Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview of the Business

Hubbell is a global manufacturer of quality electrical products and utility solutions for a broad range of customer and end market applications. The Company's mission is to enable its customers to operate critical infrastructure safely, reliably and efficiently. Products are either sourced complete, manufactured or assembled by subsidiaries in the United States, Canada, Puerto Rico, Mexico, China, the UK, Brazil, Australia, Spain and Ireland. The Company also participates in joint ventures in Hong Kong and the Philippines, and maintains offices in Singapore, Italy, China, India, Mexico, South Korea, Chile, and countries in the Middle East. The Company employed approximately 19,100 individuals worldwide as of December 31, 2020.

The Company’s reporting segments consist of the Electrical Solutions segment (previously named Electrical until January 1, 2021) and the Utility Solutions segment (formerly named the Power segment). In the first quarter of 2020 our former Power segment was re-named Utility Solutions to reflect the depth and breadth of our industry-leading offering for electric, water, gas and telecom utilities ranging from a wide variety of critical infrastructure components to full-scale smart grid solutions. Results for 2020 and 2019 by segment are included under “Segment Results” within this Management’s Discussion and Analysis.

The Company's long-term strategy is to serve its customers with reliable and innovative electrical and related infrastructure solutions with desired brands and high-quality service, delivered through a competitive cost structure; to complement organic revenue growth with acquisitions that enhance its product offerings; and to allocate capital effectively to create shareholder value.

Our strategy to complement organic revenue growth with acquisitions is focused on acquiring assets that extend our capabilities, expand our product offerings, and present opportunities to compete in core, adjacent or complementary markets. Our acquisition strategy also provides the opportunity to advance our revenue growth objectives during periods of weakness or inconsistency in our end-markets.

Our strategy to deliver products through a competitive cost structure has resulted in past and ongoing restructuring and related activities. Our restructuring and related efforts include the consolidation of manufacturing and distribution facilities, and workforce actions, as well as streamlining and consolidating our back-office functions. The primary objectives of our restructuring and related activities are to optimize our manufacturing footprint, cost structure, and effectiveness and efficiency of our workforce.

Productivity improvement also continues to be a key area of focus for the Company and efforts to drive productivity complement our restructuring and related activities to minimize the impact of rising material costs and other administrative cost inflation. Because material costs are approximately two thirds of our cost of goods sold, volatility in this area can significantly impact profitability. Our goal is to have pricing and productivity programs that offset material and other inflationary cost increases as well as pay for investments in key growth areas.

Productivity programs affect 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.

A discussion regarding Results of Operations and Analysis of Financial Condition for the year ended December 31, 2019, as compared to the year ended December 31, 2018, is included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations to our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which discussion is incorporated herein by reference.

Acquisition of Aclara

On February 2, 2018 the Company acquired Aclara for approximately $1.1 billion. Aclara is a leading global provider of smart infrastructure solutions for electric, gas, and water utilities, with advanced metering solutions and grid monitoring sensor technology, as well as leading software enabled installation services. The acquisition extends the Utility Solutions segment's capabilities into smart automation technologies, accelerates ongoing innovation efforts to address utility customer demand for data and integrated solutions, and expands the segment's reach to a broader set of utility customers.

For additional information about the Aclara acquisition, refer to Note 3 — Business Acquisitions and Dispositions in the Notes to the Consolidated Financial Statements.

HUBBELL INCORPORATED - Form 10-K			21

Organizational Changes

Effective January 1, 2021 the Company consolidated the three business groups within its Electrical segment, and renamed the segment as Hubbell Electrical Solutions ("Electrical Solutions"). The Electrical Solutions segment unites businesses with similar operating models, products, and go to market strategies under one operating banner and common leadership to drive synergies and long-term growth opportunities.

Also effective January 1, 2021 the Company moved its Hubbell Gas Connectors and Accessories business, from the Electrical Solutions segment to the Utility Solutions segment to create synergies with the existing gas products offered within the Utility Solutions segment and to better serve its utility customers. The Hubbell Gas Connectors and Accessories business represented approximately $157.1 million of net sales and $19.4 million of operating profit in 2020. The Company will report its segment results under this revised reporting structure beginning with the filing of its Quarterly Report on Form 10-Q for the first quarter ended March 31, 2021.

22			HUBBELL INCORPORATED - Form 10-K

Impact of the COVID-19 Pandemic

During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19), which began to affect the Company’s business and operations late in the first quarter of 2020 and became more pronounced during the second quarter of 2020 as foreign and U.S. federal, state and local governments reacted to the public health crisis with mitigation measures, including the shutdown of large portions of the U.S. and global economies. The pandemic continues to significantly affect U.S. and global economic conditions as governments, businesses and individuals react to the COVID-19 pandemic and efforts to reopen their respective economies. As of December 31, 2020, there continues to be significant uncertainty around the scope, severity, and duration of the pandemic, as well as the breadth and duration of business disruptions related to it and the overall impact on the U.S. and global economies.

The extent to which the coronavirus pandemic affects our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict including new information that may emerge concerning the severity of the COVID-19 pandemic, additional outbreaks or resurgence of COVID-19, the timing and availability of vaccines and effective treatments and the actions taken to contain it or respond to its health and economic effects.

Most of our manufacturing operations are currently deemed essential and continue to operate. Our top priority has been to take appropriate actions to protect the health and safety of our employees. We have adjusted standard operating procedures within our business operations to ensure the continued safety of those within our locations and continually monitor health guidelines to ensure ongoing compliance and protection of our employees. These procedures include expanded and more frequent cleaning within facilities, implementation of appropriate social distancing programs, shift changes, requiring use of certain personal protective equipment, screening protocols and work from home programs, as applicable. Despite these efforts, the COVID-19 pandemic continues to pose the risk that our employees, contractors, suppliers, customers and other business partners may be prevented from conducting business activities, partially or completely, for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities or imposed by our management, or that the pandemic may otherwise interrupt or impair business activities.

We have developed action plans for a wide range of scenarios, but given the uncertainty regarding the magnitude and duration of the pandemic's effects, it is impossible to predict with specificity or quantify the future impact on our business, financial condition and results of operations. In the second quarter of 2020 certain of our manufacturing operations and installation services were temporarily disrupted by shutdowns mandated by government authorities and from actual and potential exposure to COVID-19, negatively affecting sales volume and contributing to operating inefficiencies, such as a decrease in manufacturing cost absorption in the quarter. These temporary disruptions included work stoppages in several of our manufacturing operations in the U.S., Mexico, and the United Kingdom.

We also experienced a temporary stoppage of certain large meter installation services within our Aclara business. Given the continued uncertainty around the scope, severity, and duration of the pandemic, we expect these disruptions and inefficiencies in our operations, or disruptions in the operations of our suppliers, may adversely affect our operating results in future periods. The ultimate extent and duration of these disruptions is unknown but could have a material adverse effect on our results of operations and liquidity.

The disruption in economic activity as a result of the COVID-19 pandemic also affected customer demand across our end markets in 2020 and we anticipate that continuing measures to combat the pandemic will continue to adversely affect demand for an unknown period. In general terms, our Electrical Solutions segment experienced significant volume declines in 2020. In our Utility Solutions segment, demand continued to be strong within our Power Systems business group, which provides critical transmission and distribution ("T&D") components to electric utilities. Aclara revenues continue to be affected by regulatory restrictions on certain project deployments and installations as a result of the COVID-19 pandemic, although these headwinds moderated in the second half of 2020 and we expect that moderation to continue in 2021.

Our labor costs in 2020 include an appreciation pay increase provided to our U.S. and Mexican hourly employees, as well as salaried employees involved in the ongoing operations of plants and warehouse operations. We have also implemented an emergency paid leave program that provides employees paid time off in certain situations triggered by the COVID-19 pandemic. The extent and duration of additional cost increases of this nature in the future, or other future cost increases due to the COVID-19 pandemic, remains uncertain.

During 2020, we took actions that mitigated a portion of the impact of the anticipated decline in demand and cost increases. Beginning in the first quarter of 2020 we instituted a travel and entertainment expense freeze and other discretionary expense reduction initiatives and began re-aligning facilities and headcount in response to expected changes in demand. Cost containment actions effective for the second quarter of 2020 included a 25% salary reduction for senior executives, a 15% salary reduction for all other executives, a two week mandatory furlough for other salaried employees during the second quarter, and forgone quarterly retainer payments for the Board of Directors. While the majority of these compensation actions were limited to the second quarter of 2020, we continue to take cost actions as necessary to mitigate the effect of lower demand. We also continue to expect savings from our restructuring and related activities and to invest in restructuring and related actions as appropriate. Moreover, during the third quarter of 2020, our strong cash position allowed us to pre-pay the remaining $90.6 million principal of the Term Loan incurred to acquire Aclara approximately 2.5 years prior to its scheduled maturity as further discussed below. Given continued economic uncertainty, however, we were selective with our capital expenditures in 2020.

Further quantification and discussion of these pandemic related effects are included in the discussion of results of operations below.

HUBBELL INCORPORATED - Form 10-K			23

Results of Operations

Our operations are classified into two reportable segments: Electrical (renamed Electrical Solutions effective January 1, 2021) and Utility Solutions. 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 serves customers in five primary end markets: utility T&D components, utility communications and controls, non-residential, residential, and industrial.

In 2020, organic net sales(1) declined by 9.1 percent or $418 million on overall weak end markets, primarily as a result of the impact of the COVID-19 pandemic. Non-residential and industrial markets each experienced significant declines in the second quarter of 2020 and remained soft in the second half of the year, which affected the performance of the Electrical Solutions segment. Demand in the utility T&D components market remained resilient; however performance within our Utility Solutions segment was affected by the previously noted temporary delays of certain meter installations and regulatory restrictions on smart infrastructure projects and deployments.

Operating margin declined in 2020, by 30 basis points and adjusted operating margin(1) declined by 10 basis points, driven by lower net sales volume, and inefficiencies and cost increases within gross margin resulting primarily from the pandemic. These headwinds were partially offset by higher savings from our restructuring and related actions, cost actions and reductions within S&A expense associated with lower volume and the COVID-19 pandemic, and favorable price realization and material costs. In 2020, net income attributable to Hubbell declined by 12.4 percent compared to the prior year and diluted earnings per share declined by 12.0 percent. Adjusted net income attributable to Hubbell(1) declined by 7.1 percent in 2020 compared to the prior year and adjusted diluted earnings per share(1) declined by 6.7 percent in 2020.

Free cash flow(2) was strong in 2020 at $559.6 million as compared to $497.7 million in the prior year. In 2020 we paid $201.4 million in shareholder dividends, an increase of 7.9 percent as compared to the prior year, while also reducing our long term debt by $106.3 million, and allocating approximately $239.6 million of capital to acquisitions.

(1) Organic net sales, adjusted operating margin, adjusted net income attributable to Hubbell and adjusted diluted earnings per share are non-GAAP financial measures. See "Adjusted Operating Measures" below for a reconciliation to the comparable GAAP financial measures.

(2) Free cash flow is a non-GAAP financial measure. See "Adjusted Operating Measures" and "Financial Condition, Liquidity and Capital Resources - Cash Flow" below for a reconciliation to the comparable GAAP financial measure.

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

			For the Year Ending December 31,
			2020			% of Net sales			2019			% of Net sales			2018			% of Net sales
Net sales			$	4,186.0					$	4,591.0					$	4,481.7
Cost of goods sold			2,976.7			71.1		%	3,238.3			70.5		%	3,181.3			71.0		%
Gross profit			1,209.3			28.9		%	1,352.7			29.5		%	1,300.4			29.0		%
Selling & administrative expenses			676.3			16.2		%	756.1			16.5		%	743.5			16.6		%
Operating income			533.0			12.7		%	596.6			13.0		%	556.9			12.4		%
Net income attributable to Hubbell			351.2			8.4		%	400.9			8.7		%	360.2			8.0		%
Less: Earnings allocated to participating securities			(1.3)						(1.5)						(1.3)
Net income available to common shareholders			349.9						399.4						358.9
Average number of diluted shares outstanding			54.5						54.7						54.9
EARNINGS PER SHARE - DILUTED			$	6.43					$	7.31					$	6.54

24			HUBBELL INCORPORATED - Form 10-K

Adjusted Operating Measures

In the following discussion of results of operations, we refer to "adjusted" operating measures. We believe those adjusted measures, which exclude the impact of certain costs, gains and losses, may provide investors with useful information regarding our underlying performance from period to period and allow investors to understand our results of operations without regard to items we do not consider a component of our core operating performance.

Adjusted operating measures exclude amortization of all intangible assets associated with our business acquisitions, including inventory step-up amortization associated with those acquisitions. The intangible assets associated with our business acquisitions arise from the allocation of the purchase price using the acquisition method of accounting in accordance with Accounting Standards Codification 805, “Business Combinations.” These assets consist primarily of customer relationships, developed technology, trademarks and tradenames, and patents, as reported in Note 6 – Goodwill and Other Intangible Assets, under the heading “Total Definite-Lived Intangibles" within the Notes to Consolidated Financial Statements.

The Company believes that the exclusion of these non-cash expenses (i) enhances management’s and investors’ ability to analyze underlying business performance, (ii) facilitates comparisons of our financial results over multiple periods, and (iii) provides more relevant comparisons of our results with the results of other companies as the amortization expense associated with these assets may fluctuate significantly from period to period based on the timing, size, nature, and number of acquisitions. Although we exclude amortization of these acquired intangible assets and inventory step-up from our non-GAAP results, we believe that it is important for investors to understand that revenue generated, in part, from such intangibles is included within revenue in determining adjusted net income attributable to Hubbell Incorporated.

Adjusted operating measures also exclude pension settlement charges in 2020, the gain on the disposition of the Haefely business, an investment loss, as well as a charge to recognize certain additional liabilities associated with the Company's withdrawal from a multi-employer pension plan, each in 2019, and Aclara transaction costs in 2018. The Company believes that the exclusion of these non-core items enhances management’s and investors’ ability to analyze underlying business performance and facilitates comparisons of our financial results over multiple periods. Refer to Note 11 – Retirement Benefits, Note 3 – Business Acquisitions and Dispositions, Note 14 – Fair Value Measurement, and Note 15 – Commitments and Contingencies in the Notes to Consolidated Financial Statements, for additional information.

Organic net sales, a non-GAAP measure, represent Net sales according to U.S. GAAP, less Net sales from acquisitions and divestitures during the first twelve months of ownership or divestiture, respectively, less the effect of fluctuations in Net sales from foreign currency exchange. The period-over-period effect of fluctuations in Net sales from foreign currency exchange is calculated as the difference between local currency Net sales of the prior period translated at the current period exchange rate as compared to the same local currency Net sales translated at the prior period exchange rate. We believe this measure provides management and investors with a more complete understanding of the underlying operating results and trends of established, ongoing operations by excluding the effect of acquisitions, dispositions and foreign currency as these activities can obscure underlying trends. When comparing Net sales growth between periods excluding the effects of acquisitions, business dispositions and currency exchange rates, those effects are different when comparing results for different periods. For example, because Net sales from acquisitions are considered inorganic from the date we complete an acquisition through the end of the first year following the acquisition, Net sales from such acquisition are reflected as organic Net sales thereafter.

There are limitations to the use of non-GAAP measures. Non-GAAP measures do not present complete financial results. We compensate for this limitation by providing a reconciliation between our non-GAAP financial measures and the respective most directly comparable financial measure calculated and presented in accordance with GAAP. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names. These financial measures should not be considered in isolation from, as substitutes for, or alternative measures of, reported GAAP financial results, and should be viewed in conjunction with the most comparable GAAP financial measures and the provided reconciliations thereto. We believe, however, that these non-GAAP financial measures, when viewed together with our GAAP results and related reconciliations, provide a more complete understanding of our business. We strongly encourage investors to review our consolidated financial statements and publicly filed reports in their entirety and not rely on any single financial measure.

HUBBELL INCORPORATED - Form 10-K			25

The following table reconciles our adjusted financial measures to the directly comparable GAAP financial measure (in millions, except per share amounts):

			For the Year Ended December 31,
			2020			% of Net sales			2019			% of Net sales			2018			% of Net sales
Gross profit (GAAP measure)			$	1,209.3		28.9%			$	1,352.7		29.5%			$	1,300.4		29.0%
Amortization of acquisition-related intangible assets			26.1						24.0						29.5
Adjusted gross profit			$	1,235.4		29.5%			$	1,376.7		30.0%			$	1,329.9		29.7%
S&A expenses (GAAP measure)			$	676.3		16.2%			$	756.1		16.5%			$	743.5		16.6%
Amortization of acquisition-related intangible assets			49.8						48.1						46.4
Aclara transaction costs			—						—						9.5
Adjusted S&A expenses			$	626.5		15.0%			$	708.0		15.4%			$	687.6		15.3%
Operating income (GAAP measure)			$	533.0		12.7%			$	596.6		13.0%			$	556.9		12.4%
Amortization of acquisition-related intangible assets			75.9						72.1						75.9
Aclara transaction costs			—						—						9.5
Adjusted operating income			$	608.9		14.5%			$	668.7		14.6%			$	642.3		14.3%
Net income attributable to Hubbell (GAAP measure)			$	351.2					$	400.9					$	360.2
Amortization of acquisition-related intangible assets			75.9						72.1						75.9
Gain on disposition of business			—						(21.7)						—
Pension charge			7.6						8.5						—
Loss on investment			—						5.0						—
Aclara transaction costs			—						—						12.8
Total pre-tax adjustments to net income			83.5						63.9						88.7
Income tax effects(1)			20.6						19.1						20.9
Adjusted net income attributable to Hubbell			$	414.1					$	445.7					$	428.0
Less: Earnings allocated to participating securities			(1.5)						(1.7)						(1.5)
Adjusted net income available to common shareholders			$	412.6					$	444.0					$	426.5
Average number of diluted shares outstanding			54.5						54.7						54.9
ADJUSTED EARNINGS PER SHARE — DILUTED			$	7.58					$	8.12					$	7.77

(1) The income tax effects are calculated using the statutory tax rate, taking into consideration the nature of the item and the relevant taxing jurisdiction, unless otherwise noted. For 2019, the gain on the disposition of business was not taxable in the jurisdiction of sale but resulted in additional U.S. and Canadian tax and adjustments were made accordingly. Furthermore, no tax effects are reflected for the loss on investment because the Company recorded a full valuation allowance against the loss based on its evaluation that it is more likely than not that the benefit of the realized loss will not be recognized for tax purposes.

The following table reconciles our Organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):

			For the Year Ended December 31,
			2020			Inc/(Dec) %			2019			Inc/(Dec) %
Net sales growth (decline) (GAAP measure)			$	(405.0)		(8.8)			$	109.3		2.4
Impact of acquisitions			44.8			1.0			54.5			1.2
Impact of divestitures			(20.3)			(0.4)			(17.1)			(0.4)
Foreign currency exchange			(11.6)			(0.3)			(17.4)			(0.4)
Organic net sales growth (decline) (non-GAAP measure)			$	(417.9)		(9.1)			$	89.3		2.0

26			HUBBELL INCORPORATED - Form 10-K

2020 Compared to 2019

Net Sales

Net sales of $4.2 billion in 2020 decreased by $405.0 million compared to 2019. Organic net sales declined by 9.1% due to lower unit volume primarily driven by the unfavorable effects of the COVID-19 pandemic on demand, as well as restrictions on project deployments and installations within our Aclara business associated with the COVID-19 pandemic. The impact of lower unit volume was partially offset by an increase in Net sales of less than one percentage point from the effect of acquisitions and dispositions and favorable price realization.

Cost of Goods Sold

As a percentage of Net sales, Cost of goods sold was 71.1% of net sales in 2020 as compared to 70.5% in 2019. The increase primarily reflects cost increases that exceeded savings from productivity initiatives, inefficiencies related to the COVID-19 pandemic and lower sales volume, partially offset by favorable price realization and material costs, higher savings from our restructuring and related actions, and a favorable impact from acquisitions.

Gross Profit

The gross profit margin in 2020 was 28.9% of net sales as compared to 29.5% in 2019. Excluding amortization of acquisition-related intangible assets, the adjusted gross profit margin was 29.5% in 2020 as compared to 30.0% in 2019. The decline in adjusted gross profit margin primarily reflects cost increases that exceeded savings from productivity initiatives, inefficiencies related to the COVID-19 pandemic and lower sales volume, partially offset by favorable price realization and material costs, higher savings from our restructuring and related actions, and a favorable impact from acquisitions.

Selling & Administrative Expenses

S&A expense in 2020 was $676.3 million and decreased by $79.8 million compared to the prior year period. S&A expense as a percentage of net sales declined by 30 basis points to 16.2% in 2020. Excluding amortization of acquisition-related intangible assets, adjusted S&A expense as a percentage of net sales declined by 40 basis points to 15.0% in 2020. The decrease in S&A expense as a percentage of Net sales in 2020 as compared to the same prior year period is primarily due to the impact of compensation actions taken in the second quarter of 2020 in response to lower Net sales volumes associated with the pandemic as well as other cost reductions associated with lower volume and the COVID-19 pandemic, including lower travel and entertainment costs. These decreases were partially offset by the deleveraging effect of lower sales volume and the timing of stock-based compensation expense associated with our annual grant, which shifted from the fourth quarter of 2019 to the first quarter of 2020.

Operating Income

Operating income decreased 11% in 2020 to $533.0 million compared to 2019, and operating margin declined by 30 basis points to 12.7%. Excluding amortization of acquisition-related intangible assets, adjusted operating income declined by 8.9% percent in 2020 to $608.9 and adjusted operating margin declined by 10 basis points to 14.5% in 2020. The decrease in adjusted operating income and margin is primarily due to the effect on gross margin of lower volume and higher costs, including inefficiencies related to the COVID-19 pandemic, partially offset by lower S&A expense due to the factors described above.

Total Other Expense

Total other expense increased by $3.4 million in 2020 to $79.5 million compared to the prior year primarily due to a $21.7 million gain recognized on the disposal of the Haefely business in 2019 and higher losses on foreign exchange revaluations in the current year, partially offset by a $5.0 million loss on an investment in an available-for-sale debt security in 2019 that did not repeat in 2020, as well as lower non-service pension costs and interest expense in the current year.

Income Taxes

The effective tax rate was 21.5% in 2020 as compared to 21.7% in 2019. The decrease in the effective tax rate is primarily due to a favorable impact from the state effective tax rate and favorable tax effects from stock based compensation, partially offset by the absence in the current year of favorable adjustments related to dispositions in 2019.

HUBBELL INCORPORATED - Form 10-K			27

Net Income Attributable to Hubbell and Earnings Per Diluted Share

Net income attributable to Hubbell was $351.2 million in 2020 and decreased 12.4% as compared to 2019. Adjusted net income attributable to Hubbell was $414.1 million in 2020 and decreased 7.1% as compared to 2019 primarily as a result of lower operating income, driven by lower Net sales volumes and other COVID-19 pandemic effects (as detailed above), partially offset by a decrease in the effective tax rate, and lower non-service pension costs and interest expense. As a result, earnings per diluted share in 2020 decreased 12.0% compared to 2019. Adjusted earnings per diluted share in 2020 decreased 6.7% as compared to 2019.

Segment Results

Electrical Solutions

			For the Year Ended December 31,
(in millions)			2020			2019
Net sales			$	2,263.6		$	2,625.7
Operating income (GAAP measure)			$	234.8		$	320.1
Amortization of acquisition-related intangible assets			24.2			23.1
Adjusted operating income			$	259.0		$	343.2
Operating margin (GAAP measure)			10.4		%	12.2		%
Adjusted operating margin			11.4		%	13.1		%

The following table reconciles our Organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):

			For the Year Ended December 31,
Electrical Solutions			2020			Inc/(Dec) %			2019			Inc/(Dec) %
Net sales growth (decline) (GAAP measure)			$	(362.1)		(13.8)			$	(34.9)		(1.3)
Impact of acquisitions			18.8			0.7			0.8			—
Impact of divestitures			(20.3)			(0.8)			(17.1)			(0.6)
Foreign currency exchange			(3.3)			(0.1)			(9.8)			(0.4)
Organic net sales growth (decline) (non-GAAP measure)			$	(357.3)		(13.6)			$	(8.8)		(0.3)

Net sales of the Electrical Solutions segment in 2020 were $2.3 billion and decreased by $362.1 million, or 13.8% as compared to 2019. Organic net sales in 2020 declined by 13.6% as compared to the same prior year period due to lower unit volume, primarily driven by the unfavorable effects of the COVID-19 pandemic on demand. Net sales in 2020 also declined, by less than 1% from the effect of acquisitions and dispositions, as the decline from the disposal of the Haefely business was greater than Net sales added by acquisitions.

Within the segment, the aggregate Net sales of our Commercial and Industrial and Construction and Energy business groups decreased in 2020 by approximately 14 percentage points as compared to the prior year, primarily due to lower volume driven by the unfavorable impact of the COVID-19 pandemic on demand, partially offset by favorable price realization. Net sales of our Lighting business group in 2020 declined by approximately 14 percentage points as compared to the prior year period due to lower unit volumes also driven by the unfavorable effects of the COVID-19 pandemic on demand. Within the Lighting business group, Net sales of commercial and industrial lighting products in 2020 decreased by approximately 22% compared to the prior year period driven by lower overall market demand, as well as softness in our national accounts. Net sales of residential lighting products increased by approximately 6% in 2020 as compared to the same prior year period due to strength in home center and e-commerce sales, partially offset by weakness in home builder markets in 2020 as compared to the prior year.

Operating income of the Electrical Solutions segment in 2020 was $234.8 million and decreased approximately 27% compared to 2019, while operating margin in 2020 decreased by 180 basis points to 10.4%. Excluding amortization of acquisition-related intangibles, adjusted operating margin decreased by 170 basis points to 11.4% in 2020 as compared to 2019. The decrease in operating income and operating margin in 2020 is primarily due to lower Net sales volume and inefficiencies related to the pandemic and higher stock based compensation expense due to the change in timing of our annual equity grants. These items were partially offset by favorable price realization and material costs, higher savings from our restructuring and related activities, savings from productivity initiatives and lower costs due in part to the impact of compensation actions and other cost reductions associated with the COVID-19 pandemic.

28			HUBBELL INCORPORATED - Form 10-K

Utility Solutions

			For the Year Ended December 31,
(in millions)			2020			2019
Net sales			$	1,922.4		$	1,965.3
Operating income			$	298.2		$	276.5
Amortization of acquisition-related intangible assets			51.7			49.0
Adjusted operating income			$	349.9		$	325.5
Operating margin (GAAP measure)			15.5		%	14.1		%
Adjusted operating margin			18.2		%	16.6		%

The following table reconciles our Organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):

			For the Year Ended December 31,
Utility Solutions			2020			Inc/(Dec) %			2019			Inc/(Dec) %
Net sales growth (decline) (GAAP measure)			$	(42.9)		(2.2)			$	144.2		7.9
Impact of acquisitions			26.0			1.3			53.7			2.9
Impact of divestitures			—			—			—			—
Foreign currency exchange			(8.3)			(0.4)			(7.6)			(0.4)
Organic net sales growth (decline) (non-GAAP measure)			$	(60.6)		(3.1)			$	98.1		5.4

Net sales in the Utility Solutions segment in 2020 were $1.9 billion, down 2.2% as compared to 2019, due to a 3.1% decline in Organic net sales resulting from restrictions associated with the pandemic on project deployments and installations, partially offset by higher end-market demand in the electrical transmission and distribution markets, an increase in storm-related sales as compared to the prior year, and favorable price realization. Acquisitions contributed 1.3% to Net sales growth in 2020 and foreign exchange was slightly unfavorable by 0.4%.

Within the Utility Solutions segment, Net sales of our Power Systems business group in 2020 increased by approximately 5% as compared to the prior year driven by domestic demand in the utility transmission and distribution markets as well as Net sales growth from acquisitions and higher storm-related sales as compared to the prior year. Net sales of the Aclara business group in 2020 decreased by approximately 15% as compared to the prior year primarily driven by restrictions associated with the pandemic on project deployments and installations.

Operating income in the Utility Solutions segment in 2020 increased by 8% to $298.2 million as compared to 2019. Operating margin in 2020 increased to 15.5% as compared to 14.1% in 2019. Excluding amortization of acquisition-related intangibles the adjusted operating margin in 2020 increased by 160 basis points to 18.2% as compared to the prior year. That increase was primarily driven by savings from our productivity initiatives and lower cost inflation, due in part to the impact of compensation actions and other cost reductions associated with the COVID-19 pandemic, favorable price realization, higher savings from restructuring programs and lower restructuring and related costs, and favorable Net sales mix. Those favorable items were partially offset by the impact of lower volume, COVID-19 pandemic related inefficiencies and higher stock based compensation expense due to the change in timing of our annual equity grants.

HUBBELL INCORPORATED - Form 10-K			29

Financial Condition, Liquidity and Capital Resources

Cash Flow

			For the Year Ended December 31,
(in millions)			2020			2019			2018
Net cash provided by (used in):
Operating activities			$	648.0		$	591.6		$	517.1
Investing activities			(328.8)			(128.9)			(1,201.4)
Financing activities			(244.2)			(471.0)			506.5
Effect of foreign currency exchange rate changes on cash and cash equivalents			2.6			1.3			(8.2)
NET CHANGE IN CASH AND CASH EQUIVALENTS			$	77.6		$	(7.0)		$	(186.0)

The following table reconciles our cash flows from operating activities to free cash flows for 2020, 2019 and 2018:

			For the Year Ended December 31,
(in millions)			2020			2019			2018
Net cash provided by operating activities (GAAP measure)			$	648.0		$	591.6		$	517.1
Less: Capital expenditures			(88.4)			(93.9)			(96.2)
Free cash flow			$	559.6		$	497.7		$	420.9
Free cash flow as a percent of net income attributable to Hubbell			159.3		%	124.1		%	116.9		%

Free cash flow is a non-GAAP measure that we define as cash flow from operations less capital expenditures. Management believes that free cash flow provides useful information regarding Hubbell’s ability to generate cash without reliance on external financing. In addition, management uses free cash flow to evaluate the resources available for investments in the business, strategic acquisitions and further strengthening the balance sheet.

2020 Compared to 2019

Cash provided by operating activities in 2020 was $648.0 million compared to cash provided by operating activities of $591.6 million in 2019 and increased primarily due to changes in the components of working capital, including accounts receivable and inventories, as well as the deferral in 2020 of the employer portion of certain payroll taxes under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, partially offset by decreases in current liabilities in 2020 as compared to 2019.

Cash used for investing activities was $328.8 million in 2020 compared to cash used of $128.9 million in 2019 and primarily reflects an increase in cash used for acquisitions in 2020 and the absence of the net proceeds for the sale of the Haefely business in 2019, partially offset by lower cash used for capital expenditures in 2020.

Cash used in financing activities was $244.2 million in 2020 as compared to cash used of $471.0 million in 2019. The change in cash flows from financing activities primarily reflects the settlement of the remaining principal amount under the Term Loan in 2020.

The favorable impact of foreign currency exchange rates on cash was $2.6 million in 2020 as compared to a favorable effect of $1.3 million in 2019. The favorable impact in 2020 was primarily related to a stronger Canadian Dollar, British Pound, Australian Dollar and Chinese Yuan versus the U.S. Dollar, partially offset by a weaker Mexican Peso and Brazilian Real.

Investments in the Business

Investments in our business include cash outlays for the acquisition of businesses as well as expenditures to maintain the operation of our equipment and facilities and invest in restructuring activities.

30			HUBBELL INCORPORATED - Form 10-K

In the fourth quarter of 2020, the Company acquired all of the issued and outstanding shares of Armorcast Products Company, Inc. (“Armorcast”) for $136.8 million, all of the issued and outstanding shares of Beckwith Electric Co., Inc., (“Beckwith”) for $54.3 million and all of the issued and outstanding shares of AccelTex Solutions, LLC (“AccelTex”) for $45.1 million, net of cash acquired in all cases.

In the fourth quarter of 2019, the Company acquired all of the issued and outstanding shares of Cantega Technologies Inc., including its wholly owned subsidiary Greenjacket Inc., and all of the issued and outstanding shares of Reliaguard Inc. (collectively “Cantega”) for $38.4 million, net of cash acquired, and the Company also acquired substantially all of the assets of Connector Products, Incorporated (“CPI”) for $27.9 million.

In February 2018, the Company completed the acquisition of Aclara for approximately $1.1 billion in an all-cash transaction. To fund the Aclara acquisition, on February 2, 2018 the Company borrowed $500 million under a Term Loan Agreement (fully repaid in 2020) with a syndicate of lenders, issued $450 million of unsecured, 3.50% senior notes maturing in 2028, and the remaining purchase price and transaction expenses were funded with commercial paper. Refer to Note 3 — Business Acquisitions and Note 12 — Debt in the Notes to Consolidated Financial Statements for additional information.

We continue to invest in restructuring and related programs to maintain a competitive cost structure, to drive operational efficiencies and to mitigate the impact of rising material costs and administrative cost inflation. We expect our investment in restructuring and related activities to continue in 2021 as we continue to invest in previously initiated actions and initiate further footprint consolidation and other cost reduction initiatives.

In connection with our restructuring and related actions, we have incurred restructuring costs as defined by U.S. GAAP, which are primarily severance and employee benefits, asset impairments, accelerated depreciation, as well as facility closure, contract termination and certain pension costs that are directly related to restructuring actions. We also incurred restructuring-related costs, which are costs associated with our business transformation initiatives, including the consolidation of back-office functions and streamlining of our processes, and certain other costs and gains associated with restructuring actions. We refer to these costs on a combined basis as "restructuring and related costs", which is a non-GAAP measure. We believe this non-GAAP measure provides investors with useful information regarding our underlying performance from period to period. Restructuring costs are predominantly settled in cash from our operating activities and are generally settled within one year, with the exception of asset impairments, which are non-cash.

The table below presents the restructuring and related costs incurred in 2020, additional expected costs, and the expected completion date of restructuring actions that have been initiated as of December 31, 2020 and in prior years (in millions):

			Costs Incurred in 2020			Additional Expected Costs			Expected Completion Date
2020 Restructuring Actions			$	18.4		$	7.7		2021
2019 and Prior Restructuring Actions			5.7			1.9			2021
Restructuring cost (GAAP measure)			$	24.1		$	9.6
Restructuring-related costs			6.5			1.1
Restructuring and related costs (Non-GAAP)			$	30.6		$	10.7

During 2020, we invested $88.4 million in capital expenditures, a decrease of $5.5 million as compared to 2019 as we were selective with our 2020 capital expenditures as a result of the general slowdown in economic activity associated with the COVID-19 pandemic.

Stock Repurchase Program

On October 20, 2017, the Board of Directors approved a stock repurchase program (the “October 2017 program”) that authorized the repurchase of up to $400.0 million of common stock and expired on October 20, 2020. On October 23, 2020 the Board of Directors approved a new stock repurchase program that authorized the repurchase of up to $300 million of common stock and expires in October 2023. At December 31, 2020 our remaining share repurchase authorization under the October 2020 program is $300.0 million. The Company repurchased $41.3 million and $35.0 million of shares of common stock, in 2020 and 2019, respectively. All of the repurchases in 2020 were completed prior to expiration of the October 2017 program. Subject to numerous factors, including market conditions and alternative uses of cash, we may conduct discretionary repurchases through open market or privately negotiated transactions, which may include repurchases under plans complying with Rules 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended.

HUBBELL INCORPORATED - Form 10-K			31

Debt to Capital

At December 31, 2020 and 2019, the Company had $1,436.9 million and $1,506.0 million, respectively, of long-term debt outstanding, net of unamortized discount and the unamortized balance of capitalized debt issuance costs. At December 31, 2020 the Company had no long-term debt with maturities due within the next twelve months. At December 31, 2019 the Company also had $34.4 million of long-term debt classified as short-term on the Consolidated Balance Sheets, reflecting maturities due within the next 12 months.

Borrowings under Revolving Credit Facility

The Company has a five-year revolving credit agreement (the "2018 Credit Facility") with a syndicate of lenders that provides a $750.0 million committed revolving credit facility. Commitments under the 2018 Credit Facility may be increased (subject to certain conditions) to an aggregate amount not to exceed $1.250 billion. The interest rate applicable to borrowings under the 2018 Credit Facility is generally either the adjusted LIBOR plus an applicable margin (determined by a ratings-based grid) or the alternate base rate. The single financial covenant in the 2018 Credit Facility requires that total debt not exceed 65% of total capitalization as of the last day of each fiscal quarter of the Company. The 2018 Credit Facility expires in February 2023.

In March 2020, the Company borrowed $100.0 million and in April 2020, the Company borrowed an additional $125.0 million under the 2018 Credit Facility. In the second quarter of 2020, the Company repaid $100.0 million of such borrowings. In July 2020, the Company repaid the remaining $125.0 million of outstanding borrowings, and as a result the Company has $750.0 million of borrowing capacity under the 2018 Credit Facility at December 31, 2020. There were no borrowings outstanding at December 31, 2019.

Term Loan Agreement

The Company was also a party to a Term Loan Agreement (the “Term Loan Agreement”) with a syndicate of lenders under which the Company borrowed $500 million on an unsecured basis to partially finance the Aclara acquisition on February 2, 2018. During the third quarter of 2020, the Company repaid in full the remaining principal outstanding under the Term Loan Agreement. The Company paid $90.7 million in cash, composed of $90.6 million of principal and $0.1 million of accrued interest, also resulting in a $0.2 million loss on extinguishment of debt (recorded within Interest expense in the Consolidated Statement of Income) primarily related to the write-off of capitalized debt issuance costs.

Unsecured Senior Notes

At December 31, 2020 and December 31, 2019, long-term debt includes unsecured, senior notes in principal amounts of $300 million due in 2022, $400 million due in 2026, $300 million due in 2027, and $450 million due in 2028 (collectively, the "Notes").

The Notes are callable at any time at specified prices and are only subject to accelerated payment prior to maturity upon customary events of default under the indentures governing the Notes, or upon a change in control triggering event as defined in the indenture governing the notes, as supplemented. The Company was in compliance with all covenants (none of which are financial) as of December 31, 2020.

Short-term Debt

At December 31, 2020 and 2019, the Company had $153.1 million and $65.4 million, respectively, of short-term debt outstanding composed of:

◦$150.0 million of commercial paper borrowings outstanding at December 31, 2020 and $26.0 million of commercial paper borrowings outstanding at December 31, 2019.

◦$34.4 million at December 31, 2019 of long-term debt classified as short-term within current liabilities in the Consolidated Balance Sheets, reflecting maturities within the next twelve months relating to our borrowing under the now fully repaid Term Loan Agreement.

◦$3.1 million at December 31, 2020 and $5.0 million at December 31, 2019, respectively, of borrowings to support our international 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.

32			HUBBELL INCORPORATED - Form 10-K

The following table sets forth the reconciliation of net debt at December 31, 2020 and 2019:

			December 31,
(in millions)			2020			2019
Total Debt			$	1,590.0		$	1,571.4
Total Hubbell Shareholders’ Equity			2,070.0			1,947.1
TOTAL CAPITAL			$	3,660.0		$	3,518.5
Debt to Total Capital			43		%	45		%
Cash and Investments			$	340.0		$	251.9
NET DEBT			$	1,250.0		$	1,319.5
Net Debt to Total Capital			34		%	38		%

Liquidity

We measure liquidity on the basis of our ability to meet short-term and long-term operational funding needs, to fund additional investments, including acquisitions, and to 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.

In 2020, we invested in acquisitions and also returned capital to our shareholders through dividends and share repurchases. These activities were funded primarily with cash flows from operations, however a portion of our fourth quarter 2020 acquisitions were funded by short-term commercial paper borrowings.

◦Cash used for the acquisition of businesses in 2020 was $239.6 million. Further discussion of our acquisitions can be found in Note 3 — Business Acquisitions and Dispositions in the Notes to Consolidated Financial Statements.

◦In 2020, cash used for share repurchases was $41.3 million. Dividends paid on our Common Stock in 2020 were $201.4 million.

We also require cash outlays to fund our operations, capital expenditures, and working capital requirements to accommodate anticipated levels of business activity, as well as our rate of cash dividends and potential future acquisitions. We have contractual obligations for long-term debt, operating leases, purchase obligations, and certain other long-term liabilities, including defined benefit retirement obligations and other benefits. As a result of the TCJA, we also have an obligation to fund, by annual installments through 2025, the Company's liability for the transition tax on the deemed repatriation of foreign earnings.

Our sources of funds and available resources to meet these funding needs are as follows:

◦Cash flows from operating activities and existing cash resources: In additional to our cash flows from operating activities, was also had $259.6 million of cash and cash equivalents at December 31, 2020, of which approximately 16% was held inside the United States and the remainder held internationally.

◦Our 2018 Credit Facility provides a $750.0 million committed revolving credit facility and commitments under the 2018 Credit Facility may be increased (subject to certain conditions) to an aggregate amount not to exceed $1.250 billion. Annual commitment fees to support availability under the 2018 Credit Facility are not material. Although not the principal source of liquidity, we believe our 2018 Credit Facility is capable of providing significant financing flexibility at reasonable rates of interest and is an attractive alternative source of funding in the event that commercial paper markets experience disruption. However, an increase in usage of the 2018 Credit Facility related to growth or a significant deterioration in the results of our operations or cash flows, could cause our borrowing costs to 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.

In March 2020, the Company borrowed $100.0 million under the 2018 Credit Facility and in April 2020, the Company borrowed an additional $125.0 million. While the Company believes that it had sufficient liquidity to fund its operations and meet its obligations, the Company further increased its cash position as a precautionary measure in order to preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic. During the second quarter the Company repaid $100.0 million of its borrowings under the 2018 Credit Facility and in July 2020, the Company repaid the remaining $125.0 million of the outstanding borrowings. As a result the full $750.0 million of borrowing capacity under the 2018 Credit Facility was available to the Company at December 31, 2020.

HUBBELL INCORPORATED - Form 10-K			33

◦In addition to our commercial paper program and existing revolving credit facility, we also have the ability to obtain additional financing through the issuance of long-term debt. Considering our current credit rating, historical earnings performance, and financial position we believe that we would be able to obtain additional long-term debt financing on attractive terms.

◦The Company also maintains other lines of credit that are primarily used to support the issuance of letters of credit. Interest rates and other terms of borrowing under these lines of credit vary from country to country, depending on local market conditions. At December 31, 2020 and 2019, total availability under these lines was $32.1 million and $23.0 million, respectively, of which $19.3 million and $15.7 million was utilized to support letters of credit and the remaining amount was unused. The annual commitment fees associated with these lines of credit are not material.

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 dependent upon many factors including future returns on invested pension assets, the level of market interest rates, employee earnings and employee demographics.

In 2020, the Company recognized a $7.6 million settlement loss relating to retirees that elected to receive lump-sum distributions from the Company's defined benefit pension plans. This charge was the result of lump-sum payments which exceeded the threshold for settlement accounting under U.S. GAAP for 2020.

In 2019, the Company approved amendments to one of its domestic qualified defined benefit pension plans, that froze service accruals for nearly all active participants within the plan effective January 1, 2020. As a result of the amendments, the Company recognized a $0.3 million curtailment charge, net of tax.

In 2018, the Company approved amendments to one of its foreign defined benefit pension plans, that closed the plan to future service accruals effective August 31, 2018. As a result of the amendments, in the third quarter of 2018, the Company recognized a curtailment gain of approximately $4.7 million, net of tax, in accumulated other comprehensive income. In addition, effective August 31, 2018, the amortization of actuarial gains and losses is being recognized over the remaining life expectancy of the participants of this plan, as all participants are considered inactive as a result of the amendment.

In 2018, we completed transactions with a third-party insurer to settle approximately $28 million of projected benefit obligations of our domestic qualified defined benefit pension plans.

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 permitted 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) have been amortized and recognized in net periodic pension cost. Effective January 1, 2020, the amortization of unrecognized gains and losses of all of the Company's qualified defined benefit pension plans is recognized over the remaining life expectancy of participants, as all participants are considered inactive as a result of plan amendments. During 2020 and 2019, we recorded $9.8 million and $9.6 million, respectively, of pension expense related to the amortization of these unrecognized losses.

In 2020, 2019 and 2018, we contributed $23.2 million, $10.4 million, and $27.9 million, respectively, to our qualified foreign and domestic defined benefit pension plans. These contributions have improved the funded status of those plans. Although not required by ERISA and the Internal Revenue Code, the Company may elect to make a voluntary contribution to its qualified domestic defined benefit pension plan in 2021. The anticipated level of pension funding in 2021 is not expected to have a significant impact on our overall liquidity.

34			HUBBELL INCORPORATED - Form 10-K

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
			2020			2019						2020			2019
Weighted-average assumptions used to determine benefit obligations at December 31,
Discount rate			2.47		%	3.17		%				2.50		%	3.30		%
Rate of compensation increase			0.24		%	2.94		%				3.99		%	4.00		%
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31,
Discount rate			3.17		%	4.24		%				3.30		%	4.40		%
Expected return on plan assets			4.69		%	4.75		%				N/A			N/A
Rate of compensation increase			2.94		%	3.25		%				4.00		%	4.05		%

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 $8.1 million on 2021 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, 2020 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 our pension plan liabilities. For our U.S. and Canadian pension plans, this discount rate is determined by matching the expected cash flows associated with our benefit obligations to the expected cash flows of a hypothetical portfolio of high quality, fixed income debt instruments with maturities that closely match the expected funding period of our pension liabilities. As of December 31, 2020, we used a discount rate of 2.60% for our U.S. pension plans compared to a discount rate of 3.30% used in 2019. For our Canadian pension plan, we used a discount rate of 2.55% in 2020, compared to a 3.00% discount rate used in 2019.

For our UK pension plan the discount rate was derived using a full yield curve and uses plan specific cash flows. The derived discount rate is the single discount rate equivalent to discounting these liability cash flows at the term-dependent spot rates of AA corporate bonds. This methodology resulted in a December 31, 2020 discount rate for the UK pension plan of 1.40% as compared to a discount rate of 2.10% used in 2019.

A decrease of one percentage point in the discount rate would lower our 2021 pretax pension expense by approximately $0.6 million. A discount rate increase of one percentage point would increase our 2021 pretax pension expense by approximately $0.1 million.

In 2019 we changed the mortality table used to calculate the present value of our pension plan liabilities from the RP-2014 mortality table, with generational projection from 2006 using Scale MP-2018 to the Pri-2012 mortality table, with generational projection from 2012 using Scale MP-2019. In 2020 we continued to use the Pri-2012 mortality table and adopted the MP-2020 projection scale. The Pri-2012 mortality table with adjustment for collar as appropriate and generational projection from 2012 using Scale MP-2020 was chosen as the best estimate based on the observed and anticipated experience of the plans after considering alternative tables. These changes did not have a material impact to the projected benefit obligation of our U.S. plans upon remeasurement at December 31, 2019 and December 31, 2020.

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 have been discontinued for substantially all future retirees. These plans are not funded and, therefore, no assumed rate of return on assets is required. We use a similar methodology to derive the yield curve for our post employment benefit plan obligations that we use for our pension plans. As of December 31, 2020, the Company used a discount rate of 2.50% to determine the projected benefit obligation compared to a discount rate of 3.30% used in 2019.

HUBBELL INCORPORATED - Form 10-K			35

In accordance with the accounting guidance for retirement benefits, we recorded to Accumulated other comprehensive loss, within Hubbell shareholders’ equity, a charge, net of tax, of approximately $0.6 million in 2020 and a benefit, net of tax, of approximately $0.9 million in 2019, related to the annual remeasurement of the OPEB plans and the amortization of prior service credits and net actuarial gains.

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 transferred to an unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets, (3) an obligation or liability, including a contingent obligation or liability, under a contract that would be accounted for as a derivative instrument, except that it is excluded from the scope of FASB ASC Topic 815, or (4) an obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by, and material to, the Company, where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with, the Company.

We do not have any off-balance sheet arrangements as defined above which have or are likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures, capital resources or cash flows.

Contractual Obligations

A summary of our contractual obligations and commitments at December 31, 2020 is as follows (in millions):

			Payments due by period
			Total			2021			2022-2023			2024-2025			2026 and thereafter
Debt obligations(a)			$	1,450.0		$	—		$	300.0		$	—		$	1,150.0
Short-term debt obligations(a)			153.1			153.1			—			—			—
Expected interest payments			264.5			49.5			86.7			77.2			51.1
Operating lease obligations			114.5			34.7			45.0			20.9			13.9
Retirement and other benefits(b)			178.4			13.9			17.2			16.2			131.1
Purchase obligations			372.6			356.1			13.7			2.7			0.1
Obligations under customer incentive programs			40.7			40.7			—			—			—
Income tax payments(c)			30.3			4.8			8.6			16.9			—
TOTAL			$	2,604.1		$	652.8		$	471.2		$	133.9		$	1,346.2

*(a)*Amounts exclude unamortized discount and capitalized debt issuance costs.

*(b)*Amounts above reflect projected funding related to the Company’s non-qualified defined benefit pension and OPEB plans as well as remaining payments under the multi-employer pension settlement agreement described in Note 15 – Commitments & Contingencies. Projected funding obligations of the Company’s qualified defined benefit pension plans are excluded from the table as there are significant factors, such as the future market value of plan assets and projected investment return rates, which could cause actual funding requirements to differ materially from projected funding.

*(c)*Amount above includes future payments associated with the one-time transition tax under the TCJA.

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 and commitments for equipment purchases. As of December 31, 2020, we have $47.6 million of uncertain tax positions reflected in our Consolidated Balance Sheet. We are unable to make a reasonable estimate regarding the timing of settlement 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.

36			HUBBELL INCORPORATED - Form 10-K

Critical Accounting Estimates

Note 1 — Significant Accounting Policies in 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 material impact on our financial results. We believe that the following estimates are among the 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 based on our judgment.

Revenue Recognition

The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs, for products, upon the transfer of control in accordance with the contractual terms and conditions of the sale. The majority of the Company’s revenue associated with products is recognized at a point in time when the product is shipped to the customer, with a relatively small amount of transactions in the Utility Solutions segment recognized upon delivery of the product at the contractually specified destination. Revenue from service contracts and post-shipment performance obligations is approximately three percent of total annual consolidated net revenue and those service contracts and post-shipment obligations are primarily within the Utility Solutions segment. Revenue from service contracts and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and on occasion will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue.

The Company has certain arrangements that require us to estimate at the time of sale the amounts of variable consideration that should not be recorded as revenue as certain amounts are not expected to be collected from customers, as well as an estimate of the value of the product to be returned. The Company principally relies on historical experience, specific customer agreements and anticipated future trends to estimate these amounts at the time of shipment and to reduce the transaction price. These arrangements include sales discounts and allowances based on sales volumes, specific programs and special pricing allowances, and returned goods, as are customary in the electrical products industry. Customer returns have historically ranged from 1%-2% of gross sales.

Inventory Valuation

Inventories in the U.S. are primarily valued at the lower of LIFO cost or market, while non-U.S. inventories are valued at the lower of FIFO cost or market. We routinely evaluate the carrying value of our inventories to ensure they are carried at the lower of LIFO or FIFO 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. Inventory values are reduced 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. Changes in these estimates may necessitate future adjustments to inventory values.

Customer Credit and Collections

We maintain allowances for doubtful accounts receivable in order to reflect the potential uncollectability 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.

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Accrued Insurance

We retain a significant portion of the risks associated with workers’ compensation, medical, automobile and general liability insurance. We estimate self-insurance liabilities using a number of factors, including historical claims experience, demographic factors, severity factors and other actuarial assumptions. The accrued liabilities associated with these programs are based on our estimates of ultimate costs to settle known claims as well as claims incurred but not reported as of the balance sheet date. These assumptions are periodically reviewed with a third-party actuary to determine the adequacy of these self-insurance reserves. Changes in these assumptions may necessitate future adjustments to these self-insurance liabilities.

Employee Benefits Costs and Funding

We sponsor domestic and foreign defined benefit pension, defined contribution and other postretirement plans. Significant 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 evaluated each year as of the plans’ measurement dates. Further discussion of the assumptions used in 2020 and 2019 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 the applicable accounting guidance which 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. Additionally, deferred tax assets are required to be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of a 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, available tax planning strategies that could be implemented to realize the net deferred tax assets, and future reversals of deferred tax liabilities. 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 Internal Revenue Service (“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. The Company records uncertain tax positions when it has determined that it is more-likely-than-not that a tax position will not be sustained upon examination by taxing authorities based on the technical merits of the position. The Company uses the criteria established in the accounting guidance 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. See Note 13 — Income Taxes in the Notes to Consolidated Financial Statements.

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. We record a liability when it is both probable that a liability has been incurred and the amount can be reasonably estimated. A determination of the reserves required, if any, is made after careful analysis, including consultations with outside advisors, where applicable. Where no amount within a range of estimates is more likely, the minimum is accrued. The required reserves may change in the future due to new developments.

Warranty

The Company offers product warranties that 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.

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 land, goodwill and indefinite-lived intangibles, are depreciated over their estimated useful lives. The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the dates of acquisition. Goodwill represents purchase price in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets primarily consist of patents, tradenames, developed technology and customer related intangibles.

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We review depreciable long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If such a change in circumstances occurs, the related estimated future undiscounted cash flows expected to result from the use of the asset group and its eventual disposition is compared to the carrying amount. If the sum of the expected cash flows of the asset group is less than the carrying amount, an impairment charge is recorded. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of impaired assets is determined using expected cash flow estimates, quoted market prices when available and appraisals as appropriate. We did not record any material impairment charges related to long-lived assets in 2020, 2019, or 2018.

Goodwill and indefinite-lived intangible assets are reviewed annually for impairment unless circumstances dictate the need for more frequent assessment. We perform our goodwill impairment testing as of April 1st of each year unless circumstances dictate the need for more frequent assessments. The accounting guidance provides entities an option of performing a qualitative assessment before performing a quantitative analysis. If the entity determines, on the basis of certain qualitative factors, that it is more-likely-than-not that the goodwill is not impaired, the entity would not need to proceed to the quantitative goodwill impairment testing process as prescribed in the guidance. The Company performed a qualitative assessment for four of its six reporting units. The Company elected to bypass the qualitative assessment and proceeded directly to the quantitative analysis for its remaining reporting units.

The goodwill impairment test 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 discounted cash flows, determining appropriate discount rates and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic. We use internal discounted cash flow models to estimate fair value. These cash flow estimates are derived from historical experience, third-party end market data, and future long-term business plans and include assumptions of future sales growth, gross margin, operating margin, terminal growth rate, 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. As of April 1, 2020, our goodwill testing resulted in fair values for each reporting unit that substantially exceeded the reporting unit’s carrying value. We have not recorded any goodwill impairments since the initial adoption of the accounting guidance in 2002.

The identification and measurement of impairment of indefinite-lived intangible assets involves an assessment of qualitative factors to determine whether events or circumstances indicate that it is more-likely-than-not that an indefinite-lived intangible asset is impaired. If it is more-likely-than-not that the asset is impaired, the fair value of the indefinite lived intangibles will be determined using discounted cash flow estimates. If the carrying value of these assets exceeds the estimated fair value, the carrying value will be reduced to the estimated fair value. We did not record any impairments related to indefinite-lived intangible assets in 2020, 2019, or 2018.

Stock-Based Compensation

We determine the grant date fair value of certain stock-based compensation awards using either a lattice model or the Black-Scholes option pricing model. Both of these models require management to make certain assumptions with respect to selected model inputs. These inputs include assumptions for the expected term, stock volatility, dividend yield and risk-free interest rate. Changes in these inputs impact fair value and could impact our stock-based compensation expense in the future. In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those awards expected to meet the service and performance vesting conditions. If our actual forfeiture rate is different from our estimate, adjustments to stock-based compensation expense may be required. See also Note 17 — Stock-Based Compensation in the Notes to Consolidated Financial Statements.

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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, contain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These include statements about our expected capital resources, liquidity, financial performance, pension funding, and results of operations and are based on our reasonable current expectations. In addition, all statements regarding the expected financial impact of the integration of acquisitions, adoption of updated accounting standards and any expected effects of such adoption, restructuring plans and expected associated costs and benefits, intent to repurchase shares of Common Stock, and change in operating results, anticipated market conditions and productivity initiatives 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. Important 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:

• The scope and duration of the novel coronavirus, or COVID-19, global pandemic and its impact on global economic systems, our employees, sites, operations, customers, and supply chain.

• Changes in demand for our products, market conditions, product quality, or product availability adversely affecting sales levels.

• Ability to effectively develop and introduce new products.

• 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 initiatives and strategic sourcing plans.

• Impacts of trade tariffs, import quotas or other trade restrictions or measures taken by the U.S., U.K. and other countries, including the recent and potential changes in U.S. trade policies.

• Failure to comply with import and export laws.

• Availability, costs, and quantity of raw materials, purchased components, energy and freight.

• Changes relating to impairment of our goodwill and other intangible assets.

• Inability to access capital markets or failure to maintain our credit ratings.

• Changes in expected or future levels of operating cash flow, indebtedness and capital spending.

• General economic and business conditions in particular industries, markets or geographic regions, as well as inflationary trends.

• Regulatory issues, changes in tax laws including revisions or clarifications of the TCJA, or changes in geographic profit mix affecting tax rates and availability of tax incentives.

• A major disruption in one or more 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 and other retirement benefits, as well as pension withdrawal liabilities.

• 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.

• Ability to successfully execute, manage and integrate key acquisitions, mergers, and other transactions, as well as the failure to realize expected synergies and benefits anticipated when we make an acquisition.

• The ability to effectively implement Enterprise Resource Planning systems without disrupting operational and financial processes.

• The ability of government customers to meet their financial obligations.

• Political unrest in foreign countries.

• The impact of Brexit and other world economic and political issues.

• The impact of natural disasters or public health emergencies, such as the COVID-19 global pandemic, on our financial condition and results of operations.

• Failure of information technology systems, security breaches, cyber threats, malware, phishing attacks, break-ins and similar events resulting in unauthorized disclosure of confidential information or disruptions or damage to information technology systems that could cause interruptions to our operations or adversely affect our internal control over financial reporting.

• Incurring significant and/or unexpected costs to avoid manage, defend and litigate intellectual property matters.

• Future repurchases of common stock under our common stock repurchase program.

• Changes in accounting principles, interpretations, or estimates.

• Failure to comply with any laws and regulations, including those related to data privacy and information security, environmental and conflict-free minerals.

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• The outcome of environmental, legal and tax contingencies or costs compared to amounts provided for such contingencies, including contingencies or costs with respect to pension withdrawal liabilities.

• Improper conduct by any of our employees, agents or business partners that damages our reputation or subjects us to civil or criminal liability.

• Our ability to hire, retain and develop qualified personnel.

• 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.

• Transitioning from LIBOR to a replacement alternative reference rate.

• Other factors described in our Securities and Exchange Commission filings, including the “Business”, “Risk Factors” and “Quantitative and Qualitative Disclosures about Market Risk” sections in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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.