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13: R3 Condensed Consolidated Statements of Comprehensive HTML 68K
Income (Unaudited)
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21: R11 Segment Information HTML 53K
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Schedule of Changes in Goodwill (Details)
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Schedule of Intangible Assets (Details)
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(Registrant’s telephone number, including area code)
N/A
(Former
name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock - par value $0.01 per share
iHUBB
iNew
York Stock Exchange
Indicate by check mark
•whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
iYes
☑
No
☐
•whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
iYes
☑
No
☐
•whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
iLarge accelerated filer
☑
Accelerated filer
☐
Non-accelerated
filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act. ☐
•whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
i☑
The
number of shares outstanding of Hubbell common stock as of April 25, 2024 was i53,685,997.
Accounts receivable (net of allowances of $i11.4
and $i11.6)
i865.6
i785.4
Inventories,
net
i842.4
i832.9
Other current assets
i124.2
i129.7
Assets
held for sale - current
i—
i70.5
Total
Current Assets
i2,232.5
i2,167.2
Property, Plant, and Equipment, net
i662.2
i652.6
Other
Assets
Investments
i75.3
i75.8
Goodwill
i2,532.7
i2,533.4
Other
intangible assets, net
i1,165.1
i1,196.0
Other
long-term assets
i194.3
i197.1
Assets held for sale - non-current
i—
i91.9
TOTAL
ASSETS
$
i6,862.1
$
i6,914.0
LIABILITIES
AND EQUITY
Current Liabilities
Short-term debt and current portion of long-term debt
$
i219.7
$
i117.4
Accounts
payable
i598.5
i563.5
Accrued salaries, wages and employee benefits
i74.0
i173.6
Accrued
insurance
i87.6
i79.1
Other accrued liabilities
i368.9
i365.2
Liabilities
held for sale - current
i—
i24.6
Total
Current Liabilities
i1,348.7
i1,323.4
Long-Term Debt
i1,895.7
i2,023.2
Other
Non-Current Liabilities
i674.6
i660.6
Liabilities held for sale - non-current
i—
i17.5
TOTAL
LIABILITIES
i3,919.0
i4,024.7
Commitments
and contingencies (Note 15)
i
i
Hubbell Incorporated Shareholders’ Equity
i2,930.4
i2,877.0
Noncontrolling
interest
i12.7
i12.3
TOTAL EQUITY
i2,943.1
i2,889.3
TOTAL
LIABILITIES AND EQUITY
$
i6,862.1
$
i6,914.0
See
notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 5
Back to Contents
Condensed Consolidated Statements of Cash Flows (unaudited)
Three Months
Ended March 31,
(in millions)
2024
2023
Cash Flows from Operating Activities
Net income
$
i149.1
$
i183.4
Adjustments
to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
i59.9
i35.6
Deferred
income taxes
i19.1
(i3.4)
Stock-based compensation
i12.8
i11.8
Provision
for bad debt expense
(i0.2)
i0.1
Loss on disposition of business
i5.3
i—
Loss
on sale of assets
i0.2
i0.1
Changes in assets and liabilities, excluding
effects of acquisitions:
Increase in accounts receivable, net
(i84.6)
(i36.6)
Increase
in inventories, net
(i22.7)
(i38.8)
Increase in accounts payable
i38.8
i20.5
Decrease
in current liabilities
(i92.9)
(i54.4)
Changes
in other assets and liabilities, net
i9.2
(i3.2)
Contribution
to qualified defined benefit pension plans
i—
i—
Other, net
(i1.8)
(i1.4)
Net
cash provided by operating activities
i92.2
i113.7
Cash
Flows from Investing Activities
Capital expenditures
(i40.3)
(i33.4)
Acquisitions,
net of cash acquired
i—
i—
Proceeds
from disposal of business, net of cash
i122.9
i—
Purchases
of available-for-sale investments
i—
(i6.4)
Proceeds
from available-for-sale investments
i5.4
i4.7
Other,
net
i0.6
i—
Net
cash provided by (used in) investing activities
i88.6
(i35.1)
Cash
Flows from Financing Activities
Payment of long-term debt
(i125.0)
i—
Borrowings
of short-term debt, net
i98.4
i0.1
Payment of dividends
(i65.5)
(i60.0)
Acquisition
of common shares
(i10.0)
(i20.0)
Other, net
(i23.2)
(i11.9)
Net
cash used in financing activities
(i125.3)
(i91.8)
Effect
of exchange rate changes on cash and cash equivalents
(i3.5)
i2.7
Increase
(decrease) in cash and cash equivalents
i52.0
(i10.5)
Cash
and cash equivalents, beginning of year
i336.1
i440.5
Cash
and cash equivalents within assets held for sale, beginning of year
i—
i—
Restricted
cash, included in other assets, beginning of year
i3.2
i2.8
Less: Restricted cash, included in Other Assets
i3.1
i3.0
Cash
and cash equivalents, end of period
$
i388.2
$
i429.8
See
notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 6
Back to Contents
Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 1iBasis
of Presentation
i
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 three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024.
The balance sheet at December 31, 2023 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, 2023.
i
Supplier Finance Program Obligations
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 was effective for the Company in the first quarter of 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 $i99.6 million and $i101.3 million
was outstanding at March 31, 2024 and December 31, 2023, 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. iThe rollforward of the Company's outstanding obligations confirmed as valid under the Payment Services Arrangements
supplier finance program for the three months ended March 31, 2024, is as follows:
Confirmed obligations outstanding at the beginning of the period
$
i101.3
Invoices
confirmed during the period
i84.5
Confirmed invoices paid during the period
(i86.2)
Confirmed
obligations outstanding at the end of the period
$
i99.6
/
HUBBELL INCORPORATED-Form 10-Q 7
Back
to Contents
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 i15
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 i60 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, $i1.5 million
and $i2.0 million was outstanding at March 31, 2024 and December 31, 2023, respectively. Cash flows under the program are reported in financing activities in the Company’s Condensed Consolidated Statement of Cash Flows. The rollforward of the Company's outstanding obligations confirmed as valid under the commercial card supplier finance
program for the three months ended March 31, 2024, is as follows:
Confirmed obligations outstanding at the beginning of the period
$
i2.0
Invoices
confirmed during the period
i5.9
Confirmed invoices paid during the period
(i6.4)
Confirmed
obligations outstanding at the end of the period
$
i1.5
i
Recently Issued
Accounting Pronouncements Not Yet Adopted
In November 2023, the FASB issued ASU No. 2023-07, "Segment Reporting-Improvements to Reportable Segment Disclosures", which adds a requirement for public entities to disclose its significant segment expense categories and amounts for each reportable segment for all periods presented. This information is required to be disclosed at both interim and annual periods. In addition, this ASU requires a public entity to disclose the title and position of the Chief Operating Decision Maker ("CODM") in the consolidated financial statements. Public entities are also required to disclose how the CODM uses each reported measure of segment profit or loss to assess performance and allocate resources to the segments. The ASU is effective for public entities for fiscal years beginning after December
15, 2023, and interim periods in fiscal years beginning after December 15, 2024. The Company is assessing the impact of adopting this standard on its financial statements.
In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes: Improvements to Income Tax Disclosures", which enhances the disaggregation of income tax disclosures. The ASU requires public entities on an annual basis to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold equal to or greater than 5%. Public entities are required to provide an explanation of certain rate reconciling items if not otherwise evident, such as the nature, causes and judgement used to categorize the item.
The ASU also requires disclosure of income taxes paid (net of refund received) detailed by federal, state/local and foreign, and amounts paid to individual jurisdictions that are equal to or greater than 5% of total income taxes paid. The ASU is effective for public entities for fiscal years beginning after December 15, 2024 and for interim periods for fiscal years beginning after December 15, 2025. The Company is assessing the impact of adopting this standard on its financial statements.
HUBBELL INCORPORATED-Form
10-Q 8
Back to Contents
NOTE 2 iBusiness Acquisitions and Dispositions
2023
Acquisitions
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 $i60 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
and industrial markets. This business is reported in the Utility Solutions segment.
In the fourth quarter of 2023, the Company acquired all of the issued and outstanding shares of Indústria Eletromecânica Balestro Ltda. ("Balestro") for a cash purchase price of approximately $i88 million, net of cash acquired, subject to customary purchase price adjustments. Balestro is a company headquartered
in Mogi Mirim, São Paulo, Brazil and designs, manufactures, and delivers top quality products for the electrical utility industry in Brazil and other countries in Latin America, as well as other parts of the world. This business is reported in the Utility Solutions segment.
In the fourth quarter of 2023 the Company acquired Northern Star Holdings, Inc. ("Systems Control") for approximately $i1.1 billion,
net of cash acquired, subject to customary purchase price adjustments. Systems Control is a manufacturer of substation control and relay panels, as well as turnkey substation control building solutions. This business is reported in the Utility Solutions segment.
Preliminary Allocation of Consideration Transferred to Net Assets Acquired
The following table presents the updated preliminary determination of the fair values of identifiable assets acquired and liabilities assumed from the Company's 2023 acquisitions. The final determination of the fair value of certain assets and liabilities will be completed within the applicable 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.
i
The
following table summarizes the updated preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition for all of the Company's 2023 acquisitions (in millions):
Accounts receivable
$
i71.5
Inventories
i85.7
Other
current assets
i49.8
Property, plant and equipment
i31.9
Other
non-current assets
i2.8
Intangible assets
i602.7
Accounts
payable
(i18.5)
Other accrued liabilities
(i87.0)
Deferred
tax liabilities, net
(i134.8)
Other non-current liabilities
(i11.9)
Goodwill
i619.5
Total
Estimate of Consideration Transferred, Net of Cash Acquired
$
i1,211.7
/
HUBBELL
INCORPORATED-Form 10-Q 9
Back to Contents
Dispositions
In December 2023, the Company entered into a definitive agreement to sell its residential lighting business for a cash purchase price of $i131 million, subject to customary adjustments. The
Company concluded the business met the criteria for classification as held for sale in the fourth quarter of 2023. The residential lighting business was reported within the Electrical Solutions Segment. The transaction closed in the first quarter of 2024 and the Company recorded a pre-tax loss on the sale of $i5.3 million, which is recorded within Total other expense in the Company's Condensed Consolidated Statement of Income.
Under the terms of the transaction, Hubbell and the buyer entered into a transition services agreement ("TSA"), pursuant to which the Company agreed to provide certain administrative and operational services for a period of 12 months or less. Income from the TSA was $i2.0 million for the three months ended March
31, 2024, and was recorded in Other expense, net in the Condensed Consolidated Statement of Income.
i
The following table presents balance sheet information of the residential lighting business' assets and liabilities held for sale as of December 31, 2023:
At December 31,
(in
millions)
2023
Cash and cash equivalents
$
i—
Accounts receivable, net
i29.8
Inventories,
net
i37.8
Other current assets
i2.9
Assets
held for sale - current
$
i70.5
Property, Plant, and Equipment, net
i1.6
Goodwill
i63.2
Other
Intangible assets, net
i6.5
Other long-term assets
i20.6
Assets
held for sale - non-current
$
i91.9
Accounts payable
i1.9
Accrued
salaries, wages and employee benefits
i3.5
Accrued insurance
i3.4
Other
accrued liabilities
i15.8
Liabilities held for sale - current
$
i24.6
Other
Non-Current Liabilities
i17.5
Liabilities held for sale - non-current
$
i17.5
/
HUBBELL
INCORPORATED-Form 10-Q 10
Back to Contents
NOTE 3iRevenue
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.
The Company also has performance obligations, primarily within the Utility Solutions segment, that are recognized over time due
to the customized nature of the product and the Company's enforceable right to receive payment for work performed to date in the event of a cancellation. The Company uses an input measure to determine the extent of progress towards completion of the performance obligation, which the Company believes best depicts the transfer of control to the customer. Under this method, revenue recognition is primarily based upon the ratio of costs incurred to date compared with estimated total costs to complete.
Revenue from service contracts and post-shipment performance
obligations are approximately itwo 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.
Certain of our 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.
i
The following table presents disaggregated revenue by business group. On January 1, 2024, we internally
reorganized certain businesses within our Utility Solutions segment to streamline the organization and align the organization to better serve our customers. This change had no impact to our reportable segments. In conjunction with this change, prior period amounts have been reclassified to conform to the organizational changes within the Utility Solutions segment. In addition, the residential lighting business, included in the Retail and Builder section below was sold in the first quarter of 2024.
Three Months Ended March 31,
in
millions
2024
2023
Net sales
Grid Infrastructure
$
i612.8
$
i561.7
Grid
Automation
i281.2
i219.9
Total
Utility Solutions
$
i894.0
$
i781.6
Electrical
Products
$
i211.5
$
i204.0
Connection
and Bonding
i175.5
i153.9
Industrial
Controls
i96.9
i93.9
Retail
and Builder
i21.2
i52.0
Total
Electrical Solutions
$
i505.1
$
i503.8
TOTAL
$
i1,399.1
$
i1,285.4
/
HUBBELL
INCORPORATED-Form 10-Q 11
Back to Contents
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):
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 $i140.8 million
as of March 31, 2024 compared to $i118.6 million as of December 31, 2023. The $i22.2 million
increase in our contract liabilities balance was primarily due to a $i51.7 million net increase in current year deferrals primarily due to timing of advance payments on certain orders, partially offset by the recognition of $i29.5 million
in revenue related to amounts that were recorded in contract liabilities at January 1, 2024. The ending balance of contract assets as of March 31, 2024 and December 31, 2023, was $i28.5 million and $i41.6 million,
respectively. Impairment losses recognized on our receivables and contract assets were immaterial for the three months ended March 31, 2024.
Unsatisfied Performance Obligations
As of March 31, 2024, the Company had approximately $i150 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 itwo
years.
HUBBELL INCORPORATED-Form 10-Q 12
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NOTE 4iSegment 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, enclosures, cutouts and switches. The Utility Solutions segment also offers solutions that serve the utility infrastructure, including smart meters, communications systems, substation control and relay panels, 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 gases 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.
i
The
following table sets forth financial information by reporting segment (in millions):
Net Sales
Operating Income
Operating Income as a % of Net Sales
2024
2023
2024
2023
2024
2023
Three
Months Ended March 31,
Utility Solutions
$
i894.0
$
i781.6
$
i157.5
$
i177.5
i17.6
%
i22.7
%
Electrical
Solutions
i505.1
i503.8
i71.0
i71.3
i14.1
%
i14.2
%
TOTAL
$
i1,399.1
$
i1,285.4
$
i228.5
$
i248.8
i16.3
%
i19.4
%
/
HUBBELL
INCORPORATED-Form 10-Q 13
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NOTE 5iInventories, net
i
Inventories,
net consists of the following (in millions):
(1)Refer to Note 2 - Business Acquisitions for additional information.
/
i
The carrying value of other intangible assets included in Other intangible assets, net in the Condensed Consolidated Balance Sheets is as follows (in millions):
Customer
relationships, developed technology and other
i1,510.0
(i524.8)
i1,513.1
(i500.1)
TOTAL
DEFINITE-LIVED INTANGIBLES
$
i1,743.3
$
(i612.2)
$
i1,746.8
$
(i584.9)
Indefinite-lived:
Tradenames
and other
i34.0
i—
i34.1
i—
TOTAL
OTHER INTANGIBLE ASSETS
$
i1,777.3
$
(i612.2)
$
i1,780.9
$
(i584.9)
/
Amortization
expense associated with definite-lived intangible assets was $i28.5 million and $i17.8 million during the three months ended March 31, 2024 and 2023,
respectively. Future amortization expense associated with these intangible assets is estimated to be $i84.8 million for the remainder of 2024, $i95.5 million
in 2025, $i90.3 million in 2026, $i85.7 million in 2027, $i82.2 million
in 2028, and $i78.0 million in 2029. 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 i85%
of the gross value of definite-lived intangible assets follow an accelerated amortization method.
HUBBELL INCORPORATED-Form 10-Q 15
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NOTE 7iOther
Accrued Liabilities
i
Other accrued liabilities consists of the following (in millions):
(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, 2023 for additional information regarding warranties.
/
NOTE 8iOther
Non-Current Liabilities
i
Other non-current liabilities consists of the following (in millions):
(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, 2023 for additional information regarding warranties.
/
HUBBELL INCORPORATED-Form 10-Q 16
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NOTE 9iTotal
Equity
i
A summary of changes in total equity for the three months ended March 31, 2024 and the three months ended March 31, 2023 is provided below (in millions, except per share amounts):
(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 $i14.6 million and $i21.2 million
in the first three months of 2024 and 2023, 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 10iAccumulated
Other Comprehensive Loss
i
A summary of the changes in Accumulated other comprehensive loss (net of tax) for the three months ended March 31, 2024 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
A
summary of the gain (loss) reclassifications out of Accumulated other comprehensive loss for the three months ended March 31, 2024 and 2023 is provided below (in millions):
Three Months Ended March 31,
Details about Accumulated Other Comprehensive Loss Components
Amortization of defined benefit pension and post retirement benefit items:
Prior-service costs (a)
$
(i0.1)
$
(i0.1)
Actuarial
gains (losses) (a)
(i3.0)
(i2.5)
(i3.1)
(i2.6)
Total
before tax
i0.6
i1.2
Tax
benefit (expense)
$
(i2.5)
$
(i1.4)
Gain
(loss) net of tax
Gains
(losses) reclassified into earnings
$
(i2.4)
$
(i1.1)
Gain
(loss) net of tax
(a) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 12 - 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
11iEarnings 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.
i
The following table sets forth the computation of earnings per share for the three months ended March 31, 2024 and 2023 (in millions, except per share amounts):
Less:
Earnings allocated to participating securities
(i0.3)
(i0.4)
Net
income available to common shareholders
$
i147.5
$
i181.5
Denominator:
Average
number of common shares outstanding
i53.7
i53.6
Potential
dilutive common shares
i0.3
i0.3
Average
number of diluted shares outstanding
i54.0
i53.9
Earnings
per share:
Basic earnings per share
$
i2.75
$
i3.39
Diluted
earnings per share
$
i2.73
$
i3.37
/
The
Company did not have any significant anti-dilutive securities outstanding during the three months ended March 31, 2024 and 2023.
HUBBELL INCORPORATED-Form 10-Q 19
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NOTE 12iPension
and Other Benefits
i
The following table sets forth the components of net pension and other benefit costs for the three months ended March 31, 2024 and 2023 (in millions):
Pension
Benefits
Other Benefits
2024
2023
2024
2023
Three Months Ended March 31,
Service cost
$
i0.1
$
i0.1
$
i—
$
i—
Interest
cost
i8.3
i8.7
i0.2
i0.2
Expected
return on plan assets
(i7.7)
(i7.0)
i—
i—
Amortization
of prior service cost
i0.1
i0.1
i—
i—
Amortization
of actuarial losses (gains)
i3.1
i2.6
(i0.1)
(i0.1)
NET
PERIODIC BENEFIT COST
$
i3.9
$
i4.5
$
i0.1
$
i0.1
/
Employer
Contributions
The Company made ino contributions to its qualified domestic defined benefit pension plan and ino
contributions to its foreign pension plans during the three months ended March 31, 2024. 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 2024.
HUBBELL INCORPORATED-Form 10-Q 20
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NOTE 13iGuarantees
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 March 31, 2024 and December 31, 2023, 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.
i
Changes
in the accrual for product warranties during the three months ended March 31, 2024 and 2023 are set forth below (in millions):
2024
2023
BALANCE AT JANUARY 1, (a)
$
i39.2
$
i46.2
Provision
i2.6
i3.4
Expenditures/payments/other
(i1.7)
(i6.4)
BALANCE
AT MARCH 31, (a)
$
i40.1
$
i43.2
(a)
Refer to Note 7 – Other Accrued Liabilities and Note 8 – 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 14iFair
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 March 31, 2024, our accounts receivable balance was $i865.6 million,
net of allowances of $i11.4 million. During the three months ended March 31, 2024, our allowances decreased by approximately $i0.2 million.
Investments
At March 31, 2024 and December 31, 2023, the Company had $i62.3 million and $i65.0
million, respectively, of available-for-sale municipal debt securities. These investments had an amortized cost of $i63.0 million and $i65.3 million,
respectively. iiNo/
allowance for credit losses related to our available-for-sale debt securities was recorded for the three months ended March 31, 2024 or March 31, 2023. As of March 31, 2024 and December 31, 2023, the unrealized losses attributable to our available-for-sale debt securities were $i0.8 million and $i0.6 million,
respectively. The fair value of available-for-sale debt securities with unrealized losses was $i42.9 million at March 31, 2024 and $i34.5 million
at December 31, 2023.
The Company also had trading securities of $i25.1 million at March 31, 2024 and $i23.4
million at December 31, 2023 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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i
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 March 31, 2024 and December 31, 2023 (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)
(a)
Money market funds 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.
(c) Forward exchange contracts-(Liabilities) are reflected in Other accrued liabilities 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 $i2.8 million and $i2.1 million
of trading securities related to these deferred compensation plans during the three months ended March 31, 2024 and 2023, respectively. As a result of participant distributions, the Company sold $i2.7 million of these trading securities during the three months ended March 31, 2024 and $i2.0
million during the three months ended March 31, 2023. 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 March 31, 2024 and December 31, 2023, the carrying value of long-term debt, net of unamortized discount and debt issuance costs, including the $i18.7 million
and $i15.0 million, respectively, current portion of the Term Loan, was $i1,914.4 million and $i2,038.2
million, respectively. The estimated fair value of the long-term debt as of March 31, 2024 and December 31, 2023 was $i1,820.0 million and $i1,951.6 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 15iCommitments
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
16iRestructuring Costs and Other
In the three months ended March 31, 2024, we incurred costs for restructuring actions initiated in 2024 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.
i
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 months ended March 31, 2024 and 2023 are as follows (in millions):
The
following table summarizes the accrued liabilities for our restructuring actions (in millions):
Beginning Accrued Restructuring Balance 1/1/24
Pre-tax Restructuring Costs
Utilization and Foreign Exchange
Ending Accrued Restructuring Balance 3/31/24
2024 Restructuring Actions
Severance
$
i—
$
i4.3
$
(i0.2)
$
i4.1
Asset
write-downs
i—
i—
i—
i—
Facility
closure and other costs
i—
i0.4
(i0.4)
i—
Total
2024 Restructuring Actions
$
i—
$
i4.7
$
(i0.6)
$
i4.1
2023
and Prior Restructuring Actions
Severance
$
i3.9
$
i0.2
$
(i0.6)
$
i3.5
Asset
write-downs
i—
i—
i—
i—
Facility
closure and other costs
i0.1
i0.3
(i0.4)
i—
Total
2023 and Prior Restructuring Actions
$
i4.0
$
i0.5
$
(i1.0)
$
i3.5
Total
Restructuring Actions
$
i4.0
$
i5.2
$
(i1.6)
$
i7.6
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 2023
Costs incurred in the first three months of 2024
Remaining costs at 3/31/2024
2024 Restructuring Actions
Utility
Solutions
$
i2.0
$
i—
$
i1.5
$
i0.5
Electrical
Solutions
i7.8
i—
i3.2
i4.6
Total
2024 Restructuring Actions
$
i9.8
$
i—
$
i4.7
$
i5.1
2023
and Prior Restructuring Actions
Utility Solutions
$
i4.2
$
i2.9
$
i0.4
$
i0.9
Electrical
Solutions
i4.2
i2.5
i0.1
i1.6
Total
2023 and Prior Restructuring Actions
$
i8.4
$
i5.4
$
i0.5
$
i2.5
Total
Restructuring Actions
$
i18.2
$
i5.4
$
i5.2
$
i7.6
/
HUBBELL
INCORPORATED-Form 10-Q 25
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NOTE 17iDebt and Financing Arrangements
i
Long-term
debt consists of the following (in millions):
Term
loan, net of current portion of $i18.7 million and $i15.0 million, respectively
2026
i454.8
i582.9
TOTAL
LONG-TERM DEBT(a)
$
i1,895.7
$
i2,023.2
/
(a)Long-term
debt is presented net of debt issuance costs and unamortized discounts.
Term Loan Agreement
In connection with the December 2023 acquisition of Systems Control, the Company entered into a Term Loan Agreement with a syndicate of lenders under which the Company borrowed $i600 million on an unsecured
basis. Borrowings under the Term Loan Agreement bear interest generally at either the adjusted term SOFR rate plus an applicable margin (determined by a ratings based-grid) or the alternative base rate. Currently the loans bear interest based on the adjusted term SOFR rate, which was i6.7% as of March 31, 2024. The principal amount of borrowings under the Term Loan Agreement amortize in equal quarterly installments of i2.5%
of the original outstanding principal amounts in 2024, i2.5% in 2025, and i5% in 2026, with the remaining outstanding principal amount under the Term Loan Agreement due
and payable in full at maturity in December 2026. The Company may make principal payments in excess of the amortization schedule at its discretion. During the three months ended March 31, 2024the Company made $i125 million of principal payments. The sole financial covenant in the Term Loan Agreement requires that total debt not exceed i65%
of total capitalization as of the last day of each fiscal quarter of the Company. The Company was in compliance with this covenant as of March 31, 2024.
2021 Credit Facility
The Company has a ifive-year credit agreement with a syndicate
of lenders and JPMorgan Chase, N.A., as administrative agent, that provides a $i750 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 $i1.25 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 i65%. The Company was in compliance with this covenant as of March 31, 2024. As of March 31, 2024, the
2021 Credit Facility was undrawn.
Short-Term Debt and Current Portion of Long-Term Debt
The Company had $i219.7 million and $i117.4 million
of short-term debt and current portion of long-term debt outstanding at March 31, 2024 and December 31, 2023, respectively, composed of the following:
•$i199.0 million of commercial paper borrowings outstanding at March 31, 2024, and $i100.0 million
of commercial paper borrowings outstanding at December 31, 2023, which was used to fund the Systems Control acquisition.
•$i18.7 million and $i15.0 million of
long-term debt classified as current within current liabilities in the Condensed Consolidated Balance Sheets, reflecting maturities within the next 12 months related to borrowing under the Term Loan Agreement at March 31, 2024 and December 31, 2023, respectively.
•$i2.0 million and $i2.4 million
of other short-term debt outstanding at March 31, 2024 and December 31, 2023, 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 18iStock-Based
Compensation
As of March 31, 2024, 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 i9.7 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, 2024, the Company's grant of stock-based
awards included restricted stock, SARs and performance shares.
Each of the compensation arrangements is discussed below.
Restricted Stock
The Company issues various types of restricted stock, of which the restricted stock awards 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 unit award holders are not entitled to dividends or voting rights until settlement. 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 Awards 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 ithree equal installments on each
of the first ithree 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 2024, the Company granted i37,817 restricted stock awards with a fair value per share of $i352.55.
Restricted Stock Units Issued to Employees - Service Condition
Restricted stock units that vest based upon a service condition are expensed on a straight-line basis over the requisite service period. These awards generally vest in ithree equal installments on each of the first ithree
anniversaries 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 measurement date reduced by the present value of dividends expected to be paid during the requisite service period.
In February 2024, the Company granted i1,773
restricted stock units with a fair value per share of $i341.19.
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 ithree
equal installments during the first ithree years following the grant date and expire iten years from the grant date.
In
February 2024, the Company granted i62,908 SAR awards. The fair value of each SAR award was measured using the Black-Scholes option pricing model.
i
The
following table summarizes the weighted-average assumptions used in estimating the fair value of the SARs granted during February 2024:
HUBBELL INCORPORATED-Form 10-Q 27
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Grant Date
Expected Dividend Yield
Expected
Volatility
Risk Free Interest Rate
Expected Term
Weighted Avg. Grant Date Fair Value of 1 SAR
February 2024
i1.6%
i25.7%
i4.0%
i4.8
years
$i88.03
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.
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 ithree-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 2024, the Company granted i8,736performance 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 ithree year performance period.Performance
at target will result in vesting and issuance of the number of performance shares granted, equal to i100% payout. Performance below or above target can result in issuance in the range of i0%-i200%
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 2024 grant was determined based upon a lattice model.
i
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 2024:
Grant Date
Stock Price on Measurement Date
Dividend Yield
Expected Volatility
Risk Free Interest Rate
Expected Term
Weighted Avg. Grant Date Fair Value
February
2024
$i352.55
i1.4%
i30.6%
i4.1%
i2.9
years
$i483.99
/
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 2024, the Company granted i17,770
performance shares that will vest subject to an internal Company-based performance condition and service requirement.
iFifty 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. iFifty
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 ithree-year performance period. The cumulative result of these performance conditions can result in a number of shares earned in the range of i0%-i200%
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 $i341.19
for the awards granted during February 2024.
Grant Date
Fair Value
Performance Period
Payout Range
February 2024
$i341.19
Jan
2024 - Dec 2026
i0%-i200%
HUBBELL
INCORPORATED-Form 10-Q 28
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ITEM 2
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. We provide utility and electrical solutions that enable our customers to operate critical infrastructure reliably and efficiently, and we empower and energize communities through innovative solutions supporting energy infrastructure In Front of the Meter, on The Edge, and Behind the Meter. In Front of the Meter is where utilities transmit and distribute energy to their customers. The Edge connects utilities with owner/operators and allows energy and data to be distributed back and forth. Behind the Meter is where owners and operators of buildings and other critical infrastructure consume energy. Products are either sourced complete, manufactured or assembled by subsidiaries in the United States, Canada, Puerto Rico, Mexico, China, the UK, Brazil,
Australia, Spain, Ireland and the Republic of the Philippines. The Company also participates in joint ventures in Hong Kong and the Republic of the Philippines, and maintains offices in Singapore, Italy, China, India, Mexico, South Korea, Chile, and countries in the Middle East. The Company employed approximately 18,400 individuals worldwide as of March 31, 2024.
The Company’s reporting segments consist of the Utility Solutions segment and Electrical Solutions segment.
Results for the three months ended March 31,
2024 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, continued volatility in this area could 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 related to global product and component sourcing, as well as 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.
Our sales are also subject to market conditions that may cause customer demand for our products to be volatile and unpredictable, particularly in our Electrical Solutions segment. Product demand can be affected by fluctuations in domestic and international economic conditions, as well as currency fluctuations, commodity costs, and a variety of other factors. Since early 2021, we have experienced significant inflationary pressure across much of our business. As a result, we have taken various pricing actions to cover the higher costs and protect our profitability. Although there has been some mitigation in the rate of inflation starting in 2023, we expect inflation
to remain a factor for the foreseeable future and we expect to continue to take these pricing actions subject to demand and market conditions. Accordingly, there can be no assurance that we will be able to maintain our margins in response to further changes in inflationary pressures. In addition, macroeconomic effects such as increases in interest rates and other measures taken by central banks and other policy makers could have a negative effect on overall economic activity which could reduce our customers’ demand for our products, and cause the continuation of relatively high market interest rates that increase our borrowing costs.
HUBBELL INCORPORATED-Form 10-Q 29
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The
following is a discussion and analysis of our business, financial condition and results of operations as of and for the three months ended March 31, 2024 and 2023. This discussion and analysis should be read in conjunction with our Condensed Consolidated Financial Statements and notes thereto in Item 1 of this Quarterly Report on Form 10-Q (the "Condensed Financial Statements"), and the audited consolidated financial statements, accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Results of Operations – First Quarter of 2024 compared to the First Quarter of 2023
Overview
First
quarter 2024 net sales were $1,399.1 million and grew by 9%, including 2% organic growth from price realization and 6% growth from acquisitions net of divestitures.
Organic growth in the Electrical Solutions segment was strong, where electrification is driving broad-based strength across electrical products and industrial markets, with continued high rates of renewables growth. Organic growth was flat in the Utility Solutions segment as strength in grid automation products and continued backlog conversion in metering products, was offset by continued channel inventory management in distribution markets and weak Telcom markets in the quarter. Price realization continues to be positive in our segments as compared to the first quarter of 2023.
Acquisitions
within Utility Solutions contributed to 8% net sales growth driven by our acquisition of Systems Control in the fourth quarter of 2023, while the divestiture of our residential lighting business from the Electrical Solutions segment was completed in the first quarter of 2024 and contributed to a 2% decline in net sales as compared to the first quarter of 2023.
Operating margin in the first quarter of 2024 was 16.3% and contracted by 310 basis points. Adjusted operating margin, which excludes amortization of acquisition-related intangibles and transaction, integration and separation costs, was 19.7% and contracted by 100 basis points. Margin contraction in the quarter was primarily driven by material and other cost inflation, lower volume and our continuing investments in the business. Margins in the first quarter of 2024 also reflect the effect of favorable price realization and benefits
from operational productivity. These factors are further described within Segment Results below.
In December 2023, the Company entered into a definitive agreement to sell its residential lighting business for a cash purchase price of $131 million, subject to customary adjustments. The Company concluded the business met the criteria for classification as held for sale in the fourth quarter of 2023. The residential lighting business was reported within the Electrical Solutions Segment. The transaction closed in the first quarter of 2024 and the Company recorded a pre-tax loss on the sale of $5.3 million, which is recorded within Total other
expense in the Company's Condensed Consolidated Statement of Income.
In addition, during 2023, the Company completed a number of acquisitions that affect the comparability of current period results of operations to those of prior year periods. For additional information regarding such transactions, see Note 2, Business Acquisitions and Dispositions in the notes to the Condensed Financial Statements.
SUMMARY OF CONDENSED CONSOLIDATED RESULTS (IN MILLIONS, EXCEPT PER SHARE DATA):
Less: Net income attributable to non-controlling interest
(1.3)
(0.1)
%
(1.5)
(0.1)
%
Net
income attributable to Hubbell Incorporated
147.8
10.6
%
181.9
14.2
%
Less: Earnings allocated to participating securities
(0.3)
(0.4)
Net
income available to common shareholders
$
147.5
$
181.5
Average number of diluted shares outstanding
54.0
53.9
DILUTED
EARNINGS PER SHARE
$
2.73
$
3.37
HUBBELL INCORPORATED-Form 10-Q 30
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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 that, in management's judgement, significantly affect the comparability of operating results, or we do not consider a components of our core operating performance.
Significant items impacting comparability:
Transaction, integration and separation costs
The effects that acquisitions and divestitures may have on our results fluctuate significantly based on the timing, size and number of transactions, and therefore result in significant volatility in the costs to complete transactions and to integrate or separate the businesses.
Transaction
costs are primarily professional services and other fees incurred to complete the transactions. Integration and separation costs are the internal and external incremental costs directly relating to these activities for the acquired or divested business.
The acquisition and divestiture actions taken by the Company in the fourth quarter of 2023 have resulted in a significant increase in current period integration and separation costs. As a result, we believe excluding costs relating to these fourth quarter transactions provides useful and more comparable information to investors to better assess our operating performance.
Gains or losses on disposition of a business
Certain
of the Company's adjusted measures exclude these gains or losses because we believe it enhances management's and investors' ability to analyze underlying business performance and facilitates comparisons of our financial results over multiple periods. In the first quarter of 2024 the Company recognized a $5.3 million pre-tax loss on the disposition of the residential lighting business.
Certain of the Company's adjusted measures also exclude the income tax effect directly related to the disposition of the residential lighting business. In the first quarter of 2024, the
Company recognized $6.8 million of income tax expense on the sale of the residential lighting business, primarily driven by differences between book and tax basis in goodwill.
Amortization of intangible assets
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 7 – Goodwill and Other Intangible Assets, under the
heading “Total Definite-Lived Intangibles,” within the Company’s audited consolidated financial statements set forth in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
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 results also excluded the income tax effects of the above adjustments which are calculated using the statutory tax rate, taking into consideration the nature of the item and the relevant taxing jurisdiction, unless otherwise noted.
HUBBELL INCORPORATED-Form 10-Q 31
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to Contents
Organic net sales (or organic net sales growth), a non-GAAP measure, represents 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.
The following table reconciles Adjusted operating income, a non-GAAP measure, to Operating income, the directly comparable GAAP financial measure (in millions):
Amortization
of acquisition-related intangible assets
39.4
2.8
%
17.8
1.3
%
Transaction, integration & separation costs
7.3
0.6
%
—
—
%
Adjusted
operating income (non-GAAP measure)
$
275.2
19.7
%
$
266.6
20.7
%
The
following table reconciles Adjusted net income attributable to Hubbell Incorporated, Adjusted net income available to common shareholders, and the diluted per share amounts thereof, each a non-GAAP measure, to the directly comparable GAAP financial measures (in millions, except per share data).
Net income attributable to Hubbell Incorporated (GAAP measure)
$
147.8
$
2.73
$
181.9
$
3.37
Amortization
of acquisition-related intangible assets
39.4
0.73
17.8
0.33
Transaction,
integration & separation costs
7.3
0.14
—
—
Loss on disposition of business
5.3
0.10
—
—
Subtotal
$
199.8
$
3.70
$
199.7
$
3.70
Income
tax effects(1)
4.6
0.09
4.4
0.08
Adjusted net income attributable to Hubbell Incorporated (non-GAAP measure)
$
195.2
$
3.61
$
195.3
$
3.62
Less:
Earnings allocated to participating securities
(0.4)
(0.01)
(0.5)
(0.01)
Adjusted net income available to common shareholders (non-GAAP measure)
$
194.8
$
3.60
$
194.8
$
3.61
(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.
HUBBELL INCORPORATED-Form 10-Q 32
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The following table reconciles our organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):
Net sales of $1,399.1 million in the first quarter of 2024 increased by $113.7 million compared to the first quarter of 2023. Organic net sales increased by 2.3%, which was composed of a low single digit percentage increase in price realization partially offset by a low single digit percentage decrease in volume. Acquisitions net of divestitures contributed 6.2% to sales growth. The primary drivers of these changes are discussed in more detail in the Segment Results section below.
Cost of Goods Sold and Gross Profit
As a percentage of Net sales, cost of goods sold increased by 290 basis points to 68.0% in the first quarter of 2024, as compared to 65.1% in the first quarter of 2023, resulting in gross
profit margin of 32.0% in the first quarter of 2024 as compared to 34.9% in the first quarter of 2023. Approximately six percentage points of margin contraction was driven by higher intangible amortization expense, material and other cost inflation and lower volumes, as well as continued investments in long-term growth and productivity initiatives, which was partially offset by approximately four percentage points of margin expansion driven by favorable price realization and improved operational productivity.
Selling & Administrative Expenses
S&A expense in the first quarter of 2024 was $219.2 million and increased by $19.7 million or 9.9% compared to the prior year period. Approximately two thirds of this increase was driven by the 2023 acquisitions
net of divestitures, with the remaining increase being driven by labor and other cost inflation. S&A expense as a percentage of Net sales was 15.7% in the first quarter of 2024, compared to 15.5% in the first quarter of 2023.
Total Other Expense
Total other expense increased by $13.3 million in the first quarter of 2024 to $27.1 million, primarily due to higher net interest expense of $11.4 million in the first quarter of 2024 compared to the same period in 2023, along with the $5.3 million loss recognized on the disposition of the residential lighting business. The increase in interest expense was primarily attributable to higher debt balances (primarily related to debt incurred in connection with the Systems Control acquisition) and higher market interest rates.
Income
Taxes
The effective tax rate in the first quarter of 2024 increased to 26.0% as compared to 22.0% in the first quarter of 2023, primarily due to an income tax expense related to the closing of the sale of our residential lighting business that was divested in the first quarter of 2024, partially offset by a stock-based compensation tax benefit.
Net Income Attributable to Hubbell Incorporated and Earnings Per Diluted Share
Net income attributable to Hubbell Incorporated was $147.8 million in the first quarter of 2024 and decreased 18.7% as compared to the same period of the prior year, reflecting the factors described above. As a result, earnings per diluted share in the first quarter
of 2024 decreased 19% as compared to the first quarter of 2023. Adjusted net income attributable to Hubbell Incorporated, which excludes amortization of acquisition-related intangibles from both periods and transaction, integration & separation costs and a loss on disposition of a business in the first quarter of 2024, was $195.2 in the first quarter of 2024 and was flat as compared to the first quarter of 2023.
HUBBELL INCORPORATED-Form 10-Q 33
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Segment Results
UTILITY SOLUTIONS
Three
Months Ended March 31,
(In millions)
2024
2023
Net sales
$
894.0
$
781.6
Operating income (GAAP measure)
157.5
177.5
Amortization of acquisition-related intangible assets
35.2
13.3
Transaction,
integration & separation costs
2.5
—
Adjusted operating income
$
195.2
$
190.8
Operating margin (GAAP measure)
17.6
%
22.7
%
Adjusted operating margin
21.8
%
24.4
%
The
following table reconciles our Utility Solutions segment organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):
Three Months Ended March 31,
Utility Solutions
2024
Inc/(Dec) %
2023
Inc/(Dec) %
Net sales growth
(GAAP measure)
$
112.4
14.4
$
129.8
19.9
Impact of acquisitions
108.5
13.9
5.6
0.9
Impact of divestitures
—
—
—
—
Foreign
currency exchange
1.3
0.2
(1.7)
(0.3)
Organic net sales growth (non-GAAP measure)
$
2.6
0.3
$
125.9
19.3
Net sales in the Utility Solutions segment in the first quarter of 2024 were $894.0
million, and increased by $112.4 million, or 14.4%, as compared to the first quarter of 2023. That increase was driven by a 13.9% increase in net sales from acquisitions and a 0.3% increase in organic net sales. The increase in organic net sales was driven by a low single digit percentage increase in price realization, partially offset by a low single digit percentage decrease in unit volume. The decrease in unit volume was largely driven by weakness in the Telcom market that results in lower demand for our enclosure products, and to a much smaller degree by channel inventory normalization in the distribution market. Transmission markets and demand for our protection and controls products were strong, and we continued to convert our backlog of metering products. Favorable price realization was driven by actions to offset inflation, as well as by our service levels.
Operating
income in the Utility Solutions segment for the first quarter of 2024 was $157.5 million, a decrease of 11.3% compared to the first quarter of 2023. Operating margin was 17.6% in the first quarter of 2024, as compared to 22.7% in the same period of 2023. Excluding amortization of acquisition-related intangibles and transaction, integration and separation costs, the adjusted operating margin was 21.8% in the first quarter of 2024 compared to 24.4% in the prior year period. The decrease in operating margin includes approximately four percentage points of margin expansion primarily due to favorable price realization and improved operational productivity, but that expansion was more than offset by approximately six percentage points of margin contraction primarily due to material and other cost inflation, lower unit volume and continuing investments in long-term growth and productivity initiatives. The impact of lower unit volume mentioned here includes
approximately 150 basis points from weakness in the Telcom market. Operating margin also declined by approximately 260 basis points due to an increase in amortization of acquisition-related intangibles and transaction, integration and separation costs.
HUBBELL INCORPORATED-Form 10-Q 34
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ELECTRICAL SOLUTIONS
Three Months Ended March 31,
(In
millions)
2024
2023
Net sales
$
505.1
$
503.8
Operating income (GAAP measure)
71.0
71.3
Amortization of acquisition-related intangible assets
4.2
4.5
Transaction,
integration & separation costs
4.8
—
Adjusted operating income
$
80.0
$
75.8
Operating margin (GAAP measure)
14.1
%
14.2
%
Adjusted operating margin
15.8
%
15.0
%
The
following table reconciles our Electrical Solutions segment organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):
Three Months Ended March 31,
Electrical Solutions
2024
Inc/(Dec) %
2023
Inc/(Dec) %
Net sales growth
(GAAP measure)
$
1.3
0.3
$
(0.5)
(0.1)
Impact of acquisitions
—
—
15.1
3.0
Impact of divestitures
(28.1)
(5.6)
—
—
Foreign
currency exchange
1.9
0.4
(3.0)
(0.6)
Organic net sales (decline) growth (non-GAAP measure)
$
27.5
5.5
$
(12.6)
(2.5)
Net sales in the Electrical Solutions segment in the first quarter of
2024 were $505.1 million and increased by $1.3 million, or 0.3%, as compared to the first quarter of 2023. That increase was driven by a 5.5% increase in organic net sales and a favorable effect of foreign currency exchange, largely offset by a 5.6% decline in net sales resulting from the disposition of our residential lighting business in February 2024. The increase in organic net sales was driven by a low single digit percentage increase in unit volume and a low single digit percentage increase in price realization. Volume growth was driven by strength in markets for electrical and industrial products on electrification and renewables. Favorable price realization was driven primarily by actions to recover inflationary costs.
Operating income in the Electrical Solutions segment for the first quarter of 2024 was $71.0 million and decreased approximately 0.4% compared to the first quarter
of 2023, while operating margin in the first quarter of 2024 decreased by 10 basis points to 14.1%. Excluding amortization of acquisition-related intangibles and transaction, integration and separation costs, which contributed 90 basis points to the decline in operating margin, the adjusted operating margin increased by 80 basis points to 15.8%. That increase is primarily due to approximately four percentage points of margin expansion from favorable price realization, improved operational productivity and higher volume, partially offset by approximately three percentage points of margin headwind driven by, higher material and other cost inflation, and investments in restructuring and related activities.
HUBBELL
INCORPORATED-Form 10-Q 35
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Financial Condition, Liquidity and Capital Resources
Cash Flow
Three
months ended March 31,
(In millions)
2024
2023
Net cash provided by (used in):
Operating activities
$
92.2
$
113.7
Investing
activities
88.6
(35.1)
Financing activities
(125.3)
(91.8)
Effect of foreign currency exchange rate changes on cash and cash equivalents
(3.5)
2.7
NET
CHANGE IN CASH AND CASH EQUIVALENTS
$
52.0
$
(10.5)
Cash provided by operating activities for the three months ended March 31, 2024 was $92.2 million compared to cash provided by operating activities of $113.7 million for the same period in 2023. The decrease was primarily due a decrease in net income, along with higher cash payments of employee incentive payments during the first three months of 2024 compared to the same period in 2023,
partially offset by higher amortization and depreciation expense.
Cash provided by investing activities was $88.6 million in the three months ended March 31, 2024 compared to cash used of $35.1 million during the comparable period in 2023. This change was driven by the $122.9 million of proceeds received in 2024 as a result of the disposition of our residential lighting business.
Cash used in financing activities was $125.3 million in the three months ended March 31, 2024 as compared to cash used of $91.8 million in the comparable period of 2023. This change primarily reflects an increase in the repayment of debt of $26.7 million in the first three months of 2024 compared to the same prior year
period.
The unfavorable impact of foreign currency exchange rates on cash was $3.5 million for the three months ended March 31, 2024 and the change compared to prior year is primarily related to weakening of the U.S. Dollar against the Canadian Dollar, Brazilian Real and Australian Dollar.
Investments in the Business
Investments in our business include cash outlays for the acquisition of businesses, to invest in capacity and innovation, as well as for expenditures on productivity initiatives and to maintain the operation of our equipment and facilities and invest in restructuring activities.
During
the first three months of 2024, we invested $40.3 million in capital expenditures, an increase of $6.9 million from the comparable period of 2023, as we continue to invest in footprint optimization, automation and productivity initiatives.
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 through 2024 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, and 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.
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The table below presents the restructuring and related costs incurred in the first three months of 2024, additional expected costs, and the expected completion date of restructuring actions that have been initiated as of March 31, 2024 and in prior years (in millions):
Restructuring and related costs (Non-GAAP measure)
$
6.5
$
17.6
Stock
Repurchase Program
In October 2022, the Board of Directors approved a share repurchase program that authorized the repurchase of up to $300 million of common stock, which expires in October 2025. In the first three months of 2024, the Company repurchased $10.0 million of shares of common stock authorized under the October 2022 program. At March 31, 2024, our remaining share repurchase authorization was $290.0 million. 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.
Debt to Capital
At March 31, 2024 and December 31, 2023, the Company had $1,895.7 million and $2,023.2 million, respectively, of long-term debt outstanding, net of the unamortized balance of capitalized debt issuance costs. The Company had $18.7 million and $15.0 million at March 31, 2024 and December 31, 2023 respectively of maturities
due within the next 12 months related to the Term Loan Agreement described below, which were classified within short term debt in the Consolidated Balance Sheet.
Term Loan Agreement
In connection with the December 2023 acquisition of Systems Control, the Company entered into a Term Loan Agreement with a syndicate of lenders under which the Company borrowed $600 million on an unsecured basis. Borrowings under the Term Loan Agreement bear interest generally at either the adjusted term SOFR rate plus an applicable margin (determined by a ratings based grid) or the alternative base rate. Currently, the loans bear interest based on the adjusted
term SOFR rate. The principal amount of borrowings under the Term Loan Agreement amortize in equal quarterly installments of 2.5% of the original outstanding principal amount in 2024, 2.5% in 2025, and, 5% in 2026, with the remaining outstanding principal amount under the Term Loan Agreement due and payable in full at maturity in December 2026. The Company may make principal payments in excess of the amortization schedule at its discretion. During the three months ended March 31, 2024, the Company made $125 million of principal payments. The sole financial covenant in the Term Loan Agreement requires that total debt not exceed 65% of total capitalization as of the last day of each fiscal quarter of the
Company. The Company was in compliance with this covenant as of March 31, 2024.
Revolving Credit Facility
On March 12, 2021, the Company, as borrower, and its subsidiaries Hubbell Power Holdings S.à r.l. and Harvey Hubbell Holdings S.à r.l., each as a subsidiary borrower (collectively, the “Subsidiary Borrowers”) entered into a new five-year credit agreement with a syndicate of lenders and JPMorgan Chase Bank, 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 includes a $50 million sub-limit for the issuance of letters of credit. The sum of the dollar amount of loans and letters of credits to the Subsidiary Borrowers under the 2021 Credit Facility may not exceed $75 million. There were no borrowings outstanding under the 2021 Credit Facility at March 31, 2024.
The interest rate applicable to borrowings under the 2021 Credit Facility is either (i) the alternate base rate (as defined in the 2021 Credit Facility) or (ii) the adjusted SOFR rate (as defined in the 2021 Credit Facility) plus an applicable margin based on the
Company’s credit ratings. All revolving loans outstanding under the 2021 Credit Facility will be due and payable on March 12, 2026.
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 March 31, 2024. As of March 31, 2024, the 2021 Credit Facility was undrawn.
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Unsecured Senior Notes
At both March 31, 2024 and December 31, 2023, the Company had outstanding unsecured, senior notes (the "Notes") in principal amounts of $400 million due in 2026, $300 million due in 2027, $450 million due in 2028 and $300 million due in 2031.
The carrying value of the Notes, net of unamortized discount and the unamortized balance of capitalized debt issuance costs, was $1,440.9 million and $1,440.3 million at March 31,
2024 and December 31, 2023, respectively.
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, 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 March 31, 2024.
Short-term Debt and Current Portion of Long-Term Debt
The
Company had $219.7 million and $117.4 million of short-term debt and current portion of long-term debt outstanding at March 31, 2024 and December 31, 2023, respectively, composed of the following:
•$199.0 million of commercial paper borrowings outstanding at March 31, 2024, and $100 million of commercial paper borrowings outstanding at December 31, 2023, which was used to partially fund the Systems Control acquisition.
•$18.7 million of long-term debt classified within current liabilities in the Condensed Consolidated Balance Sheets, reflecting maturities within the
next 12 months under the Term Loan Agreement at March 31, 2024 and $15.0 million at December 31, 2023.
•$2.0 million and $2.4 million of other short term debt outstanding at March 31, 2024 and December 31, 2023, respectively, which consisted of borrowings to support our international operations in China and amounts outstanding under our commercial card program.
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.
We measure liquidity on the basis of our ability to meet short-term and long-term operational funding needs, to fund additional investments in our business, 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 the first three months of 2024, we returned capital to our shareholders
by paying $65.5 million of dividends on our common stock and using $10.0 million of cash for share repurchases.
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 that are summarized in the Financial Condition, Liquidity and Capital Resources section in our Annual Report on Form 10-K for the year ended December 31, 2023. As a result of the Tax Cuts and Jobs Act of 2017 (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.
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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 addition to cash flows from operating activities, we also had $388.2 million of cash and cash equivalents at March 31, 2024, of which approximately 22% was held inside the
United States and the remainder held internationally.
◦Our 2021 Credit Facility provides a $750.0 million committed revolving credit facility and commitments under the 2021 Credit Facility may be increased (subject to certain conditions) to an aggregate amount not to exceed $1.25 billion. Annual commitment fees to support availability under the 2021 Credit Facility are not material. Although not the principal source of liquidity, we believe our 2021 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 2021 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. The full $750.0 million of borrowing capacity under the 2021 Credit Facility was available to the Company at March 31, 2024.
◦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.
Critical
Accounting Estimates
A summary of our critical accounting estimates is included in Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2023. We are required to make estimates and judgments in the preparation of our financial statements that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in the estimates and assumptions we use could have a material impact on our financial results. During the three months ended March 31,
2024, there were no material changes in our estimates and critical accounting policies.
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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-Q, contain “forward-looking statements”
as defined by the Private Securities Litigation Reform Act of 1995. These include statements about our expectations regarding our financial results, condition and outlook, anticipated end markets, 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, as well as other statements that are not strictly historic in nature are forward looking. In addition, all statements regarding anticipated growth, changes in operating results, market conditions and economic conditions, adoption of updated accounting standards and any expected effects of such adoption, restructuring plans and expected associated costs and benefits, intent to continue repurchasing shares of common stock, changes in operating results, and anticipated market conditions and productivity initiatives, are
also 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", "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
general impact of inflation on our business, including the impact on raw materials costs, elevated interest rates and increased energy costs and our ability to implement and maintain pricing actions that we have taken to cover higher costs and protect our margin profile.
•Economic and business conditions in particular industries, markets or geographic regions, as well the potential for continued inflation, a significant economic slowdown, stagflation or recession.
•Effects of unfavorable 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.
•Supply chain disruptions and availability, costs and quantity of raw materials, purchased components, energy
and freight.
•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.
•Continued softness in the residential market of Electrical Solutions.
•Failure to achieve projected levels of efficiencies, and maintain 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 United States, United Kingdom and other countries, including the recent and potential changes in U.S. trade policies.
•Failure to comply with import and export laws.
•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.
•Regulatory issues, changes in tax laws, including multijurisdictional implementation of the Organisation for Economic Co-operation and Development's
comprehensive base erosion and profit shifting plan, 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 increases in interest rates and changes in 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 due to 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 manage and integrate an acquired business,
such as the recent acquisitions of El Electronics LLC, Indústria Eletromecânica Balestro Ltda., and Systems Control, as well as the failure to realize expected synergies and benefits anticipated when we make an acquisition due to potential adverse reactions or changes to business or employee relationships resulting from completion of the transaction, competitive responses to the transaction, the possibility that the anticipated benefits of the transaction are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the acquired business, diversion of management's attention from ongoing business operations and opportunities, and litigation relating to the transaction.
•The impact of certain divestitures, including the benefits and costs of the sale of the residential lighting business.
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•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 and military actions in foreign countries, including trade tensions with China and the wars in Ukraine and the Middle East, as well as the impact on world markets and energy supplies and prices resulting therefrom.
•The impact of potential natural disasters or additional public health emergencies
on our financial condition and results of operations.
•Failure of information technology systems, cybersecurity 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.
•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.
•Other factors described in our Securities and Exchange Commission filings, including the “Business”, “Risk Factors”, "Management's Discussion and Analysis of Financial Condition and Results of Operations", 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, 2023 and in the Company's Quarterly Reports on Form 10-Q.
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.
ITEM 3
Quantitative and Qualitative Disclosures About Market Risk
In the operation of its business, the
Company has exposures to fluctuating foreign currency exchange rates, availability of purchased finished goods and raw materials, changes in material prices, foreign sourcing issues, and changes in interest rates. There have been no significant changes in our exposure to these market risks during the three months ended March 31, 2024. For a complete discussion of the Company’s exposure to market risk, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk”, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
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ITEM 4
Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
recorded, processed, summarized and reported within the time periods specified and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of the end of
the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, each of the Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2024, the Company’s disclosure controls and procedures were effective at the reasonable assurance level.
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed quarter that have materially affected, or are reasonably likely to materially affect, the
Company’s internal control over financial reporting.
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PART II
OTHER INFORMATION
ITEM
1A
Risk Factors
There have been no material changes in the Company's risk factors from those disclosed under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2
Unregistered Sales of Equity Securities
and Use of Proceeds
Issuer Purchases of Equity Securities
On October 21, 2022, we announced that the Board of Directors had approved a share repurchase program (the "Program") that authorized the repurchase of up to $300 million of common stock, which expires in October 2025. At March 31, 2024, our remaining share repurchase authorization was $290.0 million. 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.
The
following table summarizes the Company's repurchase activity of common stock under the Program during the quarter ended March 31, 2024.
Period
Total Number of Shares of Common Stock Purchased (000s)
Average Price Paid Per Share of Common Stock
Approximate Value of Shares
that May Yet be Purchased Under the Plans
(in millions)
Total number of shares purchased as part of publicly announced plans (000s)
During the three months ended March 31, 2024, iiiino
director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K///.
The following materials from Hubbell Incorporated's Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Statements of Comprehensive Income, (iii) the Condensed Consolidated Balance Sheets, (iv) the Condensed Consolidated
Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements.
*
104
The cover page of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline XBRL (included within the Exhibit 101 attachments)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.