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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-2958
HUBBELL INCORPORATED
(Exact name of registrant as specified in its charter)
STATE OF CONNECTICUT 06-0397030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
584 DERBY MILFORD ROAD, ORANGE, CT 06477
(Address of principal executive offices) (Zip Code)
(203) 799-4100
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
The number of shares of registrant's classes of common stock outstanding as of
November 3, 1997 were:
Class A ($.01 par value) 11,146,000
Class B ($.01 par value) 55,987,000
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HUBBELL INCORPORATED
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS)
September 30, 1997 December 31, 1996
------------------ -----------------
ASSETS
Current Assets:
Cash and temporary cash investments $ 156,176 $ 134,397
Accounts receivable (net) 198,518 172,351
Inventories 256,703 244,565
Prepaid taxes 27,848 30,162
Other 2,882 9,713
---------- ----------
TOTAL CURRENT ASSETS 642,127 591,188
Property, Plant and Equipment (net) 236,513 217,913
Other Assets:
Investments 166,476 170,372
Purchase price in excess of net assets of companies acquired (net) 193,920 162,180
Property held as investment 12,316 7,970
Other 24,955 35,817
---------- ----------
$1,276,307 $1,185,440
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Commercial paper and notes $ 250 $ 18,635
Accounts payable 55,093 52,485
Accrued salaries, wages and employee benefits 33,977 26,486
Accrued income taxes 43,417 44,039
Dividends payable 19,501 17,177
Accrued restructuring charge 1,465 8,734
Other accrued liabilities 84,909 87,874
---------- ----------
TOTAL CURRENT LIABILITIES 238,612 255,430
Long-Term Debt 99,504 99,458
Other Non-Current Liabilities 77,721 74,736
Deferred Income Taxes 12,371 12,670
Shareholders' Equity 848,099 743,146
---------- ----------
$1,276,307 $1,185,440
========== ==========
See notes to consolidated financial statements
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HUBBELL INCORPORATED
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ------------------------------
1997 1996 1997 1996
--------- --------- ----------- ---------
NET SALES $ 351,765 $ 332,770 $ 1,029,360 $ 966,297
Cost of goods sold 243,722 232,984 710,023 677,305
--------- --------- ----------- ---------
GROSS PROFIT 108,043 99,786 319,337 288,992
Selling & administrative expenses 51,105 48,527 154,859 143,593
--------- --------- ----------- ---------
OPERATING INCOME 56,938 51,259 164,478 145,399
--------- --------- ----------- ---------
OTHER INCOME (EXPENSE):
Investment income 4,686 4,217 13,527 12,083
Interest expense (1,898) (2,123) (5,481) (6,363)
Other income (expense), net (213) (1,270) (1,991) (4,085)
--------- --------- ----------- ---------
TOTAL OTHER INCOME, NET 2,575 824 6,055 1,635
--------- --------- ----------- ---------
INCOME BEFORE INCOME TAXES 59,513 52,083 170,533 147,034
Provision for income taxes 17,856 15,104 51,162 42,640
--------- --------- ----------- ---------
NET INCOME $ 41,657 $ 36,979 $ 119,371 $ 104,394
========= ========= =========== =========
EARNINGS PER SHARE $ 0.60 $ 0.55 $ 1.73 $ 1.55
========= ========= =========== =========
See notes to consolidated financial statements.
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HUBBELL INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30, 1997
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
- ------------------------------------ ---- ----
Net income $ 119,371 $ 104,394
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 36,565 32,814
Deferred income taxes 4,607 183
Changes in assets and liabilities, net of the effect of business acquisitions:
(Increase)/Decrease in accounts receivable (21,565) (29,485)
(Increase)/Decrease in inventories (9,244) 7,003
(Increase)/Decrease in other current assets 3,916 1,647
Increase/(Decrease) in current operating liabilities (1,712) 27,825
Increase/(Decrease) in restructuring accruals (7,269) (6,948)
(Increase)/Decrease in other, net 3,266 4,678
--------- ---------
Net cash provided by operating activities 127,935 142,111
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of businesses (3,077) (31,365)
Additions to property, plant and equipment (44,756) (28,483)
Purchases of investments (4,443) (4,936)
Repayments and sales of investments 8,075 12,378
Other, net 16,103 1,235
--------- ---------
Net cash used in investing activities (28,098) (51,171)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of dividends (54,159) (48,112)
Commercial paper and notes - borrowings (repayments) (18,385) --
Redemption of industrial development bonds -- (2,700)
Exercise of stock options 3,160 2,242
Acquisition of treasury shares (8,674) (4,521)
--------- ---------
Net cash provided (used) in financing activities (78,058) (53,091)
--------- ---------
Increase (Decrease) in cash and temporary cash investments 21,779 37,849
CASH AND TEMPORARY CASH INVESTMENTS
Beginning of period 134,397 86,984
--------- ---------
End of period $ 156,176 $ 124,833
========= =========
See notes to consolidated financial statements
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HUBBELL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
1. Inventories are classified as follows: (in thousands)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
Raw Material $ 90,418 $ 81,321
Work-in-Process 72,045 71,388
Finished Goods 138,269 134,931
-------- --------
300,732 287,640
Excess of current
Production costs over
LIFO cost basis 44,029 43,075
-------- --------
$256,703 $244,565
======== ========
2. Shareholders' Equity comprises: (in thousands)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
Common Stock, $.01 par value:
Class A-authorized 50,000,000 shares,
outstanding 11,254,600 and 11,446,120 shares $ 113 $ 115
Class B-authorized 150,000,000 shares
outstanding 55,956,801 and 54,612,590 shares 559 546
Additional paid-in-capital 481,144 438,285
Retained earnings 375,423 312,534
Unrealized holding gains (losses) on securities 49 212
Cumulative translation adjustments (9,189) (8,546)
--------- ---------
$ 848,099 $ 743,146
========= =========
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HUBBELL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
3. On February 14, 1997, Hubbell acquired Fargo Manufacturing Company,
Inc. ("Fargo") based in Poughkeepsie, New York. Fargo manufactures
distribution and transmission line products primarily for the electric
utility market. Each share of Fargo common stock was converted into a
right to receive shares or fractions thereof of Hubbell's Class B
Common Stock and accordingly 1,170,572 shares of Class B Common Stock
were issued. The acquisition of Fargo has been recorded under the
purchase method of accounting with a cost of $43,100,000 net of cash
acquired.
On January 2, 1996, the Company acquired the assets of the Anderson
Electrical Connectors business ("Anderson"). Anderson manufactures
electrical connectors and associated hardware and tools for the
electric utility industry with manufacturing facilities in Alabama and
Tennessee. On January 31, 1996, the Company acquired all the
outstanding stock of Gleason Reel Corp. ("Gleason") based in Mayville,
Wisconsin. Gleason manufactures electric cable management products
(including cable and hose reels, protective steel and nylon cable
tracks and cable festooning hardware) and a line of ergonomic tool
support systems. The businesses were acquired for cash of $31,365,000
and notes of $18,635,000 that mature in one year and were recorded
under the purchase method of accounting.
The costs of the acquired businesses has been allocated to assets
acquired and liabilities assumed based on fair values with the residual
amount assigned to goodwill, which is being amortized over forty years.
The businesses have been included in the financial statements as of
their respective acquisition date and had no material effect on the
Company's financial position and reported earnings.
4. In the opinion of management, the information furnished in Part
I-Financial Information on Form 10-Q reflects all adjustments (which
include only normal recurring adjustments) necessary to present fairly
the financial statements for the periods indicated.
5. The results of operations for the three and nine months ended September
30, 1997 and 1996, are not necessarily indicative of the results to be
expected for the full year.
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HUBBELL INCORPORATED
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
FINANCIAL CONDITION
At September 30, 1997, the Company's financial position remained strong
with working capital of $403.5 million and a current ratio of 2.7 to 1. Total of
short and long-term borrowings at September 30, 1997, were $99.8 million, 11.8%
of shareholders equity.
The net increase in cash and temporary cash investments of $21.8
million for the nine months ended September 30, 1997, reflects strong operating
cash flow which were used to fund an increase in property, plant and equipment
and dividend payment along with the repayment of the short-term notes issued as
part of the acquisition of Gleason Reel in 1996.
Net cash provided by operating activities reflects higher net income
offset by increased working capital to support higher sales. The decrease in
current liabilities is due to the payment of income taxes, insurance premiums
and accrued interest.
The Company believes that currently available cash, borrowing
facilities, and its ability to increase its credit lines if needed, combined
with internally generated funds should be more than sufficient to fund capital
expenditures as well as any increase in working capital that would be required
to accommodate a higher level of business activity.
RESULTS OF OPERATIONS
Consolidated net sales increased by 6% for the third quarter and 7%
year-to-date reflecting a general improvement across all businesses with
particularly strong growth for Premise Wiring, Canada and Mexico operations
combined with the acquisition of Fargo in 1997. Operating income for the quarter
and first nine months increased 10% and 13%, respectively, on higher sales and
profitability improvement as the Company entered into the final year of its
restructuring program with net operating margins rising almost a full percentage
point over 1996.
Low Voltage segment sales increased 5% in the quarter and 4%
year-to-date on higher shipments of generally all products within the segment.
Operating income increased 10% and 8%, respectively, on higher sales and
improved operating efficiencies in restructured units.
High Voltage segment sales increased by 7% for the quarter and first
nine months on continued growth for surge arresters, insulators, cut-outs and
related hardware within the North American markets combined with the acquisition
of Fargo on February 14, 1997. Operating income increased more than 20% on
higher sales, improved profitability and the inclusion of Fargo.
The Other industry segment sales rose by 6% and 9% for the respective
periods as all units reported higher shipments with particularly strong
increases for wire management products. Operating profits increased in line with
sales.
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HUBBELL INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1997
(CONTINUED)
Sales through the Company's International units increased by 10% for
the quarter and 19% for the first nine months on continued growth of the
Canadian and Mexican markets particularly for High Voltage products. Operating
income from International units for the comparative periods increased 12% for
the quarter and 30% year-to-date on the higher sales volume and continued
profitability improvement of the restructured Canadian and European operations.
The effective income tax rate for 1997 was 30% versus 29% in 1996. The
increase in the effective tax rate reflects a higher portion of domestic source
income which is due in part to the recently completed acquisitions combined with
changes in tax regulations regarding corporate owned life insurance and Puerto
Rico investment income. Net income increased 14% and earnings per share
increased 12%, respectively. Earnings per share includes the impact of the
additional shares issued for the Fargo acquisition.
The Company's restructuring program is proceeding according to
management's plan. At September 30, 1997, the restructuring accrual balance was
$1,465,000. Through September 30, 1997, cumulative costs charged to the
restructuring accrual were $48,535,000 as follows (in thousands):
Personnel Plant & Equipment Costs
Costs Relocation Disposal Total
----- ---------- -------- -----
1993 $ 4,456 $ 2,794 $ -- $ 7,250
1994 7,550 2,036 5,225 14,811
1995 3,017 5,048 1,461 9,526
1996 2,223 6,642 814 9,679
1997 Y-T-D 1,561 3,531 2,177 7,269
------- ------- ------ -------
Cumulative $18,807 $20,051 $9,677 $48,535
======= ======= ====== =======
Personnel costs include non-cash charges for early retirement programs
which have been reclassified to the Company's pension liability totaling
$6,203,000 since inception of the restructuring program.
NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings
Per Share" was issued in February 1997 and is effective for financial statements
issued after December 15, 1997; earlier application is not permitted. The
statement requires the presentation of basic earnings per share based on average
shares issued and outstanding and diluted earnings per share which reflects the
potential dilution that could occur from the exercise or conversion of
instruments into common stock. The Company's currently reported earnings per
share are determined on a basis that is similar to the diluted computation of
SFAS No. 128 and will not be materially different.
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HUBBELL INCORPORATED
PART II -- OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
EXHIBITS
NUMBER DESCRIPTION
11. Computation of Earnings Per Share
27. Financial Data Schedule (Electronic filings only)
-----------------------------
REPORTS ON FORM 8-K
There were no reports on Form 8-K filed for the nine months ended September 30,
1997.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUBBELL INCORPORATED
Dated: November 5, 1997 /s/ Harry B. Rowell, Jr.
---------------------- --------------------------------
Harry B. Rowell, Jr.
Executive Vice President
(Chief Financial and Accounting
Officer)
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EXHIBIT 11
HUBBELL INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
1997 1996 1997 1996
------- ------- -------- --------
Net Income $41,657 $36,979 $119,371 $104,394
======= ======= ======== ========
Weighted average number of common shares
outstanding during the period 67,211 65,953 67,211 65,913
Common equivalent shares 1,857 1,259 1,621 1,222
------- ------- -------- --------
Average number of shares outstanding 69,068 67,212 68,832 67,135
======= ======= ======== ========
Earnings per Share $ 0.60 $ 0.55 $ 1.73 $ 1.55
======= ======= ======== ========
10
5
1,000
9-MOS
DEC-31-1997
SEP-30-1997
156,176
0
206,165
7,647
256,703
642,127
503,420
266,907
1,276,307
238,612
99,504
0
0
672
847,427
1,276,307
1,029,360
1,029,360
710,023
710,023
6,055
784
5,481
170,533
51,162
119,371
0
0
0
119,371
1.73
1.73
