million thereafter. The Company’s leases primarily consist of operating
leases for buildings or equipment. The terms for building leases typically range from 5-25 years with 5-10 year renewal periods.
HUBBELL INCORPORATED
-
Form
10-K
|
48
|
Activity in the Company’s common shares outstanding is set
forth below for the three years ended December 31, 2013 (in thousands):
|
Common Stock
|
|
|
Class A
|
|
Class B
|
|
OUTSTANDING AT DECEMBER 31, 2010
|
|
7,167
|
|
53,601
|
|
Exercise of stock options/stock appreciation rights
|
|
-
|
|
638
|
|
Director compensation arrangements, net
|
|
-
|
|
8
|
|
Restricted/performance shares activity, net of forfeitures
|
|
-
|
|
140
|
|
Acquisition/surrender of shares
|
|
-
|
|
(2,316
|
)
|
OUTSTANDING AT DECEMBER 31, 2011
|
|
7,167
|
|
52,071
|
|
Exercise of stock options/stock appreciation rights
|
|
-
|
|
804
|
|
Director compensation arrangements, net
|
|
-
|
|
18
|
|
Restricted/performance shares activity, net of forfeitures
|
|
-
|
|
197
|
|
Acquisition/surrender of shares
|
|
-
|
|
(1,021
|
)
|
OUTSTANDING AT DECEMBER 31, 2012
|
|
7,167
|
|
52,069
|
|
Exercise of stock options/stock appreciation rights
|
|
-
|
|
157
|
|
Director compensation arrangements, net
|
|
-
|
|
16
|
|
Restricted/performance shares activity, net of forfeitures
|
|
-
|
|
138
|
|
Acquisition/surrender of shares
|
|
-
|
|
(375
|
)
|
OUTSTANDING AT DECEMBER 31, 2013
|
|
7,167
|
|
52,005
|
|
Repurchased shares are retired when acquired and the purchase
price is charged against par value and additional paid-in capital. Shares may be repurchased through the Company’s stock
repurchase program, acquired by the Company from employees under the Hubbell Incorporated Stock Option Plan for Key Employees (the
“Option Plan”) or surrendered to the Company by employees in settlement of their minimum tax liability on vesting of
restricted shares and performance shares under the Hubbell Incorporated 2005 Incentive Award Plan as amended and restated, (the
“Award Plan”). Class A Common shares have twenty votes per share, while Class B Common shares have one vote per share.
In addition, the Company has 5.9 million authorized shares of preferred stock; no preferred shares are outstanding.
The Company has an amended and
restated Rights Agreement under which holders of Class A Common Stock have Class A Rights and holders of Class B Common Stock
have Class B Rights (collectively, “Rights”). These Rights become exercisable after a specified period of time
only if a person or group of affiliated persons acquires beneficial ownership of 20 percent or more of the outstanding Class
A Common Stock of the Company or announces or commences a tender or exchange offer that would result in the offeror acquiring
beneficial ownership of 20 percent or more of the outstanding Class A Common Stock of the Company. Each Class A Right
entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred
Stock (“Series A Preferred Stock”), without par value, at a price of $175.00 per one one-thousandth of a share.
Similarly, each Class B Right entitles the holder to purchase one one-thousandth of a share of Series B Junior Participating
Preferred Stock (“Series B Preferred Stock”), without par value, at a price of $175.00 per one one-thousandth of
a share. The Rights may be redeemed by the Company for one cent per Right prior to the day a person or group of affiliated
persons acquires 20 percent or more of the outstanding Class A Common Stock of the Company. The Rights will expire in
December 31, 2018 (the “Final Expiration Date”), unless the Final Expiration Date is advanced or extended or
unless the Rights are earlier redeemed or exchanged by the Company.
Shares of Series A Preferred Stock or Series B Preferred Stock
purchasable upon exercise of the Rights will not be redeemable. Each share of Series A Preferred Stock or Series B Preferred
Stock will be entitled, when, as and if declared, to a minimum preferential quarterly dividend payment of $10.00 per share
but will be entitled to an aggregate dividend of 1,000 times the dividend declared per share of Common Stock. In the event
of liquidation, the holders of the Series A Preferred Stock or Series B Preferred Stock will be entitled to a minimum preferential
liquidation payment of $100 per share (plus any accrued but unpaid dividends) but will be entitled to an aggregate payment
of 1,000 times the payment made per share of Class A Common Stock or Class B Common Stock, respectively. Each share of Series A
Preferred Stock will have 20,000 votes and each share of Series B Preferred Stock will have 1,000 votes, voting together with the
Common Stock. Finally, in the event of any merger, consolidation, transfer of assets or earning power or other transaction in which
shares of Common Stock are converted or exchanged, each share of Series A Preferred Stock or Series B Preferred Stock will be entitled
to receive 1,000 times the amount received per share of Common Stock. These rights are protected by customary antidilution provisions.
Upon the occurrence of certain events or transactions specified
in the Rights Agreement, each holder of a Right will have the right to receive, upon exercise, that number of shares of the Company’s
common stock or the acquiring company’s shares having a market value equal to twice the exercise price.
Shares of the Company’s common stock were reserved at December
31, 2013 as follows (in thousands):
|
|
Common Stock
|
|
|
Preferred
Stock
|
|
|
|
Class A
|
|
|
Class B
|
|
|
|
Exercise of outstanding stock options
|
|
|
-
|
|
|
|
51
|
|
|
|
-
|
|
Future grant of stock-based compensation
|
|
|
-
|
|
|
|
1,807
|
|
|
|
-
|
|
Exercise of stock purchase rights
|
|
|
-
|
|
|
|
-
|
|
|
|
59
|
|
Shares reserved under other equity compensation plans
|
|
|
-
|
|
|
|
110
|
|
|
|
-
|
|
TOTAL
|
|
|
-
|
|
|
|
1,968
|
|
|
|
59
|
|
HUBBELL INCORPORATED
-
Form
10-K
|
49
|
NOTE 17
|
Stock-Based Compensation
|
As of December 31, 2013, the Company had various stock-based awards
outstanding which were issued to executives and other key employees. The Company recognizes the grant-date fair value of all stock-based
awards to employees over their respective requisite service periods (generally equal to an award’s vesting period), net of
estimated forfeitures. A stock-based award is considered vested for expense attribution purposes when the employee’s retention
of the award is no longer contingent on providing subsequent service. Accordingly, the Company recognizes compensation cost immediately
for awards granted to retirement-eligible individuals or over the period from the grant date to the date retirement eligibility
is achieved, if less than the stated vesting period.
The Company’s long-term incentive program for awarding stock-based
compensation uses a combination of restricted stock, stock appreciation rights (“SARs”), and performance shares of
the Company’s Class B Common Stock pursuant to the Award Plan. Under the Award Plan, the Company may authorize up to 6.9
million shares of Class B Common Stock in settlement of restricted stock, performance shares, SARs or any-post 2004 grants of stock
options. The Company issues new shares for settlement of any stock-based awards. In 2013, the Company granted stock-based awards
using a combination of restricted stock, SARs and performance shares.
In 2013, 2012 and 2011, the Company recorded $14.3 million, $15.8 million
and $15.1 million of stock-based compensation costs, respectively. Of the total 2013 expense, $13.4 million was recorded to S&A
expense and $0.9 million was recorded to Cost of goods sold. In 2012 and 2011, $15.1 million and $14.4 million, respectively,
was recorded to S&A expense and $0.7 million in both 2012 and 2011, was recorded to Cost of goods sold. Stock-based compensation
costs capitalized to inventory was $0.2 million in 2013, 2012 and 2011. The Company recorded income tax benefits of approximately
$8.3 million, $17.6 million and $7.1 million in 2013, 2012 and 2011, respectively, related to stock-based compensation. At December
31, 2013, these benefits are recorded as either a deferred tax asset in Deferred taxes and other or in Other accrued liabilities
in the Consolidated Balance Sheet. As of December 31, 2013, there was $23.6 million, pretax, of total unrecognized compensation
cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized through 2016.
Each of the compensation arrangements is discussed below.
Restricted Stock
Stock Issued to Employees
The Company issues both service-based restricted stock awards
as well as performance-based restricted stock awards. Service-based restricted stock awards are expensed on a straight-line basis
over the requisite service period while performance-based restricted stock awards are expensed on a graded basis over the
requisite service period and are contingent upon meeting certain performance conditions. Restricted stock granted is not transferable
and is subject to forfeiture in the event of the recipient’s termination of employment prior to vesting. The restricted stock
generally vests in one-third increments annually for three years on each anniversary of the date of grant. Restricted stock awards
are considered outstanding at the time of grant, as the award holders are entitled to dividends and voting rights. Unvested restricted
stock awards are considered participating securities in computing earnings per share. The restricted stock fair values are measured
using the average between the high and low trading prices of the Company’s Class B Common Stock on the most recent trading
day immediately preceding the grant date (“measurement date”).
Stock Issued to Non-employee Directors
In 2013, 2012 and 2011, each non-employee director received a
grant of Class B Common Stock. These grants were made on the date of the annual meeting of shareholders and vested or will vest
at the following year’s annual meeting of shareholders, upon a change of control or termination of service by reason of death.
These shares will be subject to forfeiture if the director’s service terminates prior to the date of the next regularly scheduled
annual meeting of shareholders to be held in the following calendar year. During the years 2013, 2012 and 2011, the Company issued
to non-employee directors 12,474 shares, 13,980 shares, and 12,568 shares, respectively.
Activity related to both employee and non-employee restricted
stock for the year ended December 31, 2013 is as follows (in thousands, except per share amounts):
|
|
|
|
|
Weighted Average Grant Date
|
|
|
Shares
|
|
|
Fair Value/Share
|
RESTRICTED STOCK AT DECEMBER 31, 2012
|
|
|
208
|
|
|
$
|
73.63
|
|
Shares granted
|
|
|
82
|
|
|
|
105.83
|
|
Shares vested
|
|
|
(118
|
)
|
|
|
71.61
|
|
Shares forfeited
|
|
|
(5
|
)
|
|
|
65.50
|
|
RESTRICTED STOCK AT
DECEMBER 31, 2013
|
|
|
167
|
|
|
$
|
91.17
|
|
The weighted average fair value per
share of restricted stock granted during the years 2013, 2012 and 2011 was $105.83, $82.18 and $65.10, respectively. The
total fair value of restricted stock vested during the years 2013, 2012 and 2011 was $8.4 million, $8.9 million and $8.7
million, respectively.
HUBBELL INCORPORATED
-
Form
10-K
|
50
|
Stock Appreciation Rights
SARs granted entitle the recipient to the difference between the
fair market value of the Company’s Class B Common Stock on the date of exercise and the grant price as determined using the
average between the high and the low trading prices of the Company’s Class B Common Stock on the measurement date. This amount
is payable in shares of the Company’s Class B Common Stock. SARs vest and become exercisable in three equal installments
during the first three years following their grant date and expire ten years from the grant date.
Activity related to SARs for the year ended December 31, 2013
is as follows (in thousands, except per share amounts):
|
|
Number of
|
|
|
Weighted Average
|
|
Weighted Average Remaining
|
|
Aggregate Intrinsic
|
|
|
|
Rights
|
|
|
Exercise Price
|
|
Contractual Term
|
|
Value
|
|
OUTSTANDING AT DECEMBER 31, 2012
|
|
|
1,633
|
|
|
$
|
59.44
|
|
|
|
|
|
|
Granted
|
|
|
247
|
|
|
|
107.60
|
|
|
|
|
|
|
Exercised
|
|
|
(341
|
)
|
|
|
47.97
|
|
|
|
|
|
|
Forfeited
|
|
|
(8
|
)
|
|
|
72.59
|
|
|
|
|
|
|
OUTSTANDING AT DECEMBER 31, 2013
|
|
|
1,531
|
|
|
$
|
69.68
|
|
7.4 YEARS
|
|
$
|
60,017
|
|
EXERCISABLE AT DECEMBER 31, 2013
|
|
|
960
|
|
|
$
|
57.56
|
|
6.3 YEARS
|
|
$
|
49,274
|
|
The aggregated intrinsic value of SARs exercised during 2013,
2012 and 2011 was $16.4 million, $32.5 million and $12.0 million, respectively.
The fair value of each SAR award was measured using the Black-Scholes
option pricing model. The following table summarizes the weighted-average assumptions used in estimating the fair value of the
SARs granted during the years 2013, 2012 and 2011.
|
|
Expected
|
|
|
Expected
|
|
|
Risk Free
|
|
|
Expected
|
|
Weighted Avg. Grant Date
|
|
|
|
Dividend Yield
|
|
|
Volatility
|
|
|
Interest Rate
|
|
|
Term
|
|
Fair Value of 1 SAR
|
|
2013
|
|
|
1.9
|
%
|
|
|
28.3
|
%
|
|
|
1.6
|
%
|
|
|
5.4 Years
|
|
$
|
24.58
|
|
2012
|
|
|
2.0
|
%
|
|
|
29.4
|
%
|
|
|
0.7
|
%
|
|
|
5.5 Years
|
|
$
|
18.13
|
|
2011
|
|
|
2.6
|
%
|
|
|
30.2
|
%
|
|
|
1.1
|
%
|
|
|
5.5 Years
|
|
$
|
13.70
|
|
The expected dividend yield was calculated by dividing the Company’s
expected annual dividend by the average stock price for the past three months. Expected volatilities are based on historical
volatilities of the Company’s stock for a period consistent with the expected term. The expected term of SARs granted was
based upon historical exercise behavior of stock options and SARs. The risk-free interest rate is based on the U.S. Treasury yield
curve in effect at the time of grant for the expected term of the award.
Performance Shares
Performance shares represent the right to receive a share of the
Company’s Class B Common Stock after a three year period subject to the achievement of certain performance criteria established
by the Company’s Compensation Committee. Partial vesting in these awards may occur after separation from the Company for
retirement eligible employees.
In December 2013, 2012 and 2011, the Company granted 30,730; 38,656
and 39,456 performance shares, respectively. The grants’ performance conditions are subject to the achievement of certain
market-based criteria. Performance at target will result in vesting and issuance of the number of performance shares granted, equal
to 100% payout. Performance below or above target can result in issuance in the range of 0%-200% of the number of shares granted.
In February 2014, the Company paid out 58,754 shares related to
its December 2010 performance award grant. The performance period associated with this award was from January 1, 2011 through December
31, 2013 and was based upon the Company’s total return to shareholders (“TSR”) compared to the TSR generated
by the other companies that comprise the S&P Mid-Cap 400 Index. The February 2014 payout was based upon achieving 200% of the
market-based criteria. The fair value of the December 2010 performance awards at vesting was $7.0 million.
The fair value of the market-based criteria for the fiscal year
2013, 2012 and 2011 performance share awards was determined based upon a lattice model. The following table summarizes the related
assumptions used to determine the fair values of the performance shares with respect to the market-based criteria. Expected volatilities
are based on historical volatilities of the Company’s stock over a three year period. The risk free interest rate is based
on the U.S. Treasury yield curve in effect at the time of the grant for the expected term of the award.
|
|
Stock Price on
|
|
|
Dividend
|
|
|
Expected
|
|
|
Risk Free
|
|
|
Expected
|
|
Weighted Avg. Grant
|
|
|
|
Measurement Date
|
|
|
Yield
|
|
|
Volatility
|
|
|
Interest Rate
|
|
|
Term
|
|
Date Fair Value
|
|
2013
|
|
$
|
107.87
|
|
|
|
1.9
|
%
|
|
|
33.8
|
%
|
|
|
0.6
|
%
|
|
|
3 Years
|
|
$
|
130.33
|
|
2012
|
|
$
|
83.73
|
|
|
|
2.0
|
%
|
|
|
27.3
|
%
|
|
|
0.4
|
%
|
|
|
3 Years
|
|
$
|
100.77
|
|
2011
|
|
$
|
64.48
|
|
|
|
2.4
|
%
|
|
|
35.9
|
%
|
|
|
0.4
|
%
|
|
|
3 Years
|
|
$
|
83.12
|
|
Total stock-based compensation expense recorded related to performance
share awards was $2.5 million, $2.7 million and $2.1 million in 2013, 2012 and 2011, respectively. There has been no stock based
compensation recorded related to the 2013 performance award as the service inception date for this particular award begins on January
1, 2014.
HUBBELL INCORPORATED
-
Form
10-K
|
51
|
Stock Option Awards
Prior to 2005, the Company granted options to officers and other
key employees to purchase the Company’s Class B Common Stock. All options granted had an exercise price equal to the average
between the high and low trading prices of the Company’s Class B Common Stock on the measurement date. These option awards
expire ten years after grant date. Exercises of existing stock option grants are expected to be settled in the Company’s
Class B Common Stock as authorized in the Option Plan. The last stock options granted by the Company were in 2004.
Stock option activity for the year ended December 31, 2013 is
set forth below (in thousands, except per share amounts):
|
|
Number of
|
|
|
Weighted Average
|
|
Weighted Average Remaining
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
Contractual Term
|
|
Intrinsic Value
|
|
OUTSTANDING AT DECEMBER 31, 2012
|
|
|
104
|
|
|
$
|
46.99
|
|
|
|
|
|
|
Exercised
|
|
|
(53
|
)
|
|
|
46.05
|
|
|
|
|
|
|
OUTSTANDING AT DECEMBER
31, 2013
|
|
|
51
|
|
|
$
|
47.95
|
|
0.9 YEARS
|
|
$
|
3,139
|
|
EXERCISABLE AT DECEMBER
31, 2013
|
|
|
51
|
|
|
$
|
47.95
|
|
0.9 YEARS
|
|
$
|
3,139
|
|
The aggregate intrinsic value of stock options exercised during
2013, 2012 and 2011 was $2.9 million, $16.5 million and $12.0 million, respectively. Cash received from option exercises was $2.4
million, $24.8 million and $21.9 million for 2013, 2012 and 2011, respectively.
The Company recorded realized tax benefits from equity-based awards
of $8.4 million, $15.6 million, and $8.2 million for the years ended December 31, 2013, 2012 and 2011, respectively. These
realized tax benefits have been reflected in Cash Flows From Financing Activities.
NOTE 18
|
Earnings
Per Share
|
The Company computes earnings per share using the two-class method,
which is an earnings allocation formula that determines earnings per share for common stock and participating securities. Restricted
stock granted by the Company is considered a participating security since it contains a non-forfeitable right to dividends.
The following table sets forth the computation of earnings per
share for the three years ended December 31 (in millions, except per share amounts):
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Hubbell
|
|
$
|
326.5
|
|
|
$
|
299.7
|
|
|
$
|
267.9
|
|
Less: Earnings allocated to participating securities
|
|
|
1.0
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Net income available to common shareholders
|
|
$
|
325.5
|
|
|
$
|
298.7
|
|
|
$
|
266.9
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding
|
|
|
59.1
|
|
|
|
59.1
|
|
|
|
59.7
|
|
Potential dilutive shares
|
|
|
0.5
|
|
|
|
0.7
|
|
|
|
0.7
|
|
Average number of diluted shares outstanding
|
|
|
59.6
|
|
|
|
59.8
|
|
|
|
60.4
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
5.51
|
|
|
$
|
5.05
|
|
|
$
|
4.47
|
|
Diluted
|
|
$
|
5.47
|
|
|
$
|
5.00
|
|
|
$
|
4.42
|
|
The Company did not have any significant anti-dilutive securities
in 2013, 2012 or 2011.
NOTE 19
|
Accumulated Other Comprehensive Loss
|
A summary of the changes in Accumulated other comprehensive loss
(net of tax) for the year ended December 31, 2013 is provided below (in millions):
|
|
|
|
|
Unrealized
|
|
|
Pension and
|
|
|
|
|
|
|
|
|
|
Cash Flow
|
|
|
Gain (loss) on
|
|
|
Post Retirement
|
|
|
Cumulative
|
|
|
|
|
|
|
Hedge (loss)
|
|
|
Available-for-
|
|
|
Benefit Plan
|
|
|
Translation
|
|
|
|
|
(Debit) credit
|
|
Gain
|
|
|
Sale Securities
|
|
|
Adjustment
|
|
|
Adjustment
|
|
|
Total
|
|
BALANCE AT DECEMBER 31, 2012
|
|
$
|
(0.5
|
)
|
|
$
|
0.7
|
|
|
$
|
(130.1
|
)
|
|
$
|
10.8
|
|
|
$
|
(119.1
|
)
|
Other comprehensive income (loss) before Reclassifications
|
|
|
0.6
|
|
|
|
(0.3
|
)
|
|
|
54.8
|
|
|
|
(15.0
|
)
|
|
|
40.1
|
|
Amounts reclassified from accumulated other comprehensive
loss
|
|
|
(0.3
|
)
|
|
|
-
|
|
|
|
8.3
|
|
|
|
-
|
|
|
|
8.0
|
|
Current period other comprehensive income (loss)
|
|
|
0.3
|
|
|
|
(0.3
|
)
|
|
|
63.1
|
|
|
|
(15.0
|
)
|
|
|
48.1
|
|
BALANCE AT DECEMBER 31, 2013
|
|
$
|
(0.2
|
)
|
|
$
|
0.4
|
|
|
$
|
(67.0
|
)
|
|
$
|
(4.2
|
)
|
|
$
|
(71.0
|
)
|
HUBBELL INCORPORATED
-
Form
10-K
|
52
|
A summary of the gain (loss) reclassifications out of Accumulated
other comprehensive loss for the year ended December 31, 2013 is provided below (in millions):
|
|
Year Ended
|
|
|
Location of Gain (Loss)
|
Details about Accumulated Other Comprehensive Loss Components
|
|
December 31
|
|
|
Reclassified into Income
|
Cash flow hedges gain (loss):
|
|
|
|
|
|
|
Forward exchange contracts
|
|
$
|
0.4
|
|
|
Cost of goods sold
|
|
|
|
0.4
|
|
|
Total before tax
|
|
|
|
(0.1
|
)
|
|
Tax (expense) benefit
|
|
|
$
|
0.3
|
|
|
Gain (loss) net of tax
|
Amortization of defined benefit pension and post retirement benefit items:
|
|
|
|
|
|
|
Prior-service costs
|
|
$
|
0.8
|
(a)
|
|
|
Actuarial gains/(losses)
|
|
|
(13.7
|
)
(a)
|
|
|
|
|
|
(12.9
|
)
|
|
Total before tax
|
|
|
|
4.6
|
|
|
Tax benefit (expense)
|
|
|
$
|
(8.3
|
)
|
|
(Loss) gain net of tax
|
Losses reclassified
into earnings
|
|
$
|
(8.0
|
)
|
|
(Loss) gain net of tax
|
(a)
|
These
accumulated other comprehensive loss components are included in the computation of net
periodic pension cost (see Note 10 - Retirement Benefits for additional details).
|
NOTE 20
|
Industry
Segments and Geographic Area Information
|
Nature of Operations
Hubbell Incorporated was founded as a proprietorship in 1888,
and was incorporated in Connecticut in 1905. Hubbell designs, manufactures and sells quality electrical and electronic products
for a broad range of non-residential and residential construction, industrial and utility applications. Products are either sourced
complete, manufactured or assembled by subsidiaries in the United States, Canada, Switzerland, Puerto Rico, China, Mexico, Italy,
the UK, Brazil and Australia. Hubbell also participates in joint ventures in Taiwan and Hong Kong, and maintains offices in Singapore,
China, India, Mexico, South Korea and countries in the Middle East.
The Company’s reporting segments consist of the Electrical
segment (comprised of electrical systems products and lighting products), and the Power segment, as described below.
The Electrical segment is comprised of businesses
that sell stock and custom products including standard and special application wiring device products, rough-in electrical products,
connector and grounding products, lighting fixtures and controls, and other electrical equipment. The products are typically used
in and around industrial, commercial and institutional facilities by electrical contractors, maintenance personnel, electricians,
and telecommunications companies. In addition, certain businesses design and manufacture a variety of high voltage test and measurement
equipment, industrial controls and communication systems used in the non-residential and industrial markets. Many of these products
are designed such that they can also be used in harsh and hazardous locations where a potential for fire and explosion exists
due to the presence of flammable gasses and vapors. Harsh and hazardous products are primarily used in the oil and gas (onshore
and offshore) and mining industries. There are also a variety of lighting fixtures, wiring devices and electrical products that
have residential and utility applications. These products are primarily sold through electrical and industrial distributors, home
centers, some retail and hardware outlets, lighting showrooms and residential product oriented internet sites. Special application
products are sold primarily through wholesale distributors to contractors, industrial customers and OEMs. High voltage products
are also sold direct to customers through our sales engineers.
The Power segment consists of operations that design and manufacture
various distribution, transmission, substation and telecommunications products primarily used by the electrical utility industry.
In addition, certain of these products are used in the civil construction and transportation industries. Products are sold to distributors
and directly to users such as electric utilities, telecommunication companies, mining operations, industrial firms, construction
and engineering firms.
Financial Information
Financial information by industry segment, product class and geographic
area for the three years ended December 31, 2013, is summarized below (in millions). When reading the data the following items
should be noted:
|
•
|
Net sales comprise sales to unaffiliated customers — inter-segment and inter-area sales are not significant.
|
|
•
|
Segment operating income consists of net sales less operating expenses, including total corporate expenses, which are generally
allocated to each segment on the basis of the segment’s percentage of consolidated net sales. Interest expense and investment
income and other expense, net have not been allocated to segments as these items are centrally managed by the Company.
|
|
•
|
General corporate assets not allocated to segments are principally cash, prepaid pensions, investments and deferred taxes.
These assets have not been allocated as they are centrally managed by the Company.
|
HUBBELL INCORPORATED
-
Form
10-K
|
53
|
INDUSTRY SEGMENT DATA
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical
|
|
$
|
2,262.6
|
|
|
$
|
2,114.6
|
|
|
$
|
2,004.2
|
|
Power
|
|
|
921.3
|
|
|
|
929.8
|
|
|
|
867.4
|
|
TOTAL NET SALES
|
|
$
|
3,183.9
|
|
|
$
|
3,044.4
|
|
|
$
|
2,871.6
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical
|
|
$
|
341.1
|
|
|
$
|
303.7
|
|
|
$
|
282.0
|
|
Power
|
|
|
166.5
|
|
|
|
168.1
|
|
|
|
141.8
|
|
Operating income
|
|
|
507.6
|
|
|
|
471.8
|
|
|
|
423.8
|
|
Interest expense
|
|
|
(30.8
|
)
|
|
|
(30.8
|
)
|
|
|
(30.9
|
)
|
Investment income and other expense, net
|
|
|
(3.0
|
)
|
|
|
0.8
|
|
|
|
(3.1
|
)
|
INCOME BEFORE INCOME TAXES
|
|
$
|
473.8
|
|
|
$
|
441.8
|
|
|
$
|
389.8
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical
|
|
$
|
1,813.8
|
|
|
$
|
1,659.2
|
|
|
$
|
1,558.2
|
|
Power
|
|
|
707.0
|
|
|
|
710.4
|
|
|
|
659.8
|
|
General Corporate
|
|
|
666.4
|
|
|
|
577.4
|
|
|
|
628.5
|
|
TOTAL ASSETS
|
|
$
|
3,187.2
|
|
|
$
|
2,947.0
|
|
|
$
|
2,846.5
|
|
Capital Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical
|
|
$
|
32.4
|
|
|
$
|
27.1
|
|
|
$
|
35.9
|
|
Power
|
|
|
25.0
|
|
|
|
20.4
|
|
|
|
16.5
|
|
General Corporate
|
|
|
1.4
|
|
|
|
1.6
|
|
|
|
3.0
|
|
TOTAL CAPITAL EXPENDITURES
|
|
$
|
58.8
|
|
|
$
|
49.1
|
|
|
$
|
55.4
|
|
Depreciation and Amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical
|
|
$
|
48.0
|
|
|
$
|
45.8
|
|
|
$
|
47.1
|
|
Power
|
|
|
22.6
|
|
|
|
21.0
|
|
|
|
21.1
|
|
TOTAL DEPRECIATION AND AMORTIZATION
|
|
$
|
70.6
|
|
|
$
|
66.8
|
|
|
$
|
68.2
|
|
PRODUCT CLASS DATA
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Electrical Systems
|
|
$
|
1,466.4
|
|
|
$
|
1,376.1
|
|
|
$
|
1,271.4
|
|
Lighting
|
|
|
796.2
|
|
|
|
738.5
|
|
|
|
732.8
|
|
Power
|
|
|
921.3
|
|
|
|
929.8
|
|
|
|
867.4
|
|
TOTAL NET SALES
|
|
$
|
3,183.9
|
|
|
$
|
3,044.4
|
|
|
$
|
2,871.6
|
|
GEOGRAPHIC AREA DATA
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,687.6
|
|
|
$
|
2,541.6
|
|
|
$
|
2,381.5
|
|
International
|
|
|
496.3
|
|
|
|
502.8
|
|
|
|
490.1
|
|
TOTAL NET SALES
|
|
$
|
3,183.9
|
|
|
$
|
3,044.4
|
|
|
$
|
2,871.6
|
|
Operating Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
417.5
|
|
|
$
|
383.8
|
|
|
$
|
338.0
|
|
International
|
|
|
90.1
|
|
|
|
88.0
|
|
|
|
85.8
|
|
TOTAL OPERATING INCOME
|
|
$
|
507.6
|
|
|
$
|
471.8
|
|
|
$
|
423.8
|
|
Long-lived Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,341.4
|
|
|
$
|
1,225.4
|
|
|
$
|
1,185.4
|
|
International
|
|
|
212.3
|
|
|
|
227.0
|
|
|
|
225.1
|
|
TOTAL LONG-LIVED ASSETS
|
|
$
|
1,553.7
|
|
|
$
|
1,452.4
|
|
|
$
|
1,410.5
|
|
On a geographic basis, the Company defines “international”
as operations based outside of the United States and its possessions. As a percentage of total net sales, shipments from foreign
operations directly to third parties were 16% in 2013 and 17% in 2012 and 2011, with the Canada, UK and Brazil operations representing
approximately 30%, 24% and 12%, respectively, of 2013 total international net sales. Long-lived assets, excluding deferred tax
assets, of international subsidiaries were 14% of the consolidated total in 2013 and 16% in both 2012 and 2011, with the UK, Mexico
and Canada operations representing approximately 29%, 19%, and 18%, respectively, of the 2013 international total. Export sales
from United States operations were $213.0 million in 2013, $243.9 million in 2012 and $210.2 million in 2011.
HUBBELL INCORPORATED
-
Form
10-K
|
54
|
The Company accrues for costs associated with guarantees when
it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely costs to be incurred
are accrued based on an evaluation of currently available facts and, where no amount within a range of estimates is more likely,
the minimum is accrued.
The Company records a liability equal to the fair value of guarantees
in the Consolidated Balance Sheet in accordance with the accounting guidance for guarantees. As of December 31, 2013, the fair
value and maximum potential payment related to the Company’s guarantees were not material.
The Company offers product warranties which cover defects
on most of its products. These warranties primarily apply to products that are properly installed, maintained and used for
their intended purpose. The Company accrues estimated warranty costs at the time of sale. Estimated warranty expenses,
recorded in cost of goods sold, are based upon historical information such as past experience, product failure rates, or the
estimated number of units to be repaired or replaced. Adjustments are made to the product warranty accrual as claims are
incurred, additional information becomes known or as historical experience indicates.
Changes in the accrual for product warranties in 2013 are set
forth below (in millions):
BALANCE AT DECEMBER 31, 2012
|
|
$
|
7.0
|
|
Provision
|
|
|
10.3
|
|
Expenditures/other
|
|
|
(10.7
|
)
|
BALANCE AT DECEMBER 31, 2013
|
|
$
|
6.6
|
|
NOTE 22
|
Quarterly
Financial Data (Unaudited)
|
The table below sets forth summarized quarterly financial data
for the years ended December 31, 2013 and 2012 (in millions, except per share amounts):
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
740.1
|
|
|
$
|
801.3
|
|
|
$
|
835.9
|
|
|
$
|
806.6
|
|
Gross Profit
|
|
$
|
236.3
|
|
|
$
|
272.0
|
|
|
$
|
291.3
|
|
|
$
|
270.9
|
|
Net Income
|
|
$
|
66.8
|
|
|
$
|
83.0
|
|
|
$
|
97.2
|
|
|
$
|
82.8
|
|
Net Income attributable to Hubbell
|
|
$
|
65.9
|
|
|
$
|
82.1
|
|
|
$
|
96.5
|
|
|
$
|
82.0
|
|
Earnings Per Share — Basic
|
|
$
|
1.11
|
|
|
$
|
1.38
|
|
|
$
|
1.63
|
|
|
$
|
1.39
|
|
Earnings Per Share — Diluted
|
|
$
|
1.10
|
|
|
$
|
1.37
|
|
|
$
|
1.62
|
|
|
$
|
1.38
|
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
723.8
|
|
|
$
|
778.4
|
|
|
$
|
789.7
|
|
|
$
|
752.5
|
|
Gross Profit
|
|
$
|
234.1
|
|
|
$
|
259.8
|
|
|
$
|
268.5
|
|
|
$
|
249.8
|
|
Net Income
|
|
$
|
63.6
|
|
|
$
|
78.0
|
|
|
$
|
87.6
|
|
|
$
|
72.9
|
|
Net Income attributable to Hubbell
|
|
$
|
63.2
|
|
|
$
|
77.5
|
|
|
$
|
87.1
|
|
|
$
|
71.9
|
|
Earnings Per Share — Basic
|
|
$
|
1.06
|
|
|
$
|
1.31
|
|
|
$
|
1.47
|
|
|
$
|
1.21
|
|
Earnings Per Share — Diluted
|
|
$
|
1.05
|
|
|
$
|
1.29
|
|
|
$
|
1.45
|
|
|
$
|
1.20
|
|
HUBBELL INCORPORATED
-
Form
10-K
|
55
|