<PAGE> 1
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 JUNE 30, 2000
---------------------------
/ / 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
August 7, 2000 were:
Class A ($.01 par value) 9,947,000
Class B ($.01 par value) 50,715,000
<PAGE> 2
INDEX
HUBBELL INCORPORATED
<TABLE>
<CAPTION>
Part I. Financial Information PAGE
----
<S> <C>
Item 1. Financial Statements - (unaudited)
Consolidated statement of income - Three months ended June 30, 2000
and 1999, Six months ended June 30, 2000 and 1999 3
Consolidated balance sheets - June 30, 2000 and December 31, 1999 4
Consolidated statement of cash flows - Six months ended June 30, 2000
and 1999 5
Notes to consolidated financial statements - June 30, 2000 6-11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12-17
Part II. Other Information
Item 1. Legal Proceedings N/A
Item 2. Changes In Securities and Use of Proceeds N/A
Item 3. Defaults upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information N/A
Item 6. Exhibits and Report on Form 8-K 19
Signature 19
</TABLE>
2
<PAGE> 3
HUBBELL INCORPORATED
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
---- ---- ---- ----
NET SALES $356.6 $368.6 $717.3 $736.1
Cost of goods sold* 282.2 258.1 539.8 518.5
------ ------ ------ ------
GROSS PROFIT 74.4 110.5 177.5 217.6
Special charge (credits), net (.3) --- (.1) ---
Selling & administrative expenses 54.7 54.6 113.2 109.9
(Gain) on sale of business (36.2) --- (36.2) ---
------ --------- --------- ---------
OPERATING INCOME 56.2 55.9 100.6 107.7
OTHER INCOME (EXPENSE):
Investment income 3.8 3.4 7.5 6.8
Interest expense (4.0) (4.1) (8.1) (7.6)
Other income, net .4 3.1 3.8 5.0
------ -------- -------- -------
TOTAL OTHER INCOME, NET .2 2.4 3.2 4.2
INCOME BEFORE INCOME TAXES 56.4 58.3 103.8 111.9
Provision for income taxes 14.7 15.2 27.0 29.1
------ ------- ------- -------
NET INCOME $ 41.7 $ 43.1 $ 76.8 $ 82.8
====== ====== ====== ======
EARNINGS PER SHARE - BASIC $ 0.67 $ 0.66 $ 1.23 $ 1.27
====== ====== ====== ======
EARNINGS PER SHARE - DILUTED $ 0.67 $ 0.65 $ 1.22 $ 1.25
====== ====== ====== ======
CASH DIVIDENDS PER COMMON SHARE $ 0.33 $ 0.32 $ 0.65 $ 0.63
====== ====== ====== ======
</TABLE>
*2000 includes a special charge of $20.3 for product rationalizations.
See notes to consolidated financial statements.
3
<PAGE> 4
HUBBELL INCORPORATED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and temporary cash investments $ 76.0 $ 24.0
Accounts receivable (net) 226.8 218.7
Inventories 278.0 278.5
Prepaid taxes and other 33.1 31.6
---------- --------
TOTAL CURRENT ASSETS 613.9 552.8
Property, Plant and Equipment (net) 296.4 308.9
Other Assets:
Investments 198.2 206.7
Purchase price in excess of net assets of companies acquired (net) 237.5 241.3
Property held as investment 11.5 10.5
Other 63.5 79.0
---------- ----------
$1,421.0 $1,399.2
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Commercial paper and notes $ 171.1 $ 127.1
Accounts payable 71.6 75.9
Accrued salaries, wages and employee benefits 23.5 22.6
Accrued income taxes 44.1 24.6
Dividends payable 20.5 20.8
Accrued consolidation and streamlining charge 8.9 10.0
Other accrued liabilities 79.5 62.4
--------- ---------
TOTAL CURRENT LIABILITIES 419.2 343.4
Long-Term Debt 99.7 99.6
Other Non-Current Liabilities 82.4 90.5
Deferred Income Taxes 6.6 9.9
Shareholders' Equity 813.1 855.8
--------- ---------
$1,421.0 $1,399.2
========== ==========
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 5
HUBBELL INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
CASH FLOWS FROM OPERATING ACTIVITIES 2000 1999
------------------------------------ ---- ----
<S> <C> <C>
Net income $ 76.8 $ 82.8
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain on sale of business (36.2) ---
Gain on sale of assets (11.2) ---
Depreciation and amortization 27.8 28.8
Deferred income taxes (4.9) (1.2)
Expenditures for streamlining, consolidation and restructuring (16.3) (2.7)
Special Charge - 2000 10.4 ---
Changes in assets and liabilities, net of business acquisitions/dispositions:
(Increase)/Decrease in accounts receivable (9.4) (40.2)
(Increase)/Decrease in inventories (.8) .9
(Increase)/Decrease in other current assets (.6) 1.2
Increase/(Decrease) in current operating liabilities 15.3 (15.5)
(Increase)/Decrease in other, net (1.6) (.7)
-------- --------
Net cash provided by operating activities 49.3 53.4
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Acquisition of businesses --- (13.3)
Sale of business 61.0 ---
Proceeds from disposition of assets 23.3 ---
Additions to property, plant and equipment (23.5) (32.3)
Purchases of investments (1.9) (27.1)
Repayments and sales of investments 10.4 15.2
Other, net 4.3 1.5
------ -------
Net cash provided by (used in) investing activities 73.6 (56.0)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Payment of dividends (41.1) (40.6)
Commercial paper and notes - borrowings 44.0 59.8
Exercise of stock options .8 4.3
Acquisition of treasury shares (74.6) (30.6)
------- -------
Net cash used in financing activities (70.9) (7.1)
------ -------
Increase/(Decrease) in cash and temporary cash investments 52.0 (9.7)
CASH AND TEMPORARY CASH INVESTMENTS
-----------------------------------
Beginning of period 24.0 30.1
------ ------
End of period $ 76.0 $ 20.4
====== ======
</TABLE>
5
<PAGE> 6
HUBBELL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring items)
considered necessary for a fair presentation have been included.
Operating results for the three and six month periods ending June 30,
2000 are not necessarily indicative of the results that may be expected
for the year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Hubbell Incorporated Annual Report
on Form 10-K for the year ended December 31, 1999.
2. SPECIAL AND NON-RECURRING CHARGES
The second quarter and six month operating results reflect a special and
non-recurring charge, offset by a reduction in the streamlining program
accrual established in 1997. For the six-month period, these amounts
total $23.7 million ($17.5 million net of tax, or $0.28 per diluted
share).
In accordance with authoritative guidelines for reporting and
disclosure, the Company's charges and accrual reversal are recorded
within their respective classifications in the consolidated statement of
income, as follows:
<TABLE>
<CAPTION>
Classification Amount (millions)
-------------- ----------------
First Quarter Second Quarter Six Months
------------- -------------- ----------
<S> <C> <C> <C>
Non-recurring charges:
Net Sales $ - $ 3.5 $ 3.5
Special charges (credits):
Cost of goods sold - 20.3 20.3
Special charge
(credits), net .2 (.3) (.1)
--- ----- -----
TOTAL COST $ .2 $ 23.5 $ 23.7
====== ======== ========
</TABLE>
6
<PAGE> 7
HUBBELL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
Net sales includes a non-recurring charge of $3.5 million related to an
increase in the reserve for customer returns and allowances. The increased
reserve requirement is primarily in response to higher first half customer
credit activity associated with inaccurate/incomplete shipments from the new
electrical products central distribution warehouse.
Cost of sales reflects a special charge in connection with management's
decision to streamline its product offering and eliminate non-strategic
inventory across all business units. The charge represents the cost of
inventories identified for discontinuance and disposal. In total,
approximately 10,900 or 9% of the Company's total SKU's have been
discontinued in connection with this program.
Special charge, net, reflects the cost of additional first and second quarter
2000 cost reduction and streamlining actions offset by a reversal, in
connection with management's ongoing review, of costs accrued in connection
with the 1997 streamlining program. The net charge (reversal) consists of
the following:
<TABLE>
<CAPTION>
Amount (millions)
----------------
First Quarter Second Quarter Six Months
------------- -------------- ----------
<S> <C> <C> <C>
2000 special charge $3.7 $6.7 $10.4
Reversal: 1997
streamlining program (3.5) (7.0) (10.5)
------- ------- -------
NET $ .2 $ (.3) $ (.1)
</TABLE> ======= ======== ========
The second quarter special charge of $6.7 million primarily consists of
asset impairments of $4.0 million and facility consolidation and downsizing,
severance and other provisions of $2.7 million.
The following table sets forth the components of the 2000 special charge:
<TABLE>
<CAPTION>
Employee Asset Exit
Benefits Disposals Costs Total
-------- --------- ----- -----
<S> <C> <C> <C> <C>
2000 special charge $1.6 $ 6.0 $2.8 $10.4
Non-cash write-offs - (6.0) - (6.0)
Cash expenditures (.4) - - (.4)
-------- --------- ------ --------
Remaining Reserve at June 30 $1.2 $ - $2.8 $4.0
==== ====== ==== ====
</TABLE>
7
<PAGE> 8
HUBBELL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
1997 Streamlining Program
Similar to the results of management's first quarter review of the 1997
streamlining program, the second quarter adjustment reflects costs
originally estimated as part of the 1997 streamlining that are no longer
needed to complete certain plans in the Electrical and Power segments. In
addition, the accrual reduction includes approximately $2.0 million of
underspending for severance and exit costs within the Power segment.
The following table sets forth the status of the 1997 streamlining program:
<TABLE>
<CAPTION>
Employee Disposal Accrued
Benefits and Exit Costs Charge
-------- --------------- ------
<S> <C> <C> <C>
1997 streamlining program $ 15.6 $16.8 $32.4
Amount utilized (8.3) (8.5) (16.8)
Amounts reversed in 2000 (5.4) (5.1) (10.5)
------ ------ -----
Remaining Reserve at June 30 $ 1.9 $ 3.2 $5.1
====== ====== =====
</TABLE>
3. GAIN ON SALE OF BUSINESS
In April, the Company completed the sale of its WavePacer Digital Subscriber
Line assets, part of Pulse Communications, Inc. ("Pulse"), to ECI Telecom
Ltd. for a purchase price of $61.0 million with a provision for additional
payments depending upon WavePacer's sales in 2000. The transaction produced
a gain on sale of $36.2 million in the second quarter.
4. INVENTORIES ARE CLASSIFIED AS FOLLOWS: (IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Raw Material $ 94.3 $ 92.8
Work-in-Process 72.2 72.3
Finished Goods 157.5 158.9
------ ------
324.0 324.0
Excess of current
costs over LIFO basis (46.0) (45.5)
------- --------
$278.0 $278.5
====== ========
</TABLE>
8
<PAGE> 9
HUBBELL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
5. SHAREHOLDERS' EQUITY COMPRISES: (IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
---- ----
<S> <C> <C>
Common Stock, $.01 par value:
-----------------------------
Class A-authorized 50,000,000 shares,
outstanding 9,924,867 and 10,274,567 shares $ .1 $ .1
Class B-authorized 150,000,000 shares
outstanding 51,406,075 and 53,977,630 shares .5 .5
Additional paid-in-capital 275.9 349.7
Retained earnings 555.2 519.1
Cumulative translation adjustments (18.6) (13.6)
-------- --------
$813.1 $855.8
======== ========
</TABLE>
6. The following table sets forth the computation of earnings per share for the
three and six-months ended June 30, (in millions except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $41.7 $43.1 $76.8 $82.8
===== ===== ===== =====
Weighted average number of common
shares outstanding during the period 61.9 65.0 62.8 65.2
Potential dilutive shares .2 1.2 .1 1.1
------ ------ ------ ------
Average number of shares outstanding - diluted 62.1 66.2 62.9 66.3
Earnings per share:
Basic $0.67 $0.66 $1.23 $ 1.27
Diluted $0.67 $0.65 $1.22 $ 1.25
</TABLE>
7. COMPREHENSIVE INCOME (IN MILLIONS)
Total comprehensive income was $39.5 and $71.8 for the three and six-months
ended June 30, 2000, respectively, and $43.0 and $82.4 for the three and
six-months ended June 30, 1999, respectively. The difference between Net
Income and Comprehensive Income relates entirely to translation adjustments.
9
<PAGE> 10
HUBBELL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
8. INDUSTRY SEGMENTS
The Company reports operations in three segments: Electrical, Power and
Other. Beginning in 2000, the Telecommunications Segment, which consisted of
the Pulse subsidiary, has been included in the Electrical Segment. This
change resulted primarily from a reorganization of management responsibility
and the April 2000 announcement by the Company that it had completed the
sale of Pulse's Digital Subscriber Line assets to ECI Telecom, Ltd. (see
Note 3 of Notes to Consolidated Financial Statements.) All prior year
amounts have been reclassified to conform to the current year presentation.
The following table sets forth financial information by industry segment for
the three and six months ended June 30 (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales
---------
Electrical $234.4 $247.9 $477.3 $501.1
Power 98.1 102.4 190.9 199.9
Other 24.1 18.3 49.1 35.1
------- ------- ------- -------
Total $356.6 $368.6 $717.3 $736.1
====== ====== ====== ======
Operating Income
----------------
Electrical* $ 30.9 $ 40.4 $ 65.3 $ 78.6
Special and non-recurring
charge, net (17.6) --- (19.2) ---
Gain on sale of business 36.2 --- 36.2 ---
Power 10.9 13.7 19.3 26.2
Special and non-recurring
charge, net (5.1) --- (3.7) ---
Other 1.7 1.8 3.5 2.9
Special charge (.8) --- (.8) ---
-------- -------- --------- --------
Segment Total 56.2 55.9 100.6 107.7
Interest Expense (4.0) (4.1) (8.1) (7.6)
Investment and Other
Income, Net 4.2 6.5 11.3 11.8
------- ------- ------- -------
Income Before Income Taxes $ 56.4 $ 58.3 $103.8 $111.9
====== ====== ====== ======
</TABLE>
* - ELECTRICAL SEGMENT OPERATING INCOME FOR THE SIX-MONTHS ENDED
JUNE 30, 2000 INCLUDES $8.1 MILLION IN CONNECTION WITH THE GAIN
ON SALE OF A FULLY-DEPRECIATED WEST COAST WAREHOUSE.
10
<PAGE> 11
HUBBELL INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
9. In June 1999, the Financial Accounting Standards Board issued statement
of Financial Accounting Standard ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133", which delayed the effective date of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", by
one year. SFAS No. 133 is now effective for all fiscal quarters of all
fiscal years beginning after June 15, 2000 (January 1, 2001 for the
Company). SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. This will change the
current practices of the Company, but is not expected to have a significant
impact on financial position or results of operations.
10. SUBSEQUENT EVENT
In July, the Company completed the purchase of common stock of GAI-Tronics
Corporation from Salient 3 Communications for a cash purchase price of
$37.1 million. Based in Reading, PA, GAI-Tronics is a leading supplier of
specialized communications systems designed for indoor and outdoor
hazardous environments. GAI-Tronics will be included in the Company's Other
segment.
11
<PAGE> 12
HUBBELL INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
JUNE 30, 2000
SEGMENTS
--------
The Company reports operations in three segments: Electrical, Power and Other.
Beginning in 2000, the Telecommunications segment, which consisted of the Pulse
subsidiary, has been included in the Electrical Segment. This change resulted
primarily from a reorganization of management responsibility and the early
April 2000 announcement by the Company that it had completed the sale of
Pulse's Digital Subscriber Line assets to ECI Telecom, Ltd. All prior year
amounts have been reclassified to conform to the current year presentation.
RESULTS OF OPERATIONS
---------------------
Consolidated net sales for the second quarter and six months of 2000 declined
slightly versus the comparable periods of the prior year primarily due to
softness in the Electrical segment and the September, 1999 disposition of the
Kerite Company ("Kerite"). Comparisons within the Electrical segment were
negatively impacted by the decline in sales at Pulse and within the electrical
commodity products business. Comparable sales within the Company's Power
segment showed strong improvement, excluding the disposition of Kerite. Net
sales in 2000 includes a charge of $3.5 million in connection with customer
credit activity primarily within electrical products (see Special and
non-recurring charges below).
Operating income for the quarter rose 1% and, for the six months, declined 7%
versus 1999's second quarter and six months. However, excluding the special
charge, net and gain on sale of business, operating income for the quarter and
six months fell 22% and 18%, respectively. These declines exceeded the
comparable declines in sales in the Company's two largest segments primarily
due to ongoing logistical issues within the Electrical segment's commodity
products business and continuing actions and attendant costs associated with
completing the various operational realignments within the Power segment.
Segment Results
---------------
Electrical Segment sales declined 5% in the quarter and year-to-date versus the
comparable periods of 1999. The sales decline is primarily attributable to the
legacy products of Pulse, where sales fell sharply from the year ago periods due
to a drop in demand for the businesses' core multiplexing products. Volume at
Pulse is believed to have stabilized at a rate of $16-19 million per quarter.
Volume also declined in commodity electrical products due to continued softness
in pricing and overall demand, coupled with inefficiencies associated with
operating the new mid-west distribution facility. Operating income fell sharply
in the quarter and is down 17% year-to-date due to the lower volume and the
high logistics and start-up costs at the mid-west distribution facility.
Management expects to improve the rate of progress made in lowering costs at
the distribution center during the third quarter in order to convert this
business's second quarter and six-month operating loss to break even or better
for the full year. Six-month operating income for the segment also includes
$8.1 million in connection with a gain on the sale of a west coast warehouse.
12
<PAGE> 13
HUBBELL INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
JUNE 30, 2000
(CONTINUED)
Power Segment comparable sales, excluding Kerite, increased 10% in the quarter
and 9% year-to-date versus the 1999 comparable periods. Strong order input and
resultant higher shipments of generally all products within the segment
contributed to the increase. Comparable operating income declined due to
continued costs associated with completing the complex series of changes in the
segment's operations described throughout 1999. The segment is now nearing
completion of these programs started in 1998 to consolidate operations and move
to lower cost sites and, accordingly, was able to return to double-digit
operating margins in the second quarter. Volume and margin improvement is
expected to continue for this segment throughout the remainder of the year.
The Other Industry Segment reported substantially increased sales in the
quarter and year-to-date mainly as a result of the July 1999 acquisition of the
Haefely high voltage test and instrumentation business. However, due to slower
industrial markets where this segment operates, sales were flat or down in each
of the legacy businesses in the quarter and for the six months versus
comparable 1999 periods. Despite the lower volumes, operating profits managed
to stay even in the quarter and improve for the six months versus 1999 due to
effective cost management and a favorable mix of product sales. With the
integration of the Haefely and Hipotronics organizations continuing on
schedule, profitability improvements in the segment are anticipated in the
second half.
Also, in July, 2000 the Company completed the purchase of GAI-Tronics
Corporation from Salient 3 Communications for a cash purchase price of $37.1
million. GAI-Tronics is a leading supplier of specialized communications
systems designed for indoor and outdoor hazardous environments. GAI-Tronics
will operate and be reported within the Other segment. Sales of GAI-Tronics are
expected to be $50-60 million per year.
Special and non-recurring charges
---------------------------------
The second quarter and six-month operating results reflect a special and
non-recurring charge, offset by a reduction in the streamlining program accrual
established in 1997. For the six-month period, these amounts total $23.7
million ($17.5 million net of tax, or $0.28 per diluted share).
The Company's charges and accrual reversal are recorded within their respective
classifications in the consolidated statement of income, as indicated in Note 2
of Notes to Consolidated Financial Statements.
Net sales includes a non-recurring charge of $3.5 million related to an
increase in the reserve for customer returns and allowances. The increased
reserve requirement is primarily in response to higher first half customer
credit activity associated with inaccurate/incomplete shipments from the new
electrical products central distribution warehouse. Management expects this
credit activity to return to historical levels by the end of the third quarter.
13
<PAGE> 14
HUBBELL INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
JUNE 30, 2000
(CONTINUED)
Cost of sales reflects a special charge in connection with management's
decision to streamline its product offering and eliminate non-strategic
inventory across all business units. The charge represents the cost of
inventories identified for discontinuance and disposal. In total, approximately
10,900 or 9% of the company's total SKU's have been discontinued in connection
with this program. This rationalization of product is intended to facilitate
improvements in manufacturing efficiencies and lower working capital needs.
This action is not expected to have any significant impact on service levels,
sales or profitability throughout the remainder of 2000 or in future years.
Special charge, net reflects the cost of additional first and second quarter
2000 cost reduction and streamlining actions offset by a reversal, in
connection with management's ongoing review, of costs accrued in connection
with the 1997 streamlining program. The net charge consists of the following:
<TABLE>
<CAPTION>
Amount (millions)
-----------------
First Quarter Second Quarter Six Months
------------- -------------- ----------
<S> <C> <C> <C>
2000 special charge $ 3.7 $ 6.7 $ 10.4
Reversal: 1997
streamlining program (3.5) (7.0) (10.5)
------ ------ ------
NET $ .2 $ (.3) $ (.1)
====== ====== ======
</TABLE>
2000 Special Charge
-------------------
Operating income for the second quarter reflects a provision of $27.0 million
for special charges. Added to the $20.3 million cost to streamline
non-strategic inventory are asset impairments of $4.0 million and facility
consolidation and downsizing, severance, and other provisions of $2.7 million.
The asset impairments primarily represent write-downs of surplus equipment
which were either (1) acquired in connection with actions originally
contemplated in the 1997 streamlining program which have been revised or (2)
rendered obsolete as a result of the year 2000 product line discontinuances
discussed above.
The following table sets forth the components of the 2000 special charge:
<TABLE>
<CAPTION>
Employee Asset Exit
Benefits Disposals Costs Total
-------- --------- ----- -----
<S> <C> <C> <C> <C>
2000 special charge $ 1.6 $ 6.0 $ 2.8 $ 10.4
Non-cash write-offs - (6.0) - (6.0)
Cash expenditures (.4) - - (.4)
-------- ------ -------- ---------
Remaining Reserve at June 30 $ 1.2 $ - $ 2.8 $ 4.0
====== ====== ====== =======
</TABLE>
14
<PAGE> 15
HUBBELL INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
JUNE 30, 2000
(CONTINUED)
1997 Streamlining Program
-------------------------
Similar to the results of management's first quarter review of the 1997
streamlining program, the second quarter adjustment reflects costs originally
estimated as part of the 1997 streamlining that are no longer needed to
complete certain plans in the Electrical and Power segments. The change in
estimate occurred in connection with recently appointed operating management's
decision to terminate plans related to closure of the St. Louis, MO. and South
Bend, IN manufacturing facilities within Electrical Products. In addition, the
accrual reduction includes approximately $2.0 million of underspending for
severance and exit costs within the Power segment principally in connection
with a foundry consolidation and relocation of production to lower cost areas.
The underspending of severance is mainly due to an increased incidence of
natural attrition and the reassignment of affected employees.
Each of the remaining in-process programs within the Power and Electrical
segments will be completed by June 30, 2001, with a majority of the remaining
accrual balance of $5.1 million being spent by December 31, 2000.
Gain on sale of business
------------------------
In April, the Company completed the sale of its WavePacer Digital Subscriber
Line assets, to ECI Telecom Ltd. for a purchase price of $61.0 million. The
transaction produced a gain on sale of $36.2 million in the second quarter.
Interest expense in the quarter was consistent with the 1999 second quarter.
Through six months of 2000, interest expense was higher than the comparable
1999 period due to higher average debt levels and borrowing rates.
Other income, net, for the six months of 2000 is primarily comprised of the
first quarter gain on sale of leveraged lease investments in contemplation of
their pending expiration. The 1999 six month balance primarily includes
insurance recoveries in connection with damage sustained from Hurricane
Georges.
The effective income tax rate for the second quarter and six months of 2000
remained at 26%, consistent with the comparable 1999 periods.
15
<PAGE> 16
HUBBELL INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
JUNE 30, 2000
(CONTINUED)
FINANCIAL CONDITION
-------------------
The Company's working capital position remained strong at June 30, 2000 at
$194.7 million versus $209.4 million at December 31, 1999. Total borrowings at
June 30, 2000, were $270.8 million, 33% of shareholders equity. Versus December
31, 1999, the debt to equity ratio has increased 7 percentage points due to a
traditional first half investment in inventory, the impact of longer sales
months in accounts receivable and the effect of continuing share purchases in
connection with the Company's $300 million stock repurchase program.
In July, the Company completed the purchase of common stock of GAI-Tronics
Corporation from Salient 3 Communications for a cash purchase price of $37.1
million. This purchase will not have any significant impact on the Company's
overall financial condition.
CASH FLOWS
----------
The Company's overall cash and investments balances increased substantially at
June 30, 2000 versus December 31, 1999 primarily due to proceeds received in
April in connection with the sale of the WavePacer Digital Subscriber Line
assets, which resulted in cash proceeds of $61.0 million. The increase in cash
and temporary cash investments through June 30, 2000 also reflects the
following: cash provided from operating and investing activities and the
issuance of commercial paper; offset by investments in plant and equipment,
quarterly dividend payments and the acquisition of treasury shares under the
Company's share repurchase program. Through June 30, 2000, the Company has
completed the purchase of 6.6 million shares aggregating $222.9 million. The
Company expects to substantially complete the $300 million program by year-end.
Cash provided by operations declined modestly in the first six months of 2000
versus the prior year. Despite a decline in funds used to finance accounts
receivable and an increase in current liabilities, lower earnings from
operations resulted in reduced operating cash flow. Cash flow from investing
activities reflects proceeds from the liquidation of an investment in leveraged
leases and the sale of a warehouse in the first quarter.
The Company believes that currently available cash, borrowing facilities, and
its ability to increase 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.
16
<PAGE> 17
HUBBELL INCORPORATED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
JUNE 30, 2000
(CONTINUED)
MARKET RISKS
------------
In the operation of its business, the Company has identified market risk
exposures to foreign currency exchange rates, raw material prices and interest
rates. There have not been any material changes affecting the identified risks
or the Company's strategy for managing the exposures from the preceding year.
FORWARD-LOOKING STATEMENTS -------------------------- Certain statements made in
this Management's Discussion and Analysis of Financial Condition and Results of
Operations, and elsewhere in this report, are forward-looking and are based on
the Company's reasonable current expectations. These forward-looking statements
may be identified by the use of words or phrases such as "believe", "expect",
"anticipate", "should", "plan", "estimated", "potential", "target", "goals" and
"scheduled", among others. In connection with the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, the Company is hereby
identifying certain important factors that could cause actual results to differ
materially from those contained in the specified statements. Such factors
include, but are not limited to: the projection of improvement in the rate of
progress made in lowering costs and improving profitability in the electrical
products business, stabilization of the sales volume at Pulse, expected sales
and profits in the Power segment and the timing of completion of actions in
connection with the 2000 special charge.
17
<PAGE> 18
HUBBELL INCORPORATED
PART II -- OTHER INFORMATION
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
At the Annual Meeting of Shareholders held on May 1, 2000:
1. The following eight (8) individuals were elected directors of the Company
for the ensuing year to serve until the next Annual Meeting of Shareholders
of the Company and until their respective successors may be elected and
qualified, the affirmative votes being a majority of the voting power of all
outstanding eligible shares all voting as a single class:
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL VOTES FOR VOTES WITHHELD
------------------ --------- --------------
<S> <C> <C>
G. Jackson Ratcliffe 214,236,926 3,199,256
E. Richard Brooks 214,455,031 2,981,151
George W. Edwards, Jr. 214,461,472 2,974,710
Joel S. Hoffman 214,558,072 2,878,110
Andrew McNally IV 214,523,831 2,912,351
Daniel J. Meyer 214,474,830 2,961,352
John A. Urquhart 214,390,604 3,045,578
Malcolm Wallop 214,332,926 3,103,256
</TABLE>
2. PricewaterhouseCoopers LLP was ratified as independent accountants to
examine the annual financial statements for the Company for the year 2000
receiving 216,971,296 affirmative votes, being a majority of the votes cast
on the matter all voting as a single class, with 272,489 negative votes and
192,398 votes abstained.
18
<PAGE> 19
HUBBELL INCORPORATED
PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
-------------------------------
EXHIBITS
NUMBER DESCRIPTION
------ -----------
27. Financial Data Schedule (Electronic filings only)
-----------------------------
REPORTS ON FORM 8-K
There were no reports on Form 8-K filed for the three months ended June 30,
2000.
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: August 10, 2000 /s/ T. H. Powers
---------------------- ----------------------------------
Timothy H. Powers
Senior Vice President and
Chief Financial Officer
19
