01—Abstract
Summary
Summary of the 10-K filed March 5, 2004. Cited figures are marked; the original filing is the authoritative source.
Hubbell Incorporated's 2003 results showed net sales of $1,770.7 milliona, up 12% from $1,587.8 million in 2002, with operating income rising to $171.9 million (9.7% of sales) from $138.5 million (8.7%).
Net income was $115.1 millionb, or $1.91 per diluted share, compared with $83.2 million, or $1.38 per diluted share, in 2002, which included a $25.4 million goodwill impairment charge recorded as a cumulative effect of an accounting change. The Electrical segment drove most of the growth, reflecting the 2002 acquisitions of the LCA lighting business and Hawke. Management attributed the improvement to the lighting integration program, lean process initiatives, and workforce reductions, though sales in commercial construction, utility and telecommunications markets remained weak.
The balance sheet strengthened over the year. Cash and temporary cash investments rose to $220.8 millionc, cash and investments exceeded total debt of $298.8 million, and debt to total capitalization fell to 26% from 29%. Operating cash flow was $243.6 million, against capital expenditures of $27.6 million, and the company paid $78.4 million in dividends.
Management's 2004 outlook calls for sales growth of 2% to 4% excluding currency effects, a one-point improvement in operating margin, an effective tax rate of 27% to 28%, and free cash flow of $125 to $175 milliond. The company also expects to record consolidation charges of $15 to $25 million and to spend $40 to $60 million on an enterprise-wide business system.
The filing describes Hubbell's three segments as Electrical, Power, and Industrial Technology, which accounted for approximately 74%, 19%, and 7% of 2003 revenue respectively. Management stated that the company's Puerto Rico federal tax benefits are set to expire on December 31, 2005, and that it is evaluating ways to mitigate their loss.
02—Key points
Key Highlights
- Net sales were $1,770.7 million in 2003, up 12% from $1,587.8 million in 2002, with the largest increase in the Electrical segment following 2002 acquisitions.
- Operating income was $171.9 million, or 9.7% of sales, compared with $138.5 million, or 8.7% of sales, in 2002.
- Diluted earnings per share before accounting change were $1.91, compared with $1.81 in 2002; 2002 diluted EPS after the cumulative effect of accounting change was $1.38.
- Operating cash flow was $243.6 million, and cash and temporary cash investments increased to $220.8 million from $40.0 million.
- Debt to total capitalization declined to 26% from 29%, and cash and investments of $300.9 million exceeded total debt of $298.8 million at year-end 2003.
- The 2004 outlook projects sales growth of 2% to 4% excluding currency effects and a one-percentage-point improvement in operating margin, with possible consolidation charges of $15 to $25 million.
- Dividends of $1.32 per share were declared in both 2003 and 2002, and the company began a stock repurchase program of up to $60.0 million, with $5.3 million used through December 31, 2003.
03—Questions
Frequently Asked Questions
What drove Hubbell's sales and profit growth in 2003?
Sales growth was driven mainly by the 2002 acquisitions of the LCA lighting business and Hawke, along with strong residential construction and retail markets. Operating margin improved on the lighting integration program, lean initiatives, and workforce reductions of about 5% in the first half of 2003. Special charges fell to $8.1 million from $13.7 million in 2002.
How strong is Hubbell's balance sheet at the end of 2003?
Cash and investments of $300.9 million exceeded total debt of $298.8 million, producing net debt of $(2.1) million. Debt to total capitalization was 26%, down from 29% a year earlier. Total debt consists solely of long-term senior notes, with $100 million due in 2005 and $200 million due in 2012.
What does management expect for 2004?
Management expects sales growth of 2% to 4%, excluding currency effects, with the Electrical segment contributing most of the increase. It expects operating margin to improve by one percentage point before any streamlining charges, an effective tax rate of 27% to 28%, and free cash flow of $125 to $175 million.
What risks are highlighted in the filing?
The filing notes continued weakness in commercial construction, utility, and telecommunications markets, and states that federal tax benefits from Puerto Rico operations are set to expire on December 31, 2005. It also discusses exposure to foreign currency changes and raw material prices, and reliance on about 12% of cost of goods sold from unaffiliated suppliers outside the United States.
What is the company's pension funding outlook?
The company contributed $25 million to its domestic qualified defined benefit pension plans in both 2003 and 2002. It expects to contribute between $10 million and $30 million in 2004, reflecting improved funded status after 2003 asset gains.
04—Continue