2008 Annual Report - Hubbell Wiring Device-Kellems

2008, added approximately eight percentage points to net sales in 2008 compared to 2007. In addition, we estimatethat 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. Operatingmargins increased in 2008 compared to 2007 due to productivity improvements and selling price increases offset byhigher commodity and inflationary costs and the impact of acquisitions.Net Sales2007 Compared to 2006Consolidated net sales for the year ended December 31, 2007 were $2.5 billion, an increase of 5% over the yearended December 31, 2006. The majority of the year-over-year increase was due to higher selling prices and severalacquisitions, partially offset by lower residential product sales. We estimated that selling price increases and theimpact of acquisitions accounted for approximately four percentage points and two percentage points, respectively,of the year-over-year increase in sales.Gross ProfitThe consolidated gross profit margin for 2007 increased to 29.0% compared to 27.2% in 2006. The increasewas primarily due to selling price increases and productivity improvements, including lower freight and logisticscosts and lower product costs from strategic sourcing initiatives. These improvements in 2007 compared to 2006were partially offset by the negative impact of an unfavorable product sales mix due to lower sales of higher marginresidential products.Selling & Administrative ExpensesS&A expenses increased 5% compared to 2006. The increase was primarily due to S&A expenses ofacquisitions and higher selling costs associated with increased sales. As a percentage of sales, S&A expenses in2007 of 17.2% were unchanged from the comparable period of 2006. Numerous cost containment initiatives;primarily advertising and lower spending on the enterprise wide systems implementation of SAP were offset byexpenses for certain strategic initiatives related to reorganizing operations, including office moves, severance costsassociated with reductions in workforce and costs incurred to support new products sales.Special ChargesOperating results in 2006 included pretax special charges related to our Lighting Business Integration andRationalization Program (the “Program” or “Lighting Program”). The Lighting Program was approved followingour acquisition of LCA in April 2002 and was undertaken to integrate and rationalize the combined lightingoperations. This Program was substantially completed by the end of 2006. Any remaining costs in 2007 werereflected in S&A expense or Cost of goods sold in the Consolidated Statement of Income. At the end of 2006, one ofthe remaining actions within the Lighting Program was the completion of construction of a new lightingheadquarters. The construction was completed in the early part of 2007. Cash capital expenditures of $13 millionrelated to the headquarters were reflected in the 2007 Consolidated Statement of Cash Flow.Operating IncomeOperating income increased 28% primarily due to higher sales and gross profit partially offset by increasedselling and administration costs. Operating margins of 11.8% in 2007 increased compared to 9.7% in 2006 as aresult of increased sales and higher gross profit margins.Other Income/ExpenseInterest expense was $17.6 million in 2007 compared to $15.4 million in 2006. The increase was due to higheraverage outstanding commercial paper borrowings in 2007 compared to 2006. Investment income decreased in2007 compared to 2006 due to lower average investment balances due to the funding of two acquisitions in 2006 and22