HUBBELL INC - Quarter Report: 2013 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

Commission File Number 1-2958

HUBBELL INCORPORATED

(Exact name of registrant as specified in its charter)

Indicate by check mark						Yes		No
• whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
• 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).
• 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		Accelerated filer		Non-accelerated filer    (Do not check if a smaller reporting company)		Smaller reporting company
• whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

The number of shares outstanding of the Class A Common Stock and Class B Common Stock as of October 14, 2013 were 7,167,506 and 51,941,438, respectively.

Index

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Condensed Consolidated Statement of Income (unaudited)

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Condensed Consolidated Statement of Comprehensive Income (unaudited)

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Condensed Consolidated Balance Sheet (unaudited)

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Condensed Consolidated Statement of Cash Flows (unaudited)

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Notes to Condensed Consolidated Financial Statements (unaudited)

The accompanying unaudited condensed consolidated financial statements of Hubbell Incorporated (“Hubbell”, the “Company”, “registrant”, “we”, “our” or “us”, which references shall include its divisions and subsidiaries) have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S.”) for complete financial statements. In the opinion of management, all adjustments consisting only of normal recurring adjustments considered necessary for a fair statement of the results of the periods presented have been included. Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

The balance sheet at December 31, 2012 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Hubbell Incorporated Annual Report on Form 10-K for the year ended December 31, 2012.

Recent Accounting Pronouncements

In December 2011, the FASB amended the disclosure requirements regarding offsetting assets and liabilities of derivatives, sale and repurchase agreements, reverse sale and repurchase agreements and securities borrowing and securities lending arrangements. The enhanced disclosures require entities to provide both gross and net information for these assets and liabilities. This amendment was adopted by the Company effective January 1, 2013 and did not have a material impact on its financial statements.

In July 2012, the FASB amended its guidance related to testing indefinite-lived intangible assets other than goodwill for impairment. An entity has the option of performing a qualitative assessment before calculating the fair value of the asset. If the entity determines, on the basis of certain qualitative factors, that it is more likely than not that the asset is not impaired, the entity would not need to calculate the fair value of the asset. The Company performs its annual indefinite-lived intangible impairment analysis during the fourth quarter of the year and the adoption of the standard effective January 1, 2013 did not have an impact on the Company’s financial statements.

In February 2013, the FASB amended the disclosure requirements regarding the reporting of amounts reclassified out of accumulated other comprehensive income. The amendment does not change the current requirement for reporting net income or other comprehensive income, but requires additional disclosures about significant amounts reclassified out of accumulated other comprehensive income including the effect of the reclassification on the related net income line items. This amendment was adopted prospectively by the Company effective January 1, 2013. See also Note 8 - Accumulated Other Comprehensive Loss.

In March 2013, the FASB amended guidance related to a parent company’s accounting for the release of the cumulative translation adjustment into net income upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This guidance is effective for fiscal periods beginning after December 15, 2013, and is to be applied prospectively to derecognition events occurring after the effective date. The Company does not anticipate the adoption of this amendment will have a material impact on its financial statements.

In July 2013, the FASB amended its guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, similar tax loss, or a tax credit carryforward exists. This guidance is effective for fiscal periods beginning after December 15, 2013, and is to be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective and early adoption are also permitted. The Company does not anticipate the adoption of this amendment will have a material impact on its financial statements.

During the third quarter of 2013, the Company purchased all of the membership interests of Carmen Matthew, LLC (d/b/a “Norlux”), which specializes in the design and manufacture of custom light emitting diode (“LED”) solutions. Norlux was purchased for $14.9 million and has been added to the Electrical segment, resulting in the recognition of intangible assets of $4.3 million and goodwill of $8.1 million. The $4.3 million of intangible assets consists primarily of customer relationships and tradenames that will be amortized over a weighted average period of approximately 15 years. All of the goodwill associated with the Norlux acquisition is expected to be deductible for tax purposes.

During the second quarter of 2013, the Company purchased all of the outstanding common stock of Connector Manufacturing Company and Canadian Connector Corporation, collectively referred to as “CMC”, for $44.2 million, net of cash received. CMC manufactures and sells mechanical connectors and pole line hardware. This acquisition has been added to the Electrical segment and has resulted in the recognition of intangible assets of $6.0 million and goodwill of $25.9 million. The $6.0 million of intangible assets consists of tradenames and customer relationships that will be amortized over a weighted average period of approximately 19 years. None of the goodwill associated with the CMC acquisition is expected to be deductible for tax purposes.

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During the first quarter of 2013, the Company completed the acquisition of the majority of the net assets of Continental Industries, Inc. (“Continental”) for $37.4 million. Continental produces high quality exothermic welding and connector products. This acquisition has been added to the Electrical segment and has resulted in the recognition of intangible assets of $11.0 million and goodwill of $19.3 million. The $11.0 million of intangible assets consists primarily of customer relationships and tradenames that will be amortized over a weighted average period of approximately 20 years. All of the goodwill associated with the Continental acquisition is expected to be deductible for tax purposes.

All of these business acquisitions have been accounted for as business combinations and have resulted in the recognition of goodwill. The goodwill relates to a number of factors built into the purchase price, including the future earnings and cash flow potential of the businesses as well as the complementary strategic fit and resulting synergies they bring to the Company’s existing operations.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition related to these transactions:

The Condensed Consolidated Financial Statements include the results of operations of Norlux, CMC and Continental from the date of acquisition. Net sales and earnings related to these acquisitions for the three and nine months ended September 30, 2013 were not significant to the consolidated results. Pro forma information related to these acquisitions has not been included because the impact to the Company’s consolidated results of operations was not material.

The Company’s reporting segments consist of the Electrical segment and the Power segment. The following table sets forth financial information by business segment (in millions):

Inventories, net are comprised of the following (in millions):

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Changes in the carrying values of goodwill for the nine months ended September 30, 2013, by segment, were as follows (in millions):

In 2013, the Company completed the acquisitions of Norlux, CMC and Continental within the Electrical segment for aggregate consideration of $96.5 million, net of cash received. These acquisitions have been accounted for as business combinations and have resulted in the recognition of $53.3 million of goodwill. See also Note 2 – Business Acquisitions.

The Company performs its goodwill impairment testing as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. As of April 1, 2013, the impairment testing resulted in implied fair values for each reporting unit that exceeded the reporting unit’s carrying value, including goodwill. The Company did not have any reporting units at risk of failing Step 1 of the impairment test as the excess of the estimated fair value over carrying value (expressed as a percentage of carrying value) ranged from approximately 100% to approximately 400% for the respective reporting units. Additionally, the Company did not have any reporting units with zero or negative carrying amounts.

The carrying value of other intangible assets included in Intangible assets, net in the Condensed Consolidated Balance Sheet is as follows (in millions):

Amortization expense associated with these definite-lived intangible assets was $14.6 million and $13.3 million for the nine months ended September 30, 2013 and 2012, respectively. Future amortization expense associated with these intangible assets is expected to be $4.9 million for the remainder of 2013, $18.9 million in 2014, $17.3 million in 2015, $16.6 million in 2016, $15.4 million in 2017 and $13.9 million in 2018.

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Other accrued liabilities are comprised of the following, (in millions):

Total equity is comprised of the following (in millions, except per share amounts):

A summary of the changes in equity for the nine months ended September 30, 2013 and 2012 is provided below (in millions):

The detailed components of total comprehensive income are presented in the Condensed Consolidated Statement of Comprehensive Income.

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A summary of the changes in Accumulated other comprehensive loss (net of tax) for the nine months ended September 30, 2013 is provided below (in millions):

A summary of the gain (loss) reclassifications out of Accumulated other comprehensive loss for the three and nine months ended September 30, 2013 is provided below (in millions):

The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities. Restricted stock granted by the Company is considered a participating security since it contains a non-forfeitable right to dividends.

The following table sets forth the computation of earnings per share for the three and nine months ended September 30, 2013 and 2012 (in millions, except per share amounts):

The Company did not have any significant anti-dilutive securities during the three and nine months ended September 30, 2013 and 2012.

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The following table sets forth the components of net pension and other benefit costs for the three and nine months ended September 30, 2013 and 2012 (in millions):

Employer Contributions

The Company anticipates making required contributions of approximately $3.0 million to its foreign pension plans during 2013, of which $2.5 million has been contributed through September 30, 2013. The Company is not required under the Pension Protection Act of 2006 to make any contributions to its qualified domestic benefit pension plans during 2013.

The Company accrues for costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely costs to be incurred are accrued based on an evaluation of currently available facts and, where no amount within a range of estimates is more likely, the minimum is accrued.

The Company records a liability equal to the fair value of guarantees in the Condensed Consolidated Balance Sheet in accordance with the accounting guidance for guarantees. As of September 30, 2013, the fair value and maximum potential payment related to the Company’s guarantees were not material.

The Company offers product warranties which cover defects on most of its products. These warranties primarily apply to products that are properly installed, maintained and used for their intended purpose. The Company accrues estimated warranty costs at the time of sale. Estimated warranty expenses, recorded in cost of goods sold, are based upon historical information such as past experience, product failure rates, or the estimated number of units to be repaired or replaced. Adjustments are made to the product warranty accrual as claims are incurred, additional information becomes known or as historical experience indicates.

Changes in the accrual for product warranties during the nine months ended September 30, 2013 are set forth below (in millions):

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Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly

Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions

The following table shows, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at September 30, 2013 and December 31, 2012 (in millions):

The methods and assumptions used to estimate the Level 2 fair values were as follows:

Forward exchange contracts – The fair value of forward exchange contracts were based on quoted forward foreign exchange prices at the reporting date.

During the three and nine months ended September 30, 2013 there were no transfers of financial assets or liabilities in or out of Level 1 or Level 2 of the fair value hierarchy. During the nine months ended September 30, 2013 and as of December 31, 2012, the Company did not have any financial assets or liabilities that fell within the Level 3 hierarchy.

Investments

At September 30, 2013 and December 31, 2012, the Company had $39.1 million and $39.7 million, respectively, of municipal bonds classified as available-for-sale securities. The Company also had $7.1 million and $5.8 million of trading securities at September 30, 2013 and December 31, 2012, respectively. These investments are carried on the balance sheet at fair value. Unrealized gains and losses associated with available-for-sale securities are reflected in Accumulated other comprehensive loss, net of tax, while unrealized gains and losses associated with trading securities are reflected in the results of operations.

Deferred compensation plans

The Company offers certain employees the opportunity to participate in non-qualified deferred compensation plans. A participant’s deferrals are invested in a variety of participant-directed debt and equity mutual funds that are classified as trading securities. During the nine months ended September 30, 2013 and 2012, the Company purchased $0.9 and $1.3 million, respectively, of trading securities related to these deferred compensation plans. The unrealized gains and losses associated with these trading securities are directly offset by the changes in the fair value of the underlying deferred compensation plan obligation.

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Derivatives

In order to limit financial risk in the management of its assets, liabilities and debt, the Company may use derivative financial instruments such as foreign currency hedges, commodity hedges, interest rate hedges and interest rate swaps. All derivative financial instruments are matched with an existing Company asset, liability or forecasted 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, liability or forecasted transaction are recognized in income.

The fair values of derivative instruments in the Condensed Consolidated Balance Sheet are as follows (in millions):

Forward exchange contracts

In 2013 and 2012, the Company entered into a series of forward exchange contracts to purchase U.S. dollars in order to hedge its exposure to fluctuating rates of exchange on anticipated inventory purchases by one of its Canadian subsidiaries. As of September 30, 2013, the Company had 18 individual forward exchange contracts for a notional $1.0 million each, which have various expiration dates through September 2014. These contracts have been designated as cash flow hedges in accordance with the accounting guidance for derivatives.

Interest rate locks

Prior to the issuance of long-term notes in 2010 and 2008, the Company entered into forward interest rate locks to hedge its exposure to fluctuations in treasury rates. The 2010 interest rate lock resulted in a $1.6 million loss while the 2008 interest rate lock resulted in a $1.2 million gain. These amounts were recorded in Accumulated other comprehensive loss, net of tax, and are being amortized over the life of the respective notes. The amortization associated with these interest rate locks is reclassified from Accumulated other comprehensive loss to Interest expense, net in the Condensed Consolidated Statement of Income. The amortization reclassification for the three and nine months ended September 30, 2013 and 2012 was not material. As of both September 30, 2013 and December 31, 2012 there was $0.4 million of net unamortized losses reflected in accumulated other comprehensive loss.

The following table summarizes the results of cash flow hedging relationships for the three months ended September 30, 2013 and 2012 (in millions):

The following table summarizes the results of cash flow hedging relationships for the nine months ended September 30, 2013 and 2012, (in millions):

There was no hedge ineffectiveness with respect to the forward exchange cash flow hedges during the three and nine months ended September 30, 2013 and 2012.

Long-term Debt

The total carrying value of long-term debt as of September 30, 2013 and December 31, 2012 was $597.1 million and $596.7 million, respectively, net of unamortized discount. As of September 30, 2013 and December 31, 2012, the estimated fair value of the long-term debt was $640.2 million and $682.7 million, respectively, using quoted market prices in active markets for similar liabilities (Level 2).

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Executive Overview of the Business

The 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. Products are either sourced complete, manufactured or assembled by subsidiaries in the United States, Canada, Switzerland, Puerto Rico, China, Mexico, Italy, the United Kingdom, Brazil and Australia. The Company also participates in joint ventures in Taiwan and Hong Kong, and maintains offices in Singapore, China, India, Mexico, South Korea and countries in the Middle East. The Company employs approximately 14,600 individuals worldwide.

The Company’s reporting segments consist of the Electrical segment and the Power segment. Results for the three and nine months ended September 30, 2013 are included under “Segment Results” within this Management’s Discussion and Analysis.

The Company is focused on growing profits and delivering attractive returns to our shareholders by executing a business plan focused on the following key initiatives: revenue growth, price realization and productivity improvements.

As part of our revenue growth initiative, we remain focused on expanding market share through new product introductions and more effective utilization of sales and marketing efforts across the organization. In addition, we continue to assess opportunities to expand sales through acquisitions of businesses that fill product line gaps or allow for expansion into new markets.

Price realization and delivering productivity improvements are key areas of focus for our company. Productivity programs impact virtually all functional areas within the Company by reducing or eliminating waste and improving processes. We continue to expand our efforts surrounding global product and component sourcing and supplier cost reduction programs. Value engineering efforts, product transfers and the use of lean process improvement techniques are expected to continue to increase manufacturing efficiency. In addition, we continue to build upon the benefits of our enterprise resource planning system across all functions and have also implemented a sustainability program across the organization. Material costs are approximately two-thirds of our cost of goods sold therefore volatility in this area can significantly impact profitability. Our goal is to have sufficient benefit from pricing and productivity programs to offset material and other inflationary cost increases as well as pay for investments in key growth areas.

Results of Operations – Third Quarter of 2013 compared to the Third Quarter of 2012

SUMMARY OF CONSOLIDATED RESULTS (IN MILLIONS, EXCEPT PER SHARE DATA):

Net Sales

Net sales of $835.9 million for the third quarter of 2013 increased 6% compared to the third quarter of 2012 due to completed acquisitions and higher organic volume partially offset by foreign currency translation. Acquisitions added five percentage points to net sales. Compared to the third quarter of 2012, higher organic volume increased net sales in the third quarter of 2013 by two percentage points while the negative impacts of foreign currency translation reduced net sales by approximately one percentage point.

Cost of Goods Sold

As a percentage of net sales, cost of goods sold decreased to 65.2% in the third quarter of 2013 compared to 66.0% in the third quarter of 2012 due to the impact of realized productivity and lower material costs partially offset by other cost increases.

Gross Profit

The consolidated gross profit margin in the third quarter of 2013 was 34.8% compared to 34.0% in the third quarter of 2012. The increase in gross profit margin was due to the impact of realized productivity and lower material costs partially offset by other cost increases, as described above.

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Selling & Administrative Expenses (“S&A”)

S&A expenses in the third quarter of 2013 were $139.7 million compared to $133.4 million in the third quarter of 2012. The S&A increase of $6.3 million was almost entirely due to the S&A costs of the acquired businesses. As a percentage of net sales, S&A expenses decreased to 16.7% in the third quarter of 2013 compared to 16.9% in the third quarter of 2012 due to volume leverage.

Total Other Expense

Total other expense was $8.3 million in the third quarter of 2013 compared to $6.1 million in the third quarter of 2012. This $2.2 million increase was primarily due to net foreign currency transaction losses experienced in the third quarter of 2013 as compared to net foreign currency transaction gains experienced in the third quarter of 2012.

Income Taxes

The effective tax rate in the third quarter of 2013 increased slightly to 32.2% from 32.1% in the third quarter of 2012. The increase in the effective tax rate was primarily due to lower discrete benefits experienced in the third quarter of 2013 as compared to the similar three month period in the prior year, partially offset by the favorable application of certain tax provisions, including the research and development tax credit that were part of the American Taxpayer Relief Act of 2012 (“2012 Relief Act”), which became law during the first quarter of 2013.

Net Income Attributable to Hubbell and Earnings Per Diluted Share

For the reasons described above, net income attributable to Hubbell and earnings per diluted share increased 11% and 12%, respectively, in the third quarter of 2013 as compared to the third quarter of 2012. The average number of diluted shares outstanding at the end of the third quarter of 2013 was lower by approximately 0.2 million shares as compared to the third quarter of 2012.

Segment Results

ELECTRICAL

Net sales in the Electrical segment increased 8% in the third quarter of 2013 compared with the third quarter of 2012. Acquisitions and higher organic sales volume increased net sales by approximately five and three percentage points, respectively, compared to the third quarter of 2012. Price realization was offset by the unfavorable impacts of foreign currency translation, each less than one percentage point in the third quarter of 2013 as compared to the third quarter of 2012.

Within the segment, electrical systems products net sales increased 9% in the third quarter of 2013 compared to the third quarter of 2012 due to acquisitions and higher organic volume. Net sales within the industrial market were mixed, with growth in sales of high voltage products. Sales of lighting products increased 7% in the third quarter of 2013 compared to the third quarter 2012 due to organic volume growth in the non-residential market, which continued to benefit from increased relight and retrofit renovation project demand, and strong growth in the residential market, as well as the impact of the Norlux acquisition.

Operating income in the third quarter of 2013 increased 15% to $104.5 million compared to the third quarter of 2012 and operating margin expanded by 110 basis points to 17.5%. Operating income increased primarily due to realized productivity, higher sales volume and lower material costs, partially offset by other cost increases. Operating margin increased primarily due to realized productivity, lower material costs and operating efficiencies realized from higher volume throughput, partially offset by other cost increases. Acquisitions increased operating income but decreased operating margin slightly.

POWER

Net sales in the Power segment were essentially flat in the third quarter of 2013 compared to the third quarter of 2012. Higher acquisition sales were almost entirely offset by lower organic sales volumes, the unfavorable impact of foreign currency translation and negative price realization. The acquisition added two percentage points to net sales. Organic volume decreased sales by one percentage point while foreign currency and price realization combined were one percentage point lower. Both distribution and transmission net sales declined in the current quarter compared to the same quarter in the prior year.

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Operating income in the third quarter of 2013 increased 6% to $47.1 million compared to the third quarter of 2012 and operating margin expanded by 110 basis points to 19.8%. The increase in operating income and operating margin was primarily due to realized productivity in excess of other cost increases and favorable product mix, partially offset by lower volume and negative price realization.

Results of Operations – Nine Months Ended September 30, 2013 compared to the Nine Months Ended September 30, 2012

SUMMARY OF CONSOLIDATED RESULTS (IN MILLIONS, EXCEPT PER SHARE DATA):

Net Sales

Net sales of $2.4 billion for the first nine months of 2013 increased 4% compared to the first nine months of 2012 primarily due to acquisitions. Compared to the first nine months of 2012, favorable organic volume and price realization were partially offset by unfavorable foreign currency translation. Each of these impacted net sales by less than one percentage point.

Cost of Goods Sold

As a percentage of net sales, cost of goods sold decreased to 66.4% for the first nine months of 2013 compared to 66.7% for the first nine months of 2012 due to the impact of realized productivity and price realization, partially offset by other cost increases, including facility consolidation costs of $4.6 million.

Gross Profit

The consolidated gross profit margin was 33.6% in the first nine months of 2013 compared to 33.3% in the first nine months of 2012. The increase in gross profit margin was primarily due to the impact of productivity and price realization, partially offset by other cost increases, including facility consolidation costs of $4.6 million, as described above.

Selling & Administrative Expenses

S&A expenses in the first nine months of 2013 were $418.2 million compared to $401.1 million in the first nine months of 2012. The S&A increase of $17.1 million was primarily due to the S&A costs of the acquired businesses. As a percentage of net sales, S&A expenses increased slightly to 17.6% in the first nine months of 2013 compared to 17.5% in the first nine months of 2012.

Total Other Expense

Total other expense was $24.1 million in the first nine months of 2013 compared to $21.6 million in the first nine months of 2012. This $2.5 million increase was primarily due to net foreign currency transaction losses experienced in the first nine months of 2013 as compared to foreign currency gains experienced in the first nine months of 2012. In addition, net interest expense was slightly higher in the first nine months of 2013 compared to the first nine months of 2012.

Income Taxes

The effective tax rate in the first nine months of 2013 decreased to 30.9% from 32.5% in the first nine months of 2012. The decrease in the effective tax rate was due primarily to the retroactive application of certain tax provisions including the research and development tax credit that were part of the 2012 Relief Act which became law during the first quarter of 2013. During the first nine months of 2013, the Company recorded $6.9 million of benefit, of which $4.3 million related to the retroactive application of the 2012 Relief Act. In addition, discrete benefits experienced in the nine month period of 2013 were lower than the discrete benefits experienced during the comparable nine month period in the prior year.

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Net Income Attributable to Hubbell and Earnings Per Diluted Share

For the reasons described above, net income attributable to Hubbell and earnings per diluted share increased 7% and 8%, respectively, in the first nine months of 2013 as compared to the first nine months of 2012. In addition, earnings per diluted share reflect a decrease of 0.3 million in the average number of shares outstanding for the first nine months of 2013 compared to the first nine months of 2012.

Segment Results

ELECTRICAL

Net sales in the Electrical segment increased 5% in the first nine months of 2013 compared with the first nine months of 2012 due to acquisitions and higher organic volume. Compared to the first nine months of 2012, acquisitions and organic volume added four and one percentage points, respectively, to net sales. In addition, price realization was offset by the negative impacts of foreign currency translation, each less than one percentage point.

Within the segment, electrical systems products net sales increased 5% in the first nine months of 2013 compared to the first nine months of 2012 due to acquisitions, partially offset by unfavorable foreign currency translation. Higher net sales of electrical systems products to the construction and extractive industries sectors were essentially offset by lower sales to the industrial markets, particularly driven by lower sales of high voltage products. Sales of lighting products increased 6% in the first nine months of 2013 compared to 2012 due to higher sales in the residential markets and continued strength in renovation project activity in the commercial and industrial markets.

Operating income in the first nine months of 2013 increased 8% to $255.0 million compared to the first nine months of 2012 while operating margin expanded by 40 basis points to 15.2%. Operating income increased due to acquisitions, higher volume, favorable price realization and lower material costs partially offset by unfavorable product mix related to lower industrial sales. Productivity was slightly higher than all other cost increases. Operating margin increased primarily due to favorable price realization and lower material costs.

POWER

Net sales of $699.9 million in the Power segment were essentially flat in the first nine months of 2013 as compared to the first nine months of 2012. The impact of last year’s acquisition added two percentage points to net sales, while lower organic volume and foreign currency translation each decreased net sales by approximately one percentage point. Both distribution and transmission net sales were lower than the first nine months of 2012.

Operating income increased 1% to $126.4 million and operating margin expanded by 10 basis points to 18.1% in the first nine months of 2013 compared to the first nine months of 2012. The impact of favorable product mix was almost entirely offset by lower organic volume and negative price realization. Other cost increases, including $4.6 million of facility consolidation costs, were essentially offset by realized productivity.

Outlook

For 2013, we expect our overall net sales to increase by approximately five percent compared to 2012, including three percentage points of growth from the four acquisitions completed in 2012 and the three completed during the first nine months of 2013. The non-residential market continues to benefit from increased demand due to renovation and relight projects while new construction remains slow. The utility market continues to experience weak demand driven by lower consumption of electricity and delays in transmission project spending. The industrial market remains mixed with slight growth in factory utilization. For the residential market, we anticipate double digit growth rates due to continued broad based strengthening in building activity for single and multi-family housing.

We plan to continue to work on productivity initiatives, including improved sourcing, product redesign and lean projects focused on both factory and back office efficiency. We expect to incur approximately $6 million of costs associated with facility consolidations during 2013. We plan to continue to invest in people and resources to support our growth initiatives. Overall we expect to expand operating margin by approximately 40 basis points in 2013 compared to 2012. Additionally, we expect our 2013 tax rate to be approximately 31.2% primarily due to the 2012 Relief Act which became law during the first quarter of 2013 partially offset by a higher mix of domestic income. We expect to increase our earnings in 2013 through higher sales, careful management of pricing relative to material costs and by continuing our productivity programs.

In 2013, we anticipate free cash flow (defined as cash flows from operations less capital expenditures) to approximate net income. Finally, with our strong financial position, we expect to continue to evaluate and pursue additional acquisitions to add to our portfolio.

In 2014, we anticipate modest sales growth given the recent third party forecasts for our end market and some weakness in the global markets. We expect to expand operating margins through higher sales, management of pricing relative to cost increases and by continuing our productivity programs.

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Financial Condition, Liquidity and Capital Resources

Cash Flow

Cash provided by operating activities for the nine months ended September 30, 2013 increased from the comparable period in 2012 primarily due to higher net income and lower pension contributions partially offset by a greater use of cash for working capital. Cash used for working capital was $106.1 million and $98.0 million for the nine month periods ended September 30, 2013 and 2012, respectively. The increase in working capital is primarily due to higher accounts receivable driven by the timing of collections during the nine months of 2013 compared to the first nine months of 2012.

Investing activities used cash of $133.3 million in the first nine months of 2013 compared to cash used of $61.9 million during the comparable period in 2012. This increase is primarily due to higher net acquisition investments, capital expenditures and net purchases of available for sale investments. Financing activities used cash of $103.9 million in the first nine months of 2013 compared to $97.5 million of cash used during the comparable period of 2012 primarily as a result of lower spending on the repurchase of common shares partially offset by lower proceeds from the exercise of stock options and an increase in dividends paid.

Investments in the Business

Investments in our business include both expenditures required to maintain the operation of our equipment and facilities as well as cash outlays in support of our strategic initiatives. During the first nine months of 2013, we used cash of $40.4 million for capital expenditures, an increase of $9.1 million from the comparable period of 2012.

During the first nine months of 2013, the Company completed the acquisitions of Norlux, CMC and Continental for $96.5 million, net of cash received. The Company continues to assess opportunities to expand sales through acquisitions of businesses that fill product gaps or allow for expansion into new markets. See also Note 2 - Business Acquisitions in the Notes to Condensed Consolidated Financial Statements.

In September 2011, 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. Year to date, the Company has spent $31.0 million on the repurchase of common shares. As of September 30, 2013, $93.4 million remains authorized for future repurchases under this program. Depending upon numerous factors, including market conditions and alternative uses of cash, we may conduct discretionary repurchases through open market and privately negotiated transactions during our normal trading windows.

Debt to Capital

At September 30, 2013, the Company had $597.1 million of senior long-term notes, net of unamortized discount. These long-term fixed-rate notes, with amounts of $300 million due in both 2018 and 2022, respectively, are callable with a make whole provision and are only subject to accelerated payment prior to maturity if we fail to meet certain non-financial covenants, all of which were met at September 30, 2013.

The Company had $0.1 million of short term debt outstanding at September 30, 2013. This short term debt represents borrowings under an existing line of credit used to support its operations in China.

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 a useful measure of our financial leverage for evaluating the Company’s ability to meet its funding needs.

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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.

The Company had $630.4 million of cash and cash equivalents at September 30, 2013, of which approximately 44% was held outside of the United States. Except for a portion of current earnings, the Company’s intent is to indefinitely reinvest all of its undistributed international earnings and cash internationally.

As of September 30, 2013, the Company’s $500 million revolving credit facility had not been drawn against. The credit facility, which serves as a backup to our commercial paper program, was scheduled to expire in October 2016. In March 2013, the facility was amended to extend the maturity date to March 2018. The interest rate applicable to borrowing under the credit agreement is generally either the prime rate or a surcharge over LIBOR. The single financial covenant in the $500 million credit facility, which the Company is in compliance with, requires that total debt not exceed 55% of total capitalization. Annual commitment fees to support availability under the credit facility are not material.

In October 2013, the Company's Board of Directors approved an increase in the common stock dividend rate from $0.45 to $0.50 per share per quarter. The increased quarterly dividend payment will commence with the December 13, 2013 dividend payment made to shareholders of record on November 29, 2013.

Although not the principal source of liquidity, we believe our credit facility is capable of providing significant financing flexibility at reasonable rates of interest. However, in the event of a significant deterioration in the results of our operations or cash flows, leading to deterioration in financial condition, our borrowing costs could increase and/or our ability to borrow could be restricted. We have not entered into any guarantees that could give rise to material unexpected cash requirements.

We have contractual obligations for long-term debt, operating leases, purchase obligations, and certain other long-term liabilities that were summarized in a table of Contractual Obligations in our Annual Report on Form 10-K for the year ended December 31, 2012. Since December 31, 2012, there were no material changes to our contractual obligations.

Internal cash generation together with currently available cash and investments, available borrowing facilities and credit lines, if needed, are expected to be sufficient to fund operations, the current rate of cash dividends, capital expenditures, and an 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.

Critical Accounting Estimates

A summary of our critical accounting estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2012. We are required to make estimates and judgments in the preparation of our financial statements that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in the estimates and assumptions we use could have a significant impact on our financial results. During the first nine months of 2013, there were no significant changes in our estimates and critical accounting policies.

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-Q, 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:

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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.

In the operation of its business, the Company has exposures to fluctuating foreign currency exchange rates, availability of purchased finished goods and raw materials, changes in material prices, foreign sourcing issues, and changes in interest rates. There have been no significant changes in our exposure to these market risks during the first nine months of 2013. For a complete discussion of the Company’s exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed under the Securities Exchange Act of 1934, as amended, the (“Exchange Act”) is recorded, processed, summarized and reported within the time periods specified and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

Our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of the period covered by this report on Form 10-Q. Based upon that evaluation, each of the Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2013, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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There have been no material changes in the Company’s risk factors from those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2012.

Issuer Purchases of Equity Securities

In September 2011, 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. Year to date, the Company has spent $31.0 million on the repurchase of common shares. As of September 30, 2013, approximately $93.4 million remains authorized for future repurchases under this program. Depending upon numerous factors, including market conditions and alternative uses of cash, we may conduct discretionary repurchases through open market and privately negotiated transactions during our normal trading windows.

The Company has not repurchased any Class A Common Stock during the nine months ended, September 30, 2013.

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EXHIBITS

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October 18, 2013

HUBBELL INCORPORATED

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