filings.toolsItem 1. Financial Statements
94K characters. Original on sec.gov · Markdown
Item 1. Financial Statements
Condensed Consolidated Statements of Income (unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Net sales | $ | 1,375.8 | $ | 1,316.2 | $ | 4,027.1 | $ | 3,728.3 | |||||||||||||||
| Cost of goods sold | 888.4 | 917.7 | 2,595.2 | 2,623.5 | |||||||||||||||||||
| Gross profit | 487.4 | 398.5 | 1,431.9 | 1,104.8 | |||||||||||||||||||
| Selling & administrative expenses | 211.1 | 194.9 | 619.0 | 567.7 | |||||||||||||||||||
| Operating income | 276.3 | 203.6 | 812.9 | 537.1 | |||||||||||||||||||
| Interest expense, net | (7.8) | (12.1) | (26.7) | (37.9) | |||||||||||||||||||
| Pension charge (Note 13) | — | (1.5) | — | (5.9) | |||||||||||||||||||
| Other (expense) income, net | (3.5) | 0.8 | (12.4) | 6.9 | |||||||||||||||||||
| Total other expense | (11.3) | (12.8) | (39.1) | (36.9) | |||||||||||||||||||
| Income from continuing operations before income taxes | 265.0 | 190.8 | 773.8 | 500.2 | |||||||||||||||||||
| Provision for income taxes | 63.0 | 38.8 | 180.2 | 107.3 | |||||||||||||||||||
| Net income from continuing operations | 202.0 | 152.0 | 593.6 | 392.9 | |||||||||||||||||||
| Less: Net income from continuing operations attributable to noncontrolling interest | (1.9) | (1.7) | (4.8) | (4.5) | |||||||||||||||||||
| Net income from continuing operations attributable to Hubbell Incorporated | 200.1 | 150.3 | 588.8 | 388.4 | |||||||||||||||||||
| (Loss) Income from discontinued operations, net of tax (Note 2) | — | (11.2) | — | 52.9 | |||||||||||||||||||
| Net Income attributable to Hubbell Incorporated | $ | 200.1 | $ | 139.1 | $ | 588.8 | $ | 441.3 | |||||||||||||||
| Earnings per share: | |||||||||||||||||||||||
| Basic earnings per share from continuing operations | $ | 3.72 | $ | 2.79 | $ | 10.96 | $ | 7.20 | |||||||||||||||
| Basic earnings per share from discontinued operations | — | (0.21) | — | 0.98 | |||||||||||||||||||
| Basic earnings per share | $ | 3.72 | $ | 2.58 | $ | 10.96 | $ | 8.18 | |||||||||||||||
| Diluted earnings per share from continuing operations | $ | 3.70 | $ | 2.78 | $ | 10.89 | $ | 7.16 | |||||||||||||||
| Diluted earnings per share from discontinued operations | — | (0.21) | — | 0.98 | |||||||||||||||||||
| Diluted earnings per share | $ | 3.70 | $ | 2.57 | $ | 10.89 | $ | 8.14 | |||||||||||||||
| Cash dividends per common share | $ | 1.12 | $ | 1.05 | $ | 3.36 | $ | 3.15 |
See notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 3
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Condensed Consolidated Statements of Comprehensive Income (unaudited)
| Three Months Ended September 30, | ||||||||
| (in millions) | 2023 | 2022 | ||||||
| Net income | $ | 202.0 | $ | 140.8 | ||||
| Other comprehensive income (loss): | ||||||||
| Currency translation adjustments: | ||||||||
| Foreign currency translation adjustments | (12.8) | (26.4) | ||||||
| Reclassification of currency translation losses included in net income | — | — | ||||||
| Defined benefit pension and post-retirement plans, net of taxes of $(0.7) and $(1.1) | 1.9 | 3.3 | ||||||
| Unrealized gain (loss) on investments, net of taxes of $0.1 and $0.3 | (0.3) | (0.9) | ||||||
| Unrealized gain (loss) on cash flow hedges, net of taxes of $(0.1) and $(0.3) | 0.4 | 1.0 | ||||||
| Other comprehensive income (loss) | (10.8) | (23.0) | ||||||
| Comprehensive income | 191.2 | 117.8 | ||||||
| Less: Comprehensive income attributable to noncontrolling interest | 1.9 | 1.7 | ||||||
| Comprehensive income attributable to Hubbell Incorporated | $ | 189.3 | $ | 116.1 |
See notes to unaudited Condensed Consolidated Financial Statements.
| Nine Months Ended September 30, | ||||||||
| (in millions) | 2023 | 2022 | ||||||
| Net income | $ | 593.6 | $ | 445.8 | ||||
| Other comprehensive income (loss): | ||||||||
| Currency translation adjustment: | ||||||||
| Foreign currency translation adjustments | 0.5 | (51.5) | ||||||
| Reclassification of currency translation losses included in net income | — | 0.5 | ||||||
| Defined benefit pension and post-retirement plans, net of taxes of $(2.5) and $(2.9) | 5.3 | 8.8 | ||||||
| Unrealized gain (loss) on investments, net of taxes of $0.1 and $0.7 | (0.3) | (2.1) | ||||||
| Unrealized gain (loss) on cash flow hedges, net of taxes of $0.2 and $(0.3) | (0.5) | 0.9 | ||||||
| Other comprehensive income (loss) | 5.0 | (43.4) | ||||||
| Comprehensive income | 598.6 | 402.4 | ||||||
| Less: Comprehensive income attributable to noncontrolling interest | 4.8 | 4.5 | ||||||
| Comprehensive income attributable to Hubbell Incorporated | $ | 593.8 | $ | 397.9 |
enotes to unaudited Condensed Consolidated Financial Statements.
See notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 4
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Condensed Consolidated Balance Sheets (unaudited)
| (in millions) | September 30, 2023 | December 31, 2022 | ||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 572.8 | $ | 440.5 | ||||
| Short-term investments | 17.9 | 14.3 | ||||||
| Accounts receivable (net of allowances of $13.2 and $14.3) | 852.9 | 741.6 | ||||||
| Inventories, net | 788.4 | 740.7 | ||||||
| Other current assets | 86.4 | 84.3 | ||||||
| Total Current Assets | 2,318.4 | 2,021.4 | ||||||
| Property, Plant, and Equipment, net | 572.2 | 528.0 | ||||||
| Other Assets | ||||||||
| Investments | 61.6 | 65.9 | ||||||
| Goodwill | 1,994.7 | 1,970.5 | ||||||
| Other intangible assets, net | 644.7 | 669.9 | ||||||
| Other long-term assets | 176.7 | 146.9 | ||||||
| TOTAL ASSETS | $ | 5,768.3 | $ | 5,402.6 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities | ||||||||
| Short-term debt | $ | 3.3 | $ | 4.7 | ||||
| Accounts payable | 554.7 | 529.9 | ||||||
| Accrued salaries, wages and employee benefits | 129.0 | 144.2 | ||||||
| Accrued insurance | 80.8 | 75.6 | ||||||
| Other accrued liabilities | 303.6 | 334.1 | ||||||
| Total Current Liabilities | 1,071.4 | 1,088.5 | ||||||
| Long-Term Debt | 1,439.7 | 1,437.9 | ||||||
| Other Non-Current Liabilities | 506.7 | 505.6 | ||||||
| TOTAL LIABILITIES | 3,017.8 | 3,032.0 | ||||||
| Hubbell Incorporated Shareholders’ Equity | 2,739.1 | 2,360.9 | ||||||
| Noncontrolling interest | 11.4 | 9.7 | ||||||
| TOTAL EQUITY | 2,750.5 | 2,370.6 | ||||||
| TOTAL LIABILITIES AND EQUITY | $ | 5,768.3 | $ | 5,402.6 |
See notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 5
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Condensed Consolidated Statements of Cash Flows (unaudited)
| Nine Months Ended September 30, | ||||||||
| (in millions) | 2023 | 2022 | ||||||
| Cash Flows from Operating Activities of Continuing Operations | ||||||||
| Net income from continuing operations | $ | 593.6 | $ | 392.9 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 110.1 | 107.6 | ||||||
| Deferred income taxes | (17.1) | (41.7) | ||||||
| Stock-based compensation | 21.6 | 21.7 | ||||||
| Provision for bad debt expense | — | 5.7 | ||||||
| Pension charge | — | 5.9 | ||||||
| Loss on sale of assets | 1.5 | 2.3 | ||||||
| Changes in assets and liabilities, excluding effects of acquisitions: | ||||||||
| Increase in accounts receivable, net | (101.0) | (134.4) | ||||||
| Increase in inventories, net | (39.4) | (67.8) | ||||||
| Increase in accounts payable | 25.1 | 28.4 | ||||||
| (Decrease) increase in current liabilities | (45.2) | 65.4 | ||||||
| Changes in other assets and liabilities, net | 2.5 | 17.2 | ||||||
| Contribution to qualified defined benefit pension plans | (10.0) | (12.5) | ||||||
| Other, net | (6.4) | 3.1 | ||||||
| Net cash provided by operating activities from Continuing Operations | 535.3 | 393.8 | ||||||
| Cash Flows from Investing Activities of Continuing Operations | ||||||||
| Capital expenditures | (103.8) | (67.2) | ||||||
| Acquisitions, net of cash acquired | (60.0) | (163.6) | ||||||
| Proceeds from disposal of business, net of cash | — | 332.8 | ||||||
| Purchases of available-for-sale investments | (13.7) | (26.5) | ||||||
| Proceeds from available-for-sale investments | 15.8 | 15.7 | ||||||
| Other, net | 0.3 | 1.4 | ||||||
| Net cash (used in) provided by investing activities from Continuing Operations | (161.4) | 92.6 | ||||||
| Cash Flows from Financing Activities of Continuing Operations | ||||||||
| Payments of short-term debt, net | (1.4) | (5.4) | ||||||
| Payment of dividends | (180.1) | (169.6) | ||||||
| Acquisition of common shares | (30.0) | (150.0) | ||||||
| Other, net | (30.2) | (15.3) | ||||||
| Net cash used in financing activities from Continuing Operations | (241.7) | (340.3) | ||||||
| Cash Flows from Discontinued Operations: | ||||||||
| Cash used in operating activities | — | (50.1) | ||||||
| Cash used in investing activities | — | (1.7) | ||||||
| Cash used in discontinued operations | — | (51.8) | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 0.3 | (14.2) | ||||||
| Increase in cash and cash equivalents | 132.5 | 80.1 | ||||||
| Cash and cash equivalents, beginning of year | 440.5 | 286.2 | ||||||
| Cash and cash equivalents within assets held for sale, beginning of year | — | 0.7 | ||||||
| Restricted cash, included in other assets, beginning of year | 2.8 | 2.7 | ||||||
| Less: Restricted cash, included in Other Assets | 3.0 | 2.8 | ||||||
| Cash and cash equivalents, end of period | $ | 572.8 | $ | 366.9 |
See notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 6
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Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 1 Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Hubbell Incorporated (“Hubbell”, the “Company”, “registrant”, “we”, “our” or “us”, which references include its divisions and subsidiaries) have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by United States of America (“U.S.”) GAAP for audited financial statements. In the opinion of management, all adjustments consisting only of normal recurring adjustments considered necessary for a fair statement of the results of the periods presented have been included. Operating results for the nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023.
The balance sheet at December 31, 2022 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Hubbell Incorporated Annual Report on Form 10-K for the year ended December 31, 2022.
Discontinued Operations
On February 1, 2022, the Company completed the sale of the Commercial and Industrial Lighting business (the "C&I Lighting business") to GE Current, a Daintree Company, for total net cash consideration of $332.8 million. The disposal of the C&I Lighting business met the criteria set forth in ASC 205-20 to be presented as a discontinued operation. The C&I Lighting business's results of operations and the related cash flows have been reclassified to income from discontinued operations in the Condensed Consolidated Statements of Income and cash flows from discontinued operations in the Condensed Consolidated Statement of Cash Flows, respectively, for all periods presented. For additional information regarding this transaction and its effect on our financial reporting, see Note 2 – Discontinued Operations, in the accompanying Condensed Consolidated Financial Statements.
Recently Adopted Accounting Pronouncements
In September 2022, the FASB issued ASU 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50: Disclosure of Supplier Finance Program Obligations)", which the Company adopted in the first quarter of 2023, with the exception of the rollforward information, which is effective for the Company in 2024.
Payment Services Arrangements
The Company has ongoing agreements with financial institutions to facilitate the processing of vendor payables. Under these agreements, the Company pays the financial institution the stated amount of confirmed invoices from participating suppliers on their original maturity date. The terms of the vendor payables are not affected by vendors participating in these agreements. As a result, the amounts owed are presented as accounts payable in the Company’s Condensed Consolidated Balance Sheet, of which $108.9 million and $91.9 million was outstanding at September 30, 2023 and December 31, 2022, respectively. Either party may terminate the agreements with 30 days written notice. Cash flows under the program are reported in operating activities in the Company’s Condensed Consolidated Statement of Cash Flows.
Commercial Card Program
In 2021, the Company entered into an agreement with a financial institution that allows participating suppliers to receive payment for outstanding invoices through a commercial purchasing card sponsored by a financial institution. The Company is required to then settle such outstanding invoices through a consolidated payment to the financial institution 15 days after the commercial card billing cycle. The Company receives the benefit of extended payment terms and a rebate from the financial institution. Either party may terminate the agreement with 60 days written notice. The amount outstanding to the financial institution is presented as short-term debt in the Company’s Condensed Consolidated Balance Sheet, of which, $2.2 million and $1.9 million was outstanding at September 30, 2023 and December 31, 2022, respectively. Cash flows under the program are reported in financing activities in the Company’s Condensed Consolidated Statement of Cash Flows.
HUBBELL INCORPORATED-Form 10-Q 7
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Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In December 2022, the FASB issued ASU No. 2022-06 Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which extends the temporary accounting rules under Topic 848 to December 31, 2024. The Company continues to assess the impact of adopting this standard on its financial statements and the timing of adoption.
NOTE 2 Discontinued Operations
On February 1, 2022, the Company completed the sale of the C&I Lighting business to GE Current, a Daintree Company, for total net cash consideration of $332.8 million. We have concluded the divestiture met the criteria set forth in ASC 205-20 to be presented as a discontinued operation in our Condensed Consolidated Financial Statements for all periods presented. The C&I Lighting business was previously included in the Electrical Solutions segment.
Under the terms of the transaction, Hubbell and the buyer entered into a transition services agreement ("TSA"), pursuant to which the Company provides certain administrative and operational services for a period of 12 months or less. In addition, we entered into a short-term supply agreement whereby the Company acts as a supplier of finished goods and component parts to the C&I Lighting business after the completion of the sale. There was no income or loss from either of the TSA or the supply agreement for the three and nine months ended September 30, 2023. Income from the TSA and supply agreement for the three and nine months ended September 30, 2022 was $3.2 million and $10.8 million, respectively, and was recorded in Other Income in the Condensed Consolidated Financial Statements. The TSA and short-term supply agreement were effectively completed as of March 31, 2023.
The following table presents the summarized components of income from discontinued operations, net of income taxes, for the C&I Lighting business:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net sales | $ | — | $ | — | $ | — | $ | 29.1 | |||||||||
| Cost of goods sold | — | — | — | 27.7 | |||||||||||||
| Gross profit | — | — | — | 1.4 | |||||||||||||
| Selling & administrative expenses | — | 3.0 | — | 18.2 | |||||||||||||
| Operating loss | — | (3.0) | — | (16.8) | |||||||||||||
| (Loss) gain on disposal of business | — | (7.0) | — | 73.7 | |||||||||||||
| Other expense | — | (0.2) | — | (1.4) | |||||||||||||
| (Loss) income from discontinued operations before income taxes | — | (10.2) | — | 55.5 | |||||||||||||
| Provision for income taxes | — | 1.0 | — | 2.6 | |||||||||||||
| (Loss) income from discontinued operations, net of taxes | $ | — | $ | (11.2) | $ | — | $ | 52.9 |
(Loss) income from discontinued operations, net of taxes includes pre-tax transaction and separation costs of $3.0 million and $9.7 million for the three and nine months ended September 30, 2022, respectively, and a pre-tax (loss) gain on disposal of business of $(7.0) million and $73.7 million for the three and nine months ended September 30, 2022, respectively. The gain on disposal of business for the nine months ended September 30, 2022 includes a net working capital adjustment of $15.8 million that was cash settled in the third quarter of 2022. There were no transaction and separation costs or pre-tax gain on disposal of business in 2023.
HUBBELL INCORPORATED-Form 10-Q 8
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NOTE 3 Business Acquisitions
Acquisition
In the second quarter of 2023, the Company acquired all of the issued and outstanding membership interests of EI Electronics LLC ("EIG") for a cash purchase price of approximately $60 million, net of cash acquired, subject to customary purchase price adjustments. EIG offers fully integrated energy management and power quality monitoring solutions for the electric utility and commercial & industrial markets. This business is reported in the Utility Solutions segment. We have recognized intangible assets of $28.7 million and goodwill of $21.5 million as a result of this acquisition. The intangible assets of $28.7 million consist primarily of customer relationships, developed technology, a tradename and backlog and will be amortized over a weighted average period of approximately 14 years. All of the goodwill is expected to be deductible for tax purposes.
This business acquisition has been accounted for as a business combination and has resulted in the recognition of goodwill. The goodwill relates to a number of factors implied in the purchase price, including the future earnings and cash flow potential of the business as well as the complementary strategic fit and resulting synergies that such business acquisition brings to the Company’s existing operations.
Preliminary Allocation of Consideration Transferred to Net Assets Acquired
The following table presents the preliminary determination of the fair values of identifiable assets acquired and liabilities assumed from the Company's acquisition in the second quarter of 2023. The final determination of the fair value of certain assets and liabilities will be completed within the one year measurement period as required by FASB ASC Topic 805, “Business Combinations.” As the Company finalizes the fair values of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company's results of operations and financial position. The finalization of the purchase accounting assessment may result in a change in the valuation of assets acquired and liabilities assumed and may have a material impact on the Company's results of operations and financial position.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition (in millions):
| Tangible assets acquired | $ | 19.6 | |||
| Intangible assets | 28.7 | ||||
| Goodwill | 21.5 | ||||
| Net deferred taxes | — | ||||
| Other liabilities assumed | (9.8) | ||||
| Total Estimate of Consideration Transferred, Net of Cash Acquired | $ | 60.0 |
The Condensed Consolidated Financial Statements include the results of operations of the acquired business from its date of acquisition. Pro forma information related to this acquisition has not been included because the impact of net sales and earnings related to the acquisition for the nine months ended September 30, 2023 was not material to the Company’s condensed consolidated results of operations.
HUBBELL INCORPORATED-Form 10-Q 9
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NOTE 4 Revenue
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, primarily in the Utility Solutions segment, recognized upon delivery of the product at the destination. Revenue from service contracts and post-shipment performance obligations are approximately two 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.
Within the Electrical Solutions segment, certain businesses require a portion of the transaction price to be paid in advance of transfer of control. Advance payments are not considered a significant financing component as they are received less than one year before the related performance obligations are satisfied. In addition, in the Utility Solutions segment, certain businesses offer annual maintenance service contracts that require payment at the beginning of the contract period. These payments are treated as a contract liability and are classified in Other accrued liabilities in the Condensed Consolidated Balance Sheets. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Condensed Consolidated Statements of Income. The deferred revenue relating to the annual maintenance service contracts is recognized in the Condensed Consolidated Statements of Income on a straight-line basis over the expected term of the contract.
The following table presents disaggregated revenue by business group.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| in millions | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net sales | |||||||||||||||||
| Utility T&D Components | $ | 618.2 | $ | 602.3 | $ | 1,864.5 | $ | 1,650.3 | |||||||||
| Utility Communications and Controls | 219.7 | 172.2 | 585.8 | 504.5 | |||||||||||||
| Total Utility Solutions | $ | 837.9 | $ | 774.5 | $ | 2,450.3 | $ | 2,154.8 | |||||||||
| Electrical Products | $ | 214.4 | $ | 231.7 | $ | 631.4 | $ | 694.2 | |||||||||
| Connection and Bonding | 165.6 | 156.5 | 485.2 | 456.9 | |||||||||||||
| Industrial Controls | 112.3 | 95.4 | 315.3 | 245.1 | |||||||||||||
| Retail and Builder | 45.6 | 58.1 | 144.9 | 177.3 | |||||||||||||
| Total Electrical Solutions | $ | 537.9 | $ | 541.7 | $ | 1,576.8 | $ | 1,573.5 | |||||||||
| TOTAL | $ | 1,375.8 | $ | 1,316.2 | $ | 4,027.1 | $ | 3,728.3 |
The following table presents disaggregated revenue by geographic location (on a geographic basis, the Company defines "international" as operations based outside of the United States and its possessions):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| in millions | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
| Net sales | ||||||||||||||||||||
| United States | $ | 796.5 | $ | 732.1 | $ | 2,323.4 | $ | 2,040.5 | ||||||||||||
| International | 41.4 | 42.4 | 126.9 | 114.3 | ||||||||||||||||
| Total Utility Solutions | $ | 837.9 | $ | 774.5 | $ | 2,450.3 | $ | 2,154.8 | ||||||||||||
| United States | $ | 465.7 | $ | 477.5 | $ | 1,369.9 | $ | 1,379.3 | ||||||||||||
| International | 72.2 | 64.2 | 206.9 | 194.2 | ||||||||||||||||
| Total Electrical Solutions | $ | 537.9 | $ | 541.7 | $ | 1,576.8 | $ | 1,573.5 | ||||||||||||
| TOTAL | $ | 1,375.8 | $ | 1,316.2 | $ | 4,027.1 | $ | 3,728.3 |
HUBBELL INCORPORATED-Form 10-Q 10
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Contract Balances
Our contract liabilities consist of advance payments for products as well as deferred revenue on service obligations and extended warranties. Deferred revenue is included in Other accrued liabilities in the Condensed Consolidated Balance Sheets.
Contract liabilities were $55.4 million as of September 30, 2023 compared to $45.8 million as of December 31, 2022. The $9.6 million increase in our contract liabilities balance was primarily due to a $45.7 million net increase in current year deferrals primarily due to timing of advance payments on certain orders, partially offset by the recognition of $36.1 million in revenue related to amounts that were recorded in contract liabilities at January 1, 2023. The Company has an immaterial amount of contract assets relating to performance obligations satisfied prior to payment that is recorded in Other long-term assets in the Condensed Consolidated Balance Sheets. Impairment losses recognized on our receivables and contract assets were immaterial for the three and nine months ended September 30, 2023.
Unsatisfied Performance Obligations
As of September 30, 2023, the Company had approximately $240 million of unsatisfied performance obligations for contracts with an original expected length of greater than one year, primarily relating to long-term contracts of the Utility Solutions segment to deliver and install meters, metering communications and grid monitoring sensor technology. The Company expects that a majority of the unsatisfied performance obligations will be completed and recognized over the next two years.
HUBBELL INCORPORATED-Form 10-Q 11
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NOTE 5 Segment Information
The Company's reporting segments consist of the Utility Solutions segment and the Electrical Solutions segment. The Utility Solutions segment consists of businesses that design, manufacture, and sell a wide variety of electrical distribution, transmission, substation, and telecommunications products. This includes utility transmission & distribution (T&D) components such as arresters, insulators, connectors, anchors, bushings, and enclosures. The Utility Solutions segment also offers solutions that serve the utility infrastructure, including smart meters, communications systems, and protection and control devices. The Hubbell Utility Solutions segment supports the electrical distribution, electrical transmission, water, gas distribution, telecommunications, and solar and wind markets. Products are sold to distributors and directly to users such as utilities, telecommunication companies, industrial firms, construction and engineering firms.
The Electrical Solutions segment comprises businesses that sell stock and custom products including standard and special application wiring device products, rough-in electrical products, connector and grounding products, lighting fixtures, components and other electrical equipment. The products are typically used in and around industrial, commercial and institutional facilities by electrical contractors, maintenance personnel, electricians, utilities, and telecommunications companies. In addition, certain of our businesses design and manufacture industrial controls and communication systems used in the non-residential and industrial markets. Many of these products are designed such that they can also be used in harsh and hazardous locations where a potential for fire and explosion exists due to the presence of flammable gasses and vapors. Harsh and hazardous products are primarily used in the oil and gas (onshore and offshore) and mining industries. There are also a variety of wiring devices, lighting fixtures and electrical products that have residential and utility applications, including residential products with Internet-of-Things ("IoT") enabled technologies. These products are primarily sold through electrical and industrial distributors, home centers, retail and hardware outlets, lighting showrooms and residential product oriented internet sites. Special application products are primarily sold through wholesale distributors to contractors, industrial customers and OEMs.
The following table sets forth financial information by reporting segment (in millions):
| Net Sales | Operating Income | Operating Income as a % of Net Sales | ||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||
| Utility Solutions | $ | 837.9 | $ | 774.5 | $ | 186.8 | $ | 129.8 | 22.3 | % | 16.8 | % | ||||||||
| Electrical Solutions | 537.9 | 541.7 | 89.5 | 73.8 | 16.6 | % | 13.6 | % | ||||||||||||
| TOTAL | $ | 1,375.8 | $ | 1,316.2 | $ | 276.3 | $ | 203.6 | 20.1 | % | 15.5 | % | ||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||
| Utility Solutions | $ | 2,450.3 | $ | 2,154.8 | $ | 563.8 | $ | 329.3 | 23.0 | % | 15.3 | % | ||||||||
| Electrical Solutions | 1,576.8 | 1,573.5 | 249.1 | 207.8 | 15.8 | % | 13.2 | % | ||||||||||||
| TOTAL | $ | 4,027.1 | $ | 3,728.3 | $ | 812.9 | $ | 537.1 | 20.2 | % | 14.4 | % | ||||||||
HUBBELL INCORPORATED-Form 10-Q 12
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NOTE 6 Inventories, net
Inventories, net consists of the following (in millions):
| September 30, 2023 | December 31, 2022 | |||||||
| Raw material | $ | 346.4 | $ | 302.8 | ||||
| Work-in-process | 171.2 | 161.7 | ||||||
| Finished goods | 451.6 | 463.2 | ||||||
| Subtotal | 969.2 | 927.7 | ||||||
| Excess of FIFO over LIFO cost basis | (180.8) | (187.0) | ||||||
| TOTAL | $ | 788.4 | $ | 740.7 |
HUBBELL INCORPORATED-Form 10-Q 13
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NOTE 7 Goodwill and Other Intangible Assets, net
Changes in the carrying values of goodwill for the nine months ended September 30, 2023, by segment, were as follows (in millions):
| Segment | |||||||||||
| Utility Solutions | Electrical Solutions | Total | |||||||||
| BALANCE AT DECEMBER 31, 2022 | $ | 1,275.9 | $ | 694.6 | $ | 1,970.5 | |||||
| Prior year acquisitions | 1.2 | 2.1 | 3.3 | ||||||||
| Current year acquisitions(1) | 21.5 | — | 21.5 | ||||||||
| Foreign currency translation | (0.2) | (0.4) | (0.6) | ||||||||
| BALANCE AT SEPTEMBER 30, 2023 | $ | 1,298.4 | $ | 696.3 | $ | 1,994.7 |
(1) Refer to Note 3 - Business Acquisitions for additional information.
The carrying value of other intangible assets included in Other intangible assets, net in the Condensed Consolidated Balance Sheets is as follows (in millions):
| September 30, 2023 | December 31, 2022 | |||||||||||||
| Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | |||||||||||
| Definite-lived: | ||||||||||||||
| Patents, tradenames and trademarks | $ | 190.7 | $ | (82.1) | $ | 187.9 | $ | (75.7) | ||||||
| Customer relationships, developed technology and other | 977.0 | (481.3) | 955.3 | (437.8) | ||||||||||
| TOTAL DEFINITE-LIVED INTANGIBLES | $ | 1,167.7 | $ | (563.4) | $ | 1,143.2 | $ | (513.5) | ||||||
| Indefinite-lived: | ||||||||||||||
| Tradenames and other | 40.4 | — | 40.2 | — | ||||||||||
| TOTAL OTHER INTANGIBLE ASSETS | $ | 1,208.1 | $ | (563.4) | $ | 1,183.4 | $ | (513.5) |
Amortization expense associated with definite-lived intangible assets was $18.4 million and $18.7 million during the three months ended September 30, 2023 and 2022, respectively, and $54.3 million and $53.6 million during the nine months ended September 30, 2023 and 2022, respectively. Future amortization expense associated with these intangible assets is estimated to be $18.5 million for the remainder of 2023, $69.3 million in 2024, $67.1 million in 2025, $63.4 million in 2026, $57.2 million in 2027, and $51.7 million in 2028. The Company amortizes intangible assets with definite lives using either an accelerated method that reflects the pattern in which economic benefits of the intangible assets are consumed and results in higher amortization in the earlier years of the assets useful lives, or using a straight line method. Approximately 80% of the gross value of definite-lived intangible assets follow an accelerated amortization method.
HUBBELL INCORPORATED-Form 10-Q 14
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NOTE 8 Other Accrued Liabilities
Other accrued liabilities consists of the following (in millions):
| September 30, 2023 | December 31, 2022 | |||||||
| Customer program incentives | $ | 55.5 | $ | 87.8 | ||||
| Accrued income taxes | 22.0 | 4.5 | ||||||
| Contract liabilities - deferred revenue | 55.4 | 45.8 | ||||||
| Customer refund liability | 19.5 | 14.8 | ||||||
| Accrued warranties short-term(1) | 21.1 | 20.2 | ||||||
| Current operating lease liabilities | 30.3 | 30.5 | ||||||
| Other | 99.8 | 130.5 | ||||||
| TOTAL | $ | 303.6 | $ | 334.1 |
(1) Refer to Note 22 - Guarantees, in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding warranties.
NOTE 9 Other Non-Current Liabilities
Other non-current liabilities consists of the following (in millions):
| September 30, 2023 | December 31, 2022 | |||||||
| Pensions | $ | 144.7 | $ | 155.3 | ||||
| Other post-retirement benefits | 14.3 | 14.3 | ||||||
| Deferred tax liabilities | 101.5 | 113.8 | ||||||
| Accrued warranties long-term(1) | 25.7 | 26.0 | ||||||
| Non-current operating lease liabilities | 107.6 | 84.9 | ||||||
| Other | 112.9 | 111.3 | ||||||
| TOTAL | $ | 506.7 | $ | 505.6 |
(1) Refer to Note 22 - Guarantees, in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022 for additional information regarding warranties.
HUBBELL INCORPORATED-Form 10-Q 15
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NOTE 10 Total Equity
A summary of changes in total equity for the three and nine months ended September 30, 2023 and the three and nine months ended September 30, 2022 is provided below (in millions, except per share amounts):
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Hubbell Shareholders' Equity | Non- controlling interest | |||||||||||||||
| BALANCE AT DECEMBER 31, 2022 | $ | 0.6 | $ | — | $ | 2,705.5 | $ | (345.2) | $ | 2,360.9 | $ | 9.7 | ||||||||
| Net income | — | — | 388.7 | — | 388.7 | 2.9 | ||||||||||||||
| Other comprehensive (loss) income | — | — | — | 15.8 | 15.8 | — | ||||||||||||||
| Stock-based compensation | — | 16.1 | — | — | 16.1 | — | ||||||||||||||
| Acquisition/surrender of common shares(1) | — | (16.3) | (24.5) | — | (40.8) | — | ||||||||||||||
| Cash dividends declared ($2.24 per share) | — | — | (120.2) | — | (120.2) | — | ||||||||||||||
| Dividends to noncontrolling interest | — | — | — | — | — | (2.2) | ||||||||||||||
| Directors deferred compensation | — | 0.2 | — | — | 0.2 | — | ||||||||||||||
| BALANCE AT JUNE 30, 2023 | $ | 0.6 | $ | — | $ | 2,949.5 | $ | (329.4) | $ | 2,620.7 | $ | 10.4 | ||||||||
| Net income | — | — | 200.1 | — | 200.1 | 1.9 | ||||||||||||||
| Other comprehensive (loss) income | — | — | — | (10.8) | (10.8) | — | ||||||||||||||
| Stock-based compensation | — | 5.5 | — | — | 5.5 | — | ||||||||||||||
| Acquisition/surrender of common shares(1) | — | (4.3) | (12.1) | — | (16.4) | — | ||||||||||||||
| Cash dividends declared ($1.12 per share) | — | — | (60.2) | — | (60.2) | — | ||||||||||||||
| Dividends to noncontrolling interest | — | — | — | — | — | (0.9) | ||||||||||||||
| Directors deferred compensation | — | 0.2 | — | — | 0.2 | — | ||||||||||||||
| BALANCE AT SEPTEMBER 30, 2023 | $ | 0.6 | $ | 1.4 | $ | 3,077.3 | $ | (340.2) | $ | 2,739.1 | $ | 11.4 | ||||||||
HUBBELL INCORPORATED-Form 10-Q 16
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| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Hubbell Shareholders' Equity | Non- controlling interest | |||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | $ | 0.6 | $ | — | $ | 2,560.0 | $ | (330.8) | $ | 2,229.8 | $ | 10.9 | ||||||||
| Net income | — | — | 302.2 | — | 302.2 | 2.8 | ||||||||||||||
| Other comprehensive (loss) income | — | — | — | (20.4) | (20.4) | — | ||||||||||||||
| Stock-based compensation | — | 16.7 | — | — | 16.7 | — | ||||||||||||||
| Acquisition/surrender of common shares(1) | — | (13.1) | (145.2) | — | (158.3) | — | ||||||||||||||
| Cash dividends declared ($2.10 per share) | — | — | (113.4) | — | (113.4) | — | ||||||||||||||
| Dividends to noncontrolling interest | — | — | — | — | — | (2.7) | ||||||||||||||
| Directors deferred compensation | — | 0.3 | — | — | 0.3 | — | ||||||||||||||
| BALANCE AT JUNE 30, 2022 | $ | 0.6 | $ | 3.9 | $ | 2,603.6 | $ | (351.2) | $ | 2,256.9 | $ | 11.0 | ||||||||
| Net income | — | — | 139.1 | — | 139.1 | 1.7 | ||||||||||||||
| Other comprehensive (loss) income | — | — | — | (23.0) | (23.0) | — | ||||||||||||||
| Stock-based compensation | — | 5.0 | — | — | 5.0 | — | ||||||||||||||
| Acquisition/surrender of common shares(1) | — | (0.9) | — | — | (0.9) | — | ||||||||||||||
| Cash dividends declared ($1.05 per share) | — | — | (56.5) | — | (56.5) | — | ||||||||||||||
| Dividends to noncontrolling interest | — | — | — | — | — | (1.2) | ||||||||||||||
| Directors deferred compensation | — | (1.9) | — | — | (1.9) | — | ||||||||||||||
| BALANCE AT SEPTEMBER 30, 2022 | $ | 0.6 | $ | 6.1 | $ | 2,686.2 | $ | (374.2) | $ | 2,318.7 | $ | 11.5 | ||||||||
(1) For accounting purposes, the Company treats repurchased shares as constructively retired when acquired and accordingly charges the purchase price against common stock par value, Additional paid-in capital, to the extent available, and Retained earnings. The change in Retained earnings of $36.6 million and $145.2 million in the first nine months of 2023 and 2022, respectively, reflects this accounting treatment.
The detailed components of total comprehensive income are presented in the Condensed Consolidated Statements of Comprehensive Income.
HUBBELL INCORPORATED-Form 10-Q 17
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NOTE 11 Accumulated Other Comprehensive Loss
A summary of the changes in Accumulated other comprehensive loss (net of tax) for the nine months ended September 30, 2023 is provided below (in millions):
| (debit) credit | Cash flow hedge gain (loss) | Unrealized gain (loss) on available-for- sale securities | Pension and post retirement benefit plan adjustment | Cumulative translation adjustment | Total | ||||||||||||
| BALANCE AT DECEMBER 31, 2022 | $ | 0.6 | $ | (0.8) | $ | (188.6) | $ | (156.4) | $ | (345.2) | |||||||
| Other comprehensive income (loss) before reclassifications | 0.1 | (0.3) | — | 0.5 | 0.3 | ||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | (0.6) | — | 5.3 | — | 4.7 | ||||||||||||
| Current period other comprehensive income (loss) | (0.5) | (0.3) | 5.3 | 0.5 | 5.0 | ||||||||||||
| BALANCE AT SEPTEMBER 30, 2023 | $ | 0.1 | $ | (1.1) | $ | (183.3) | $ | (155.9) | $ | (340.2) |
A summary of the gain (loss) reclassifications out of Accumulated other comprehensive loss for the three and nine months ended September 30, 2023 and 2022 is provided below (in millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||
| Details about Accumulated Other Comprehensive Loss Components | 2023 | 2022 | 2023 | 2022 | Location of Gain (Loss) Reclassified into Income | |||||||||||||||
| Cash flow hedges gain (loss): | ||||||||||||||||||||
| Forward exchange contracts | $ | — | $ | — | $ | — | $ | — | Net sales | |||||||||||
| 0.1 | 0.3 | 0.8 | 0.5 | Cost of goods sold | ||||||||||||||||
| — | — | — | — | Other expense, net | ||||||||||||||||
| 0.1 | 0.3 | 0.8 | 0.5 | Total before tax | ||||||||||||||||
| — | (0.1) | (0.2) | (0.1) | Tax benefit (expense) | ||||||||||||||||
| $ | 0.1 | $ | 0.2 | $ | 0.6 | $ | 0.4 | Gain (loss) net of tax | ||||||||||||
| Amortization of defined benefit pension and post retirement benefit items: | ||||||||||||||||||||
| Prior-service costs (a) | $ | (0.1) | $ | (0.1) | $ | (0.3) | $ | (0.3) | ||||||||||||
| Actuarial gains (losses) (a) | (2.5) | (2.8) | (7.5) | (7.8) | ||||||||||||||||
| Settlement losses (a) | — | (1.7) | — | (7.5) | ||||||||||||||||
| (2.6) | (4.6) | (7.8) | (15.6) | Total before tax | ||||||||||||||||
| 0.7 | 1.3 | 2.5 | 3.9 | Tax benefit (expense) | ||||||||||||||||
| $ | (1.9) | $ | (3.3) | $ | (5.3) | $ | (11.7) | Gain (loss) net of tax | ||||||||||||
| Reclassification of currency translation gain (loss): | ||||||||||||||||||||
| $ | — | $ | — | $ | — | $ | (0.5) | Gain (loss) on disposition of business (Note 2) | ||||||||||||
| — | — | — | — | Tax benefit (expense) | ||||||||||||||||
| $ | — | $ | — | $ | — | $ | (0.5) | Gain (loss) net of tax | ||||||||||||
| Gains (losses) reclassified into earnings | $ | (1.8) | $ | (3.1) | $ | (4.7) | $ | (11.8) | Gain (loss) net of tax |
(a) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 13 - Pension and Other Benefits in the Notes to Condensed Consolidated Financial Statements for additional details).
HUBBELL INCORPORATED-Form 10-Q 18
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NOTE 12 Earnings Per Share
The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities. Service-based and performance-based restricted stock awards granted by the Company are considered participating securities as these awards contain a non-forfeitable right to dividends.
The following table sets forth the computation of earnings per share for the three and nine months ended September 30, 2023 and 2022 (in millions, except per share amounts):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| Numerator: | ||||||||||||||
| Net income from continuing operations attributable to Hubbell Incorporated | $ | 200.1 | $ | 150.3 | $ | 588.8 | $ | 388.4 | ||||||
| Less: Earnings allocated to participating securities | (0.5) | (0.4) | (1.4) | (1.0) | ||||||||||
| Net income from continuing operations available to common shareholders | $ | 199.6 | $ | 149.9 | $ | 587.4 | $ | 387.4 | ||||||
| Net (loss) income from discontinued operations attributable to Hubbell Incorporated | $ | — | $ | (11.2) | $ | — | $ | 52.9 | ||||||
| Less: Earnings allocated to participating securities | — | — | — | (0.1) | ||||||||||
| Net (loss) income from discontinued operations available to common shareholders | $ | — | $ | (11.2) | $ | — | $ | 52.8 | ||||||
| Net income attributable to Hubbell Incorporated | $ | 200.1 | $ | 139.1 | $ | 588.8 | $ | 441.3 | ||||||
| Less: Earnings allocated to participating securities | (0.5) | (0.4) | (1.4) | (1.1) | ||||||||||
| Net income available to common shareholders | $ | 199.6 | $ | 138.7 | $ | 587.4 | $ | 440.2 | ||||||
| Denominator: | ||||||||||||||
| Average number of common shares outstanding | 53.6 | 53.7 | 53.6 | 53.8 | ||||||||||
| Potential dilutive common shares | 0.4 | 0.3 | 0.4 | 0.3 | ||||||||||
| Average number of diluted shares outstanding | 54.0 | 54.0 | 54.0 | 54.1 | ||||||||||
| Basic earnings per share: | ||||||||||||||
| Basic earnings per share from continuing operations | $ | 3.72 | $ | 2.79 | $ | 10.96 | $ | 7.20 | ||||||
| Basic (loss) earnings per share from discontinued operations | — | (0.21) | — | 0.98 | ||||||||||
| Basic earnings per share | $ | 3.72 | $ | 2.58 | $ | 10.96 | $ | 8.18 | ||||||
| Diluted earnings per share: | ||||||||||||||
| Diluted earnings per share from continuing operations | $ | 3.70 | $ | 2.78 | $ | 10.89 | $ | 7.16 | ||||||
| Diluted (loss) earnings per share from discontinued operations | — | (0.21) | — | 0.98 | ||||||||||
| Diluted earnings per share | $ | 3.70 | $ | 2.57 | $ | 10.89 | $ | 8.14 |
The Company did not have any significant anti-dilutive securities outstanding during the three and nine months ended September 30, 2023 and 2022.
HUBBELL INCORPORATED-Form 10-Q 19
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NOTE 13 Pension and Other Benefits
The following table sets forth the components of net pension and other benefit costs for the three and nine months ended September 30, 2023 and 2022 (in millions):
| Pension Benefits | Other Benefits | |||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||
| Three Months Ended September 30, | ||||||||||||||
| Service cost | $ | 0.2 | $ | 0.2 | $ | — | $ | — | ||||||
| Interest cost | 8.8 | 5.4 | 0.2 | 0.2 | ||||||||||
| Expected return on plan assets | (7.0) | (5.1) | — | — | ||||||||||
| Amortization of prior service cost | 0.1 | 0.1 | — | — | ||||||||||
| Amortization of actuarial losses (gains) | 2.7 | 2.8 | (0.2) | — | ||||||||||
| Settlement losses | — | 1.7 | — | — | ||||||||||
| NET PERIODIC BENEFIT COST | $ | 4.8 | $ | 5.1 | $ | — | $ | 0.2 | ||||||
| Nine Months Ended September 30, | ||||||||||||||
| Service cost | $ | 0.4 | $ | 0.6 | $ | — | $ | — | ||||||
| Interest cost | 26.3 | 18.0 | 0.6 | 0.4 | ||||||||||
| Expected return on plan assets | (21.0) | (21.5) | — | — | ||||||||||
| Amortization of prior service cost | 0.3 | 0.3 | — | — | ||||||||||
| Amortization of actuarial losses (gains) | 7.9 | 8.0 | (0.4) | (0.2) | ||||||||||
| Settlement losses | — | 7.5 | — | — | ||||||||||
| NET PERIODIC BENEFIT COST | $ | 13.9 | $ | 12.9 | $ | 0.2 | $ | 0.2 | ||||||
During the three months ended September 30, 2022, the Company recognized $1.5 million of settlement losses in continuing operations and $0.2 million of settlement losses in discontinued operations. During the nine months ended September 30, 2022, the Company recognized $5.9 million of settlement losses in continuing operations and $1.6 million of settlement losses in discontinued operations. Those settlement losses are the result of lump-sum distributions from the Company's defined benefit pension plans which exceeded the threshold for settlement accounting under U.S. GAAP for the year.
Employer Contributions
The Company made $10.0 million in contributions to its qualified domestic defined benefit pension plan and no contributions to its foreign pension plans during the nine months ended September 30, 2023. The Company made $10.0 million in contributions to its qualified domestic defined benefits pension plan and $2.5 million in contributions to its foreign pension plans during the nine months ended September 30, 2022. Although not required by ERISA and the Internal Revenue Code, the Company may elect to make additional voluntary contributions to its qualified domestic defined benefit pension plan in the fourth quarter of 2023.
HUBBELL INCORPORATED-Form 10-Q 20
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NOTE 14 Guarantees
The Company records a liability equal to the fair value of guarantees in accordance with the accounting guidance for guarantees. When it is probable that a liability has been incurred and the amount can be reasonably estimated, the Company accrues for costs associated with guarantees. The most likely costs to be incurred are accrued based on an evaluation of currently available facts and, where no amount within a range of estimates is more likely, the minimum is accrued. As of September 30, 2023 and December 31, 2022, the fair value and maximum potential payment related to the Company’s guarantees were not material.
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.
Changes in the accrual for product warranties during the nine months ended September 30, 2023 and 2022 are set forth below (in millions):
| 2023 | 2022 | |||||||
| BALANCE AT JANUARY 1, (a) | $ | 46.2 | $ | 66.1 | ||||
| Provision | 9.2 | 14.0 | ||||||
| Expenditures/payments/other | (8.6) | (23.3) | ||||||
| BALANCE AT SEPTEMBER 30, (a) | $ | 46.8 | $ | 56.8 |
(a) Refer to Note 8 – Other Accrued Liabilities and Note 9 – Other Non-Current Liabilities for a breakout of short-term and long-term warranties.
HUBBELL INCORPORATED-Form 10-Q 21
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NOTE 15 Fair Value Measurement
Financial Instruments
Financial instruments which potentially subject the Company to significant concentrations of credit loss risk consist of trade receivables, cash equivalents and investments. The Company grants credit terms in the normal course of business to its customers. Due to the diversity of its product lines, the Company has an extensive customer base including electrical distributors and wholesalers, electric utilities, equipment manufacturers, electrical contractors, telecommunication companies and retail and hardware outlets. As part of its ongoing procedures, the Company monitors the credit worthiness of its customers. Bad debt write-offs have historically been minimal. The Company places its cash and cash equivalents with financial institutions and limits the amount of exposure in any one institution.
At September 30, 2023, our accounts receivable balance was $852.9 million, net of allowances of $13.2 million. During the nine months ended September 30, 2023, our allowances decreased by approximately $1.1 million.
Investments
At September 30, 2023 and December 31, 2022, the Company had $58.2 million and $61.4 million, respectively, of available-for-sale municipal debt securities. These investments had an amortized cost of $59.8 million and $62.6 million, respectively. No allowance for credit losses related to our available-for-sale debt securities was recorded for the nine months ended September 30, 2023. As of September 30, 2023 and December 31, 2022, the unrealized losses attributable to our available-for-sale debt securities were $1.6 million and $1.3 million, respectively. The fair value of available-for-sale debt securities with unrealized losses was $58.1 million at September 30, 2023 and $53.7 million at December 31, 2022.
The Company also had trading securities of $21.3 million at September 30, 2023 and $18.8 million at December 31, 2022 that are carried on the balance sheet at fair value. Unrealized gains and losses associated with available-for-sale debt securities are reflected in Accumulated other comprehensive loss, net of tax, while unrealized gains and losses associated with trading securities are reflected in the Condensed Consolidated Statement of Income.
Fair value measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly.
Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions.
HUBBELL INCORPORATED-Form 10-Q 22
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The following table shows, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at September 30, 2023 and December 31, 2022 (in millions):
| Asset (Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Quoted Prices in Active Markets for Similar Assets (Level 2) | Unobservable inputs for which little or no market data exists (Level 3) | Total | ||||||||||
| September 30, 2023 | ||||||||||||||
| Money market funds(a) | $ | 357.6 | $ | — | $ | — | $ | 357.6 | ||||||
| Available for sale investments | — | 58.2 | — | 58.2 | ||||||||||
| Trading securities | 21.3 | — | — | 21.3 | ||||||||||
| Deferred compensation plan liabilities | (21.3) | — | — | (21.3) | ||||||||||
| Derivatives: | ||||||||||||||
| Forward exchange contracts-Assets(b) | — | 0.3 | — | 0.3 | ||||||||||
| TOTAL | $ | 357.6 | $ | 58.5 | $ | — | $ | 416.1 | ||||||
| Asset (Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Quoted Prices in Active Markets for Similar Assets (Level 2) | Unobservable inputs for which little or no market data exists (Level 3) | Total | ||||||||||
| December 31, 2022 | ||||||||||||||
| Money market funds(a) | $ | 147.9 | $ | — | $ | — | $ | 147.9 | ||||||
| Time Deposits(a) | — | 4.8 | — | 4.8 | ||||||||||
| Available for sale investments | — | 61.4 | — | 61.4 | ||||||||||
| Trading securities | 18.8 | — | — | 18.8 | ||||||||||
| Deferred compensation plan liabilities | (18.8) | — | — | (18.8) | ||||||||||
| Derivatives: | ||||||||||||||
| Forward exchange contracts-Assets(b) | — | 1.1 | — | 1.1 | ||||||||||
| TOTAL | $ | 147.9 | $ | 67.3 | $ | — | $ | 215.2 |
(a) Money market funds and time deposits are reflected in Cash and cash equivalents in the Condensed Consolidated Balance Sheets.
(b) Forward exchange contracts-Assets are reflected in Other current assets in the Condensed Consolidated Balance Sheets.
The methods and assumptions used to estimate the Level 2 fair values were as follows:
Forward exchange contracts – The fair value of forward exchange contracts was based on quoted forward foreign exchange prices at the reporting date.
Available-for-sale municipal bonds classified in Level 2 – The fair value of available-for-sale investments in municipal bonds is based on observable market-based inputs, other than quoted prices in active markets for identical assets.
Deferred compensation plans
The Company offers certain employees the opportunity to participate in non-qualified deferred compensation plans. A participant’s deferrals are invested in a variety of participant-directed debt and equity mutual funds that are classified as trading securities. The Company purchased $3.4 million and $2.0 million of trading securities related to these deferred compensation plans during the nine months ended September 30, 2023 and 2022, respectively. As a result of participant distributions, the Company sold $2.0 million of these trading securities during the nine months ended September 30, 2023 and $3.8 million during the nine months ended September 30, 2022. The unrealized gains and losses associated with these trading securities are directly offset by the changes in the fair value of the underlying deferred compensation plan obligation.
Long Term Debt
As of September 30, 2023 and December 31, 2022, the carrying value of long-term debt, net of unamortized discount and debt issuance costs, was $1,439.7 million and $1,437.9 million, respectively. The estimated fair value of the long-term debt as of September 30, 2023 and December 31, 2022 was $1,308.9 million and $1,306.5 million, respectively, using quoted market prices in active markets for similar liabilities (Level 2).
HUBBELL INCORPORATED-Form 10-Q 23
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NOTE 16 Commitments and Contingencies
The Company is subject to various legal proceedings arising in the normal course of its business. These proceedings include claims for damages arising out of use of the Company’s products, intellectual property, workers’ compensation and environmental matters. The Company is self-insured up to specified limits for certain types of claims, including product liability and workers’ compensation, and is fully self-insured for certain other types of claims, including environmental and intellectual property matters. The Company recognizes a liability for any contingency that in management’s judgment is probable of occurrence and can be reasonably estimated. We continually reassess the likelihood of adverse judgments and outcomes in these matters, as well as estimated ranges of possible losses based upon an analysis of each matter which includes advice of outside legal counsel and, if applicable, other experts.
HUBBELL INCORPORATED-Form 10-Q 24
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NOTE 17 Restructuring Costs and Other
In the three and nine months ended September 30, 2023, we incurred costs for restructuring actions initiated in 2023 as well as costs for restructuring actions initiated in prior years. Our restructuring actions are associated with cost reduction efforts that include the consolidation of manufacturing and distribution facilities as well as workforce reductions. Restructuring costs include 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. These 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.
Pre-tax restructuring costs incurred in each of our reporting segments and the location of the costs in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022 are as follows (in millions):
| Three Months Ended September 30, | ||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
| Cost of goods sold | Selling & administrative expense | Total | ||||||||||||||||||
| Utility Solutions | $ | 0.6 | $ | 1.3 | $ | — | $ | — | $ | 0.6 | $ | 1.3 | ||||||||
| Electrical Solutions | 0.4 | 4.1 | 0.1 | 1.1 | 0.5 | 5.2 | ||||||||||||||
| Total Pre-Tax Restructuring Costs | $ | 1.0 | $ | 5.4 | $ | 0.1 | $ | 1.1 | $ | 1.1 | $ | 6.5 |
| Nine Months Ended September 30, | ||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||
| Cost of goods sold | Selling & administrative expense | Total | ||||||||||||||||||
| Utility Solutions | $ | 1.9 | $ | 3.0 | $ | 0.2 | $ | 0.1 | $ | 2.1 | $ | 3.1 | ||||||||
| Electrical Solutions | 1.3 | 4.7 | — | 1.9 | 1.3 | 6.6 | ||||||||||||||
| Total Pre-Tax Restructuring Costs | $ | 3.2 | $ | 7.7 | $ | 0.2 | $ | 2.0 | $ | 3.4 | $ | 9.7 |
The following table summarizes the accrued liabilities for our restructuring actions (in millions):
| Beginning Accrued Restructuring Balance 1/1/23 | Pre-tax Restructuring Costs | Utilization and Foreign Exchange | Ending Accrued Restructuring Balance 9/30/2023 | |||||||||||
| 2023 Restructuring Actions | ||||||||||||||
| Severance | $ | — | $ | 0.1 | $ | (0.1) | $ | — | ||||||
| Asset write-downs | — | — | — | — | ||||||||||
| Facility closure and other costs | — | 0.3 | (0.3) | — | ||||||||||
| Total 2023 Restructuring Actions | $ | — | $ | 0.4 | $ | (0.4) | $ | — | ||||||
| 2022 and Prior Restructuring Actions | ||||||||||||||
| Severance | $ | 7.5 | $ | 0.3 | $ | (3.1) | $ | 4.7 | ||||||
| Asset write-downs | — | — | — | — | ||||||||||
| Facility closure and other costs | 0.4 | 2.7 | (3.0) | 0.1 | ||||||||||
| Total 2022 and Prior Restructuring Actions | $ | 7.9 | $ | 3.0 | $ | (6.1) | $ | 4.8 | ||||||
| Total Restructuring Actions | $ | 7.9 | $ | 3.4 | $ | (6.5) | $ | 4.8 |
HUBBELL INCORPORATED-Form 10-Q 25
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The actual costs incurred and total expected cost in each of our reporting segments of our on-going restructuring actions are as follows (in millions):
| Total expected costs | Costs incurred during 2022 | Costs incurred in the first nine months of 2023 | Remaining costs at 9/30/2023 | |||||||||||
| 2023 Restructuring Actions | ||||||||||||||
| Utility Solutions | $ | 0.5 | $ | — | $ | — | $ | 0.5 | ||||||
| Electrical Solutions | 0.4 | — | 0.4 | — | ||||||||||
| Total 2023 Restructuring Actions | $ | 0.9 | $ | — | $ | 0.4 | $ | 0.5 | ||||||
| 2022 and Prior Restructuring Actions | ||||||||||||||
| Utility Solutions | $ | 6.0 | $ | 4.0 | $ | 2.0 | $ | — | ||||||
| Electrical Solutions | 10.3 | 6.3 | 1.0 | 3.0 | ||||||||||
| Total 2022 and Prior Restructuring Actions | $ | 16.3 | $ | 10.3 | $ | 3.0 | $ | 3.0 | ||||||
| Total Restructuring Actions | $ | 17.2 | $ | 10.3 | $ | 3.4 | $ | 3.5 |
NOTE 18 Debt and Financing Arrangements
Long-term debt consists of the following (in millions):
| Maturity | September 30, 2023 | December 31, 2022 | |||||||||
| Senior notes at 3.35% | 2026 | $ | 398.4 | $ | 397.9 | ||||||
| Senior notes at 3.15% | 2027 | 297.9 | 297.5 | ||||||||
| Senior notes at 3.50% | 2028 | 446.8 | 446.2 | ||||||||
| Senior notes at 2.300% | 2031 | 296.6 | 296.3 | ||||||||
| TOTAL LONG-TERM DEBT**(a)** | $ | 1,439.7 | $ | 1,437.9 |
(a)Long-term debt is presented net of debt issuance costs and unamortized discounts.
2021 Credit Facility
The Company has a five-year credit agreement with a syndicate of lenders and JPMorgan Chase, N.A., as administrative agent, that provides a $750 million committed revolving credit facility (the “2021 Credit Facility"). Commitments under the 2021 Credit Facility may be increased to an aggregate amount not to exceed $1.25 billion.
The 2021 Credit Facility contains a financial covenant requiring that, as of the last day of each fiscal quarter, the ratio of total indebtedness to total capitalization shall not be greater than 65%. The Company was in compliance with this covenant as of September 30, 2023. As of September 30, 2023, the 2021 Credit Facility was undrawn.
Short-Term Debt
The Company had $3.3 million and $4.7 million of short-term debt outstanding at September 30, 2023 and December 31, 2022, respectively, which consisted of borrowings to support our international operations in China and amounts outstanding under our Commercial Card Program.
HUBBELL INCORPORATED-Form 10-Q 26
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Note 19 Stock-Based Compensation
As of September 30, 2023, the Company had various stock-based awards outstanding which were issued to executives and other key employees. The Company recognizes the grant-date fair value of all stock-based awards to employees over their respective requisite service periods (generally equal to an award’s vesting period), net of estimated forfeitures. A stock-based award is considered vested for expense attribution purposes when the employee’s retention of the award is no longer contingent on providing subsequent service. For those awards that vest immediately upon retirement eligibility, the Company recognizes compensation cost immediately for retirement-eligible individuals or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated vesting period.
The Company’s long-term incentive program for awarding stock-based compensation includes a combination of restricted stock, stock appreciation rights (“SARs”), and performance shares of the Company’s common stock pursuant to the Hubbell Incorporated 2005 Incentive Award Plan as amended and restated (the "Award Plan"). Under the Award Plan, the Company may authorize up to 9.7 million shares of common stock to settle awards of restricted stock, performance shares, or SARs. The Company issues new shares to settle stock-based awards. During the three months ended March 31, 2023, the Company's grant of stock-based awards included restricted stock, SARs and performance shares. There were no material awards granted during the three months ended September 30, 2023.
Each of the compensation arrangements is discussed below.
Restricted Stock
The Company issues various types of restricted stock awards, all of which are considered outstanding at the time of grant, as the award holders are entitled to dividends and voting rights. Unvested restricted stock awards are considered participating securities when computing earnings per share. Restricted stock grants are not transferable and are subject to forfeiture in the event of the recipient’s termination of employment prior to vesting.
Restricted Stock Issued to Employees - Service Condition
Restricted stock awards that vest based upon a service condition are expensed on a straight-line basis over the requisite service period. These awards generally vest either in three equal installments on each of the first three anniversaries of the grant date or on the third-year anniversary of the grant date. The fair value of these awards is measured by the average of the high and low trading prices of the Company’s common stock on the most recent trading day immediately preceding the grant date (“measurement date”).
In February 2023, the Company granted 47,670 restricted stock awards with a fair value per share of $241.17.
Stock Appreciation Rights
SARs grant the holder the right to receive, once vested, the value in shares of the Company's common stock equal to the positive difference between the grant price, as determined using the mean of the high and low trading prices of the Company’s common stock on the measurement date, and the fair market value of the Company’s common stock on the date of exercise. This amount is payable in shares of the Company’s common stock. SARs vest and become exercisable in three equal installments during the first three years following the grant date and expire ten years from the grant date.
In February 2023, the Company granted 93,779 SAR awards. The fair value of each SAR award was measured using the Black-Scholes option pricing model.
The following table summarizes the weighted-average assumptions used in estimating the fair value of the SARs granted during February 2023:
| Grant Date | Expected Dividend Yield | Expected Volatility | Risk Free Interest Rate | Expected Term | Weighted Avg. Grant Date Fair Value of 1 SAR | ||||||||||||
| February 2023 | 1.9% | 28.0% | 3.7% | 4.9 years | $60.99 |
The expected dividend yield was calculated by dividing the Company’s expected annual dividend by the average stock price for the past three months. Expected volatilities are based on historical volatilities of the Company’s stock for a period consistent with the expected term. The expected term of SARs granted was based upon historical exercise behavior of SARs. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the award.
HUBBELL INCORPORATED-Form 10-Q 27
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Performance Shares
Performance shares represent the right to receive a share of the Company’s common stock subject to the achievement of certain market or performance conditions established by the Company’s Compensation Committee and measured over a three-year period. Partial vesting in these awards may occur after separation from the Company for retirement eligible employees. Shares are not vested until approved by the Company’s Compensation Committee.
Performance Shares - Market Condition
In February 2023, the Company granted 11,481 performance shares that will vest subject to a market condition and service condition through the performance period. The market condition associated with the awards is the Company's total shareholder return ("TSR") compared to the TSR generated by the companies that comprise the S&P Capital Goods 900 index over a three year performance period. Performance at target will result in vesting and issuance of the number of performance shares granted, equal to 100% payout. Performance below or above target can result in issuance in the range of 0%-200% of the number of shares granted. Expense is recognized irrespective of the market condition being achieved.
The fair value of the performance share awards with a market condition for the 2023 grant was determined based upon a lattice model.
The following table summarizes the related assumptions used to determine the fair values of the performance share awards with a market condition granted during February 2023:
| Grant Date | Stock Price on Measurement Date | Dividend Yield | Expected Volatility | Risk Free Interest Rate | Expected Term | Weighted Avg. Grant Date Fair Value | ||||||||||||||
| February 2023 | $241.17 | 1.9% | 39.4% | 4.1% | 2.9 years | $279.47 |
Expected volatilities are based on historical volatilities of the Company’s and members of the peer group's stock over the expected term of the award. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the expected term of the award.
Performance Shares - Performance Condition
In February 2023, the Company granted 23,316 performance shares that will vest subject to an internal Company-based performance condition and service requirement.
Fifty percent of these performance shares granted will vest based on Hubbell’s compounded annual growth rate of Net sales as compared to that of the companies that comprise the S&P Capital Goods 900 index. Fifty percent of these performance shares granted will vest based on achieved operating profit margin performance as compared to internal targets. Each of these performance conditions is measured over the same three-year performance period. The cumulative result of these performance conditions can result in a number of shares earned in the range of 0%-200% of the target number of shares granted.
The fair value of the award is measured based upon the average of the high and low trading prices of the Company's common stock on the measurement date reduced by the present value of dividends expected to be paid during the requisite service period. The Company expenses these awards on a straight-line basis over the requisite service period and including an assessment of the performance achieved to date. The weighted average fair value per share was $230.64 for the awards granted during February 2023.
| Grant Date | Fair Value | Performance Period | Payout Range | ||||||||||||||
| February 2023 | $230.64 | Jan 2023 - Dec 2025 | 0%-200% |
HUBBELL INCORPORATED-Form 10-Q 28
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NOTE 20 Subsequent Events
On October 27, 2023, the Company acquired all of the issued and outstanding membership interests of Indústria Eletromecânica Balestro Ltda. ("Balestro") for a cash purchase price of approximately $89 million. Balestro is a company headquartered in Mogi Mirim, São Paulo, Brazil, and is recognized for designing, manufacturing, and delivering top quality products for the electrical utility industry in Brazil, Latin America, and exports to other parts of the world. This business will be reported in the Utility Solutions segment. This acquisition will be accounted for as a business combination whereby purchase accounting requires the assets and liabilities assumed to be recognized at their fair values as of the acquisition date and goodwill and other intangible assets associated with customer lists and trade names, among others, to be recognized. The preliminary purchase accounting for this acquisition is not yet complete.
On October 28, 2023, the Company entered into a Stock Purchase Agreement (the "Agreement") between Northern Star Parent Holdings, LLC, a Delaware limited liability company, Hubbell Power Systems, Inc., and Hubbell Incorporated, as guarantor, to purchase a manufacturer of substation control and relay panels, as well as turnkey substation control building solutions, by acquiring all the issued and outstanding capital stock of Northern Star Holdings, Inc., a Delaware Corporation (together with its subsidiaries, "Systems Control" and such acquisition, the "Transaction").
Pursuant to the Agreement, the Company agreed to pay an aggregate purchase price of $1.1 billion in cash, subject to customary adjustments related to net indebtedness, working capital and transaction expenses, as set forth in the Agreement.
The closing of the Transaction is subject to certain customary closing conditions, including the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The foregoing is qualified by reference to the full text of the Agreement, which is attached as Exhibit 2.1 to our Current Report on Form 8-K, filed on October 30, 2023.
HUBBELL INCORPORATED-Form 10-Q 29
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