Table of Contents

 
(HUBBELL LOGO)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
     
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009
o
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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
incorporation or organization)
  (I.R.S. Employer
Identification No.)
584 Derby Milford Road, Orange, CT
(Address of principal executive offices)
  06477
(Zip Code)
 
(203) 799-4100
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
 
     
Title of each Class
 
Name of Exchange on which Registered
 
Class A Common — $.01 par value (20 votes per share)   New York Stock Exchange
Class B Common — $.01 par value (1 vote per share)   New York Stock Exchange
Series A Junior Participating Preferred Stock Purchase Rights   New York Stock Exchange
Series B Junior Participating Preferred Stock Purchase Rights   New York Stock Exchange
 
Securities registered pursuant to Section 12(g) of the Act:
None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes o     No þ
 
Indicate by check mark if the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
             
Large accelerated filer þ
  Accelerated filer o   Non-accelerated filer o   Smaller reporting Company o
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
The approximate aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2009 was $1,646,427,497*. The number of shares outstanding of the Class A Common Stock and Class B Common Stock as of February 12, 2010 was 7,167,506 and 52,579,625, respectively.
 
Documents Incorporated by Reference
 
Portions of the definitive proxy statement for the annual meeting of shareholders scheduled to be held on May 3, 2010, to be filed with the Securities and Exchange Commission (the “SEC”), are incorporated by reference in answer to Part III of this Form 10-K.
 
* Calculated by excluding all shares held by Executive Officers and Directors of registrant and the Louie E. Roche Trust, the Harvey Hubbell Trust, the Harvey Hubbell Foundation and the registrant’s pension plans, without conceding that all such persons or entities are “affiliates” of registrant for purpose of the Federal Securities Laws.
 


 

 
HUBBELL INCORPORATED
 
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 2009

TABLE OF CONTENTS
 
                 
        Page
 
      Business     2  
      Risk Factors     8  
      Unresolved Staff Comments     10  
      Properties     10  
      Legal Proceedings     10  
      Submission of Matters to a Vote of Security Holders     10  
        Executive Officers of the Registrant     11  
 
PART II
      Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities     13  
      Selected Financial Data     16  
      Management’s Discussion and Analysis of Financial Condition and Results of Operations     17  
      Quantitative and Qualitative Disclosures About Market Risk     32  
      Financial Statements and Supplementary Data     34  
      Changes in and Disagreements With Accountants on Accounting and Financial Disclosure     77  
      Controls and Procedures     77  
      Other Information     77  
 
PART III
      Directors and Executive Officers of the Registrant     77  
      Executive Compensation     78  
      Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters     78  
      Certain Relationships and Related Transactions     78  
      Principal Accountant Fees and Services     78  
 
PART IV
      Exhibits and Financial Statement Schedule     79  
 EX-21
 EX-23
 EX-31.1
 EX-31.2
 EX-32.1
 EX-32.2


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PART I
 
Item 1.   Business
 
Hubbell Incorporated (herein referred to as “Hubbell”, the “Company”, the “registrant”, “we”, “our” or “us”, which references shall include its divisions and subsidiaries as the context may require) was founded as a proprietorship in 1888, and was incorporated in Connecticut in 1905. Hubbell is primarily engaged in the design, manufacture and sale of 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, Mexico, the People’s Republic of China, Italy, the United Kingdom (“UK”), Brazil and Australia. Hubbell also participates in joint ventures in Taiwan and the People’s Republic of China, and maintains sales offices in Singapore, the People’s Republic of China, Mexico, South Korea, and 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. See also Note 21 — Industry Segments and Geographic Area Information in the Notes to Consolidated Financial Statements.
 
On October 2, 2009, the Company completed the purchase of Burndy Americas (“Burndy®”) for $355.2 million in cash (net of cash acquired). Burndy, headquartered in Manchester, New Hampshire, is a leading North American manufacturer of connectors, cable accessories and tooling. Burndy’s connector portfolio consists of Hydenttm and Servit® compression and mechanical connectors; Implotm, Hyground® and Burndyweld® transmission and substation grounding connectors and Wejtaptm overhead line connectors. Burndy also sells cable accessories including Penetroxtm oxide inhibiting compounds and hydraulic, pneumatic and mechanical tooling including the Patriot® family of battery tools and The Smart Cart® cable management systems. Burndy serves commercial and industrial markets and utility customers primarily in the United States (with roughly 25% of its sales in Canada, Mexico and Brazil). This acquisition has been added to the electrical systems business within the Electrical segment.
 
In December 2009, the Company purchased a product line for $0.6 million. This product line, comprised of conductor bar and festoon systems, has been added to the electrical systems business within the Electrical segment.
 
The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are made available free of charge through the Investor Relations section of the Company’s website at http://www.hubbell.com as soon as practicable after such material is electronically filed with, or furnished to, the SEC. These filings are also available for reading and copying at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the Company’s SEC filings can be accessed from the SEC’s homepage on the Internet at http://www.sec.gov. The information contained on the Company’s website or connected to our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered part of this report.
 
ELECTRICAL SEGMENT
 
The Electrical segment (70%, 72% and 75% of consolidated revenues in 2009, 2008 and 2007, respectively) is comprised of businesses that sell stock and custom products including standard and special application wiring device products, rough-in electrical products, lighting fixtures and controls, as well as 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 may also be found in the oil and gas (onshore and offshore) and mining industries. Certain lighting fixtures, wiring devices and electrical products also have residential and utility applications.
 
These products are primarily sold through electrical and industrial distributors, home centers, retail and hardware outlets, and lighting showrooms. Special application products are sold primarily through wholesale


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distributors to contractors, industrial customers and original equipment manufacturers (“OEMs”). High voltage products are sold primarily by direct sales to customers through its sales engineers. Hubbell maintains a sales and marketing organization to assist potential users with the application of certain products to their specific requirements, and with architects, engineers, industrial designers, OEMs and electrical contractors for the design of electrical systems to meet the specific requirements of industrial, non-residential and residential users. Hubbell is also represented by sales agents for its lighting fixtures and controls, electrical wiring devices, rough-in electrical products and high voltage products lines.
 
Hubbell Electrical Systems
 
Wiring Products
 
Hubbell designs, manufactures and sells wiring products which are supplied principally to industrial, non-residential and residential customers. These products, comprising several thousand catalog items, include items such as:
 
         
• Cable/cord reels
 
• Marine products
 
• Surge suppression devices
         
• Connectors
  • Mesh grips  
• Switches & dimmers
         
• Floor boxes/poke throughs
  • Pin & sleeve devices   • Switched enclosures
         
• Ground fault devices
  • Service poles   • Wiring accessories
 
These products, sold under the Hubbell®, Kellems®, Bryant®, Burndy®, Wejtaptm, Hydenttm, Servit®, Hyground®, Burndyweld®, and Circuit Guard® trademarks, are sold to industrial, non-residential, utility and residential markets. Hubbell also manufactures TVSS (transient voltage surge suppression) devices, under the Spikeshield® trademark, which are designed to protect electronic equipment such as personal computers and other supersensitive electronic equipment.
 
Hubbell also manufactures and/or sells components designed for use in local and wide area networks and other telecommunications applications supporting high-speed data and voice signals.
 
Electrical Products
 
Hubbell designs and manufactures electrical products with various applications. These include commercial and industrial products, tooling and cable management products, products for harsh and hazardous locations and high voltage test and measurement equipment.
 
Commercial Products
 
Hubbell manufactures and/or sells outlet boxes, enclosures and fittings under the following trademarks:
 
  •  Raco®- steel and plastic boxes, covers, metallic and nonmetallic electrical fittings and floor boxes
 
  •  Bell®- outlet boxes, a wide variety of electrical boxes, covers, combination devices, lampholders and lever switches with an emphasis on weather-resistant types suitable for outdoor applications
 
  •  Wiegmann®- a full-line of fabricated steel electrical equipment enclosures such as rainproof and dust-tight panels, consoles and cabinets, wireway and electronic enclosures and a line of non-metallic electrical equipment enclosures
 
Industrial Controls
 
Hubbell manufactures and sells a variety of heavy-duty electrical and radio control products which have broad application in the control of industrial equipment and processes. These products range from standard and specialized industrial control components to combinations of components that control industrial manufacturing processes.


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Tooling and Cable Management Products
 
Hubbell manufactures and sells a wide array of tooling products including hydraulic, mechanical and pneumatic tooling, as well as the Patriot® family of battery tools for various applications. The 2009 acquisition of Burndy expanded Hubbell’s array of cable management products, including hand carts and spool carriers. Hubbell’s cable management products are sold under the Gleason Reel® and The Smart Cart® tradenames.
 
Products for Harsh and Hazardous Locations
 
Hubbell’s special application products are intended to protect the electrical system from the environment and/or the environment from the electrical system. Harsh and hazardous locations are those areas (as defined and classified by the National Electrical Code and other relevant standards) where a potential for fire and explosion exists due to the presence of flammable gasses, vapors, combustible dust and fibers. Such classified areas are typically found in refineries, offshore oil and gas platforms, petro-chemical plants, pipelines, dispensing facilities, grain elevators and related processing areas. These products are sold under a number of brand names and trademarks, such as Killark®, Disconextm, HostileLite®, Hawketm, GAI-Tronics®, FEMCO®, DACtm, and Elemectm, and include:
 
     
• Cable connectors, glands and fittings
  • Junction boxes, plugs, receptacles
• Conduit raceway fittings
  • Land mobile radio peripherals
• Electrical distribution equipment
  • Lighting fixtures
• Electrical motor controls
  • Switches
• Enclosures
  • Telephone systems
• Intra-facility communications
   
 
Other products manufactured and sold for use primarily in the mining industry under the trademark Austdactm include material handling, conveyer control and monitoring equipment, gas detection equipment, emergency warning lights and sounders.
 
High Voltage Test and Measurement Equipment
 
Hubbell manufactures and sells, under the Hipotronics®, Haefely® and Tettex® trademarks, a broad line of high voltage test and measurement systems to test materials and equipment used in the generation, transmission and distribution of electricity, and high voltage power supplies and electromagnetic compliance equipment for use in the electrical and electronic industries.
 
Lighting Products
 
Hubbell manufactures and sells lighting fixtures and controls for indoor and outdoor applications within three categories:
 
1) Commercial/Institutional and Industrial Outdoor, 2) Commercial/Institutional and Industrial Indoor, and 3) Residential.
 
A fast growing trend within all three of these categories is the adoption of light emitting diode (“LED”) technology as the light source. The Company has a broad array of LED-luminaire products within each category and the majority of the new product development efforts are oriented towards expanding those offerings.


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Commercial/Institutional and Industrial Outdoor products are sold under a number of brand names and trademarks, including Kim Lighting®, Architectural Area Lighting, Beacon Products, Hubbell Outdoor Lighting, Security™, Spaulding™, Whiteway™, Sportsliter®, Sterner®, Devine®, and Lightscaper® and include:
 
     
• Bollards

• Canopy light fixtures
 
• Pedestrian zone, path/egress, landscape, building and area lighting fixtures and poles
     
• Decorative landscaping fixtures
 
• Series fixtures
     
• Fixtures used to illuminate athletic and recreational fields

• Floodlights and poles
 
• Signage fixtures

• Flood/step/wall mounted lighting
     
• Occupancy/vacancy sensors
 
• Inverter power systems
 
Commercial/Institutional and Industrial Indoor products are sold under the Alera™, Columbia Lighting®, Precision Lighting™, Paragon Lighting, Kurt Versen, Prescolite®, Dual-Lite®, Compass™ Products, Hubbell Industrial Lighting, Chalmit™, Victor™, Killark® and Thomas Research Products trademarks and include:
 
     
• Architectural, specification and commercial grade fluorescent fixtures
• Emergency lighting/exit signs
 
• International Electrotechnical Commission lighting fixtures designed for hazardous, hostile corrosive applications
• Fluorescent high bay fixtures
 
• Inverter power systems
     
• High intensity discharge high bay and low bay fixtures
 
• Recessed, surface mounted and track fixtures

• Specification grade LED fixtures
 
Residential products are sold under the Progress Lighting®, Everlume®, HomeStyletm Lighting, and Thomasville Lighting® (a registered trademark of Thomasville Furniture Industries, Inc.) tradenames and include:
 
     
• Bath/vanity fixtures and fans
 
• Linear fluorescent
     
• Ceiling fans
 
• Outdoor and landscape fixtures
     
• Chandeliers, sconces, directionals
 
• Residential LED fixtures
     
• Close to ceiling fixtures
 
• Track and recessed lighting
     
• Dimmers and door chimes
 
• Under-cabinet lighting
 
POWER SEGMENT
 
The Power segment (30%, 28% and 25% of consolidated revenues in 2009, 2008 and 2007, respectively) consists of operations that design and manufacture various transmission, distribution, substation and telecommunications products primarily used by the 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. While Hubbell believes its sales in this area are not materially dependent upon any customer or group of customers, a decrease in purchases by public utilities does affect this category.


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Transmission and Distribution Products
 
Hubbell manufactures and sells a wide variety of electrical transmission, substation and distribution products. These products are sold under a number of brand names and trademarks, such as Ohio Brass®, Chance®, Anderson®, Fargo®, Hubbell®, Polycast®, Quazite®, Comcore®, Hot Box® and PCORE® and include:
 
     
• Transformer equipment mounts
• Arresters
 
• Mechanical and compression electrical connectors and tools
     
• Automatic line splices
 
• Reclosers
     
• Cable elbow terminations and accessories

• High voltage condenser bushings

• Switches

• Hot line taps

• Cutouts
 
• Polymer concrete and fiberglass enclosures, equipment pads and drain products

• Specialized hot line tools

• Insulators

• Sectionalizers
 
Hubbell also manufactures and sells under the Chance® and/or Atlas Systems, Inc® trademarks products that include:
 
  •  Line construction materials including power-installed foundation systems and earth anchors to secure overhead power and communications line poles, guyed and self-supporting towers, streetlight poles and pipelines. Additionally, helical pier foundation systems are used to support homes and buildings, and earth anchors are used in a variety of farm, home and construction projects including tie-back applications.
 
  •  Pole line and tower hardware, including galvanized steel fixtures and extruded plastic materials used in overhead and underground line construction, connectors, fasteners, pole and cross arm accessories, insulator pins, mounting brackets and related components, and other accessories for making high voltage connections and linkages.
 
  •  Construction tools and accessories for building overhead and underground power and telephone lines.
 
INFORMATION APPLICABLE TO ALL GENERAL CATEGORIES
 
International Operations
 
The Company has several operations located outside of the United States. These operations manufacture, assemble and/or market Hubbell products and service both the Electrical and Power segments.
 
As a percentage of total net sales, international shipments from foreign operations directly to third parties were 16% in 2009 and 2008, and 14% in 2007 with the UK, Canada and Switzerland operations representing approximately 36%, 24% and 13%, respectively, of 2009 international net sales. See also Note 21-Industry Segments and Geographic Area Information in the Notes to Consolidated Financial Statements.
 
Raw Materials
 
Raw materials used in the manufacture of Hubbell products primarily include steel, aluminum, brass, copper, bronze, plastics, phenolics, zinc, nickel, elastomers and petrochemicals. Hubbell also purchases certain electrical and electronic components, including solenoids, lighting ballasts, printed circuit boards, integrated circuit chips and cord sets, from a number of suppliers. Hubbell is not materially dependent upon any one supplier for raw materials used in the manufacture of its products and equipment, and at the present time, raw materials and components essential to its operation are in adequate supply. However, certain of these principal raw materials are sourced from a limited number of suppliers. See also Item 7A. Quantitative and Qualitative Disclosures about Market Risk.


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Patents
 
Hubbell has approximately 1,400 active United States and foreign patents covering many of its products, which expire at various times. While Hubbell deems these patents to be of value, it does not consider its business to be dependent upon patent protection. Hubbell also licenses products under patents owned by others, as may be needed, and grants licenses under certain of its patents.
 
Working Capital
 
Inventory, accounts receivable and accounts payable levels, payment terms and, where applicable, return policies are in accordance with the general practices of the electrical products industry and standard business procedures. See also Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Backlog
 
Backlog of orders believed to be firm at December 31, 2009 was approximately $253.7 million compared to $291.5 million at December 31, 2008. The decrease in the backlog in 2009 is attributable to broad based weakness in the markets that we serve, particularly the non-residential construction market. Although this backlog is important, the majority of Hubbell’s revenues result from sales of inventoried products or products that have short periods of manufacture.
 
Competition
 
Hubbell experiences substantial competition in all categories of its business, but does not compete with the same companies in all of its product categories. The number and size of competitors vary considerably depending on the product line. Hubbell cannot specify with precision the number of competitors in each product category or their relative market position. However, some of its competitors are larger companies with substantial financial and other resources. Hubbell considers product performance, reliability, quality and technological innovation as important factors relevant to all areas of its business, and considers its reputation as a manufacturer of quality products to be an important factor in its business. In addition, product price, service levels and other factors can affect Hubbell’s ability to compete.
 
Research, Development & Engineering
 
Research, development and engineering expenditures represent costs incurred in the experimental or laboratory sense aimed at discovery and/or application of new knowledge in developing a new product or process, or in bringing about significant improvement in an existing product or process. Research, development and engineering expenses are recorded as a component of Cost of goods sold. Expenses for research, development and engineering were less than 1% of Cost of goods sold for each of the years 2009, 2008 and 2007.
 
Environment
 
The Company is subject to various federal, state and local government requirements relating to the protection of employee health and safety and the environment. The Company believes that, as a general matter, its policies, practices and procedures are properly designed to prevent unreasonable risk of environmental damage and personal injury to its employees and its customers’ employees and that the handling, manufacture, use and disposal of hazardous or toxic substances are in accord with environmental laws and regulations.
 
Like other companies engaged in similar businesses, the Company has incurred or acquired through business combination remedial response and voluntary cleanup costs for site contamination and is a party to product liability and other lawsuits and claims associated with environmental matters, including past production of product containing toxic substances. Additional lawsuits, claims and costs involving environmental matters are likely to continue to arise in the future. However, considering past experience and reserves, the Company does not anticipate that these matters will have a material impact on earnings, capital expenditures, or competitive position. See also Note 16 — Commitments and Contingencies in the Notes to Consolidated Financial Statements.


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Employees
 
As of December 31, 2009, Hubbell had approximately 12,700 salaried and hourly employees of which approximately 7,000 of these employees or 55% are located in the United States. Approximately 2,700 of these U.S. employees are represented by 21 labor unions. Hubbell considers its labor relations to be satisfactory.
 
Item 1A.   Risk Factors
 
Our business, operating results, financial condition, and cash flows may be impacted by a number of factors including, but not limited to those set forth below. Any one of these factors could cause our actual results to vary materially from recent results or future anticipated results. See also Item 7. Management’s Discussion and Analysis — “Executive Overview of the Business”, “Outlook”, and “Results of Operations”.
 
We operate in markets that are subject to competitive pressures that could affect selling prices or demand for our products.
 
We compete on the basis of product performance, quality, service and/or price. Our competitive strategy is to design and manufacture high quality products at the lowest possible cost. Our competitors include companies that have greater sales and financial resources than our Company. Competition could affect future selling prices or demand for our products.
 
A global recession and continued worldwide credit constraints could adversely affect us.
 
Recent global economic events, including concerns over the tight credit markets and failures or material business deterioration of financial institutions and other entities, have resulted in a continued concern regarding the global recession. If these conditions continue or worsen, we could experience additional declines in revenues, profitability and cash flow due to reduced orders, payment delays, supply chain disruptions or other factors caused by economic challenges faced by our customers, prospective customers and suppliers.
 
We source products and materials from various suppliers located in countries throughout the world. A disruption in the availability, price, or quality of these products could impact our operating results.
 
We use a variety of raw materials in the production of our products including steel, aluminum, brass, copper, bronze, zinc, nickel and plastics. We have multiple sources of supply for these products and are not dependent on any single supplier. However, significant shortages of these materials or price increases could increase our operating costs and adversely impact the competitive positions of our products which would directly impact our results of operations.
 
We continue to increase the amount of product materials, components and finished goods that are sourced from low cost countries including Mexico, the People’s Republic of China, and other countries in Asia. A political disruption or significant changes related to transportation to and/or from one of these countries could affect the availability of these materials and components which would directly impact our results of operations.
 
We rely on our suppliers in low cost countries to produce high quality materials, components and finished goods according to our specifications. Although we have quality control procedures in place, there is a risk that products may not meet our specifications which could impact our ability to ship high quality products to our customers on a timely basis and this could adversely impact our results of operations.
 
We engage in acquisitions and strategic investments and may encounter difficulty in obtaining appropriate acquisitions and in integrating these businesses.
 
We have pursued and will continue to seek potential acquisitions and other strategic investments to complement and expand our existing businesses within our core markets. The rate and extent to which appropriate acquisitions become available may impact our growth rate. The success of these transactions will depend on our ability to integrate these businesses into our operations. We may encounter difficulties in integrating acquisitions into our operations and in managing strategic investments. Therefore, we may not realize the degree or timing of expected synergies and benefits anticipated when we first enter into a transaction.


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Our operating results may be impacted by actions related to our enterprise-wide business system.
 
As of the end of 2006, the SAP software implementation had been completed throughout the majority of our domestic businesses. Since then, we have continued to work on standardizing business processes and improving our understanding and utilization of the system. Based upon the complexity of this system, there is risk that we will continue to incur additional costs to enhance the system, perform process reengineering and future implementations at our remaining businesses and post 2006 acquisitions. Any future reengineering or implementations could result in operating inefficiencies which could impact our operating results or our ability to perform necessary business transactions.
 
A deterioration in the credit quality of our customers could have a material adverse effect on our operating results and financial condition.
 
We have an extensive customer base of distributors and wholesalers, electric utilities, OEMs, electrical contractors, telecommunications companies, and retail and hardware outlets. We are not dependent on a single customer, however, our top 10 customers account for approximately 35% of our total accounts receivable. A deterioration in credit quality of several major customers could adversely affect our results of operations, financial condition and cash flows.
 
Inability to access capital markets may adversely affect our business.
 
Our ability to invest in our business and make strategic acquisitions may require access to the capital markets. If we are unable to access the capital markets, we could experience a material adverse affect on our business and financial results.
 
We have two classes of common stock with different voting rights, which results in a concentration of voting power of our common stock.
 
As of December 31, 2009, the holders of our Class A common stock (with 20 votes per share) held approximately 73% of the voting power represented by all outstanding shares of our common stock and approximately 12% of the Company’s total equity value, and the Hubbell Trust and Roche Trust collectively held approximately 49% of our Class A common stock. The holders of the Class A common stock thus are in a position to influence matters that are brought to a vote of the holders of our common stock, including, among others, the election of the board of directors, any amendments to our charter documents, and the approval of material transactions. In order to further the interests of our shareholders, the Company routinely reviews various alternatives to meet its capital structure objectives, including equity, reclassification and debt transactions.
 
We are subject to litigation and environmental regulations that may adversely impact our operating results.
 
We are, and may in the future be, a party to a number of legal proceedings and claims, including those involving product liability, patent and environmental matters, which could be significant. Given the inherent uncertainty of litigation, we can offer no assurance that a future adverse development related to existing litigation or any future litigation will not have a material adverse impact to our business. We are also subject to various laws and regulations relating to environmental protection and the discharge of materials into the environment, and we could incur substantial costs as a result of the noncompliance with or liability for clean up or other costs or damages under environmental laws. In addition, we could be affected by future laws or regulations, including those imposed in response to climate change concerns. Compliance with any future laws and regulations could result in an adverse affect on our business and financial results.
 
We face the potential harms of natural disasters, terrorism, acts of war, international conflicts or other disruptions to our operations.
 
Natural disasters, acts or threats of war or terrorism, international conflicts, and the actions taken by the United States and other governments in response to such events could cause damage to or disrupt our business operations, our suppliers or our customers, and could create political or economic instability, any of which could


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have an adverse effect on our business. Although it is not possible to predict such events or their consequences, these events could decrease demand for our products, make it difficult or impossible for us to deliver products, or disrupt our supply chain.
 
Item 1B.   Unresolved Staff Comments
 
None
 
Item 2.   Properties
 
Hubbell’s manufacturing and warehousing facilities, classified by segment, are located in the following areas. The Company believes its manufacturing and warehousing facilities are adequate to carry on its business activities.
 
                                     
              Total Approximate Floor
 
        Number of Facilities     Area in Square Feet  
Segment
  Location   Warehouses     Manufacturing     Owned     Leased  
 
Electrical segment
  United States     16       25       3,071,900       1,796,000  
    Australia             3             34,100  
    Brazil             1       123,200        
    Canada     3       1       178,700       22,400  
    Italy             1             8,200  
    Mexico     1       3       658,600       43,300  
    People’s Republic of China             1             185,900  
    Puerto Rico             1       162,400        
    Singapore     1                     6,700  
    Switzerland             1             73,800  
    United Kingdom             3       133,600       40,000  
Power segment
  United States     2       10       2,212,900       131,300  
    Brazil             1       103,000        
    Canada             1       30,000        
    Mexico             3       203,600       120,900  
 
Item 3.   Legal Proceedings
 
As described in Note 16 — Commitments and Contingencies in the Notes to Consolidated Financial Statements, the Company is involved in various legal proceedings, including patent matters, as well as workers’ compensation, product liability and environmental matters, including, for each, past production of product containing toxic substances, which have arisen in the normal course of its operations and with respect to which the Company is self-insured for certain incidents at various amounts. Management believes, considering its past experience, insurance coverage and reserves, that the final outcome of such matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
 
Item 4.   Submission of Matters to a Vote of Security Holders
 
No matters were submitted to a vote of security holders during the fourth quarter of 2009.


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Executive Officers of the Registrant
 
                 
Name.
 
Age(1)
 
Present Position
 
Business Experience
 
Timothy H. Powers
    61     Chairman of the
Board, President
and Chief
Executive Officer
  Chairman of the Board since September 15, 2004; President and Chief Executive Officer since July 1, 2001; Senior Vice President and Chief Financial Officer September 21, 1998 to June 30, 2001; previously Executive Vice President, Finance & Business Development, Americas Region, Asea Brown Boveri.
                 
                 
               
David G. Nord
    52     Senior Vice
President and Chief
Financial Officer
  Present position since September 19,
2005; previously Chief Financial
Officer of Hamilton Sundstrand Corporation, a United Technologies company, from April 2003 to September 2005, and Vice President, Controller of United Technologies Corporation from October 2000 to March 2003.
                 
                 
               
Richard W. Davies
    63     Vice President,
General Counsel
and Secretary
  Present position since January 1, 1996; General Counsel since 1987; Secretary since 1982; Assistant Secretary 1980-1982; Assistant General Counsel 1974-1987.
                 
                 
               
James H. Biggart, Jr. 
    57     Vice President and
Treasurer
  Present position since January 1, 1996; Treasurer since 1987; Assistant Treasurer 1986-1987; Director of Taxes 1984-1986.
                 
                 
               
Darrin S. Wegman
    42     Vice President and
Controller
  Present position since March 1, 2008; Vice President and Controller of the former Hubbell Industrial Technology segment/Hubbell Electrical Products March 2004-February 2008; Vice President and Controller of the former Hubbell Industrial Technology segment March 2002-March 2004; Controller of GAI-Tronics Corporation July 2000-February 2002.


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Name.
 
Age(1)
 
Present Position
 
Business Experience
 
                 
                 
               
W. Robert Murphy
    60     Executive Vice President,
Marketing and Sales
  Present position since October 1, 2007; Senior Group Vice President 2001-2007; Group Vice President 2000-2001; Senior Vice President Marketing and Sales (Wiring Systems) 1985-1999; and various sales positions (Wiring Systems) 1975-1985.
                 
                 
               
Scott H. Muse
    52     Group Vice
President (Lighting
Products)
  Present position since April 27, 2002 (elected as an officer of the Company on December 3, 2002); previously President and Chief Executive Officer of Lighting Corporation of America, Inc. (“LCA”) 2000-2002, and President of Progress Lighting, Inc. 1993-2000.
                 
                 
               
William T. Tolley
    52     Group Vice
President (Power Systems)
  Present position since December 23, 2008; Group Vice President (Wiring Systems) October 1, 2007-December 23, 2008; Senior Vice President of Operations and Administration (Wiring Systems) October 2005-October 2007; Director of Special Projects April 2005-October 2005; administrative leave November 2004-April 2005; Senior Vice President and Chief Financial Officer February 2002 - November 2004.
                 
                 
               
Gary N. Amato
    58     Group Vice
President
(Electrical
Systems)
  Present position since December 23, 2008; Group Vice President (Electrical Products) October 2006-December 23, 2008; Vice President October 1997-September 2006; Vice President and General Manager of the Company’s Industrial Controls Divisions (ICD) 1989-1997; Marketing Manager, ICD, April 1988-March 1989.
 
There are no family relationships between any of the above-named executive officers.
 
 
(1) As of February 19, 2010.

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PART II
 
Item 5.   Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
The Company’s Class A and Class B Common Stock is principally traded on the New York Stock Exchange under the symbols “HUBA” and “HUBB”. The following tables provide information on market prices, dividends declared, number of common shareholders, and repurchases by the Company of shares of its Class A and Class B Common Stock.
 
                                 
Market Prices (Dollars Per Share)
  Common A     Common B  
Years Ended December 31,
  High     Low     High     Low  
 
2009 — Fourth quarter
    45.89       38.50       48.05       40.67  
2009 — Third quarter
    40.49       29.40       43.03       31.64  
2009 — Second quarter
    34.00       25.80       36.58       27.80  
2009 — First quarter
    33.26       21.84       34.60       22.15  
2008 — Fourth quarter
    41.31       28.19       36.64       25.88  
2008 — Third quarter
    51.65       38.75       44.64       33.57  
2008 — Second quarter
    53.75       45.92       48.63       39.87  
2008 — First quarter
    54.00       46.01       50.56       42.40  
 
                                 
Dividends Declared (Dollars Per Share)
  Common A     Common B  
Years Ended December 31,
  2009     2008     2009     2008  
 
First quarter
    0.35       0.33       0.35       0.33  
Second quarter
    0.35       0.35       0.35       0.35  
Third quarter
    0.35       0.35       0.35       0.35  
Fourth quarter
    0.35       0.35       0.35       0.35  
 
                                         
Number of Common Shareholders of Record
                             
At December 31,
  2009     2008     2007     2006     2005  
 
Class A
    526       551       571       617       665  
Class B
    2,860       3,055       3,068       3,243       3,319  
 
In February 2010, the Company’s Board of Directors approved an increase in the common stock dividend rate from $0.35 to $0.36 per share per quarter. The increased quarterly dividend payment will commence with the dividend payment scheduled for April 9, 2010 to shareholders of record on March 8, 2010.


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Purchases of Equity Securities
 
In December 2007, the Board of Directors approved a stock repurchase program and authorized the repurchase of up to $200 million of Class A and Class B Common Stock. In February 2010, the Board of Directors extended the term of this program through February 20, 2011. As of December 31, 2009, approximately $160 million remains available under this program. Depending upon numerous factors, including market conditions and alternative uses of cash, the Company may conduct discretionary repurchases through open market and privately negotiated transactions during its normal trading windows. The Company has not repurchased any shares under this program since August 2008.


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Corporate Performance Graph
 
The following graph compares the total return to shareholders on the Company’s Class B Common Stock during the five years ended December 31, 2009, with a cumulative total return on the (i) Standard & Poor’s MidCap 400 (“S&P MidCap 400”) and (ii) the Dow Jones U.S. Electrical Components & Equipment Index (“DJUSEC”). The Company is a member of the S&P MidCap 400. As of December 31, 2009, the DJUSEC reflects a group of approximately twenty-six company stocks in the electrical components and equipment market segment, and serves as the Company’s peer group. The comparison assumes $100 was invested on December 31, 2004 in the Company’s Class B Common Stock and in each of the foregoing indices and assumes reinvestment of dividends.
 
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Hubbell Inc., The S&P Midcap 400 Index
And The Dow Jones US Electrical Components & Equipment Index
 
(PERFORMANCE GRAPH)
 
$100 invested on 12/31/04 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.
 
Copyright©2010 S & P, a division of The McGraw-Hill Companies Inc. All rights reserved.
 
Copyright©2010 Dow Jones & Co. All rights reserved.


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Item 6.   Selected Financial Data
 
The following summary should be read in conjunction with the consolidated financial statements and notes contained herein (dollars and shares in millions, except per share amounts).
 
                                         
    2009     2008     2007     2006     2005  
 
OPERATIONS, years ended December 31,
                                       
Net sales
  $ 2,355.6     $ 2,704.4     $ 2,533.9     $ 2,414.3     $ 2,104.9  
Gross profit
  $ 725.9     $ 803.4     $ 735.8     $ 656.8 (1)   $ 595.0 (1)
Special charges, net
  $     $     $     $ 7.3 (1)   $ 10.3 (1)
Operating income
  $ 294.7 (2)   $ 346.0 (2)   $ 299.4 (2)   $ 233.9 (2)   $ 226.8  
Operating income as a % of sales
    12.5 %     12.8 %     11.8 %     9.7 %     10.8 %
Net income attributable to Hubbell
  $ 180.1     $ 222.7     $ 208.3 (3)   $ 158.1     $ 165.1 (3)
Net income attributable to Hubbell as a % of sales
    7.6 %     8.2 %     8.2 %     6.5 %     7.8 %
Net income attributable to Hubbell to Hubbell shareholders’ average equity
    15.6 %     21.3 %     19.9 %     15.7 %     17.0 %
Earnings per share — diluted
  $ 3.15     $ 3.93 (4)   $ 3.49 (4)   $ 2.58 (4)   $ 2.67  
Cash dividends declared per common share
  $ 1.40     $ 1.38     $ 1.32     $ 1.32     $ 1.32  
Average number of common shares outstanding — diluted
    57.0       56.5       59.5       61.1       61.8  
Cost of acquisitions, net of cash acquired
  $ 355.8     $ 267.4     $ 52.9     $ 145.7     $ 54.3  
FINANCIAL POSITION, at year-end
                                       
Working capital
  $ 499.4     $ 494.1     $ 368.5     $ 432.1     $ 459.6  
Total assets
  $ 2,464.5     $ 2,115.5     $ 1,863.4     $ 1,751.5     $ 1,667.0  
Total debt
  $ 497.2     $ 497.4     $ 236.1     $ 220.2     $ 228.8  
Debt to total capitalization(5)
    28 %     33 %     18 %     18 %     19 %
Hubbell shareholders’ equity:(6)
                                       
Total
  $ 1,298.2     $ 1,008.1     $ 1,082.6     $ 1,015.5     $ 998.1  
Per share
  $ 22.78     $ 17.84     $ 18.19     $ 16.62     $ 16.15  
NUMBER OF EMPLOYEES, at year-end
    12,700       13,000       11,500       12,000       11,300  
 
 
(1) The Company recorded pretax special charges in 2005 and 2006. These special charges primarily related to a series of actions related to the consolidation of manufacturing, sales and administrative functions across our commercial and industrial lighting businesses. These actions were significantly completed as of December 31, 2006.
 
(2) In 2006, the Company adopted the provisions under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 “Compensation-Stock Compensation” (“ASC 718”) using the modified prospective transition method and therefore previously reported amounts were not restated. Operating income for the years 2009, 2008, 2007 and 2006 includes stock-based compensation expense of $10.3 million, $12.5 million, $12.7 million and $11.8 million, respectively.
 
(3) In 2007 and 2005, the Company recorded tax benefits of $5.3 million and $10.8 million, respectively, in Provision for income taxes related to the completion of U.S. Internal Revenue Service (“IRS”) examinations for tax years through 2005.
 
(4) Effective January 1, 2009, the Company adopted the provisions of ASC 260-10-45-61A “Earnings Per Share” which requires that unvested share-based payment awards that contain the rights to nonforfeitable dividends be considered participating securities and therefore should be included in the earnings per share calculation pursuant to the two-class method. Retrospective application of this standard decreased diluted earnings per share by $.01 for the years ended December 31, 2008, 2007 and 2006.
 
(5) Debt to total capitalization is defined as total debt as a percentage of the sum of total debt and Hubbell shareholders’ equity.
 
(6) In 2006, the Company adopted certain provisions of ASC 715 “Compensation - Retirement Benefits” (“ASC 715”), which resulted in a non-cash charge to Hubbell shareholders’ equity of $36.8 million, net of tax.


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Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
EXECUTIVE OVERVIEW OF THE BUSINESS
 
Our Company is primarily engaged in the design, manufacture and sale of quality electrical and electronic products for a broad range of non-residential and residential construction, industrial and utility applications. The Company’s reporting segments consist of the Electrical segment (comprised of electrical systems products and lighting products) and the Power segment. Results for 2009, 2008 and 2007 by segment are included under “Segment Results” within this Management’s Discussion and Analysis.
 
In 2009, we experienced broad based weakness in our served markets resulting in lower overall demand. Nevertheless, we continued to execute a business strategy focused on:
 
•  Revenue
 
Organic.  While demand in 2009 decreased due to the recessionary market conditions, the Company remained focused on expanding market share through an emphasis on new product introductions and more effective utilization of sales and marketing efforts across the organization.
 
Acquisitions.  In 2009 and 2008, we invested $355.8 million and $267.4 million, respectively, on acquisitions. In 2009, these businesses contributed approximately $200 million in net sales.
 
•  Price Realization
 
In 2008, numerous price increases were implemented to offset significant commodity cost increases, steel in particular. In 2009, we experienced a less volatile commodity environment compared to 2008 and continued to exercise pricing discipline. However, the combination of weaker overall demand and lower year-over-year commodity costs made price realization progressively more challenging throughout 2009.
 
•  Cost Containment
 
Global sourcing.  We remained focused on expanding our global product and component sourcing and supplier cost reduction program. We continued to consolidate suppliers, utilize reverse auctions, and partner with vendors to shorten lead times, improve quality and delivery and reduce costs.
 
Freight and Logistics.  Transporting our products from suppliers, to warehouses, and ultimately to our customers, is a major cost to our Company. In 2009, we reduced these costs and increased the effectiveness of our freight and logistics processes including capacity utilization and network optimization.
 
•  Productivity
 
We worked towards fully realizing the benefits of our enterprise-wide business system, including standardizing best practices in inventory management, production planning and scheduling to improve manufacturing throughput and reduce costs. In addition, value-engineering efforts and product transfers contributed to our productivity improvements. This continued emphasis on operational improvements has led to further reductions in lead times and improved service levels to our customers.
 
Working Capital Efficiency.  Working capital efficiency is principally measured as the percentage of trade working capital (inventory plus accounts receivable, less accounts payable) divided by annual net sales. The focus on improving our working capital efficiency provided $126.9 million of operating cash flow in 2009.
 
Transformation of business processes.  We continued our long-term initiative of applying lean process improvement techniques throughout the enterprise, with particular emphasis on reducing supply chain complexity to eliminate waste and improve efficiency and reliability. We will continue to build on the shared services model that has been implemented in sourcing and logistics and apply those principles in other areas.


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OUTLOOK
 
In 2010, we anticipate our end market demand to be mixed. Hubbell’s largest served market, non-residential construction, is forecasted to decline by approximately twenty percent due to lower construction starts throughout the past year and a half and ongoing challenges in the availability of financing. The utility market for transmission and distribution products is expected to grow modestly. The growth should be driven by the build out of new transmission lines from alternative energy sources such as wind, infrastructure spending to upgrade and modernize the grid that is supported by stimulus spending and a housing recovery. The industrial markets are likely to improve in 2010 with capacity utilization rates improving from 2009’s severely depressed levels. The residential market is forecasted to improve from historically low levels, but we remain cautious about the magnitude of the recovery being forecasted given the level of unemployment and high supply of existing inventory. The Federal stimulus plan is expected to generate orders in 2010, particularly in our Power and Lighting businesses, but the timing and magnitude are still difficult to estimate. The year-over-year impact of the Burndy acquisition is expected to contribute approximately six percentage points of incremental net sales in 2010 compared to 2009. Overall, we expect approximately the same level of net sales in 2010 as in 2009.
 
We will continue to work on productivity initiatives, including further plant rationalization, improving freight and logistics cost, better optimization of sourcing and management of the cost price equation to drive margin improvement in 2010. The incremental year-over-year productivity savings associated with the streamlining actions implemented during 2009 are expected to contribute approximately 100 basis points to margin. Additionally, we expect our 2010 tax rate to increase to approximately 32.5% due to a higher mix of domestic income and the absence of certain one time items. We also expect the Burndy acquisition to be accretive to 2010 earnings.
 
In 2010, we anticipate generating free cash flow approximately equal to net income. Finally, we will focus on continuing to integrate Burndy and pursuing additional opportunistic acquisitions.
 
RESULTS OF OPERATIONS
 
Our operations are classified into two segments: Electrical and Power. For a complete description of the Company’s segments, see Part I, Item 1 of this Annual Report on Form 10-K. Within these segments, Hubbell primarily serves customers in the non-residential and residential construction, industrial and utility markets.
 
The table below approximates percentages of our total 2009 net sales generated by the markets indicated.
 
Hubbell’s Served Markets
 
                                         
Segment
  Non-residential     Residential     Industrial     Utility     Total  
 
Electrical
    51 %     10 %     34 %     5 %     100 %
Power
    9 %     2 %     8 %     81 %     100 %
Hubbell Consolidated
    39 %     8 %     27 %     26 %     100 %
 
In 2009, market conditions declined in all of our served markets. Non-residential construction declined significantly due to lower levels of construction activity and a lack of available financing for projects. The residential market continued its steep decline due to credit conditions, job losses and an over supply of housing inventory. The industrial market declined as well due to lower factory utilization. The utility market declined due to continued weakness in the housing market as well as constrained capital spending due in part to lower electricity demand and transmission project delays.


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Summary of Consolidated Results (in millions, except per share data)
 
                                                 
    For the Year Ending December 31,  
          % of Net
          % of Net
          % of Net
 
    2009     Sales     2008     Sales     2007     Sales  
 
Net sales
  $ 2,355.6             $ 2,704.4             $ 2,533.9          
Cost of goods sold
    1,629.7               1,901.0               1,798.1          
                                                 
Gross profit
    725.9       30.8 %     803.4       29.7 %     735.8       29.0 %
Selling & administrative expense
    431.2       18.3 %     457.4       16.9 %     436.4       17.2 %
                                                 
Operating income
    294.7       12.5 %     346.0       12.8 %     299.4       11.8 %
Net income attributable to Hubbell
    180.1       7.6 %     222.7       8.2 %     208.3       8.2 %
                                                 
Earnings per share — diluted
  $ 3.15             $ 3.93             $ 3.49          
                                                 
 
2009 Compared to 2008
 
Net Sales
 
Net sales for the year ended 2009 were $2.4 billion, a decrease of 13% over the year ended 2008. This decrease was due to a 17% volume decline and unfavorable currency translation partially offset by acquisitions and selling price increases. Acquisitions and selling price increases added approximately five and one percentage points, respectively, to net sales in 2009 compared to 2008. Currency translation decreased net sales in 2009 by two percentage points compared with 2008.
 
Gross Profit
 
The gross profit margin for 2009 increased to 30.8% compared to 29.7% in 2008. The increase was primarily due to productivity improvements, including lower freight and logistics costs, lower commodity costs and selling price increases partially offset by lower volume and unfavorable overhead absorption.
 
Selling & Administrative Expenses (“S&A”)
 
S&A expenses decreased 6% compared to 2008 primarily due to savings from streamlining actions partially offset by acquisition related expenses and higher pension costs. As a percentage of net sales, S&A expenses of 18.3% in 2009 were higher than the 16.9% reported in 2008 due to higher pension costs, acquisition related costs and volume declines in excess of cost reduction actions.
 
Operating Income
 
Operating income decreased 15% primarily due to lower net sales and gross profit partially offset by lower selling and administrative costs. Operating margin of 12.5% in 2009 decreased 30 basis points compared to 12.8% in 2008 as a result of the lower volume largely offset by productivity improvements and commodity cost decreases.
 
Total Other Expense, net
 
In 2009, interest expense increased compared to 2008 due to higher average long term debt in 2009 compared to 2008. The higher long term debt level was primarily due to the Company completing a $300 million bond offering in May 2008 to support strategic growth initiatives. In addition, interest income decreased compared to 2008 due to lower interest rates.
 
Income Taxes
 
The effective tax rate in 2009 was 30.7% compared to 29.9% in 2008. The effective tax rate for 2009 reflects a lower tax benefit from our foreign operations and an increase in uncertain tax positions offset by a lower state effective rate and an out of period adjustment related to certain deferred tax accounts of $4.9 million. Additional


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information related to our effective tax rate is included in Note 13 — Income Taxes in the Notes to the Consolidated Financial Statements.
 
Net Income and Earnings Per Share
 
Net income and earnings per diluted share in 2009 decreased 19% and 20%, respectively, compared to 2008 as a result of lower net sales and operating income in addition to higher net interest expense and a higher effective tax rate. In addition, the decrease in earnings per diluted share reflects an increase in average shares outstanding in 2009 compared to 2008 due to shares issued in the fourth quarter of 2009.
 
Segment Results
 
Electrical Segment
 
                 
    2009     2008  
    (In millions)  
 
Net Sales
  $ 1,650.1     $ 1,958.2  
Operating Income
  $ 163.7     $ 227.3  
Operating Margin
    9.9 %     11.6 %
 
Net sales in the Electrical segment decreased 16% in 2009 compared with 2008 due to broad-based market weakness. Acquisitions and selling price increases added approximately four and one percentage points, respectively, to net sales in 2009 compared to 2008. Currency translation decreased net sales in 2009 by two percentage points compared with 2008.
 
Within the segment, electrical systems products net sales decreased 18% in 2009 compared to 2008 due to lower market demand for both wiring and electrical products. Net sales at these businesses decreased 20% and 16%, respectively. Burndy added approximately four percentage points to electrical systems products net sales for the year, which was essentially offset by unfavorable foreign currency translation. Demand for high voltage test equipment was strong, resulting in a 15% increase in net sales in 2009 compared to 2008. Net sales of lighting products decreased 18% in 2009 compared to 2008 due to lower market demand partially offset by the 2008 acquisition of The Varon Lighting Group, LLC, (“Varon”) and price realization. Commercial and industrial lighting net sales decreased 17% including the impact of the 2008 Varon acquisition. Net sales of residential lighting products were lower by 24% as a result of the decline in the U.S. residential construction market.
 
Operating income in 2009 decreased 28% compared to 2008 primarily due to lower market demand. Productivity improvements, commodity cost declines and price realization offset inflationary cost increases and negative absorption due to inventory reductions. Operating margin in 2009 was lower than 2008 primarily due to lower absorption of manufacturing overhead resulting from significantly lower production volume, acquisition-related costs and higher S&A expenses as a percentage of net sales. S&A expenses, while higher as a percentage of net sales in 2009, decreased 8% compared to 2008. Within the segment, both electrical systems products and lighting products operating income and operating margin declined during 2009 as compared to 2008.
 
Power Segment
 
                 
    2009     2008  
    (In millions)  
 
Net Sales
  $ 705.5     $ 746.2  
Operating Income
  $ 131.0     $ 118.7  
Operating Margin
    18.6 %     15.9 %
 
Net sales for 2009 decreased by 5% compared to 2008 due to market weakness partially offset by acquisitions and price realization. Acquisitions and price realization added approximately eight and one percentage points, respectively, to net sales in 2009 compared to 2008. The lower market demand was due to the continued weakness in the housing market that resulted in lower demand for distribution products. In addition, demand slowed for transmission projects, particularly in the second half of 2009 as utility capital spending was constrained due to lower


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electricity demand. In addition, foreign currency translation decreased net sales in 2009 by one percentage point compared with 2008.
 
Operating income in 2009 increased 10% compared to 2008 while operating margin improved 270 basis points during the same period. The improvement in both operating profit and margin was due to the favorable impact of commodity cost decreases, productivity improvements and price increases partially offset by the impact of lower volume and inflationary cost increases.
 
2008 Compared to 2007
 
Net Sales
 
Net sales for the year ended 2008 were $2.7 billion, an increase of 7% over the year ended 2007. This increase was primarily due to acquisitions and selling price increases. Acquisitions and selling price increases added approximately four and three percentage points, respectively, to net sales in 2008 compared to 2007. Organic growth, primarily due to new products sales, was offset by the residential market decline. Currency translation had no material impact on net sales in 2008 compared with 2007.
 
Gross Profit
 
The gross profit margin for 2008 increased to 29.7% compared to 29.0% in 2007. The increase was primarily due to productivity improvements, including lower freight and logistics costs and the favorable impact of acquisitions. In addition, selling price increases more than offset rising commodity costs.
 
Selling & Administrative Expenses
 
S&A expenses increased 5% compared to 2007 primarily due to the added S&A expenses of the businesses acquired and increased advertising. As a percentage of net sales, S&A expenses of 16.9% in 2008 were lower than the 17.2% reported in 2007 due to cost containment initiatives, including lower headcount, excluding acquisitions, as well as better leverage of fixed costs on higher sales.
 
Operating Income
 
Operating income increased 16% primarily due to higher net sales and gross profit partially offset by increased selling and administration costs. Operating margins of 12.8% in 2008 increased 100 basis points compared to 11.8% in 2007 as a result of increased sales and higher gross profit margins as well as leveraging of selling and administrative costs.
 
Total Other Expense, net
 
In 2008, interest expense increased compared to 2007 due to higher long term debt in 2008 compared to 2007. The higher long term debt level was primarily due to the Company completing a $300 million bond offering in May 2008 to support strategic growth initiatives. Other expense, net was impacted by net foreign currency transaction losses in 2008 compared to net foreign currency transaction gains in 2007.
 
Income Taxes
 
The effective tax rate in 2008 was 29.9% compared to 26.7% in 2007. The higher year-over-year annual effective tax rate reflected a higher level of U.S. earnings in 2008 and non-recurring favorable adjustments impacting the 2007 rate related to the closing of an IRS examination of the Company’s 2004 and 2005 federal tax returns. Additional information related to our effective tax rate is included in Note 13 — Income Taxes in the Notes to the Consolidated Financial Statements.


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Net Income and Earnings Per Share
 
Net income and earnings per diluted share in 2008 increased 7% and 13%, respectively, compared to 2007 as a result of higher net sales and operating income, including the favorable impact of acquisitions, partially offset by higher net interest expense and a higher effective tax rate. In addition, the increase in earnings per diluted share reflects a reduction in average shares outstanding in 2008 compared to 2007 due to shares repurchased under our stock repurchase programs, net of employee stock option exercises.
 
Segment Results
 
Electrical Segment
 
                 
    2008     2007  
    (In millions)  
 
Net Sales
  $ 1,958.2     $ 1,897.3  
Operating Income
  $ 227.3     $ 202.1  
Operating Margin
    11.6 %     10.7 %
 
Net sales in the Electrical segment increased 3% in 2008 compared with 2007 due to the favorable impact of the acquisition of Kurt Versen, Inc. (“Kurt Versen”) and selling price increases partially offset by weaker residential product sales. Within the segment, wiring product sales increased slightly in 2008 compared to 2007 due to selling price increases and market share gains partially due to increased demand for energy management controls and sensors offset by weaker overall industry market demand. Sales of electrical products increased by approximately 10% in 2008 compared to 2007 due to strong demand for harsh and hazardous and high voltage products and selling price increases. Sales of lighting products decreased slightly in 2008 compared to 2007 due to lower residential volume largely offset by acquisitions and selling price increases. Sales of residential lighting fixture products were lower by approximately 21% in 2008 compared to 2007 as a result of a decline in the U.S. residential construction market. Acquisitions and selling price increases added approximately three and two percentage points, respectively, to the segment’s net sales in 2008 compared to 2007.
 
Operating margins increased in 2008 compared to 2007 due to the favorable impact of the Kurt Versen acquisition, productivity improvements and selling price increases partially offset by residential volume declines and higher commodity costs. Wiring products operating margins were virtually flat in 2008 compared to 2007 due to selling price increases and productivity improvements offset by higher inflationary costs. Operating income and margins rose at electrical products in 2008 compared to 2007 due to selling price increases, a favorable product mix of higher margin harsh and hazardous products and strong performance from the high voltage businesses. Lighting product margins were unchanged in 2008 compared to 2007 due to lower margins for the residential business as a result of volume declines offset by improved margins in commercial and industrial lighting products. The improvement in commercial and industrial margins was due to acquisitions, selling price increases and productivity improvements, partially offset by commodity increases and volume decreases.
 
Power Segment
 
                 
    2008     2007  
    (In millions)  
 
Net Sales
  $ 746.2     $ 636.6  
Operating Income
  $ 118.7     $ 97.3  
Operating Margin
    15.9 %     15.3 %
 
Net sales in the Power segment in 2008 increased 17% compared to 2007 due to acquisitions, selling price increases and modest market share gains. The impact of the PCORE Electric Company, Inc. (“PCORE”) acquisition completed in the fourth quarter of 2007, combined with the four acquisitions that occurred in the second half of 2008, added approximately eight percentage points to net sales in 2008 compared to 2007. In addition, we estimate that selling price increases added approximately four percentage points to net sales in 2008 compared to 2007. Operating income increased 22% in 2008 compared to 2007 due to increased sales and acquisitions. Operating


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margins increased in 2008 compared to 2007 due to productivity improvements and selling price increases offset by higher commodity and inflationary costs and the impact of acquisitions.
 
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
 
Cash Flow
 
                         
    December 31,  
    2009     2008     2007  
    (In millions)  
 
Net cash provided by (used in):
                       
Operating activities
  $ 397.7     $ 319.2     $ 335.2  
Investing activities
    (373.1 )     (306.4 )     (105.7 )
Financing activities
    49.8       93.7       (200.4 )
Effect of foreign currency exchange rate changes on cash and cash equivalents
    5.9       (5.8 )     3.1  
                         
Net change in cash and cash equivalents
  $ 80.3     $ 100.7     $ 32.2  
                         
 
2009 Compared to 2008
 
Cash provided by operating activities for the year ended 2009 increased compared to 2008. This increase was primarily a result of lower working capital, the utilization of foreign tax credit carryforwards and the utilization of net operating losses acquired as part of the Burndy acquisition. These increases were partially offset by lower net income and higher contributions to defined benefit pension plans. Working capital in 2009 provided cash of $126.9 million compared to $22.1 million of cash provided in 2008. The effective management of working capital, particularly accounts receivable and inventory, provided cash of $85.5 million and $98.7 million, respectively. These sources of cash were partially offset by lower levels of current liabilities, specifically accounts payable.
 
Investing activities used cash of $373.1 million in 2009 compared to cash used of $306.4 million in 2008. The change is primarily due to a higher level of spending on acquisitions in 2009 as compared to 2008, slightly offset by lower spending on capital expenditures.
 
Financing activities provided cash of $49.8 million in 2009 compared to $93.7 million of cash provided in 2008. The 2009 financing activities include the net proceeds associated with the fourth quarter equity offering, offset by dividends paid. Financing activities in 2008 included the net proceeds associated with the $300 million debt offering completed in May 2008, partially offset by share repurchases, net commercial paper repayments and dividends paid.
 
2008 Compared to 2007
 
Cash provided by operating activities for the year ended 2008 decreased compared to 2007 primarily as a result of a lower benefit from working capital, partially offset by higher net income, lower contributions to defined benefit pension plans, and lower tax payments. As a result of higher net sales in 2008, working capital changes during 2008 resulted in cash provided of $22.1 million compared to cash provided of $94.1 million in 2007. Accounts receivable increased $3.7 million in 2008 compared to a decrease of $27.8 million in 2007 due to higher net sales. Inventory balances decreased in 2008 due to improvements in inventory management. Current liabilities contributed $18.9 million to operating cash flow in 2008 primarily due to increased deferred revenues associated with cash received in advance from customers in the high voltage businesses.
 
Investing activities used cash of $306.4 million in 2008 compared to cash used of $105.7 million during 2007. Cash outlays to acquire new businesses increased $214.5 million in 2008 compared to 2007. Capital expenditures decreased $6.5 million in 2008 compared to 2007 as a result of the completion of the lighting headquarters in early 2007.


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Financing activities provided cash of $93.7 million in 2008 compared to a $200.4 million use of cash during 2007. This increase was the result of the $300 million debt offering completed during the second quarter of 2008 combined with a lower level of share repurchases. In 2008, the Company repurchased 2.0 million shares of common stock for $96.6 million as compared to 3.6 million shares repurchased in 2007 for $193.1 million. These increases were partially offset by a higher level of net commercial paper repayments and lower proceeds from exercises of stock options.
 
Investments in the Business
 
Investments in our business include both normal expenditures required to maintain the operations of our equipment and facilities as well as expenditures in support of our strategic initiatives. In 2009, we used cash of $29.4 million for capital expenditures, a decrease of $20.0 million from 2008.
 
In October 2009 we completed the acquisition of Burndy for $355.2 million, net of cash acquired. Burndy is a leading North American manufacturer of connectors, cable accessories and tooling. This acquisition has been added to the electrical systems business within the Electrical segment. Additional information regarding business acquisitions is included in Note 3 — Business Acquisitions in the Notes to Consolidated Financial Statements.
 
In December 2007, the Board of Directors approved a stock repurchase program and authorized the repurchase of up to $200 million of Class A and Class B Common Stock. In February 2010, the Board of Directors extended the term of this program through February 20, 2011. As of December 31, 2009, approximately $160 million remains available under this program. Depending upon numerous factors, including market conditions and alternative uses of cash, the Company may conduct discretionary repurchases through open market and privately negotiated transactions during its normal trading windows. The Company has not repurchased any shares under this program since August 2008.
 
Additional information with respect to future investments in the business can be found under “Outlook” within Management’s Discussion and Analysis.
 
Capital Structure
 
Debt to Capital
 
Net debt, defined as total debt less cash and investments, is a non-GAAP measure that may not be comparable to definitions used by other companies. We consider net debt to be more appropriate than total debt for measuring our financial leverage as it better measures our ability to meet our funding needs.
 
                 
    December 31,  
    2009     2008  
    (In millions)  
 
Total Debt
  $ 497.2     $ 497.4  
Total Hubbell Shareholders’ Equity
    1,298.2       1,008.1  
                 
Total Capital
  $ 1,795.4     $ 1,505.5  
                 
Debt to Total Capital
    28 %     33 %
Cash and Investments
  $ 286.6     $ 213.3  
                 
Net Debt
  $ 210.6     $ 284.1  
                 
 
At December 31, 2009 and 2008, the Company’s total debt consisted entirely of ten year senior notes issued in May 2002 and May 2008. These fixed-rate notes, with amounts of $200 million and $300 million due in 2012 and 2018, respectively, are not callable and are only subject to accelerated payment prior to maturity if the Company fails to meet certain non-financial covenants, all of which were met at December 31, 2009 and 2008. The most restrictive of these covenants limits our ability to enter into mortgages and sale-leasebacks of property having a net book value in excess of $5 million without the approval of the note holders.


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Prior to the issuance of both of these notes, the Company entered into forward interest rate locks to hedge its exposure to fluctuations in treasury interest rates. The 2002 interest rate lock resulted in a $1.3 million loss, while the 2008 interest rate lock resulted in a $1.2 million gain. Both of these amounts have been recorded in Accumulated other comprehensive loss, net of tax, and are being amortized over the respective lives of the notes.
 
In May 2009, the Company entered into a three-year interest rate swap for an aggregate notional amount of $200 million to manage its exposure to changes in the fair value of its 6.375% $200 million fixed rate debt maturing in May 2012. Under the swap, the Company receives interest based on a fixed rate of 6.375% and pays interest based on a floating one month LIBOR rate plus a spread. The interest rate swap is designated as a fair value hedge under ASC 815 “Derivatives and Hedging” (“ASC 815”) and qualifies for the “short-cut” method; as such, no hedge ineffectiveness is recognized. The interest rate swap is recorded at fair value, with an offsetting amount recorded against the carrying value of the fixed-rate debt. For the year ended December 31, 2009, interest expense was reduced $1.2 million as a result of entering into the interest rate swap.
 
In September 2009, the Company entered into a line of credit agreement with Credit Suisse for approximately 30 million Swiss francs to support the issuance of letters of credit. The availability of credit under this facility is dependent upon the maintenance of compensating balances, which may be withdrawn. There are no annual commitment fees associated with this credit facility.
 
In March 2008, the Company exercised its option to expand its revolving credit facility from $250 million to $350 million. The expiration date of this credit agreement is October 31, 2012. The interest rate applicable to borrowings under the credit agreement is either the prime rate or a surcharge over LIBOR. The covenants of the facility require that Hubbell shareholders’ equity be greater than $675 million and that total debt not exceed 55% of total capitalization (defined as total debt plus Hubbell shareholders’ equity). The Company was in compliance with all debt covenants at December 31, 2009 and 2008. Annual commitment fee requirements to support availability of the credit facility were not material. This facility is used as a backup to our commercial paper program and was undrawn as of December 31, 2009 and through the filing date of this Form 10-K. Additional information related to our debt is included in Note 12 — Debt in the Notes to Consolidated Financial Statements.
 
The Company maintains a 9.4 million pound sterling credit facility with HSBC Bank Plc. in the UK which is set for review on November 30, 2010. The Company also maintains a 3.0 million Brazilian real line of credit with Banco Real that expires in April 2010. There are no annual commitment fees associated with these credit agreements. These credit facilities were undrawn as of December 31, 2009.
 
In addition to the above credit commitments, the Company has an unsecured line of credit for $60 million to support issuance of its letters of credit. At December 31, 2009, the Company had approximately $32.5 million of letters of credit outstanding under this facility.
 
Although these facilities are not the principal source of our liquidity, we believe these facilities are capable of providing adequate financing at reasonable rates of interest. However, a significant deterioration in results of operations or cash flows, leading to deterioration in financial condition, could either increase our future borrowing costs or restrict our ability to sell commercial paper in the open market. We have not entered into any other guarantees, commitments or obligations that we anticipate would give rise to unexpected cash requirements.
 
Liquidity
 
We measure liquidity on the basis of our ability to meet short-term and long-term operational funding needs, fund additional investments, including acquisitions, and make dividend payments to shareholders. Significant factors affecting the management of liquidity are cash flows from operating activities, capital expenditures, cash dividend payments, stock repurchases, access to bank lines of credit and our ability to attract long-term capital with satisfactory terms.
 
During October 2009, we issued 2,990,000 shares of Class B common stock. The Company received net proceeds of $122.0 million, which were used for general corporate purposes including the repayment of $66 million of commercial paper borrowings that were issued to fund the Burndy acquisition.


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Internal cash generation together with currently available cash and investments, available borrowing facilities and an ability to access credit lines, if needed, are expected to be sufficient to fund operations, the current rate of cash dividends, capital expenditures, and any increase in working capital that would be required to accommodate a higher level of business activity. We actively seek to expand by acquisition as well as through the growth of our current businesses. While a significant acquisition may require additional debt and/or equity financing, we believe that we would be able to obtain additional financing based on our favorable historical earnings performance and strong financial position.
 
The disruption in the current credit markets has had a significant adverse impact on a number of financial institutions. At this point in time, the Company’s liquidity has not been impacted by the current credit environment and management does not expect that it will be materially impacted in the near future. Management will continue to closely monitor the Company’s liquidity and the credit markets. However, management cannot predict with any certainty the impact to the Company of any further disruption in the credit environment.
 
Pension Funding Status
 
We have a number of 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 funded status of our qualified, defined benefit pension plans is dependant upon many factors including future returns on invested pension assets, the level of market interest rates, employee earnings and employee demographics.
 
Changes in the value of the defined benefit plan assets and liabilities will affect the amount of pension expense ultimately recognized. Although differences between actuarial assumptions and actual results are no longer deferred for balance sheet purposes, deferral is still required for pension expense purposes. Unrecognized gains and losses in excess of an annual calculated minimum amount (the greater of 10% of the projected benefit obligation or 10% of the market value of assets) are amortized and recognized in net periodic pension cost over the average remaining service period of our active employees, which approximates 11-13 years. During 2009 and 2008, we recorded $7.3 million and $1.3 million, respectively, of pension expense related to the amortization of these unrecognized losses. We expect to record $5.2 million of expense related to unrecognized losses and prior service cost in 2010.
 
The actual return on our pension assets in 2009 substantially exceeded our expected return. However, the cumulative return over the past five and ten year periods has been slightly less than our expected return for the same periods. In addition, there has been a decline in long-term interest rates and a resulting increase in our pension liabilities. These lower than expected rates of return combined with declines in long-term interest rates have had a negative impact on the funded status of the plans. Consequently, we contributed approximately $27 million in 2009, $11 million in 2008 and $28 million in 2007 to both our foreign and domestic defined benefit pension plans. These contributions have improved the funded status of all of our plans. We expect to make additional contributions of approximately $5 million to our foreign plans during 2010. Although not required under the Pension Protection Act of 2006, we may decide to make a voluntary contribution to the Company’s qualified U.S. defined benefit plans in 2010. This level of funding is not expected to have any significant impact on our overall liquidity.


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Assumptions
 
The following assumptions were used to determine projected pension and other benefit obligations at the measurement date and the net periodic benefit costs for the year:
 
                                 
    Pension Benefits     Other Benefits  
    2009     2008     2009     2008  
 
Weighted-average assumptions used to determine benefit obligations at December 31,
                               
Discount rate
    5.96 %     6.46 %     6.00 %     6.50 %
Rate of compensation increase
    3.57 %     4.07 %     3.50 %     4.00 %
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31,
                               
Discount rate
    6.46 %     6.41 %     6.50 %     6.50 %
Expected return on plan assets
    8.00 %     8.00 %     N/A       N/A  
Rate of compensation increase
    4.07 %     4.07 %     4.00 %     4.00 %
 
At the end of each year, we estimate the expected long-term rate of return on pension plan assets based on the strategic asset allocation for our plans. In making this determination, we utilize expected rates of return for each asset class based upon current market conditions and expected risk premiums for each asset class. A one percentage point change in the expected long-term rate of return on pension fund assets would have an impact of approximately $5.8 million on 2010 pretax pension expense. The expected long-term rate of return is applied to the fair market value of pension fund assets to produce the expected return on fund assets that is included in pension expense. The difference between this expected return and the actual return on plan assets was recognized at December 31, 2009 for balance sheet purposes, but continues to be deferred for expense purposes. The net deferral of past asset gains (losses) ultimately affects future pension expense through the amortization of gains (losses) with an offsetting adjustment to Hubbell shareholders’ equity through Accumulated other comprehensive loss.
 
At the end of each year, we determine the discount rate to be used to calculate the present value of pension plan liabilities. The discount rate is an estimate of the current interest rate at which the pension plans’ liabilities could effectively be settled. In estimating this rate, we look to rates of return on high-quality, fixed-income investments with maturities that closely match the expected funding period of our pension liability. The discount rate of 6.00% which we used to determine the projected benefit obligation for our U.S. pension plans at December 31, 2009 was determined using the Citigroup Pension Discount Curve applied to our expected annual future pension benefit payments. A similar methodology was utilized for our international pension plans resulting in a discount rate of 5.7% and 5.25%, respectively, for our UK and Canadian plans. An increase of one percentage point in the discount rate would lower 2010 pretax pension expense by approximately $4.2 million. A discount rate decline of one percentage point would increase pretax pension expense by approximately $7.5 million.
 
Other Post Employment Benefits (“OPEB”)
 
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 were discontinued in 1991 for substantially all future retirees with the exception of the recently acquired Burndy business and certain operations in our Power segment which still maintain a limited retiree medical plan for their union employees. The liability assumed related to the Burndy acquisition for its active and retired employees was $13.1 million. Effective January 1, 2010 the A.B. Chance division of the Power segment will cease to offer retiree medical benefits to all future union retirees. Furthermore, effective February 11, 2009, PCORE ceased to offer retiree medical benefits to all future union retirees. These plans are not funded and, therefore, no assumed rate of return on assets is required. The discount rate of 6.00% used to determine the projected benefit obligation at December 31, 2009 was based upon the Citigroup Pension Discount Curve as applied to our projected annual benefit payments for these plans. In 2009 and 2008 in accordance with ASC 715 we recorded (charges) credits to Accumulated other comprehensive loss within Hubbell shareholders’ equity, net of tax, of $0.5 million and $(0.2) million, respectively, related to OPEB.


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Off-Balance Sheet Arrangements
 
Off-balance sheet arrangements are defined as any transaction, agreement or other contractual arrangement to which an entity that is not included in our consolidated results is a party, under which we, whether or not a party to the arrangement, have, or in the future may have: (1) an obligation under a direct or indirect guarantee or similar arrangement, (2) a retained or contingent interest in assets or (3) an obligation or liability, including a contingent obligation or liability, to the extent that it is not fully reflected in the financial statements.
 
We do not have any off-balance sheet arrangements as defined above which have or are likely to have a material effect on financial condition, results of operations or cash flows.
 
Contractual Obligations
 
A summary of our contractual obligations and commitments at December 31, 2009 is as follows (in millions):
 
                                         
          Payments due by period  
          Less than
                More than
 
Contractual Obligations
  Total     1 Year     1-3 Years     4-5 Years     5 Years  
 
Debt obligations
  $ 500.0     $     $ 200.0           $ 300.0  
Expected interest payments
    183.6       30.6       54.8       35.7       62.5  
Operating lease obligations
    52.6       13.0       14.9       8.5       16.2  
Purchase obligations
    219.8       210.6       9.2              
Income tax payments
    10.6       10.6                    
Obligations under customer incentive programs
    23.5       23.5                    
                                         
Total
  $ 990.1     $ 288.3     $ 278.9       44.2     $ 378.7  
                                         
 
Our purchase obligations include amounts committed under legally enforceable contracts or purchase orders for goods and services with defined terms as to price, quantity, delivery and termination liability. These obligations primarily consist of inventory purchases made in the normal course of business to meet operational requirements, consulting arrangements and commitments for equipment purchases. Other long-term liabilities reflected in our Consolidated Balance Sheet at December 31, 2009 have been excluded from the table above and primarily consist of costs associated with retirement benefits. See Note 11 — Retirement Benefits in the Notes to Consolidated Financial Statements for estimates of future benefit payments under our benefit plans. As of December 31, 2009, we have $30.6 million of uncertain tax positions. The uncertain tax positions classified as current liabilities have been included in the income tax payments line in the table above. We are unable to make a reasonable estimate regarding settlement of the remainder of these uncertain tax positions and, as a result, they have been excluded from the table. See Note 13 — Income Taxes in the Notes to Consolidated Financial Statements.
 
Critical Accounting Estimates
 
Note 1 — Significant Accounting Policies of the Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of our financial statements.
 
Use of Estimates
 
We are required to make assumptions and estimates and apply judgments in the preparation of our financial statements that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors deemed relevant by management. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in estimates and assumptions used by us could have a significant impact on our financial results. We believe that the following estimates are among our most critical in fully understanding and evaluating our reported financial results. These items utilize assumptions and estimates about the effect of future events that are inherently uncertain and are therefore based on our judgment.


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Revenue Recognition
 
We recognize revenue in accordance with ASC 605 “Revenue Recognition” (“ASC 605”). Revenue is recognized when title to goods and risk of loss have passed to the customer, there is persuasive evidence of a purchase arrangement, delivery has occurred or services are rendered, the price is determinable and collectibility is reasonably assured. Revenue is typically recognized at the time of shipment. Further, certain of our businesses account for sales discounts and allowances based on sales volumes, specific programs and customer deductions, as is customary in electrical products markets. These items primarily relate to sales volume incentives, special pricing allowances, and returned goods. This requires 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 in cash from customers. We principally rely on historical experience, specific customer agreements, and anticipated future trends to estimate these amounts at the time of shipment. Also see Note 1 — Significant Accounting Policies of the Notes to Consolidated Financial Statements.
 
Inventory Valuation
 
We routinely evaluate the carrying value of our inventories to ensure they are carried at the lower of cost or market value. Such evaluation is based on our judgment and use of estimates, including sales forecasts, gross margins for particular product groupings, planned dispositions of product lines, technological events and overall industry trends. In addition, the evaluation is based on changes in inventory management practices which may influence the timing of exiting products and method of disposing of excess inventory.
 
Excess inventory is generally identified by comparing future expected inventory usage to actual on-hand quantities. Reserves are provided for on-hand inventory in excess of pre-defined usage forecasts. Forecast usage is primarily determined by projecting historical (actual) sales and inventory usage levels forward to future periods. Application of this reserve methodology can have the effect of increasing reserves during periods of declining demand and, conversely, reducing reserve requirements during periods of accelerating demand. This reserve methodology is applied based upon a current stratification of inventory, whether by commodity type, product family, part number, stock keeping unit, etc. As a result of our lean process improvement initiatives, we continue to develop improved information concerning demand patterns for inventory consumption. This improved information is introduced into the excess inventory reserve calculation as it becomes available and may impact required levels of reserves.
 
Customer Credit and Collections
 
We maintain allowances for doubtful accounts receivable in order to reflect the potential uncollectibility of receivables related to purchases of products on open credit. If the financial condition of our customers were to deteriorate, resulting in their inability to make required payments, we may be required to record additional allowances for doubtful accounts.
 
Capitalized Computer Software Costs
 
We capitalize certain costs of internally developed software in accordance with ASC 350 “Intangibles — Goodwill and Other” (“ASC 350”). Capitalized costs include purchased materials and services, and payroll and payroll related costs. General and administrative, overhead, maintenance and training costs, as well as the cost of software that does not add functionality to the existing system, are expensed as incurred. The cost of internally developed software is amortized on a straight-line basis over appropriate periods, generally five years. The unamortized balance of internally developed software is included in Intangible assets and other in the Consolidated Balance Sheet.
 
Employee Benefits Costs and Funding
 
We sponsor domestic and foreign defined benefit pension, defined contribution and other postretirement plans. Major assumptions used in the accounting for these employee benefit plans include the discount rate, expected return on the pension fund assets, rate of increase in employee compensation levels and health care cost increase projections. These assumptions are determined based on Company data and appropriate market indicators, and are


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evaluated each year as of the plans’ measurement date. Further discussion on the assumptions used in 2009 and 2008 are included above under “Pension Funding Status” and in Note 11 — Retirement Benefits in the Notes to Consolidated Financial Statements.
 
Taxes
 
We account for income taxes in accordance with ASC 740 “Income Taxes” (“ASC 740”). ASC 740 requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. ASC 740 also requires that deferred tax assets 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 factors used to assess the likelihood of realization of deferred tax assets are the forecast of future taxable income and available tax planning strategies that could be implemented to realize the net deferred tax assets. Failure to achieve forecasted taxable income can affect the ultimate realization of net deferred tax assets.
 
We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. The IRS and other tax authorities routinely review our tax returns. These audits can involve complex issues, which may require an extended period of time to resolve. In accordance with ASC 740, the Company records uncertain tax positions only when it has 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 Company uses the criteria established in ASC 740 to determine whether an item meets the definition of more-likely-than-not. The Company’s policy is to recognize these uncertain tax positions when the more-likely-than-not threshold is met, when the statute of limitations has expired or upon settlement. In management’s opinion, adequate provision has been made for potential adjustments arising from any examinations.
 
Contingent Liabilities
 
We are subject to proceedings, lawsuits, and other claims or uncertainties related to environmental, legal, product and other matters. We routinely assess the likelihood of an adverse judgment or outcome to these matters, as well as the range of potential losses. A determination of the reserves required, if any, is made after careful analysis, including consultations with outside advisors, where applicable. The required reserves may change in the future due to new developments.
 
Valuation of Long-Lived Assets
 
Our long-lived assets include land, buildings, equipment, molds and dies, software, goodwill and other intangible assets. Long-lived assets, other than goodwill and indefinite-lived intangibles, are depreciated over their estimated useful lives. We review depreciable long-lived assets for impairment to assess recoverability from future operations using undiscounted cash flows. For these assets, no impairment charges were recorded in 2009 or 2008.
 
Goodwill and indefinite-lived intangible assets are reviewed annually for impairment unless circumstances dictate the need for more frequent assessment. The Company performs its goodwill impairment testing as of April 1st of each year. The 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 identification and measurement of impairment of indefinite-lived intangible assets involves testing that compares carrying values of assets to the estimated fair values of assets. These estimated fair values are determined using undiscounted cash flow estimates. If the carrying value of the indefinite-lived intangible exceeds the fair value, the carrying value will be reduced to the estimated fair value.


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Forward-Looking Statements
 
Some of the information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-K and in the Annual Report attached hereto, which does not constitute part of this Form 10-K, contain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These include statements about capital resources, performance and results of operations and are based on our reasonable current expectations. In addition, all statements regarding anticipated growth or improvement in operating results, anticipated market conditions and economic recovery are forward looking. Forward-looking statements may be identified by the use of words, such as “believe”, “expect”, “anticipate”, “intend”, “depend”, “should”, “plan”, “estimated”, “predict”, “could”, “may”, “subject to”, “continues”, “growing”, “prospective”, “forecast”, “projected”, “purport”, “might”, “if”, “contemplate”, “potential”, “pending,” “target”, “goals”, “scheduled”, “will likely be”, and similar words and phrases. Discussions of strategies, plans or intentions often contain forward-looking statements. Factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include, but are not limited to:
 
  •  Changes in demand for our products, market conditions, product quality, or product availability adversely affecting sales levels.
 
  •  Changes in markets or competition adversely affecting realization of price increases.
 
  •  Failure to achieve projected levels of efficiencies, cost savings and cost reduction measures, including those expected as a result of our lean initiative and strategic sourcing plans.
 
  •  The expected benefits and the timing of other actions in connection with our enterprise-wide business system.
 
  •  Availability and costs of raw materials, purchased components, energy and freight.
 
  •  Changes in expected or future levels of operating cash flow, indebtedness and capital spending.
 
  •  General economic and business conditions in particular industries or markets.
 
  •  The anticipated benefits from the Federal stimulus package.
 
  •  Regulatory issues, changes in tax laws or changes in geographic profit mix affecting tax rates and availability of tax incentives.
 
  •  A major disruption in one of our manufacturing or distribution facilities or headquarters, including the impact of plant consolidations and relocations.
 
  •  Changes in our relationships with, or the financial condition or performance of, key distributors and other customers, agents or business partners which could adversely affect our results of operations.
 
  •  Impact of productivity improvements on lead times, quality and delivery of product.
 
  •  Anticipated future contributions and assumptions including changes in interest rates and plan assets with respect to pensions.
 
  •  Adjustments to product warranty accruals in response to claims incurred, historical experiences and known costs.
 
  •  Unexpected costs or charges, certain of which might be outside of our control.
 
  •  Changes in strategy, economic conditions or other conditions outside of our control affecting anticipated future global product sourcing levels.
 
  •  Ability to carry out future acquisitions and strategic investments in our core businesses as well as the acquisition related costs.
 
  •  Unanticipated difficulties integrating acquisitions as well as the realization of expected synergies and benefits anticipated when we first enter into a transaction.


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  •  Future repurchases of common stock under our common stock repurchase programs.
 
  •  Changes in accounting principles, interpretations, or estimates.
 
  •  The outcome of environmental, legal and tax contingencies or costs compared to amounts provided for such contingencies.
 
  •  Adverse changes in foreign currency exchange rates and the potential use of hedging instruments to hedge the exposure to fluctuating rates of foreign currency exchange on inventory purchases.
 
  •  Other factors described in our SEC filings, including the “Business”, “Risk Factors” and “Quantitative and Qualitative Disclosures about Market Risk” sections in this Annual Report on Form 10-K for the year ended December 31, 2009.
 
Any such forward-looking statements are not guarantees of future performances and actual results, developments and business decisions may differ from those contemplated by such forward-looking statements. The Company disclaims any duty to update any forward-looking statement, all of which are expressly qualified by the foregoing, other than as required by law.
 
Item 7A.   Quantitative and Qualitative Disclosures about Market Risk
 
In the operation of our business, we have various exposures to areas of risk related to factors within and outside the control of management. Significant areas of risk and our strategies to manage the exposure are discussed below.
 
We manufacture and/or assemble our products in the United States, Canada, Switzerland, Puerto Rico, Mexico, the People’s Republic of China, Italy, UK, Brazil and Australia and sell products in those markets as well as through sales offices in Singapore, the People’s Republic of China, Mexico, South Korea and the Middle East. International shipments from non-U.S. subsidiaries as a percentage of the Company’s total net sales were 16% in 2009 and 2008 and 14% in 2007. The UK operations represent 36%, Canada 24%, Switzerland 13%, and all other countries 27% of total 2009 international sales. As such, our operating results could be affected by changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we sell our products. To manage this exposure, we closely monitor the working capital requirements of our international units and may enter into forward foreign exchange contracts. Further discussion of forward exchange contracts can be found in Note 15 — Fair Value Measurements in the Notes to Consolidated Financial Statements.
 
Product purchases representing approximately 18% of our net sales are sourced from unaffiliated suppliers located outside the United States, primarily in the People’s Republic of China and other Asian countries, Europe and Brazil. We are actively seeking to expand this activity, particularly related to purchases from low cost areas of the world. Foreign sourcing of products may result in unexpected fluctuations in product cost or increased risk of business interruption due to lack of product or component availability due to any one of the following:
 
  •  Political or economic uncertainty in the source country
 
  •  Fluctuations in the rate of exchange between the U.S. dollar and the currencies of the source countries
 
  •  Increased logistical complexity including supply chain interruption or delay, port of departure or entry disruption and overall time to market
 
  •  Loss of proprietary information
 
  •  Product quality issues outside the control of the Company
 
We have developed plans that address many of these risks. Such actions include careful selection of products to be outsourced and the suppliers selected; ensuring multiple sources of supply; limiting concentrations of activity by port, broker, freight forwarder, etc., processes related to quality control; and maintaining control over operations, technologies and manufacturing deemed to provide competitive advantage. Many of our businesses have a dependency on certain basic raw materials needed to produce their products including steel, aluminum, brass, copper, bronze, plastics, phenols, zinc, nickel, elastomers and petrochemicals as well as purchased electrical and electronic components. Our financial results could be affected by the availability and changes in prices of these materials and components.


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Certain of these materials are sourced from a limited number of suppliers. These materials are also key source materials for many other companies in our industry and within the universe of industrial manufacturers in general. As such, in periods of rising demand for these materials, we may experience both increased costs and/or limited supply. These conditions can potentially result in our inability to acquire these key materials on a timely basis to produce our products and satisfy our incoming sales orders. Similarly, the cost of these materials can rise suddenly and result in materially higher costs of producing our products. We believe we have adequate primary and secondary sources of supply for each of our key materials and that, in periods of rising prices, we expect to recover a majority of the increased cost in the form of higher selling prices. However, recoveries typically lag the effect of cost increases due to the nature of our markets.
 
Our financial results are subject to interest rate fluctuations to the extent there is a difference between the amount of our interest-earning assets and the amount of interest-bearing liabilities. The principal objectives of our investment management activities are to preserve capital while earning net investment income that is commensurate with acceptable levels of interest rate, default and liquidity risk taking into account our funding needs. As part of our investment management strategy, we may use derivative financial products such as interest rate hedges and interest rate swaps. Refer to further discussion under “Capital Structure” within this Management’s Discussion and Analysis.
 
From time to time or when required, we issue commercial paper, which exposes us to changes in interest rates. Our cash position includes amounts denominated in foreign currencies. We manage our worldwide cash requirements by considering available funds held by our subsidiaries and the cost effectiveness with which these funds can be accessed.
 
We continually evaluate risk retention and insurance levels for product liability, property damage and other potential exposures to risk. We devote significant effort to maintaining and improving safety and internal control programs, which are intended to reduce our exposure to certain risks. We determine the level of insurance coverage and the likelihood of a loss and believe that the current levels of risk retention are consistent with those of comparable companies in the industries in which we operate. There can be no assurance that we will not incur losses beyond the limits of our insurance. However, our liquidity, financial position and profitability are not expected to be materially affected by the levels of risk retention that we accept.
 
The following table presents cost information related to interest risk sensitive instruments by maturity at December 31, 2009 (dollars in millions):
 
                                                                 
                                Fair Value
    2010   2011   2012   2013   2014   Thereafter   Total   12/31/09
 
Assets
                                                               
Available-for-sale investments
  $ 2.6     $ 2.0     $ 4.4     $ 1.2     $ 4.5     $ 10.4     $ 25.1     $ 25.9  
Avg. interest rate
    6.05 %     5.62 %     5.00 %     4.00 %     5.06 %     5.11 %            
Liabilities
                                                               
Long-term debt
  $     $     $ 199.1     $     $     $ 298.1     $ 497.2     $ 539.6  
Avg. interest rate
                6.38 %                 5.95 %     6.12 %      
 
All of the assets and liabilities above are fixed rate instruments. We use derivative financial instruments only if they are matched with a specific asset, liability, or proposed future transaction. We do not speculate or use leverage when trading a financial derivative product.
 
In May 2009, the Company entered into a three year interest rate swap to manage its exposure to changes in the fair value of its 6.375% $200 million fixed rate debt maturing in May 2012. As a result of this interest rate swap, the Company’s effective interest rate on its $200 million fixed rate debt was reduced to 5.10% for the year ended December 31, 2009. See Note 12 — Debt in the Notes to Consolidated Financial Statements.


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Item 8.   Financial Statements and Supplementary Data
 
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
 
         
    Form 10-K for
    2009, Page:
 
    35  
Consolidated Financial Statements
       
    36  
    37  
    38  
    39  
    40  
    41  
Financial Statement Schedule
       
    85  
 
All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.


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REPORT OF MANAGEMENT
HUBBELL INCORPORATED AND SUBSIDIARIES
 
Report on Management’s Responsibility for Financial Statements
 
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 nine 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’s Annual Report on Internal Control over Financial Reporting
 
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. Internal control over financial reporting is a process 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, 2009. 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. Based on this assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2009.
 
The effectiveness of our internal control over financial reporting as of December 31, 2009 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.
 
     
     
 
-s- Timothy H. Powers
  -s- David G. Nord
     
Timothy H. Powers
  David G. Nord
Chairman of the Board,
  Senior Vice President and
President & Chief Executive Officer
  Chief Financial Officer


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of Hubbell Incorporated:
 
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Hubbell Incorporated and its subsidiaries (the “Company”) at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
-s- PricewaterhouseCoopers LLP
 
Stamford, Connecticut
February 18, 2010


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HUBBELL INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF INCOME
 
                         
    Year Ended December 31,  
    2009     2008     2007  
    (In millions, except
 
    per share amounts)  
 
Net sales
  $ 2,355.6     $ 2,704.4     $ 2,533.9  
Cost of goods sold
    1,629.7       1,901.0       1,798.1  
                         
Gross profit
    725.9       803.4       735.8  
Selling & administrative expenses
    431.2       457.4       436.4  
                         
Operating income
    294.7       346.0       299.4  
                         
Investment income
    0.3       2.8       2.4  
Interest expense
    (30.9 )     (27.4 )     (17.6 )
Other expense, net
    (2.5 )     (3.0 )      
                         
Total other expense
    (33.1 )     (27.6 )     (15.2 )
                         
Income before income taxes
    261.6       318.4       284.2  
Provision for income taxes
    80.3       95.2       75.9  
                         
Net income
    181.3       223.2       208.3  
Less: Net income attributable to noncontrolling interest
    1.2       0.5        
                         
Net income attributable to Hubbell
  $ 180.1     $ 222.7     $ 208.3  
                         
Earnings per share
                       
Basic
  $ 3.16     $ 3.96     $ 3.53  
Diluted
  $ 3.15     $ 3.93     $ 3.49  
 
See notes to consolidated financial statements.


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HUBBELL INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET
 
 
                 
    At December 31,  
    2009     2008  
    (In millions, except share amounts)  
 
ASSETS
Current Assets
               
Cash and cash equivalents
  $ 258.5     $ 178.2  
Accounts receivable, net
    310.1       357.0  
Inventories, net
    263.5       335.2  
Deferred taxes and other
    85.8       48.7  
                 
Total Current Assets
    917.9       919.1  
Property, Plant, and Equipment, net
    368.8       349.1  
Other Assets
               
Investments
    28.1       35.1  
Goodwill
    743.7       584.6  
Intangible assets and other
    406.0       227.6  
                 
Total Assets
  $ 2,464.5     $ 2,115.5  
                 
 
LIABILITIES AND EQUITY
Current Liabilities
               
Accounts payable
  $ 130.8     $ 168.3  
Accrued salaries, wages and employee benefits
    62.8       61.5  
Accrued insurance
    49.3       46.3  
Dividends payable
    20.9       19.7  
Other accrued liabilities
    154.7       129.2  
                 
Total Current Liabilities
    418.5       425.0  
Long-term Debt
    497.2       497.4  
Other Non-Current Liabilities
    246.8       182.0  
                 
Total Liabilities
    1,162.5       1,104.4  
                 
Commitments and Contingencies
               
Hubbell Shareholders’ Equity
               
Common stock, par value $.01
               
Class A — Authorized 50,000,000 shares, outstanding 7,167,506 and 7,165,075 shares
    0.1       0.1  
Class B — Authorized 150,000,000 shares, outstanding 52,493,487 and 49,102,167 shares
    0.5       0.5  
Additional paid-in capital
    158.4       16.3  
Retained earnings
    1,208.0       1,108.0  
Accumulated other comprehensive loss
    (68.8 )     (116.8 )
                 
Total Hubbell Shareholders’ Equity
    1,298.2       1,008.1  
Noncontrolling interest
    3.8       3.0  
                 
Total Equity
    1,302.0       1,011.1  
                 
Total Liabilities and Equity
  $ 2,464.5     $ 2,115.5  
                 
 
See notes to consolidated financial statements.


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HUBBELL INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS
 
                         
    Year Ended December 31,  
    2009     2008     2007  
    (In millions)  
 
Cash Flows from Operating Activities
                       
Net income
  $ 181.3     $ 223.2     $ 208.3  
Adjustments to reconcile net income to net cash provided by operating activities:
                       
Depreciation and amortization
    70.6       63.1       60.2  
Deferred income taxes
    32.3       0.7       (3.7 )
Stock-based compensation
    10.3       12.5       12.7  
Tax benefit on stock-based awards
    (1.3 )     (0.8 )     (6.9 )
Loss (gain) on sale of assets
    0.5       0.6       (0.7 )
Changes in assets and liabilities:
                       
Decrease (increase) in accounts receivable
    85.5       (3.7 )     27.8  
Decrease in inventories
    98.7       6.9       24.2  
(Decrease) increase in current liabilities
    (57.3 )     18.9       42.1  
Changes in other assets and liabilities, net
    9.7       7.4       (3.1 )
Contributions to defined benefit pension plans
    (27.4 )     (11.2 )     (28.4 )
Other, net
    (5.2 )     1.6       2.7  
                         
Net cash provided by operating activities
    397.7       319.2       335.2  
                         
Cash Flows from Investing Activities
                       
Capital expenditures
    (29.4 )     (49.4 )     (55.9 )
Acquisitions, net of cash acquired
    (355.8 )     (267.4 )     (52.9 )
Purchases of available-for-sale investments
    (5.2 )     (16.6 )     (41.2 )
Proceeds from available-for-sale investments
    14.7       20.5       38.6  
Proceeds from held-to-maturity investments
          0.3        
Proceeds from disposition of assets
    0.6       1.0       5.1  
Other, net
    2.0       5.2       0.6  
                         
Net cash used in investing activities
    (373.1 )     (306.4 )     (105.7 )
                         
Cash Flows from Financing Activities
                       
Proceeds from stock issuance, net
    122.0              
Commercial paper (repayments) borrowings, net
          (36.7 )     20.9  
Payment of other debt
                (5.1 )
Issuance of long-term debt
          297.7        
Debt issuance costs
          (2.7 )      
Payment of dividends
    (78.9 )     (76.9 )     (78.4 )
Payment of dividends to noncontrolling interest
    (0.4 )            
Proceeds from exercise of stock options
    5.7       8.1       48.0  
Tax benefit on stock-based awards
    1.3       0.8       6.9  
Acquisition of common shares
          (96.6 )     (193.1 )
Other, net
    0.1             0.4  
                         
Net cash provided by (used in) financing activities
    49.8       93.7       (200.4 )
                         
Effect of foreign currency exchange rate changes on cash and cash equivalents
    5.9       (5.8 )     3.1  
                         
Increase in cash and cash equivalents
    80.3       100.7       32.2  
Cash and cash equivalents
                       
Beginning of year
    178.2       77.5       45.3  
                         
End of year
  $ 258.5     $ 178.2     $ 77.5  
                         
 
See notes to consolidated financial statements.


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HUBBELL INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
 
                                                         
    For the Three Years Ended December 31, 2009, 2008 and 2007
 
    (In millions, except per share amounts)  
                            Accumulated
    Total
       
    Class A
    Class B
    Additional
          Other
    Hubbell
       
    Common
    Common
    Paid-In
    Retained
    Comprehensive
    Shareholders’
    Noncontrolling
 
    Stock     Stock     Capital     Earnings     Income (Loss)     Equity     interest  
 
Balance at December 31, 2006
  $ 0.1     $ 0.5     $ 219.9     $ 827.4     $ (32.4 )   $ 1,015.5     $  
                                                         
Net income
                            208.3               208.3          
Adjustment to pension and other benefit plans, net of tax of $27.3
                                    44.9       44.9          
Translation adjustments
                                    14.1       14.1          
Unrealized gain on investments, net of tax
                                    0.2       0.2          
Unrealized gain on cash flow hedge including $0.1 of amortization, net of tax
                                    (0.8 )     (0.8 )        
                                                         
Total comprehensive income
                                            266.7          
Adjustment to initially adopt accounting for uncertain tax positions
                            4.7               4.7          
Stock-based compensation
                    12.7                       12.7          
Exercise of stock options
                    48.0                       48.0          
Income tax windfall from stock-based awards, net
                    6.9                       6.9          
Acquisition/surrender of common shares
                    (194.2 )                     (194.2 )        
Cash dividends declared ($1.32 per share)
                            (77.7 )             (77.7 )        
Investment in noncontrolling interest
                                                    2.5  
                                                         
Balance at December 31, 2007
  $ 0.1     $ 0.5     $ 93.3     $ 962.7     $ 26.0     $ 1,082.6     $ 2.5  
                                                         
Net income
                            222.7               222.7       0.5  
Adjustment to pension and other benefit plans, net of tax of $54.9
                                    (92.1 )     (92.1 )        
Translation adjustments
                                    (53.7 )     (53.7 )        
Unrealized gain on cash flow hedge including $0.1 of amortization, net of tax
                                    3.0       3.0          
                                                         
Total comprehensive income
                                            79.9          
Stock-based compensation
                    12.5                       12.5          
Exercise of stock options
                    8.1                       8.1          
Income tax shortfall from stock-based awards, net
                    (0.1 )                     (0.1 )        
Acquisition/surrender of common shares
                    (97.5 )                     (97.5 )        
Cash dividends declared ($1.38 per share)
                            (77.4 )             (77.4 )        
                                                         
Balance at December 31, 2008
  $ 0.1     $ 0.5     $ 16.3     $ 1,108.0     $ (116.8 )   $ 1,008.1     $ 3.0  
                                                         
Net income
                            180.1               180.1       1.2  
Adjustment to pension and other benefit plans, net of tax of $8.6
                                    14.3       14.3          
Translation adjustments
                                    35.3       35.3          
Unrealized gain on investments, net of tax
                                    0.3       0.3          
Unrealized loss on cash flow hedge including $0.1 of amortization, net of tax
                                    (1.9 )     (1.9 )        
                                                         
Total comprehensive income
                                            228.1          
Stock-based compensation
                    10.3                       10.3          
Exercise of stock options
                    5.7                       5.7          
Income tax windfall from stock-based awards, net
                    0.6                       0.6          
Issuance of shares related to director’s deferred compensation
                    5.2                       5.2          
Acquisition/surrender of common shares
                    (1.7 )                     (1.7 )        
Cash dividends declared ($1.40 per share)
                            (80.1 )             (80.1 )        
Issuance of common stock, net
                    122.0                       122.0          
Dividends to noncontrolling interest
                                                    (0.4 )
                                                         
Balance at December 31, 2009
  $ 0.1     $ 0.5     $ 158.4     $ 1,208.0     $ (68.8 )   $ 1,298.2     $ 3.8  
                                                         
 
See notes to consolidated financial statements.


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
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”).
 
The Company has evaluated subsequent events through February 19, 2010, the date of issuance of the Consolidated Financial Statements, and has determined that it did not have any material recognizable subsequent events.
 
Reclassification and Out of Period Adjustment
 
Certain reclassifications have been made in prior year financial statements and notes to conform to the current year presentation.
 
During the year ended December 31, 2009, the Company recorded an immaterial out of period adjustment, predominately arising in years prior to 1999 related to certain deferred tax accounts, which decreased the Provision for income taxes by $4.9 million. The Company concluded that the adjustment was not material to prior periods and the cumulative effect was not material to the results for the year ended December 31, 2009.
 
Principles of Consolidation
 
The Consolidated Financial Statements include all 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 provisions of ASC 810 “Consolidation” (“ASC 810”). See Note 2 — Variable Interest Entities.
 
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
 
Revenue is recognized when title to the goods sold and the risk of loss have passed to the customer, there is persuasive evidence of a purchase arrangement, delivery has occurred or services are rendered, the price is determinable and collectibility is reasonably assured. Revenue is typically recognized at the time of shipment as the Company’s shipping terms are generally FOB shipping point. 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 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 electrical products markets. 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


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
of an eligible product, the distributor submits a claim for a price rebate. Customers have a right to return goods under certain circumstances which are reasonably estimable by affected businesses and 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 in cash 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
 
Cash equivalents consist of investments with original maturities of three months or less. The carrying value of cash equivalents approximates fair value because of their short maturities.
 
Investments
 
The Company defines short-term investments as securities with original maturities of greater than three months but less than one year; all other investments are classified as long-term. Investments in debt and equity securities are classified by individual security as either 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. Other securities which the Company has the positive intent and ability to hold to maturity, are classified as held-to-maturity and are carried on the balance sheet at amortized cost. The effects of amortizing these securities are recorded in current earnings. The Company’s trading investments are carried on the balance sheet at fair value and consist primarily of debt and equity mutual funds. Unrealized gains and losses associated with these trading investments are reflected in the results of operations.
 
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. The allowance is reviewed on at least a quarterly basis. 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.


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Inventories
 
Inventories are stated at the lower of cost or market value. The cost of substantially all domestic inventories (approximately 82% 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.
 
Property, Plant, and Equipment
 
Property, plant and equipment values are stated at cost less accumulated depreciation. Maintenance and repair expenditures 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
 
Qualifying costs of internal use software are capitalized in accordance with ASC 350. Capitalized costs include purchased materials and services and payroll and payroll-related costs. General and administrative, overhead, maintenance and training costs, as well as the cost of software that does not add functionality to existing systems, are expensed as incurred. The cost of internal use software is amortized on a straight-line basis over appropriate periods, generally five years. The unamortized balance of internal use software is included in Intangible assets and other in the Consolidated Balance Sheet.
 
Capitalized computer software costs, net of amortization, were $12.5 million and $21.3 million at December 31, 2009 and 2008, respectively. The Company recorded amortization expense of $10.9 million, $10.7 million and $10.9 million in 2009, 2008 and 2007, 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 ASC 350. The Company performs its goodwill impairment testing as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. This testing compares carrying values to estimated fair values and when appropriate, the carrying value of these assets will be reduced to estimated fair value. 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. The Company’s 2009 goodwill impairment testing resulted in fair values for each reporting unit exceeding the reporting unit’s carrying value, including goodwill. The Company performed its annual impairment testing of indefinite-lived intangible assets which resulted in no impairment. Intangible assets with definite lives are being amortized over periods generally ranging from 5-30 years.
 
Other Long-Lived Assets
 
The Company evaluates the potential impairment of other long-lived assets when appropriate in accordance with the provisions ASC 360 “Property, Plant and Equipment” (“ASC 360”). If the carrying value of assets exceeds the sum of the estimated future undiscounted cash flows, the carrying value of the asset is written down to estimated fair value. The Company continually evaluates events and circumstances to determine if revisions to values or estimates of useful lives are warranted.


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 ASC 740. The effect of a change in statutory tax rates is recognized in the period that includes the enactment date. ASC 740 also requires that deferred tax assets 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, ASC 740 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. Details with respect to the impact on the Consolidated Financial Statements of these uncertain tax positions and the adoption in 2007 are included in Note 13 — Income Taxes.
 
Research, Development & Engineering
 
Research, development and engineering 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, development and engineering expenses are recorded as a component of Cost of goods sold. Expenses for research, development and engineering were less than 1% of Cost of goods sold for each of the years 2009, 2008 and 2007.
 
Retirement Benefits
 
The Company maintains various defined benefit pension plans for some of its U.S. and foreign employees. ASC 715 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 11 — Retirement Benefits.
 
Earnings Per Share
 
Effective January 1, 2009, the Company adopted the provisions of ASC 260-10-45-61A which requires that unvested share-based payment awards that contain nonforfeitable rights to dividends be considered participating securities. Participating securities are required to be included in the earnings per share calculation pursuant to the two-class method. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that would otherwise have been available to common shareholders. 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


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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, restricted shares and performance shares. See also Note 19 — Earnings Per Share.
 
Stock-Based Employee Compensation
 
The Company measures stock-based employee compensation in accordance with ASC 718. This standard requires expensing the value of all share-based payments, including stock options and similar awards, based upon the award’s fair value over the requisite service period. See also Note 18 — Stock-Based Compensation.
 
Comprehensive Income
 
Comprehensive income is a measure of net income and all other changes in Hubbell shareholders’ equity that result from recognized transactions and other events of the period other than transactions with shareholders. See also the Consolidated Statement of Changes in Equity and Note 20 — Accumulated other comprehensive loss.
 
Derivatives
 
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. See Note 15 — Fair Value Measurement for more information regarding our derivative instruments.
 
Recent Accounting Pronouncements
 
On July 1, 2009, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”, also known as FASB Accounting Standards Codification (“ASC”) 105, “Generally Accepted Accounting Principles” (“ASC 105”) (the “Codification”). ASC 105 establishes the exclusive authoritative reference for U.S. GAAP for use in financial statements, except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. Going forward, the FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASU”), which will serve to update the Codification, provide background information about the guidance and provide the basis for conclusions on the changes to the Codification. We have included references to the Codification, as appropriate, in these financial statements.
 
The provisions of ASC 810 require the ownership interest in subsidiaries held by parties other than the parent be clearly identified and presented in the consolidated balance sheet within equity, but separate from the parent’s equity; the amount of consolidated net income attributable to the parent and the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income; and changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary be accounted for consistently. The Company has adopted these provisions effective January 1, 2009. The presentation and disclosure requirements related to the Company’s noncontrolling interest have been applied retrospectively. See the Consolidated Financial Statements and Note 2 — Variable Interest Entities.
 
The provisions of ASC 815 require enhanced disclosures, including interim period disclosures, about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under ASC 815 and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. Expanded disclosures concerning where derivatives are


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
reported on the balance sheet and where gains/losses are recognized in the results of operations are also required. The Company adopted the enhanced disclosure requirements of ASC 815 prospectively on January 1, 2009. See Note 15 — Fair Value Measurement.
 
ASC 860 “Transfers and Servicing” (“ASC 860”) improves the relevance and comparability of information that a reporting entity provides in its financial statements about transfers of financial assets. The provisions of ASC 860 will be applicable on January 1, 2010, and will be applied prospectively to transfers of financial assets completed after December 31, 2009. The Company does not anticipate these provisions will have a material impact on its financial statements.
 
In August 2009, the FASB issued ASU 2009-5, “Fair Value Measurements and Disclosures (Topic 820) — Measuring Liabilities at Fair Value” (“ASU 2009-5”). This update provides clarification of the fair value measurement of financial liabilities when a quoted price in an active market for an identical liability (level 1 input of the valuation hierarchy) is not available. The Company adopted the provisions of ASU 2009-5 in the fourth quarter of 2009. See Note 15 — Fair Value Measurement.
 
In December 2009, the FASB issued ASU 2009-17, “Consolidations (Topic 810)” (“ASU 2009-17”) which amends the consolidation guidance for variable interest entities and also requires additional disclosures about a reporting entity’s involvement in variable interest entities. The update replaces the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling interest in a variable interest entity with an approach expected to be primarily qualitative. ASU 2009-17 will be applicable to the Company on January 1, 2010. The Company has evaluated the update and has determined that it will not have a material impact on its financial statements.
 
Note 2 — Variable Interest Entities
 
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 the People’s Republic of China. HAL commenced operations during the third quarter of 2008.
 
Under the provisions of ASC 810, HAL is considered a variable interest entity (“VIE”) and the Company is the primary beneficiary as it absorbs the majority of the risk of loss (and benefit of gains) from the VIE’s activities. The presentation and disclosure requirements related to HAL’s noncontrolling interest have been applied retrospectively for all periods presented in accordance with ASC 810. See also the Consolidated Financial Statements.
 
Note 3 —  Business Acquisitions
 
The Company accounts for acquisitions in accordance with ASC 805, which includes provisions that were adopted effective January 1, 2009. The new provisions significantly changed the accounting for business acquisitions both during the period of the acquisition and in subsequent periods. Among the more significant changes in the accounting for acquisitions are the following; acquisition costs are expensed as incurred; restructuring costs associated with a business combination are expensed subsequent to the acquisition date; noncontrolling interests are valued at fair value at the acquisition date; and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date affect income tax expense. In addition, the provisions require that pre-acquisition contingencies be recognized at fair value, assuming fair value can be determined or reasonably estimated. If fair value cannot be determined or reasonably estimated, the standard requires measurement based on the recognition and measurement criteria of ASC 450 “Contingencies” (“ASC 450”). These changes were effective on a prospective basis for any business combinations for which the acquisition date was on or after January 1, 2009.
 
On October 2, 2009, the Company completed the purchase of Burndy for $355.2 million in cash (net of cash acquired of $33.6 million). Burndy is a leading North American manufacturer of connectors, cable accessories and tooling. Burndy serves commercial and industrial markets and utility customers primarily in the United States (with roughly 25% of its sales in Canada, Mexico and Brazil). This acquisition was completed to complement Hubbell’s


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
existing product offerings. The Burndy acquisition has been added to the electrical systems business within the Electrical segment. As of December 31, 2009, the Company had not finalized the assignment of goodwill related to the Burndy acquisition to any specific reporting units.
 
As of December 31, 2009, the Company had not yet finalized all the working capital adjustments with the seller. As a result, the purchase price allocation may change in future reporting periods, although the Company does not anticipate that these changes will be significant.
 
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed related to the Burndy acquisition (in millions):
 
         
    October 2, 2009  
    Burndy  
 
Purchase Price Allocation:
       
Accounts receivable
  $ 32.5  
Inventory
    23.4  
Deferred tax assets
    91.2  
Property, plant and equipment
    40.7  
Other assets
    11.1  
Intangible assets
    134.4  
Goodwill
    137.4  
Deferred tax liabilities
    (52.9 )
Liabilities related to contingencies
    (11.8 )
Other liabilities
    (50.8 )
         
Total Purchase price
  $ 355.2  
         
Intangible Assets:
       
Indefinite lived tradenames and trademarks
  $ 35.5  
Patents
    2.5  
Customer relationships
    94.3  
Other
    2.1  
         
Total Intangible assets
  $ 134.4  
         
Intangible Asset Weighted Average Amortization Period:
       
Patents
    5 years  
Customer relationships
    20 years  
Other
    3 years  
         
Total Weighted average
    19 years  
         
 
The fair values assigned to intangible assets were determined through the use of the income approach, specifically the relief from royalty method and the multi period excess earnings method. The valuation of tangible assets was derived using a combination of the income approach, the market approach and the cost approach.
 
The fair value of accounts receivable acquired is $32.5 million. The gross contractual amount due on these accounts receivable is $36.7 million, of which $4.2 million is expected to be uncollectible.
 
The Company assumed Burndy’s pre-exisiting contingent liabilities as part of the acquisition. These contingent liabilities consisted of contingent consideration related to an acquisition Burndy completed in 2008 as well as environmental liabilities. The undiscounted fair value related to the contingent consideration liability is


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
$5.6 million since it is highly probable that the required earning targets will be achieved. Additionally, the Burndy opening balance sheet includes a $6.2 million contingent liability related to environmental matters. The estimated fair value portion of this liability is $1.6 million, while the remaining $4.6 million liability was determined using the guidance prescribed under ASC 450, which requires the loss contingency to be probable and reasonably estimable.
 
The Burndy acquisition resulted in recognition of $137.4 million of goodwill, which is not deductible for tax purposes. This goodwill largely consists of expected synergies resulting from the acquisition. Key areas of potential cost savings include increased purchasing power for raw materials; manufacturing and supply chain work process improvements; and the elimination of redundant overhead costs. The Company also anticipates that the transaction will produce significant growth synergies as a result of the combined businesses’ broader product portfolio.
 
Acquisition related costs were $5.2 million for the year ended December 31, 2009. These costs were for legal, accounting, valuation and other professional services and were included in selling and administrative expenses in the Consolidated Statement of Income.
 
The Burndy acquisition contributed $44.9 million to net sales in the fourth quarter of 2009, while earnings were not material to the consolidated results. Supplemental pro forma information has not been provided as the acquired operations were a component of a larger legal entity and separate historical financial statements were not prepared. Since stand-alone financial information prior to the acquisition is not readily available, compilation of such data is impracticable.
 
In December 2009, the Company purchased a product line for $0.6 million. This product line, comprised of conductor bar and festoon systems, has been added to the electrical systems business within the Electrical segment.
 
The Consolidated Financial Statements include the results of operations of the acquired businesses from their respective dates of acquisition.
 
Note 4 — Receivables and Allowances
 
Receivables consist of the following components at December 31, (in millions):
 
                 
    2009     2008  
 
Trade accounts receivable
  $ 325.5     $ 363.3  
Non-trade receivables
    10.5       16.9  
                 
Accounts receivable, gross
    336.0       380.2  
Allowance for credit memos, returns, and cash discounts
    (20.8 )     (19.2 )
Allowance for doubtful accounts
    (5.1 )     (4.0 )
                 
Total allowances
    (25.9 )     (23.2 )
                 
Accounts receivable, net
  $ 310.1     $ 357.0  
                 


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
Note 5 — Inventories, net
 
Inventories are classified as follows at December 31, (in millions):
 
                 
    2009     2008  
 
Raw material
  $ 88.0     $ 108.6  
Work-in-process
    62.0       65.7  
Finished goods
    185.2       247.2  
                 
      335.2       421.5  
Excess of FIFO over LIFO cost basis
    (71.7 )     (86.3 )
                 
Total
  $ 263.5     $ 335.2  
                 
 
During 2009, inventory quantities have been reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at lower costs prevailing in prior years as compared with the cost of 2009 purchases, the effect of which decreased cost of goods sold by approximately $11.8 million for the year ended December 31, 2009. Earnings per diluted share increased by approximately $0.13 for the year ended December 31, 2009 as a result of these LIFO liquidations.
 
Note 6 — Goodwill and Other Intangible Assets
 
Changes in the carrying amounts of goodwill for the years ended December 31, 2009 and 2008, by segment, were as follows (in millions):
 
                         
    Segment        
    Electrical     Power     Total  
 
Balance December 31, 2007
  $ 256.4     $ 210.2     $ 466.6  
                         
Acquisitions
    87.4       53.8       141.2  
Translation adjustments
    (19.7 )     (3.5 )     (23.2 )
                         
Balance December 31, 2008
  $ 324.1     $ 260.5     $ 584.6  
                         
Acquisitions
    132.1       14.2       146.3  
Translation adjustments
    9.0       3.8       12.8  
                         
Balance December 31, 2009
  $ 465.2     $ 278.5     $ 743.7  
                         
 
In October 2009, the Company completed the purchase of Burndy. This acquisition resulted in $137.4 million of goodwill which has been included in the Electrical segment. In addition, the Company finalized the purchase accounting related to the 2008 acquisitions of Varon and CDR Systems Corp. (“CDR”) in 2009. The Varon adjustment has been reflected in the Electrical segment, while the CDR adjustment has been reflected in the Power segment. For more information regarding the Burndy acquisition, see Note 3 — Business Acquisitions.
 
The Company has not recorded any goodwill impairments since the initial adoption of the standard in 2002.


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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,
    December 31,
 
    2009     2008  
          Accumulated
          Accumulated
 
    Gross Amount     Amortization     Gross Amount     Amortization  
 
Definite-lived:
                               
Patents, tradenames and trademarks
  $ 83.0     $ (11.0 )   $ 84.4     $ (7.4 )
Customer/Agent relationships and other
    181.3       (22.0 )     74.2       (12.0 )
                                 
Total
    264.3       (33.0 )     158.6       (19.4 )
Indefinite-lived:
                               
Tradenames and other
    56.2             20.3        
                                 
Total
  $ 320.5     $ (33.0 )   $ 178.9     $ (19.4 )
                                 
 
Amortization expense associated with these definite-lived intangible assets was $12.6 million, $7.8 million and $5.5 million in 2009, 2008 and 2007, respectively. Amortization expense associated with these intangible assets is expected to be $15.2 million in 2010, $14.9 million in 2011, $14.3 million in 2012, $13.9 million in 2013 and $13.8 million in 2014.
 
Note 7 — Investments
 
At December 31, 2009 and December 31, 2008, available-for-sale investments consisted entirely of municipal bonds. At December 31, 2009, trading investments consisted primarily of debt and equity mutual funds. In 2008, the Company had no securities that were classified as trading investments. 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):
 
                                                                                 
    2009     2008  
          Gross
    Gross
                      Gross
    Gross
             
    Amortized
    Unrealized
    Unrealized
    Fair
    Carrying
    Amortized
    Unrealized
    Unrealized
    Fair
    Carrying
 
    Cost     Gains     Losses     Value     Value     Cost     Gains     Losses     Value     Value  
 
Available-For-Sale Investments
  $ 25.1     $ 0.9     $ (0.1 )   $ 25.9     $ 25.9     $ 34.6     $ 0.6     $ (0.1 )   $ 35.1     $ 35.1  
Trading Investments
    1.9       0.3             2.2       2.2                                
                                                                                 
Total Investments
  $ 27.0     $ 1.2     $ (0.1 )   $ 28.1     $ 28.1     $ 34.6     $ 0.6     $ (0.1 )   $ 35.1     $ 35.1  
                                                                                 
 
Contractual maturities of available-for-sale investments at December 31, 2009 were as follows (in millions):
 
                 
    Amortized
    Fair
 
    Cost     Value  
 
Available-For-Sale Investments
               
Due within 1 year
  $ 2.6     $ 2.6  
After 1 year but within 5 years
    12.1       12.7  
After 5 years but within 10 years
    5.0       5.1  
Due after 10 years
    5.4       5.5  
                 
Total
  $ 25.1     $ 25.9  
                 


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In 2009 and 2008, the total net unrealized gains recorded relating to available-for-sale securities were $0.3 million and less than $0.1 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. Realized gains and losses were immaterial in 2009, 2008 and 2007.
 
Note 8 — Property, Plant, and Equipment
 
Property, plant, and equipment, carried at cost, is summarized as follows at December 31, (in millions):
 
                 
    2009     2008  
 
Land
  $ 41.4     $ 36.3  
Buildings and improvements
    227.8       212.8  
Machinery, tools and equipment
    620.0       611.5  
Construction-in-progress
    16.3       15.3  
                 
Gross property, plant, and equipment
    905.5       875.9  
Less accumulated depreciation
    (536.7 )     (526.8 )
                 
Net property, plant, and equipment
  $ 368.8     $ 349.1  
                 
 
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 $46.3 million, $43.9 million and $43.1 million for 2009, 2008 and 2007, respectively.
 
Note 9 — Other Accrued Liabilities
 
Other accrued liabilities consists of the following at December 31, (in millions):
 
                 
    2009     2008  
 
Deferred revenue
  $ 44.1     $ 39.2  
Customer program incentives
    23.5       25.4  
Other
    87.1       64.6  
                 
Total
  $ 154.7     $ 129.2  
                 
 
Note 10 — Other Non-Current Liabilities
 
Other non-current liabilities consists of the following at December 31, (in millions):
 
                 
    2009     2008  
 
Pensions
  $ 86.0     $ 107.8  
Other postretirement benefits
    36.8       25.5  
Deferred tax liabilities
    83.2       9.7  
Other
    40.8       39.0  
                 
Total
  $ 246.8     $ 182.0  
                 
 
Note 11 — 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 Company also maintains seven defined contribution pension plans.


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Effective January 1, 2004, the defined benefit pension plan for U.S. salaried and non-collectively bargained hourly employees was closed to employees hired on or after January 1, 2004. Effective January 1, 2006, the defined benefit pension plan for the Hubbell Canada salaried employees was closed to existing employees who did not meet certain age and service requirements as well as all new employees hired on or after January 1, 2006. Effective January 1, 2007 the defined benefit pension plan for Hubbell’s UK operations was closed to all new employees hired on or after January 1, 2007. These U.S., Canadian and UK employees are eligible instead for defined contribution plans. On December 3, 2002, the Company closed its Retirement Plan for Directors to all new directors appointed after that date. Effective December 31, 2007, benefits accrued under this plan for eligible active directors were converted to an actuarial lump sum equivalent and transferred to the Company’s Deferred Compensation Plan for Directors.
 
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 were discontinued in 1991 for substantially all future retirees with the exception of the recently acquired Burndy business and certain operations in our Power segment which still maintain a limited retiree medical plan for some of their union employees. The liability assumed related to the Burndy acquisition for its active and retired employees was $13.1 million. Effective January 1, 2010 the A.B. Chance division of the Power segment will cease to offer retiree medical benefits to all future union retirees. Furthermore, effective February 11, 2009, PCORE ceased to offer retiree medical benefits to all future union retirees. The Company anticipates future cost-sharing changes for its active and discontinued plans that are consistent with past practices.
 
In connection with the acquisition of Burndy in October 2009, the Company acquired certain of its pension plans. These plans consisted of an unfunded domestic non-qualified restoration plan with no active participants and a closed and frozen Canadian defined benefit plan that is overfunded as of December 31, 2009. None of the acquisitions made in 2008 impacted the defined benefit pension or other benefit assets or liabilities.
 
The Company uses a December 31 measurement date for all of its plans. No amendments made in 2009 or 2008 to the defined benefit pension plans had a significant impact on the total pension benefit obligation.


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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  
    2009     2008     2009     2008  
 
Change in benefit obligation
                               
Benefit obligation at beginning of year
  $ 578.9     $ 577.2     $ 28.0     $ 30.1  
Service cost
    12.2       14.6       0.6       0.2  
Interest cost
    36.9       35.8       1.7       1.7  
Plan participants’ contributions
    0.7       0.9              
Amendments
          0.2       (0.7 )      
Curtailment and settlement gain
    (0.5 )                 (1.8 )
Special termination benefits
                      0.1  
Actuarial loss (gain)
    37.5       (4.1 )     (0.3 )     0.3  
Acquisitions/Divestitures
    5.7             13.1        
Currency impact
    5.5       (18.7 )            
Other
    (0.1 )     (0.1 )           0.3  
Benefits paid
    (29.8 )     (26.9 )     (2.7 )     (2.9 )
                                 
Benefit obligation at end of year
  $ 647.0     $ 578.9     $ 39.7     $ 28.0  
                                 
Change in plan assets
                               
Fair value of plan assets at beginning of year
    472.7       609.1              
Actual return on plan assets
    89.1       (108.6 )            
Acquisitions/Divestitures
    7.4                    
Employer contributions
    30.0       14.1              
Plan participants’ contributions
    0.7       0.9              
Currency impact
    5.9       (15.9 )            
Settlement loss and other
    (0.2 )                  
Benefits paid
    (29.8 )     (26.9 )            
                                 
Fair value of plan assets at end of year
  $ 575.8     $ 472.7     $     $  
                                 
Funded status
  $ (71.2 )   $ (106.2 )   $ (39.7 )   $ (28.0 )
                                 
Amounts recognized in the consolidated balance sheet consist of:
                               
Prepaid pensions (included in Intangible assets and other)
  $ 17.0     $ 4.8     $     $  
Accrued benefit liability (short-term and long-term)
    (88.2 )     (111.0 )     (39.7 )     (28.0 )
                                 
Net amount recognized
  $ (71.2 )   $ (106.2 )   $ (39.7 )   $ (28.0 )
                                 
Amounts recognized in Accumulated other comprehensive loss (income) consist of:
                               
Net actuarial loss (gain)
  $ 115.3     $ 136.9     $ (1.2 )   $ (0.8 )
Prior service cost (credit)
    1.5       1.9       (2.5 )     (2.0 )
                                 
Net amount recognized
  $ 116.8     $ 138.8     $ (3.7 )   $ (2.8 )
                                 


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The accumulated benefit obligation for all defined benefit pension plans was $595.2 million and $529.8 million at December 31, 2009 and 2008, respectively. Information with respect to plans with accumulated benefit obligations in excess of plan assets is as follows, (in millions):
 
                 
    2009     2008  
 
Projected benefit obligation
  $ 73.5     $ 499.8  
Accumulated benefit obligation
  $ 67.5     $ 461.8  
Fair value of plan assets
  $ 11.0     $ 388.7  
 
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  
    2009     2008     2007     2009     2008     2007  
 
Components of net periodic benefit cost
                                               
Service cost
  $ 12.2     $ 14.6     $ 16.9     $ 0.6     $ 0.2     $ 0.5  
Interest cost
    36.9       35.8       32.7       1.7       1.7       1.7  
Expected return on plan assets
    (37.2 )     (47.5 )     (42.6 )                  
Amortization of prior service cost
    0.3       0.4       (0.3 )     (0.2 )     (0.2 )     (0.2 )
Amortization of actuarial losses
    7.3       1.3       1.9                   0.1  
Curtailment and settlement losses (gains)
    0.1             (0.1 )           (1.7 )     1.4  
                                                 
Net periodic benefit cost
  $ 19.6     $ 4.6     $ 8.5     $ 2.1     $     $ 3.5  
                                                 
Changes recognized in other comprehensive loss (income), before tax, (in millions):
                                               
Current year net actuarial (gain)/loss
  $ (14.8 )   $ 148.9             $ (0.3 )   $ 0.3          
Current year prior service cost
          0.2               (0.8 )              
Amortization of prior service (cost)/credit
    (0.3 )     (0.4 )             0.2       0.2          
Amortization of net actuarial loss
    (7.3 )     (1.3 )                            
Currency impact
          (1.0 )                            
Other adjustments
    0.4       0.1                              
                                                 
Total recognized in accumulated other comprehensive income
    (22.0 )     146.5               (0.9 )     0.5          
                                                 
Total recognized in net periodic pension cost and other comprehensive loss (income)
  $ (2.4 )   $ 151.1             $ 1.2     $ 0.5          
                                                 
Amortization expected to be recognized through income during 2010
                                               
Amortization of prior service cost/(credit)
  $ 0.3                     $ (0.2 )                
Amortization of net loss
    4.9                                        
                                                 
Total expected to be recognized through income during next fiscal year
  $ 5.2                     $ (0.2 )                
                                                 
 
In addition to the above, certain of the Company’s union employees participate in multi-employer defined benefit plans. The total Company cost of these plans was $0.8 million in 2009, $0.9 million in 2008 and $0.7 million in 2007. In 2009 the Company requested a withdrawal calculation related to the closure of a facility. The


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
preliminary net present value calculation of the liability provided by the plan was $0.9 million which has been recorded by the Company as an expense in 2009.
 
The Company also maintains seven defined contribution pension plans. The total cost of these plans was $5.9 million in both 2009 and 2008 and $5.8 million in 2007, 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.
 
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
    2009   2008   2007   2009   2008   2007
 
Weighted-average assumptions used to determine benefit obligations at December 31,
                                               
Discount rate
    5.96 %     6.46 %     6.41 %     6.00 %     6.50 %     6.50 %
Rate of compensation increase
    3.57 %     4.07 %     4.58 %     3.50 %     4.00 %     4.00 %
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31,
                                               
Discount rate
    6.46 %     6.41 %     5.66 %     6.50 %     6.50 %     5.75 %
Expected return on plan assets
    8.00 %     8.00 %     8.00 %     N/A       N/A       N/A  
Rate of compensation increase
    4.07 %     4.07 %     4.58 %     4.00 %     4.00 %     4.00 %
 
At the end of each calendar 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 assumed health care cost trend rates used to determine the projected postretirement benefit obligation are as follows:
 
                         
    Other Benefits
    2009   2008   2007
 
Assumed health care cost trend rates at December 31,
                       
Health care cost trend assumed for next year
    8.0 %     8.0 %     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
    2015       2015       2015  
 
Assumed health care cost trend rates have a significant 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     $ (0.1 )
Effect on postretirement benefit obligation
  $ 1.3     $ (1.2 )


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Plan Assets
 
The Company’s combined targeted and actual domestic and foreign pension plan weighted average asset allocation at December 31, 2010, 2009 and 2008 by asset category are as follows:
 
                         
    Target
    Percentage of
 
    Allocation
    Plan Assets  
    2010     2009     2008  
 
Asset Category
                       
Equity securities
    47 %     50 %     45 %
Debt securities & Cash
    34 %     32 %     37 %
Alternative Investments
    19 %     18 %     18 %
                         
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 $15.9 million (3.2% of total domestic plan assets) and $10.9 million (2.6% of total domestic plan assets) at December 31, 2009 and 2008, respectively.


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The fair value of the Company’s pension plan assets at December 31, 2009, by asset category are as follows (in millions):
 
                                 
          Quoted Prices in
    Quoted Prices in
       
          Active Markets
    Active Markets
    Significant
 
          for Identical
    for Similar Asset
    Unobservable
 
Asset Category
  Total     Assets (Level 1)     (Level 2)     Inputs (Level 3)  
 
Cash and cash equivalents
  $ 25.2     $ 25.2     $     $  
Equity securities:
                               
US Large-cap(a)
    109.1       109.1              
US Mid-cap and Small-cap Growth(b)
    19.1       19.1              
International Large-cap
    62.7       62.7              
Emerging Markets
    43.9       43.9              
Fixed Income Securities:
                               
US Treasuries
    60.3       60.3              
Corporate Bonds(c)
    91.7       91.7              
Asset Backed Securities and Other
    7.2       7.2              
Derivatives:
                               
Equity Futures(d)
    51.6             51.6        
Fixed Income Futures
    0.3             0.3        
Alternative Investment Funds
    104.7                   104.7  
                                 
Total
  $ 575.8     $ 419.2     $ 51.9     $ 104.7  
                                 
 
 
(a) Includes an actively managed portfolio of large-cap US stocks
 
(b) Includes $15.9 million of the Company’s common stock 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
 
The fair value of the Company’s pension plan assets measured using significant unobservable inputs (Level 3) at December 31, 2009, by asset category are as follows (in millions):
 
                         
    Institutional
    Distressed
       
    Fund of
    Opportunities
       
    Hedge Funds     Fund     Total  
 
Balance at December 31, 2008
  $ 77.2     $ 3.9     $ 81.1  
Actual return on plan assets:
                       
Relating to assets still held at the reporting date
    10.4       0.5       10.9  
Purchases, sales and settlements, net
    11.3       1.4       12.7  
                         
Balance at December 31, 2009
  $ 98.9     $ 5.8     $ 104.7  
                         
 
All of the alternative investments held by the Company’s pension plans consist of fund of fund products, the largest being an institutional fund of hedge funds (“IFHF”). The IFHF invests in 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, specialized credit and directional strategies. The objective of the IFHF is to achieve the desired capital appreciation with lower volatility than either traditional equity or fixed income markets. The plan also has a small investment in a distressed opportunity fund. This fund of funds product invests in distressed strategies including turnarounds, debt-for-control and active trading.


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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 decide to make a voluntary contribution to its qualified domestic defined benefit pension plans in 2010. The Company expects to contribute approximately $5 million to its foreign plans in 2010.
 
Estimated Future Benefit Payments
 
The following domestic and foreign benefit payments, which reflect future service, as appropriate, are expected to be paid, (in millions):
 
                                 
          Other Benefits  
                Medicare
       
                Part D
       
    Pension Benefits     Gross     Subsidy     Net  
 
2010
  $ 29.9     $ 3.1     $ 0.2     $ 2.9  
2011
  $ 31.5     $ 3.1     $ 0.2     $ 2.9  
2012
  $ 33.1     $ 3.1     $ 0.2     $ 2.9  
2013
  $ 35.7     $ 3.1     $ 0.2     $ 2.9  
2014
  $ 37.3     $ 3.0     $ 0.2     $ 2.8  
2015-2019
  $ 210.4     $ 14.2     $ 0.8     $ 13.4  
 
Note 12 — Debt
 
The following table sets forth the components of the Company’s debt structure at December 31, (in millions):
 
                                                 
    2009     2008  
    Short-Term
    Senior Notes
          Short-Term
    Senior Notes
       
    Debt     (Long-Term)     Total     Debt     (Long-Term)     Total  
 
Balance at year end
  $     $ 497.2     $ 497.2     $     $ 497.4     $ 497.4  
Highest aggregate month-end balance
                  $ 563.5                     $ 497.4  
Average borrowings
  $ 5.5     $ 496.8     $ 502.3     $ 97.9     $ 373.2     $ 471.1  
Weighted average interest rate:
                                               
At year end
          6.12 %     6.12 %           6.12 %     6.12 %
Paid during the year
    0.26 %     6.12 %     5.85 %     3.38 %     6.21 %     5.62 %
 
At December 31, 2009 and 2008, the Company had $497.2 and $497.4 million, respectively, of senior notes reflected as Long-term debt in the Consolidated Balance Sheet. Interest and fees paid related to total indebtedness totaled $29.8 million for 2009, $24.5 million for 2008 and $17.1 million for 2007.
 
In May 2002, the Company issued ten year, non-callable notes due in 2012 at face value of $200 million and a fixed interest rate of 6.375%. In May 2008, the Company completed the sale of $300 million of long-term, senior, unsecured notes maturing in 2018 and bearing interest at the rate of 5.95%. The proceeds of the May 2008 debt offering, net of discount, were used to pay down commercial paper borrowings and for general corporate purposes.
 
Both of these notes are fixed rate indebtedness, are not callable and are only subject to accelerated payment prior to maturity if the Company fails to meet certain non-financial covenants, all of which were met at December 31, 2009 and 2008. The most restrictive of these covenants limits our ability to enter into mortgages


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
and sale-leasebacks of property having a net book value in excess of $5 million without the approval of the Note holders.
 
Prior to the 2002 and 2008 issuance of the long term notes, the Company entered into forward interest rate locks to hedge its exposure to fluctuations in treasury rates. The 2002 interest rate lock resulted in a $1.3 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.
 
In September 2009, the Company entered into a line of credit agreement with Credit Suisse for approximately 30 million Swiss francs to support the issuance of letters of credit. The availability of credit under this facility is dependent upon the maintenance of compensating balances, which may be withdrawn. There are no annual commitment fees associated with this credit facility.
 
In May 2009, the Company entered into a three year interest rate swap for an aggregate notional amount of $200 million to manage its exposure to changes in the fair value of its 6.375% $200 million fixed rate debt maturing in May 2012. Under the swap, the Company receives interest based on a fixed rate of 6.375% and pays interest based on a floating one month LIBOR rate plus a spread. The interest rate swap is designated as a fair value hedge under ASC 815 and qualifies for the “short-cut” method; as such, no hedge ineffectiveness is recognized. The interest rate swap is recorded at fair value, with an offsetting amount recorded against the carrying value of the fixed-rate debt. For the year ended December 31, 2009, interest expense was reduced $1.2 million as a result of entering into the interest rate swap.
 
In March 2008, the Company exercised its option to expand its credit facility by $100 million, bringing the total credit facility to $350 million. The expiration date of the credit agreement is October 31, 2012. The interest rate applicable to borrowings under the credit agreement is either the prime rate or a surcharge over LIBOR. The covenants of the facility require that Hubbell shareholders’ equity be greater than $675 million and that total debt not exceed 55% of total capitalization (defined as total debt plus Hubbell shareholders’ equity). The Company was in compliance with all debt covenants at December 31, 2009 and 2008. Annual commitment fee requirements to support availability of the credit facility were not material. This facility is used as a backup to our commercial paper program and was undrawn as of December 31, 2009.
 
The Company maintains a 9.4 million pound sterling credit facility with HSBC Bank Plc. in the UK which is set for review on November 30, 2010. The Company also maintains a 3.0 million Brazilian real line of credit with Banco Real that expires in April 2010. There are no annual commitment fees associated with these credit agreements. These credit facilities were undrawn as of December 31, 2009.
 
In addition to the above credit commitments, the Company has an unsecured line of credit for $60 million to support issuance of its letters of credit. At December 31, 2009, the Company had approximately $32.5 million of letters of credit outstanding under this facility.


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
 
Note 13 — Income Taxes
 
The following table sets forth selected data with respect to the Company’s income tax provisions for the years ended December 31, (in millions):
 
                         
    2009     2008     2007  
 
Income before income taxes:
                       
United States
  $ 183.1     $ 213.6     $ 191.9  
International
    78.5       104.8       92.3  
                         
Total
  $ 261.6     $ 318.4     $ 284.2  
                         
Provision for income taxes — current:
                       
Federal
  $ 25.3     $ 64.1     $ 60.6  
State
    7.2       11.0       7.7  
International
    15.5       19.4       11.3  
                         
Total provision-current
    48.0       94.5       79.6  
                         
Provision for income taxes — deferred:
                       
Federal
  $ 29.5     $ 8.5     $ (8.4 )
State
    (0.2 )     (10.6 )     (0.7 )
International
    3.0       2.8       5.4  
                         
Total provision — deferred
    32.3       0.7       (3.7 )
                         
Total provision for income taxes
  $ 80.3     $ 95.2     $ 75.9  
                         


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HUBBELL INCORPORATED AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
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):
 
                 
    2009     2008  
 
Deferred tax assets:
               
Inventory
  $ 6.4     $ 8.1  
Income tax credits
    33.2       22.1