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12: R2 Condensed Consolidated Statements of Income HTML 140K
(Unaudited)
13: R3 Condensed Consolidated Statements of Comprehensive HTML 72K
Income (Unaudited)
14: R4 Condensed Consolidated Statements of Comprehensive HTML 32K
Income (Unaudited) (Parenthetical)
15: R5 Condensed Consolidated Balance Sheets (Unaudited) HTML 142K
16: R6 Condensed Consolidated Balance Sheets (Unaudited) HTML 27K
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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 October 21, 2022 was i53,705,829.
Accounts receivable (net of allowances
of $i14.8 and $i10.6)
i800.5
i675.3
Inventories,
net
i739.0
i662.1
Other current assets
i75.6
i66.8
Assets
held for sale - current
i—
i179.5
Total
Current Assets
i1,994.5
i1,879.3
Property,
Plant, and Equipment, net
i478.5
i459.5
Other
Assets
Investments
i66.6
i69.1
Goodwill
i1,948.8
i1,871.3
Other
intangible assets, net
i690.3
i681.5
Other
long-term assets
i159.7
i143.7
Assets held for sale - non-current
i—
i177.1
TOTAL
ASSETS
$
i5,338.4
$
i5,281.5
LIABILITIES
AND EQUITY
Current Liabilities
Short-term debt
$
i4.0
$
i9.7
Accounts
payable
i569.9
i532.8
Accrued salaries, wages and
employee benefits
i107.9
i94.7
Accrued
insurance
i74.5
i73.3
Other accrued liabilities
i306.2
i263.4
Liabilities
held for sale - current
i—
i91.3
Total
Current Liabilities
i1,062.5
i1,065.2
Long-Term
Debt
i1,437.3
i1,435.5
Other
Non-Current Liabilities
i508.4
i521.3
Liabilities held
for sale - non-current
i—
i18.8
TOTAL
LIABILITIES
i3,008.2
i3,040.8
Hubbell
Incorporated Shareholders’ Equity
i2,318.7
i2,229.8
Noncontrolling
interest
i11.5
i10.9
TOTAL EQUITY
i2,330.2
i2,240.7
TOTAL
LIABILITIES AND EQUITY
$
i5,338.4
$
i5,281.5
See
notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 5
Back to Contents
Condensed Consolidated Statements of Cash Flows (unaudited)
Nine
Months Ended September 30,
(in millions)
2022
2021
Cash Flows from Operating Activities of Continuing Operations
Net income from continuing operations
$
i392.9
$
i269.8
Adjustments
to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
i107.6
i112.6
Deferred
income taxes
(i41.7)
i5.8
Stock-based
compensation
i21.7
i15.6
Provision for bad debt
expense
i5.7
(i0.1)
Loss
on disposition of business
i—
i6.9
Loss
on extinguishment of debt
i—
i16.8
Pension
charge
i5.9
i—
Loss (gain) on sale of assets
i2.3
(i4.1)
Changes
in assets and liabilities, excluding effects of acquisitions:
Increase in accounts receivable, net
(i134.4)
(i145.1)
Increase
in inventories, net
(i67.8)
(i91.4)
Increase
in accounts payable
i28.4
i106.6
Increase
in current liabilities
i65.4
i0.7
Changes
in other assets and liabilities, net
i17.2
(i6.8)
Contribution
to qualified defined benefit pension plans
(i12.5)
(i0.1)
Other, net
i3.1
i1.0
Net
cash provided by operating activities from Continuing Operations
i393.8
i288.2
Cash
Flows from Investing Activities of Continuing Operations
Capital expenditures
(i67.2)
(i62.8)
Acquisitions,
net of cash acquired
(i163.6)
i0.1
Proceeds
from disposal of business, net of cash
i332.8
i8.5
Purchases
of available-for-sale investments
(i26.5)
(i10.6)
Proceeds
from available-for-sale investments
i15.7
i7.2
Other,
net
i1.4
i7.8
Net
cash provided (used in) investing activities from Continuing Operations
i92.6
(i49.8)
Cash
Flows from Financing Activities of Continuing Operations
Issuance of long-term debt
i—
i298.7
Payment
of long-term debt
i—
(i300.0)
Payment
of short-term debt, net
(i5.4)
(i24.2)
Payment
of dividends
(i169.6)
(i159.8)
Make
whole payment for retirement of long-term debt
i—
(i16.0)
Acquisition
of common shares
(i150.0)
(i11.2)
Other,
net
(i15.3)
(i39.9)
Net
cash used in financing activities from Continuing Operations
(i340.3)
(i252.4)
Discontinued
Operations:
Cash (used in) provided by operating activities
(i50.1)
i18.6
Cash
used in investing activities
(i1.7)
(i3.7)
Cash
(used in) provided by discontinued operations
(i51.8)
i14.9
Effect
of exchange rate changes on cash and cash equivalents
(i14.2)
(i2.5)
Increase
(decrease) in cash and cash equivalents
i80.1
(i1.6)
Cash
and cash equivalents, beginning of year
i286.2
i259.6
Cash
and cash equivalents within assets held for sale, beginning of year
i0.7
i1.0
Restricted
cash, included in other assets, beginning of year
i2.7
i—
Less: Restricted
cash, included in Other Assets
i2.8
i—
Less: Cash and cash equivalents
within assets held for sale, end of period
i—
i1.1
Cash
and cash equivalents, end of period
$
i366.9
$
i257.9
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 nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.
The balance sheet at December 31, 2021 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, 2021.
iDiscontinued Operations
On
February 1, 2022, the Company completed the sale of the Commercial and Industrial Lighting business (the "C&I Lighting business") to GE Current, a Daintree Company, for total net cash consideration of $i332.8 million. The disposal of the C&I Lighting business met the criteria set forth in ASC 205-20 to be presented
as a discontinued operation. The C&I Lighting businesses' results of operations and the related cash flows have been reclassified to income from discontinued operations in the Condensed Consolidated Statements of Income and cash flows from discontinued operations in the Condensed Consolidated Statement of Cash Flows, respectively, for all periods presented. For additional information regarding this transaction and its effect on our financial reporting, see Note 2 – Discontinued Operations, in the accompanying Condensed Consolidated Financial Statements, which note is incorporated herein by reference.
i
Impact
of the COVID-19 Pandemic
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic has had, and may continue to have, a significant effect on global economic conditions. U.S. Federal, state, local, and foreign governments reacted to the public health crisis with mitigation measures, creating significant uncertainties in the U.S. and global economies. Notwithstanding a general improvement in conditions and reduction of adverse effects from the pandemic, there continues to be significant uncertainty around the scope, severity, and duration of the pandemic, as well as the breadth and duration of business disruptions related to it. As economies have re-opened, global supply chains have struggled to keep up with increasing demand, and the resulting supply chain disruptions
have, in certain cases, affected our ability to ship finished products in a timely manner. These supply chain disruptions and the increase in demand have also led to increased freight, labor and commodity costs. The extent to which the coronavirus pandemic will continue to affect our business, operations, supply chains, and our financial results will depend on numerous evolving factors that we may not be able to accurately predict and which may cause the actual results to differ from the estimates and assumptions we are required to make in the preparation of financial statements according to GAAP.
i
Recently
Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are effective for all entities beginning on March 12, 2020 through December 31, 2022. The Company may elect to apply the amendments prospectively through December
31, 2022. The Company has not adopted this ASU as of September 30, 2022. The Company is currently assessing the impact of adopting this standard on its financial statements and the timing of adoption.
HUBBELL INCORPORATED-Form 10-Q 7
Back to Contents
In October 2021, the FASB issued ASU No. 2021-08, "Business Combinations (Topic 805), Accounting for Contract
Assets and Contract Liabilities from Contracts with Customers." ASU 2021-08 requires an acquirer to recognize and measure contract assets and contract liabilities, including deferred revenue, acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606) as if the acquirer had originated the contracts at the date of the business combination. The provisions of ASU 2021-08 are effective for interim
periods and fiscal years beginning after December 15, 2022, with early adoption permitted. If early adopted, the provisions of ASU 2021-08 apply retrospectively to all business combinations that occurred on or after the first day of the fiscal year in which the standard is adopted. The Company elected to early adopt the standard during the third quarter of 2022. The impact of the adoption of the standard was not material.
In November 2021, the FASB issued ASU No. 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance." This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.
This standard is effective for financial statements issued for annual periods beginning after December 15, 2021 and should be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently assessing the impact of adopting this standard on its financial statements and the timing of adoption.
In September 2022, the FASB issued ASU 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” which adds certain disclosure requirements for a buyer in a supplier finance program. The amendments require a buyer that uses supplier finance programs to make annual disclosures about each such program’s key terms, the balance sheet presentation of related amounts,
the confirmed amount outstanding at the end of the period, and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The amendments are effective for all entities for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently assessing the impact of adopting the amendments on its financial statements and the timing of adoption.
NOTE
2iDiscontinued Operations
On February 1, 2022, the Company completed the sale of the C&I Lighting business to GE Current,
a Daintree Company, for total net cash consideration of $i332.8 million. The sale of this business represents a strategic shift that will have a major effect on our operations and financial results, and as a result, is reported as a discontinued operation in our Condensed Consolidated Financial Statements for all periods presented. The assets and liabilities of this business are also presented as held for sale in the Condensed Consolidated Balance Sheets, in the periods prior to the sale. The C&I Lighting
business was previously included in the Electrical Solutions segment.
Under the terms of the transaction, Hubbell and the buyer entered into a transition services agreement ("TSA"), pursuant to which the Company provides certain administrative and operational services for a period of i12 months or less. Furthermore, we entered into a short-term supply
agreement whereby the Company acts as a supplier of finished goods and component parts to the C&I Lighting business after the completion of the sale. Income from the TSA and supply agreement was $i3.2 million and $i10.8
million, respectively, for the three and nine months ended September 30, 2022 and was recorded in Other Income in the Condensed Consolidated Financial Statements.
i
The following table presents the summarized components of income from discontinued operations, net of income
taxes, for the C&I Lighting business:
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions)
2022
2021
2022
2021
Net
sales
$
i—
$
i130.3
$
i29.1
$
i389.9
Cost
of goods sold
i—
i102.4
i27.7
i304.3
Gross
profit
i—
i27.9
i1.4
i85.6
Selling
& administrative expenses
i3.0
i19.9
i18.2
i61.8
Operating
(loss) income
(i3.0)
i8.0
(i16.8)
i23.8
(Loss)
Gain on disposal of business
(i7.0)
i—
i73.7
i—
Other
expense
(i0.2)
(i0.6)
(i1.4)
(i2.0)
(Loss)
income from discontinued operations before income taxes
(i10.2)
i7.4
i55.5
i21.8
Provision
for income taxes
i1.0
i2.4
i2.6
i5.4
(Loss)
income from discontinued operations, net of taxes
$
(i11.2)
$
i5.0
$
i52.9
$
i16.4
/
HUBBELL
INCORPORATED-Form 10-Q 8
Back to Contents
(Loss) income from discontinued operations, net of taxes for the three and nine months ended September 30, 2022 includes transaction and separation costs of $i3.0 million and $i9.7
million, respectively. The gain on disposal of business for the nine months ended September 30, 2022 includes a net working capital adjustment of $i15.8 million that was cash settled in the third quarter of 2022.
The following table presents the major classes of assets and liabilities classified as held for sale in the Condensed Consolidated Balance Sheet
for the year ended December 31, 2021:
The Company recognizes revenue when performance obligations identified under the terms of contracts with
its customers are satisfied, which generally occurs, for products, upon the transfer of control in accordance with the contractual terms and conditions of the sale. The majority of the Company’s revenue associated with products is recognized at a point in time when the product is shipped to the customer, with a relatively small amount of transactions, primarily in the Utility Solutions segment, recognized upon delivery of the product at the destination. Revenue from service contracts and post-shipment performance obligations are approximately 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.
Within the Electrical Solutions segment, certain businesses require a portion of the transaction price to be paid in advance of transfer of control. Advance payments are not considered a significant financing component as they are received less than one year before the related performance obligations are satisfied. In addition, in the Utility Solutions segment, certain businesses offer annual maintenance service contracts that require payment
at the beginning of the contract period. These payments are treated as a contract liability and are classified in Other accrued liabilities in the Condensed Consolidated Balance Sheets. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Condensed Consolidated Statements of Income. The deferred revenue relating to the annual maintenance service contracts is recognized in the Condensed Consolidated Statements of Income on a straight-line basis over the expected term of the contract.
HUBBELL
INCORPORATED-Form 10-Q 9
Back to Contents
i
The following table presents disaggregated revenue by business group. On January 1, 2022, we internally reorganized certain businesses within our Electrical Solutions segment to simplify the organization structure 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 Electrical Solutions segment.
Three Months Ended September 30,
Nine Months Ended September 30,
in millions
2022
2021
2022
2021
Net
sales
Utility T&D Components
$
i602.3
$
i435.3
$
i1,650.3
$
i1,231.5
Utility
Communications and Controls
i172.2
i166.5
i504.5
i491.3
Total
Utility Solutions
$
i774.5
$
i601.8
$
i2,154.8
$
i1,722.8
Electrical
Products
i231.7
i213.8
i694.2
i592.0
Connection
and Bonding
i156.5
i137.0
i456.9
i388.5
Industrial
Controls
i95.4
i64.7
i245.1
i187.9
Retail
and Builder
i58.1
i66.1
i177.3
i202.8
Total
Electrical Solutions
$
i541.7
$
i481.6
$
i1,573.5
$
i1,371.2
TOTAL
$
i1,316.2
$
i1,083.4
$
i3,728.3
$
i3,094.0
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 $i55.4
million as of September 30, 2022 compared to $i16.7 million as of December 31, 2021. The $i38.7 million
increase in our contract liabilities balance was primarily due to a $i30.4 million net increase in current year deferrals primarily due to timing of advance payments on certain orders and a $i20.1 million
increase due to acquisitions, partially offset by the recognition of $i11.8 million in revenue related to amounts that were recorded in contract liabilities at January 1, 2022. The Company has an immaterial amount of contract
assets relating to performance obligations satisfied prior to payment that is recorded in Other long-term assets in the Condensed Consolidated Balance Sheets. Impairment losses recognized on our receivables and contract assets were immaterial for the three and nine months ended September 30, 2022.
Unsatisfied Performance Obligations
As of September 30, 2022, the Company had approximately $i340 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 ithree
years.
HUBBELL INCORPORATED-Form 10-Q 10
Back to Contents
NOTE 4 iBusiness
Acquisitions
2022 Acquisitions
In the third quarter of 2022, the Company acquired all of the issued and outstanding membership interests of PCX Holdings LLC ("PCX") for a cash purchase price of approximately $i114.0 million,
net of cash acquired, subject to customary purchase price adjustments. PCX is a leading designer and manufacturer of factory built modular power solutions for applications in the data center market. This business is reported in the Electrical Solutions segment. We have recognized intangible assets of $i48.6 million and goodwill of $i78.0 million
as a result of this acquisition. The intangible assets of $i48.6 million consists primarily of customer relationships, backlog and a tradename and will be amortized over a weighted average period of approximately i11
years. All of the goodwill is expected to be deductible for tax purposes.
In the third quarter of 2022, the Company also acquired all of the issued and outstanding membership interests of Ripley Tools, LLC and Nooks Hill Road, LLC, collectively referred to as Ripley Tools, for a cash purchase price of approximately $i49.6 million, net of cash acquired, subject
to customary purchase price adjustments. Ripley Tools is a leading manufacturer of cable and fiber prep tools and test equipment that services both the utility and communications markets. This business is reported in the Utility Solutions segment. We have recognized intangible assets of $i19.0 million and goodwill of $i22.2 million
as a result of this acquisition. The intangible assets of $i19.0 million consists primarily of customer relationships and a tradename and will be amortized over a weighted average period of approximately i17
years. All of the goodwill is expected to be deductible for tax purposes.
These business acquisitions have been accounted for as business combinations and have resulted in the recognition of goodwill. The goodwill relates to a number of factors implied in the purchase prices, including the future earnings and cash flow potential of the businesses as well as the complementary strategic fit and resulting synergies that such business acquisitions bring to the Company’s existing operations.
Preliminary Allocation of Consideration Transferred to Net Assets Acquired
The following table presents the preliminary determination of the fair values
of identifiable assets acquired and liabilities assumed from the Company's acquisitions in the third quarter of 2022. The final determination of the fair value of certain assets and liabilities will be completed within the one year measurement period as required by the FASB ASC Topic 805, “Business Combinations.” Because 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. 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 preliminary
fair values of the assets acquired and liabilities assumed at the date of acquisition related to all transactions (in millions):
Tangible assets acquired
$
i36.9
Intangible
assets
i67.6
Goodwill
i100.2
Net
deferred taxes
i—
Other liabilities assumed
(i41.1)
Total
Estimate of Consideration Transferred, Net of Cash Acquired
$
i163.6
/
The
Condensed Consolidated Financial Statements include the results of operations of the acquired businesses from their respective dates of acquisition. Pro forma information related to these acquisitions has not been included because the impact of net sales and earnings related to these acquisitions for the nine months ended September 30, 2022 was not material to the Company’s condensed consolidated results of operations.
HUBBELL INCORPORATED-Form 10-Q 11
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to Contents
NOTE 5iSegment Information
The Company's reporting segments consist of the Utility Solutions segment and the Electrical Solutions segment. The Utility Solutions
segment consists of businesses that design, manufacture, and sell a wide variety of electrical distribution, transmission, substation, and telecommunications products. This includes utility transmission & distribution (T&D) components such as arresters, insulators, connectors, anchors, bushings, and enclosures. The Utility Solutions segment also offers solutions that serve the utility infrastructure, including smart meters, communications systems, and protection and control devices. Hubbell Utility Solutions supports the electrical distribution, electrical transmission, water, gas distribution, telecommunications, and solar and wind markets. Products are sold to distributors and directly to users such as utilities, telecommunication companies, industrial firms, construction and engineering firms.
The Electrical Solutions segment comprises businesses that sell stock and custom
products including standard and special application wiring device products, rough-in electrical products, connector and grounding products, lighting fixtures, components and other electrical equipment. The products are typically used in and around industrial, commercial and institutional facilities by electrical contractors, maintenance personnel, electricians, utilities, and telecommunications companies. In addition, certain of our businesses design and manufacture industrial controls and communication systems used in the non-residential and industrial markets. Many of these products are designed such that they can also be used in harsh and hazardous locations where a potential for fire and explosion exists due to the presence of flammable gasses and vapors. Harsh and hazardous products are primarily used in the oil and gas (onshore and offshore) and mining industries. There are also a variety of wiring devices, lighting fixtures and electrical products that have residential
and utility applications, including residential products with Internet-of-Things ("IoT") enabled technologies. These products are primarily sold through electrical and industrial distributors, home centers, retail and hardware outlets, lighting showrooms and residential product oriented internet sites. Special application products are primarily sold through wholesale distributors to contractors, industrial customers and OEMs.
i
The following table sets forth financial information by business segment
(in millions):
Net Sales
Operating Income
Operating Income as a % of Net Sales
2022
2021
2022
2021
2022
2021
Three
Months Ended September 30,
Utility Solutions
$
i774.5
$
i601.8
$
i129.8
$
i79.6
i16.8
%
i13.2
%
Electrical
Solutions
i541.7
i481.6
i73.8
i66.3
i13.6
%
i13.8
%
TOTAL
$
i1,316.2
$
i1,083.4
$
i203.6
$
i145.9
i15.5
%
i13.5
%
Nine
Months Ended September 30,
Utility Solutions
$
i2,154.8
$
i1,722.8
$
i329.3
$
i213.2
i15.3
%
i12.4
%
Electrical
Solutions
i1,573.5
i1,371.2
i207.8
i184.8
i13.2
%
i13.5
%
TOTAL
$
i3,728.3
$
i3,094.0
$
i537.1
$
i398.0
i14.4
%
i12.9
%
/
HUBBELL
INCORPORATED-Form 10-Q 12
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NOTE 6iInventories, net
i
Inventories,
net consists of the following (in millions):
(1)Refer to Note 4 – 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
i952.3
(i416.2)
i901.2
(i374.0)
TOTAL
DEFINITE-LIVED INTANGIBLES
$
i1,139.6
$
(i489.4)
$
i1,082.5
$
(i441.6)
Indefinite-lived:
Tradenames
and other
i40.1
—
i40.6
—
TOTAL
OTHER INTANGIBLE ASSETS
$
i1,179.7
$
(i489.4)
$
i1,123.1
$
(i441.6)
/
Amortization
expense associated with definite-lived intangible assets was $i18.7 million and $i17.9 million during the three months ended September 30,
2022 and 2021, respectively, and $i53.6 million and $i56.9 million during the nine months ended
September 30, 2022 and 2021, respectively. Future amortization expense associated with these intangible assets is estimated to be $i18.8 million for the remainder of 2022, $i71.0 million
in 2023, $i67.9 million in 2024, $i63.5 million in 2025,
$i59.9 million in 2026, and $i54.3 million in 2027. 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 asset's useful life, or using a straight line method. Approximately i80% of the gross value of definite-lived intangible assets follow an accelerated amortization method.
HUBBELL
INCORPORATED-Form 10-Q 14
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NOTE 8iOther 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, 2021 for additional information regarding warranties.
/
NOTE 9iOther
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, 2021 for additional information regarding warranties.
/
HUBBELL INCORPORATED-Form 10-Q 15
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NOTE 10iTotal
Equity
i
A summary of changes in total equity for the three and nine months ended September 30, 2022 and the three and nine months ended September 30, 2021 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 $i145.2 million and $i14.2 million
in the first nine months of 2022 and 2021, 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 11iAccumulated
Other Comprehensive Loss
i
A summary of the changes in Accumulated other comprehensive loss (net of tax) for the nine months ended September 30, 2022 is provided below (in millions):
(debit)
credit
Cash flow hedge (loss) gain
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 and nine months ended September 30, 2022 and 2021 is provided below (in millions):
Three Months Ended September 30,
Nine Months Ended September 30,
Details
about Accumulated Other Comprehensive Loss Components
Amortization of defined benefit pension and post retirement benefit items:
Prior-service costs (a)
$
(i0.1)
$
i—
$
(i0.3)
$
(i0.1)
Actuarial
gains(losses) (a)
(i2.8)
(i2.7)
(i7.8)
(i8.1)
Settlement
losses (a)
(i1.7)
i—
(i7.5)
i—
(i4.6)
(i2.7)
(i15.6)
(i8.2)
Total
before tax
i1.3
i0.7
i3.9
i2.1
Tax
benefit (expense)
$
(i3.3)
$
(i2.0)
$
(i11.7)
$
(i6.1)
Gain
(loss) net of tax
Reclassification
of currency translation gain (loss):
$
i—
$
i—
$
(i0.5)
$
i—
Gain
(loss) on disposition of business (Note 2)
i—
i—
i—
i—
Tax
benefit (expense)
$
i—
$
i—
$
(i0.5)
$
i—
Gain
(loss) net of tax
Gains (losses) reclassified into earnings
$
(i3.1)
$
(i2.1)
$
(i11.8)
$
(i7.0)
Gain
(loss) net of tax
(a) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 13 - Pension and Other Benefits in the Notes to Condensed Consolidated Financial Statements for additional details).
/
HUBBELL INCORPORATED-Form 10-Q 18
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NOTE
12iEarnings 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 and nine months ended September 30, 2022 and 2021 (in millions, except per share amounts):
Net income from continuing operations attributable to Hubbell Incorporated
$
i150.3
$
i103.4
$
i388.4
$
i265.5
Less:
Earnings allocated to participating securities
(i0.4)
(i0.3)
(i1.0)
(i0.9)
Net
income from continuing operations available to common shareholders
$
i149.9
$
i103.1
$
i387.4
$
i264.6
Net
(loss) income from discontinued operations attributable to Hubbell Incorporated
$
(i11.2)
$
i5.0
$
i52.9
$
i16.4
Less:
Earnings allocated to participating securities
i—
i—
(i0.1)
i—
Net
(loss) income from discontinued operations available to common shareholders
$
(i11.2)
$
i5.0
$
i52.8
$
i16.4
Net
income attributable to Hubbell Incorporated
$
i139.1
$
i108.4
$
i441.3
$
i281.9
Less:
Earnings allocated to participating securities
(i0.4)
(i0.3)
(i1.1)
(i0.9)
Net
income available to common shareholders
$
i138.7
$
i108.1
$
i440.2
$
i281.0
Denominator:
Average
number of common shares outstanding
i53.7
i54.3
i53.8
i54.3
Potential
dilutive common shares
i0.3
i0.4
i0.3
i0.4
Average
number of diluted shares outstanding
i54.0
i54.7
i54.1
i54.7
Basic
earnings per share:
Basic earnings per share from continuing operations
$
i2.79
$
i1.89
$
i7.20
$
i4.88
Basic
(loss) earnings per share from discontinued operations
$
(i0.21)
$
i0.10
$
i0.98
$
i0.30
Basic
earnings per share
$
i2.58
$
i1.99
$
i8.18
$
i5.18
Diluted
earnings per share:
Diluted earnings per share from continuing operations
$
i2.78
$
i1.88
$
i7.16
$
i4.84
Diluted
(loss) earnings per share from discontinued operations
$
(i0.21)
$
i0.10
$
i0.98
$
i0.30
Diluted
earnings per share
$
i2.57
$
i1.98
$
i8.14
$
i5.14
/
The
Company did not have any significant anti-dilutive securities outstanding during the three and nine months ended September 30, 2022 and 2021.
HUBBELL INCORPORATED-Form 10-Q 19
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NOTE 13iPension
and Other Benefits
i
The following table sets forth the components of net pension and other benefit costs for the three and nine months ended September 30, 2022 and 2021 (in millions):
Pension
Benefits
Other Benefits
2022
2021
2022
2021
Three Months Ended September 30,
Service cost
$
i0.2
$
i0.2
$
i—
$
i—
Interest
cost
i5.4
i5.9
i0.2
i0.1
Expected
return on plan assets
(i5.1)
(i9.1)
i—
i—
Amortization
of prior service cost
i0.1
i—
i—
i—
Amortization
of actuarial losses
i2.8
i2.7
i—
i—
Settlement
losses
i1.7
i—
i—
i—
NET
PERIODIC BENEFIT COST
$
i5.1
$
(i0.3)
$
i0.2
$
i0.1
Nine
Months Ended September 30,
Service cost
$
i0.6
$
i0.7
$
i—
$
i—
Interest
cost
i18.0
i17.9
i0.4
i0.4
Expected
return on plan assets
(i21.5)
(i27.4)
i—
i—
Amortization
of prior service cost
i0.3
i0.1
i—
i—
Amortization
of actuarial losses (gains)
i8.0
i8.1
(i0.2)
i—
Settlement
losses
i7.5
i—
i—
i—
NET
PERIODIC BENEFIT COST
$
i12.9
$
(i0.6)
$
i0.2
$
i0.4
/
During
the three months ended September 30, 2022, the Company recognized $i1.5 million of settlement losses in continuing operations and $i0.2 million
of settlement losses in discontinued operations. During the nine months ended September 30, 2022the Company recognized $i5.9 million of settlement losses in continuing operations and $i1.6 million
of settlement losses in discontinued operations. Those settlement losses are the result of lump-sum distributions from the Company's defined benefit pension plans which exceeded the threshold for settlement accounting under U.S. GAAP for the year.
Employer Contributions
The Company made $i10.0 million
in contributions to its qualified domestic defined benefit pension plan and $i2.5 million in contributions to its foreign pension plans during the nine months ended September 30, 2022. Although not required by ERISA and the Internal Revenue Code, the Company may elect to make additional voluntary contributions to its qualified domestic defined benefit pension plan in 2022.
HUBBELL
INCORPORATED-Form 10-Q 20
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NOTE 14iGuarantees
The
Company records a liability equal to the fair value of guarantees in accordance with the accounting guidance for guarantees. When it is probable that a liability has been incurred and the amount can be reasonably estimated, the Company accrues for costs associated with guarantees. The most likely costs to be incurred are accrued based on an evaluation of currently available facts and, where no amount within a range of estimates is more likely, the minimum is accrued. As of September 30, 2022 and December 31, 2021, 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 nine months ended September 30, 2022 and 2021 are set forth below (in millions):
2022
2021
BALANCE AT JANUARY 1, (a)
$
i66.1
$
i72.7
Provision
i14.0
i6.2
Expenditures/payments/other
(i23.3)
(i13.1)
BALANCE
AT SEPTEMBER 30, (a)
$
i56.8
$
i65.8
(a)
Refer to Note 8 – Other Accrued Liabilities and Note 9 – Other Non-Current Liabilities for a breakout of short-term and long-term warranties.
/
HUBBELL INCORPORATED-Form 10-Q 21
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NOTE 15iFair
Value Measurement
Financial Instruments
Financial instruments which potentially subject the Company to significant concentrations of credit loss risk consist of trade receivables, cash equivalents and investments. The Company grants credit terms in the normal course of business to its customers. Due to the diversity of its product lines, the Company has an extensive customer base including electrical distributors and wholesalers,
electric utilities, equipment manufacturers, electrical contractors, telecommunication companies and retail and hardware outlets. As part of its ongoing procedures, the Company monitors the credit worthiness of its customers. Bad debt write-offs have historically been minimal. The Company places its cash and cash equivalents with financial institutions and limits the amount of exposure in any one institution.
At September 30, 2022 our accounts receivable balance was $i800.5 million,
net of allowances of $i14.8 million. During the nine months ended September 30, 2022 our allowances increased approximately $i4.2 million.
Investments
At September 30, 2022 and December 31, 2021, the Company had $i61.0 million and $i54.0
million, respectively, of available-for-sale municipal debt securities. These investments had an amortized cost of $i63.0 million and $i53.3 million,
respectively. iNo allowance for credit losses related to our available-for-sale debt securities was recorded for the nine months ended September 30, 2022. As of September 30, 2022 and December 31, 2021 the unrealized losses attributable to our available-for-sale debt securities were $i2.1 million
and $i0.1 million, respectively. The fair value of available-for-sale debt securities with unrealized losses was $i60.8 million
at September 30, 2022 and $i12.2 million at December 31, 2021.
The Company also had trading securities of $i18.1
million at September 30, 2022 and $i24.5 million at December 31, 2021 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 results of operations.
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 September 30, 2022 and December 31, 2021 (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 and time deposits are reflected in Cash and cash equivalents in the Condensed Consolidated Balance Sheets.
(b) Forward exchange contracts-Assets are reflected in Other current assets in the Condensed Consolidated Balance Sheets.
/
The methods and assumptions used to estimate the Level 2 fair values were as follows:
Forward exchange contracts –
The fair value of forward exchange contracts was based on quoted forward foreign exchange prices at the reporting date.
Available-for-sale municipal bonds classified in Level 2 – The fair value of available-for-sale investments in municipal bonds is based on observable market-based inputs, other than quoted prices in active markets for identical assets.
Deferred compensation plans
The Company offers certain employees the opportunity to participate in non-qualified deferred compensation plans. A participant’s deferrals are invested in a variety of participant-directed
debt and equity mutual funds that are classified as trading securities. The Company purchased $i2.0 million and $i2.5 million
of trading securities related to these deferred compensation plans during the nine months ended September 30, 2022 and 2021, respectively. As a result of participant distributions, the Company sold $i3.8 million of these trading securities during the nine months ended September 30, 2022
and $i3.0 million during the nine months ended September 30, 2021. The unrealized gains and losses associated with these trading securities are directly offset by the changes in the fair value of the underlying deferred compensation plan obligation.
Long Term Debt
As of September 30,
2022 and December 31, 2021, the carrying value of long-term debt, net of unamortized discount and debt issuance costs, was $i1,437.3 million and $i1,435.5
million, respectively. The estimated fair value of the long-term debt as of September 30, 2022 and December 31, 2021 was $i1,304.6 million and $i1,524.5
million, respectively, using quoted market prices in active markets for similar liabilities (Level 2).
HUBBELL INCORPORATED-Form 10-Q 23
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NOTE 16iCommitments
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
17iRestructuring Costs and Other
In the three and nine months ended September 30, 2022, we incurred costs for restructuring actions initiated in 2022 as well as costs for restructuring actions initiated in the 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 and nine months ended September 30, 2022 and 2021 is as follows (in millions):
The
following table summarizes the accrued liabilities for our restructuring actions (in millions):
Beginning Accrued Restructuring Balance 1/1/22
Pre-tax Restructuring Costs
Utilization and Foreign Exchange
Ending Accrued Restructuring Balance 9/30/2022
2022 Restructuring Actions
Severance
$
i—
$
i7.1
$
(i0.3)
$
i6.8
Asset
write-downs
i—
i—
i—
i—
Facility
closure and other costs
i—
i1.8
(i1.4)
i0.4
Total
2022 Restructuring Actions
$
i—
$
i8.9
$
(i1.7)
$
i7.2
2021
and Prior Restructuring Actions
Severance
$
i4.1
$
i0.5
$
(i0.9)
$
i3.7
Asset
write-downs
i—
i—
i—
i—
Facility
closure and other costs
i0.1
i0.3
(i0.4)
i—
Total
2021 and Prior Restructuring Actions
$
i4.2
$
i0.8
$
(i1.3)
$
i3.7
Total
Restructuring Actions
$
i4.2
$
i9.7
$
(i3.0)
$
i10.9
/
HUBBELL
INCORPORATED-Form 10-Q 25
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The actual costs incurred and total expected cost in each of our reporting segments of our on-going restructuring actions are as follows (in millions):
Total expected costs
Costs incurred during 2021
Costs
incurred in the first nine months of 2022
Remaining costs at 9/30/2022
2022 Restructuring Actions
Utility Solutions
$
i3.7
$
i—
$
i3.1
$
i0.6
Electrical
Solutions
i9.2
i—
i5.8
i3.4
Total
2022 Restructuring Actions
$
i12.9
$
i—
$
i8.9
$
i4.0
2021
and Prior Restructuring Actions
Utility Solutions
$
i6.5
$
i2.4
$
i—
$
i4.1
Electrical
Solutions
i2.3
i1.5
i0.8
i—
Total
2021 and Prior Restructuring Actions
$
i8.8
$
i3.9
$
i0.8
$
i4.1
Total
Restructuring Actions
$
i21.7
$
i3.9
$
i9.7
$
i8.1
NOTE
18iDebt and Financing Arrangements
i
Long-term
debt consists of the following (in millions):
(a)Long-term
debt is presented net of debt issuance costs and unamortized discounts.
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 September 30, 2022. As of September 30, 2022, the 2021 Credit Facility was undrawn.
Short-Term Debt
The Company had $i4.0 million and $i9.7 million
of short-term debt outstanding at September 30, 2022 and December 31, 2021, respectively, which consisted primarily of borrowings to support our international operations in China and other short term debt to support operations.
HUBBELL INCORPORATED-Form 10-Q 26
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Note 19iStock-Based Compensation
As of September 30, 2022, 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, 2022, the Company's grant of stock-based awards included restricted stock, SARs and performance shares. There were ino
material awards granted during the three months ended September 30, 2022.
Each of the compensation arrangements is discussed below.
Restricted Stock
The Company issues various types of restricted stock awards, all of which are considered outstanding at the time of grant, as the award holders are entitled to dividends and voting rights. Unvested restricted stock awards are considered participating securities when computing earnings per share. Restricted stock grants are not transferable and are subject to forfeiture in the event of the recipient’s termination of employment prior to vesting.
Restricted
Stock Issued to Employees - Service Condition
Restricted stock awards that vest based upon a service condition are expensed on a straight-line basis over the requisite service period. These awards generally vest either in 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 2022, the Company granted i55,457
restricted stock awards with a fair value per share of $i185.87.
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 2022, the Company granted i137,099 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 2022:
Grant Date
Expected Dividend Yield
Expected Volatility
Risk Free Interest Rate
Expected Term
Weighted Avg.
Grant Date Fair Value of 1 SAR
February 2022
i2.1%
i27.4%
i1.8%
i4.9
years
$i39.25
/
The expected dividend yield
was calculated by dividing the Company’s expected annual dividend by the average stock price for the past three months. Expected volatilities are based on historical volatilities of the Company’s stock for a period consistent with the expected term. The expected term of SARs granted was based upon historical exercise behavior of SARs. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the award.
HUBBELL INCORPORATED-Form 10-Q 27
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Performance
Shares
Performance shares represent the right to receive a share of the Company’s common stock subject to the achievement of certain market or performance conditions established by the Company’s Compensation Committee and measured over a 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 2022, the Company granted i14,076performance 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 2022 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 2022:
Grant Date
Stock Price on Measurement Date
Dividend Yield
Expected Volatility
Risk Free Interest Rate
Expected Term
Weighted
Avg. Grant Date Fair Value
February 2022
$i185.87
i2.3%
i39.7%
i1.6%
i2.9
years
$i221.94
/
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 2022, the Company granted i28,628
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 $i174.48 for the awards granted during February 2022.
Grant
Date
Fair Value
Performance Period
Payout Range
February 2022
$i174.48
Jan
2022 - Dec 2024
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 innovation 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 building 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 and Ireland. The Company also participates in joint ventures in Hong Kong and the Philippines, and maintains offices in Singapore, Italy, China, India, Mexico, South Korea, Chile, and countries in the Middle East. The Company employed approximately 16,200 individuals worldwide as of September 30, 2022.
The Company’s reporting segments consist of the Electrical Solutions segment and the Utility Solutions segment.
Results for the three and nine months ended September 30,
2022 by segment are included under “Segment Results” within this Management’s Discussion and Analysis.
The Company's long-term strategy is to serve its customers with reliable and innovative electrical and related infrastructure solutions with desired brands and high-quality service, delivered through a competitive cost structure; to complement organic revenue growth with acquisitions that enhance its product offerings; and to allocate capital effectively to create shareholder value.
Our strategy to complement organic revenue growth with acquisitions is focused on acquiring assets that extend our capabilities, expand our product offerings, and present opportunities to compete in core, adjacent or complementary
markets. Our acquisition strategy also provides the opportunity to advance our revenue growth objectives during periods of weakness or inconsistency in our end-markets.
Our strategy to deliver products through a competitive cost structure has resulted in past and ongoing restructuring and related activities. Our restructuring and related efforts include the consolidation of manufacturing and distribution facilities, and workforce actions, as well as streamlining and consolidating our back-office functions. The primary objectives of our restructuring and related activities are to optimize our manufacturing footprint, cost structure, and effectiveness and efficiency of our workforce.
Productivity improvement also continues to be a key area of focus for the
Company and efforts to drive productivity complement our restructuring and related activities to minimize the impact of rising material costs and other administrative cost inflation. Because material costs are approximately two thirds of our cost of goods sold, volatility in this area can significantly impact profitability. Our goal is to have pricing and productivity programs that offset material and other inflationary cost increases as well as pay for investments in key growth areas.
Productivity programs affect virtually all functional areas within the Company by reducing or eliminating waste and improving processes. We continue to expand our efforts related to global product and component sourcing and supplier cost reduction programs. Value engineering efforts, product transfers and the use of lean process
improvement techniques are expected to continue to increase manufacturing efficiency. In addition, we continue to build upon the benefits of our enterprise resource planning system across all functions.
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. We have recently experienced significant inflationary pressure across much of our business. We have had to take various pricing actions to cover the higher costs and protect our margin profile. Because we expect inflation to remain a factor for the foreseeable future, we expect to continue these pricing actions subject, however, 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 that could reduce our customers’ demand for our products.
HUBBELL INCORPORATED-Form 10-Q 29
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Impact of the COVID-19 Pandemic
During March
2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). U.S. federal, state, local, and foreign governments reacted to the public health crisis with mitigation measures, creating significant uncertainties in the U.S. and global economies, including the shutdown of large portions of, or imposition of restrictions on, the U.S. and global economies. Notwithstanding a general improvement in conditions and reduction of adverse effects from the pandemic, as of September 30, 2022 there continues to be significant uncertainty around the scope, severity, and duration of the pandemic, as well as the breadth and duration of business disruptions related to it and the overall impact on the U.S., global economies, and our operating results in future periods.
Additionally,
as economies have re-opened, global supply chains have struggled to keep up with increasing demand, and the resulting supply chain disruptions have, in certain cases, affected our ability to ship finished products in a timely manner. These supply chain disruptions and the increase in demand have also led to increased freight, labor and commodity costs, which are expected to persist through the remainder of 2022 and into 2023.
Discontinued Operations
On February 1, 2022, the Company completed the sale of the C&I Lighting business to GE Current, a Daintree Company, for total net cash consideration of $332.8 million. The sale of this business is
reported as a discontinued operation in our Condensed Consolidated Financial Statements. For additional information regarding this transaction and its effect on our financial reporting, see Note 2 – Discontinued Operations, in the accompanying Condensed Consolidated Financial Statements, which note is incorporated herein by reference.
The following is a discussion and analysis of our business, financial condition and results of operations as of and for the three and nine month periods ended September 30, 2022 and 2021. 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, 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, 2021.
Results of Operations – Third Quarter of 2022 compared to the Third Quarter of 2021
SUMMARY OF CONDENSED CONSOLIDATED RESULTS (IN MILLIONS, EXCEPT PER SHARE DATA):
Less: Net income from continuing operations attributable to non-controlling interest
(1.7)
(0.1)
%
(2.1)
(0.2)
%
Net
income from continuing operations attributable to Hubbell Incorporated
150.3
11.4
%
103.4
9.5
%
(Loss) income from discontinued operations, net of tax
(11.2)
5.0
Net
income attributable to Hubbell incorporated
139.1
108.4
Less: Earnings allocated to participating securities
(0.4)
(0.3)
Net
income available to common shareholders
$
138.7
$
108.1
Average number of diluted shares outstanding
54.0
54.7
DILUTED
EARNINGS PER SHARE - CONTINUING OPERATIONS
$
2.78
$
1.88
DILUTED (LOSS) EARNINGS PER SHARE - DISCONTINUED OPERATIONS
$
(0.21)
$
0.10
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 we do not consider a component of our core operating performance.
Adjusted operating measures exclude amortization of all intangible assets associated with our business acquisitions, including inventory step-up amortization associated
with those acquisitions. The intangible assets associated with our business acquisitions arise from the allocation of the purchase price using the acquisition method of accounting in accordance with Accounting Standards Codification 805, “Business Combinations.” These assets consist primarily of customer relationships, developed technology, trademarks and tradenames, and patents, as reported in Note 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, 2021.
The Company believes
that the exclusion of these non-cash expenses (i) enhances management’s and investors’ ability to analyze underlying business performance, (ii) facilitates comparisons of our financial results over multiple periods, and (iii) provides more relevant comparisons of our results with the results of other companies as the amortization expense associated with these assets may fluctuate significantly from period to period based on the timing, size, nature, and number of acquisitions. Although we exclude amortization of these acquired intangible assets and inventory step-up from our non-GAAP results, we believe that it is important for investors to understand that revenue generated, in part, from such intangibles is included within revenue in determining adjusted net income attributable to Hubbell Incorporated.
Adjusted operating measures also exclude the following:
•
2022 - A pension settlement charge of $5.9 million, of which $1.5 million was recorded in the third quarter.
• 2021 - A $16.8 million pre-tax loss on the early extinguishment of long-term debt from the redemption of all of the Company's outstanding 3.625% Senior Notes due 2022 in the aggregate principal amount of $300 million and a $6.9 million loss on the disposal of a business.
These items are reported in Total other expense (below Operating income) in the Condensed Consolidated Statements of Income. The Company excludes these non-core items 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. Refer to the reconciliation of non-GAAP measures presented below, Note 13 – Pension and Other Benefits and Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition, Liquidity and Capital Resources – Debt to Capital - Unsecured Senior Notes, for additional information.
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.
HUBBELL INCORPORATED-Form 10-Q 31
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The following table reconciles each of our non-GAAP adjusted financial measures to the directly comparable GAAP financial measure (in millions, except per share amounts):
Amortization
of acquisition-related intangible assets
8.8
0.6
%
5.7
0.5
%
Adjusted gross
profit
$
407.3
30.9
%
$
306.8
28.3
%
S&A
expenses (GAAP measure)
$
194.9
14.8
%
$
155.2
14.3
%
Amortization of acquisition-related intangible assets
12.0
0.9
%
12.2
1.1
%
Adjusted
S&A expenses
$
182.9
13.9
%
$
143.0
13.2
%
Operating
income (GAAP measure)
$
203.6
15.5
%
$
145.9
13.5
%
Amortization of acquisition-related intangible assets
20.8
1.5
%
17.9
1.6
%
Adjusted
operating income
$
224.4
17.0
%
$
163.8
15.1
%
Net
income from continuing operations attributable to Hubbell Incorporated (GAAP measure)
$
150.3
$
103.4
Amortization of acquisition-related intangible assets
20.8
17.9
Loss
on disposition of business
—
0.1
Loss on extinguishment of debt
—
—
Pension charge
1.5
—
Subtotal
$
22.3
$
18.0
Income
tax effects(1)
5.5
4.4
Adjusted net income from continuing operations attributable to Hubbell Incorporated
$
167.1
$
117.0
Less:
Earnings allocated to participating securities
(0.4)
(0.4)
Adjusted net income from continuing operations available to common shareholders
$
166.7
$
116.6
Average
number of diluted shares outstanding
54.0
54.7
ADJUSTED EARNINGS PER SHARE – DILUTED FROM CONTINUING OPERATIONS
$
3.08
$
2.13
(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.
The following table reconciles our Organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):
Net sales of $1,316.2 million in the third quarter of 2022 increased by $232.8 million compared to the third quarter of 2021. Organic net sales increased by 20.2% primarily due to favorable price realization and higher unit volume, which was partially offset by 0.6% due to foreign exchange.
Cost of Goods Sold
As a percentage of Net sales, cost of goods sold decreased by 250 basis points to 69.7% in the third quarter of 2022, as compared to
72.2% in the third quarter of 2021. The decrease was primarily driven by favorable price realization that was in excess of material cost inflation, and higher unit volume, partially offset by higher freight, logistics and manufacturing costs, as well as other inflationary cost increases in excess of productivity, higher investments in our business and restructuring and related costs.
Gross Profit
The gross profit margin in the third quarter of 2022 increased by 250 basis points to 30.3% as compared to 27.8% in the third quarter of 2021. Excluding amortization of acquisition-related intangible assets, the adjusted gross profit margin was 30.9% in the third quarter of 2022 as compared to 28.3% in the same period of the prior year. The increase in the
adjusted gross profit margin primarily reflects favorable price realization that was in excess of material cost inflation, and higher unit volume, partially offset by higher freight, logistics and manufacturing costs, as well as other inflationary cost increases in excess of productivity, higher investments in our business and restructuring and related costs.
Selling & Administrative Expenses
S&A expense in the third quarter of 2022 was $194.9 million and increased by $39.7 million compared to the prior year period. S&A expense as a percentage of Net sales increased by 50 basis points to 14.8% in the third quarter of 2022. Excluding amortization of acquisition-related intangible assets, adjusted S&A expense as a percentage of Net sales was 13.9% in the third quarter of 2022 which increased by 70 basis points
compared to the same period of the prior year, primarily as a result of the impact of higher travel and entertainment cost and other cost inflation, partially offset by a benefit from an increase in Net sales volume.
Total Other Expense
Total other expense decreased by $0.1 million in the third quarter of 2022 to $12.8 million, primarily due to lower interest expense, offset by a pension settlement charge of $1.5 million recognized in the third quarter of 2022.
Income Taxes
The effective tax rate in the third quarter of 2022 decreased to 20.3% as compared to 20.7% in the third quarter of 2021, primarily
due to favorable tax effects in the third quarter of 2022 from the completion of a tax audit, which were greater compared to the favorable tax effects of changes of certain tax reserves in the third quarter of 2021.
Net Income From Continuing Operations Attributable to Hubbell Incorporated and Earnings Per Diluted Share From Continuing Operations
Net income from continuing operations attributable to Hubbell Incorporated was $150.3 million in the third quarter of 2022 and increased 45.4% as compared to the same period of the prior year. As a result, earnings per diluted share from continuing operations in the third quarter of 2022 increased 47.9% as compared to the third quarter of 2021. Adjusted net income from continuing operations attributable to Hubbell Incorporated,
which excludes amortization of acquisition-related intangibles from both periods and a pension settlement charge in 2022, was $167.1 million in the third quarter of 2022 and increased by 42.8% as compared to the third quarter of 2021. Adjusted earnings per diluted share from continuing operations in the third quarter of 2022 increased by 44.6% as compared to the third quarter of 2021.
(Loss) Income From Discontinued Operations, Net of Tax
Loss from discontinued operations, net of tax was $11.2 million in the third quarter of 2022 as compared to income of $5.0 million in the same prior year period. The results in the third quarter of 2022 included $3.0 million of pre-tax transaction and separation costs.
HUBBELL
INCORPORATED-Form 10-Q 33
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Segment Results
UTILITY SOLUTIONS
Three Months Ended September 30,
(In millions)
2022
2021
Net sales
$
774.5
$
601.8
Operating
income (GAAP measure)
129.8
79.6
Amortization of acquisition-related intangible assets
14.3
14.6
Adjusted operating income
$
144.1
$
94.2
Operating margin (GAAP measure)
16.8
%
13.2
%
Adjusted
operating margin
18.6
%
15.7
%
The following table reconciles our Organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):
Three Months Ended September 30,
Utility
Solutions
2022
Inc/(Dec) %
2021
Inc/(Dec) %
Net sales growth (GAAP measure)
$
172.7
28.7
$
44.1
7.9
Impact of acquisitions
4.9
0.9
33.2
6.0
Impact
of divestitures
—
—
(2.2)
(0.4)
Foreign currency exchange
(2.8)
(0.5)
2.3
0.4
Organic net sales growth (non-GAAP measure)
$
170.6
28.3
$
10.8
1.9
Net
sales in the Utility Solutions segment in the third quarter of 2022 were $774.5 million, an increase of $172.7 million, or 28.7%, as compared to the third quarter of 2021. This increase was due to a 28.3% increase in organic net sales in the third quarter of 2022 as compared to the same prior year period, driven by favorable price realization and higher unit volumes, partially offset by a 0.5% decrease due to foreign exchange.
Operating income in the Utility Solutions segment for the third quarter of 2022 was $129.8 million, an increase of 63.1% compared to the third quarter of 2021. Operating margin increased to 16.8% as compared to 13.2% in the same period of 2021. Excluding amortization of acquisition-related intangibles, the adjusted operating margin increasedto 18.6% in the third quarter of 2022 compared to
15.7% in the prior year period, primarily driven by price realization that exceeded material cost inflation and higher unit volume, partially offset by higher freight, logistics and manufacturing costs, as well as other inflationary cost increases in excess of productivity and higher investments in the business.
ELECTRICAL SOLUTIONS
Three Months Ended September 30,
(In millions)
2022
2021
Net
sales
$
541.7
$
481.6
Operating income (GAAP measure)
73.8
66.3
Amortization of acquisition-related intangible assets
6.5
3.3
Adjusted operating income
$
80.3
$
69.6
Operating
margin (GAAP measure)
13.6
%
13.8
%
Adjusted operating margin
14.8
%
14.5
%
HUBBELL INCORPORATED-Form 10-Q 34
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The following table reconciles our Organic net
sales to the directly comparable GAAP financial measure (in millions and percentage change):
Three Months Ended September 30,
Electrical Solutions
2022
Inc/(Dec) %
2021
Inc/(Dec) %
Net sales growth (GAAP measure)
$
60.1
12.5
$
69.0
16.7
Impact
of acquisitions
15.6
3.2
7.3
1.7
Impact of divestitures
—
—
—
—
Foreign currency exchange
(3.7)
(0.7)
4.0
1.0
Organic
net sales growth (non-GAAP measure)
$
48.2
10.0
$
57.7
14.0
Net sales in the Electrical Solutions segment in the third quarter of 2022 were $541.7 million and increased by $60.1 million, or 12.5%, as compared to the third quarter of 2021. The increase resulted from a 10.0% increase in organic net sales in the third quarter of 2022 as compared to the same prior year period, primarily due to favorable price realization and higher unit volume, partially offset by a 0.7% decrease from foreign exchange.
Operating
income in the Electrical Solutions segment for the third quarter of 2022 was $73.8 million and increased approximately 11.3% compared to the third quarter of 2021, while operating margin in the third quarter of 2022 decreased by 20 basis points to 13.6%. Excluding amortization of acquisition-related intangibles, adjusted operating margin increased by 30 basis points to 14.8%, as compared to the same prior year period. The increase in the adjusted operating margin in the third quarter of 2022 is primarily due to favorable price realization that was in excess of higher material costs, and higher unit volume, partially offset by higher freight, logistics and manufacturing costs, as well as other inflationary cost increases in excess of productivity, and restructuring and related costs.
Less: Net income from continuing operations attributable to non-controlling interest
(4.5)
(0.1)
%
(4.3)
(0.1)
%
Net
income from continuing operations attributable to Hubbell Incorporated
388.4
10.4
%
265.5
8.6
%
Income from discontinued operations, net of tax
52.9
16.4
Net
income attributable to Hubbell incorporated
441.3
281.9
Less: Earnings allocated to participating securities
(1.1)
(0.9)
Net
income available to common shareholders
$
440.2
$
281.0
Average number of diluted shares outstanding
54.1
54.7
DILUTED
EARNINGS PER SHARE - CONTINUING OPERATIONS
$
7.16
$
4.84
DILUTED EARNINGS PER SHARE - DISCONTINUED OPERATIONS
$
0.98
$
0.30
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INCORPORATED-Form 10-Q 35
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The following table reconciles each of our non-GAAP, adjusted financial measures to the directly comparable GAAP financial measure (in millions, except per share amounts):
Amortization
of acquisition-related intangible assets
20.0
0.6
%
21.2
0.7
%
Adjusted gross
profit
$
1,124.8
30.2
%
$
882.8
28.5
%
S&A
expenses (GAAP measure)
$
567.7
15.2
%
$
463.6
14.9
%
Amortization of acquisition-related intangible assets
35.7
0.9
%
37.7
1.2
%
Adjusted
S&A expenses
$
532.0
14.3
%
$
425.9
13.7
%
Operating
income (GAAP measure)
$
537.1
14.4
%
$
398.0
12.9
%
Amortization of acquisition-related intangible assets
55.7
1.5
%
58.9
1.9
%
Adjusted
operating income
$
592.8
15.9
%
$
456.9
14.8
%
Net
income from continuing operations attributable to Hubbell Incorporated (GAAP measure)
$
388.4
$
265.5
Amortization of acquisition-related intangible assets
55.7
58.9
Loss
on disposition of business
—
6.9
Loss on extinguishment of debt
—
16.8
Pension charge
5.9
—
Subtotal
$
61.6
$
82.6
Income
tax effects(1)
15.3
20.0
Adjusted net income from continuing operations attributable to Hubbell Incorporated
$
434.7
$
328.1
Less:
Earnings allocated to participating securities
(1.1)
(1.1)
Adjusted net income from continuing operations available to common shareholders
$
433.6
$
327.0
Average
number of diluted shares outstanding
54.1
54.7
ADJUSTED EARNINGS PER SHARE – DILUTED FROM CONTINUING OPERATIONS
$
8.01
$
5.98
(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.
The following table reconciles our Organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):
Net sales of $3,728.3 million in the first nine months of 2022 increased by $634.3 million compared to the first nine months of 2021. Organic net sales increased by 20.3% primarily due to favorable price realization and higher unit volume, which was partially offset by 0.4% due to the impact of foreign exchange.
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Cost of Goods Sold
As a percentage of Net sales, cost of goods sold decreased by
180 basis points to 70.4% in the first nine months of 2022, as compared to 72.2% in the first nine months of 2021. The decrease was primarily driven by favorable price realization that was in excess of material cost inflation and higher unit volume, partially offset by higher freight, logistics and manufacturing costs, as well as other inflationary cost increases in excess of productivity and higher investments in our business.
Gross Profit
The gross profit margin in the first nine months of 2022 increased by 180 basis points to 29.6% as compared to 27.8% in the first nine months of 2021. Excluding amortization of acquisition-related intangible assets, the adjusted gross profit margin was 30.2% in the first nine months of 2022 as compared to 28.5% in the same period of the
prior year. The increase in the adjusted gross profit margin primarily reflects favorable price realization that was in excess of material cost inflation and higher unit volume, partially offset by higher freight, logistics and manufacturing costs, as well as other inflationary cost increases in excess of productivity and higher investments in our business.
Selling & Administrative Expenses
S&A expense in the first nine months of 2022 was $567.7 million and increased by $104.1 million compared to the prior year period. S&A expense as a percentage of Net sales increased by 30 basis points to 15.2% in the first nine months of 2022. Excluding amortization of acquisition-related intangible assets, adjusted S&A expense as a percentage of Net sales was 14.3% in the first nine months of 2022
which was increased by 60 basis points from 13.7% in the same period of the prior year, as the impact of higher travel and entertainment cost and other cost inflation was partially offset by a benefit from an increase in Net sales volume.
Total Other Expense
Total other expense decreased by $25.7 million in the first nine months of 2022 to $36.9 million, primarily due to a $16.8 million loss on extinguishment of debt, and a $6.9 million loss on the disposition of a business each recorded during the second quarter of 2021, and $10.8 million of income from transition services related to the C&I Lighting business disposition recorded in 2022, partially offset by a pension settlement charge of $5.9 million recognized in 2022.
Income
Taxes
The effective tax rate in the first nine months of 2022 increased to 21.4% as compared to 19.5% in the first nine months of 2021, primarily due to favorable tax effects in 2021 from stock-based compensation and the statute of limitation expirations on certain tax reserves, partially offset by the completion of a tax audit in 2022.
Net Income From Continuing Operations Attributable to Hubbell Incorporated and Earnings Per Diluted Share From Continuing Operations
Net income from continuing operations attributable to Hubbell Incorporated was $388.4 million in the first nine months of 2022 and increased 46.3% as compared to the same period of the prior year. As a result, earnings per diluted share from
continuing operations in the first nine months of 2022 increased 47.9% as compared to the first nine months of 2021. Adjusted net income from continuing operations attributable to Hubbell Incorporated, which excludes amortization of acquisition-related intangibles from both periods, a pension settlement charge in 2022, and the loss on extinguishment of debt and loss on the disposition of business in 2021, was $434.7 million in the first nine months of 2022 and increased by 32.5% as compared to the same period of the prior year. Adjusted earnings per diluted share from continuing operations in the first nine months of 2022 increased by 33.9% as compared to the first nine months of 2021.
Income From Discontinued Operations, Net of Tax
Income from discontinued operations, net of tax was $52.9 million in the first
nine months of 2022, as compared to income of $16.4 million in the same prior year period. The results in the first nine months 2022 included a $73.7 million gain on disposal as a result of the disposition of the C&I Lighting business, partially offset by$9.7 million of transaction and separation costs.
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Segment Results
UTILITY SOLUTIONS
Nine
Months Ended September 30,
(In millions)
2022
2021
Net sales
$
2,154.8
$
1,722.8
Operating income (GAAP measure)
329.3
213.2
Amortization of acquisition-related intangible assets
42.2
48.9
Adjusted
operating income
$
371.5
$
262.1
Operating margin (GAAP measure)
15.3
%
12.4
%
Adjusted operating margin
17.2
%
15.2
%
The following table reconciles our Organic
net sales to the directly comparable GAAP financial measure (in millions and percentage change):
Nine Months Ended September 30,
Utility Solutions
2022
Inc/(Dec) %
2021
Inc/(Dec) %
Net sales growth (GAAP measure)
$
432.0
25.1
$
158.6
10.1
Impact
of acquisitions
4.9
0.3
90.7
5.8
Impact of divestitures
(4.0)
(0.2)
(2.8)
(0.2)
Foreign currency exchange
(1.8)
(0.1)
2.9
0.2
Organic
net sales growth (non-GAAP measure)
$
432.9
25.1
$
67.8
4.3
Net sales in the Utility Solutions segment in the first nine months of 2022 were $2,154.8 million, an increase of $432.0 million, or 25.1%, as compared to the first nine months of 2021. This increase was due to a 25.1% increase in organic net sales driven by favorable price realization and higher unit volumes, and 0.3% due to the impact of acquisitions, partially offset by 0.2% due to the impact of divestitures.
Operating
income in the Utility Solutions segment for the first nine months of 2022 was $329.3 million, an increase of 54.5% compared to the first nine months of 2021. Operating margin increased to 15.3% as compared to 12.4% in the same period of 2021. Excluding amortization of acquisition-related intangibles, the adjusted operating margin increasedto 17.2% in the first nine months of 2022 compared to 15.2% in the prior year period, primarily driven by price realization that exceeded material cost inflation, higher unit volume, partially offset by, higher freight, logistics and manufacturing costs, as well as other inflationary cost increases in excess of productivity and increased investment in our business.
ELECTRICAL SOLUTIONS
Nine
Months Ended September 30,
(In millions)
2022
2021
Net sales
$
1,573.5
$
1,371.2
Operating income (GAAP measure)
207.8
184.8
Amortization of acquisition-related intangible assets
13.5
10.0
Adjusted
operating income
$
221.3
$
194.8
Operating margin (GAAP measure)
13.2
%
13.5
%
Adjusted operating margin
14.1
%
14.2
%
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The following table reconciles our Organic net sales to the directly comparable GAAP financial measure (in millions and percentage change):
Nine Months Ended September 30,
Electrical Solutions
2022
Inc/(Dec)
%
2021
Inc/(Dec) %
Net sales growth (GAAP measure)
$
202.3
14.8
$
170.0
14.2
Impact of acquisitions
15.6
1.1
18.5
1.6
Impact
of divestitures
—
—
—
—
Foreign currency exchange
(8.2)
(0.5)
12.4
1.0
Organic net sales growth (non-GAAP measure)
$
194.9
14.2
$
139.1
11.6
Net
sales in the Electrical Solutions segment in the first nine months of 2022 were $1,573.5 million and increased by $202.3 million, or 14.8%, as compared to the first nine months of 2021. The increase resulted from a 14.2% increase in organic net sales in the first nine months of 2022 as compared to the same prior year period, primarily due to favorable price realization and higher unit volume, and 1.1% due to the impact of acquisitions, partially offset by a 0.5% decrease from foreign exchange.
Operating income in the Electrical Solutions segment for the first nine months of 2022 was $207.8 million and increased approximately 12.4% compared to the first nine months of 2021, while operating margin in the first nine months of 2022 decreased by 30 basis points to 13.2%. Excluding amortization of
acquisition-related intangibles, adjusted operating margin was flat at 14.1%, as compared to the same prior year period. Adjusted operating margin in the first nine months of 2022 declined due to higher freight, logistics and manufacturing costs, as well as other inflationary cost increases in excess of productivity, higher investments in our business and restructuring and related costs, however that decline was offset by benefits from favorable price realization that was in excess of higher material costs, and higher unit volume.
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Financial Condition, Liquidity and Capital Resources
Cash Flow
Nine months ended September 30,
(In
millions)
2022
2021
Net cash provided by (used in):
Operating activities from continuing operations
$
393.8
$
288.2
Investing
activities from continuing operations
92.6
(49.8)
Financing activities from continuing operations
(340.3)
(252.4)
Cash from discontinued operations
(51.8)
14.9
Effect
of foreign currency exchange rate changes on cash and cash equivalents
(14.2)
(2.5)
NET CHANGE IN CASH AND CASH EQUIVALENTS
$
80.1
$
(1.6)
Cash provided by operating activities from continuing operations for the nine
months ended September 30, 2022 was $393.8 million compared to cash provided by operating activities from continuing operations of $288.2 million for the same period in 2021. The increase was primarily due to higher net income during the first nine months of 2022, partially offset by changes in the components of working capital, as we invested in working capital to serve customer demand and growth in our order backlog.
Cash provided by investing activities from continuing operations was $92.6 million in the nine months ended September 30, 2022 compared to cash used of $49.8 million during the comparable period in 2021. That change was driven by $332.8 million in net proceeds from the disposal of the C&I Lighting business, partially offset by cash used to acquire PCX and Ripley Tools
in the first nine months of 2022 compared to the first nine months of 2021.
Cash used in financing activities from continuing operations was $340.3 million in the nine months ended September 30, 2022 as compared to cash used of $252.4 million in the comparable period of 2021. This change primarily reflects an increase of $138.8 million from the Company's share repurchases in the first nine months of 2022 compared to the same prior year period, partially offset by change in net borrowings.
Cash from discontinued operations was a use of cash of $51.8 million in the nine months ended September 30, 2022 as compared
to cash provided by discontinued operations of $14.9 million in the comparable period of 2021.
The unfavorable impact of foreign currency exchange rates on cash was $14.2 million for the nine months ended September 30, 2022 and is primarily related to weakening of the British Pound, Canadian dollar, Chinese Yuan and Australian Dollar versus the U.S. Dollar.
Investments in the Business
Investments in our business include cash outlays for the acquisition of businesses as well as expenditures to maintain the operation of our equipment and facilities and invest in restructuring activities.
In
July 2022, the Company acquired all of the issued and outstanding membership interests of PCX for a cash purchase price of approximately $114.0 million, net of cash acquired, subject to customary purchase price adjustments. PCX is a leading designer and manufacturer of factory built modular power solutions for applications in the data center market. This business is reported in the Electrical Solutions segment. In July 2022, the Company also acquired all of the issued and outstanding membership interests of Ripley Tools for a cash purchase price of approximately $49.6 million, net of cash acquired, subject to customary purchase price adjustments. Ripley Tools is a leading manufacturer of cable and fiber prep tools and test equipment that serves both the utility and communications market. This business is
reported in the Utility Solutions segment.
We continue to invest in restructuring and related programs to maintain a competitive cost structure, to drive operational efficiencies and to mitigate the impact of rising material costs and administrative cost inflation. We expect our investment in restructuring and related activities to continue in 2022 as we continue to invest in previously initiated actions and initiate further footprint consolidation and other cost reduction initiatives.
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In connection
with our restructuring and related actions, we have incurred restructuring costs as defined by U.S. GAAP, which are primarily severance and employee benefits, asset impairments, accelerated depreciation, as well as facility closure, contract termination and certain pension costs that are directly related to restructuring actions. We also incurred restructuring-related costs, which are costs associated with our business transformation initiatives, including the consolidation of back-office functions and streamlining of our processes, and certain other costs and gains associated with restructuring actions. We refer to these costs on a combined basis as "restructuring and related costs", which is a non-GAAP measure. We believe this non-GAAP measure provides investors with useful information regarding our underlying performance from period to period. Restructuring costs are predominantly
settled in cash from our operating activities and are generally settled within one year, with the exception of asset impairments, which are non-cash.
The table below presents the restructuring and related costs incurred in the first nine months of 2022, additional expected costs, and the expected completion date of restructuring actions that have been initiated as of September 30, 2022 and in prior years (in millions):
During the first nine months of 2022, we invested $67.2 million in capital expenditures, an increase of $4.4 million from the comparable period of 2021 as we continue to invest in capacity expansion, automation and productivity initiatives.
Stock
Repurchase Program
On October 23, 2020, the Board of Directors approved a stock repurchase program that authorized the repurchase of up to $300 million of common stock and expires in October 2023 (the "October 2020 program"). In the first nine months of 2022, the Company repurchased $150.0 million of shares of common stock authorized under the October 2020 program. At September 30, 2022, our remaining share repurchase authorization under the October 2020 program is $138.8 million. On October 21, 2022 the Board of Directors approved a new stock repurchase program that authorized the repurchase of up to $300
million of common stock and expires in October 2025. 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 September 30, 2022 and December 31, 2021, the Company had $1,437.3 million and $1,435.5 million, respectively, of long-term debt outstanding, net of the unamortized balance of capitalized debt issuance costs.
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 September 30, 2022.
The interest rate applicable to borrowings under the 2021 Credit Facility is (i) either the alternate base rate (as defined in the 2021 Credit Facility) or (ii) the adjusted LIBOR 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 September 30, 2022. As of September 30, 2022, the 2021 Credit Facility was undrawn.
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Unsecured
Senior Notes
On March 12, 2021, the Company completed a public offering of $300 million aggregate principal amount of its 2.300% Senior Notes due 2031 (the “2031 Notes” and collectively with those described below, the "Notes"). The net proceeds from the offering were approximately $295.5 million after deducting the underwriting discount and estimated offering expenses payable by the Company. The 2031 Notes bear interest at a rate of 2.300% per annum from March 12, 2021. Interest on the 2031 Notes is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September
15, 2021. The 2031 Notes will mature on March 15, 2031.
The Company used the net proceeds from the offering of the 2031 Notes, together with cash on hand, on April 2, 2021 to redeem in full all of the Company’s outstanding 3.625% Senior Notes due in 2022 for an aggregate principal amount of $300 million, which had a stated maturity date of November 15, 2022, and to pay the premium and accrued interest in respect thereof. The redemption of the 2022 Notes resulted in a $16.8 million loss on extinguishment that was recognized in the second quarter of 2021.
At
September 30, 2022 and December 31, 2021, the Company had outstanding unsecured, senior 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 $1,437.3 million and $1,435.5 million at September 30, 2022 and December 31, 2021, 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 September 30, 2022.
Short-term Debt
At September 30, 2022 and December 31, 2021the Company had $4.0 million and $9.7 million, respectively, of short-term
debt outstanding, which consisted primarily of borrowings to support our international operations in China, as well as $1.4 million of other short term debt at September 30, 2022 to support operations.
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, 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 nine months of 2022, we returned capital to our shareholders by paying $169.6 million of dividends on our common stock and using $150.0 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, 2021. As a result of the Tax Cuts and Jobs Acts 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 $366.9 million of cash and cash equivalents at September 30, 2022, of which approximately 36% 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
$1.250 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 September 30,
2022.
◦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, 2021. 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 nine months ended September 30, 2022, 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 and completion of certain divestitures, the anticipated effects of the COVID-19 pandemic and the responses thereto, including the pandemic’s impact on general economic and market conditions, as well as on our business, customers, end markets, results of operations and financial condition and anticipated actions to be taken by management in response to the pandemic and related governmental and business actions, 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 repurchase shares of common stock, and changes in operating results, anticipated market conditions and productivity initiatives, including those regarding the adverse impact of the COVID-19 pandemic on the Company's end markets, are forward looking. Forward-looking statements may be identified by the use of words, such as “believe”, “expect”, “anticipate”, “intend”, “depend”, “should”, “plan”, “estimated”, “predict”, “could”, “may”, “subject to”, “continues”, “growing”, “prospective”, “forecast”, “projected”, “purport”, “might”, “if”, “contemplate”, “potential”, “pending,”“target”, “goals”, “scheduled”, “will likely be”, and similar words and
phrases. Discussions of strategies, plans or intentions often contain forward-looking statements. Important factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include, but are not limited to:
•The impact of inflation on our business and effectiveness of pricing actions we have taken to cover higher costs and protect our margin profile
•General economic and business conditions in particular industries, markets or geographic regions, as well the potential for a significant economic slowdown, stagflation or economic recession.
•The lingering impact of the COVID-19 pandemic, including supply chain disruptions and availability,
costs and quantity of raw materials, purchased components, energy and freight.
•The resurgence of the COVID-19 pandemic and its potential impact on global economic systems, our employees, sites, operations, and customers.
•Changes in demand for our products, market conditions, product quality, or product availability adversely affecting sales levels.
•Ability to effectively develop and introduce new products.
•Changes in markets or competition adversely affecting realization of price increases.
•Failure to achieve projected levels of efficiencies, cost savings and cost reduction measures, including those expected as a result of our lean
initiatives and strategic sourcing plans.
•Impacts of trade tariffs, import quotas or other trade restrictions or measures taken by the U.S., U.K. and other countries, including the recent and potential changes in U.S. trade policies.
•Failure to comply with import and export laws.
•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 revisions or clarifications of the TCJA, or changes in geographic profit mix affecting tax rates and availability of tax incentives.
•A major disruption in one or more of our manufacturing or distribution facilities or headquarters, including the impact of plant consolidations and relocations.
•Changes in our relationships with, or the financial condition or performance of, key distributors and other customers, agents or business partners which could adversely affect our results of operations.
•Impact of productivity improvements on lead times, quality and delivery of product.
•Anticipated future contributions and assumptions including 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 key acquisitions,
mergers, and other transactions, such as the recent acquisitions of PCX and Ripley Tools, as well as the failure to realize expected synergies and benefits anticipated when we make an acquisition.
•The impact of certain divestitures, including the benefits and costs of the sale of the C&I Lighting business to GE Current, a Daintree Company.
•The ability to effectively implement Enterprise Resource Planning systems without disrupting operational and financial processes.
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•The
ability of government customers to meet their financial obligations.
•Political unrest and military actions in foreign countries, particularly the armed conflict in Ukraine, as well as the impact on world markets and energy supplies resulting therefrom.
•The impact of world economic and political issues, including the long-term effects of Brexit.
•The impact of potential natural disasters or additional public health emergencies on our financial condition and results of operations.
•Failure of information technology systems, security breaches, cyber threats, malware, phishing attacks, break-ins and similar events resulting in unauthorized disclosure of confidential information or disruptions or damage
to information technology systems that could cause interruptions to our operations or adversely affect our internal control over financial reporting.
•Incurring significant and/or unexpected costs to avoid, manage, defend and litigate intellectual property matters.
•Future repurchases of common stock under our common stock repurchase program.
•Changes in accounting principles, interpretations, or estimates.
•Failure to comply with any laws and regulations, including those related to data privacy and information security, environmental and conflict-free minerals.
•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.
•Completion of the transition from LIBOR to a replacement alternative reference rate.
•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, 2021 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 nine months ended September 30, 2022. 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, 2021.
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10-Q 45
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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 September 30, 2022, 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
In addition to the other information set forth in this Quarterly Report on Form 10-Q, the reader should carefully consider the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 and the risk factor described below, which could materially affect the Company’s business, financial condition or future results. The disclosure below modifies the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. The reader should not interpret
the disclosure of any risk factor to imply that the risk has not already materialized.
Business and Operational Risks
Inflation and other adverse economic conditions may adversely effect our business, results of operations and financial condition.
Our operating results can be sensitive to changes in general economic conditions, inflation, economic slowdowns, stagflation and recessions. Our sales are 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.
We
have recently experienced significant inflationary pressure across much of our business. Global supply chains continue to struggle to keep up with increasing demand due to the lingering impact of the COVID-19 pandemic. The resulting supply chain issues and increased demand have also led to increased freight, labor and commodity costs. We have had to take various pricing actions to cover the higher costs and protect our margin profile. 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 that could reduce our customers’ demand for our products. Adverse changes in demand could impact our business, collection of accounts
receivable and our expected cash flow generation from current and acquired businesses, which may adversely impact our financial condition and results of operations.
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ITEM 2
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer
Purchases of Equity Securities
On October 23, 2020 the Board of Directors approved a stock repurchase program that authorized the repurchase of up to $300 million of common stock and expires in October 2023. Our remaining share repurchase authorization under the 2020 program is $138.8 million. On October 21, 2022 the Board of Directors approved a new stock repurchase program that authorized the repurchase of up to $300 million of common stock and expires in October 2025. 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.
There were no share repurchases during the quarter ended September 30, 2022.
The following materials from Hubbell Incorporated's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 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 September 30, 2022, 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.
